The impact of multinational corporations on an economy

Multinational Corporation also knows as Transnational Corporation or multinational enterprise. These three things have same definition and function. Multinational company is a company that have manage the business in one country or they called it headquarters and also have their branches of business in others country. Multinational company have brought the advantages and disadvantages in the host country.

2.0 FINDINGS

2.1 Definition of MNC

According to the business dictionary MNC means the enterprise that operating in several countries but managed from one (home) country .While according to the International Economics books they divided it into three sections. First by the size, means MNC is the extent of internationalization need. Then by the structure the MNC include the number of countries in which the firm does business and the citizenship of corporate owners and the top managers. Lastly by the performance, depends on the characteristics as earnings, sales and assets. Others meaning of MNC is a network of capital, product, and knowledge flow between organisational units.

2.2 Characteristics of MNC

The characteristics of MNC are a company must have and own or control value adding activities in more than one country. And they also have involving in strategic alliances with others company.MNC also bring the new technology with the new capital and access to the local market knowledge and distribution in the host country. Furthermore, the characteristic of MNC is to view the worldwide presence in one or more of businesses.

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3.0 STATISTIC

3.1 Foreign Direct Investment

Foreign direct investment means the other company from outside which is other country invest in one company of other country. Many of country include in foreign direct investment. Malaysia also takes a part in this business because many advantages Malaysia can get from foreign direct investment from other countries. Malaysia can get many profits and develop the country from it. Malaysia ranks among the world is a top 20th attractive country to foreign direct investment (FDI) according to the World Investment Prospects Survey 2007-2009 FDI by the United Nations Conference on Trade and Development (UNCTAD). Malaysia have a good strategy in map which means that the location of Malaysia in the heart of Southeast Asia and offer a cost competitive position for whom that’s want invest in that country especially in manufacturing of technology product for regional place and global markets. The factors that Malaysia become a top 20th choice of foreign direct investment is firstly is a human resources that Malaysia have is from a younger categorize that is strong and intelligent enough. Malaysia also try to develop the country to become modern and technology so its need the foreign direct investment come invest to Malaysia .When this happen its will be the exchange of technology and increase the knowledge of Malaysia about the technology. Government also provide the good services and tax for foreign invest in Malaysia. This is to make sure the continuous supply of manpower to meet the needs of the growing manufacturing and technology sector of Malaysia.

3.2 The Gross Domestic Product

The gross domestic product (GDP) is a basic measure of a country economics performance.GDP is a purchases prices that sum of gross value added by all resident producers in the economy plus any product taxes and minus any subsidies not included in the value of the products. The most common approach to measuring and quantifying GDP is the expenditure method.

The figure above shown the graph of Gross Domestic Product from 2005 to 2009

Figure 1.1 Bar chart of Gross Domestic Product (in 2000 constant prices) Ringgit Malaysia in Million

2005

2006

2007

2008

2009

Gross Domestic Product   (in 2000 constant prices) Ringgit Malaysia in Million                     

449,250

475,192

505,353          

528,804       

528,860

The bar chart above shows that the Gross Domestic Product from 2005 to 2009 in increase. Start from 2005 the Gross Domestic Product in Ringgit Malaysia shows the total is 449,250 million. Then follow by year 2006 the total amount is 475,192 million ,it have an increasing in number. While on 2007 the amount is 505,353 million. For 2008 and 2009 is 528,804 million and 528,860 million. This shows that the effect of MNC that invest in Malaysia have been increase the Gross Domestic Product in every year.

The figure above show the pie chart of sector of MNC in Malaysia.

Figure 1.2 A pie chart of sector of MNC in Malaysia

2005

2006

2007

2008

2009

Agriculture, forestry & fishing           

35,835                  

37,769              

38,593             

40,073          

39,260

Mining

42,472                  

41,315            

42,663              

42,337        

42,176

Manufacturing

137,940                 

147,672            

152,262            

154,195       

141,934

Construction

14,685                  

14,604               

15,279             

15,604            

16,071

Services

230,043              

246,895               

270,762         

290,588         

303,695

Many of MNC from other country invest in Malaysia. There have a specific into a few sector of MNC. There are agriculture, forestry & fishing sector, the mining sector, manufacturing sector, construction sector and the lastly is services sector. The pie chart shows the total amount of Gross Domestic Product (GDP) in each sector start from 2005 to 2009.All the sector have the incensement in the GDP according the increasing of the year. Start from agriculture, forestry & fishing sector the total of GDP is 39,260 million for 5 years. While in mining sector and manufacturing sector the amount is 42,176 million and 141,934 million. The construction sectors have 16,071 million in the GDP.The largest amount sector that influence the GDP of MNC is a services sector. This can be prove by the total amount is 303,695 million. For the smallest amount is in agriculture, foresting & fishing sector. The reason why the agriculture, foresting and fishing is the smallest influence is because Malaysia has their own product that can be produce by the country itself. It’s not too necessary to receive the FDI from outside. Furthermore Malaysia has a larger area of forest and sea. Diverse from agriculture sector, is services sector that give a large amount in GDP. Malaysia is a one country that in progress to develop, so its need many of technology to be use especially on a services sector. Example the public transportation service, they need to be improve on the speed and safety for the passangers.Nowdays many of public transportation have been improve such as LRT and KOMUTER.This transportation have a high speed and big space to take a many passengers and they can arrive the destination at the short time.

