For many years, Multinational Corporations (MNCs) have been investing on Third World Countries. This has brought up countless controversy cases over the treatment of the MNCs to the host countries and vice versa. Independently of the rightness or wrongness of the impact of MNCs on Third World Countries, it cannot be denied that this impact has been tremendous. From the beginning of MNCs with British East India Company (Chanda), passing through the 1970s, when there were around 7,000 of this MNCs, to nowadays, with more than 70,000 MNCs worldwide (Steger) there has been an evolution and a change of power in this relationship.
Dr. Tarzi, professor of international economics at Bradley University, gives a very good explanation on this switch of powers summarized in the next paragraph. Years ago, the host country had little power. In the first decades right after World War II, some MNCs were so powerful that they could prevent any threat from local governments towards their profits. The MNCs held a unique position that gave them special negotiation advantages: they held the sole source of capital, technology, and managerial expertise for the poor Third World States. The economic costs for the host countries to remove or replace MNCs were too high. Several factors helped to balance the power. First, the level of expertise of local governments has increased. Some host governments have developed levels of economics and financial skills that have helped them to negotiate in better terms with MNCs. Since the 1960s local government have made sure that the investments of MNCs will look toward the long term economic goals of these countries. The second factor is the increase in competition between MNCs. As expressed above, the number of MNCs currently operating is considerably higher than it was 40 years ago. This has given the host countries the freedom of choice, which at the end benefits the host country and creates better deals. Not only do the host countries get better deals, but they are also not so dependent as they used to be on a specific MNC. Now if any MNC tries to take advantage of its position over the country, the host government can choose a new partner. Another factor that has changed the bargaining power of host countries is the decrease on economic uncertainty. At the beginning, the corporation has more negotiation power because of the uncertainty of getting into a new market or making a new deal. But once its product or service is successful, the uncertainty is almost completely eliminated and all that remains are the fixed assets of the MNC on the host country. At that point, the corporation has much more at stake, balancing the negotiating capacity of the two sides. Nevertheless, there are still many things, which are not fair for either side, and the power between both sides will most probably never be completely balanced (Tarzi).