The impact of multinational companies on you! 4 positives and 4 negatives.

Multinational companies have made the world a small place. Global trade! Photo by NASA on Unsplash.

I had a pretty comfortable standard of living growing up. I never lacked for anything, but as they say, the grass is always greener on the other side – I felt the choice of products and services available to me was very limited compared to the options available in other countries.

Now that I am all grown-up, I know that my choices as a kid were limited because my country had a closed economy; we did not have foreign direct investment (or at least very limited) in the county until the early ’90s. We had loads of mom-and-pop stores, and you could walk into them and bargain for what you wanted.

Investing in a country. Photo by Alexander Mils on Unsplash.

But once the country opened up, we went from having limited choices to having endless (at least that is what it felt like) choices, from being a vastly farming centric workforce to being a corporate-driven workforce. And while I believe that the positive aspects of an open economy outweigh the negatives, it is just my opinion, and it cannot be denied that there are both positive and negative aspects.

Multinational companies (MNC) that set up shop in my country took a risk on the unknown, deciding to invest in a country with a limited track record. They were not only entering a new market with no idea how customers would receive their product/service, but they would also have to work closely with a government they were unfamiliar with.

The advantage that MNC’s have today is that there are very few unknowns. Technology and the internet have made the world smaller, and these days companies more often than now know what they are getting into and can work out a very profitable deal with countries/governments. On the flip side, even governments know a lot about the companies and what they can bring to the table that can benefit the country’s citizens (voting population).

So, what are some of the benefits MNC’s bring?

Positives of MNC’s. Photo by Mika Baumeister on Unsplash.
  • The cost-benefit for the MNC’s – This is probably the most significant factor around which business decisions are made. The cost savings is where multinational companies benefit the most, from the cost of labour to raw materials. A company might choose to set up a factory in the same country from where raw materials are sourced. In all likelihood, the cost of labour in these countries will be much lower and add to this, if the companies can finagle a tax concession from the government, then the profit margins that would get from the sale of the products can be exponentially increased. 
  • Benefits to the consumer – The obvious benefit of reducing the manufacturing costs should be a reduction of the selling cost while at the same time maintaining a high standard of product quality. Not to be cynical here, I don’t think the cost reduction will ever happen, but at least the quality of the product will not be compromised to bring down the manufacturing costs. The other benefit is choice. Suppose a company can manufacture a product cheaply. In that case, they can reinvest the money in other endeavours such as expanding their product line, research and development, exploring new markets and market segments, etc. 
  • Employment benefits – MNC’s create new jobs in countries they expand to and create new higher-paying, higher-value jobs in countries that already operate out of and create auxiliary support businesses. For the most part, they bring in industry best practices and help increase the quality of life to their employees by providing them with higher salaries and training.
  • Benefits to the government – This point has roots in the earlier three points. MNC’s create employment for their citizenry and give them more spending power. Then increase annual tax collections for the government. MNC’s can help in regulating and keeping the cost of products competitive. The more products and services in the market, the more choice the citizenry have and the more they will spend.   

But, at the same time, with MNC’s, everything is not peaches and cream. So, what are some of the negatives MNC’s bring?

  • Dominating the market – While MNC’s bring in big money, it is the same money power that it brings to bear to crush the competition and small local businesses. To pressure local suppliers to align with how much they are willing to pay for a product/service. MNC’s have the power to dictate the supply timelines and the penalties of failure to deliver while at the same time avoiding penalties if payments are not made on time.
  • Social influence – MNC’s are the bringers of change. They open the local populous to new products and services and a new way of thinking. Some of these new ways may counter the traditions of the land and might topple generations of traditions, now some of this might be a good thing, and some to it might be bad, it is all about your point of view and only history can judge.
  • Influence on government – The more powerful MNC’s have the power to lobby for change in government policy to suit their requirements which may be detrimental to the local business or the population. Most of the time, the populous doesn’t even realise that things like this happen, and even if they do realise, everything can be spun to smell like a bed of roses when it is actually a pile of dung.
  • Dumping ground – All of us want the latest and best product in the market. It has become so bad that a more than a year-old mobile phone is considered outdated, and more importantly, “so last season”. Where do all these products go? I remember one of the best-selling cars in my country for about a decade was a car that was outdated in most parts of the world about a decade before it was launched. Launching outdated products can compromise safety and can harm the local environment.

