Multinationals and unequal opportunities: what the evidence shows

Suppose a foreign-owned factory opens next to your packaging workshop. It pays operators more, and your two best machine hands resign. A month later the factory emails you a request to quote for cartons. For local people, has an opportunity opened or closed? Two papers do not answer that directly, but they show which questions to ask. The first sets out a research agenda on multinational enterprises (MNEs) and the inequality of opportunities (van der Straaten et al., 2023). The second surveys the literature on foreign direct investment (FDI) and structural change (Fu et al., 2021).

How does inequality of opportunities differ from inequality of outcomes?

Inequality of outcomes looks at where people "finish": income, wealth, job grade. Inequality of opportunities asks why they finish differently, and separates the part due to circumstances outside their control from the part due to their choices (van der Straaten et al., 2023).

The paper sorts the sources of difference into two groups. Effort covers what people choose to do and how hard they try; the authors treat it as voluntary and uncontroversial. Opportunity covers barriers beyond a person's control: gender, ethnicity, class or caste, location, immigration status, health, parental income. One example the paper gives: with equal performance, women and ethnic minorities may still be paid less and offered fewer jobs than men from the majority group (van der Straaten et al., 2023).

Why switch lenses? To look for causes of an apparent paradox. MNEs are argued to raise inequality within countries while lowering it between them. The paper cites an estimate by Bourguignon (2015) that roughly 20 per cent of the fall in between-country inequality over a decade was offset by a rise within countries. The mechanisms are poorly understood, the authors say, partly because causal links between MNE activity and social outcomes are hard to establish (van der Straaten et al., 2023).

The lens suits you if you want to find where your own firm decides who gets through the door. It does not suit you if you need an impact figure for a report: the paper offers none.

Through which channels does a multinational affect opportunities?

Through three levels, according to the 2023 paper: inside the firm (micro), in the industry and its supply chains (meso), and in the bargain with the state (macro). An MNE can passively reproduce the norms of the place where it operates, or actively import others; the authors read the evidence as a mixture of both (van der Straaten et al., 2023).

At firm level the paper names HR policy as the main driver. In supply chains, it says, the largest benefit has been upgrading opportunities for domestic firms, though suppliers often end up price-takers on thin margins (van der Straaten et al., 2023). Fu and colleagues add what suppliers learn: buyer-supplier links bring positive spillovers, while plain processing and assembly embodies little local knowledge, so industrialisation is quick but shallow (Fu et al., 2021).

Which parts have evidence, and which are only questions?

The evidence is most consistent for the supplier-linkage channel: Fu and colleagues find vertical spillovers through supply chains significant and consistent across settings, though they urge caution on causality (Fu et al., 2021). That conclusion concerns productivity and economic structure, not inequality of opportunities. The rest is mostly research questions proposed by the 2023 paper (van der Straaten et al., 2023).

How much of the result does state policy decide?

On both papers' accounts, most of it. The 2023 paper treats an MNE's effect on inequality, good or bad, as depending on an imperfect MNE-state compact: the state opens markets and provides location assets; in exchange the MNE is expected to contribute jobs, training or a share of its surplus (van der Straaten et al., 2023).

Fu and colleagues name the levers: technology-transfer requirements, investment promotion that chooses the type of FDI, and building absorptive capacity through education and technological capability. Deregulatory competition between countries is unlikely to deliver lasting change, so they propose agreements among developing countries to limit it (Fu et al., 2021). The 2023 paper recalls that in the import-substitution era states could demand more local content, but WTO agreements such as TRIMS and SCM have weakened selective industrial tools of that kind (van der Straaten et al., 2023).

The 2023 paper is blunt about a trade-off: policy that reduces inequality does not necessarily raise a country's appeal to MNEs. Cuba has low domestic inequality without growth or investment; China has rising domestic inequality alongside high growth and heavy MNE activity (van der Straaten et al., 2023). Tight conditions suit a host country whose location advantages are hard to imitate, since the paper says states keep more discretion then. They do not suit one whose advantage is only cheap labour, because MNEs have many other places to go (van der Straaten et al., 2023).

What can an MNE manager or an SME supplier do with this?

The 2023 paper offers no recipe. It argues that MNEs cannot tackle domestic inequality alone, but can act through internal governance, procurement, HR and engagement with domestic firms (van der Straaten et al., 2023). For an MNE manager, that suggests three decisions within reach: pay and promotion rules, supplier selection criteria and the commitments made when accepting incentives.

For an SME owner, Fu and colleagues give some footing. Domestic firms have to enter the MNE's networks and work with those who hold the knowledge, and spillovers often occur only where the domestic firm makes its own innovation effort. A chain dominated by a few large buyers can lock suppliers into low-value tasks, yet suppliers with a plan, compatible capacity and public support can break out (Fu et al., 2021). Being a supplier suits you if you have a plan to build capability. It does not suit you if the order is pure processing on thin margins that teaches you nothing.

Try it (hypothetical; inferred from the two papers, untested): a 50-person packaging workshop sells most of its output to one foreign-owned factory. The owner spends an afternoon on four tasks:

1. Write down this customer's share of revenue and the margin on its orders against other customers', to see whether you are a price-taker.
2. List what the customer has required or taught you (quality standards, supplier audits, processes), and underline what you could use with other customers.
3. Ask the buyer about its local-sourcing plans for the next two years. Per Fu and colleagues, where domestic supply chains are weak, foreign firms may import inputs and bypass local links (Fu et al., 2021).
4. Ask your provincial investment promotion agency whether it matches suppliers.

Going deeper: what the two papers do not show, and how much I read

Neither paper estimates the effect of MNEs on inequality in any country, and neither reports Vietnamese data. The 2023 paper says its discussion was truncated for lack of space and evidence (van der Straaten et al., 2023). Fu and colleagues warn about causality and leave the effects of FDI on gender and health outside their survey (Fu et al., 2021).

van der Straaten, Narula and Giuliani appeared in the Journal of International Business Studies as a "Perspective": it argues and proposes, and is not a systematic review. I read the accepted manuscript in the University of Reading repository, not the typeset version, so I give no direct quotations or page numbers. The empirical results it cites, such as Kodama and colleagues (2018), van der Straaten and colleagues (2020) and Ibarra-Olivo (2021), I know only through the paper's summary.

Fu, Emes and Hou searched the Web of Science for 2000 to 2020: 1,539 papers, 71 picked, 66 analysed, then 79 added and papers from International Business Review itself oversampled, so the sample is not a random draw. I read the accepted manuscript in the Brunel University London repository, and none of the studies in the sample.