The act by which a firm extends its operations overseas is foreign direct investment (FDI) and it takes two forms:
-Greenfield investment: The creation of new productive assets by foreigners
-Purchases: Buying into an existing firm
In thistwenty-first century, multinational companies have become the central institutions of developing nations. Governments in the developing countries (should be) are concerned about food security, industrial production and other commodities that country needs for its citizens and to fulfil these necessities they are always on the look-out to attract Foreign Direct Investment (FDI) .
Although multinationalcompanies have become ubiquitous in the developing world, there has always been an uncertainty about them, in both positive and negative ways.
MNCs in the developing economies
A positive view of MNC:
- Multinational corporations can help to reduce poverty by providing employment.
- Multinational firms may help improve infrastructure in the economy by raising labour standards
o Theymay improve the skills of their workforce.
o They may stimulate spending in infrastructure such as roads and transport.
o The workers also gain from the technology imported by the MNCs (technology transfer).
-MNCs investment constitutes a stimulus to economic activity. It helps to diversify the economy away from relying on primary products and agriculture – which are often subject to volatileprices and supply.
FDI tends to be concentrated among a few countries, such as China, India, Brazil, and Mexico; some developing countries are more successful at attracting FDI than others.
To obtain this, dev;count r prepared to: to attract:
The location of FDI may also be influenced by various incentives offered by governments to attract multinationals. These incentives take a varietyof forms. They include fiscal incentives such as lower taxes for foreign investors, financial incentives such as grants and preferential loans , as well as other incentives.
Removal of trade barriers also encourages multinational companies to start new branches in developing nations.
A negative view of MNC
Some people think that globalization plays a major role in the progress of developingnations. Nevertheless, MNC’s presence have also negative impacts on developing countries like excessive environmental damages, no labor rights, human health in danger, destroying competition, acquisition of monopoly power..
Example: environmental impact, human health in danger
Communities across India living around Coca-Cola's bottling plants were experiencing severe watershortages, directly as a result of Coca-Cola's massive extraction of water from the common groundwater resource. When the water is extracted from the common groundwater resource by digging deeper, the water smells and tastes strange. Coca-Cola has been indiscriminately discharging its waste water into the fields around its plant and sometimes into rivers. The result has been that the groundwater has beenpolluted as well as the soil. Coca-Cola was distributing its solid waste to farmers in the area of Plachimada and Mehdiganj as "fertilizer".
Tests conducted by the BBC found cadmium and lead in the waste, effectively making the waste toxic waste. Coca-Cola stopped the practice of distributing its toxic waste only when ordered to do so by the state government.
Tests conducted by a variety of...