Host Country for Multinational Enterprises
Dicken defines the
host country as a country in which a transnational company (TNC) operates by creating a new subsidiary, acquiring an existing capacity, forming a joint venture, or subcontracting with local companies.
(adapted from Dicken, P.,
Global Shift: Reshaping the Global Economic Map in the 21st Century, 4th ed., New York: Guilford Press, 2003, p. 278)
"In the 1960s and 1970s, the activities of multinational enterprises (MNEs) provoked intense discussions that resulted in efforts to draw up instruments for regulating their conduct and defining the terms of their relations with
host countries, mostly in the developing world."
(International Labour Organization (ILO),
Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy, 3rd ed., 2001, visited 2009-07-28)
The ILO's MNE Declaration
In 1977, the ILO adopted the
Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy (MNE Declaration). It was revised in 2000 to take into account the objectives of the 1998 ILO
Declaration on Fundamental Principles and Rights at Work.
The Principles set out are addressed to the governments, the employers' and the workers' organizations of home and
host countries as well as to the multinational enterprises themselves, and aim at encouraging a positive contribution to economic and social progress in
host countries.
(adapted from International Labour Organization (ILO),
Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy, 3rd ed., 2001, visited 2009-07-28)
OECD Guidelines for Multinational Enterprises
The OECD also established some
Guidelines for Multinational Enterprises, which were re-examined in 2000. They provide voluntary principles and standards for responsible business conduct in a variety of areas including employment and industrial relations, human rights, environment, information disclosure, combating bribery, consumer interests, science and technology, competition, and taxation.
(adapted from Organisation for Economic Co-operation and Development (OECD),
Guidelines for Multinational Enterprises, visited 2011-07-28)
How Host Countries Are Affected by TNCs
According to Dicken, the establishment of an overseas facility by a TNC has far-reaching implications for the
host country.
Operations with different modes of entry, different functions and different attributes will affect the
host country in different ways. For example, a completely new operation is generally regarded with greater favour by
host countries than the acquisition of an existing capacity. A new unit obviously adds to the
host country's stock of productive capacity (p. 278).
TNCs are not only extremely significant transmitters of economic change but also of social, cultural and political change in the
host countries, particularly in developing ones. A person employed in a TNC factory or office not only acquires work experience but could also adopt a new set of attitudes and expectations. TNCs introduce patterns of consumption that reflect the preferences of consumers in industrialized countries (p. 279).
The most controversial issue in the debate concerning TNCs is their effect on jobs:
Does the entry of a foreign-controlled plant create new jobs?
- Domestic enterprises may be squeezed out by the size and strength of foreign branch plants while new firm formation may be inhibited: the effect of the TNC may be to displace existing or potential jobs in domestic enterprises (pp. 293-294).
What kind of jobs are they?
- Where the plant fits into the TNC's overall structure and how much decision-making autonomy it has are key factors. In developing host countries, the overwhelming majority of jobs in TNC plants are production jobs, even though the ILO suggests that the proportion of higher-skilled workers employed by TNCs in developing host countries has tended to increase over time, as has the proportion of local professional and managerial staff. Such changes have progressed furthest in the more advanced industrial countries of Latin America and East Asia (p. 294).
Do TNCs pay higher or lower wages than domestic firms?
- The exploitation of cheap labour in developing host countries at the expense of workers in developed countries is one of the major charges leveled at the TNC. The major problem seems to be in relation to conditions in subcontracting companies rather than in the TNCs themselves, and there is much controversy over this issue. In the face of these criticisms, many TNCs are now implementing codes of practice to which their subcontractors must conform. However, as far as their directly owned affiliates are concerned, the general consensus seems to be that TNCs generally pay either at or above the ‘going rate' in the host country. Where TNCs do pay above the local rate, they may well ‘cream off' workers from domestic firms and possibly threaten their survival. Another aspect of recruitment, specific to particular industries (garments, electronics), is the extent to which TNCs recruit particular types of workers to keep labour costs low (women, minority groups) (pp. 295-296).
Do TNCs operate an acceptable system of labour relations?
- "One of the most acute concerns of organized labour is that decision-making within TNCs is too remote" (p. 297).
Dangers of Overdependence on TNCs
Overall dominance by foreign firms is undesirable from a
host-country viewpoint, as there are real dangers in acquiring the status of a branch plant economy.
A high level of dependence on foreign enterprises potentially reduces the
host country's sovereignty and autonomy: its ability to make its own decisions and to implement them. It may be difficult for the host government to pursue a particular economic policy if it has insufficient leverage over the dominant firms. The most significant aspect of dependence is technological: the inability to generate the knowledge, inventions and innovations necessary to generate self-sustaining growth.
The greater the competition between potential
host countries for a specific investment, the weaker will be any one country's bargaining position (p. 299).
(adapted from Dicken, P.,
Global Shift: Reshaping the Global Economic Map in the 21st Century, 4th ed., New York: Guilford Press, 2003)