The Impact of MNEs

by: j_hardcastle89
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Word Count: 598

The United States is the home -country for the largest amounts of foreign licensing and direct investment. Therefore, its policies understandably arouse some of the major trade unions of such outward moments. One of these critics is organized labor, which argues that foreign production often displaces what would otherwise be US production. For example, big corporations have been criticized because they decided to shift some or all of their production to less costly countries, such as Mexico, because of the NAFTA agreement. Trade unions also cite many examples of highly advanced technology that has been at least partially developed through governmental contracts and then transferred abroad. An example is Boeing's transfer of aerospace technology to China to produce aircraft parts. According to trade unions, if Boeing did not transfer the technology, China would purchase the products in United States, thus increasing U.S. employment and output.

Closely related to the question of job loss is the question of whether the outsourcing of production puts downward pressure on wages in the home country. On the other hand, there is anecdotal evidence that it does. For example, computer programmers in the United Kingdom, make three to six times, the monthly salary of programmers in India. So the possibility of moving more work to India has caused a recent drag on the real wages of U.K. programmers. On the other hand, there is evidence that moves by companies to lower-wage countries increase the overall home-country demand and wages for skilled labor. This is because the cost savings from producing abroad increase demand for the products produced abroad, such as Nike shoes, thus increasing the need for Nike to hire more managerial personnel in the United States.

Moreover, due to the size of many multinational enterprises (MNEs), there is much concern by trade unions that they will undermine through political means the sovereignty of nation-states. The foremost concern is that an MNE will be used as a foreign-policy instrument of its home-country government. The fact that companies depend primarily on their home countries is illustrated by the realization that from the 100 largest companies in the Fortune 500 list, only 18 have a majority of their assets outside their home-country and very few have a foreigner on their executive board. These companies are most internationalized in terms of their sales; however, fewer than half generate more than half of their sales outside their home markets. Because the home-countries of most MNEs are industrial ones, it is understandable that this concern is taken most seriously in less-developed countries (LDCs). But it is not restricted to them.

Two other sovereignty issues are raised less frequently. One is that the MNE may become independent of both the home and host countries, making it difficult for either country to take actions considered being in its best interests. The second is that the MNE might become so dependent on foreign operations that the host country can use it as a foreign-policy instrument against its home country or another country. Under this sphere of influence, trade unions exercise trade control, by enforcing trade restrictions, antitrust laws, and key sector control measures or even by forming state-owned enterprises. For example, much have been said about the US government's attempt to apply its trading with the Enemy Act to foreign subsidiaries of US companies, in order to keep them from selling to certain unfriendly countries. Such measures, that restrict free trade and enhance the threat of reducing gains, drive MNEs either to accept the new roles of the global game or in most cases to oppose it.

About the Author

Jonathon Hardcastle writes articles on many topics including Investing, Business, and Employment  

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