EFFECT OF MULTINATIONAL CORPORATIONS ON NIGERIA ECONOMY
CHAPTER TWO
LITERATURE REVIEW
Considerable amount of literature on MNC exists. The areas considered relevant to this study are reviewed accordingly in this chapter.
2.1 THE INDUCEMENT FACTORS AND ENTRY STRATEGIES INTO MULTINATIONAL BUSINESS
Some of the reasons why MNC decided to go abroad especially to developing countries are:
a) To achieve higher percentage of earning from their operations there
b) The demand is greater
c) Competition is less in foreign markets
In some cases says Dale (1978) because of the installed capacity of MNCs, they tend to produce more than they can possibly market at home, hence they seek to exploit foreign markets to dispose off the extra goods.
Another reason is the availability of raw materials and other natural resources in the countries, which makes it cheaper for the MNC to produce in that country.
Moreover, the availability of cheap labour especially in developing countries like Nigeria equally makes the cost of production less for MNC operating in these countries.
All these factors according to Megginson (1985) eventually boil down to one thing-higher profit for the MNC.
2.2 ENTRY STRATEGIES INTO MULTINATIONAL BUSINESS
Direct foreign investment for production abroad is the long range and maximum level of commitment in multinational business. However, it is common for most organization to enter multinational business through various other ways that require lesser degrees of commitment and shorter time horizon. According to Hicks and Gullett (1981) moving from a minimum to a maximum level of commitment of company resources entry strategies can be grouped into the following six categories.
1) Exporting
2) Licensing
3) Franchising
4) Foreign Branch
5) Joint Venture
6) Wholly Owned subsidiary
2.3 ENVIRONMENTAL FACTOR AFFECTING THE MNC
Everard et al (1979) argued that since business does not operate in a vacuum it cannot isolate itself from the environment. To this, Hicks and Gullette (1981) said that, “Envy Corporation exists in relationship to its environment”. In fact, environmental considerations are increasingly appreciated as to how they affect the functioning of business organization.
Environmental are in turn, influenced by the operations of these organization.
Several authorities are of a common view that environmental analysis particularly is very important for MNC. These corporations face complex, diverse, and uncertain environmental factors, in different countries, the different environmental factors, they agreed, increase the elements of risks, potential conflicts and operational problems.
Hick and Gullett (1981) gave four kinds of environmental factors viz.
ECONOMIC ENVIRONMENT
The economic size of a nation measured by its Gross National Product (GNP), its income level (Per Capital Income or GNP Per Capita), and the distribution of that income within a country may indicate a potential market or the lack of one. A number of countries with underdeveloped economics want foreign direct investments because of their potential economic, technological and managerial benefits.
Some additional economic factors that are usually considered by MNC are economic growth trends, inflation rates, balance of payment, financial and labour institutions. Also facilities and services such as transportation, communication, electricity, water and housing are taken into account. Since all these affect the MNC present, and future business activities. They must consider both the potential opportunities and the potential threats provided by the economic environment of host nations.
SOCIAL AND CULTURAL ENVIRONMENT
Social and Cultural differences among countries can affect the operations of multinationals. For example, differences in customer behaviour and preferences require product changes or different marketing strategies. Also differences in behaviour and values of employees may affect managerial practices of MNC. Employees in United States tend to reject authoritarian managerial styles, while employees in some countries of Europe and Asia expect managers to behave in an autocratic manner. Hence managers have to adjust their business practices accordingly.
POLITICAL AND LEGAL ENVIRONMENT
There are different political philosophies in all the countries of the World. Foreign direct investment is more welcomed in some countries than in others. Many countries do not allow wholly owned subsidiaries of MNC in some industries. In 1977, for examples, Venezuela did not permit more than 20 percent ownership interest of foreign partners in list major companies. Similarly, Nigeria published a list of business enterprises in which foreign equity is limited to 4
percent.
Nationalistic philosophy, Dale (1978) says generally favours nationals over foreigners for control of nation’s economic resources.
This gives rise to struck regulations of foreign investments. He then went further to say that “Political instability of some developing countries makes life hard for MNC”. In some, there is a distinct possibility of expropriation either outright seizure or seizure without sufficient compensation.
Nigeria for one, over a long period of time now can be described as anything but politically instable. This most people feel, has affected negatively, the foreign investment in the country. No wonders then, each successive government will device one means or the other to woo the foreign investors. Each nation has its own laws and regulations regarding investment from abroad. Matters such as investment approval, incorporation, degree of foreign ownership permitted, utilization of domestic materials and manpower and return of profit to the parent countries. Others are import and export regulations, tariffs, taxations patents and anti-trust laws. In this regard, the Nigeria government has over time promulgated and repeated several devices depending on the policy the very government is pursuing.
