explain the limitation of multinational companies
Answers
A multinational company is one which is incorporated in one country (called the home country); but whose operations extend beyond the home country and which carries on business in other countries (called the host countries) in addition to the home country.
It must be emphasized that the headquarters of a multinational company are located in the home country.
Main Disadvantages of Multinational Organisations
The disadvantages are described as follows:
1. Uncertainty:
MNCs sometimes scale down their production and close the operations in situation of economic uncertainty. They practise hire and fire so people employed in MNCs often lose their jobs.
These types of uncertainty may lead to internal problems in the country.
2. Control:
MNCs sometimes exert control over the local government, both economically and politically. Such control may go against the interest of the nation as a whole.
3. Transfer Pricing:
Transfer pricing done by lowering the internal price structure. Through this, MNCs can reduce their profits in the countries, where they operate and thus deprive their host countries from the legitimate tax payouts.
4. Environmental Imbalance:
They can create environmental imbalances extracting natural resources and polluting the environment of the countries in which they are established.
5. Killing Domestic Producers:
MNCs can damage the local organisations while competing with the local firms.
6. Profit Repatriation:
MNCs may repatriate profits to its own country of origin, and so deprive the host countries from the benefit of new investment.
7. Trans nationalism:
‘Trans nationalism’ indicates specific strategies of MNC to control production facilities in more than one country through direct foreign investment. These companies enjoy advantage of global market, availing low-cost transshipment of its finished goods in markets where it can get a bargain-able price.
8. Micro-Multinationals:
These organisations try to become global through Internet-based communication tools. They are small business entities and coordinate their activities across the borders through Internet. They establish its dispersed virtual business with the employees, clients and resources located in various countries.
9. Globally Integrated Enterprises:
This type of enterprises integrates their production and value chain worldwide. This is also known as the multinational model of the 20th century. For IBM, it was a successful model to grow worldwide, understanding customers, local market requirements and cultivating local talent.