A HISTORY OF MULTINATIONAL CORPORATIONS AND DEVELOPMENT IN NIGERIA
CHAPTER TWO
REVIEW OF LITERATURE
2.0 INTRODUCTION
The essence of this literature review is to explore the various write-ups and publications that view multinational corporation as agents of development.
A multinational corporation is a company that has subsidiaries in several countries. Their decentralized structure as well as their sheers size, often allow them to work without government constraints which small regional or national companies must companies must observe.
Developing nations attract multinational subsidiary operations due to a number of actors 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 fact, including low pay for woman workers, child labour and the absence of labour unions, also combine to make the developing nations ripe for prospect the presence of multinational in these countries improves overall standards of living. The benefits of the relationship may be one-sided, but the economic problems facing these nations makes it difficult for them to be picky about their investors.
DEFINITION OF MULTINATIONAL CORPORATION
A multinational corporation may be defined as an enterprise having a home in one country, together with related facilities in the other countries. It could also be a business enterprise organization in one society with activities abroad growing out of direct investment. Typically, and multinational corporations consist of the parent company and wholly or partially owned subsidiaries located aboard.
THEORETICAL REVIEW
Three theories were reviewed to explain the relationship between multinational corporations and Nigerian Economy. They include New Trade Theory, Unequal Exchange and Dependency Thories.
New Trade Theory was propounded by Tejvannne and Pettinger(2013).It proposes that a critical factor
in determining international patterns of trade are the very substantial economies of scale and network effects that can occur in key industries. These economies of scale and network of effects can be so significant that they outweigh the more traditional theory of comparative advantage. Economies of scale are factors that cause the average cost of producing something to fall as the volume of its output increases. Economies of scale were the main drivers of corporate gigantism in the 20th century. They were fundamental to Henry Ford’s assembly line and they will continue to be the spur to many mergers and acquisitions today.
New Trade theory is a factor that explains the growth of globalization which multinational corporations serve as main agents. It means that poorer, developing economies may struggle to ever develop certain industries because they lag too far behind the economies of scale enjoyed in the developed world. The theory suggests that government might have a role to play in promoting new industries and supporting the growth of key industries. A developing economy may need tariff protection and domestic subsidy to encourage the creation of capital intensive industries. If the industries get support for few years, it will be able to exploit economies of scale and then be competitive without government support.
New Trade Theory is not primarily about advocating government intervention in industry. It is more a
recognition that economies of scale are a key factor in influencing the development of trade. It also suggests that free trade and laissez fair government intervention may be much less desirable for developing economies who find themselves unable to compete with established multinationals.
DEPENDENCY THEORY
This study is anchored on dependency theory developed by Boxborough(1974).According to the theory” dependency implies a kind of parasitic relationship that exists between the highly industrialized and the less developed ones in a manner that ensures the continuous advancement of the former to the detriment of the later. The theory defines the relationship between Nigeria and the multinational corporations, especially their owners. This theory represents the complex politico-economic relationship that binds the advanced capitalist countries of the Centre and the other countries in the periphery such that the movement and structure of the former decisively determine those of the later in a fashion somehow detrimental to the economic progress of the other societies. Countries, such as Ghana, that once experimented with the dependency theory have achieved neither prosperity nor greater economic independence. Rather they have experienced much poverty, misery and greater dependence on international aid and charity Ahiakpor(1985).
UNEQUAL EXCHANGE THEORY
The Theory of equal exchange equally explains situation in Nigeria. According to Arghiri (1972), underdeveloped countries are exploited through the process of unequal exchange. In the realm of international trade, when the former sell their commodities below value and at the same time buy commodities from the developed countries above the value; this provides a veritable means of under development. In Nigeria, our crude oil is sold at a much reduced price to the Multinational Corporations who refine it and sell to us at very exorbitant prices.
EMPIRICAL REVIEW
There are myriads of definitions in connection with multinational corporations; it is sufficient to note a number of its characteristics. In the first place, multinational corporations make direct investments in foreign countries. MNCs are characterized by a parent firm and a cluster of subsidiaries or branches in various countries with a common pool of managerial, financial, and technical resources. The parent firm operates the whole in terms of a coordinated global strategy. Purchasing, production, marketing, research, etc., are organized and managed by the parent in order to achieve its long-term goal of corporate growth. Multinational Corporations have been broadly defined as business firms that uphold value added-holdings overseas.
According to Spero and Hart (1999) a multinational corporation (MNC) is a business enterprise that maintains direct investments overseas and that upholds value-added holdings in more than one country. An enterprise is not truly multinational if it only operates in overseas or as a contractor to foreign firms. A multinational firm sends abroad a package of capital, technology, managerial talent, and marketing skills to carry out production in foreign countries. Dunning (2008) supports the same view and defined MNC as an enterprise that engages in foreign direct investment (FDI) and owns or, in some way, controls value added holdings in more than one country.
Hennart (2008) defines MNC in a different way by envisaging it as a privately owned institution devised to organize, through employment contracts, interdependencies between individuals located in more than one country. Multinational Corporations according to Kogut and Zander (2003) are economic organizations that grow from its national origins to spanning across borders.
Hill (2005) views Multinational Enterprise as any business that has productive activities in two or
more countries. According to him; certain characteristics of Multinational Corporations should be identified at the start since they serve, in part, as their defining features. Multinational Corporations are usually very large corporate entities that while having their base of operations in one nation—the “home nation”—carries out and conducts business in at least one other, but usually many nations, referred to as “host nations. Kim (2000) in agreement with this proposition envisages Multinational Corporations as very large entities having a global presence and reach. Multinational corporations (MNCs) can spur economic activities in developing countries and provide an opportunity to improve the qualities of life, economic growth, and regional and global commons Litvin (2002).
According to Gilpin (1987) cited in Osugwa and Onyebuchi (2013) ‘the principal objective of
multinational corporations is to secure the least costly production of goods for world markets. This goal may be achieved through acquiring the most efficient locations for production facilities or obtaining taxation concession from host governments. This objective confirms the views of the Marxist who see the MNCs as progressive agents of capitalism. Multinational company lies in the fact that its managerial headquarter is located in one country while the company carries out operation in a number of other countries as well.
Okwandu and Jaja (2001) define it as a large enterprise with operations and divisions spread over several countries but controlled by a central headquarters. Multinational corporation is an enterprise which possesses at least one unit of production in a foreign country Meier and Schier( 2001). MNC is an organization owing or controlling enterprises or physical and financial assets in at least two countries of global economy and opting for a multi-domestic strategy founded on social-economic differences of these countries as a reply to specific local demand. The multinational corporation or enterprise generally consists of the parent company (the resident of one country) and at least one affiliate (resident of another country).
Andreff (2003) defines the MNC in a more theoretical way as an enterprise whose capital is acquired in the process of international accumulation. Porter (1990) defined Multinational Company (MNC) as a company with operations in more than one country. It can also be referred to as an international corporation. The international Labor Organization (ILO) has defined a MNC as a corporation that has its management headquarters in one country, known as the home country, and operates in several other countries, known as host countries. The operations outside the company's home country may be linked to the parent by merger, operated as subsidiaries, or have considerable autonomy.