AN EVALUATION OF THE ROLE OF MULTINATIONAL
CORPORATIONS TOWARDS ECONOMIC GROWTH IN NIGERIA (A CASE STUDY OF NIGERIA
BOTTLING COMPANY PLC
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
Over
the years, Multinational corporations (MNCs) have been a source of controversy
ever since the East India Company developed the British taste for tea and a
Chinese taste for opium (Stopford, 1998). A typical multinational corporation
(MNC) normally functions with a headquarters that is based in one country,
while other facilities are based in locations in other countries. In some
circles, a multinational corporation is referred to as a multinational
enterprise (MNE) or a transnational corporation (TNC) (Tatum, 2010). They enter
host countries in different ways and different strategies. Some enter by
exporting their products to test the market and to find whether their existing
products can gain sizeable market share. For such firms, they rely on export
agents. These foreign sales branches or assembly operations are established to
save transport costs because there is a limit to what foreign exports can
achieve for a firm owing mainly to tariff barriers and quotas and also owing to
logistics or cost of transportation. Most of the firms are encouraged by the low
wage rates and other environmental factors. To meet the growing demands in the
foreign countries, the firm considers other options such as licensing or
foreign direct investment which are critical steps. Some continue with export
even when they have settled for the foreign direct investment option. Every
step takes strategic planning and is motivated by profit through sales growth.
The idea of multinational corporations has been around for centuries but in the
second half of the twentieth century multinational corporations have become
very important enterprises. Tatum (2010) proposes that multinationals operate
in different structural models. The first and common model is for the
multinational corporation positioning its executive headquarters in one nation,
while production facilities are located in one or more other countries. This
model often allows the company to take advantage of benefits of incorporating
in a given locality, while also being able to produce goods and services in
areas where the cost of production is lower (Ozoigbo and Chukuezi, 2011). The
second structural model is for a multinational corporation
to base the parent company in one nation and operate subsidiaries in other
countries around the world. With this model, just about all the functions of
the parent are based in the country of origin. The subsidiaries more or less
function independently, outside of a few basic ties to the parent. A third
approach to the setup of an multinational corporation
involves the establishment of a headquarters in one country that oversees a
diverse conglomeration that stretches to many different countries and
industries (Tatum 2010; Robinson 1979). With this model, the multinational corporation
includes affiliates, subsidiaries and possibly even some facilities that report
directly to the headquarters. Such direct investment means the extension of the
managerial control across national boundaries (Gilpin, 1987). While
institutions are important for economic development, particularly in resource
rich countries, the interaction between multinational corporations and host
country institutions is not well understood (Wiig and Kolstad, 2010). There is
a risk that multinational corporations facilitate patronage problems in
resource rich countries, exacerbating the resource curse. Multinational
corporations (MNCs) in service industries have given this sector’s large and
growing impact on the global economy (Goerzen and Makino, 2007). The Marxists
view the emergence of the multinational corporations as a historically
progressive aspect of capitalism in the process of developing, at international
level (Gilpin 1987; Stopford 1988). In all these views both Marxist and
non-Marxist, the common basis is productive activity in more than one social
formation. Another point to be noted right away is that in a social formation
there may be many multinationals with different nationalities and also many
corporations of the same nationality. In a social formation where there are
many multinational corporations from
different nations, there are higher possibilities of conflicts than where they
are mainly from the same country. Activities of the multinational corporations
in Nigeria have generated a repulsive reaction from many economic theorists
like (Onimode 1982). Onimode(1982) went ahead to regard multinational corporations
as monsters that have consistently and systematically stultified economic
development in various parts of the world. The merits of the multinational corporations
in Nigeria, the consequences of economic exploitation of multinational corporations
in Nigeria and suggested ways for restitution will be discussed in this study
while examining their role towards economic development in Nigeria.
1.2 STATEMENT OF THE PROBLEM
Most
of the multinational corporations operate by seeking and securing the opportunity
for environment that has least cost of production of goods for world markets.
