Multinational companies are growing day by day. With the developing economy, the need for foreign investment is necessary. Multinational companies bring the required investment to countries that are in the development process and help them progress. However, multinational companies have become harmful to developing countries.
The reason is we usually don’t look beyond our shores to analyze the greedy human behavior, previously or in the present.
Multinational businesses are large corporations with operations in many countries worldwide. For instance, Ford, Apple, coca-cola, Microsoft, and Google all have operations in the U.S. and other lesser developed countries simultaneously. Their turnover and size can be higher than the total GDP of many growing economies. There are some benefits and disadvantages of multinational companies, as discussed below.
Benefits
Employment
Multinational companies help to create employment opportunities and worldwide. Inward investments by MNC build much-needed foreign currencies for growing and developing economies. They also generate employment opportunities and help raise the expectation of what is possible in lesser developed countries.
Ensure minimum standard
The main reason for multinational companies’ success is that customers like to purchase products and services to meet minimum service standards. For example, if you visit any country, you will know the star bucks coffee offers something you already familiar with. It might not be the best coffee in the area, but it won’t be nasty or worst. People like the safety of knowing what to expect.
Foreign investment
Multinational organizations engage in FDI (foreign direct investment) and operate in more than one country. They have better control over market knowledge, research activities, management, and financial resources since they have insights into every economy they are operating in.
For example, Unilever is one MNC that owns over 400 brands whose products are available in more than 190 countries with billions of dollars in annual sales. MNCs have been strengthening global transfers, ensuring global economic development, and deepening globalization on a massive scale.
MNCs have played their part in developing ties and building strong relationships with all the economic stakeholders, government institutions, corporate legal advisors, corporate workforce, customers, etc.
Outsourcing of production
Outsourcing of production via MNC allows lower prices. This lower price point grows disposable income in developed countries and will enable them to purchase more products and services. Building new sources of jobs to offset the lost jobs from outsourcing manufacturing works.
Promotes competition
When various MNC’s are present in one economy, competition is flashed along with more investment keen into developing a firm’s good, regardless of whether it enhances its efficiency or quality of the manufacturing process. Ultimately, the economy will develop.
Competition boosts the international competitiveness and performance of the business area and helps economic growth—generally, MNCs advantage well from decreasing and deregulation tax rates. An increase in regulations stops man business from maximizing their full possible while hindering competitors’ free entrance.
Deregulation helps economic contribution, inciting competition. Companies can only grow their incomes to increase efficiency, cut wages of workers, or increase the price of products. In the U.S, deregulation has lessened the price by 30%-75% in various vital sectors imposing those businesses to reorganize to become more effective. Without competition or rivals, the companies’ status and position won’t be endangered. None will be prepared to risk capital to recover.
Disadvantages
Human rights Abuse
One of the most general norms modes regarding companies in economics is that companies purpose to maximize income. In reality, companies do that by cutting production charges, the most direct method to lessen the cost of workers’ wages.
Though in developed countries, they are already set on minimal salaries, and the salaries can difficult to go further down on a specific point, relying on which economy. This phenomenon, called strictly wages, was discovered by John Maynard, one of the most dominant economists ever.
Companies will move their factories to countries that will pay lower wages, such as Pakistan and China. In both countries, the number of workers is more than the demand for work, permitting companies to lessen their wages still attracting the same number of laborers.
The incentive of shoddy labor and better income attracts many foreign companies. One of them being Primark, who has been suspected of paying children some amount for few days. These labor children’s working conditions appeared as poor, where they are forced to work for long hours without having a proper break.
Environmental pollution
MNC frequently contributes to pollution and utilizes non-renewable resources underlaying the environment at risk to search for more revenue. For instance, some multinational companies criticizing or point out outsourcing pollution and environmental degradation to emerging economies where pollution values are low.
Conclusion
Multinational companies are beneficial for the economies of developing countries. On the other hand, it can have some harmful effects on the industry. It is important to understand the benefits and disadvantages of running a multinational company if you consider taking your company internationally.
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