49th Session Issues
Responsibility of Multinational Corporations in Developing Countries
Multinational corporations (MNCs) also referred to as transnational corporations (TNCs) are business entities organized within one country, while maintaining a network of affiliates globally. The term host countries is used to designate the countries where these affiliates are operating, while the term parent company refers to the country where the MNC has established its global headquarters. MNCs typically originate in developed countries and seek to expand into developing countries as developing countries provide cheaper resources and fewer or less restrictive barriers to trade.
MNCs in Developing Countries
Developing countries are the host countries and have become the object of scrutiny as there are
many questions regarding the benefits of hosting a MNC. Are MNCs contributing to the
sustainable development of a developing country? Or, do they simply exploit developing
Generation of Employment
Those who argue for MNCs, state that MNCs generate employment worldwide. Of the 73 million jobs created through MNCs, only 12 million are located in developing countries amounting to 2 or 3 percent of the world’s workforce. MNCs account for one-fifth of all paid employment in non-agricultural sectors and creates a large number of jobs in the manufacturing industries, especially where technology is concerned. The United Nations Research Institute for Research (and Development (UNRISD) further points out that in developing countries such as Argentina, Indonesia, Malaysia and Sri Lanka, MNCs account for over 20 percent of all employment in the manufacturing industry.
Advocates argue that employment generated through MNCs often creates a need for the businesses which support the industry of those companies. For example, if the auto maker Ford builds a plant in a developing country, the need for raw materials, auto mechanics, gasoline stations, and their ilk which support the car industry in turn generate more employment. This is contingent on whether the MNC utilizes the local business to support their product, and sells their product locally. If the MNC imports their materials and then exports the finished product utilizing the labor only of the host country, there is not a significant benefit to the developing country.
The UNRISD, in their report Direct Effects of TNCs on Social Development, states TNCs almost always provide higher wages, safer work conditions and better benefit packages than do local firms Employees of TNCs in developing countries may be paid higher wages than local firms may offer but that while TNCs usually offer superior wages in absolute terms, they sometimes pay a lower wage relative to workers' productivity. In Indonesia, women sewing sneakers for Reebok work over 60 hours per week while earning only 80 dollars a month, approximately the price of one pair of shoes according to their report.
Instances of underpaid or virtual slave labor exist in many developing countries where MNCs are located. In southern Burma, Unocal and its French partner, Total, have begun construction of a billion-dollar natural gas pipeline. The Multinational Monitor claims the Burmese junta has moved 17 battalions to provide security in these areas, and in order to supply the troops, the Burmese government is building a railroad between Ye and Tavoy. Unofficial figures estimate up to 120,000 slave laborers are being used to construct this railroad; exact figures are not available as no outside groups are allowed near the construction.
Other examples of unsafe working conditions are abundant. The UNRISD points to a fire in a Thailand toy factory that killed 188 employees locked inside by management. The management did not maintain the sprinkler system. Levi Strauss, on the other hand, repeatedly warned a subcontractor of Levi Strauss of their flagrant abuse of their employees and ceased doing business with them. It was reported the Tan family, the subcontractor, allegedly forced 1,200 Chinese and Filipino women to work 74 hours a week in guarded compounds on the Mariana Islands. Nigeria agreed to take some highly toxic waste from European tanneries and pharmaceutical companies. It was reported workers wearing no more than thongs and shorts, unloaded barrels of polychlorinated biphenyls near residential areas.
Cultural Relativism vs. Ethical Imperialism
Critics of MNCs point to cases such as these and state MNCs follow a cultural relativist's creed Cultural relativism amounts to doing as the local industry does or another corporation will take the opportunity from the first corporation. Whether it be the practice of offering bribes to public officials, as in Indonesia, or refusing to accept or offer bribes, as in Denmark or Singapore, there are those MNCs who follow local customs regardless of the parent country regulations.