This goal may be achieved through acquiring the most efficient locations for
production facilities or obtaining taxation concession from host governments. This
has been looked upon by many has counterproductive to the host country. Though multinational corporations have
contributed in terms of job creation but many of the employees of most
Multinational Corporation are poor remunerated. However, the researcher is
evaluating the role of multinational corporations towards economic growth of
Nigeria.
1.3 OBJECTIVES OF THE STUDY
The
following are the objectives of this study:
1. To
examine the role of multinational corporations towards economic growth of
Nigeria.
2. To identify the factors determining
the growth and success of multinational corporation in Nigeria.
3. To examine the demerits of
multinational corporation to their host country.
1.4 RESEARCH QUESTIONS
1. What
is the role of multinational corporations towards economic growth of
Nigeria?
2. What are the factors determining the
growth and success of multinational corporation in Nigeria?
3. What are the demerits of
multinational corporation to their host country?
1.5 HYPOTHESIS
HO:
Multinational
Corporations has not contributed to economic growth in Nigeria.
HA:
Multinational
Corporations has contributed to economic growth in Nigeria.
1.6 SIGNIFICANCE OF THE STUDY
The following
are the significance of this study:
1. The
outcome of this study will be useful to government of Nigeria and the general
public on the role of multinational corporation in the economic growth in
Nigeria.
2. This
research will also serve as a resource base to other scholars and researchers
interested in carrying out further research in this field subsequently, if
applied will go to an extent to provide new explanation to the topic.
1.7 SCOPE/LIMITATIONS
OF THE STUDY
This
study on the role of multinational corporations towards economic growth of
Nigeria will cover how the multinational corporation has affected the economy
of Nigeria.
LIMITATION OF STUDY
1. Financial constraint– Insufficient fund tends to impede the
efficiency of the researcher in sourcing for the relevant materials, literature
or information and in the process of data collection (internet, questionnaire
and interview).
2. Time constraint– The researcher will simultaneously engage in this study
with other academic work. This consequently will cut down on the time devoted
for the research work.
REFERENCES
Gilpin,
M. E. (2001). The Nigerian economy (A selected study). Jos: Macedonia
Trust International.
Goerzen,
A. & Makino,S .(2007) – “Multinational corporation internationalization in
the service sector: a study of Japanese trading companies”, Journal of
International Business Studies (2007) 38, 1149–1169
Onimode,
B. (1982). Imperialism and underdevelopment in Nigeria: the dialectics of
mass poverty, London: Zed Press; Westport, Conn., U.S.A.: U.S. distributor,
L. Hill, 1982. ii, p. 258
Ozoigbo,B.I,
& Chukuezi,C.O(2011). “The Impact of Multinational Corporations on
the Nigerian Economy”. European Journal of Social Sciences – Volume 19,
Number3
Robinson,
J. (1979 ed.) .The International Division of labour and Multinational
Companies, London, Saxon House, Teakfield Ltd, p. 51
Stopford,
J. (1998). Multinational corporations, Foreign Policy, Winter 1998 i113
p12(1)
Tatum,
M. (2010). “The Activities of Multinational”. Retrieved from: www.wisegeek.com/what-is-a-multinational
corporation.htm
Wiig,
A & Kolstad,I. (2010). “Multinational corporations and host country
institutions: A case study of CSR activities in Angola”, International Business
Review vol. 19 no. 2 pp. 178-190
CHAPTER TWO
LITERATURE REVIEW
2.1
INTRODUCTION
This
chapter gives an insight into various studies conducted by outstanding
researchers, as well as explained terminologies with regards to the role of
Multinational Corporations towards economic growth in NIgeria. The chapter also
gives a resume of the history and present status of the problem delineated by a
concise review of previous studies into closely related problems.
