A Critical Analysis Of The Role Of Multinational Companies In Developing Countries

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A Critical Analysis Of The Role Of Multinational Companies In Developing Countries


The main objective of this study was to look, at international business management and assess the role of Multinational Corporation operating in Nigeria, in terms of their contribution to the socio-economic and technological development of the nation. The study was carried out in some selected multinational and it covered staff (respondent), 133 in number with at least secondary education. Data were collected mainly through structured questionnaires interviews and other secondary sources. The MNC are contributing to the economics and technological development of the nation. The economic contribution is moderate while the technological contribution is in adequate. The MNC are socially responsible that is to say, they are contributing to the social development of Nigeria. But this contribution was found to be inadequate. Finally, the work was concluded with a recommendation on further research and conclusion of the finding.

Chapter One


1.1 Background of the Study

A multinational corporation is a company that has subsidiaries in several countries. Their decentralized structure, as well as their degree size, often allows them to overstep governmental constraints which smaller regional or national companies must observe.

Developing nations attracts multinational subsidiary operations due to a number factors such as cheap labour, low taxation and less vigilance concerning workers rights and environmental protection. They are made to contribute to the social security net (i.e. welfare, unemployment insurance, e.t.c) other factors including low pay for woman workers, child labour, and the absence of labour unions, also combine to make the third world ripe for exploitation. The presence of multination in these countries improves overall living standards. The benefits of the relationship are most often one sided, but the economic problems facing these nations makes it difficult for them to be picky about their investor. Firms become multinational corporations when they perceive advantages to establishing production and other activities in foreign locations. Firms globalize their activities in foreign locations. Firms globalize their activities both to supply their home country market move cheaply and to serve foreign markets more directly. Keeping foreign activities within the corporate structure lets firms avoid cost inherent in arms length dealings with separated entities while utilizing their own firm specific knowledge such as advanced production techniques. By internalizing what would otherwise by cross-boarder transaction multinationals can bridge the information obstacles that often hinder trade. For example, they may be able to move carefully monitor product quality or worker conditions in factories they own than in those of contractors, or adapt the composition of output more quickly to change in market condition.

Improvements in information technology have reduced the impediments to exerting corporation control across boarders. These advances have combined in recent years with an increased openness on the part of government to foreign multination, as the economic benefits of a foreign presence to the host country have become more widely recognized. These benefits include the increased investment and the associated jobs and income that the multinational firm brings, as well as technological transfer and improved productivity. The role of multinationals in spreading industry best practices is likely to be especially important services, many of which are not easily traded across national boundaries.

Evidence of the heightened role of multinationals can be seen in the quickened pace of Foreign Direct Investment (FDI) in recent years in 1991 FDI flows both in and out of other European country development (OECD), reached regard level; over 2.5 percent (%) of their combined gross domestic product (GDP) for in flow and 3.0 percent for outflow. Most of foreign direct investment is between developed countries, since 1982, 75% (percent) of FDI out flow from OECD countries have gone to other OECD members.

SOURCE: United Nation Multinational Corporation in world development New York (2000).

1.2 Objective of the Study

The main objective of this study is to critically look into the activities of those multinational corporation in their host nations mostly developing nations if their existence has positive or negative impact on the development of the host country.

1.3 Significance of Study

The following were the significance of this study: –

  1. It will be a source of knowledge expansion to me
  2. This research work will be my contribution to knowledge.
  3. It will serve as source of data for others who may carryout research work on some or related topic in the future.
  4. It will also serve as point of reference to policy makers in their relationship with matter concerning multinationals.
  5. This research work will be a companion to decision makers on foreign investment in the country. Mostly when the fire of foreign investment is at higher level in the country.

1.4 Scope of the Study

The essay work will cover the following areas of study in terms of the activities of multinational corporation, their roles as an agent of the development, their contribution towards development, the prose and coin i.e. advantage and disadvantages of their activities. It will also examine their negativity in the area of profit send to their home ration.