Binitie (1993) noted that, in 1995 the Nigeria military government repealed some restrictive decrees to foreign investments such as the exchange control act and the Nigeria enterprises promotion decree. This was aimed at encouraging more foreign investments, which have the capacity to share up the value of the naira and boost the economy in general.
TECHNOLOGICAL ENVIRONMENT
The advance technology generally reflects capital – intensive and labour saying devices. The developing countries of the world in general regard small scale and labour intensive technology to be more appropriate for their purposes.
Moreover, given the labour, skills, cost and workers attitudes in the host country, a multinational organization may need to simplify tasks and utilize equipment that might be considered obsolete in a more advanced country. For example, Well (1974) remarked that a plan may be adopted to replace automatic bottle washing machinery and mechanized loading equipment with human efforts.
2.4 THE MANAGERIAL FUNCTIONS IN INTERNATIONAL BUSINESS
There is evidence that shows that management fundamentals are generally applicable in different countries. However, the practice of carving out the managerial functions of planning, organizing, staffing, lending and controlling differ considerable in domestic and international enterprises. Koontz, (1988) gave what managerial functions in international business look like, this presented below;
Planning in the MNC: Planning, they say requires setting objectives and then selecting strategies, policies, programmes and procedures for achieving them. A critically important activity for the MNC is the assessment of opportunities and threats in the external environment. This is a complex task even for a domestic enterprise, but it becomes much more intricate when many different ever changing world markets must be scanned.
External threats and opportunities must be matched with the internal strengths and weaknesses of the firm. For example, a poor educational system makes it difficult to find qualified personnel. Similarly, cultural orientation towards time will affect planning specifically; cultural attitudes that emphasize a short-time perspective will not be conducive for long range planning.
Finally, political and economic instability in the host country makes it difficult to forecast and will discourage longterm commitment of resources. This last point is unfortunately true of Nigeria. The country’s second name for sometime now could as well be “instability”.
Organizing the MNC: According to Ronen 1986 cited in Koontz, (1988) organization structures are established to achieve corporate objectives.
An enterprise may for example establish a vise presidential position at corporate headquarters with responsibility for the international divisions. An alternative is to organize according to geographical areas. Organizing could be by product lines. The truly multinational firm may integrate domestic and international business into a global structure, which gives similar importance to domestic and foreign business activities.
Each structure discussed above has its own advantages and disadvantages. Hence, Koontz et al (1986) says that for the large MNC only our structure may be insufficient. Consequently, different organization designs may have to be mixed, depending on the environmental and task demands.
Staffing in the MNC: When the organizational structure has been established, qualified persons have to be selected to fill the position there in this is staffing.
For the MNC there are three sources of managerial talents.
a) Home Country
b) Host Country and
c) International Pool of Executives
More often than not a firm may use a variety of combination of the above depending on the situation.
The present trend now is that people in most countries, especially developing countries like Nigeria and better prepared to assume responsibilities of managerial positions.
Most MNC are reported to be tending towards employing more host country nationals than managers from their home countries because of the above reasons and for the fact that doing so, tends to improve relation with the host country. On the other hand, most people are of the view that in Nigeria and some other African countries, most sensitive executive position in these MNC are the exclusive reserve of the expatriate managers. Lending in the MNC leading Akpala (1993) says involves motivating and communicating, it involves inducing employee to contribute to enterprise objective. Motivation and leadership demand and understanding of employees and their cultural environment for example, participative management may work well in one country but may fail and cause confusion among employees in another country with a tradition of autocratic rule.
Communication on the other hand is often a problem in multinational firm with subsidiaries and affiliates in countries where different languages are spoken. Even a firm with operations in a country where the same language is spoken may still encounter communication problems. This is because of the distance between headquarters and the subsidiaries. But new technology has greatly improved the transmission of information skills; a telephone call is not quite the same as a visit and a person-to-person discussion.
Controlling in the MNC: Controlling the measurement and correction of performance to assure that events conform to plan-is an essential managerial function that is influenced by several environmental factors unique to international enterprises. For example, revenue cost, and profit are measured in different currencies. There are fluctuations in exchange currencies. There are fluctuations in exchange rates, accounting procedures, practices and financial reporting often differs from country to country. Some or all of these may have to satisfy the demands of tax authorities, government of parent firm, stockholders, regulating agencies and banks. Procedures must also meet the internal requirements of the firm. To develop a procedure that meets all these demands at the same time, is extremely difficult, to say the least.
