Multinational Corporation |MNC | Definition – Advantages & Disadvantages 2022

Multinational Corporation:  Twenty 1st century is different from the rest of the other centuries because of the new dimension of global Economic dependency and due to the development of modern technology this has brought dramatic changes in the international Economic system (i.e.), technological development in terms of communication and transportation.

This increased the Economic and financial links between the states which led to the periodical phenomenon of the multinational corporation. These multinational corporations (MNCs)  internationalized the world Economic system increasing inter–state dependency and turning the world into a global village means due to developments.

multinational corporation

According to J.K THOMB,

“A Multinational Corporation is a Business enterprise legally situated in more than one country, whose commercial activities are of a large scale enough to have a considerable impact on the Economies of both parent and host countries”.     OR

“A cluster of corporations of diverse nationalities joined together by ties of common management strategy”.

The extent of the Spread of the MNCs:

During the Post World War Two, Multinational Corporation (MNCs) has come to dominate global investments, international production, finance, trade, and technology reliable data regarding the spread of MNCs, their subsidiaries, the extent of investment profits, etc. are not available.

But a study conducted in 1971 shows that of 100 listed Multinational corporations their total production of goods and services totaled 350 Billion US dollars majority of those MNCs were US-controlled, followed by UK, Holland, Bangkok, and other European companies from Japan, Sweden, etc.

Advantages of Multinational Corporation OR Contribution of MNC to development of LDCs.

The Multinational Corporation has been playing a very significant role in the economic development of the Lower developing countries and has been conferring the following advantages to LDCs.

  • Flow of Capital:  Multinational corporations shifting their production forces and capital from developed countries to the LDCs. This proves very beneficial to them as foreign investment is needed by the third world countries to boost up their Economy.
  • Improved Standard of Living: If productivity increases then wages of the employees also increased and if the industries are export-oriented then they give higher wages to their employees to raise their standard of living.
  • Employment Opportunities: In countries where unemployment is a major problem, Multinational corporations or firms provide great employment opportunities to the local people.
  • Tax Payment: Multinational corporations also pay taxes. They are more honest as compared to other local firms which usually do not pay taxes.
  • Advanced Technology: Through Multinational Corporation we sell transfer of technology based on research and development are the very foundations of economic development.
  • Managerial Skill: Private foreign investors also provide sophisticated managerial skills which is lacking in developing countries.
  • Increase Competition: Multinational Corporations are the source of increase in competition within the country where they are established. Home Industries start working hard to bring themselves to their level.
  • New Technology: when Multinational Corporation enters lower developing countries the latter are exposed to modern technologies and values which help bring about social and psychological transformation which is absolutely essential for the rapid economic development of LDCs.
  • Investment of LDCs: Multinational corporations take risk of investment in lower developing countries because of their strong financial base and contribute to the Economic Development of LDCs otherwise the LDCs would find it very difficult to push up the rate of investment to the required level.  
  • New Ventures: The Multinational Corporation start new ventures and through them new commodities and superior management training and education – there is no doubt that the Multinational Corporation can contribute to the rapid economic and social development of developing countries.

Which for centuries have been facing the enormous problem of vast unemployment and mass poverty. The MNC can act as catalysts and help LDCs to come out of the vicious circle of poverty in which they have got struggled for centuries.

Disadvantages OR Adverse Effects of Multinational Corporations on the Economies of LDCs:

The Multinational Corporation due to its strong bargaining strength is in a position to exploit LDCs. Several host countries criticize the activities of foreign private firms and argue that their benefits to third-world countries are not without cost. Some of the adverse effects of Multinational corporations on the Economies of LDCs are mentioned below.

  1. Neo-Colonialism: The host countries have criticized Multinational companies and accused them of serving as an instrument for Neo-Colonialism and organizing for future colonization.
  • Increased Dependency: After the industry or investment has proved financially successful the developing states become dependent on its continued success.

 This gives Multinational corporations certain leverage for importing their demands to host countries. If the letter wants the industry or enters to continue to operate. In such a situation, political resentment starts in the host country.

  • Conflict of Investment: on certain circumstances, the perceived interests of the Multinational Corporation come into a direct clash with the perceived interest of the country and in fact harm the host countries rather than benefitting them.
  • Resources Outflows:  Most of the profits made by MNCs go back to their home countries to its shareholder. Therefore it causes capital outflows from host to home countries.

Similarly, Subsidiaries have to pay license fees to their parent company.

  • Creation of Monopoly: Multinational Corporation also creates a monopoly of their goods in the host country. The prices of consumers of the host countries also increase.
  • Over Payments: Multinational Corporation generally pays relatively wages and salaries to their employees as compared to the wages and salaries paid by host industrial establishment.

This lead to inequalities in wage and salary rates. This in turn leads to rising loss of production etc.

  • Maintenance of Secrecy: Multinational Corporation often maintains secrecy about consolidated accounts which helps them manipulate the taxes.

Also sometimes they neglect to import higher-level skills and high technology to local personnel in their business establishments keeping them a secret with themselves and thus denying the locals opportunities for training in high technology fields.

Conclusion:

Even though on certain counts the role of multinational corporations in developing countries can be unfavorable to the latter. It must also be appreciated that if appropriate precautions are taken, the MNCs can be agents of economic development and progress of modernization of LDCs.

The Multinational Corporation by establishing factories, producing consumer and especially capital goods in LDCs by imparting training in modern industrial techniques, management, and organized skills, and by helping to exploit natural and human resources can help solve the problems of unemployment and poverty. That prevails in most of LDCs.

In order to keep the Multinational Companies under check, the host country must have a marginal share with them and in this way, the adverse effects of these MNCs can be minimized.

What is a multinational corporation give an example.

Services and products of multinational corporations are sold around many
many countries which require global management and administration. Microsoft, Nestle, coca-cola, PepsiCo, IBM, CitiGroup, and sony are some of the examples of MNCs in different countries of the world.

Where are multinational corporations?

A multinational company establishes its offices and factories in various countries across the globe and a centralized office where they coordinate and administer global management

What are the benefits of a multinational company?

The flow of capital, improved standard of living, employment opportunities, tax payment, and advanced technology are some of the benefits of a multinational company