Academic journal article International Journal of Business

Are Multinational Corporations Problem-Solvers or Problem-Makers in Developing Countries? Focus on Technology Gap and Arbitrage

Academic journal article International Journal of Business

Are Multinational Corporations Problem-Solvers or Problem-Makers in Developing Countries? Focus on Technology Gap and Arbitrage

Article excerpt

I. INTRODUCTION

The emergence of the Organization of Petroleum Exporting Countries (O.P.E.C.), with its oil weapon, especially after the Tehran Agreement of 1973, as a strong spokesman of the developing countries and asserting their control over operating MNCs led the world organizations like U.N., O.E. C.D., and MNCs to formulate code of conduct for multinational corporations (MNCs) who are problem-makers, heavy risk-bearers, and who, as a compensation for bearing perceived risks, engage in tricky and speculative business dealings in order to earn abnormal profits through the techniques of transfer pricing, overinvoicing, subcontracting, dumping of sophisticated technology without supporting local technical manpower, etc. leading to temporary upswing in the stock market inducing investors to part with [M.sub.1] (liquid cash) to buy MNC-induced stocks ([M.sub.2]) and creating temporary boom with every possibility of a surging stagflation.

What is a multinational corporation (MNC)? In simple language a multinational corporation is a company that has registered in different robes in more than one country. It may as well be asked why companies which may have been doing so well in their countries take the trouble to go beyond their territorial boundaries to invest in other countries? The fact is that these companies have not only over-grown in terms of capacity but have overcapitalized such that their earnings are not large enough to yield a fair return on the amount of capital employed. But where the companies concerned are making abnormal profits, the governments normally step in with legislations that either reduce their activities or drastically tax their abnormal profits. In order to avoid the above problems, such companies look for alternative areas where they can invest their excess funds without restrictions. With their yawning desire for industrialization, the developing countries very readily welcome them--often to their own detriment. When the MNCs come in their industrialization guise, they normally come with men, materials, capital and technology they would need. Where they employ the indigenes of the host country, it is either as laborers' or they are given such positions that will not expose them to the business tricks.

II. MNCs EARN ABNORMAL PROFITS (400% to 600%)

Research studies have confirmed that multinational corporations (MNCs) parented in developed industrialized countries, through their subsidiaries (in developing countries), with selfish interests like gamblers, begin the game with a small stake (initial investment) and continually plough back their winnings (taking advantage of good political risks) into the game of gambling making the parent MNCs grow richer through abnormal profit earnings of anywhere between 400 per cent and 600 per cent on one hand; and, on the other hand, the developing countries, acting as gambling dens with MNC-supported management consultancy-cum-financed expensive loans (like Euro-dollar), tied project aid, etc. and through transfer of sophisticated and inappropriate technology from the industrialized countries--all in the name of so-called economic development--would continue to remain in a state of volatile-cum-inorganic development path causing techno-economic backwardness from a long-run point of view.

With stringent controls exercised over MNCs in recent years, developing countries have put all hands on deck to move from a state of overdependence on MNCs to techno-economic self-reliance and the MNCs, finding gambling a losing game in developing countries, have engaged in employing techno-management techniques (like transfer of highly priced-cum-most sophisticated and appropriate technology on one hand) and, forcing MNC-controlled developing countries to maintain very high and unrealistic-not functionally related to economic development-exchange values for their currencies which, in the words of Swamy (2003), proves a doom to the developing countries and a boom to the MNCs (for facilitating continual abnormal profit repatriation) to strength their monopoly power as explained below:

"Hi-tech manufacture/production -, may lead to negative cash flows -, induces risk capital and prompts MNCs to -, underutilize productive capacity and -, engage in arbitrage and earn abnormal profits of anywhere between 400 per cent and 600 per cent profits -, proves a boom to MNCs-parented in developed countries and a doom to MNC-controlled developing countries -, leading to development tension via technological backwardness (Swamy, 2003). …

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