TNCs Positives and Negatives for Host and Origin Country

Host Country:

Positive:

• Multiplier effect
 - Local employment by cumulative causation bringing wealth to the local economy through jobs that supply components, distribute new goods and supply services to the new plant

• Employment
 - In the UK in 2007, FDI generated more than 700 projects which created over 50,000 jobs
 - The jobs were financed with foreign money not government grants so have a big impact on local communities

• New Methods of Working
 - Eg. quality management systems monitoring the standard of output and technology transfer creating a more skilled workforce

•  Inject Capital
 - More disposable income creates demands for housing, transport and services


Negative:

• Competition
 - TNCs may be in direct competition with local firms
 - Eg. The arrival of western chocolate manufacturer in Russia had adverse effects on the home confectionary industry

• Environmental Concerns
 - Cause damage to the atmosphere, water and land
 - Many developing countries have less strict pollution laws
 - Agricultural land may be lost, along with wildlife habitats

• Labour Exploitation
 - Many have established a basic standard of operation to give training to workers, provide promotion opportunities and minimum wage and age limits
 - Some TNCs exploit cheap, flexible, non-unionised labour forces in developing countries

• Urbanisation
 - Young workers migrate to the city to work for the TNCs affecting rural communities resulting in an ageing population

• Outside decision making
 - Decisions about which plants stay open happens at the headquarters and its not in the interest of the host country

• Removal of Capital
 - The capital generated does not all stay in the host country



Origin Country:

Positive:

• Higher salaried jobs stay in the country of origin
 - Eg. Dyson retains several 100's of jobs in the UK in administration and Research and Development

• Profits returned to country of origin
 - Shareholders benefit
 - Government revenues from company taxation increase
 - The total revenue earned by UK companies overseas in 2004 was £63.8 billion


Negative:

• Unemployment
 - In both the company and the component suppliers

• Multiplier effect
 - Less disposable income
 - Traditional industrial regions that rely on 1 or 2 industries are hard hit

• Dyson moving from Malmsbury (Wiltshire) to Malaysia cost 800 UK jobs. Dyson claimed the move cut about 30% from production costs

• Kenwoods Chef food mixer production has moved to China

• Clarks shoes moving production to Romania

• Black and Decker moving from Country Durham to the Czech Republic

• Companies have call centres and back office functions in countries like India as wages are 20% less than the UK - British Airways, Prudential, HSBC and Barclays