2.2 THE CONCEPT OF
MULTINATIONAL COMPANY
A
multinational corporation is a company that has subsidiaries in several
countries. Their decentralized structure
as well as their sheers size, often allow them to work without government
constraints which small regional or national companies must companies must
observe.
Developing
nations attract multinational subsidiary operations due to a number of actors
such as cheap labour, low taxation and less vigilance concerning workers rights
and environmental protection. They are
made to contribute to the social security net (i.e welfare, unemployment
insurance, e.t.c.) other fact, including
low pay for woman workers, child labour and the absence of labour unions, also
combine to make the developing nations ripe for prospect the presence of
multinational in these countries improves overall standards of living. The benefits of the relationship may be
one-sided, but the economic problems facing these nations makes it difficult
for them to be picky about their investors.
Firms
become multinational corporation when they perceive advantages to establishing
product and other activities in foreign locations. Firm globalize their activities both o supply
their home-country market more cheaply and to serve foreign markets more
directly-keeping foreign activities with corporate structure lets firm avoid
the costs inherent in arms length dealings with separate entities while
utilizing their own firm specific knowledge such as advanced production
techniques. By internalizing what would
otherwise be cross-boarder transactions, multinationals can bridge the
information obstacles that often hinder trade.
For
example, they may be able to move carefully monitor product quality or worker
conditions in factories they own than in those of contractors, or adapt the
composition of output more quickly to the changes in market conditions. Improvements information technology have
reduced the impediments to exerting corporate control across boarder. These advances have combined in recent years
with an increased openness on the part of government to foreign multinational
as the economic benefits of foreign presence to the host country have become
more widely recognized. These benefits
include the increased investment and the associated jobs and income that the
multinational firms brings, as well as technological transfer and improved
productivity. The role of multinationals in spreading industry best practice is
likely to be especially important in services, many of which are not easily
traded across national boundaries.
Evidence
of the heightened role of multinationals can be seen in the quickened pace of
foreign direct investment (FBI) in recent years. In 1999 FDI flow both in and out of OECD
countries reached record levels. Over
2.5 percent of their combined GDP for inflows and 3.0 percent for
outflows. Most FDI is between developed
countries. Since 1982, 75 percent of FDI
outflows from OECD countries have gone to other members.
2.3 HISTORY OF THE
MULTINATIONAL CORPORATION
The
opening of world trade 700Ad – 1600. The
most basic foundation of multinational corporation is trade between tribes,
among regions, or across established
political boundaries. Although
accounts of the barter of goods or services among different people can be
traced back almost as far as the record of human history, the opening of major
global economic connections can be considered; the first prerequisite for
modern globalization multinational corporation.
By
about 100AD, it was possible, if sometimes dangerous and difficult, for
merchant and travelers to traverse the “known” world from England to China and
Japan. These trade route were the first
global links by which raw materials, food and luxury goods became available for
their original by the 1600, the Portuguese and Spanish had opened sea route which
spanned the globe. Below I will like to
briefly and partially select some major trading routes and system.
THE
ROMAN TRADE ROUTES
From around 50BC to 500AD the Roman empire
controlled the are surrounding the Mediterranean. A single currency, the famous network of
Roman Road and dozens of naval harbor i.e. the connected with the navy
protection enabled transport and trade on a large scale within empire. Areas with crop failures received grains,
frontier towns were supplied, and the staples of Roman life (wine, olive oil,
art, glass and weapons) were available throughout the empire. The Roman also developed the sea route from
Egypt to India, through which luxury goods were imported from the east. Spices,
luxury hoods like teak, silk, porcelain and pearls came from India and
China. Trade with the Northern African
interior, conducted through Aden, was in Ivory, rhinoceros horn and hides,
tortoise – shell and slaves. Rome paid
for these luxuries in gold and silver in such amounts that there was a large drain
of hard currency out of the empire.
