Direct foreign investment by transnational enterprises as a restrictive business practice

Nature

The preference of foreign business when investing in developing countries is undoubtedly for equity-based control. The aversion of international enterprises for shared ownership has lessened, particularly in the face of threats of nationalization, or legal requirements for significant local equity participation. However, where the transnational enterprise holds less than 50%, it can still possess control if the other equity is distributed in smaller shares among several interests. Export oriented industries having a large foreign exchange component, and industries requiring a steep investment in research and development, and operations needing support from high-technology and other specialists, are more readily dominated by the transnationals. A particular device favoured to extend control is the construction of a vertically integrated chain from raw material supply, through distribution to final sale point, with the transnational enterprise being able to manipulate every step and exert a compelling leverage on operations where it is technically a minority presence.

Counter-claim

Direct foreign investment increase employment. A conservative estimate of direct employment by multinationals is 65 million people or 3% of the world's work force. Add indirect employment, such as jobs created by suppliers and the general lift to an economy that multinationals provide and such companies may generate 6% of the world's labour force. They develop skills, deliver export income and provide import substitutions for the host country. A substantial number of the Transnational Corporations are not giant multinational but are small and medium sized firms. In 1984 23% of Japanese multinationals employed less than 300 people; and in 1981 78% of British firms with direct investment overseas employed fewer than 500 people.