Your operations lead to improved balance of payments and job creation and raising levels of employment for the locals. The customers of the host country are benefited by quality products in minimum cost. Because of their capability of advanced search and development, multinational companies have the capability of surviving in the international market Marano and Kostova 2016. The jobs given to the locals of the host country should be the jobs enjoyed by the people where the head office is located. Economies in south-east Asia have seen rising wages in recent decades — showing that low wage economies can develop. Through merger and acquisition, multinational companies can help other commercial organizations with achieving economies of scale in distribution and marketing, allowing well-managed businesses to take over those that are poorly managed. Thus, multinational companies are playing an important role for the development of global economy.
The business activities are managed and controlled by the head office of the company which is situated in the mother country. Despite the many benefits, multinational corporations also have a couple of distinct disadvantages. Therefore, multinational companies helps to maintain a balance in trade of the host country. In most cases, the home country is a developed country and the host country is a developing nation. If that firm hires 10 immigrants to produce the same amount of shoes with the same amount of wages, the production of shoes actually increases without.
They purchased the best raw materials from local markets in the cheapest price, processed the raw material locally and delivered them in their home country for production of finished products. By monopolizing, they cut out the competition, which eventually stunts economic growth. These companies opt to expand into the global arena for a number of reasons, including increased market share and the resulting economies of scale. Without their global presence and large profit margins, they will not be able to do this. Journal of Accounting and Economics, 59 2 , pp. Where foreign management expertise is needed e.
Also, there is only a short-term inflow of money to pay for the materials. Laws A potential disadvantage that multinational companies face is that they are subject to more laws and regulations than other companies. Especially, they perform business operations throughout the world through their branches, subsidiaries or agents. However, an economist is looking at unemployment is a necessity to maintain a balance economy. If the technology and products that they introduce are inappropriate, if their actions exacerbate regional and social inequalities, if they weaken the balance of payments position, in the last resort it is up to the government of less developed country to pursue policies which will eliminate the causes of these problems. Therefore, developed countries economically exploit the developing countries through multinational companies.
With demand for foreign exchange being given, increase in supply of foreign exchange will lead to the appreciation of exchange rate of rupee. Setting Up of Subsidiaries: The second mode for investment abroad by a multinational firm is to set up a wholly owned subsidiary to operate in the foreign country. Whenever, multinational firms set up their subsidiary production units or joint-venture units, they not only import new equipment and machinery embodying new technology but also skills and technical know-how to use the new equipment and machinery. Their large profits are consumed for development and research. Inflow of income from overseas profits,royalities and management contracts. Many countries impose taxes called duties or tariffs on imports and exports, making it more costly to sell goods to consumers in other countries.
Multinational corporations provide the different developing countries all over the world with the much needed financial infrastructure to achieve social and economic development. . Therefore, multinational companies contribute to resource mobilization and technology development for the economic prosperity of the host country. Secondly, multinational corporations play a big role in creating employment in the foreign countries. They frame laws which are beneficial for them and … through which they could exploit the developing countries economically. Factories may be set up in different areas of the world and have their business based on the import and export of raw materials, which is what is done by most of them. They involve in mass production by taking the scope of distribution at the international level.
As a result, they create the gap between the rich and the poor. Encouragement to Inessential Consumption: The investment by multinational companies leads to overall increase in investment in India but it is alleged that they encourage conspicuous consumption in the economy. It also blends technology and manpower to give better management. They charge any price for the products and exploit customers by charging a huge price. Only large firms can undertake it with significant resources and profit. Advantages of Multinational companies on Host country: Multinational companies are companies who have huge business operations and they operate in more than one country.
On the other hand, when interest rates rise in the parent countries of these multinationals or rates of return from capital markets go up or when there is loss of confidence in the host country about its capacity to make payments of its debt as happened in case of South-East Asia in the late nineties, there is large outflow of capital by multinational companies resulting in the crisis and huge depreciation of their exchange rate. Most of the multnational corporations do provide funds that are highly conditional. They increase the investment level and thus the income and employment in the host country. There might arise an over-dependence on foreign imports. They invest capital for establishment of plants and to manage working capital. It hires higher level authority from the parent country and their remuneration, allowances and other facilities are also high.
For example, there is a trade in rubbish, which gets sent to developing economies like India for disposal and recycling. It may be noted, like domestic investment, foreign investment has also a multiplier effect on income and employment in a country. Therefore, local communities in developing economies can face widespread disruption, but only limited compensation for the precious materials. Industrial relations in European hypermarkets: Home and host country influences. It also mean that multinational companies are able to sell far more than other type of company. Remember that the market dominance of multinational corporations would make it hard for smaller local companies to thrive and succeed.