AFRICAN TRADE ROUTES
By 1000AD northern Africa and especially the great
ancient Egyptian civilization had already entered into large scale trade with
Europe and Asia, and Islam dominated most of northern Africa. Although primitive trans-sahara trade routes
had always existed, sub-saharan Africa was still almost completely isolated
form the rest of the world. By 1500AD, a
number of African kingdoms were well developed, centered around the Sudan, the
Niger and Congo River, Zimbabwe, and the Horn of Africa Trade in iron copper,
cattle and other goods between these states, especially between coastal and
central states was well established.
Trans-saharan trade in salt, slaves, hores and other goods reinforced
the spread of Islam, which arrived in tropical Africa. The east coast of Africa was past of the
Indian ocean trading network for Ivory Pottery, animals skins, and gold, and
Arab traders settled a number of new town.
THE
VIKINGS
While commonly considered, only as raiders and
plunderers, another view of the Vikings maintains that their liberation and
redistribution of wealth from kings and churches stimulated economic
development from key to Dublin and that trading was as important as pillaging
for Vikings living abroad. Around 1000AD
Dublin and that trading was as important center for Viking trade. The ships coming in would carry wine and
ceramics from England, silk from Baglidad, broken glass from Germany to make
beads with silver from the middle east and wairus Ivory from arctic
regions. The Viking settle Iceland and
greenland, and had early short lived settlements on new found land, Canada, and
perhaps father south. Norse artifacts found
in Northern Canada indicate that the Vikings traded with native Americans. It has been postulated that these trading
relationship existed for centuries.
2.4 MULTINATIONAL
CORPORATION IN THE DEVELOPING COUNTRIES
Like
all raw materials producing states the developing countries (DC’s are
attractive to foreign investors with their economic and social status and most
of them are their world nations. The
outlook of their economy in terms of cheap labour and natural resources makes
the multinationals rough to such countries.
Nigeria
as one of the DC’s was a colonial state under British control, domination and
exploitation. At a political
independence in 1960, Nigeria emerged as a neo-colonial state. Although the country is no longer a colony;
its economic, political, social and educational institutions are structured
along western capitalist model. The
Nigerian political economy is subject to imperialist control of the western
world and it is integrated into the international capitalist economic system,
which served the interest of the international capitalist economics the
Nigerian economy is by visualizing it in terms of the relationship between the
output of the various sector of the economy such as industrial (which shall be
the major concern of this research project as it is being affected by foreign
investment in the country).
Agricultural, mining and quarrying, distributive, building and
construction sectors.
The
structure of the Nigerian economy can therefore be conceived in its
neo-colonial capitalist nature in which the clientele class of the national
bourgeoisie and compradors exercise dominant influence on the economic life and
activities of majority of Nigerians.
They do such through the state, relations with the western bourgeoisie
and activities of the multinational corporations (MNC), which dominate major
sectors of the economy.
The
mining and quarrying sector is one of the sectors where the forces of
imperialism are dominant. The domination
of this sector by where the foreign business interests is highly
pronounced. The discovery of oil as the
major foreign exchange earner in the 70’s attracted mining multinational
companies to expand the scope of their oil exploration and exploitation in this
part of the world multinational oil companies such as Agip, mobil, EIF, Ashland
e.t.c. have dominated. The exploration
and exploitation of petroleum resources in Nigeria. These foreign companies posses technology to
engage in such operation efficiently.
This had led to the dependence of the advanced capitalist states.
The
manufacturing and crafts is also dominated by the multinationals. The share of manufacturing investments out of
these huge foreign investments was relatively large.
