Bba 225 2nd course work for international business abraham ayom

CAVENDISH UNIVERSITY UGANDAStudent Name: Abraham Ayom Ayom

Course: BBA – Generic

Student ID: 02/00315/123532

Lecturer: Hilary SSerubidde

Module: International Business

Module Code: BBA 225

Year of Study 3rd year, 1st Semester

Assignment Number: Two (2) Second Assignment

Session Long Distance Program

Date Issued: 29th September 2012

Due Date: 30th October 2012

Assignment Brief: 2nd Assignment coursework questionQ1. Access the role of multi-National enterprises (MNE) in the economic development of developing countries. Positive and Negative?

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1 Presented by Abraham Ayom Ayom, email: [email protected], or Tel: +211 927 034 102 2nd course for International Business

mailto:[email protected]

Table of Contents

Introduction -----------------------------------------------------------------------------------------2 Multinational enterprises(MNE)----------------------------------------------------------------2 Positive and Negative roles for Multinational enterprises in Economic development

of developing countries----------------------------------------------------------------------------3 Conclusion-------------------------------------------------------------------------------------------5 Referees-----------------------------------------------------------------------------------------------5

Introduction

A multinational enterprise is a firm that has productive capacity in a number of countries. The profit and income flows that they generate are part of the foreign capital flows moving between countries. As countries adopt more open outward oriented approaches to economic growth and development the role of multinational enterprises (MNE) or transnational corporations become more important. As local markets throughout the world are being deregulated and liberalized foreign firms are looking to locate part of the production process in other countries where there are cost advantages. These might be cheaper sources of labor, raw materials and components or have preferential government regulation. Although LDCs may present high levels of risk they also present the potential for higher levels of profit. Many LDCs with growing economies and increasing incomes may provide future growth markets.

Many development economists are concerned with role of the MNEs in low income countries and identify a number of problems associated with foreign direct investment. Equally other economists and politicians argue that MNE activity can drive growth and development. The true answer is that probably the arguments put by both sides are applicable in certain countries with certain MNEs at certain times.

Multinational Enterprises (MNE)

Multinational enterprise (MNE) is a company that takes a global approach to foreign markets and production or one with operations in more than one country and it headquarter in one country. It is willing to consider considering market and production locations anywhere in the world. An MNE is often called multinational corporation (MNC), Multinational Corporation (MNC) or transactional company (TNC).MNE is used in a global approachMNC is used in International business arenaTNC is used by United Nations



The roles for Multinational enterprises both positive and negative roles in economic development of developing countries

Positive Roles

Let us consider the arguments from both sides. Firstly, from those who maintain the importance of foreign direct investment as part of the engine necessary for economic growth?

A MNE investing in an area may result in a significant injection into the local economy. This may provide jobs directly or through the growth of local ancillary businesses such as banks and insurance. It might initiate a multiplier process generating more income as newly employed workers spend their wages on consumption.

MNEs may provide training and education for employees thus creating a higher skilled labor force. These skills may be transferred to other areas of the host country. Often management and entrepreneurial skills learned from MNEs are an important source of human capital.

MNEs will contribute tax revenue to the government and other revenues if they purchase existing national assets as in the case in Zambia through the privatization process.

Create wealth and jobs around the world. Inward investment by multinationals offer much needed foreign currency for developing economies. They also create jobs and help raise expectations of what is possible.

Their size and scale of operation enables them to benefit from economies of scale enabling lower average costs and prices for consumers. This is particularly important in industries with very high fixed costs, such as car manufacture and airlines.

Large profits can be used for research & development. For example, oil exploration is costly and risky; this could only be undertaken by a large firm with significant profit and resources. It is similar for drug manufacturers.

Ensure minimum standards. The success of multinationals is often because consumers like to buy goods and services where they can rely on minimum standards. I.e. if you visit any country you know that the Starbucks coffee shop will give something you are fairly familiar with. It may not be the best coffee in the district, but it won’t be the worst. People like the security of knowing what to expect.

The opportunities for developing economies are significant as well. Through the application of capital, technology, and a range of skills, multinational companies' overseas investments have created positive economic value in host countries, across different industries and within different policy regimes



http://www.economicshelp.org/microessays/costs/economies-scale.html

In the light of these important/benefit roles, there are also negative roles/ problems and concerns associated with MNEs?

Negative Roles

The Negative roles/Problems of Multinational Enterprises

The MNE may employ largely expatriate managers ensuring that incomes generated are maintained within a relatively small group of people. The attraction for the MNE may be the large supply of cheap manual labor who they can employ at low wages. This may contribute to a widening of the income distribution. It will also not lead to the transfer of management skills.

MNE investment in LDCs often involves the use of capital intensive production methods. Given that many LDCs are often endowed with potentially large low wage labor forces and have high level of unemployment this might be considered inappropriate technology. More labor intensive production methods might be a more appropriate option for alleviating poverty and aiding development. Any resulting growth might be considered anti-developmental.

MNEs engage in transfer pricing where they shift production between countries so as to benefit from lower tax arrangements in certain countries. By doing this they can minimize their tax burden and the tax revenue of national governments.

As many MNEs are very large and have considerable power they can exert influence on governments to gain preferential tax concessions and subsidies and grants.

Companies are often interested in profit at the expense of the consumer. Multinational companies often have monopoly power which enables them to make excess profit. For example, Shell made profits of £14bn last year

Their market dominance makes it difficult for local small firms to thrive. For example, it is argued that big supermarkets are squeezing the margins of local corner shops leading to less diversity.

In developing economies, big multinationals can use their economies of scale to push local firms out of business.

In the pursuit of profit, multinational companies often contribute to pollution and use of non-renewable resources which is putting the environment under threat.

MNCs have been criticised for using ‘slave labour’ – workers who are paid a pittance by Western standards

Conclusion



http://www.economicshelp.org/blog/oil/the-most-profitable-company-in-the-uk-shell/

Multinational company enterprises investment in the developing world opens up new horizons for economic development and for company strategy. The McKinsey Global Institute's latest report shows that the overall economic impact of multinational investment on developing economies has been overwhelmingly positive despite the persistence of policies that lead to negative, unintended consequences. Companies are also seeing substantial benefits but have only started to capture the large cost savings and revenue gains possible from operating in these markets.

Outward oriented economists maintain that the cycles of poverty will not be broken from within the domestic economy. The level of investment needed to raise productivity and incomes is not possible. Thus foreign direct investment through the MNE activity is essential.

Reference

John Daniels University of Miami, Lee H.Radebaugh Brigham Young University, & Daniel P.Sullivan University of Delaware, International Business environments and operation, 11 Education( Multinational Enterprises, Multinational corporation or Transnational corporation)

http://www.economicshelp.org/blog/538/economics/multinational-corporations-good-or-bad/The roles for Multinational enterprises

http://www.bized.co.uk/virtual/dc/copper/theory/th18.htmThe roles for Multinational enterprises

http://www.mckinsey.com/insights/mgi/research/productivity_competitiveness_and_growth/new_horizons_for_multinational_company_investment





http://www.bized.co.uk/virtual/dc/copper/theory/th18.htm

http://www.economicshelp.org/blog/538/economics/multinational-corporations-good-or-bad/