Question

Briefly explain the advantages and disadvantages of MNC.

Answer 1

Multinational companies first started their activities in the extractive industries and controlled raw materials in the host countries during the 1920s and then entered the manufacturing and service sectors after the 1950s. Most of the MNCs at present belong to the four major exporting countries i.e., the USA, UK, France, and Germany. However, the largest in America. In 1971, the American Corporations held 52% of the total world stock of foreign direct investment. Great Britain held 14.5% followed by France 5% and Federal Republic of Germany 4.4% and Japan 2.7%.

• Advantages of MNCs:

1. MNCs produce the same quality of goods at lower costs and without transaction costs.
2. They reduce prices and increase the purchasing power of consumers worldwide.
3. They are able to take advantage of tax variation.
4. They spur job growth in the local economy.

• Disadvantages of MNCs:

1. They have led to the downfall of smaller, local businesses.
2. With more companies transferring offices and centering operations in other countries, jobs for the people living in developed countries are threatened.
3. MNCs often invest in developing countries where they can take advantage of cheaper labour. Some MNCs prefer to put up branches in these parts of the world where there are no stringent policies in labour and where people need jobs because these MNCs can demand for cheaper labour and lesser healthcare benefits.