CSR and the Role of MNCs in Developing Countries

Multinational Corporations (MNCs) is defined as a business organisation which have its activities located in over two nations; and the organisational method also describes foreign direct investment (Meier & Schier 2001, 8). These activities include owning, controlling or management of distribution and production facilities in foreign markets.

In the present-day global economy, MNCs play a vital role; more specifically, contributing to the development of emerging economies. Abhash (2015, 154) implied that MNCs are otherwise known as transnational corporations, given their nature of transacting business in several nations, and regularly operating in diversified activities of a business. By exploring new ways of augmenting value, MNCs serves as the bridge connecting the prosperous and developing countries and in transmitting ideas, capital, value systems and knowledge across the boundaries globally. Seemingly, these cross-border activities breeds varying interactions with organisations, individuals and institutions, which engenders negative and positive spillovers for the different collections of stakeholders in the MNCs host and home markets (Abhash 2015, 154, Jamali 2010 & Meier & Schier 2001).

The literature on CSR has focused on the analysis of CSR and multinational corporations in development counties (Jamali, 2010). As reported by Meyer (2004, 259-260), a host of research have been conducted to examine the impact of multinational companies (MNCs) on emerging markets. According to Meyer, globalisation has significantly contributed to increases in foreign direct investments (FDI). Additionally, the role played by MNC’s in job creation and the benign economic progress and increase in well-being that comes with such development is generally acknowledged (Lee & Vivarelli 2006, 6, Jamali 2010, 182-183, Meyer 2004 & Khawar 1997). Jamali (2010, 182) implied that the turnovers of numerous MNCs are notably higher than the gross domestic product (GDP) of their host countries. Similarly, MNC’s penetration into developing nations has a possibility of enhancing the wages of the locals employed by these corporations, thus, increasing the purchasing power of the indigenous people and consequently pave the way for an increase in payment of taxes. The creation of more resources that accompanies FDI will afford the host

country’s government ability to spend more resources on infrastructure, healthcare, education, and other social wellbeing areas that will benefit the locals.

As developing countries enter the international market, the different investments by various MNCs make them more open-minded to economic and social changes, hence, adopting modern business practices and values becomes a necessity (Lee & Vivarelli 2006). The operations of the multinational companies should be facilitated by the host nation, given the fact that foreign direct investments are considerably easier to acquire funding in comparison with finance from conventional channels; for instance, non-profit organisations (NGOs), International Monetary Fund or World Bank. According to Worasinchai and Bechina (2010), there is increasing acknowledgement that multinational corporations can potentially influence a number of dimensions, such as technology/processes, capital, infrastructure, competencies/skills and exports (see figure 4). The authors further insinuated that these dimensions are essential for emerging nations aiming competitive improvement.

Figure 3: Five dimensions of competitiveness (Worasinchai & Bechina 2010, 172)

Infrastructure stands as the vital element that attracts foreign investors to the country.

Inadequate infrastructure brings about impediments to growth. Hence, the host countries engage in improvement and building of infrastructure such as roads, water

systems, telecommunication, electricity, etcetera, to provide an enabling environment that attracts potential investors from abroad. In the same vein, capital is a crucial economic asset in emerging markets. MNCs contribute largely to the flow of this resource much needed to oil the wheel of the economy through their foreign direct investments (FDIs). Also, MNCs help developing countries technologically and in the work process through the transfer of knowledge and expertise during work and training programmes. Consequently, they build and develop the competencies and skills of the local workers in the process. Furthermore, FDI brings about increased international trade. Thus, developing nations need to develop a supervisory framework that can aid the regional and local areas in planning and executing active guiding principles for setting up export competitiveness. This will enable them to benefit abundantly from investment opportunities and international trade. (Worasinchai & Bechina 2010, 172

& Kurtishi-Kastrati 2013, 27-30)

In corroboration, Ferdausy and Rahman (2009, 116-118) highlighted economic growth, capital formation, cleaner environment, export-based industrialisation, employment generation and poverty alleviation as some of the positive impacts of MNCs in developing countries. Nonetheless, it is likewise important to note that the activities of MNCs can create negative impacts such as exploitation of workers, prevent autonomous development, organised crime, tax evasion, health and safety risks, outflow of capital and environmental pollution (Ferdausy & Rahman 2009, 119-121). Thus, in a situation where the MNC is the largest landowner, employer and taxpayer in a small nation, it might pose a threat to the sovereignty of the country.

Although problems exist, MNCs possess genuine benefits that cannot be overlooked.

Supporters of multinational corporations contend that they regularly upsurge competition, fast track the transfer of money related capital and contemporary technology as well as offer help in the promotion of free multilateral trade (Tirimba &

Macharia 2014). Additionally, MNCs are known for their enormous resources and scope, which enables them to think, strategize and operate with global sources and markets planning. Through these activities, MNCs spread value to other stakeholders while also receiving the same. Hence, the literature of value creation shall be introduced in a subsequent section of this study.