Japan has a long-standing custom of gift giving. Those industries doing business in Japan have
recognized in order to continue in active business relations, this custom must continue. MNCs
such as IBM and Texas Instruments, both outspoken critics of bribery (accepting/offering), have
acknowledged guidelines to gift giving in Japan. Conversely, Roh Tae Woo, president of the
Republic of Korea from 1988 to 1993, accepted $635.4 million in bribes from MNCs seeking to
Ethical imperialism, the converse of cultural relativism, states that corporations act upon the notion of doing the same in host countries as they would do in the parent company. In Saudi Arabia, a US computer company introduced a course on sexual harassment. The training sessions included a case in which a manager makes sexually explicit remarks to a new female employee over drinks in a bar. The course served to only confuse and offend Saudi participants as there are strict conventions governing relationships between men and women in Saudi Arabia. In another example of ethical imperialism, an employee of a US specialty-products company in China was caught stealing and turned over to the provincial authorities by a manager. The authorities executed the employee.
The exploitation of developing countries that the critics of MNCs point to includes not only indigenous people but also the natural resources of the developing country. The extraction of resources causes economic loss through environmental degradation such as deforestation, soil erosion and desertification, and the pollution of water supplies. This leads to infertile soil needed for food production; the loss of homeland for indigenous people as forests are overlogged or flooded; wood used for fuel disappears with deforestation; rivers and wells are polluted with toxic wastes and these same rivers and wells are clogged with the topsoil no longer held down by the trees felled.
The Niger Delta, due to over thirty years of oil exploitation, has been identified by the United Nations as the most endangered river delta in the world. In this time frame, over 6.4 million liters of oil have spilled into this delta region consisting of coastal rainforest, mangrove habitats and fragile wetlands.
The Niger Delta also serves as homeland to the Ogoni. The Ogoni have protested against the devastation Shell Oil and the Nigerian government have caused in Ogoniland. In 1996, Nigerian writer and human-rights activist, Nobel Peace Prize nominee Ken Saro-Wiwa was executed by the Nigerian government along with eight other activists for speaking against Shell Oil. It is estimated ninety percent of foreign export earnings are generated through the oil industry with Shell Oil generating half of this production. The oil revenues generated account for more than 80 percent of the Nigeria's annual revenue and the military dictatorship sent troops into Ogoniland in a desperate and deadly maneuver to protect these interests.
Water sources in developing countries are often polluted or of very poor quality due to the dumping of industrial waste. Infants who are fed with baby milk substitutes in areas with poor water supply are 14 times more at risk of dying from diarrhea, over an infant fed with breast milk. Currently there is a boycott against Nestle as they are promoting their baby milk substitute and supplements in developing countries. Nestle has challenged the decision of WHO, in regards to advertising and promoting these items in developing countries, supplying hospitals with samples to give to new mothers. In India, there are instances of where the mother was not able to read the label of Nestle products, and the children suffered from severe malnutrition and/or death a result of this.
It is argued the social welfare of a developing country is the responsibility of the government itself. MNCs by nature undermine or weaken governmental regulations through attempts to lower national investment restrictions, for less stringent international regulations, lower environment, labor, and consumer standards and the abolition of unitary tax policies.
Other countries that have recently changed their investment codes are Albania, Bulgaria, Saudi Arabia and Vietnam. India has liberalized its industrial licensing procedures, allowing partial convertibility of its currency. The Philippines allows 100 per cent foreign equity ownership; Egypt has expanded permissible sectors for foreign investments; and Columbia has guaranteed national treatment to MNCs, raising the amount on profits that can be remitted.
MNCs often interfere in the political policies of the country as well. Gulf Oil Company in Angola had their oil refineries protected by Communist Cuban troops from guerrilla fighters supported by the United States and South African governments. United Fruit, in the 1950s, was upset when the democratically elected Guatemalan government expropriated idle land. United Fruit felt the compensation was too low (although United Fruit was compensated for the value of the land stated in their tax records). United Fruit lobbied the Eisenhower administration to orchestrate a military coup; a coup which left Guatemala with repressive rule for several decades.
