Do Multinational Corporations Bring Multiple Benefits to Developing Countries?

The role of multinational corporations (MNCs) in bringing about beneficial change is a good-news story that definitely goes under-reported. And yet the evidence is clearly apparent when we look around today’s world, paying particular attention to third-world countries. The most obvious way in which MNCs contribute positively to developing countries is probably the most straightforward one. Quite simply, the presence of MNCs in a country brings about new opportunities to earn higher incomes while also providing local populations with better goods and services. Other benefits flow from these, and we will take a look at those while challenging some misunderstandings about the role of MNCs in the developing world.

Why Is the Good News about Multinational Corporations Not More Widely Known?

The failure to appreciate these benefits and the related tendency to focus instead on negative characterizations of MNCs is most likely due to ideological prejudices that obscure the more complex facts. Certain strands of Marxist thought and of “dependency theory”, for example, have sometimes led to the uncritical adoption of the view that MNCs function merely as means of imposing Western cultural norms on developing countries. Blinkered by such assumptions, some commentators fail to appreciate the fruitful roles that MNCs can play as partners cooperating with national authorities and local cultures to foster economic development.

In part, negative perceptions of MNCs may be due to the fact that these corporations have at their disposal assets larger than the national incomes of some host countries. We must also accept that these negative viewpoints have been shaped to some extent by regrettable cases in which MNCs have been involved in incidents that have harmed countries and environments. Look beyond these cases, however, and the larger picture that emerges is a far more positive one in which MNCs are often seen as contributors to necessary development in poorer countries. MNCs may be motivated primarily by the search for profits, but the investment that results from this often ends up improving the lives of citizens of the developing world.

What we need to realize is that although MNCs operate in multiple jurisdictions, they are otherwise quite similar to local or uni-national corporations (UNCs) that operate in more than one state or production facility. MNCs and UNCs both seek to maximize profits in order to provide their shareholders with their expected dividends. MNCs have just been more efficient in achieving this than UNCs have been. Unfortunately, then, the fact that MNCs are sometimes viewed more negatively than UNCs may often be simply due to the success of MNCs and to the greater prominence and visibility that comes with it.

As the Song Says, Let’s Accentuate the Positive!

If MNCs didn’t involve themselves in the developing world, many citizens of these countries would either remain unemployed or continue working for lower incomes. In such a scenario, the demand for land and other indigenous resources would be diminished. When MNCs purchase resources in third-world countries, the upshot is that the resource owners are enabled to release additional capital for investment in other ventures that will benefit the local economy. Some complain that although the wages that MNCs pay to third-world workers may be higher than those otherwise available to them, they are still lower than those paid by the same companies in more industrialized economies. This objection is economically short-sighted, though, since the skills and outputs of the two groups of workers will typically be significantly different. To put it in a nutshell, transactions between MNCs and their workers in developing countries must yield net benefits for both parties if the arrangements in question are to remain viable over the longer term.

Now that we’re looking at the facts rather than at ideologically based prejudices, we should also note the failure of research to substantiate the often-heard claim that MNCs make greater profits for every dollar invested than their local counterparts. In reality, private local companies typically make greater profits per dollar before taxes than do foreign corporations. Profit rates after tax tend to be similar because third-world governments tend to tax their own indigenous firms more than they tax MNCs. Also important is the fact that much of the money that MNCs have to spend on equipment, building and land rentals, wages, and interest tends to remain within the economy of the developing country in question.

If taxation of either MNCs or local firms becomes too heavy or if environmental regulation becomes excessive, the result is that overall investment is diminished, as are the economic and social benefits that flow from investment. The loosening of restrictive regulations, on the other hand, clears the path for greater investment and the generation of more wealth. This tends also to nurture the growth of indigenous enterprise and to diminish the scope for corruption and bribery to take root. So, an open society with strong investment and wealth creation in itself promotes the establishment of a more open and healthy society.

Multinational Corporations and the Shaping of a Healthier Future

Let us conclude our overview of the good that MNCs can do in the developing world by looking at a remarkable but not unrepresentative case in which one corporation, NIP Global, has invested heavily in the healthcare needs of a developing country. In cooperation with national authorities, NIP Global has funded the establishment of a new imaging center at the Joseph Ravoahangy Andrianavalona Hospital in Madagascar. This cutting-edge medical technology can greatly facilitate the early detection of breast cancer and thereby reduce mortality rates by making early treatment possible. NIP Global is also working closely with health specialists and local authorities to spread public awareness of the need to use new technologies and have regular check-ups.

Here we can see at ground level the positive contributions that MNCs can make to developing countries. We can clearly discern the outline of a better future in which private and public interests work together for the common good. This type of contribution, in which the MNC collaborates with local institutions to provide professional solutions to specific acute needs is highly effective. And this specialized assistance only becomes possible when physical presence, professional expertise, and financial means are combined with the aim of making a real and sustainable difference to the local population.