Pros & Cons of Global Companies

by Walter Johnson; Updated September 26, 2017

A global company is a firm that has a substantial portion of its productive or distributive apparatus in countries outside of where its home base is located. Therefore, the global firm is not only inseparable from globalization, but is the dominant actor and catalyst for globalization. Globalized firms become governments in themselves as they spread their assets and productive capacity worldwide. They become beholden to no one but themselves.

Pros: Efficiency

One of the central arguments in favor of globalization and the global firm is efficiency. Firms go global to reach new markets, take advantage of cheaper labor and to be near sources of raw materials. This means that global firms have easier access to those things that make a firm competitive. Their production is made cheaper and their ability to reach many new consumers is radically enhanced. This leads to cheaper prices at home, increased competitiveness and, as a result, more domestic hiring.

Pros: Development

As far as the developing world is concerned, globalization, so the argument goes, has been a godsend. Multinational corporations (MNCs) pay better than domestic firms, teach new skills, inject needed money and information into the economic system and pay local taxes. Regardless of the effect of globalization on the industrialized world, the developing world benefits from MNCs. Workers in the developing world learn to work on advanced equipment and learn successful business plans and models. This only increases the productivity and ability of third world workers and, as a result, these developing economies benefit.

Cons: Domestic Tension

If a Korean firm moves much of its production to Thailand or Indonesia, this means that hundreds, if not thousands, of Koreans have lost their jobs. There is no guarantee that this loss will be made up, and skilled workers now must find jobs in the service sector or retail in order to continue to pay bills. Even worse, firms can wring concessions out of domestic labor because the threat of overseas investment and outsourcing can control all dissent. Pay cuts, the weakening of unions and the lack of any bargaining power or leverage becomes the lot of domestic labor.

Cons: Dependency

There is no lack of challenges to the common argument that MNCs improve the lot of local--that is, foreign--labor. MNCs dominate local governments who need the MNCs more than vice versa. Local governments lower taxes and wages to attract needed investment. Only the small minority of educated labor benefits from this investment. Local governments are hamstrung in their dealings with MNCs since the firm can always cancel their deals and move production elsewhere. The result is that the local economy becomes distorted and dependent on the MNC. A small local oligarchy connected with sources of global capital and credit benefit disproportionately and a new, alienated and a-national class develops, which is psychologically and materially dependent on the MNC. Dependency leads to distortion as this oligarchy controls the financial health of the local economy and government. Democracy is destroyed and inequality institutionalized.

About the Author

Walter Johnson has more than 20 years experience as a professional writer. After serving in the United Stated Marine Corps for several years, he received his doctorate in history from the University of Nebraska. Focused on economic topics, Johnson reads Russian and has published in journals such as “The Salisbury Review,” "The Constantian" and “The Social Justice Review."