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Chapter: 11th Commerce : Chapter 8 : Multi National Corporations (MNCs)

Advantages and Disadvantages of Multi National Corporations (MNCs)

MNCs, because of their vast economic power, pose a danger to domestic industries; which are still in the process of development.


Advantages of Multi National Corporations (MNCs)


i. Low Cost Labour

MNC set up their facilities in low cost countries and produce goods/service at lower cost. It gains cost advantage and sells its products and services of good quality   at low cost. This is not available to smaller companies which operate at regional level.

ii. Quality Products

The resource,  experience  and  expertise  of MNCs in the sphere of research and development enables the host country to establish its research and development system which helps it in producing quality goods and services at least possible cost.

iii. Proper Use of Idle Resources

Because of their advanced technical knowledge, MNCs are in a position toproperly utilise idle physical and human resources of the host country. This results in an increase in the National Income of the host country.

iv. Improvement in Balance of Payment Position

MNCs help the host countries to increase their exports. As such, they help the host country to improve upon its Balance of Payment position.

v. Technical Development

MNCs carry the advantages of technical development 10 host countries. In fact, MNCs are a vehicle for transference of technical development from one  country to another. Because of MNCs poor host countries also begin to develop technically.

vi. Managerial Development

MNCs employ latest management techniques. People employed by MNCs do a lot of research in management. In a way, they help to professionalize management along latest lines of management theory and practice. This leads to managerial development in host countries.

vii. End of Local Monopolies

The entry of MNCs leads to competition  in the host countries. Local monopolies of host countries either start improving their products or reduce their prices. Thus MNCs put an end to exploitative trade practices of local monopolists. As a matter of fact, MNCs compel domestic companies to improve their efficiency and quality.

In India, many Indian companies acquired ISO-9000 quality certificates, due to fear of competition posed by MNCs.

viii. Improvement in Standard of Living

By providing super quality products and services, MNCs help to improve the standard of living of people of host countries.

ix. Promotion of international brotherhood and culture

MNCs integrate economies of various nations with the world economy. Through their international dealings, MNCs promote international brotherhood and culture; and pave way for world peace and prosperity.


Disadvantages of Multi National Corporations (MNCs)


i. Danger for Domestic Industries

MNCs, because of their vast economic power, pose a danger to domestic industries; which are still in the process of development. Domestic industries cannot face challenges posed by MNCs. Many domestic industries have to wind up, as a result of threat from MNCs. Thus MNCs give a setback to the economic growth of host countries.

ii. Transfer of Outdated Technology

Where MNCs transfer outdated technology to host nation, it serves no purpose.

iii. No Benefit to Poor People

MNCs produce only those things, which are used by the rich. Therefore, poor people of host countries do not get, generally, any benefit, out of MNCs.

iv. Danger to Independence

Initially MNCs help the Government of the host country, in a number of ways; and then gradually start interfering in the political affairs of the host country. There is, then, an implicit danger to the independence of the host country, in the long-run.

v. Deprivation of Job Opportunity of Local People

MNCs may not generate job opportunities to the people of home country.

vi. Misuse of Mighty Status

MNCs are powerful economic entities. They can afford to bear losses for a long while, in the hope of earning huge profits- once they have ended local competition and achieved monopoly. This may be the dirty marketing strategy of MNCs to wipe off local competitors from the host country.

vii. Careless Exploitation of Natural Resources

MNCs tend to use the natural resources of the host country carelessly. They cause rapid depletion of some of the non-renewable natural resources of the host country. In this way, MNCs cause a permanent damage to the economic development of the host country.

viii. Selfish Promotion of Alien Culture

MNCs tend to promote alien culture in host country to sell their products. They make people forget about their own cultural heritage. In India, e.g. MNCs have created a taste for synthetic food, soft drinks etc. This promotion of foreign culture by MNCs is injurious to the health of people also.

ix. Neglect of Industrial and Economic Growth of Home Country

An investment in host countries is more profitable, MNCs may neglect home countries industrial and economic evelopment.


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11th Commerce : Chapter 8 : Multi National Corporations (MNCs) : Advantages and Disadvantages of Multi National Corporations (MNCs) |

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