In my opinion, the days of the local business are over (there will always be local businesses, I am just saying “in general”). Because of the internet, everyone knows what is out there, and we all want it. We are moving towards one world, one race, and that is mainly because of global trade, which is powered by MNC.

If you want to learn to be a better manager on a global then check out one of our 100% online master’s degree programmes. Chat LIVE on WhatsApp with one of our Education Advisors today.

What is globalisation?

I don’t know if you have noticed, but many of the online master’s degree programmes we at Robert Kennedy College offer either have the word Global or International in them. Why do you think that is? Is it because of “globalisation”?

Business globalisation. Photo by Jp Valery on Unsplash.

I know the word is self-explanatory, but we have to start somewhere, so let us begin with the meaning of globalisation. According to the BBC, Globalisation is the process by which the world is becoming increasingly interconnected due to massively increased trade and cultural exchange.

How has this come about?

The first thing that happened was transport became cheaper and faster. We invented the wheel, then the steam engine, then the combustion engine, and so on. People and goods were able to be moved around the world almost overnight and in large quantities.

Then the communication boom. From snail mail to the telephone, it took a bit of time. Then came the era of mobile phones and the internet, and everything changed. The changes seen just in the last 25 years have been miraculous. The world has been brought closer together (Only in business. In every other way, the world is still pretty divided). Companies have become truly multinational and cross border trade – a mundane reality. At this rate, Gene Roddenberry’s vision in Star Trek of an Earth utopia could become a reality (fingers crossed here).

Advances in communication technology changed how we do business. Photo by Stellan Johansson on Unsplash.

Now, if you combine the two (travel and communication), what you get is globalisation.

To understand this better, let us take Apple Inc. as an example – Designed in California, Made in China. The iPhone may be designed in California, but everything that goes into the iPhone is global. The phone itself is manufactured in China with semiconductors sourced from Italy and Germany, memory chips and processors from South Korea, wi-fi and Bluetooth from Japan, and minerals from Mongolia and the Democratic Republic of Congo.  

While this looks impressive, what is really impressive is the Supply Chain Management that must go on behind the scenes. Apple sells upwards of about two hundred million iPhones a year globally, and they bring out new models of the phone every year. This means the material has to be sourced, the components manufactured, the phone assembled/manufactured and then shipped to ensure they reach the customers’ hands-on time. All this has to be carried out like clockworks across multiple countries. Let’s face it, none of us has any patients anymore, and if there is a delay, I am going to Samsung (Oops, I already have, but for a different reason).

How does Apple Inc. sell 200 million iPhones a year? Supply Chain Management! Photo by Kyle Ryan on Unsplash.

For all this to happen, the communication behind the scene has to be real-time, continuous and spot-on. The shipment planning has to be on-time and seamless. Because remember, you are operating across countries here.

There are a lot of positives to globalisation, such as creating jobs and new income in poorer communities, thereby giving them food and a roof over their heads, making a cheaper yet high-quality product for the customer, and keeping manufacturing costs low, thereby enabling the company to invest the money into some other aspect of the business (hopefully no into the pockets of the executives), just to name a few.

While it is hoped that working with companies from developed nations, the local business partner will be able to adapt the best business practices from the developed countries and raise the standard of living of its employees, the reality is companies still need to secure future contracts with the “big fish”, and the way to do that is by giving a lowball quote on future services. They get this done by cutting corners, cutting wages, and cutting the workforce by increasing the workload.

While this is more likely with companies operating in blue colure job segments, it comes down to the laws of the nation they are operating within at the end of the day. If the countries have strong labour laws and enforce them, then this is less likely to happen.

Photo by Tingey Injury Law Firm on Unsplash.

Then there is the question of what happens to the people whose jobs just got outsourced? Are they being retrained and upskilled, or are they just let go? Do companies pass on the cost-benefit of outsourcing to the end-user?

So, while outsourcing and globalisation can be great to the bottom-line of any organisation, companies must ensure ethical business practices of their partners because no one else will. Companies must also provide training and upskilling of their employees before outsourcing because a strong and happy workforce is the backbone of any organisation.

If you are ready to be an efficient and knowledgeable global/international business manager, consider joining one of our 100% online master’s degree programmes. Chat LIVE on WhatsApp with one of our Education Advisors today.