Controlling MNCs

Why MNCs Are Hard to Control

An MNC operates in many countries, so no one government's laws cover everything it does. Governments also compete for MNC investment, and an MNC that dislikes one country's rules can move its factory, or its profits, somewhere else.

So control comes from several directions: governments, the law, campaigners and customers, as well as the firm itself. The harms they try to prevent are covered in unit 3.4.1 and unit 3.4.2.

Factors to Consider

Political Influence

Large MNCs can use their influence over governments to win friendlier rules, which makes them harder to control:

• Lobbying: an MNC pays lobbyists and meets ministers to argue its case → the government hears mostly the MNC's side → it agrees more lenient tax rules or weaker regulation.
• The threat to leave: an MNC says it will invest elsewhere → the government fears losing jobs and tax → it offers tax breaks or delays tougher rules.

Governments can still push back, especially when the public is on their side. In 2012 MPs on the Public Accounts Committee questioned Starbucks about how little UK corporation tax it paid. Facing a backlash from customers, it offered to pay about £20 million over the next two years.

Legal Control

Laws set the minimum standard on pay, health and safety, pollution, competition (unit 4.2.2) and tax. An MNC that breaks them faces fines, and in the worst cases criminal charges.

A home country can also reach supply chains abroad. Under the UK's Modern Slavery Act 2015, firms doing business in the UK with a turnover of £36 million or more must publish a statement each year on what they are doing to stop slavery in their business and supply chains.

Laws only work if they are enforced. Some host countries lack the inspectors and courts to do it, and MNCs can afford lawyers to find loopholes. The Modern Slavery Act requires a statement but not action, so a firm can report that it has done little.

Pressure Groups

Pressure group: an organisation that campaigns to change the behaviour of businesses or governments, such as Greenpeace on the environment or Amnesty International on human rights.

A campaign exposes poor practice through reports, protests or a call to boycott → bad publicity and lost sales → the MNC changes its practice to protect its brand. The Nestlé boycott in unit 3.4.2 is an example.

The limits: most groups have small budgets beside an MNC's, and a boycott works only if enough customers join it.

Social Media

Social media lets anyone share evidence, such as a worker's video from a factory floor or a photo of a misleading label. A post spreads worldwide within hours → the MNC's reputation suffers in every market → it has to respond quickly to protect sales.

The limits: stories fade within days, false claims spread as fast as true ones, and many people who share a post keep buying the product.

How well outside control works depends on:

• Bargaining power: MNCs need access to a large market such as the US or EU, so its rules carry weight. A poorer country that badly needs the jobs and investment is unlikely to push hard.
• Whether countries act together: an MNC can avoid one country's rules by moving elsewhere. Rules agreed by many countries are harder to escape.

Self-Regulation

Self-regulation: when a firm or industry sets and checks its own standards of behaviour, without the law requiring it.

An MNC might make every supplier sign a code of conduct, audit supplier factories, publish its emissions each year or sign up to a voluntary international code such as the UN Global Compact.

Whole industries do it too: UK advertisers wrote their own rules, and pay for the Advertising Standards Authority (ASA) to enforce them through a levy on advertising spend.

Self-regulation works best where laws and outside pressure remain in the background, giving firms a reason to keep to their codes.