Multinational Corporations: Good or Bad?

Readers Question: List and briefly describe the positive and negative attributes of multinational corporations (MNCs).

mncs-pros-and-cons

Benefits of Multinational Corporations

  • Create wealth and jobs around the world. Inward investment by multinationals creates much needed foreign currency for developing economies. They also create jobs and help raise expectations of what is possible.coca-cola-classic-soft-drink
  • Their size and scale of operation enables them to benefit from economies of scale enabling lower average costs and prices for consumers. This is particularly important in industries with very high fixed costs, such as car manufacture and airlines.
  • Large profits can be used for research & development. For example, oil exploration is costly and risky; this could only be undertaken by a large firm with significant profit and resources. It is similar for drug manufacturers who need to take risks in developing new drugs.
  • Ensure minimum standards. The success of multinationals is often because consumers like to buy goods and services where they can rely on minimum standards. i.e. if you visit any country you know that the Starbucks coffee shop will give something you are fairly familiar with. It may not be the best coffee in the district, but it won’t be the worst. People like the security of knowing what to expect.
  • Products which attain global dominance have a universal appeal. McDonalds, Coca-Cola, Apple have attained their market share due to meeting consumer preferences.
  • Foreign investments. Multinationals engage in Foreign direct investment. This helps create capital flows to poorer/developing economies. It also creates jobs. Although wages may be low by the standards of the developed world – they are better jobs than alternatives and gradually help to raise wages in the developing world.
  • Outsourcing of production by multinationals – enables lower prices; this increases disposable incomes of households in the developed world and enables them to buy more goods and services – creating new sources of employment to offset the lost jobs from outsourcing manufacturing jobs.

Criticisms of Multinational Corporations

  • Companies are often interested in profit at the expense of the consumer. Multinational companies often have monopoly power which enables them to make excess profit. For example, Shell made profits of £14bn last year.
  • Tax avoidance. Many multinationals set up companies in countries with the lowest tax rate. They funnel profit through the countries with lowest corporation tax rates – e.g. Bermuda, Ireland, Luxemburg. For example: in 2011, Google had £2.5bn of UK sales, but only paid £3.4 million UK tax. A tax rate of 00.1% despite having a global-wide profit margin of 33%. (tax avoiding companies) This means the multinationals are ‘free-riding on smaller companies who cannot attain the same creative tax accounts.
  • Cash reserves – Apple has cash reserves of $216bn, 93% of which is overseas. This represents deadweight welfare loss. It is not being used for investment
  • Their market dominance makes it difficult for local small firms to thrive. For example, it is argued that big supermarkets are squeezing the margins of local corner shops leading to less diversity.
  • In developing economies, big multinationals can use their economies of scale to push local firms out of business.
  • In the pursuit of profit, multinational companies often contribute to pollution and use of non-renewable resources which is putting the environment under threat.
  • ‘Sweat-shop labour’ MNCs have been criticised for using ‘slave labour’ – workers who are paid a pittance by Western standards.
  • Outsourcing to cheaper labour-cost economies has caused loss of jobs in the developed world. This is an issue in the US where many multinationals have outsource production around the world.

Evaluation

  • Some criticisms of MNCs may be due to other issues. For example, the fact MNCs pollute is perhaps a failure of government regulation. Also, small firms can pollute just as much.
  • MNCs may pay low wages by western standards but, this is arguably better than the alternatives of not having a job at all. Also, some multinationals have responded to concerns over standards of working conditions and have sought to improve them.
What do you think of Multinational companies? – leave comment below.

23 thoughts on “Multinational Corporations: Good or Bad?

  1. I think corporations are benificial bacause it’s mutual. They benifits because we buy ther products and we benifit from the products that we purchase. It’s a one on one deal. One will not work alone, in order to stay united they need each other.

  2. the problem with most peoples ideas is that they don’t know what an MNC really is or does. an MNC is usually a corporation that places factories in third world countries that sell things in other countries. some of the many problematic companies are Dyncorp, Dow chemical, coca cola, caterpillar and nestle. all of these companies have taken part or perpitrated in horrific acts in the past and there is no way to say that the do not continue with these actions.

  3. the problem is that people forget that these MNCs arent just campanies, they often open sweatshops that have very poor working conditions

  4. The truth is dat MNC’s have both its positive and negative effect on development across nation.Overall,the good side is bigger than the bad side.afterall,half bread is better than none.

  5. For all those who think the good is better than the bad, think again!I’m from a third world country with a lot of multi national companies.The good is that they provide jobs right eventhough the salary is far less compared to western standards.Going on to the bad side,citizens become virtual slaves.your country won’t have a brand of it’s own,local businesses which could’ve been developed by your government vanish because of MNCs.This is ofcourse by the use of corrupt politicians.Everything including the value of land increases and you’ll never be able to buy a land.All comodities like electricity would eventually be privatized which means you have to pay more.The list goes on and on and on.MNCs don’t care for humanity.All they want is profit!Poverty and unemployment cannot be abolished by MNCs but by having a government that is not corrupt.

    1. From my point of view…..This Mnc Have a bad effects in our country…not our….all country are also a part of it….I think becoz some educated peoples are not given a work in their company….They use our country , our land , our resources…and many more thing…And main thing is that…our PM also helping them for their better improvement…so why we always help them….y they don’t….

  6. When one looks at the environmental degradation in the Niger Delta of Nigeria or the near-extinction of the marine mamals (a source of livelihood for local fishermen), the attendant poverty visited on the Niger Deltans, all perhaps, due to poor or no enforcement of internatonal environmental laws and/or abuse of Nigeria’s weak legal system by these global managers, then no one should ask of where the pendulum falls. The MNCs have done more harm than good in the developing economies all due to their profit motive or apetite for surplus value. To some lesser degree, it has been a mix bag (just to be fair), but they are the drivers of globalization while globalization is the modernized engine of cultural imperialism.

  7. This is a very complicated question. This evaluation of good or bad does not even come close to covering the tip of the ice burg. Answer fail

  8. Responsible investment is good for host countries. For many year India remained poor because of “be Indian and buy Indian” economic slogan, which failed to attract adequate FDI that could have solved plaguing unemployment problems then!

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