3. Some of the MNE Hostile Effects to the Host Economies
Some of the controversial, if not hostile, effects to the host economy are still echoed. MNEs may intervene local economic and political affairs (ADB, 2004). The presence of MNEs may also weaken the market share of local firms (Dunning, 1997). Weak institutional systems of the host economy may become vulnerable to the MNE advantages. It is also noted that some business practices demonstrated by MNEs are outside the boundary of local values and cultures of the host economy (ADB, 2004).
The previous section discussed the contribution of MNEs in transferring technological capabilities to local firms. Individuals working in MNEs gained advance technological knowledge and management capabilities through trainings and experiences. Such skills can be mobilised when an MNE employee move to a local firm (Glass & Saggi, 2002). At the same time, it was also noted that MNEs provided better incentives (Glass & Saggi, 2002). The survey of McKinsey in India and China suggested that MNE employees were paid up to twice as much as those in local companies (Farrell, et al., 2004).
A study by Glass et al (2002) suggested that substantial packages (e.g. salary, benefits) offered by MNEs might impede technology transfers to local firms. In this study, it was concluded that such practice was set deliberately to sustain MNE ownership advantages. The study also suggested that MNEs offered better incentives to prevent productivity losses due to labour mobility. To illustrate the impact, Chery and Geely, local automotive makers in China, managed to capture significant market shares after they hired executives coming from MNEs background (Sun, 2005). Such manoeuvre may threaten MNEs in the long run. Local firms may regain the market share from MNEs (Farrel, Gao, & Orr, 2004).
With the deployment of ownership advantages, MNEs can capitalise their market shares (ADB, 2004; Blomstrom & Kokko, 1997). Unless local firms have the ability to compete with similar efficiencies, MNEs will eventually capture the market share (Blomstrom & Kokko, 1997). For example, a few years after Suzuki’s inception in India, PAL, a local automotive company, was ousted from the industry (Farrell, et al., 2004). A similar case was also noted in the sugar industry in
Practices in capturing the market by intervening local affairs are often noticeable. These acts are regarded as unfair practices to local firms (ADB, 2004). Some of the practices are directed to capture the market share of other MNEs. For example, to repel competition from Linux, Microsoft China utilised Bill Gates’ visit to persuade Chinese leaders to impose an antitrust legislation (FEER, 2004b). A similar mode of practice targeting a local firm was noted in
Controversial effects of the MNE presence were also noted in the intellectual property right (IPR). Whilst it is suggested that imposing IPR regimes may attract MNEs to invest in a particular country, weak IPR regimes may be exploited by local firms to the disadvantage of MNEs (ADB, 2004). Technological and innovative capabilities shown by MNEs (Blomstrom & Kokko, 1997) may be imitated by local firms without MNE consents. As an example, a local consumer goods company in China aired the exact advertising campaign of Unilever in promoting a new soap product (Fowler, 2004).
The claim that MNEs bring prosperity by producing lower cost of goods (Farrell, et al., 2004) has hidden implications. Lower costs drive consumerism. Such behaviour may change the lifestyle of the population in the host country (ADB, 2004). With this regard, the one that gets the benefits are MNEs. In South East Asia, it was noted that the presence of consumer electronic MNEs has triggered consumptive behaviours of young people in buying electronic gadgets (Vittachi, 2004).
To summarise this section, despite their positive contributions, MNEs may bring unprecedented impacts to the host country. Interventions to economic and political affairs are not uncommon (ADB, 2004). Weak institutional systems were sometimes exploited by MNEs. In addition, the MNE presence may affect local values and cultures (ADB, 2004). Furthermore, the MNE presence may stimulate illegal conducts by local firms without the consent of MNEs (Fowler, 2004).
4. Government Roles in Stimulating Competitiveness
So what can the government do to maximise the presence of MNE to foster the country competitiveness? The role of government has been substantial to the growth of a country (Porter, 1990). Through implementing appropriate policy regimes, MNE contributions can be sustained, if not improved, whilst their hostile effects can be reduced, if not eliminated (UNCTAD, 2006). Figure 1 illustrates the effects of MNE to the host country and government roles in maximising the MNE presence to foster competitiveness.
Figure 1 Effects of the MNE presence and the government roles in competitiveness
A common ground between local firms and MNEs can be instigated by the government (Porter, 1990). Different treatments between employees working in MNEs and local firms can be levelled through labour regulations (ADB, 2004). A draft of new labour contract regulation in
The government in a host country can impose product or process standards to stimulate competitiveness. Anti trust regulation can also be implemented. To meet the standard, local firms are forced to adopt new technologies (Porter, 1990). MNEs can be utilised to assist local firms in gaining new technology sources. In addition, local firms can utilise MNE feedbacks to achieve the level of standard imposed by their government (Blomstrom & Kokko, 1997). In the long run, the industry will gain recognition in international markets (Porter, 1990).
The government may scan specific industries and establishes specialised factor creations such as public research institutions (Porter, 1990). The established institutions can be encouraged to cooperate with MNE affiliates (ADB, 2004). For example, the advance semiconductor industry in
The government can foster competitiveness by creating an industry cluster (Porter, 1990). Incumbent MNEs can be invited to join the cluster to foster the competitiveness of the region (Porter, 1990). For example, the rise of information technology (IT) industry in
In summary, the government can maximise the MNE presence by implementing appropriate instruments (ADB, 2004; Porter, 1990). The government can also stimulate competitiveness by establishing factor creation mechanism (Porter, 1990). Furthermore, creating industry clusters and inviting MNEs to participate in the cluster are being preferred to cultivate the competitiveness of the host country (Blomstrom & Kokko, 1997; Porter, 1990).