Finally, partly owing the complex, nature of measurement, there is a time lag in the measurement of performance which may delay detecting deviations from actions. Computer however, have done much to speed up the process in all, these few examples indicate that controlling the international corporation is considerably more difficult than monitoring domestic operation Koontz et al (1986) maintained.
2.5 MANAGEMENT POLICIES AND STRATEGIES OF MNC
Policy and strategy development for the management of MNC should include several functional areas. However, Hicks and Gullett (1981) gave four functional areas that are of special important viz;
1) Marketing
2) Finance
3) Personnel and
4) Managerial philosophy
It must be emphasized that most MNC did not start with predetermined strategic choices. But increased competitions and growing environmental pressures have been forcing these companies to examine strategic and policy issues more carefully.
1) Marketing: For a MNC, the entire world is the potential market. The global setting greatly expands potential opportunities and complicates the firm’s product and marketing mix strategies.
Keegan (1969) provides and excellent analysis of some strategic alternatives for product and promotional (communication) planning. He identified five strategic
alternatives Viz;
Strategy I: One product, one message worldwide soft drink companies like Pepsi and Coca-Cola use this strategy.
Strategy II: Product extension, communication adaptation. Here the product is the same worldwide but communication (message) is modified to suit the environmental demands. For example bicycles and motorcycles companies use this strategy because the products serve different needs in different markets.
Strategy III: Product adaptation, communication extension. Here the product is change but the communication is the same worldwide.
Strategy IV: Dual adaptation. This occurs when both the product and the communication are changed to make the product more acceptable.
Strategy V: Invention. An opportunity might exist to invent or design an entirely new product when potential customers cannot afford firm existing products. If the cost are not too great, a new product can be invented that satisfies the identified need at a price consumers can pay.
For instance, both ford and general motors have developed small inexpensive and easily assembled automobiles for underdeveloped countries. Those cars were designed with emphasis on utility and durability rather than a style and comfort.
According to Robock and Summands (1977) the choice of appropriate strategy depends upon the specifics product market-company mix. Depending upon the degree of difference of a foreign market compared to the home market, some product demand adaptation others lend themselves to adaptations and skills, others are better left unchanged. In any case, a multinational manager needs to analyze the product-market fit and the company’s ability to identify and adapt when choosing the most potentially profitable and viable strategy.
2) FINANCE: Formulation and implementation of financial strategy and policy is perhaps the most complex task of a multinational manager says Hicks and Gullett (1981) the complexity is caused by new environmental considerations, new sources of risks and new opportunities for increased profits. Different tax laws, currencies exchange rates, inflation rates, interest rates, restrictions on movement of funds and exchange controls have to be taken into account. Furthermore, these elements are highly technical; the purpose here is merely to portray the general nature of the financial environment within which multinational corporations operate. The general nature of problems they frequently face will be highlighted.
For many MNC, Protection from the risks of change in foreign exchange rates-devaluation and revaluations of currencies is the most important change. Due to multinational corporation superior maneuverability relative to the transfer of funds among countries, it is possible to increase profit rather than incur losses during changes in foreign exchange rate.
The MNC can also benefit by borrowing funds in a country where interest rates are low and using these funds for operations in a country with high interest rates. A transfer pricing policy can also be used to shift profits from high-tax to low tax countries. Thus, overall taxes are reduced.
To develop an effective financial policy, a multinational corporation has to be regarded as a system. According to Robins and Stobaugh (1973), the system consists of units (subsystem) operating in different countries with different environments. The various units are connected through financial transactions among them within limits imposed by government regulations and financial market conditions, the transactions within the units can be manipulated through financial policies (lending policy, transfer price policy, dividend policy) to maximize profit for the entire system (MNC) rather than for its parts.
3) PERSONNEL: With respect to the recruitment and development of international executives a MNC has but three policy choices.
First, it can fill key executive positions overseas with home office personnel.
Second, it can recruit personnel in countries of operations (host country) to manage foreign subsidiaries.
Finally, it can develop a pool of international executives from several countries for assignment anywhere in the world. Each of the policies has some advantages and limitations.
