The Impact of the Multinational Enterprise

Management must understand the need to compromise and to satisfy the conflicting interests of stockholders, employees, customers, and society at large. Internati onally, the problem is more complex because the relative strengths of competing groups vary among countries. Further, satisfying interests in one country may ca use dissatisfaction in another. The effects of MNEs are difficult to evaluate because of conflicting influences on different countries' objectives, intervening variables that obscure cause-effe ct relationships, and differences among MNEs' practices. Countries are interested not only in their absolute gains or losses but also in their performance relati ve to other countries. Since a balance-of-payments surplus in one country must result in a deficit else where, trade and investment transactions have been scrutinized closely for their effects. However, countries often are willing to accept short-term deficits in order to achieve a long-term surplus or other economic gains. The basic effects of FDI on a country's balance of payments theoretically can be determined, but disagreements exist about many assumptions that must be made co ncerning the relationship between such investment and trade. Projects differ so much that it is difficult to generalize and to make effective policies that appl y to large groups of investors. Governments have attempted to use FDI to improve their balance-of-payments posit ions through regulating capital flows, requiring partial local ownership, limitin g local borrowing by foreign investors, and stipulating that a part of capital i nflows must be in the form of loans rather than equity. The growth and employment effects of MNEs do not necessarily benefit one country at the expense of another. Much of these effects are due to the relative employ ment of resources with and/or without the MNEs' activities. MNEs may contribute to growth and employment by enabling idle resources to be us ed, using resources more efficiently, and upgrading resources' quality. The factors affecting growth and employment include the location in which MNEs o perate, product sophistication, competitiveness of local companies, governmental policies, and degree of product differentiation. Political concerns about MNEs center around the fear that they may be used as fo reign-policy instruments of home-country or host-country governments or that the y may avoid the control of any government. Extraterritoriality is the application of home-country lawsito the operations of companies abroad. This sometimes leads to conflicts between home and host count ries and may put an MNE in the untenable position of having to violate the laws of one country or the other. Countries most fear foreign control of key sectors in their economies because de cisions made abroad may disrupt local economic and political stability. Further, the foreign investors then may have enough power to adversely affect local sover eignty. Thus foreign ownership in key sectors of countries' economies often is r estricted.