Multinational Corporations and Home Country Relations

Public attitudes toward Multinational Corporations (MNCs) are biased by a nation’s position as a home or host country. Historically, home countries have perceived MNC activities as desirable extensions of their domestic business systems. Conversely host countries have viewed MNCs as agents of foreign influenced and exploitation. This historic dichotomy is now shot through with conflicting perceptions of the MNCs. Different segments of society, such as labor, investors, consumers, traders, and farmers, see their interests affected in different ways. As a result, a multi-sided controversy about the societal merits and demerits of MNCs has grown in both host and home countries.

The most aggressive challenge to the traditionally supportive home country policies towards MNCs has come from organized labor.

Labor Conflict

Multi-nationalization has created for management new mobility and flexibility that have greatly enhanced its bargaining power vis-à-vis labor. Since the sourcing base of the multinational firm knows no national boundaries – it can draw anywhere in the world the capital, technology, raw materials, ideas, and labor that it needs – management is not dependent on any one country’s labor supply or labor union’s policies, but can choose from among a number of potential hosts for any particular operation. In the short run, this new managerial latitude may be limited by the relative immobility of investment in given facilities – the sunk cost constraint – but in the long run nearly all operations can be transferred from one location to another. More significantly, all new investment, whether for replacement or for replacement or for expansion of plant capacity, is internationally footloose and will seek domicile wherever the comparative advantages happen to lie.

To labor unions this international mobility of the MNC portends an ominous doom. Though international in ideology, the unions have failed to acquire any international operational capabilities of their own. Their organization and policies have remained strictly national or sub national. Deriving their legitimacy and enforceable powers through national and local legislation, labor unions became an integral part of the nation state’s internal apparatus. This worked in labor’s favor so long as business consisted of MNCs. By effective organization and concentration of labor influences into large, well disciplined unions, a sufficient counterweight to management power was created to allow unions to bargain from a position of strength.

Having focused its efforts on countervailing the powers of the domestic firm, labor scored impressively by achieving equivalence, if not dominance, at the bargaining table. But its narrow focus missed the broader scene. As the international expansion of business started converting UNCs into MNCs at an accelerating rate, labor’s domestic entrenchment provided no possibility to match the expansion of managerial powers. Thus a disparity gap was opened. Given the continuation of the multi-nationalization of business, this gap is certain to widen as long as labor unions remain uni-national in scope and capacity. This shift in the balance of power in management’s favor signals to labor leaders a retreat to subservience and subordination that the movement can neither accept nor endure. To labor, therefore, the MNC is not a villain or culprit of the normal management sort, but an antagonist of an entirely new and mortally menacing variety. Against it, a total struggle seems to be American labor’s resolute response. The unions attack MNCs as inherently inimical to the domestic economy and seek legislative remedies that would severely restrict multinational corporate operations. Labor’s lobbying campaign charges the MNC with the following detrimental effects:

  1. Investment depression. The MNC foreign investments deplete capital resources needed for domestic investment, thus undermining economic growth and new job creation in the home country.
  2. Technology drain. The MNC exports home country’s technology in order to exploit low cost foreign labor, depriving the home country worked of his or her rightful opportunity to share in the utilization and rewards of this technology. Through technology transfers and foreign investments the MNC replaces home country workers with foreign workers; that is, it exports jobs.
  3. Export displacement. The MNC displaces home country exports with foreign produced goods, thereby decreasing domestic employment and payrolls, causing the home country trade balance to deteriorate, and depressing economic conditions at home.
  4. Low wage imports. The MNC substitutes imports from its home country affiliates in low wage countries for home country made goods. These imports undermine home country wage standards, cause unemployment, and idle plant facilities.
  5. Tax evasion. The MNC evades taxes by deferring profit repatriationmanipulating transfer prices, and circumventing government regulations. The revenues lost to the national treasury result in a higher tax burden on the general public.
  6. Payments dis-balancing  The MNC’s activities have afflicted the home country’s with chronic balance of payments deficits, fueled inflation, debased the dollar as a stable currency, and contributed to international monetary disorders.

Offshore Plants

The recent proliferation of offshore manufacturing has become the focal point of the labor union’s concern. Since the offshore plants represent clear-cut transfers of production rates to low wage countries, unions depict them as inherently symptomatic of all multi-nationalization projects of business. What the unions leave unsaid is that manufacturers “have transferred offshore production processes in which they have lost their international competitive advantage. It has been a relatively successful way for threatened firms to retain competitiveness and for developing countries to exploit their own comparative advantage.

For the MNCs the movement offshore is essentially a reactive strategy to low cost competition which, from management’s perspective, can best be met by international restructuring of production: locating capital intensive, high technology facilities in industrial countries and labor intensive, low-skill plants in less developed areas.

To remedy the situation, organized labor has lobbied for legislation to regulate MNC operations. It has called for (a) the creation of a federal investments commission to license and supervise transnational capital transactions; (b) restriction of outward transfers of technology, by subjecting patents to export licensing and prohibiting foreign production of a patented product; and (c) by eliminating the foreign tax credit and the deferred tax status of the affiliates profits.

Ideological Dilemma

International solidarity has long been an ideal of the labor movement. Workers organizations everywhere confronted the same problems and strove for the same goals. Devoted to collective action as counterforce to exploitation, labor unions from the start aspired to cooperation and communication with their brothers, regardless of country.

Labor unions in countries hosting the affiliates of MNCs find the present protectionist offensive aimed more against them than against the MNCs. This confrontation between the home country and the host country unions remains an unpredictable source of conflict in multinational business relations.