Dynamics of Multinational Enterprises (MNEs)

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Multinational enterprises (MNEs) are potential sources of new technology in the host country especially in the case of developing nations due to possible technology spillovers. Additionally, MNEs are a possible source of technological R&D in the country. Economic theorists argue that assimilation of technology in host countries occurs in four phases. These include vertical connectivity with suppliers; horizontal connectivity with corresponding firms in operating in the industry; skilled labor transfer as well as globalization of R&D. Vertical connection has provided the most profound evidence of spillovers in technology with supplier from the host country. This is where multinational firms assist local suppliers in adapting to newer technological methods through intense training. They also facilitate local suppliers in improving their production facilities and modernizing their methods of procuring raw materials (Bauer and Langenmayr, 2013).

According to Devereux and Hubbard (2003), human capital in a country is positively influenced by FDIs in a country. The theory of human capital development elaborates the possibly and the likelihood of MNEs to directly or indirectly influence human capital in the host economy. The theory suggests that the influence is largely of an indirect nature. This is where the government of the host nation enacts human resource policies that are aimed at attracting FDIs in the country. Direct influence comes in where the MNEs employ workforce from the host country. The theory argues that direct human resource benefit may be derived through job training and learning on the job by local human resource personnel. Indirect influence may also be experienced in other local firms which have a vertical links with MNEs such as suppliers and distributors. The human capital effect brought about by these multinational firms has got an….”

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