4) MANAGERIAL PHILOSOPHY: The last important functional area that Hicks and Gullett deliberated on; was the managerial philosophy. Managerial philosophy is the orientation of executives towards doing business around the world. Perumetter (1969) identified three distinct sets of philosophies. They are enthnocentric philosophy, polycentric philosophy and geocentric philosophy. Ethnocentric philosophy is essential home oriented and environmental differences are ignored.
Polycentric philosophy, on the other hand, goes to the other extreme. The subsidiaries of MNC are allowed to adapt fully and completely in terms of local identify and behavour.
Geocentric philosophy is based on a worldwide orientation. The global orientation of manager’s helps to establish global goals. For example, the parent company become but one company in the system and use of worldwide resources.
2.6 THE ROLE OF MNC AS A BUSINESS UNIT
Concerning the role of business, Lessem (1989) say “though the basic role of business remains profit maximization, it has other roles”.
These other roles he has summarized as follows:
1. As a producer of goods and services, its prime function was to fulfill the needs of its customers
2. As an economic unit, its role was to create and distribute wealth
3. As an employer, its function was to create employment
4. As a market partner, its function was to participate in the maintenance and development of a healthy economy.
5. As an innovator, its role was to create new and better products, processes and services for particular customers and for society in general.
6. As a social partner, its function was to participate in the development and maintenance of a healthy society
7. Finally, as an organizer, its role was to maintain and develop order, including orderly relationships among people in society.
What Lessem means is that the goal of business is not and should not be only profit maximization, rather it includes other goals as enumerated above. All these other roles, can come under what is today variously called social role, or social responsibility or corporate social responsibility, Everard, et al (1979) agreed with Lessem, when they stated “there are two basic goals of business profit and social responsibility”.According to Akpala (1993) corporate social responsibility is calling on organization to consider themselves as owning responsibility to the community or society as well as to their own interest. They should show concern for their actions as they affect their publics. Drucker (1980) remarked that “it is not hostility to business that explains the demand for social responsibility. On the contrary, it is the success of the business system that leads to new and many cases,
exaggerated expectations. The demand for social responsibility is the price of success”.
Lessem, (1989) noted that Dauman and Hargreaves have divided the area of corporate social responsibility into three societal, organizational and basic responsibilities.
Basic responsibilities are generated by the very fact of the corporation’s existence. The corporation has to pay its taxes, obey the laws, observe legal standards for employees and satisfy its shareholders deal honourably with supplies, customers and creditors. When not fulfilled clearly, it will be in serious problems either from the law, or the market place.
Organization Responsibilities. Here it is said that most companies influence there environments more widely and have to look further in scope and time than is suggested at level one (basic level). This second level relates to the organizational responsibility of the company to meet the ever-changing needs of all its “stakeholders” – employees, customers; shareholders, suppliers and the local community. Note that it is at this point that most of the thinking on social responsibility is concentrated.
Pollution from a chemical plant for example may well affect a wide range of people in the community, outside the plant most of whom are in no way associated with the company.
Organizational responsibilities at this level are principally as follows:
1. To pay heed to the spirit, rather than to just the letter of the law, acting in anticipation of impending legislation
2. To respond to current attitudes, needs and values of all stakeholder and anticipate and respond to expected changes.
Social Responsibility: This according to Lessem is based on the perception that the health of the business subsystem is ultimately dependent upon that of the social system as whole. Hence the individual corporation has to consider the political, social, economic, technological, ecological, and cultural foundations upon which the whole society is built and with which it interacts. Therefore, business becomes involved in development of society as a whole, hence assuming a wide variety of roles.
In general, the argument on the roles of MNC as a business unit in its environment falls into two very different creeds. The creeds according to Kinard (1988) are the free enterprise creed. (Conservative view point) and the social responsibility creed (Liberal view point). Proponents of the free enterprise creed, such as Friedman, (1971) and Theodorere, (1979) argue that corporation ought not to assume social responsibility that has not direct bearing on their profitability position. To them, the sole aim of business is profit maximization. This view point is often being criticized for aiming to protect the philosophy of free enterprise. Proponents of the liberal view point or social responsibility creed, such as Dahh (1975) and Uzoaga (1976) argue that the overriding objective of business should not necessarily be profit maximization. Rather, they suggest that this be deemphasized in favour of social obligations of business to its environment as a whole. As Kinard (1988), puts it “the proponents of the social responsibility doctrine point out that in today’s society, huge corporations play not only a vital economic role, but also important political and social roles”.
