Advantages and Disadvantages of MNC (Multinational Companies)

Content of Advantages and Disadvantages of MNC

1. Meaning
2. 13 Advantages of Mnc
3. 10 Disadvantages of Mnc

WHAT IS MNC?

A multinational corporation (MNC) is usually a large corporation operated in a home country that produces or sells goods or services in other countries.

Example-Apple company ( produces goods in China and other counties but operated or decision via home country America )

If you have any doubt between Mnc and Tnc, Check the difference now- MNC VS TNC

ADVANTAGES OF MNC (MULTINATIONAL COMPANIES)

1. Assure Quality Standards
2. Modern Technology
3. Research and Development
4. Growth of Industry
5. Expand Exports
6. Best Utilization of Resources
7. Expand Local Industries
8. Management job Opportunities
9. Development of Country
10. Taxes and Other Expenses
11. Increase Employment
12. Remove Monopolies
13. Improvement in Standard of Living

(1) Assure Quality Standards
Multinational companies mostly have large sizes and more influence, so these companies try more to provide higher quality or experience than expected to each customer. These things assure the customers that, they are getting a good quality of products even at less price.

(2) Modern Technology
New technology has an important role in cutting down the cost of production which affects reduce of the price of goods and produces quality goods on a large scale.

These companies get the latest and upgraded technology from foreign countries. This helps to develop poor countries to improve their technological level.

(3) Research and Development
 The resources and experience of multinational companies in the field of research help the host country to make product research and development systems. This helps the host country to improve product quality at a low price.

(4) Growth of Industry
Multinational companies are experienced and fast-growing in nature. These companies also offer growth opportunities for domestic industries.

MNCs, help local producers or domestic industries by setting up partnerships and using the local companies for the supply of raw materials to make goods for the international level market.

(5) Expands Export
Multinational corporations produce goods for an international market. It helps the host country to increase the export of goods. This supports developing countries to earn foreign money and improves the Balance of payment. Balance of payment improves when exports increase and imports decrease.

Read Now- Difference Between Mnc and Tnc

(6) Best Utilization of Resources: These MNC companies assure the best uses of natural and other resources to the country. These companies try to reduce duplication and waste things which leads to the best utilization of resources. This way country receives more benefits from the scarce resources.

(7) Expand Local Industries
Multinational corporations provide a ready-made market to local/domestic suppliers for getting raw materials or semi-finished products to make finished products. Most of their requirement in respect of raw materials, spare parts, etc. are being met by local suppliers.

(8) Management Job Opportunities
These companies open management opportunities to the management students of the host country. These students can get jobs as professional managers by multinational companies. They can earn an impressive salary and build a reputation for the country.

(9) Development Of Country
Multinational companies help developing countries to increase efficiency and productivity in production, sales, finance, etc through the transfer of technology and foreign investment in the hosting country.

10. Taxes and Other Expenses – Taxes are one of the areas where every MNC wants to take advantage. Many countries allow reduced taxes on exports and imports in order to increase their foreign exposure and international trade. 

11. Increase Employment
In terms of employment, Multinational corporations hire workers to produce goods on a large scale. More workers are needed when a company needs to increase production. This result can lead to an increase in employment.

(12) Remove Monopolies
When a multinational company enters any market they compete with existing competitors, this can result in removing the monopoly of some large companies.

In the long run/time, the presence of multinational companies in the market along with domestic companies is beneficial to the consumers because customers can get more benefits like less prices, better quality, and more availability of products.

13. Improvement in Standard of Living
By providing the best quality products and services at a better price, MNCs help to improve the standard of living of people of host countries.

DISADVANTAGES OF MNC (MULTINATIONAL COMPANIES)

The Threat of a multinational investment to host countries may include:

1. Environmental Damage
2. Increases competition
3. Pressurize Governments
4. Uncertainty in jobs
5. Reduces Tax Liability
6. Low-skilled employment
7. Exploiting Workers
8. Export Profits 
9. Impact On Societies
10. Inappropriate technology

1. Damage Environment

Multinational corporations require or like to produce goods in bulk so that become more efficient and cheap. This may not always be the best environmental practice.

Sometimes these companies produce goods using low standards, it does lower prices but it also damages to the environment i.e Creating air & water pollution, etc. Poor governments exchange environmental damage for additional profits.

For example – MNCs can reduce expenses by not taking proper precautions to stop pollution.

2. Increases competition

Another disadvantage of multinational corporations is Increases competition in a market. MNCs have the ability to Increase Competition. These large corporations can easily dominate the market due to better products and lower prices because Mnc has the financial resources to buy in bulk.

3. Pressurize Governments

A multinational corporation’s investment can be very important to a country but this often gives an unbalanced influence over the government and other organizations in the host country.

Mnc economic importance in the host country, it makes often governments agree to changes that may not be beneficial for the long-term welfare of their people.

4. Uncertainty in jobs 

The MNC can move or shift their production factory or offices in a very short time. This creates uncertainty for the host country. If more companies transfer their offices and centring operations, more jobs for the people living in these countries are threatened.

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5. Reduces Tax Liability

Multinationals constantly aim to reduce their tax liability to a minimum amount. This can be done with the help of transfer pricing. They target to reduce their tax liability in countries with high tax rates and increase in the countries with low tax rates.

MNCs can do this by transferring components and part-finished goods between different countries at different prices. If any country has high tax rates, they transfer the goods at a relatively high price to make the costs appear higher. This reduces their overall tax bill.

6. Low-skilled employment 

As multinational companies want to reach an efficiency level quickly in production, marketing, etc, to make this possible Mnc needs skilled employment. But MNCs don’t have sufficient time to create local employment skills that encourage high productivity levels.

In this situation, Mnc starts to import skilled employment from other countries to meet their needs. So the jobs created in the local area can be low-skilled or lower level in multinational companies.

7. Exploiting Workers

MNCs often invest in developing countries to take advantage of cheaper labour. Most multinational corporations prefer to put up branches in these parts of the world where regulation and laws are not strict for workers and where people need jobs because these multinationals demand cheaper labour and lesser healthcare benefits.

8. Export Profits 

Another biggest disadvantage of Mnc is exporting and transferring their profits. Large multinationals are likely to take profits back to their ‘home country, leaving little financial benefits for the host country.

9. Impact On Societies

 Large numbers of foreign businesses can remove local and traditional cultures. These companies increase the culture of fast food and soft drinks in developing nations.

For example- burger and coke, This type of food are not even good for health but Mnc like McDonald, Promoting the foreign culture.

10. Inappropriate technology

Another disadvantage of MNC is unsuitable Technology. The technology given by MNCs from their home country can be inappropriate for host countries.

It can be too old or too advanced. Moreover, as we discussed earlier Mnc doesn’t have time to train local people to acquire skills in technology.

These are the main Advantages and Disadvantages of MNC

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Difference Between Mnc and Tnc– Mnc Vs Tnc
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