The global marketplace introduces many products that are incompatible with ecological sustainability and poverty. MNCs advertise products that may not be suitable to a developing country. Pharmaceutical companies may create products that could improve the health and nutrition of people from developing countries but are often priced too high. On the other hand, pharmaceutical companies have marketed and sold pharmaceuticals that are known to be harmful.
Sterling Winthrop, a US MNC, sells Dipyrone, a drug banned in 23 countries, to 20 developing countries under the brand name Conmel1. Upjohn Drug Company sells their product Kaopectate in developing countries, with printed warnings in English only. The product, an anti-diarrhoeatic, has been used on infants with sometimes harmful results. A study has shown two-thirds of 241 pharmaceuticals manufactured by US MNCs sold to developing countries are severely mislabeled.
Groups who advocate corporate accountability for MNCs in developing countries have introduced guidelines which they feel advocate the rights of developing countries and will help the Least Developing Countries achieve sustainable development. The NGO Taskforce on Business and Industry (1997) introduced these guidelines for corporate accountability to the UN Commission on Sustainable Development at the 1997 United Nations General Assembly:
Acknowledge the importance of Corporate Accountability. Corporate accountability is an element of sustainable development and MNCs must be accountable to the society which they ultimately serve. MNCs must acknowledge the need to develop or improve governmental and citizen-based mechanisms designed to ensure greater accountability of business and industry.
Establish mechanisms to monitor and assess corporate principles. There is no established central body to monitor the grievous practices MNCs engage in while located in developing countries. Such a body is needed to review, assess and report on current national and international legislation, treaties, and other mechanisms which address corporate accountability. This body would address corporate accountability and develop a process for identifying and instituting appropriate international instruments and bodies to ensure greater corporate accountability.
Strengthen public access to information. Develop public education programs to enable citizens and employees with knowledge of the kinds and sources of information available about corporate decisions and practices which may affect them and their communities. This program should teach citizens how to access, interpret and put this knowledge to use. There is a tremendous lack of information and information-sharing which prevents citizens from making educated decisions regarding the practices of MNCs. Communities should know how toxic substances are transported, stored, used, and released by MNCs in their communities. Citizens will also be able to establish and request their government officials to enforce laws regarding the storage and release of toxic substances.
MNCs should be required to file the same reports required by the parent country in the host
countries where they are operating and investing. Lists of direct and indirect subsides, tax breaks
and other government incentives to corporations and industries should be made available to the
citizenry of developing countries, especially if there is a question of negative environmental or
Empowerment of the local communities through international agreements and mechanisms:
those which halt developing countries from bidding against one another, lowering standards and
offering higher incentives in order to receive the foreign direct investments. The creation of
mechanisms and means of support through which the public may actively participate in
decision-making processes which affect their communities. Promote strategies which allow for
sustainable development and local self-reliance, placing high value on the use of local
Make clean production the standard. The burden of proof should be placed on potential polluters
to prove a substance or activity will not harm the community. Implement the principle to Extended Producer Responsibility in which producers are obligated to
prevent pollution and reduce resource and energy use in each stage of the product life-cycle.
Funds should be provided to support government agencies and community-based monitoring
efforts to properly check and enforce progress in meeting pollution reduction targets. Annual
Reduce political influence of corporations on government. Reform the mechanisms by which MNCs possess and exercise undue political influence over the government. The welfare of the citizens of developing countries must be placed first and foremost, not the well-being of the MNC. End financial contributions from MNCs to political parties and the governments which support MNCs.
Thomas Donaldson, a professor at the Wharton School of the University of Pennsylvania in Philadelphia, states it best, When it comes to shaping ethical behavior, companies must be guided by three principles: respect for core human values, which determine the absolute moral threshold for all business activities; respect for local traditions; and the belief that context matters when deciding what is right and what is wrong.