Adam Smith, who was also a moral philosopher, long observed that an individual “

Question

Adam Smith, who was also a moral philosopher, long observed that an individual “by directing . . . industry in such a manner as its produce may be of the greatest value, . . . intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.”

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In a world where it is harder than ever before to balance conflicting stakeholder demands, for this week's discussion board consider and discuss the role of multinational companies, those entities that, by default, deal across a spectrum of different environments, in making a vital contribution in building fair societies. As it is true that specific beliefs and preferences regarding what is fair vary widely, please try to present reasons why the multinational company has to become more socially relevant and responsible.

For a primer please consider the following:

Benefits of Multinational Corporations
Create wealth and jobs around the world. Inward investment by multinationals offer much needed foreign currency for developing economies. They also create jobs and help raise expectations of what is possible.
Their size and scale of operation enables them to benefit from economies of scale (Links to an external site.)Links to an external site. enabling lower average costs and prices for consumers. This is particularly important in industries with very high fixed costs, such as car manufacture and airlines.
Large profits can be used for research & development. For example, oil exploration is costly and risky; this could only be undertaken by a large firm with significant profit and resources. It is similar for drug manufacturers.
Ensure minimum standards. The success of multinationals is often because consumers like to buy goods and services where they can rely on minimum standards. i.e. if you visit any country you know that the Starbucks coffee shop will give something you are fairly familiar with. It may not be the best coffee in the district, but it won’t be the worst. People like the security of knowing what to expect.
Criticisms of Multinational Corporations
Companies are often interested in profit at the expense of the consumer. Multinational companies often have monopoly power which enables them to make excess profit. For example, Shell made profits of £14bn last year (Links to an external site.)Links to an external site.
Their market dominance makes it difficult for local small firms to thrive. For example, it is argued that big supermarkets are squeezing the margins of local corner shops leading to less diversity.
In developing economies, big multinationals can use their economies of scale to push local firms out of business.
In the pursuit of profit, multinational companies often contribute to pollution and use of non renewable resources which is putting the environment under threat.
MNCs have been criticised for using ‘slave labour’ – workers who are paid a pittance by Western standards
Evaluation

Some criticisms of MNCs may be due to other issues. For example, the fact MNCs pollute is perhaps a failure of government regulation. Also, small firms can pollute just as much.
MNCs may pay low wages by western standards but, this is arguably better than the alternatives of not having a job at all. Also, some multinationals have responded to concerns over standards of working conditions and have sought to improve them.

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Explanation / Answer

Social responsibility has become a necessity for the multinational companies over the last several years. Companies have to undertake different social activities to maintain a balance between individual and economic growth, it may be taking care of environment, empowering women, reducing poverty, improving education of children and so on. The social responsibility may be related to a particular locality, nation or global but an improvement in the health and well being of people takes the company to the top level of the success ladder.

To Increase the Sales Volume and become familiar among customers : In order to become more familiar a company needs to increase its social presence. It needs to create more job opportunities for the youth, provide education to poor children, providing security to women and pulling them to the mainstream of the society. By doing good for the society, a company is also doing good for itself.

Relating Customers : For a successful business a strong customer relationship is highly essential. Multinational companies earn large profits by cutting costs and offering a standard price to customers. They use these profits for research and development of society. Sometimes social responsibility policy can impact the buying decision of the customers. Some customers are interested to pay more when they know a portion of product cost is going to be spent over backward class. If a company is active in serving local community, there is a chance of increased sales and rising profit.

Ensure Minimum Standard: There is a group of people who before buying make sure that whether the product is undergoing minimum standard test. To fulfill the needs of this special category, the company maintains a standard of its own, this brings a recognition and popularity for the company. For exa, Starbucks coffee shop provides you the taste with whom you are familiar, for this reason people trust Starbucks.

Criticisms of MNCs : MNCs are criticized for making huge profits at the expenses of the consumer. Due to the monopoly power of the MNCs, they are able to make large profits. They can charge price according to their cost but sometimes due to competition in market it is not possible on their part to charge a high price. They have to minimise their cost and lower the price as compared to their competitors. It is argued that big companies are cutting the revenues of the small firms because of their market dominance. It is true because due to the presence of online shops and big malls small retailers are loosing profit. But there are customers who doesn't know how to shop online prefer to buy from their nearest shop.

Some multinational companies are also responsible for polluting the environment, they are not serious of their disposal of waste. By doing this they are loosing their brand image, customers will not prefer to buy the products of those companies who have no care for their environment.

MNCs have been criticised for using slave labour, paying less than the standard wage. Not all MNCs are paying less to their employees, nowadays MNCs are providing a very handsome salary to their employees with other perks and benefits. In some part of the country, there may be companies paying less to their employees, but it is illegal and should be dragged to court.
  

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