1.5 Limitation

Due to the following constraints such as inadequate books or the topic posed a serious constraint on the write up some of the date needed for this write-up are not available at the time this write up services carious out.
It is prominent to note that no one has every thing to himself. In everything, there arises some constraints, so it is in the case of this essay

Financial problem;

This problem is a great one especially in this present day economy recess in with inflation, sky rocketed prices of materials, where people are struggling to live within their limited resources. This is especially applicable to a student who depends largely on others, among lost is that of transportation to and fro, the place of research, in some cases would have to trek for long distance.


Time factor is another constraint, which the writer encountered. Such as combining class activities i.e. test, assignments, lectures and exams with the project work other include the drudging of read and writing from one item to another in the attempt to accomplish the task.

1.6 Definition of the Terms

International Business and International Business Management.

International business according to John et al (1984) refers to economic transactions that involve several countries, while international business management is simply the management of business transaction between citizens, companies, or governments of two or more nations.

Multinational corporations (MNCs) and multinational management. Kinard (1988) defined multinational corporations (MNCs) as business firms that produce andmarket goods and services in more than one country. They include giants such as shell, UTC, Royal Dutch, Coca-cola etc. According to Hicks and Gullett (1981) multinational management refers to the management of business activities that cross national boundaries. The simple implication of the above definitions to that MNCs are in international business.

Aharani (1971) noted that there are some debates as to when an organization can be characterized as a multinational. the fact remains that, the organization will have to be headquartered in one country (mostly developed countries) and have to have business operations spread over other countries. For these corporations, the degree of internationalization and international commitment may cover a wide range.

Chapter Five

Discussion of Findings, Recommendations and Conclusion

It is pertinent at this point to finalize this study in this chapter with discussions of findings, recommendations and conclusion.

So far, in this research work, an attempt has been made to examine the contribution of multinational corporations operating in Nigeria to the social, economic and technological development of the country. Efforts were equally made towards determining the adequacy of the contribution.

Moreover, attempts were further made at presenting the views of various authors and researchers on the socio- economic and technological input of multination of their host environment.

To be able to achieve the objectives of this study some research questions were formulated. The questions in the questionnaires were based on the research questions, which were distributed to 120 respondents, for the purpose of data collection.

Finally, the collected data has been presented analyzed in chapter four. This now formed the basis for the finding that will be presented and discussed presently.

5.1 Discussion of Findings

The findings of this study are highlighted and discussed here.

First of all, it was found out that the employees of most the multinational corporations (MNC) in Nigeria are mainly Nigerians males and females. This observation or discovery is in line with what is obtainable in other business firms that prefer to employ men to the employment of women for reasons that may or may not be justifiable. Most times those reasons hinge on sex discriminations.

It was also discovered that most the employees are within the age brackets of 18 to 40 years and most of them are educated to school level and above.

Another discovery from this study was that virtually all the multinational corporations in Nigeria have their corporate headquarters in overseas (home countries), while their head offices in Nigeria are in Lagos. This discovery confirms that Aharani (1971) said that at cited in the definition of terms of this study that MNC are organizations that are headquartered in one country (mostly developed countries) and have to have business operations spread over other countries.

One other finding was that just as previously reported by various authors and researchers, the MNC operating in the country are affected by the following environmental factors, economic, social, cultural, political, legal as well as technological factor with political and economic environment taking the lead, due to the instability and unhealthy nature of these two environment in the country.

The social factor is also a critical one for instance, only recently there was a crisis in Warri in Delta State as a result of a political issue. This crisis led to the loss of N3.3bn by Shell Petroleum Development Company (SPDC) between March and May 1997 Owolabi (1997).

It was equally found out that what motivated most of the MNC, into having subsidiary operations in the country are good market, abundance human and internal resources in the country and government encouragements for direct foreign investments.

Moreover, this study led to the finding that although the foreign investment of multinational corporations has the capacity of boosting the Nigeria economy. The MNC are not responding encouraging to the call by the government for their (MNC) direct foreign investment. The reasons for this unfortunate development, it was further gather was connected to the political and economic uncertainty in the country. For no organization will be very willing to invest in a place where you can’t tell what will happen in the next minute or second with a reasonable degree of accuracy. Hence it could be rightly said, that to a large extent, the government has failed in its bit to attract or the MNC to invest in the country. Even those that are already here are not finding things easy, says are manger in Leventis Plc.