2.7 BENEFITS OF MNC TO HOST COUNTRIES
Megginson, et al (1985), remarked that MNC in their operations move capital skills know-how, goods and services and other resources to various nations. They are of the views that this can benefit the host country by providing the capital, technology and managerial skill needed to produce economic development there. This is particularly true of a developing country like Nigeria. As if to confirm this view, Hicks and Gullett (1981) has this to say, “A number of countries with underdeveloped economics want foreign direct investment because of their potential economic technological and managerial benefits”.
Hicks and Gullett (1981) are very particular about technological advancement to them, MNC frequently acts as a change agent through its ability to transfer advanced technological know-how to other countries. In fact the special strength of MNC lies in their knowledge of sophisticated technology. This technology is a major means of economic and social development in host countries. It is therefore not surprise that a large part of multinational business. The World over is made up of industrial products such as chemicals and pharmaceuticals, petroleum, farm and construction machinery, tires, motor vehicles, electronics computer etc. Increased foreign investment of the MNC can raise the value of the local currently. It can also create employment for the unemployed in the host country. For example a voice of America (VOA) programme (Day Dake Africa News) on the 14 of February 1997, it was reported by Al Fames (the presenter) that the South African Band (the South African Currency) got to its highest point in three months, after coca-cola announced an expansion move coxing a huge sum of dollars, in South Africa. The South African economy got a needed boost, and a lot of jobs will be created the report concluded.
In summary, people are of the view that in an ideal situation, the establishment of multinational corporations in a place brings about a lot of benefits such as:
1. Rapid industrialization and technological advancement
2. Provision of investment finance
3. Rapid development of place
4. Increase in per capita income thereby leading to increased and better standard of living.
5. Creation of employment in the host country.
6. General improvement in enlightenment and awareness and
7. Improved managerial skill through training
All the above, undoubtedly it is argued, will bring about rapid socio-economic and technological development of the host countries, obviously, it is believed that MNC bring about rapid development especially in third world countries, Blow(1979).
2.8 ACTIVITIES OF MNC IN THE DEVELOPMENT OF NIGERIA
In Nigeria, development started from the costal areas as a result of the fact that the foreigners mainly whites, first settled on these areas some natural factors accounted mostly for the sitting of these corporation there. The big sea, for instance Lawal (1972) remarked that “the concentration of the MNC in the coastal region of Nigeria is as a result of natural factors that makes easy important and or exportation of raw materials and evacuation of produce of the extractive industries in Nigeria”. This no doubt, accounts for why such areas like
Lagos and Port-Harcourt are very beautiful cities today.
Most of these MNC in Nigeria are engaged in
1. Construction
2. Mining
3. Technology Transfer
4. Investment Financing
5. Aviation
6. Communication
7. Employment Creation
8. Agriculture
9. Sport Development
10. Healthcare among others.
CONSTRUCTION: MNC in this area Diemez, MCC, RCC, Julius Berger etc. The network of roads, flyovers and drainage system in Abuja, Lagos metropolis are for instance, the handwork of Julius Berger. This is how Oladipo 1985 cited in Hennart, J.F. (2008). put it, when he was referring to the role Julius Berger in Lagos. “What would have become of Lagos in view of its smallness and Crowdiness but for Julius Berger”? In the same Light Oladeji 1985 cited in Hennart, J.F. (2008) adds “the history of Lagos will be incomplete without Julius Berger.” In like manner, most of the express roads, bridges and important building in the country were constructed by all the above named MCC.
MINING: The mining sector is dominated by foreign oil company such as ELF, Gulf, Chevron, Mobil, Agip, Texaco, Total, and Shell among others. Their operations resulted in the beefing up of public revenue to the extent that revenue from oil now, according to Hennart, J.F. (2008) accounts for about 90 percent of the country’s annual foreign exchange earnings. Thereby pushing agriculture to the background. The first multinational oil company to embark on mining in Nigeria is shell petroleum development company of Nigeria. The first crude oil was exported in 1958. This therefore launched Nigeria into the community of crude oil producer and exporters. The nation’s economy got a needed boast from them. Hence Ukpevo, et al (1993), puts it thus, the discovery of oil in 1956, marked the beginning of economic buoyancy for Nigeria”.
TECHNOLOGY TRANSFER: The essential factor for socioeconomic development, which is lacking in Nigeria and other developing countries, is technical know-how or technology. Be that as it may, the advent of these MNC in the country has brought about a positive development in this regard,
comparatively that is, at least when one considers the state of the country’s technology before the advent of the MNC. Today, one can see some factories that apply improved production processes in their operations.
