Part of the problem or solution Essay Example
Part of the problem or solution Essay Example

Part of the problem or solution Essay Example

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  • Pages: 7 (1749 words)
  • Published: September 23, 2017
  • Type: Case Study
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This term paper examines multinational companies and their role in the global political economy. It focuses on the driving forces behind the globalization of norms, particularly the rise of TNCs and the implementation of corporate codes of behavior. The first part provides an overview of TNCs' historical development, their impact on global problems, challenges faced by nation-states in addressing these issues, exploration of corporate codes of behavior, and their potential as a solution. The paper concludes with an assessment of the current situation.

Multinational Companies: Part Of The Problem Or Part Of The Solution?

Transnational Cooperations (TNCs) originated during imperialism when Western European countries like Great Britain, The Netherlands, and France colonized foreign territories for resource exploitation. Over time, this enterprise evolved during the rise of capitalism in the nineteenth century. Protecting and expanding markets became


crucial, leading to a search for opportunities beyond borders especially for natural resources such as oil. Post-World War II saw a significant increase in foreign investments that played a major role in shaping TNCs' significance within the global economy.The power of Transnational Corporations (TNCs) has greatly increased due to globalization. TNCs have benefited from international market openings, trade organizations, and regional bodies like the European Union. Their rapid growth is also a result of expanding into new regions through mergers and acquisitions. As a result, TNCs now possess significant wealth and influence globally, exerting substantial power over their surroundings.

An MNC is a corporation that operates in multiple countries outside its home country while generating net income. It engages in various business activities such as sales, distribution, extraction, manufacturing, and research and development. The MNC's financial dependence on its operations in differen

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countries is evident. Additionally, management decisions are made at the regional or global level.

MNCs typically function as parent companies with headquarters located in their home country. They maintain control over subsidiaries established in other countries - directly for private companies or by owning shares for public ones. To enhance performance, MNCs often outsource tasks to external providers either offshore (in foreign locations) or onshore (in domestic locations).Subsidiary companies in multinational corporations (MNCs) often have different names from their parent company, creating a complex network of interconnected ventures. Each subsidiary has its own interests in the specific industry, contributing to investment, technology advancements, and profitability. While MNCs drive economic growth and increased employment rates as transnational corporations (TNCs), they frequently overlook the well-being of citizens where their subsidiaries operate. This includes violations of human/labour rights, negligence towards environmental conditions, and ignorance towards government corruption. These influential TNCs possess substantial power over economies and policymaking that surpasses national governments in terms of wealth and influence. The United Nations Conference on Trade and Development (2004) states that TNCs hold economic power equivalent to entire nations. Moreover, due to globalization, liberalized trade policies, worldwide economic deregulation, and privatization processes today - national governments significantly lack control over both their territories' activities as well as their own multinational companies operating abroad.The text highlights how the dominance of multinational corporations (TNCs) extends to various industries through their network of subsidiaries, whether privately or publicly owned. This occurrence is often observed as intra-company trade takes place. The discussion revolves around "transportation pricing" within TNCs, where affiliated companies determine prices for transportation between themselves. This practice can be problematic as these prices significantly

differ from what other companies would pay, enabling TNCs to maximize profits and evade national laws.

Moreover, TNCs have the ability to transfer funds globally without taxation using subsidiaries operating under different names. They can also adjust prices based on a specific country's tax rates in order to create a favorable environment for profit-making. The amount involved in mispricing transportation surpasses the annual funding required by poor countries for development goals, making it challenging for national authorities to regulate their markets.

Impoverished nations often rely on TNC investments and actively attract them if local regulations are favorable. As a result, there is an acceptance and relaxation of business regulations and policies that favor transnational corporations (TNCs), which can potentially lead to issues concerning labor, health, and the environment. Corruption in politics is not uncommon in this context and may involve bribery aimed at influencing policy-making processes.Efforts have been made to regulate the behavior of Transnational Corporations (TNCs) over time, but they face challenges due to globalization and large open markets. There is a gap between the jurisdiction of national and international organizations and decisions made by supranational bodies, which allows room for TNC maneuvering. Collaboration between regional and international administrations is necessary for implementing new laws, but it raises concerns about the loss of liberty. This collaboration may contradict national law, further complicating decision-making processes.

Currently, there are no specific regulations governing business activities and their societal impact, despite existing international agreements and conventions. While addressing concerns about TNCs is necessary, completely restricting their behavior would also hinder economic growth. The conflict of interests between government states aiming to address the issue without negatively impacting their own economy

presents a challenge. Some governments may prioritize profits over community interests by tolerating certain actions of TNCs.

