Tuesday, September 11, 2012

Multinational Companies – Advantages & Disadvantages

Multinational or transnational companies have a number advantages and disadvantages for both the parent as well host country. Here we will look at some key advantages and disadvantages of Multinational companies from both parent as well as host country's perspective.

Advantages & Disadvantages of MNCs for Parent Country

Following are some key benefits of the MNCs for parent country:

  • MNCs result in a significant increase of foreign exchange reserves
  • MNCs assist parent country in building good relations with other countries
  • MNCs assist in the promotion of parent country’s culture and traditions in other countries
Whereas a few disadvantages associated with MNCs for parent countries are as follows:

  • MNCs share innovative and advanced technologies and equipments with host countries that allows such countries to reduce their dependence on parent country
  • Instead of providing employment opportunities in own countries, MNCs focus in employment generation in host countries
  • Parent country may lose its monopoly on various strategic technologies and equipments due to MNCs.
  • Intense trend of outside investment may result in severe capital flight
Advantages & Disadvantages of MNCs for Host Countries

Multinational companies result in a number of benefits and advantages for host countries, a few prominent one are as follows:

  • MNCs result in capital inflows and start expensive and state of the art projects in the host country that country itself cannot afford.
  • MNCs result in technology and knowledge sharing with the host country
  • MNCs generate employment opportunities in the host country
  • MNCs train and equip the local human capital with modern technologies and skills
  • MNCs help host countries to improve their relationships with companies’ parent countries
  • MNCs provide high quality and modern facilities and services to the consumers of host countries
There are a few disadvantages are also associated with multinational companies for host countries, let us discuss a few such disadvantages:

  • MNCs take their profits out of the host countries in Dollars that causes a reduction in foreign reserves for host countries
  • MNCs increase the dependence of the host country on their parent countries that may affect the foreign policy of host countries.
  • MNCs often provide costly services to local consumers as compared to government sector companies or other domestic companies
  • MNCs are not liable to pay taxes in the host countries
These were a few pros and cons of multinational or transnational companies for both the parent as well as domestic countries. Keeping in view the above mentioned pros and cons we can conclude that MNCs have both pros as well as cons for parent and host countries but the pros of the MNCs for host countries are slightly more and attractive that is the reason why every country tries to bring foreign direct investment and offers attractive incentives and tax reliefs for multinational companies.