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How Multinational Companies Build In Cheap Countries

The expansion of multinational companies (MNCs) into developing countries is one of the main factors that currently shape the global business environment. On the one hand, it is advantageous for developing countries because corporations provide a flow of capital into the country, stimulate their economic growth, provide employment, improve infrastructure, and help to diversify the economy (Pettinger, 2019). On the other hand, such expansion is connected with multiple threats, with environmental issues being the most dangerous of them. When building in developing countries, MNCs primarily focus on profit rather than sustainability, which leads to an increase in pollution and deforestation.

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The first issue that raises global concerns regarding MNCs’ expansion into developing countries is pollution. According to the studies, from 2011 to 2016, emissions generated through investment from the U.S. in India rose from 53.2 million tons to 70.2 million tons (Zhang et al., 2020). At the same time, emissions generated from investment from China to Southeast Asia increased almost tenfold, from 0.7 million tons to 8.2 million tons (Zhang et al., 2020).

Research shows that around a fifth of all carbon emissions in recent years has come from multination corporations, with pollution being increasingly outsourced from the developed to the developing world (Zhang et al., 2020). One of the main reasons for this is that the environmental standards applied to businesses in developing countries are significantly lower than that in developed countries. Due to their urgent need for employment opportunities, low-income countries are compelled to set lax environmental standards to attract investors (Digdowiseiso & Sugiyanto, 2020). This leads to MNCs systematically shifting their environmentally noxious operations to developing countries, which turns them into havens of pollution-intensive industries.

The second issue is deforestation, which is the decrease in forest areas across the world. With the main agents of deforestation in developing countries traditionally being farmers, ranchers, and loggers, the expansion of multinational corporations turned them into the main factor of influence (Digdowiseiso & Sugiyanto, 2020).

According to the 2018 report by Greenpeace (2018), in Indonesia alone, around 24 million hectares of rainforests were destroyed between 1990 and 2015 and a further 1.6m ha between 2015 and 2017, mainly by international palm oil producers. In 2015, daily greenhouse emissions from the forest fires spread across large areas of Sumatra, Kalimantan, and Papua surpassed those of the United States (Greenpeace, 2018). Deforestation is an important issue because it leads to soil erosion and flooding causes multiple problems for the local population and contributes to climate change.

Along with low environmental standards, the main reasons behind environmental degradation are the multinational companies’ desire to reduce costs and the lack of focus on sustainability both on behalf of corporations and developing countries. MNCs primarily move to poor regions for financial reasons and tend to apply inferior technologies and management practices in their developing countries’ subsidiaries to reduce costs (Digdowiseiso & Sugiyanto, 2020).

Conforming to more stringent environmental standards is connected with higher costs, and corporations tend to emphasize cheap labor and technologies rather than sustainability. Many developing countries, on the other hand, regard environmental quality “as a luxury that they are willing to forgo” (Digdowiseiso & Sugiyanto, 2020, p. 9). More stringent international legislation concerning sustainability and corporate responsibility is required for corporations to improve their environmental practices in developing countries.

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Overall, it can be concluded that when building in developing countries, multinational corporations cause significant damage to the environment. The lack of environmental regulations in the host countries and the corporations’ failure to act following ethical standards leads to them acting as agents of environmental degradation. By transferring outdated technology, disregarding local laws, extracting host countries’ resources, and following poor environmental practices, international companies contribute to global ecological degradation.

References

Digdowiseiso, K., & Sugiyanto, E. (2020). The effects of multinational companies on deforestation: The building block or stumbling block. Journal of Environmental Management and Tourism, 1(41), 5–11. Web.

Greenpeace. (2018). Final countdown. Web.

Pettinger, T. (2019). Multinational corporations in developing countries. Economics Help. Web.

Zhang, Z., Guan, D., Wang, R., Meng, J., Zheng, H., Zhu, K., & Du, H. (2020). Embodied carbon emissions in the supply chains of multinational enterprises. Nature Climate Change, 10, 1096–1101. Web.

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StudyCorgi. 2022. "How Multinational Companies Build In Cheap Countries." August 28, 2022. https://studycorgi.com/how-multinational-companies-build-in-cheap-countries/.

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StudyCorgi. (2022) 'How Multinational Companies Build In Cheap Countries'. 28 August.

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