Multinational Corporations no doubt, carryout business with the ultimate object of profit making like any other domestic company. According to ILO report “for some, the multinational companies are an invaluable dynamic force and instrument for wider distribution of capital, technology and employment; for others they are monsters which our present institutions, national or international, cannot adequately control, a law to themselves with no reasonable concept, the public interest or social policy can accept. MNC’s directly and indirectly help both the home country and the host country.
Advantages of MNC’s for the host country
MNC’s help the host country in the following ways
1. The investment level, employment level, and income level of the host country increases due to the operation of MNC’s.
2. The industries of host country get latest technology from foreign countries through MNC’s.
3. The host country’s business also gets management expertise from MNC’s.
4. The domestic traders and market intermediaries of the host country gets increased business from the operation of MNC’s.
5. MNC’s break protectionalism, curb local monopolies, create competition among domestic companies and thus enhance their competitiveness.
6. Domestic industries can make use of R and D outcomes of MNC’s.
7. The host country can reduce imports and increase exports due to goods produced by MNC’s in the host country. This helps to improve balance of payment.
8. Level of industrial and economic development increases due to the growth of MNC’s in the host country.
Advantages of MNC’s for the home country
MNC’s home country has the following advantages.
1. MNC’s create opportunities for marketing the products produced in the home country throughout the world.
2. They create employment opportunities to the people of home country both at home and abroad.
3. It gives a boost to the industrial activities of home country.
4. MNC’s help to maintain favourable balance of payment of the home country in the long run.
5. Home country can also get the benefit of foreign culture brought by MNC’s.
Disadvantages of MNC’s for the host country
1. MNC’s may transfer technology which has become outdated in the home country.
2. As MNC’s do not operate within the national autonomy, they may pose a threat to the economic and political sovereignty of host countries.
3. MNC’s may kill the domestic industry by monpolising the host country’s market.
4. In order to make profit, MNC’s may use natural resources of the home country indiscriminately and cause depletion of the resources.
5. A large sums of money flows to foreign countries in terms of payments towards profits, dividends and royalty.
Disadvantages of MNC’s for the home country
1. MNC’s transfer the capital from the home country to various host countries causing unfavourable balance of payment.
2. MNC’s may not create employment opportunities to the people of home country if it adopts geocentric approach.
3. As investments in foreign countries is more profitable, MNC’s may neglect the home countries industrial and economic development.
Applicability to particular business
MNC’s is suitable in the following cases.
1. Where the Government wants to avail of foreign technology and foreign capital e.g. Maruti Udyog Limited, Hind lever, Philips, HP, Honeywell etc.
2. Where it is desirable in the national interest to increase employment opportunities in the country e.g., Hindustan Lever.
3. Where foreign management expertise is needed e.g. Honeywell, Samsung, LG Electronics etc.
4. Where it is desirable to diversify activities into untapped and priority areas like core and infrastructure industries, e.g. ITC is more acceptable to Indians L&T etc.
5. Pharmaceutical industries e.g. Glaxo, Bayer etc.