Impact of Multinational Corporations on Small Businesses

Multinational corporations have had a huge impact on small businesses in the long run. This can be seen throughout industries such as food, clothing and textiles, e-commerce and various others. In the following researched essay we will be looking at the impact that multinational corporations have on small businesses in the clothing and textile industry. The impact can be seen in different categories such as the quality and pricing of clothing, jobs and employment rates, the closing down of stores and factories due to the entry of these multinational corporations and imports from abroad and the impact can also be felt by fashion designers.

A multinational corporation is any business that has offices, factories and other possessions in more than one country excluding its host nation. (Investopedia, n.d.)

A small business is any independently owned enterprise. The SBA’s (Small Business Association) definition of a small business is any business that makes approximately $750,000 – $38.5 million in yearly revenue. (Benilyn Formoso, 2017)

The clothing industry is a good example to look at when discussing the impact of multinational corporations on small businesses.

Human beings like variety. Consumers are fortunate that they have a long list of options to choose from when buying clothes. International clothing brands set the standard around the world for how clothes and other items should be. This compels local and small business owners to increase the quality of the clothing items that are being sold but at the same time maintain a reasonable price that allows them to compete with their rivals. (moneybags, 2015)

Multinational corporations often bring better quality clothing into the market industry, forcing small businesses to improve their work as well; this allows them to stay in competition and business in the long run. However when small retailers improve the quality of their clothing this would result in their clothing to be more costly. Big retailers are able to sell good quality clothing items at lower prices due to the fact that manufacturing is cheaper when it is mass produced. As well as when material is bought in bulk, compared to the small businesses, suppliers offer bigger trade discounts to the bigger retailers than the smaller retailers seeing as these small retailers buy a smaller quantity. (Julie Davoren, n.d.)

Big international companies are in a position to provide their customers with a lower price for various clothes if it anticipates that selling the goods at a lower price will increase the quantity being sold; this results in an overall increase in revenue for the shops. The discounts that are offered to these big companies by their suppliers further enable them to offer their customers a cheaper rate than most of the locally owned businesses. There is also an unfair advantage in favour of multinational corporations in terms of outsourcing cheaper material and labour from other countries. (Leo Sun)

Multinational corporations such as Nike, GAP, H&M and other brands were able to maximise their profits through the use of cheap labour in South East Asia and other countries where they were able to hide from the strict law enforcements of the United States of America and Europe. (Anup Shah, 2006) Wages are at 100 Dollars a month; this is just a tiny percentage of minimum wages in the United States of America. The words “Made in China” are on plenty of items that a person could find in their households and there is a specific reason for that. Twelve designer shirts that were made in China can be sold at the factory price of 36 Dollars for all twelve shirts (3 dollars per shirt) yet once these shirts are placed on the racks in various shopping centres the price of the same shirt is then being sold at 30 dollars, ten times the original price. From this it can be seen how much profit multinational companies are able to make when their goods are imported from China. (Prof Michel Chossudovsky, 2018)

One of the opportunities that a multinational company can provide is that there will be an increase in the number of jobs available to the public. An increase in the amount of job opportunities decreases the economy’s unemployment rate this results in an economic growth which is a positive indication for the country. On the opposite end of the spectrum, multinational corporations can be seen in a negative light in terms of employment. From a local business owner’s perspective when a multinational corporation opens their doors in your neighbourhood the amount of unemployed people instantly decreases thus decreasing the amount of people available to you for hire in your business. The business owner now needs to make his offer more lucrative to the applicants; the owner will have to increase the wages being offered or include more benefits into the employment contract to attract the attention of prospective employees. (Kevin Johnston, n.d.)

Working for a multinational company, there is barely any room for improvement and growth from a person’s current job status. Internships are often better to do in a smaller business compared to a larger company. In a large company a person only handles a segment of the project and cannot gain enough exposure to the whole concept of the project. Whereas in a small business a person is tasked with more responsibilities and gains more experience in the respective fields. In addition to this getting a promotion is far easier in a smaller business compared to large multinational corporations. (quora)

The exchange rate plays a vital role in small businesses. When the exchange rate is strong it puts the owners of small and local businesses in a tough spot. Due to a stronger rand, international brands that trade in the US Dollar work out to be cheaper options for the consumers to buy rather than buying from their local stores. When the rand is weak it makes it easier for local shop owners to compete in the foreign markets. (page 452 eco textbook))

The entry of multinational corporations into a particular country’s economy can make small businesses owners worried. For example, Hilton Weiner, Jenni Button and Aca Joe are all South African owned brands that are now scarce to find. In 2015 The Platinum group had allegedly gone into liquidation and reportedly stock has been sold down across 59 stores within the 5 brands (Hilton Weiner, Jenni Button, Urban, Aca Joe and Vertigo) and a few have already closed their doors. (eNCA, 2015)However the following day after the statement was released, The Platinum Group dismissed the alleged reports about being under liquidation. (eNCA, 2015)

South Africa had undergone a series of downhill events that resulted in a vast number of businesses shutting their doors in the last 15 years. One of the reasons for this is the increase in imports from abroad. Local manufacturers are able to compete with imported clothing in regard to speed. Clothes that are produced locally can manufacture the latest trends at a faster pace than getting the clothes imported from around the globe. Imported clothing from China is often a cheaper option than the clothes being made by local stores the reason for this is that labour costs in China are almost impossible to match and this contributes to selling clothing items at a lower price. However South Africa has now launched a new band that urges South African Citizens to support locally made items, the brand is known as “Proudly South African”. By supporting this brand you are supporting local and small businesses and this will help to ensure that these stores do not close down due to big international retailers. (HKTDC Research, 2015)

The impact that multinational corporations had on the clothing factories in South Africa was destructive and damaging to the people of the country. In 2013, 450 clothing factories in Kwa-Zulu Natal went out of business as they failed to obey the minimum wage laws. They were forced to shut down by the National Bargaining Council (NBC); because of this approximately 14000 workers lost their jobs. The Chairman of United Clothing and Textile association has mentioned that due to the fact that imports from foreign countries has grown exponentially it has made it extremely difficult for these clothing factories to continue to exist, let alone manage to pay to the required minimum wage. (Yogas Nair, 2013)

Local designers must bear the brunt of big international fashion companies such as Zara, Cotton On, H&M and many more gigantic multinational corporations. Some designers such as Thabo Khumalo , the runner-up in the S.A. Fashion week, 2014, struggles to keep up and compete with well recognised brands and big retail brands. Thabo Khumalo believes in giving his clients good quality and unique pieces of clothing items, items that are customised and made specifically for that customer. In that aspect of business he certainly established a difference between him and big international retailers, his item pieces are unique and one of a kind where as his competitors have a vast number of pieces that look the same and are mass produced. (Buhle Ndweni, 2016) One of the ideas that Thabo Khumalo had was to ensure that his clothing appealed to the community, he used his local roots to his advantage and was able to see what was lacking in the fashion industry in his area and from there he was able to open the doors to his blossoming career. (Sandiso Nqubane, 2017)

In conclusion, from the above paragraphs one could look at the various ways that a multinational corporation could impact a small business. Multinational corporations have a negative impact on many small businesses, as well as other aspects of the respective industry. At the end of the day, it is important to buy local goods as this helps many owners of small businesses, in this way we support them and benefit our local economy.