Arguments For And Against Mnc's Essay

1361 words - 6 pages

By making reference to the arguments for and against the multinational companies operations in developing countries, can these MNC's be considered as "custodians of development? Critically discussThe proliferation of multinational corporations began 200 years ago, but they were making only a part of the foreign investment in different countries in the form of portfolio rather than long-term greenfield or joint venture investments. As a result of the increase of globalization, which is both the cause and the effect of internationalization of world trade, MNCs have become dominant players in the global economy.Multinational companies are an enterprise that engages in foreign direct investment ...view middle of the document...

; these systems are vital for the operations of a business. Further more the corporate taxes should be minimal so as to increase foreign direct investments. The MNC's invest in countries with stable political conditions because they pose less uncertainty. For example if they invest in a country with unstable political environment there is a great possibility that their business can be nationalized. If these conditions are not met MNC's will take their business elsewhere.Historically, MNC's were involved in extractive and planning industries such as bauxite, export oriented agriculture etc. however, their new trend are now in the form of many services, privatization, financial services. Examples of these new trends are Ernst & Young, KPMG, and United Airlines.As in all things there are pros and cons for allowing an MNC to operate in a host country. The arguments in favour of MNC's are that their presence is essential for developing countries (also known as LDCs) to achieve the desired level of investment. Also, The profits earned by MNCs are taxed by the host government and constitute a fundamental part of public revenue, which can be used to finance efforts for economic development such as developing infrastructure, health, education etc. Developing countries have an extensive capital-labour gap, which accounts for much of unemployment and underemployment. Foreign direct investment helps fill this gap by employing local people in their production facilities set up in the recipient country, MNCs generate jobs (Todaro 2006). Furthermore the income that local MNC employees receive creates additional demand in the economy leading to increased output and employment. Another benefit of MNC investment to a LDC's economy is that it helps promote a business culture of competitiveness, quality and efficiency. Multinational companies also introduce the host country with superior management philosophies and skills. The higher the number of local people employed in managerial positions in MNCs' subsidiaries, the more pronounced is the effect. Foreign direct investment helps improve balance of payment (BoP ) position of the host country. BoP may improve on both current account and capital account. Current account position is improved when MNCs export goods from the host country, or when they substitute local production for imports. As for capital account balance, it is improved when MNCs inject capital into the host economy.On the other hand there are a few critics of multinational companies. It is said that although they provide capital, they may lower domestic savings and investment rates by stifling competition through exclusive production agreements with the host governments (Todaro, 2006). An example of this is when KFC came to Dominica; most of the local fast food vendors had to close their business, which lead to lower savings and persons refrained from opening any fast food business. Moreover, they often fail to invest much of their profits and...

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