Activity 15

1. In a minimum of 1 page reflection paper, analyze the benefits and costs of multinational corporations in
the development of a country.

Multinational firms conduct business in at least two countries. A multinational corporation (MNC) has business
operations in at least one country other than its own. A multinational corporation often has offices and/or factories
in several countries, as well as a centralized headquarters from which global management is managed.

Some governments in developing countries are indifferent, if not hostile, to multinational corporations. To be
sure, multinational firms contribute cash, new technology, managerial skills, new goods, and enhanced efficiency
and revenue; nonetheless, Multinational Corporations typically attempt to maximize the parent company's profits,
rather than the subsidiaries. Without a question, the primary motivation for developing countries seeking
international corporations. Their contribution to technology transfer is an investment and other foreign direct
investment. However, it may be in the parent company's best interests to limit the transfer of technology and
industrial secrets to the subsidiary's local personnel, to limit its exports, to compel it to buy intermediate parts and
capital goods from the parent, and to set intra firm (but international) transfer prices to shift taxes from the host
country. The advantages and costs of Multinational enterprises differ depending on class and interest group. Within
a population of LDCs Sometimes political elites embrace a multinational corporation (MNC). because it profits
them through contract Takeoffs, sales of inputs and services, client jobs, and seats on corporate boards
directorships (even though the firm harms the interests of most of the population). Nonetheless, as political power
is distributed, elites may be forced to reflect a broader public interest.

Corporations aim to become international enterprises for a variety of reasons.

• Capital inflows assist to finance a current account deficit. The foreign investment allows emerging
countries to purchase imports.

• Proximity to foreign markets of interest. It is advantageous to establish a business in the country where a
company's target consumer market is located. This leads to reducing transportation expenses while also
providing global firms with quicker access to consumer comments and information, as well as consumer
intelligence. International brand awareness facilitates the movement across nations and their distinct
marketplaces.

• Purchase a specialized good or service required for domestic manufacturing. For example, an undersea
engineering system for offshore oil drilling or computer capabilities to analyze the strength and weight of
dam components.
 • Access to cheaper production costs- Establishing manufacturing in other nations, particularly emerging
economies, frequently results in much lower production costs. Though outsourcing is one option,
developing manufacturing plants in other countries may be more cost-effective. MNCs can benefit from
economies of scale and expand their worldwide brand because of their size. Strategic manufacturing/service
placement enables the firm to take advantage of undervalued services throughout the world, more efficient
and cost-effective supply chains, and sophisticated technological/R&D capabilities.

• Multinational corporations are also recognized for hiring the greatest individuals from across the world,
allowing management to supply their products or service with the best technical expertise and inventive
thinking.

• Tariff avoidance- When a corporation produces or manufactures its products in a nation where it also sells
its products, it is immune from import limits and taxes.

• Multinational corporations may contribute to the improvement of the economy's infrastructure. They may
be able to increase their workforce's abilities. Foreign investment may encourage infrastructure spendings
such as roads and transportation.

• Multinational corporations assist in diversifying the economy away from reliance on primary products
like agriculture, which are sometimes vulnerable to variable price and supply.

• Create effective technology by modifying existing processes or inventing new ones.

• Subcontract to auxiliary industries, component producers, or repair shops to supplement local

entrepreneurship, or create forward and backward connections.

• Multinational corporations bring capital into developing countries. For example, on the financial account
of the balance of payments, the investment to develop the facility is recorded as a capital flow. This capital
investment aids the economy's development and expansion of its productive potential.

• Multinational corporations create jobs. Even though earnings appear to be very low by Western standards,
people in developing nations sometimes regard this new employment as preferable to working as a
subsistence farmer with even lower pay.

• Increase tax collections through income and corporate earnings taxes.

• Improve efficiency by eliminating roadblocks to free commerce and factor movement.

• Increase national income through increasing specialization and utilizing economies of scale.

Multinational Corporation costs:

• Increase the LDC's reliance on foreign sources of technology, resulting in less technical innovation by
local people.

• Limit the transfer of patents, industrial secrets, and other technological secrets. expertise to the subsidiary,
which may be considered as a prospective rival.

• Increase the concentration of industry and technology.

• Local entrepreneurship and investment in emerging sectors are hampered.

• Introduce false items, technologies, and consumer habits.

• Unsuitable technology raises unemployment rates.

• Aggravating wealth disparities via creating jobs and patronage, as well as manufacturing things that
mostly benefit the wealthiest 20% of the population.

• Limit subsidiary exports when they undercut the parent company's market.

• Understate tax obligations by overstating investment expenses and overpricing inputs moved from one
entity to another.

• Another subsidiary, and underpriced products sold inside the MNC to a different nation

• Distort intrafirm transfer rates to move cash illegally or to avoid foreign exchange controls.

• Require the subsidiary to buy inputs from the parent business rather than domestic suppliers.

• Repatriate significant amounts of fund earnings, royalties, and management and service fees.

• Lead to balance-of-payments deficits after the initial capital influx

• Influence government policy in an undesirable way (for example, overprotection, etc.)

• Tax breaks, subsidies, infrastructure, and the allocation of manufacturing locations are all examples of
government assistance.

• Increase foreign involvement in domestic political processes.

• Local, skilled workers should be diverted from domestic enterprise or government service.

• Raise a big portion of their cash from local money.

However, there are also disadvantages to multinational corporations. Both the advantages and disadvantages are
overwhelming, but I must say that the advantages out weight the disadvantages.

REFERENCES:

[1] Corporate Finance Institute. (2020, September 29). Multinational Corporation (MNC).
https://corporatefinanceinstitute.com/resources/knowledge/strategy/multinational-corporation/

[2] Pettinger, T. (2019, December 9). Multinational Corporations in Developing Countries. Economics Help.
https://www.economicshelp.org/blog/1413/development/multinational-corporations-in-developing-countries/

[3] Multinational Corporation (MNC). (2021, March 9). Investopedia.

https://www.investopedia.com/terms/m/multinationalcorporation.asp