In
1966 for instance, foreign investors in manufacturing sector controlled 92.5%
by Nigerians. (National Institute for International affairs, 19870 in 1970 ,
foreign investment controlled 57.3% while Nigerians controlled 42.7% and in
1976 also foreign domination continued even after the indigenization decree had
been promulgated the controlled 56.7% as against 43.3% controlled by
Nationals. Most of the multinationals;
UAC, Lonrho, Unilever groups – controlling this sector rely heavily on foreign
input for it survival. The manufacturing
industries import almost all the need in order to be in production (O. Onido,
NIIA 1987)
Multinational
corporations have grow in dramatically in size and influence in the expanding
economy. Consequently, multinational
corporation have become the object of considerable discussion and animosity
R.J.Barnet and R.E. Muller (1974) referred wearily to the global term
“commodore to suggest those entities increasing power in the international
area, R. Gilpin (1995) has attributed U.S power to the multination
corporations; D.H. Blake and Walters (1987) ask the often posed question
whether multinational corporations is a growth or under development for the
host countries, and Sampson 91975) has exposed the oligopolisic aspiration of
the major oil companies known as the seven sisters. Operating at times with resources that often
exceed the GNP of its host country and uncertain industries (notably oil)
participating in the cartels designed to control prices and production
internationally the multinational corporation is both a source of capital investment
and a threat to the nation-state.
The
multinational corporations according to marx rose because of the rise of a new
age of capitalism which lowing called “imperialism” the highest stage of
capitalism. The multinational
corporation that arose represented a more developed state on the concentration
of production and circulation of both goods and capital. The multinational corporations took the firm
of direct investment, which related portfolio investment. In 1914, 90% in all international capital
movements took the form of portfolio investment by individuals and financial
oligarchies, now 75% of capital outflow are in the firm of direct investment
entailing of ventures (D. Nabudere, 1977).
Some
workers have drawn parallels between the new multinational corporations and
earlier mercantilist internationals these, which are medici of Florence, genoa
and Venic in the 13th century, he gross Regensburg sells chaft in
the 15th century, Germany and fuggersin Augsburg, were family
business in two countries under the vary different condition of feudalist
Europe. The multinational corporations
of today are really a new phase international business organizations which can
only be properly understood in the context of the development of the capitalist
system (D. Nabudere 1977).
Historically,
the United State has been the home country for the largest proportion of parent
companies, followed by Britain and West Germany furthermore, although the
growth of multinational corporation is a global phenomenon, if the magnitude of foreign direct investment
is used to measure their global reach, it is parent that the major part of all
transaction at business is located in the developed areas making up the first
world. Practically, foreign direct
investment originated in developed market economics, which also absorb more
than three quarters of all investment flows (commission of transactional
corporation, 1985 – 6). The developing
countries share of foreign direct investment grew in the 1970’s but it
plummeted during the debt crisis of the 1980’s (center of transnational
corporations 1986).
Another
development in the global pattern of foreign direct investment is the emergence
of Japan as a major home country. The
outflow of Japanese foreign direct investment increase nearly four fold between
1975 and 1985, moving from $3.3 billion to $12.2 billion during that period
(center on transnational corporations, 1987 – 9).
The
growing number and economic power of multinational corporations contribute to
the controversy surrounding their impact.
It has been estimated that in the early 1980’s, about either thousand
multinational corporations world wide controlled assets in two or more
countries and that these corporations were responsible for making roughly about
four-fifths of the world’s trade (excluding that of the centrally planned
economics). Between 1960 and 1980 the
revenues of the top two hundred multinationals firms escalated as their
combined share of the world’s gross domestic product (GDP) increased form 18 to
29 present (claim Monte and Cavanaugh 1982; 149, 152, 155). The main characteristics identifying the
multinational corporations are its central direction. The plan is draw up at the headquarters and
the activities of the subsidiary are tightly integrated with each other. the availability of goods, international
communications, air service, telephone, tele-printer and telex services as
computers become vital to the multinational corporations most multinational
corporations are open about their movies.
The point out that co-operations go transnational to preserve and expand
market in areas protected by tease barriers, to provide consumers with the
produced in the home country, to take advantage of economic séance and
comparatively actively lower prices than export, to search for raw materials
and cheep labour if this will contribute to general efficiency and obtain
knowledge cheaply by calling on local enterprises.
