Multinational corporations

For thousands of years, traders crisscrossed the seas and land to exchange their goods. But starting in the mid-1900s, jet planes and container ships speed up transportation; later, the internet and mobile phones connect people remotely… until everything from shoes and saffron, to ideas and songs can travel the globe faster than ever before. Those early traders become large organisations. In these organisations, the people who make and sell the products don’t own these products themselves; instead, the whole organisation is owned by several people — sometimes thousands! These are corporations, owned by shareholders.

A corporation’s goal is to make money for its shareholders. To do that, it must sell products for more money than it costs to make them. So a corporation searches for the cheapest ways to make its products… Or rather, the cheapest places. Let’s imagine a Canadian shoe company. For fifty years, it has made its shoes in the Canadian city where its headquarters are.

But it wants to find ways to lower production costs. It scours the globe for the cheapest materials and labour. Brazil is a good source for leather, but dye is cheaper in South Korea; the best deal on rubber is in Malaysia. So the company gathers materials from all these countries, and looks for the cheapest place to assemble the shoes. In low income countries, the company can pay factory workers much less than in Canada.

So it begins to make its shoes in Vietnam. Now this corporation has operations in multiple countries, all reporting to a central headquarters. It has become a multinational corporation, or simply a ‘multinational’. Not all multinationals follow this same journey. While some spread overseas to lower production costs, others open in new countries to sell more products.

As for our Canadian shoe company, it now wants to do both. It begins to sell shoes in Vietnam, close to where it makes them. Our multinational doesn’t have to worry much about competition from local Vietnamese companies — the multinational has grown strong, and has more money, more advanced technology, and more highly trained management teams than these smaller companies. Sales in Vietnam go well. The multinational’s profits grow, and shareholders receive more and more money.

As for customers, those in Vietnam now have more choice — a new Canadian brand on their high streets. And in Canada, shoe prices are lower than they would be if the shoes were made at home. These customers are happy too! There are some clear winners in the wake of the multinational’s rapid growth. Are there any losers?

Those shoe makers in the Canadian city, who for generations had reliable, well-paid jobs, suddenly find those jobs disappearing as production moves overseas. What about the workers in Vietnam? Is the multinational’s arrival good or bad for them? Though they make less money than the Canadian workers did, the factory work may still pay better than other jobs in the area. And the thousands of jobs foreign companies together provide can help bring more money into the region, so that communities have more to spend on schools, hospitals and roads.

But sometimes, developing countries have weak laws protecting factory workers. They might work long hours, hunched over machines in dust-filled environments. To try to protect workers from these conditions, international groups like the United Nations set guidelines for how multinationals run. As multinationals race around the globe, their impact spreads to ever more places and people. They can bring benefits to shareholders and job seekers, consumers and communities, and they carry responsibility to uphold the rights of everyone their activities affect.