Multinational Corporations (MNCs)

A Multinational Company is a company that owns or controls productions in more than one nation. MNCs set up offices and factories for productions in regions where they can get cheap labour and other resources. This is done so that the cost of productions is low and the MNCs can earn greater profits. Multinational Corporations has changed the world economy

• Before the entry of MNCs production was largely organised within a country.
• Countries used to trade in raw material, foodstuff and finished goods.
• But with the entry of MNCs, economic activities of companies are getting spread over many countries.
• The goods and services are being produced globally.

INTERLINKING PRODUCTION ACROSS COUNTRIES:

• MNCs set up production where it is close to the markets; where there is skilled and unskilled labour available at low costs; and where the availability of other factors of production is assured.
• MNCs might look for government policies that look after their interests. MNCs set up factories and offices for production.
• The money that is spent to buy assets such as land, building, machines and other equipment is called investment. Investment made by MNCs is called foreign investment.
• MNCs set up production jointly with some of the local companies of these countries.
• MNCs can provide money for additional investments, like buying new machines for faster production. MNCs might bring with them the latest technology for production.

ADVANTAGES OF MULTINATIONAL CORPORATIONS:

• Availability of capital and foreign investment: Multinational corporations help to solve the problem of capital and foreign investment of under-developed and developing countries. Most of the underdeveloped countries suffer from lack of capital. Consequently, their rate of economic growth is low. MNCs setup factories, and offices for production in these developing and underdeveloping countries and made high investments. The money that is spent to buy assets such as land, buildings, machines and other equipment, is called investment. Investment made by these MNCs is called foreign investment.
• Availability of foreign exchange: MNCs can be helpful in solving the problem of foreign exchange of the underdeveloped and developing countries. In 90s India faced a huge shortage of foreign exchange but, with the entry of MNCs it has surplus foreign exchange reserves.
• Promotion of Small Scale Industries: Most of the MNCs take help from small scale and local industries in manufacturing. Garments, footwear, sports items etc. are examples of industries where production is carried out by a large number of small producers around the world. The products are supplied to the MNCs which then sell these under their own brand names to the customers.
• Foreign Trade and Integration of Markets: MNCs helps in the integration of world markets. With the entry of MNCs even the small countries have opened up their domestic markets for other countries.
• (A) MNCs increase foreign trade.
• (B) Foreign trade by the MNCs creates an opportunity for the local producers to reach beyond the domestic markets, i.e., markets of their own countries.

DISADVANTAGES OF MULTINATIONAL CORPORATIONS:

Harmful for host country:

• The main objective of the MNCs is to earn maximum profit. To achieve this objective they invest their capital in underdeveloped and developing countries. These MNCs over-exploit the natural resources of the host country. Bug chunk of profits earned in underdeveloped countries go to the headquarters of MNCs.
• Harmful for the local producers: MNCs place orders for production with small producers. The products produced are sold by MNCs undertheir own brand names. MNCs have tremendous power to determine manufacturing conditions for the local producers. The history has shown that most of the local producers have failed to compete with the MNCs so, either they have sold their units to MNCs or have been wiped off.
• Harmful for Economic Equality: MNCs have been proved harmful to the goal of economic equality, in more than one way:
• (A) Regional inequality has further aggravated because of them. MNCs are interested in setting up industries in particular regions and hence these regions develop very rapidly and other regions remain undeveloped.
• (B) MNCs pay more salaries and perks to their employees than other employees. This widens the gap between the incomes of the labourers giving rise to economic inequality.
• Harmful for freedom: MNCs also prove detrimental to the economic and political freedom of the host countries. These dabble in the politics of the country. MNCs were at the back of armed insurgence of many host countries. These corporations make all efforts to bring to power in the host county a political party that is favourably inclined to them. Thus, it is not possible for the rulers of host countries to pursue nationalistic, economic and political policies.