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Advantages And Disadvantages Of Multinational Companies

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Question:

Discuss the Advantages and disadvantages of multinational companies on host country.
 
 

Answer:

Advantages of Multinational companies on Host country:

Multinational companies are companies who have huge business operations and they operate in more than one country. Multinational companies are headquartered in home country and they operate business from host countries. In most cases, the home country is a developed country and the host country is a developing nation. Multinational companies act locally but think globally (Edwards, Marginson and Ferner 2013). Multinational companies can act in different kind of business environments. The host country may be endowed with many benefits by the multinational companies. However, multinational companies bring with them relaxed code of ethical conduct that exploits the needs of the developing nations, instead of providing a support important for economic and social development of the nation (Kobrin 2013). When a multinational company makes investment in the host country, the ratio of investment has the likelihood of increasing. Hence, governments with an intention of attracting more foreign investment offers incentives to firms, offers grants and tax breaks. The advantages of the multinational companies may be enumerated as follows:

Activities related to research and development: host countries lack in research and development areas. Expenses on the research and development areas are important for the promotion of technology. Multinational companies have greater ability for research and development activities in comparison to host countries. Because of their capability of advanced search and development, multinational companies have the capability of surviving in the international market (Marano and Kostova 2016).

Social, Economic and Political conditions of the host country:  Multinational companies provide many benefits to the host country by contributing to the economic growth of the country and increasing the profits of the country. Additionally, multinational companies help the host country in the development of new products and also help in reducing the operational and labour cost of the country. Entry of multinational companies in a host country helps in changing the social and political structure of the country. Therefore, this makes the resources available to the host country for their economic exploitation (Hoskisson et al. 2013).

Product Innovation: Multinational companies have a strong research and development department that help in the development of new product. Development of new product leads to diversification of products. The opportunities that are related to product are greater as compared to national companies (Biersteker 2014).

Superiority of Market: Multinational companies have a security of brand reputation and this is why they face fewer issues in selling their products by adapting to an effective advertising and sales promotion methods (Campbell, Eden and Miller 2012).

Financial Superiority: Multinational companies have the capability to create funds in one country and use the funds in another country. Multinational companies have good financial resources as compared to host countries. Multinational companies have easier admission to capital markets (Javorcik 2014).

Technological Superiority: Because of technological superiority of the multinational companies the host companies help in the development of technological field of the company. The multinational company have the power to produce goods having international quality and standard (Lu et al. 2014). 

 

Disadvantages of Multinational companies on Host country:

The following disadvantages are faced by the multinational companies:

Loss of sovereignty: Multinational companies do not take the national policies seriously. They tend to disregard the national priorities of the country and protect their own interests. Therefore, there is continuous threat to the host country for protection of their sovereignty and liberty. This ultimately leads to loss of sovereignty to the people of the host country (Kostova et al. 2013).

Competition: For market promotion and development multinational companies have big budgets. They provide competition to domestic countries and this makes them gain monopoly power. However, this can be a disadvantage as the small companies will not get proper chance of securing their position in the market (Lamare et al. 2012).

Outflow of resource: The multinational company uses the resources of the host companies in the form of dividend of profits, licenses or management of other services. The continuous use of such resources may lead to drainage of resources in the host company (Ramondo, Rappoport and Ruhl 2016).

Inappropriate Technology: The use of technology by the multinational company may either be out of date or too advanced for the host country to follow. The local people may not receive proper training for this leading to unemployment (Ruggie 2013).

Economic exploitation: multinational companies are guided by a motive of profit. They often tend to exploit the host countries to make the most out of their host country. Multinational companies may offer low pay wages to local people and they can charge high price of their products to make use of their customers (Cooke 2012).

Socio cultural Evils: the multinational companies promote the values of their home country and this may include dress, food and life styles. In this case the local cultures wickedness comes into picture. This increases the gap between the rich and the poor as there is increase in the overall unemployment of the country. It is always seen that multinational companies lack responsibility towards the host country (Dyreng et al. 2015). 

 

References:

Cuervo-Cazurra, A., Inkpen, A., Musacchio, A. and Ramaswamy, K., 2014. Governments as owners: State-owned multinational companies. Journal of International Business Studies, 45(8), pp.919-942.

Dunning, J.H., 2012. International Production and the Multinational Enterprise (RLE International Business) (Vol. 12). Routledge.

Dunning, J.H., 2014. Location and the multinational enterprise: a neglected factor?. In Location of International Business Activities (pp. 35-62). Palgrave Macmillan UK.

Dyreng, S.D., Lindsey, B.P., Markle, K.S. and Shackelford, D.A., 2015. The effect of tax and nontax country characteristics on the global equity supply chains of US multinationals. Journal of Accounting and Economics, 59(2), pp.182-202.

Edwards, T., Marginson, P. and Ferner, A., 2013. Multinational Companies in Cross-National Context: Integration, Differentiation, and the Interactions between MNCS and Nation States Introduction to a Special Issue of the ILRReview. Industrial & Labor Relations Review, 66(3), pp.547-587.

Geppert, M., Williams, K., Wortmann, M., Czarzasty, J., KaÄŸnicioÄŸlu, D., Köhler, H.D., Royle, T., Rückert, Y. and Uçkan, B., 2014. Industrial relations in European hypermarkets: Home and host country influences. European Journal of Industrial Relations, p.0959680113519186.

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