Multinational corporations can have a profound impact on small business over time. This is true in all industries including food and clothing and textiles as well as e-commerce. The following essay will explore the impact multinational corporations have upon small businesses in the textile and clothing industries. You can see the impact in different areas such as quality and pricing, job opportunities, and the closing of factories and stores. The impact can also be felt at the fashion design level.
Multinational corporations are businesses that have offices, factories or other assets in more than one country. (Investopedia. n.d.). Small businesses are any enterprise that is owned by an individual. According to the Small Business Association, a small company is one that generates approximately $750,000 to $38.5 million in annual revenue. (Benilyn Formoso, 2017)
Consider the fashion industry as an example of how multinational corporations can impact small businesses.
Human beings like variety. The variety of clothing options available to consumers is a blessing. The standard for clothing and other items is set by international brands. Local and small-business owners must ensure that their clothing products are of high quality while still being affordable enough to be competitive with their competitors. (moneybags, 2015)
Multinational corporations often provide better quality clothing for the market. Small businesses are forced to improve their work in order to be competitive in the future. But, if small retailers make their clothing better quality this could lead to their clothing being more expensive. Because clothing is more affordable when mass-produced, big retailers can sell high quality clothes at lower prices. Because smaller retailers tend to buy less material, suppliers are able to offer larger trade discounts to bigger retailers than to smaller ones. (Julie Davoren, n.d.)
International companies can offer customers lower prices on certain clothes if it anticipates that the sale of the goods will increase in quantity. This leads to an increase in sales for the shops. They can offer customers a better rate than local businesses by offering them discounts through their suppliers. Multinational corporations also have the unfair advantage of being able to outsource cheaper labour and material from abroad. (Leo Sun)
Multinational corporations such Nike, GAP or H&M could maximize their profits using cheap labor in South East Asia. (Anup Shaikh, 2006) Wages average 100 dollars per month. This is a small percentage of the minimum wage in America. Many items can be found in households with the label “Made in China”, but there’s a reason why they are. The factory price for twelve designer shirts from China is 36 dollars. Twelve shirts can be sold for $3 each. However, once the shirts have been placed on racks at various shops, the same shirt’s price drops to $30. That’s ten times more than the original price. This shows how profitable multinational companies can make from their products imported from China. According to Prof Michel Chossudovsky in 2018,
One of the benefits that multinational companies can offer is the increase in employment opportunities. The country’s economic growth is positive because of the decrease in unemployment. Multinational corporations, on the other hand, can be seen as a threat to employment. The local business owner may view multinational corporations opening up in their area as a threat to employment. It means that the number or people unemployed immediately falls, which can impact the availability of workers for your company. To make the offer more attractive to potential employees, the owner of the business will need to raise the wages offered and include additional benefits in the employment contract. (Kevin Johnston, n.d.)
A multinational company offers little opportunity for growth and improvement from an individual’s current job. Internships in smaller businesses are more beneficial than those in larger companies. A large company may limit the scope of a project to a single person. This means that they are unable to get enough exposure and knowledge about the entire project. In contrast, a smaller business has more responsibility and more experience in each field. It’s also easier to get promoted in smaller businesses than in larger multinational corporations. (quora)
Small businesses are dependent on the exchange rate. Owners of local and small businesses are put in difficult situations when the exchange rates is high. International brands that trade in US Dollars are cheaper than local shops because they can be bought from international stores. The rand’s weakness makes it easier to sell local shops on foreign market. (page 452 eco textbook))
Small businesses could be concerned by multinational corporations’ entry into their economy. Aca Joe and Jenni Button have all been owned by South Africans, making them difficult to find. According to reports, stock was sold in 59 stores across five brands, including Urban, Aca Joe, Jenni Button and Hilton Weiner. Some have even closed their doors. (eNCA. 2015)The Platinum Group denied the claims that it was in liquidation the next day. (eNCA, 2015)
South Africa was hit hard by a series negative events over the past 15 year that saw many South African businesses close down. Imports from abroad are one of the main reasons. Imported clothing is slower than local manufacturers. Clothes manufactured locally can make the most recent trends in a much faster manner than imported clothes. Importing clothing in China can be more expensive than local clothing. This is because the labour costs are much lower in China, so clothing items will often sell for a lesser price. South Africa’s new brand, “Proudly South African”, has been launched to encourage South African citizens to support locally-made products. This brand will support small and local businesses. It will also help ensure that these shops don’t close due to international retailers. (HKTDC Research, 2015)
Multinational corporations had a devastating and detrimental impact on South Africa’s clothing factories. In 2013, Kwa-Zulu Natal lost 450 garment factories because they did not comply with minimum wage laws. The National Bargaining Council forced them to close their doors. This led to approximately 14000 job losses. According to United Clothing and Textile Association Chairman, it is becoming increasingly difficult for clothing factories to survive due to increased imports from other countries. (Yogas Nair, 2013)
The brunt of large multinational fashion corporations like Zara, Cotton On and H&M is on local designers. Thabo Khumbalo, runner-up at the S.A., is one example of such a designer. Fashion week 2014 is struggling to compete against well-recognized brands and large retail chains. Thabo Khulalo believes in providing his customers with high quality clothing items. He also believes in customizing and making clothes for each client. He is able to distinguish himself from big international retailers by offering unique items that are not mass-produced and look identical. (Buhle Ndweni, 2016) Thabo Kumalo had one idea. He wanted to make his clothes more appealing to the community. He used the resources of his hometown to discover what was missing in the fashion industry. This was the beginning of Thabo’s blossoming career. (Sandiso Nqubane, 2017)
These paragraphs provide a summary of the potential impacts that multinational corporations can have on small businesses. Multinational corporations are a threat to many small businesses. It is vital to support local businesses and buy local products.
