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The Impact of Multinational Enterprises

To survive, a company must satisfy different groups, refereed as stakeholders. These include stockholders, employees, customers, and society at large. In the short term, the aims of these groups conflict. Stockholders want additional sales and increased productivity, which will result in higher profits and a higher return on investment. Employees want additional compensation. Customers want lower prices. Society at large would like to see increased corporate taxes or corporate involvement in social functions. In the long term, all of these aims must be achieved adequately or none will be attained at all because each stakeholder group is powerful enough to cause the company's demise.

Although the management teams of multinational enterprises (MNEs) must be aware of these various interests, they serve them unevenly at any given period. At one time, most gains may go to consumers; at another, to stockholders. Making necessary trade-offs is always necessary at a corporation's domestic environment. However abroad, where corporate managers are relatively unfamiliar with customs and power groups such as trade unions, the problem is choosing the best alternative can be compounded; this is particularly true if dominant interests differ among countries.

The effects of MNEs on growth and employment are not a necessarily a zero-sum game among countries. Classical economists assumed production factors were at full employment; consequently, a moment of any of these factors existing abroad would result in an increase in output abroad and a decrease to that at home. Even if this assumption was true, the gains in the host country might be greater or less than the losses in the home country. Thus, the argument that both the home and host country may gain from Foreign Direct Investment rests partly on the assumption that resources are not necessarily fully employed and partly on the industry specific and complementary nature of capital and technology.

The relationship between multinational enterprises (MNEs) and societies has generated so many allegations and controversies that it is impossible to examine all of them at once. A number of them deal not so much with whether international business should take place, but most of them rather focus on certain practices. But in theory, host countries may take completely restrictive or laissez-faire positions toward MNEs. In actuality, their policies fluctuate over time but are seldom completely restrictive or completely laissez-faire. Currently, countries such as Bhutan and Cuba are close to the restrictive end, and countries such as the United States and the Netherlands are near the laissez-faire end of the continuum. However, countries between these extremes have policies with varying degrees of restrictions as they attempt to attract investment and receive the most benefit from them.

About the Author

Jonathon Hardcastle writes articles on many topics including Investing, Finance, and Business

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