INVESTMENT FINANCING: The provision of finance, which is often, the supply of capital goods, is very important in tracing the roles of MNC. Accordingly, the MNC in Nigeria helped in no small measure to beef up the magnitude of the public fund,
Hence, as against the previous national development plans. Nwankwo (1981) cited in Ukpevo, et al (1993) says “it was only in the third national development plan that public investment was estimated to be greater than the target private investment. This was due to increase government revenue from petroleum (oil).
From the above, it is believed that from the advent and activities of multinational oil companies such as shell petroleum in Nigeria Oil Industry, the revenue accruing to the government skyrocketed and brought about increased public expenditure. Hence, the MNC help provide finance for development, Nwankwo (1980) cited Ukpevo, et al (1993) says “up to 1974, when the indigenization decree took effect, foreign investment in Nigeria as estimated, contributed not less than 60-80 percent of total investment.
AVIATION: The Nigeria Airways was molded by a technical partner – KLM of the Netherlands. The contributed immensely to the full take off of the indigenous airline.
COMMUNICATION: In telecommunication, ITT among others has helped greatly in the development of network of communication systems in the country. There in the country today, telephone, telex, fax, teleprinters systems internet etc. EMPLOYMENT CREATION: Some people are of the view that these MNC do serve a source of employment to some Nigerians. They say both skilled workers are employed. This to some extent improves the standard of living of these people and their families.
AGRICULTURE: Companies such as Pfizer, Ciba-Gelgy etc. are involved in the provision of drugs and chemicals for improved productivity in agriculture in the country. Others MNC, it is know have introduced the practice of mechanized agriculture into country. This equally leads to increased agricultural productivity.
SPORT DEVELOPMENT: If there is any one thing that has the capability of uniting the nation as one, it is sports (especially football or soccer). Some MNC being aware of this simple truth, have made their impact felt in this field. Their aim is to develop sports in the country. Notable among them are Pepsi, Coca-Cola, Cadburg, First Bank and Nestle.
HEALTHCARE: Drug companies such as Glaxco, Sterling Health Beachem etc. have been acclaimed to have develop and provide the Nigerian people drugs for the prevention and treatment of most diseases and sicknesses thereby
contributing to improved healthcare in the country.
Given all the above contributions, some people feel that MNC are positive forces in the social economic and technological development of Nigeria. While others feel that the other side of the coin (their shortcomings) is more glaring. We shall now look at their negative or shortcomings.
2.9 THE SHORTCOMINGS OF MNC IN NIGERIA
Against the acclaimed positive contributions of MNC to the development of the Nigeria economy, are their alleged negative contributions.
They are accused of causing balance of payment difficulties through huge repatriation of funds. This difficulties arise when such repatriation of funds exceed incoming foreign investment funds. To confirm his Santo (1990) says that “the amount of capital leaving the developing nations is greater than that entering”. In this way, it is argued that MNC act as a drain on host country investment as “decapitalization effect”.
Moreover, the MNC are said to inflate the value of imparts (materials, equipment and machinery) and undervalue their exports, thereby using the differences to offset the amount they pay as taxes and royalties.
It is further argued that the techniques of some of these MNC distort the distribution of value added in favour of foreign factors (equipment, machinery and skills) and against local factors (labour, social responsibility and raw materials) of Nigeria. Besides, the choice of technology of some are regarded as too capital-intensive for the relatively labour-abundant Nigeria, thereby limiting the number of people (Nigerians) employed in such companies.
Barnet and Muller (1974) maintained that “the characteristics of global corporations with the most devastating consequences for the poor countries are that it destroys jobs”. For example UAC Nigerian PLC, a multinational, established huge plantations across the country (palm in cross-river, cocoa in Ondo and Rubber in Edo States) in doing this the dispossessed and deprived most farmers in these areas of their means of subsistence and income. They introduced mechanized farming and only employed very few people as machine operators and the rest were left jobless.
Moreover, it is argued that, since much of the research of these corporations is conducted in their headquarters, it makes the idea of technology transfer to Nigeria partly useless, because the local environment is not considered. For example, it was reported that the research to establish the controversial Ajaokuta steel complex was carried out in faraway Russia, the furnace was designed to use Russian coal thereby neglecting the huge coal deposit in Nigeria (Enugu) it is pointless to begin to explain the implication of this, for it is very obvious.