4.0 EVALUATION

4.1 The contribution of MNC in Malaysia

Malaysia is one of the most talented manufacturing and exports that base in the area. “Malaysia ranks as among the world’s top 20 attractive countries foreign direct investment (FDI), according to the World Investment Prospect Survey 2007-2009 FDI by the United Nations Conference on Trade and Development (UNCTAD)”. (www.tradechakra.com). There are more than 60 countries have invested in over 3000 companies in Malaysia’s manufacturing segment. The countries that have invested in Malaysia is Japan, Singapore, Thailand, United State and more else. Furthermore, Toyota, Hitachi, Ford and IBM are the examples of Multinational companies that contributed in Malaysia country. The main factor that are attracted foreign company to open up their business in Malaysia is the assurance of government’s that retain the trade environment that are provides the foreign investors with the profits and opportunity for development. In general, foreign company in Malaysia’s manufacturing sector can hold 100% equity in project which export 80% of their production and attractive tax rate incentives in 2008 is 26% and it will cut to 25% appropriate to mutually no-resident and resident companies. Malaysia proposes a broad range of tax encouragement for manufacturing scheme under the Income Tax Act 1967 and Promotion of Investment Act 1986. There are many types or sector of multinational company in Malaysia. The sectors are including the manufacturing, agricultural, mining, construction, forestry and services. For examples, the foreign country that contributes to manufacturing sector likes Japan automotive industry. Nowadays, Japan have contributes their automotive industry like Honda, Mitsubishi, Daihatsu and Toyota in Malaysia economies.

4.2 The advantages of MNC in Malaysia

The advantages of multinational company in Malaysia are it will increase the economic resources. This is happen when other multinational companies from outside open their business in Malaysia and the foreign currency exchange rate in Malaysia will be increase the economies indirectly. When transnational company opens their industries in Malaysia, they need to hired people to work with them and it will provide job opportunities for unemployed graduates in Malaysia. Moreover, it will also transfer the management skills and technology to Malaysia. So, they can learn and used the technology for the development of the country. Other than that, Malaysia has its own natural resources like petroleum, oil, gas and others. It attracts the foreign country to open up their business in Malaysia. Moreover, it also will increase the development rate of host nation by introducing new investment, management skills and new technology. For example Perodua Myvi the 6th model of Perodua Malaysia is based on Daihatsu Boon and Toyota Passo from Japan automotive industry. Malaysia automotive and Japan automotive industry are joint venture to produce the new product and new technology. Furthermore, services transfer is also one of the positive impacts of multinational company in Malaysia. It means that, government will transfer the local workers to the foreign country to learn about their management and technology skills. So, they do not need to hired foreign employee to works in Malaysia

4.3 The disadvantages of MNC in Malaysia

The negative impact of multinational companies that affected Malaysia is it will change the culture. Malaysia is based on different race and religion and they focuses about their culture and religion. The present of multinational companies from other country especially from West Country indirectly change and spoiling the local culture in the mentality, philosophy and more else. Other than that, they may not promote any development for the nation’s economic activities by basically source their components from out of the country. Its means, they will make local producers out of business. Multinational companies could take pleasure in high competitive advantages over local firms that can damaged local competition rather than promote it. Other than that too dependence of the foreign technology will make them take the advantages of Malaysia’s weakness and they will dominance the local industries. In addition, foreign country will interrupt of Malaysia’s economic plans and they will become richer better than local country. This is because they can get worker with low labour cost in Malaysia and cheap of raw materials. Other than that, the tax of Malaysia is low then their country so it makes them attract to open up their business in Malaysia.

5.0 CONCLUSION

Multinational Company (MNC) gives a big impact in a country. It has the advantages and disadvantages impact. According to the Foreign Direct Investment the number of Gross Domestic Product (GDP) increasing follow by the years. Start from the early 1960’s century the enter of MNC in Malaysia give a big impact, mainly in economy and social development of the country .There also have an transfer of technology in the country. Many of the things now is based on the technology. This is the advantages for the country to attract the foreign to invest in Malaysia because Malaysia is the one of the country that in process to develop the country into the developed country. Furthermore many of knowledgement can get from them to produce the intelligent and educated people in the country. The MNC also give the big profit to Malaysia . Although they give many impacts on the advantages in the country, they also give the disadvantages one. When the transfer of social is occurred, they give a some of the bad social impact for the country. For example, when they have too many MNC from outside invest in Malaysia automatically they dominant the industry and this give the small chance for the local to invest in their own country industry. Other than that the technology of the country just depend on the foreign country. It just gives the foreign company to take advantages toward the host country to produce their technology.

6.0 REFFERENCE

Economy Watch, Malaysia Industry Sector [online] Available at:

[Accessed on 18 November 2010]

Natarajan M. & Tan J.M, 1992, The Impact of MNC in Malaysia, Singapore & Thailand

[ e-book], Institute of southeast Asian ,Available at: < http://books.google.com.my/books>

[ Accessed on 21 November 2010]

Trade Chakra, 2008. Foreign Investment in Malaysia [online] (Updated 7 Dec 2009) Available at: [Accessed on 19 November 2010]