Advantages and Disadvantages of Multinational Companies: A Comprehensive Overview
Multinational Companies: A Comprehensive Overview
Phase 1: Initial Expansion
During the initial phase, production is concentrated in large developed countries. The product’s novelty offsets cost differences, allowing companies to manufacture in their home country.
Phase 2: Reaching Mass Production
As mass production is achieved, cost and price become crucial. Companies seek locations with similar conditions to their home country but with lower costs, often leading them to establish operations in other developed nations.
Phase 3: Expansion to Underdeveloped Countries
The pursuit of even lower production costs drives companies to establish subsidiaries in underdeveloped countries, marking the culmination of internal expansion.
Disadvantages of Multinational Companies
A) Depletion of Natural Resources
Growing awareness of finite resources highlights the potential for depletion due to multinational activities.
B) Domination of Host Country Economies
Multinational companies can exert significant influence over the economies of host countries, particularly smaller ones.
C) Technological Dependence
Developing countries may become reliant on technology controlled by multinational enterprises.
D) Conflict of Interests
The policies of a multinational company’s home country may clash with the interests of the host country.
E) Impact on Intrasocial Relations
High payments for technology and transfer pricing can negatively affect the host country’s balance of payments.
F) Impact on Employment Levels
Multinational companies may prioritize group goals over the needs of the host country, potentially leading to job losses.
G) Conflict with Development Goals
The actions of multinational companies can sometimes contradict the development objectives of the host country.
H) Modification of National Identity
Multinational companies may introduce their own values, customs, and trends, potentially impacting the host country’s national identity.
Advantages of Multinational Companies
A) Capital Mobilization and Employment
Multinational companies contribute significantly to capital investment and employment generation in both developed and developing countries.
B) Employment Generation
Despite often operating in capital-intensive sectors, multinational companies create jobs and often offer higher wages than the host country average.
C) Improving the Balance of Payments
Multinational companies can boost export supply, enhance competitiveness, and support import substitution efforts, ultimately strengthening the host country’s balance of payments.
D) Technology Transfer
Multinational companies facilitate the transfer of technology, although the rate and depth of absorption depend on the host country’s capabilities.