Hamra Tariq is an undergraduate student currently pursuing her international relations degree at Kinnaird College for Women, Lahore. She has a keen interest in South Asian politics, the Indo-Pacific, and the shift in the global order.
Functioning of MNCs
A multinational corporation (MNC), often referred to as a multinational enterprise (MNE) or a multinational organization, is defined as “a firm that has its headquarters in one nation but also has part of its operations in one or more foreign countries.” Aside from their sheer scale, the significance of MNCs has expanded as a result of the rising importance of economic and welfare-oriented goals in the context of national security and politics.
In today’s world, most national security plans are created to ensure not just the physical survival of people within national borders but also some minimal expected level of economic welfare, a certain degree of political and social autonomy for the country, and a certain level of national political status.
For states, the threat of security has shifted from territorial to economic paradigms. Thus, with MNCs lying at the heart of the global economic outlook, it is evident why they have become relevant in international politics. Nation states have been utilizing MNCs’ extensive networks to further their foreign policy objectives; MNCs in return also ask their home governments for help in reducing the risks associated with their foreign investments.
MNCs make investments abroad for a number of reasons. The size and mobility of businesses in the service sector are very different from those in the manufacturing or industries. Even within the manufacturing sector, there are significant differences in the bargaining positions domestically and internationally of companies whose investments are more or less focused on getting access to local markets, finding cheap labor, or exploiting a technological advantage.
Furthermore, the effects of the same company may be extremely different in a state with a fragile economy and a fragmented society compared to a state with a strong economy and an established governmental setup. To picture the situation, despite the rise of China and of mega-firms from Europe, Japan, and other far eastern countries, US-based multinationals still dominate.
Direct Instrument of Influence
The existence of corporations with decision domains across national borders has provided governments with additional tools that they may use (misuse) in their relations with other states. For instance, the United States has tried to extend its foreign policy embargoes into the territory of other states by exercising extraterritorial control over the business relationships of affiliates of US-based corporations.
Immediately after the 9/11 attacks, the US oil vulnerability was growing and the US import dependency was rising in the increasingly tightened oil market. The concentration of vast petroleum reserves in the Middle East, particularly near the Persian Gulf has been of prime importance to the United States from where the politically influential American oil companies, banks, and contractors benefit a lot; they were the key financers of the Bush elections campaigns at the time.
Therefore, the US decided to secure its position in the Middle East by attacking Saddam Hussein’s regime. The critical issue is that direct investment fosters cross-border interdependence that individuals or governments may attempt to use for their own political ends.
A sheer example can be traced back to the Arab oil embargo in 1973 when the Arab countries were successful in attaining total company compliance in regard to Arab oil. Even, smaller countries like the Philippines used the threat to nationalize American oil companies to induce the US government to extend trade preferences.
Indirect Setting of Agenda
Significant contributions have been made by multinational corporations, both knowingly and unknowingly, to the agenda-setting of interstate politics. The multinational operations of businesses have led to jurisdictional disputes and extraterritoriality issues in areas including antitrust, capital controls, trade restrictions, and taxation policy. Then, MNCs have significantly impacted trade and financial flow.
Last but not least, by encouraging other social groups to advocate for specific governmental policies, multinational businesses have inadvertently influenced the agenda of interstate relations. Organizations like banks, ad agencies, and some labor unions have been encouraged to push for liberalization policies that would allow them to emulate the multinational corporation’s international strategy.
Globalization and MNCs
Multinational companies have played a significant role in advancing globalization. These enterprises, made possible by new technology and revolutions in communication and transportation, have shaped a more global economy in addition to their significant role as “champions” of specific national economies.
MNCs currently dominate the majority of the world’s production networks, and the distributional effects of global trade are directly influenced by their political actions and business practices. The flow of not only the economy but also ideas, innovations, and technology has become more feasible than ever, due to the extensive networks of MNCs.
The Neo-colonial Strategy
The expansion of multinational corporations is the most contemporary strategy of neo-colonialism. Neo-colonialist policies are being pursued by multinational corporations, which violate the sovereignty of Third World nations, seizing control of their natural resources, forcing unfair agreements on them, and obstructing the growth of their independent national economies.
Additionally, a substantial portion of these multinational corporations’ shares is located in the country of their origin. Therefore, a sizable amount of the profit made is sent back to the parent country. The imbalance between the global South and global North is created due to the unfair treatment inflicted by the MNCs using new forms of imperialism.
MNCs with their impact of spillover from the parent countries to the various host countries are shaping the global economy in contemporary times. Apart from their influence on local and global economies, MNCs may also have an effect on national and international politics.
They internationalize the economy as well as influence political decision-making either by choice or unintentionally. The MNCs have grown as very significant non-state actors which can intervene across national boundaries, blurring the concept of territorial sovereignty.
If you want to submit your articles and/or research papers, please check the Submissions page.
The views and opinions expressed in this article/paper are the author’s own and do not necessarily reflect the editorial position of Paradigm Shift.