Evaluate the extent to which the activities of multinationals such as BAT or Freeport can be controlled. (10 marks)

Multinationals can be controlled by pressure groups, social media or government control and regulation. Pressure groups can have a massive impact on controlling the actions of multinationals. For example, ASH, an anti-smoking pressure group has put a lot of pressure on BAT to change their ethics and practises regarding poor pay and working conditions and exploitation of young potential consumers. Pressure groups can affect consumers and their opinion of a certain multinational. If many consumers were unhappy about how Freeport has been evicting local people from ancestral lands or how low Nigerian producers were paid for their tobacco, they may decide to stop buying tobacco products from BAT, which could potentially impact BAT’s profits. This may lead them to change their practices, leading to change for these Nigerian producers. This is because consumers do have a lot of purchasing power which they can use to force multinationals to make a change. However, as BAT have taken over so many tobacco companies, consumers may not realise that BAT are involved with certain companies. So if they did stop buying their tobacco products directly from BAT and switch to another company, they may buy from a company under the control of BAT. As tobacco products are considered inelastic, there is a high chance that consumers will end up still purchasing their products from BAT, instead of stopping all together. This therefore won’t affect BAT’s profits overall and probably wouldn’t cause them to make any changes.

Another way multinationals can be controlled is through government controls and or legal enforcement. This means that the government can investigate into a business’ practices by setting up regulatory bodies to monitor their behaviour or make it harder for multinationals to set up in their country by putting up trade barriers such as quotas or insisting on multinationals setting up as a joint venture, which would help protect their infant and domestic industries. Using legal enforcement, countries can help protect workers though acts such as the Heath and Safety Work Act. For example, this would help protect small-scale Brazilian and Kenyan tobacco farmers from using pesticides incorrectly. This would force multinationals to change their procedures and find safer but potentially more expensive ways to farm their tobacco products. However, many countries benefit more from multinationals due to the increase in FDI, jobs and the multiplier effect, improving a countries economy overall. Therefore, many developing countries may decide to allow multinationals such as Freeport and BAT to carry on with their unethical practices as they need the multinationals in their host countries for economic help more than the multinational needs the host country. This is because multinationals can move location vey easily if they find somewhere else cheaper.

In conclusion, although pressure groups can affect the sales of multinationals, multinationals are so big and control so many companies of the same market, that it’s difficult to actually put a dent in their sales. Also many consumers may still shop with that multinational as they are likely to offer cheaper prices than more ethical competitors as they can benefit from economies of scale and cheaper labour prices, meaning there is unlikely to be a big enough drop in sales for the multinational to change their actions, so is therefore not that effective. Also, many government laws aren’t that effective as some governments may let certain actions of multinationals pass as they need the FDI created by these multinationals. However, Indonesia has the largest economy in Southeast Asia and is a member of G 20, so they may not need the business of the multinationals, such as BAT and Freeport as much as other countries. This means that if they decided to implement laws and regulations to try and control the actions of BAT and Freeport they may be more effective.