To address this problem, codes of behavior have been developed as a middle-ground approach. These codes were initially proposed by NGOs in the 1980s and serve as guidelines for TNCs to balance power dynamics with state provinces while promoting accountability for their actions. They fulfill corporate social responsibility objectives and establish conduct standards within businesses.Codes of behavior are recommendations, guidelines, and rules issued by various entities in society to influence business conduct. The development process involves corporations, NGOs, governments, and international organizations. There are five primary types of codes: specific company codes, association codes, multi-stakeholder codes, inter-governmental codes, and international framework agreements. In the 1980s, corporate codes of behavior were introduced with many state provinces recognizing its potential and seeking support for implementation.

It became evident that national or higher level powers lacked sufficient control over TNCs due to their large scale while supra-national bodies couldn't create policies that addressed regional regulation needs. Governments from both developed and developing countries expressed interest in creating codes of behavior for TNCs. However, reaching a consensus on the purpose, content, and penalties proved challenging due to differing interests. Consequently, the codes were made voluntary instead of mandatory.

Initially in the 80s, national governments believed that enterprises and markets could regulate themselves. But this belief was proven wrong by reality. At first,TNCs showed little interest in these codes of behavior.However they began adopting them as a response to campaigns launched in developed states that focused on the overseas activities of well-known brands.This adoption helped protect their reputationSince the 1990s, TNCs have shifted their focus away

from individual actors and embraced a "multi-stakeholder" approach (Utting et al., 2002: 61). These multi-stakeholder codes address various issues and include independent monitoring mechanisms, making them a credible alternative. Non-profit organizations consisting of alliances between companies, labor unions, and NGOs develop these codes in response to changing attitudes among stakeholders who now prioritize the social and environmental impact of TNC behavior. Consequently, these issues have gained importance on the corporate agenda.

However, it is uncertain whether increased acceptance of corporate codes truly leads to greater corporate social responsibility and improved behavior. One limitation is that codes of behavior are not legally binding, meaning no entity can be held legally responsible for violating them. Additionally, there may be questionable content within these codes.

While a multi-stakeholder approach is often used to implement codes, TNCs are not required by regulation to follow this approach. They have the freedom to choose whichever code is convenient for them which can lead to potential lack of proper policy description or omission of important issues. Furthermore, since each TNC can choose its own code, they vary greatly among industries and can create confusion while allowing TNCs to evade certain practices.Furthermore, the credibility of TNCs can be deceptive as their motives behind creating and adapting codes may not always be sincere. Instead, these codes are often used to enhance and safeguard their reputation by deceiving the public. Companies strategically utilize codes to generate positive public relations even if their actual practices do not align with what is stated on paper.

Multi-stakeholder enterprises strive to enhance standard-setting, coverage, monitoring, and confirmation processes. However, when there is a lack of monitoring in implementing corporate social responsibility, TNCs

tend to disregard codes due to the absence of transparency and accountability mechanisms.

The combination of these shortcomings and pressure from new players reveals that codes of conduct have limited efficacy in promoting corporate social responsibility. One potential solution involves making these codes legally binding by incorporating them into contractual agreements between businesses.

Additionally, legal action can be taken against TNCs that publish false codes of behavior under deceit laws. This can lead to reputational harm and potential loss of consumers, stakeholders, and partners. Another legislative approach could require TNCs to disclose information about social issues for increased transparency.National governments have the power to require companies operating within their borders to provide statistical information on various workforce variables, which includes wages, health and safety measures, working conditions, training, labor relations, living conditions, and employment support initiatives. France set an example in 2002 by making it mandatory for major national and international companies to report on employee, community, and environmental matters. It is vital for corporations to demonstrate compliance with the International Labor Organization's fundamental conventions and promote them among their subsidiaries (United Nations conference of trade and development, 2004;8).

Despite some positive changes brought about by pressure from civil society groups, regulating multinational corporations remains challenging. While corporate codes of conduct have made significant progress since their introduction in the 1990s, they alone are not sufficient to address the issue at hand. Although voluntary approaches contribute to regulating corporate behavior, there is an urgent need for a robust and transparent supervisory framework to ensure proper implementation. However, coalitions consisting of businesses, labor unions, and NGOs do not possess the authority required to take concrete actions even though they

advocate for this model.

To enhance the effectiveness of corporate codes of conduct it is crucial for national governments to support them by integrating them into the legal system.According to Claire Delahaije's article in Global Governance (February 2010), national governments, NGOs, labor unions, and other civil society organizations can work together with transnational corporations to gradually develop a strong and well-defined policy.

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