Another interesting finding was that generally, MNC in the country are contributing moderately to the economic development of the country.

In addition, it was found out that the multinationals in the country are mainly interested in profit maximization and that greater part of this profit is being repatriated to their home countries overseas.

This means that very small amount if any of the profit is ploughed back into business here in the country and very little too, goes to the execution of some social obligations to their host environment and nation at large.

One more interesting findings was that if the huge profit repatriation by MNC exceeds the incoming foreign investment, the country will experience negative economic problems such as balance of payment difficulties, drain on the nation’s investment capital (decapitalization effect as described by Bieistelch (1978), in the literature review of this work).

It was also discovered that all the multinationals corporations in Nigeria contribute towards increasing government’s revenue through the payment of royalty, taxes, gifts and donations to government, revenue accruing to government from share ownership in some of the corporations. For some of them, this is done through one source, while for others it is through a combination of two or more of these sources. By and by the means that applied to virtually all the MNC is taxation. Only MNC in the extractive sector pay royalty and government only get share revenue from those companies where she has shares.

An important finding from this study was that the operations and existence of multinational corporations in the country do bring about unfavourable competition for local holigenous firms.

This is so because these MNC are better equipped compete more favourable than the local firms. They have a great wealth of experience world wide contacts, advertising skills and a wide range of essential support services which the local firms cannot boast of so, they are at a very disadvantages position to compete with the MNC. Hence most times, the unfavourable competition often leads to the collapse of these local firms.

This problems is a very sensitive one because, when left alone, the local firm would not be able to satisfy the Nigerian large market, yet the coming in of the MNC to help out of this undesirable problem the collapse of local firms.

Moreover, because of tendency of consumers to often positively favour foreign goods against locally produced goods may due to their superior quality or just ordinary sentiment or complex, the problems of the local firms are further compounded, since they lose the market sooner than later, when the tread continues without stopping.

On the issue of technological development, was found out that MNC in Nigeria are contributing the technological development of the country. However, this contribution was found to be headquarter (not encouraging). This might explain why Nigeria is still technologically backward, because, it seems that the MNC are not in any haste to transfer thin technology to Nigeria, since doing so, will mean that Nigeria will not depend on them again and this they do not want.

Therefore, they have to prevent this much needed technology transfer in the way they know best.

Another major finding was that MNC in Nigeria are contributing to the social development of the nation through
education, job creation, provision of basic amenities, manpower development, provision of health facilities and sports development. However, in general, these contributions were found to be inadequate.

The fact that these multinationals are responding to the social needs of host environment is a notification of the fact that the MNC are imbibing the warning of Dalu (1975) “Today it is absurd to regard the corporation simply as an enterprise for the sole purpose of profit making. Every corporation should be thought of as a social enterprise whose existence and decisions can be justified only in so far as they serve public or social purposes”

The study further proved that the major area of MNC contributions is in job creation or employment and manpower development. Hence MNC in Nigeria are playing a positive role towards reducing the rate of unemployment in the country.

Another interesting finding of this study was that Multinational Corporation in the country employs both skilled and unskilled holigenous labour but the expatriate staff are paid better than the indigenous staff and certain sensitive position are the exclusive reserve of the expatriates in most of the multinations. This is one of the ways that these MNC are using to prevent the Nigerians from actually acquiring the real knowledge of the technology involved in their production processes. If this trend of the corporation keeping the knowledge of their technology secrete continues then the much needed, talked about, and controversial technology transfer will consistently remain and illusion to the nation.

Unless something drastic or unconventional is done about it. Such as steeling the technology and make little modification to make it look different and original, if you like. If the country can do this, in no distance time, the nation will be talking about her own technology.

5.2 Recommendations

Based on the findings of this study, the following recommendations are made.

The multinational operating in Nigeria should as a matter of urgency improve on the adequacy of their contributions to the economic, social and technological development of the nation, through more or increase investment provision of basic amenities and ensuring that Nigeria managers man positions that will equip them with the much needed technological know how.