Nwankwo (1981) cited in Ukpevo, et al (1993) maintains that MNC do not supply technology a commodity that can be purchased in the open market. Rather, they supply as their own investment, packaged up in materials, equipment and skill. Factories have been built, construction works have been undertaken and such other capital goods as aeroplane and electronic equipment impart. These are taken as technology supplied by multinational corporation, but they are supplied and not transferred.
The activities of some of these MNC are a major source of pollution in the nation. One does not have to go far to detect pollution. Pollution affects the land use, the water we drink and the air we breathe noted Everard, et al (1979).
In many cities like Lagos, Kano, Port-Harcourt among others, the air is filled with harmful fumes from factories and cars. Some of these factories belong to MNC, while the cars and fuel and product of multinationals. Many rivers and streams are claimed to be filled with waste from MNC, to the points of killing fishes, or making the water hazardous to drink. The land it is said has not been spared, it has been misused in various ways such as the wasteful removal of natural resources, the creation of unsightly junk piles and use of harmful chemicals to destroy insects and rodents.
A very good example of pollution by MNC is that reported to be carried out by the multinational oil companies. As let on, the president of the movement for the survival of Ogoni people (MOSOP) puts it, “we are in troubled waters”. We have woken up to find out lands devasted by agents of death called oil companies. Our atmosphere has been totally polluted our land degraded, our waters contaminated, our trees poisoned, so much so that our flora and fauna have virtually disappeared.
Laton 1993 cited in Wiig, A &Kolstad,I. (2010), other oil rich communities where these oil companies operated are reported to suffer similar fate as the Ogoni. These communities it is claimed suffer from social neglect and unfairness. “Neglect and unfairness by the oil companies who smile to the bank daily”. Says Agbese (1993) cited Goerzen, A. & Makino, 2007.
In the words of Ekpu 1993 cited in Goerzen, A. & Makino, 2007, “According to the people (Ogonis), (the geese that lay the golden eggs if you like), there is not electricity, no pipe-borne waster, no good roads in their lands. Only poverty, neglect and pollution.
What the Ogonis and other oil rich communities are passing though, simply points to one fact, says critics of the multinational oil companies-they (multinational oil companies) are not socially responsible.
In virtually all the multination in the country, critics say, there is discrimination regarding the payment of staff. In no situation are Nigerians and expatriate managers on the same level paid the same amount. These companies, it is said, capitalize on the abundant labour force in the country. They pay the indigenous staff very low salaries, while using them to the fullest, knowing that they can easily be replaced if they (local staff) complain and decided to leave. In some cases, it is argued, junior expatriate staff tends to earn more than a Nigeria senior staff in the same company. This is not a healthy development.
In terms recruitment in most cases, foreign managers are preferred to local managers. This observers say is not proper for one. They do not agree with the excuses of the MNC that Nigerians have not gotten the needed skill and knowledge to handle such positions.
Furthermore, the MNC are almost, always accused of only interested in maximizing their profit in their operations in Nigeria and as such they hardly care about their social responsibility to the host communities in particular and the nation as a whole. These huge profits, they are reported, to repatriate to their home countries with little or no reinvestment in the country.
Base on their wealth of experience, power and other resources the MNC stand at a rather advantaged position when compared with their Nigeria counterparts. As on critic put it, foreign investors damage host country’s economy by suppressing local firms by using their worldwide contracts, advertising skills and range of essential support services to drive out local competition and inhibit the emergence of local enterprise.
The ramification of these companies into all sectors of the economy and the orientation of local consumers, who often positively favor foreign goods because they are considered more superior, have made competition difficult for local firms hence some have gone out of existence as a result.
2.10 THEORETICAL FRAMEWORK
Several theories have been expounded to enunciate the activities and roles of multinational corporations. Such theories include but not limited to: "Eclectic Paradigm General Theory of Multinational Enterprises" – (Dunning, 1979; 1980; 1988); "Internalization (Transaction Cost) Theory of MNEs" - (Buckley and Casson, 1976); "Product Cycle Theory" – (Vernon, 1966; 1979); "Hymer-Kindleberger Theory" – (Hymer, 1960; Kindleberger, 1984, 1989); "The Aliber Theory" (Aliber, 1970); "Location Theory of International Investment". However, in this work, three theories that have been shown to have relevance to the relationship between multinational corporations and the economic development of Nigeria will be reviewed. These are: “New Trade Theory” – (Krugman, 1970); “Unequal Exchange Theory” – (Emmanuel, 1972); and “Dependency Theory” – (Prebisch, 1950).
