Describe the Advantages and Disadvantages of Multinational Companies (MNCs).
Advantages and Disadvantages of Multinational Companies (MNCs).
Advantages Multinational Companies (MNCs) are:
- Multinational companies have international presence, which enables technical and managerial knowledge transfer to under developed and developing nations.
- These companies infuse capital in developing countries and increase employment, income and investments level, hence enabling economic growth in the host country.
- Expansion of business and presence of these companies helps in dissolving monopolistic entities.
- Expansion of multinational companies helps in help domestic suppliers.
- As multinational companies have international presence, these act as linkage (backward/ forward) to other industries in the host countries.
- These companies act as source of knowledge (technical and management), by investing in research and development activities. Thus these are considered as ‘knowledge box’.
- These companies increase exports and decrease imports which help in creating favorable Balance of Payment in the host country. Thus they often called global scanner by economists.
Disadvantages of Multinational Companies (MNCs) a Though MNCs help developing economies in several ways, there are objections raised against these:
- MNC do not create adequate jobs in the host country.
- The technology brought by MNC cannot be easily adopted by the developing countries. This increase the dependence on foreign companies.
- At times MNC acquire monopoly in the market and direct their profits to wholly owned subsidiaries.
- MNCs involve in consumer and non-essential goods.
- MNCs transfer technology from foreign countries which are expensive at times.
- Investments in research and development are negligible as these companies rely on technology transfers.
- As these are MNCs are oligopolistic in nature, these resort to unscrupulous practices like price fixing, price discrimination, bid rigging etc.
- MNCs pay royalties, dividends and other payments for professional services are made in hard currency, which cause outflow of foreign exchange of host country and leads to currency devaluation.