We often hear claims that Australia is a branch plant economy. It is said that Australia is not really in control of its prosperity and competitiveness, but rather it is at the mercy of decisions taken in overseas corporate boardrooms.

On the other hand, proponents of free trade and investment put the case that investment by foreign owned multinational corporations in Australia has been an unalloyed boon to our country, since our earliest days as a trading nation.

A recent research project commissioned by the Australian Business Foundation aimed to throw some light on these debates. Under the title Friend or Foe: Leveraging Foreign Multinationals in the Australian Economy, Dr Lyndal Thorburn, Managing Director of Advance Consulting & Evaluation Pty Ltd, a technology and innovation management consultancy, with Dr John Langdale and Professor John Houghton, sought to go beyond the usual quantitative measures of direct investment and employment by multinationals and examine how multinationals are interacting with local firms and consequently, how best to foster those linkages which advance Australia's capabilities, knowledge and global reach.

The Friend or Foe study provides information on the degree to which multinationals influence, either positively or negatively, the growth, capacity and skills of Australian firms.

Well, are multinationals friends or foes?

The authors conclude that multinationals operating in Australia give more than they take, but the relationship is fragile and tenuous. Consequently, local businesses and policy makers must get smarter to maximise the benefit of multinationals, particularly Australia's access to global knowledge and skills and stronger participation in the delivery of global products and services.

The impacts of foreign-owned multinationals (MNC's) uncovered by Lyndal Thorburn and her colleagues can be summarised as follows:

Capabilities and Critical Mass

MNC's improve suppliers' product and service standards by being demanding customers.

MNC's work with their local suppliers in researching and understanding the market and therefore enhance Australia's marketing system.

Selling to MNC's improves the market standing of Australian firms.

Strategic alliances, for some, give increased international exposure, access to projects and sales not usually available, and the development of concepts for new product development.

On the negative side, however, multinationals do little R&D in Australia, with the majority focusing on product modification and with the intellectual property being registered offshore. Further, many MNC's are reducing their manufacturing capacity in Australia and few industry clusters that add to Australia's capability, are evident.

Global Reach

Australian suppliers selling to MNC's can access overseas markets by selling to other subsidiaries of the MNC or to unrelated firms introduced by their MNC customer.

In some instances, Australia is a testing ground for new products or systems roll-out by the global multinational, thus providing Australian firms with a first-mover advantage when these products and systems are introduced around the world.

On the downside, many MNC's have limited engagement in Australia, being just sales and marketing outlets and so are failing to provide Australian firms with a global gateway of any lasting significance.

Knowledge and Skills

Australian-based subsidiaries of MNC's which have a strong role in the multinational worldwide will bring greater benefits to Australia. For example, if the Australian MNC subsidiary is a global centre of excellence that develops new products and services for the global firm or is a key R&D or design hub, then it is more likely to contribute to the growth of local services, technology and know-how.

Subsidiaries of foreign MNC's can use their links with parent and sibling firms to access global knowledge that would otherwise be inaccessible to Australian companies.

There are opportunities for Australian staff of MNC's to gain international experience and training which benefits Australia's skills base.

Improvements in product and service quality and exposure to new management skills and international best practice are found to occur in some cases.

In short, the story of multinationals in Australia has both positives and negatives. They are not always friends, but it is not helpful to treat them as foes.

The challenge in capitalising on multinationals as friends lies in encouraging these global giants to deepen their innovation, research and product development links here. This involves deliberate action on:

Investment attraction – not all investment is equal and Australia should only pursue that which deepens our local level of expertise and anchors it here, and which in turn, acts as a magnet for further investment in a virtuous circle.

Capitalise on multinationals as demanding customers and standards setters which "pull" Australian suppliers into innovative products and services and into world markets.

Draw on multinationals for new skills and competencies, so that Australia is a partner in the inner circle of the global MNC for knowledge, technology, research, training and product and market development.

If Australia is to avoid the tag of the 'branch plant economy' and to maximise the benefits of foreign investment, then it is clearly in our interests to get up close and personal with multinational corporations.