Question

Answer the following in detail.

Explain the merits and demerits of multinational corporations.

Answer 1

(A) Meaning:

1. Global enterprises or Multinational Corporations are the Corporations which undertake business activities in more than one country. Any company having its head office in one country and place of business in other countries is called a Multinational Corporation.
2. Multinational corporations played an important role in the Indian Economy since 1991. They have become a common feature of developing economies in the world. A Multinational Corporation is a corporation which operates, in addition to the 'country in which it is incorporated, in one or more other countries.

(B) Merits of Multinational Corporation:

The following are the merits of Multinational corporations.

1. Proper use of Idle Resources: The national income of the host country increases as MNCs use idle physical and human resources with the latest technologies.
2. The inflow of Foreign Capital: Multinational corporations bring much needed foreign capital for the rapid development of developing countries. This capital is useful for the growth of domestic countries.
3. Promotion of International Brotherhood and Culture: MNCs integrate economies of various nations with the world economy and promote international brotherhood and culture with peace and prosperity in the world.
4. End of Local Monopolies: In the global market, Multinational Corporations end local monopolies of host countries improving their products and reduces prices.
5. Technical development: Multinational corporations gives a lot of importance to research and development activities. They are also fully equipped and have the necessary infrastructure. The research and development is undertaken for finding out new products, new systems, and new technology of doing business in an economical way.
6. Improvement of Standard of Living: Multinational Corporations supply their product at very reasonable prices in the global market. E.g. the price of wristwatches, cell phones, etc. This helps to improve the standard of living of people in host countries.
7. Managerial Development: Multinational corporations have a highly specialized and expert team of management. These experts are hired by different countries of the world. Also, their functioning is highly professional. They adopt new technology and use huge resources.
8. Employment Generation: MNCs create large scale employment opportunities in host countries and helps in reducing unemployment.

(C) Demerits of Multinational Corporations:

1. The danger for Domestic Industries: Multinational Corporations have vast economic power so they are a danger to domestic industries which are still in process of development. Domestic industries are not so powerful to face the challenges of Multinational corporations.
2. Create Problem for Environment: Profit is the sole objective of Multinational corporations. Such companies damage the environment of developing countries. To lower the price of goods they dump lower standard quality products which harm local soil, water, and air.
3. Outsourcing of Job: Normally MNCs outsource the job work due to lower cost, due to this their liabilities towards employees are reduced.
4. Misuse of Mighty Status: Multinational Corporations have powerful financial strength because of huge capital. They can afford to bear losses for a long while in the hope of earning huge profits. They have ended local competition and achieved a monopoly. This may be unfair.
5. Multinational Corporations Import Skilled Labour: Most companies in this position import the skilled labour they require from other economic to meet their needs. That means the best jobs, especially in the developing world, are given to people who don’t even live in the local economy. Those wages do not offer the same economic benefits because spending occurs internationally instead of at the local level.
6. Interference: Multinational Corporations are gigantic organizations with huge finance and efficient management. They try to bring about the expansion of business through mergers, acquisitions, and amalgamations. As they are huge corporations they exert influence on political parties and try to spread the political ideology of their home country.
7. Take away Profits to Home Country: Profits made by multinational corporations are not used in the same country from where they are earned. They are not interested in the development of other countries. They do not use their profits on the infrastructural development of other countries.
8. Encourage Political Corruption: To get favorable terms and conditions in host country multinational corporations bribe to political parties.
9. Repatriation of Profiles: Multinational Corporations get huge profits. Repatriation of profit by Multinational corporations adversely affects the foreign exchange reserves of the host country. If means that a large amount of foreign exchange goes out of the host country.