MULTINATIONAL

CORPORATIONS
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MNCs invest heavily in the primary and secondary sectors in the host
countries. They have branches or subsidiaries in many foreign countries.
Globalization has allowed these companies to extend their geographical
reach The subsidiary might not totally be owned by the parent company.
However, the parent company has the controlling share in subsidiaries.(A
subsidiary (sub) is a business entity or corporation that is fully owned or
partially controlled by another company, termed as the parent, or holding,
company.)The management of offices in other countries is controlled by one
head office located in the parent country. Therefore, the source of command
is found in the home country. They grow their economic size by constantly
upgrading and by conducting mergers and acquisitions. (Mergers and
acquisitions are transactions in which the ownership of companies, other
business organizations, or their operating units are transferred or
consolidated with other entities.)
 Advantages
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MultinationalCorporation
Corporation

 1. Multinational corporations provide an inflow of capital.

Most multinational corporations have their headquarters in the developed world. They rely on the resources of mature markets to
maintain their supportive revenue streams. These companies must move into the developing world to earn profits through
investments made there. Multinationals are a leading source of capital inflows to the developing world, building factories,
investing in training centres, and supporting educational facilities with the intention of improving their productive capacities
overseas.

 2. Multinational corporations reduce government aid dependencies in the developing world.

Since the 2000s, the reliance on foreign aid throughout the African continent is thought to be responsible for the overall
weakness of the local economies. Some nations rely on foreign aid for more than 40% of their annual budget. Creating new
assets in the developing world allows multinationals to begin improving the amount of trade which occurs in the developing
world.
The current level of trade for Europe is at 60%. North America experiences a 40% level of trade, while the Southeast Asian
Nations achieve 30%. The current level of trade for African countries, however, is just 12%. Multinational corporations could
boost this rate in the developing world by up to 50%.

 3. Multinational corporations allow countries to purchase imports.

The issue of economic development in non-developed countries is an overall lack of resource access. What is available to the
average consumer in the United States is very different when compared to what is accessible in a country like Somalia. When
multinationals build a presence in the developing world, their capital inflows help countries have more access to the
import/export market. That allows them to access better goods, create more opportunities, and eventually raise the standard of
living for everyone.
 Disadvantages
DisadvantagesofofMultinational
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Corperations
 1. Multinational corporations create higher environmental costs.

One primary advantage which multinationals see in doing business in the developing world is a lack of robust environmental
legislation. Weaker governments tend to exchange environmental harm for additional profits. When these companies can
outsource their production to countries with these lower standards, it does lower prices, but it also creates more damage.
Countries like India even trade in waste and rubbish because of the revenues they earn from recycling and disposal, creating
the potential for harm to local soil and water supplies .

 2. Multinational corporations don’t always leave profits local.

There is evidence to show that the investments made by multinational companies improve the local infrastructure. Additional
education and job training offer new opportunities for domestic workers. Once the investments are made, however, the profits
earned by the company tend to be repatriated for use in other areas. If you were to look at the net inflow of capital instead of
the gross, you usually find that the actual benefit offered by multinationals is quite low (and sometimes even negative).

 3. Multinational corporations import skilled labor .

The amount of time necessary to create local skills that encourage high productivity levels is measured in years, not weeks or
months. Multinationals invest in local workers to develop their skills, but they also need to get their venture off the ground
quickly. Most companies in this position will import the skilled labor they require from other economies 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.