Harry Bindloss

MULTINATIONAL CORPORATIONS (MNCS)

MNC: A corporation that has its facilities and other assets in at least one country other than its home country. Such companies have offices and/or factories in different countries and usually have a centralized head office where they co-ordinate global management. Very large multinationals have budgets that exceed those of many small countries. FDI: Foreign Direct Investment is the flows of private capital from one country to another, normally funding for business ventures.

Advantages of MNCs Availability of capital and foreign investment Availability of foreign exchange Promotion of small scale industries Foreign trade and integration of markets Decrease unemployment

Disadvantages of MNCs Harmful for host country Harmful for domestic producers Harmful for economic equality Can take advantage for cheap labour Labor - MNCs increase the productivity of labor by supplying foreign technology and employing better training methods. The negative aspect of this is that unemployment will increase due to labor-saving technology used by these MNCs. Wages also are often higher than average jobs, but the jobs generated and goods produced often benefit only the richest portions of society, thereby increasing income inequality. Technology - MNCs have large amounts of capital; they indulge in huge amounts of research and develop new technologies. At the same time, the transfer of technology to host countries limits the technical knowledge of local subsidiaries. Though domestic industries in the host countries are developed, they rarely know the technical aspects of the technology they are using, which creates a handicap.

Harry Bindloss

Tax Benefit - In the host countries, in which these MNCs operate, they end up paying taxes; this can lead to the MNCs being favored by the government. The MNCs use this government leverage to receive subsidies and tax benefits; they can also evade taxes by increasing the price of imports and decreasing the price of exports of the products they manufacture. Though they increase the employment and revenue in the host countries, their unfair influence with government can stifle other local businesses. Growth - MNCs promote growth in the field of their specialization; they make exports profitable and markets competitive. This increases the national income and the profits of the MNCs. Many MNCs have several fields of operation in which they promote development and research. The disadvantage of this is that the growth is concentrated as the investment in small- and medium-sized industries is often neglected. The MNCs can also promote the growth of local businesses and enhance competition, but their local subsidiaries end up purchasing goods from the parent company at higher prices, thereby increasing the prices in the local markets.