Multinational corporations in the country should either be persuaded or compelled by the government through legislations to increase the percentage of profit reinvest in the country and spent on meeting their social responsibilities to their host communities in particular and the country in general. This will also prevent the negative implication of the repatriation of huge profit to home countries of those MNC. The government or ruling class should at all times endeavour to pursue economic, political policies and development policies generally that will stabilize the economic and political environment of the country.

This could be achieved if and only if the right persons are allowed into the leadership positions and the selfish and greedy tendencies of the average Nigerian are de-emphasized for the general good of the nation. With this done, in no time, the Nigerian economy will become attractive once more to foreign investors to the point that they may not even require to be invited or wood in any way. This is because Nigeria is naturally endowed and most people desire to do business here under normal situations.

Moreover, the government should do something, either through legislation, to protect local firms from the unfavourable competition with MNC which often leads to their collapse. Also, Nigerian consumers should at least, if only for patriotism sake, patronize the goods and services of our local business firms, for their products are as good as the foreign ones and even better sometimes.

On the issue of technology transfer, since the multinationals have shown consistently that they are not will to affect a real transfer of technology to the country. Conventionally, Nigeria government and Nigerians in general should adopt a rather drastic and unconventional approach-espionage. When the technological knowledge have been acquired through this means, it can be modified and adapted to suit the Nigerian environment, thus making it different from where it was copied and hence original, if you like, the country can do this without relying fully on the MNC for the illusive technology transfer, in no distance time, the nation will be taking about her own technology.

This study gave a very general overview of the role MNC in Nigeria. Hence it is recommended that an exhaustive and more detailed research on this topic be carried out; with emphasis on particular sectors e.g. oil construction etc.

5.3 Conclusions

By and large, efforts have been made at carefully analyzing bit by bit the subject of this research. Also all the research questions formulated.

From the findings of this research, one can make bold to say that multinational corporations in the country rate contributing to the social, economic and technological development of Nigeria. Save that while the economic contributions are inadequate. That is to say that, their response to their corporate social responsibilities and technological impact in the country is nothing to write home about.

Therefore give or take, the multinational corporations operating in Nigeria are helpful to Nigeria’s economy generally but given the enormous wealth made by these MNC in the country, their managerial and technological know-how, this help is considered as a spit in the ocean. There help notwithstanding, the MNC in Nigeria equally have their fair share of shortcomings.

Finally, it is believe of the researcher that this will go a long way in opening up new areas of research and t hereby enriching the knowledge of academicians and mankind generally.

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Frequently Asked Questions

What is a multinational corporation?

A multinational corporation is a company that has subsidiaries in several countries. Their decentralized structure, as well as their degree size, often allows them to overstep governmental constraints which smaller regional or national companies must observe.

Can multinationals spread industry best practices across countries?

The role of multinationals in spreading industry best practices is likely to be especially important services, many of which are not easily traded across national boundaries.

What role does a multinational corporation in a poor society?

Specifically, corporations can be most effective in helping the poor by investing in local and global communities on a long-term basis rather than by acting as charities or aid agencies. However, to do so, corporations must restore the public’s trust.

What factors influence the policies and practices of multinational firms?

“What factors influence the policies and practices of multinational firms?” Multinational firms are those who have direct operations and employees within several countries (Almond and Tregaskis, 2007). The types of policies and practices in which multinational corporations inhibit have created vast interest within the realm of academic literature.

What are some examples of multinational companies from developing countries?

Rapid growth and industrialization in the developing world has also given birth to new multinational companies (MNC) from these countries. Brands such as Samsung, Hyundai, Cemex, Embraer, Infosys, Tata, Lenovo, PETRONAS or Standard Bank have now become ubiquitous.

What is a multinational firm?

The multinational firm is one of the most pervasive types of firms in the global economy. If we define it as a firm with assets or employees in more than one country, there are more than 61,000 companies in the world that qualify as multinationals, and they control nearly half a million subsidiaries worldwide.

Are there transnational learning structures in multinational firms?

Transnational learning structures in multinational firms; Organizational context and national embeddedness. Human Relations 63(4); 471-99. Walsworth, Scott, and Anil Verma. 2007. Globalization, human resource practices and innovation; Recent evidence from the Canadian Work and Employment Survey. 


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