The
multinational corporations must however, always seek to obtain profits greater
than average profits. In order for a
country to go over seas, it must be in a position to make higher profits there
than it can in the domestic market. This
is the central motive for the multinational corporation rotations which
determines the artesian for its investments decision.
It
is generally fine to say that most multinational corporation make a general
survey on the size of the market, investment climate cost (production,
transportation and resource factors) profitability, payback, period and the
average rate of return before investing in particular economy. As far as the market is concerned, the
corporation will try to determine the present and protective growth of demand
and their share to this market. They
would negatively consider whether they could attain sufficient scales for
economic production and a satisfactory level of profit. To help them come to such conclusion, they
will analyze a country’s gross national product (GNP) and GDP population and
its distribution, industrial production of specific sectors of the industry and
levels and trends in consumption, imports to determine the investment climate,
the corporation will analyze the impact of various factors such as receptivity
and special incentives to foreign investors, including tax concession and low
interest loans, whether there are laws restricting the repatriation of earning,
high tariffs, import and exchange restriction e.g. D. Nabudere (1977) high
tariffs and import restrictions as already pointed out, may attracts investors
as they help to establish a local plant.
They analysis of transport costs, taxes, production costs of production
factors such as wages and rent will help the company determine whether it is
worthwhile investing.
multinational
corporation have some advantages over states in the approaching play of social
forces leading to a new system of world order for the first time in history,
managerial skills and technology make the management of the globe as a
integrate. Unit of growing possibility
its purpose include transnational effort to adapt corporate capitalism to
changing economic and political forces to ensure capitalisms future in
non-territorially oriented economy facing possible conflicts with territorially
based national government disposed classes (Talk 1990). Multinational corporation place less emphasis
on the interest of one state in the system or the will being of its domestic
population than national governments.
Despite the technologies possessed by the advance economies, the
multinational corporation presence in third world economies only creates
technological dependence in Nigeria for instance, despite apparently favourable
capital flows, information available indicates that far from having a net
positive effect on capital accumulation, multinational corporations have tended
to promote the recapitalization of the host economies. Also, despite the apparent net inflows in the
years 1971 – 77 the picture may be different if the covert transfers such as
result from price manipulation, payment for second hand of ………… equipments and
machines reconditioned and presented as new, and fraudulent transfer such as
occurred with the Johnson Matthew Bank (JMB) involving multi-billion Naira
fraud as well as many other cases revealed by specials set us since the Buhari
Administration over in voicing sale of Naira in western markets at a very low
rates are taken into account (Nig. Inst for inter affairs 1989).
It
has been maintained that the major interest of these Nigerian share holders,
directors, managers, properly owners, transporters, dealers, layers,
accountants, and contractors is to make as much as money as possible an keep
most of them aboard in the countries of these multinationals. It is also important to indicate the sectors
in which the foreign direct investment has tended to contract in order to
establish their pervasive impact on the political economy. Cumulative investment in the manufacturing
and processing sector increase form N06.2 million in 1975 to N550.7 million
1976 and N703.8 million in 1977.
Evidence exists to show that claim that they are agents of
industrialization and technological development can be amply faulted following
the policy of import substitution instituted during the colonial period, when
there was a marked absence or a viable industrial and technological base, the
post independence era had witnessed no major break through in technology being
dominated by low technology light industries.