The New Trade Theory
The New Trade Theory was developed in the 1970s by the notable scholar Krugman Paul. The basic assumption of the new trade theory is that every country has a comparative advantage over other countries if the country constantly produces a particular product or is known for rendering a specific service. The New Trade Theory (NTT) was a notable departure from the more popular neoclassical economic theory. Its cardinal departure point was hinged on the fact that countries can achieve competitive advantage by producing what they know how to produce and continuously gaining experience by producing same product over time (Sen, 2010). A related study by Eluka, Ndubuisi-Okolo, and Anekwe (2016) pointed out that "a critical factor in determining international patterns of trade is the very substantial economies of scale and network effect 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”. However, concerns have been raised by scholars pertaining the workability of the new trade theory (Sen, 2005), specifically, as it concerns the effect of firm size and market structure of the country. New trade theory is also said to encourage monopoly in a market and may discourage international corporations from doing business in a country adopting it. Nevertheless, new trade theory recognizes the importance of “scale economies, imperfect markets, and product differentiation” (Bhattacharjea, 2004; Sen, 2010).
Dependency Theory
The dependency theory was developed by Prebisch and his colleagues, at the United Nations Economic Commission for Latin America in the 1950s, who believed that economic advancement in the industrialized nations did not result in economic growth in the less industrialized business partners. In their research, they discovered that there was an inverse relationship between the economic growth of the western countries and their less developed partner countries. As noted by Ferraro (1996), Prebisch's position negates the neoclassical theory, which theorized that the economic advancement of one country is advantageous to all countries (this is known as "Pareto optimal"), though the reward may not be symmetrically distributed. Prebisch's work compendiously captured the relationship between the developed countries and their poorer partners. This condition of the relationship was aptly Ferraro (1996) as "poor countries exported primary commodities to the rich countries which then manufactured products out of those commodities and sold them back to the poorer countries. The value added by manufacturing a usable product always cost more than the primary products used to create those products. Therefore, poorer countries would never be earning enough from their export earnings to pay for their imports". The dependency was defined by Sunkel (1969) as "as an explanation of the economic development of a statement regarding the external influences - political, economic, and cultural - on national development policies". Similarly, Dos Santos (1971) submitted that, dependency is a circumstance "which shapes a certain structure of the world economy such that it favours some countries to the detriment of others and limits the development possibilities of the subordinate economics", a condition which the economy of some countries is patterned by the advancement of a different country. That is, the development of one leads to the under-development of another. The dependency theory sophists presuppose that there is no possibility of economic autonomy for a dependent state since they are continuously being underdeveloped by their more industrialized partners. The theorists are of the view that the less developed states should formulate and implement policies that will lead to less importation of goods, while still selling their products on the international market, this will help preserve their foreign exchange.
Unequal Exchange Theory
The continuous underdevelopment of third world countries by the Western countries motivated Emmanuel Arghiri to proposed the unequal exchange theory in 1972. According to Houston and Paus (1987), Emmanuel's unequal theory precisely describe "the proportion between equilibrium prices that is established through the equalization of profits between regions in which the rate of surplus value is institutionally different. Since the differences in rates of surplus value are the direct result of wage differentials, inequality of wages as such, all other things being equal, is alone the cause of the inequality of exchange". Though there has much criticism of Emmanuel's hypothesis that "unequal exchange" is accountable for the underdevelopment of the third world countries (e.g., Gibson, 1980; Foot and Webber, 1983; Houston and Paus, 1987). Houston and Paus (1987) recommended a total abandonment of this theory since they proposed that the idea of equal exchange is not achievable and that unequal exchange cannot be used to explain disproportionate development among partner nations. However, in recent studies (e.g., Eluka, et al., 2016), this theory has been used to explain the underdevelopment of dependent countries. As in the case of Nigeria where the county exports its crude oil and other natural resources at a very cheap rate to the multinational companies who took it out to refine and sell the refined products back to the country at exorbitant prices. All the theories discussed shared common fundamental characteristics that the development of one country is at the expense of another. Therefore, all countries especially the fewer development states should strive to be self-sufficient in its basic and endeavor to export more goods than they import. The applicability and relevance of these theories to the Nigerian situation are discussed in the following paragraphs.
2.11 CHAPTER SUMMARY
In this review the researcher has sampled the opinions and views of several authors and scholars on multinational Companies and Nigeria Economy. The works of scholars who conducted empirical studies have been reviewed also. The chapter has made clear the relevant literature.