An Interview With NYU Stern School Of Business Professor Kim Ruhl On Multinational Companies And Their Impact On Underdeveloped And Developing Countries

Globe Are multinational companies more helpful or hurtful to the underdeveloped countries in which they operate?

“They’re probably good in most cases. They tend to provide higher wages than domestic firms do. Usually, there are some transfers of technology that are there. Depending on which countries you are talking about, there may be joint ventures involved that have spillovers into the domestic market. They also tend to provide a demand for skilled labor and provide an impetus for people to accumulate more skills, so I think a lot of what multinational companies are good for is kind of bringing better technology and better management ideas into those countries and then there is always some kind of spillover. Certainly, you can find workers that have worked at a multinational firm later go and start their own firm, or go work in other firms, and that is generally seen as good.”

What impact do multinational companies have on their host countries?

“I think there is something about seeing successful businesses and that encourages other people, and allows these companies to put pressure on domestic institutions. When Intel went to Costa Rica and built manufacturing plants there, it kind of spurred a change in the education regimes in Costa Rica, so they can bring about some sort of better change in institutions.”

Why do multinational companies choose to operate in underdeveloped and developing countries?

“A lot of reasons why multinational companies go into other countries is they’re looking for a productive workforce, so it’s in their best interest to have a well-functioning country as well. They don’t want to put a huge investment into a place that is politically unstable or that has poor institutions. You see the big inflows into countries like China and India happening once they start reforming, not before. Now that wages are going up and the markets are working better in China, that’s when all these companies are showing up. You don’t see a bunch of people lined up on the door of North Korea just waiting to get in. You want to be in a place where you can operate. We saw the first big rounds of multinational expansion into Latin America, after a lot of policy reform there. We saw a lot of FDI, because those places were seen as being stable economies at the time – they were reforming, and workforces were becoming educated. It was becoming a good place to produce and to sell.”

What would you say in response to claims that multinational companies exploit poor workers in underdeveloped countries?

“Yes, their wages are low, but their wages would be even lower if they weren’t working for that company, if they were farming in the countryside or working for an unproductive domestic firm. That is not to say that there aren’t conditions in these countries that really are not great. That is something that needs to be changed, but it needs to change within.”

When large multinational companies claim that they were not aware of exploitation and corruption going on in their factories and plants in underdeveloped countries, do you believe them?

“It is hard to believe, for most companies, especially these really big multinational companies, that they don’t know what is going on in these places. Walmart became the biggest retailer in Mexico really quickly and they paid lots of bribes to officials – for building permits, and other things you need in order to build in Mexico. To be honest, that is just the way business works in Mexico. When this was found out, Walmart claimed they didn’t know anything about it, but in the end, it was clear they knew what was going on.”

Since underdeveloped and developing countries have such different rules and policies, is it even possible for multinational companies to operate ethically?

“You’re in a place with a different set of institutions and you’re following the right way to do things somewhere else – it may never work.  I think there is some tension between having to operate in a country that looks a lot different than the US, and at the same time, hold yourself up, or be held up by US laws, and people in the US questioning why you’re doing what you’re doing.”

What are the effects on the US job market, since so many US multinationals operate elsewhere and outsource jobs?

You can see if you look at employment manufacturing over the last 20 years, every time there is a recession, employment kind of falls and some of that is coming from certain kinds of goods just not being made in the US anymore and some of that is being done by multinationals.”

What are some recent issues concerning multinational companies?

“There are some interesting issues about tax behavior. Companies can kind of engineer things so the part of the production that earns all the profits happens in the place with the lowest tax rate and that is simply what multinationals do and that is something that policy has not been able to catch up with. This is an issue where ownership matters – I’m technically a US company, I enjoy all the benefits of being a US company, I’m listed on the NY stock exchange, I’m protected by US laws, but I can engineer things in a certain way so I can pay less tax through these kind of foreign transactions.”

How do multinational companies affect the entire global economy?

“If you think about the entire world as a whole, [the companies] are probably extremely helpful. Again, it is letting these firms, who tend to be really big firms, organize their production in the most efficient way that they can – you put the labor-intensive parts of the production here, you put the capital-intensive parts here, you put the skilled labor-intensive parts here, and it let’s [these companies] take better advantage, the different comparative advantage in different countries, and that let’s you produce things better, so everybody enjoys better products at cheaper prices.”




About Jessica Summers

My name is Jessica Summers. I graduated as valedictorian from Marymount Manhattan College in 2012 with a B.A. in Communications and minors in Journalism and Political Science. During college, I spent a summer abroad studying at Oxford University and also held internships at CNN International, CNBC Business News, and WABC-TV, among other news organizations and media outlets. I am currently a graduate student at New York University’s Business and Economic Reporting program. I am an aspiring broadcast journalist, especially interested in covering the world of business and finance.
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