What are the Main Drawbacks of Multinational Corporations?

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Critics have pointed out several drawbacks of multination corporations, such as:

1. Drain of Resources for Profit Maximisation:

The basic objective of a MNC is profit maximisation through” exploitation of host country’s resources. It is least concerned with developmental areas, growth and equity of the poor host country.

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2. Strain of Scarce Foreign Exchange Reserves:

These days MNCs belonging to the developed countries are usually making huge investments in the developing countries for the benefit of their home country. Thus, they transfer a huge amount of the country’s foreign exchange reserves by way of royalties, fees, dividends, etc., to their home countries. And, these may turn out to be much more than this initial investments.

3. Minimum Transfer of Technology:

It has been observed that the MNCs generally do not transfer their advanced technology to the host county. They carry out their research and development in the home country only. Further, technology supplied by the MNCs to LDCs is capital-intensive and import-oriented which may not suit the real need of these countries. Moreover, they are most obsolete.

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4. Insignificant Employment Potential:

The MNCs mostly operate in capital-intensive industries. Owing to their labour-saving technology approach, employment generation out of their investment is not very significant in a LDC. Moreover, they are not very enthusiastic in employing local nationals on high cadre of technical and managerial posts.

5. Interference in States’ Sovereignty:

There are possibilities of interference by the home governments of the MNCs in the host countries’ policy matters and international economic-political relations through the influence of the MNCs. The MNCs may misuse their financial clout on the host governments in shaping their policies to the advantage of the MNCs. They may also play their power game in getting a political party of their own choice elected to the government.

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6. Influence on Culture:

MNCs bring their cultural norms and attitudes in the host country and may cause destruction of its original culture in various ways.

7. III-effects of Advertisements:

The MNCs spend large amount on competitive advertisements which in effect may lead to high prices of the products, manipulation of demand, wastages of economic resources, demonstration effect to change the living styles of natives, etc.

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8. High Profit-orientation:

MNCs minimise their overall costs of production through economies of scale. They take advantage of national and international market imperfections to maximise their profits. Thus, they do not lower the prices due to economy and continue to charge high prices to earn more profits and exploit consumers.

9. Unfavourable Effect on BoP of the Host Country:

The MNCs by remittances of profits draw upon the foreign exchange reserves of the host country. This may add to the problem of BOP deficit which the country might be facing.

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10. Monopoly Growth:

The MNCs may create their monopolies in the markets and eliminate local competitors.

11. Depletion of Non-Renewable Resources:

The MNCs exploit the host country’s non­renewable natural resources to their advantage. This results in the depletion of non-renewable scarce resources in the host country.

12. Evasion of Taxes:

The MNCs may manipulate their accounts to evade local taxes.

13. Economic Threat:

The MNCs realising the host country’s dependency on their investments may exert their force to make the country to accept their terms and conditions. They may even give threat of disinvestment. For instance, when the Government of India asked the IBM to reduce its equity share to 40 per cent, the company decided to withdraw its branch from India.

Despite all these shortcomings, the LDCs are inviting the MNCs to gain some advantages at least and to be in tune with the expanding global economy.

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