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 repatriation,  manipulating 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.

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