Part of the Problem or the Solution? Multinationals' Positive Impacts on Economic Development

March 28, 2022

Multinational companies hold significant power and influence in the less economically advantaged countries in which they operate. For instance, when accused of contributing to human rights violations in Thailand, Nestlé responded by launching a training program and other initiatives to eliminate forced labor from their supply chain. This suggests that multinationals can, in fact, help address the developmental needs of the poorer countries where they have economic interests by promoting sustainable development practices in their operations.

This brief is part of the Insights @ Center for Emerging Markets, a publication focused on cutting edge ideas and advice for global leaders about emerging markets.

By David Wesley (Northeastern University), Luis A. Dau (Northeastern University), and Elizabeth M. Moore (Northeastern University)

Increasingly, multinational corporations are expected to become part of the solution to the global societal challenges of our time, including addressing the developmental needs of the poorer countries where they operate. Not doing so can have significant negative repercussions on these companies' reputation and, ultimately, bottom line.

Nestlé's Example

Recent research shows that this was Nestlé experience in Thailand, a country affected by a number of developmental challenges, including a significant incidence forced labor, as the 2016 Global Slavery Index showed the country had half a million slaves out of the approximately 45 million slaves worldwide. The abuse is most common in the Thai fishing industry where individuals are forced into labor and sanctioned with gruesome practices in case of disobedience. Women and children are also trafficked to shrimp processing plants offering them the worst working environments.

Enter Nestlé. In 2015, the company came under fire for having a supply chain that involved forced labor. The company responded by:

Auditing their operations. The company immediately called for an audit that reported substantial evidence supporting the accusations. Even though the company was criticized for its irresponsible behavior, it was widely appreciated for its transparency, and the audit report was considered a step in the right direction.
Introducing additional measures such as a participating in the Seafood Task Force to ensure compliance with regulations, conducting risk assessments, training members of the supply chain, and establishing a verification process for fishing boats.

Nestlé now frequently conducts risk assessments, training programs for every member of its supply chain, and has also established a verification process for fishing boats along with an emergency response team for migrant workers. It also collaborates with NGOs to implement inclusive labor monitoring and strengthen its relationships with all the involved stakeholders by regularly gathering their feedback.

How Multinationals Can Help

Nestlé's response was swift and direct after poor labor conditions in its global supply chain were exposed. And, despite the initial criticism, the company was also widely praised for its transparency and action.

These successful steps suggest that multinationals can become part of the solution to the developmental challenges facing developing countries especially by promoting human and labor rights in their operations, which the United Nations identify as the cornerstones of sustainable development.

Original Article

Wesley, D., Dau, L. A., & Moore, E. M. 2019. Filling institutional voids in Thailand: the case of Nestlé and the Seafood Coalition. In O. Osuji, F. Ngwu, D. Jamali (Eds.), Corporate Social Responsibility in Developing and Emerging Markets – Institutions, Actors and Sustainable Development: 232-257. Cambridge University Press.

Contact

If you are interested in learning more about this work, contact Professor Wesley.