The dependence, which is move acute in the high intensive technology
sector like oil and iron and steel, is replicated by and large in the other
industrial sectors including the construction of automobiles sectors where
imparted inputs constitute from 60 – 80% of inputs under the circumstances it
is not surprising that the auto injuries in which local participation has gone
up to 60% are able to hold the Nigeria government to ransom by frequently
excessive increases in prizes, shutdown and resentments. Despite the involvement of the multinational
corporations ion these sector, Nigeria remains technologically under developed. The blame however blame cannot be placed
solely on the Nigerian state and the ruling class, which by various
accommodative policies have encouraged this pattern of development under
development since independence. They
have done so by promoting the illusion that multinational corporation are
interested in developing the technological capacity of Nigerians and by
offering them incentives fiscal and other forms of protection, which encouraged
in efficient local resources, lack of seriousness in implementing the
expatriate quota system which is apparently intended to stimulate local
training progressive replacement of expatriates by Nigeria by a series of
policies and legislation which emphasize transfer rather than local development
of technology (NAII, 1989). More
importantly, the list of directors and shareholders in joint ventures in which
the multinational corporations control is a list of retired generals, permanent
secretaries to government functionaries, traditional rulers all of whom are
strategically located in the power structure or have substantial influence in
government policies or access to decision makers. Allies of foreign capital, these petty
bourgeoisies serve the interest since despite independence the center for
deliberation still lies outside. They as
client of the state and the multinational corporations, from the third arm of
the new colonial triangle and are not in a position to quantitatively shape the
political economy (NIIA,1989).
The
multinational corporation expansion could not have occurred on the scale
achieved without the financial contribution of the world’s international
banks. Indeed, the transnational bank
(TBN) has itself also become a major actor and price in the global political
economy. In 1985, the combined assets of
the world’s twenty five largest banks has grown to $2.6 trillion a figure
nearly triple the combined sales of the twenty five largest industrial
firms. Reflecting trends elsewhere in
the transforming global economy, 1985 five of the ten largest banks were
Japanese, whereas in 1987 only one of the ten largest banks was Japanese
(center in transnational corporation, 1987 –40).
Regulating
the activities of multinational corporations in the third world countries quite
differs from that of the industrialized states.
Host government in industrialized state are frequently more concerned
about the integration of foreign owned branch plants into the domestic economy
than they are about their location.
Multinational corporations, which make substantial domestic sales
involving a significant import, content, notable in high technology sectors;
can create adverse balance of payment effects.
In so far as branch plant rely on flows of in-house good and services
provided by the corporate parent, they create fewer demand for output of local
firms (Britton, 1976) and generate employment characterized by a truncated
occupational profile, one which lack serious managerial position on research
and development (RSD) functions (Hayter, 1982).
Nations
such as the United kingdom and France are in a stronger position to exert
pressure on multinational corporations to organize their business in ways which
promote national interests that are nations in the third world, which face
similar problems. The allocation of
public sector spending is itself a powerful instrument to encourage desired
pattern of behaviour. The organization
of IBM in western Europe represents on response to demands that if act as a
good corporate citizen, albeit at the loss of some efficiency. Production plant are so located that value
added in given country is in fair proportion to JBM sales come from states
where there some effort is made to ensure that bought import come from states
where there is no direct manufacturing (the economist, 29 October 1977, pg 2).
2.5
THE EFFECT OF
MULTINATIONAL ON THE INVESTING COUNTRY
The
time perspective plays an important role for the balance of payments of the
investing country’s. If the investment
in the country is given 21.4 one injection, it would take six years for it to
pay off, in the sense that the balance of payments of the investing country
would again be positive. If the direct
investment, instead, consisted of a steady flow of $100 million per years, it
would take eleven years to reach equilibrium, if the flow of direct investment
increased by 22 percent per year, it would never pay off.
In
the long run, direct investment ought to have a positive effect on the
investing country’s balance of payments.
This is especially the case if the flow of direct investment is
steady. We can see this effect today on
investment from the United State and some other developed countries in their
dealings with several developing countries (DC’s). If the flow sharply increases, there could be
marked adverse effects on the balance of payments. Direct investments undoubtedly strained the
United State external position in the late 1950’s and 1960’s.
Other
problems that could arise are more concerned with real factor with the
increasing of nay single own independent economic policy become
circumscribed. Corporations could gather
in one country to work out pricing and market arrangements for another
country. As long as there is no
international legislation concerning taxes, restrictive business practices,
e.t.c. any single country will difficulties in efficiently implementing its own
law.
Earning
on us direct investment aboard (percentages of book value at the beginning of
the year).