higlights the dermits of multinational comapanies?
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Economic Development: -The Developing countries need both foreign capital and technology to make use of available resources for economic and industrial growth. ...
Technology Gap: - MNCs are the instruments of transfer of technology to the host country.
List of the Disadvantages of Multinational Corporations
1. Multinational corporations can use their structure to form monopolistic markets.
Most countries treat the assets of a multinational corporation as an independent structure, like a transnational company, instead of looking at the hierarchy of the business for what it tends to be. This disadvantage allows each firm to have more flexibility in how they handle the local marketplace with their presence. Global monopolies do not currently exist, by firms like Alphabet, Illumina, and Broadridge all manage a 50% share or more of their industry.
When these structures are present and treated in this way, then the benefits of scale allow the multinational corporation to price everyone out of the market. There might still be local competition, but the average consumer will work with the cheapest offer whenever if provides a similar amount of value for them.
2. Because of their size, multinational corporations put SMEs out of business.
Did you know that 9 out of 10 companies will eventually fail? The most critical time for any small business is during the first five years of operation. About one-third typically fail in their first 12 months of existence. One of the contributing factors to this problem is the size and scale of multinational corporations. Bigger companies can produce larger bulk orders, which means they can see a per-unit price savings when compared to SMBs and SMEs.“Multinational corporations do control,” said California Governor Jerry Brown. “They control the politicians. They control the media. They control the pattern of consumption, entertainment, and thinking. They’re destroying the planet and laying the foundation for violent outbursts and racial division.”
3. Multinational corporations often take advantage of the international standard of living.
Many states in the U.S. are approaching or exceeding $12 per hour for their minimum wage. Several of the 2020 Presidential candidates for the Democratic party are pushing for a $15 per hour minimum wage. The goal of this legislation is to provide a “living salary’ for workers who are putting in full-time hours to support their families, but it is also an effort that encourages more offshoring.
Did you know that the minimum wage in China is the equivalent of less than $1 per hour? Some African countries have a minimum wage that pays workers less than a nickel per hour for the work that they do. If a multinational company can transfer hundreds of jobs and save $10 per hour in wages without a harmful drop in quality, then that cost savings can go straight into their budget and the pockets of their C-Suite.
4. Political corruption typically rises with the influence of a multinational corporation.
“The multinational corporations are now developing budgets that are often bigger than medium-sizes countries,” said Paddy Ashdown, a British diplomat and politician who served as the leader of the Liberal Democrats for over a decade. “These live in a global space which is largely unregulated, not subject to the rule of law, and in which people may act free of constraint.”
Legal lobbying is a multi-billion dollar industry, even if you were to only take the spending that happens in the United States. According to data published by Open Secrets, the U.S. Chamber of Commerce spent $94.8 million on lobbying efforts in 2018. The National Association of Realtors spent $72.8 million, while the Pharmaceutical Research and Manufacturers of America spent $27.9 million. When you add in the under-the-table deals that happen internationally, corruption occurs because companies have the power of the purse.
5. Multinational corporations can cause harm to the environment.
Most developing countries do not have the same level of regulation and oversight that the developed world maintains to protect the environment. When these firms decide to do business in the international market, they are subject to local laws – not the ones that govern their domestic headquarters – when working to obtain raw materials.
Smaller, less developed governments often trade an increase in revenues for access to their natural resources. The lower standards create better pricing structures for each customer, but it also creates environmental damage that could have future generations paying the price for today’s decisions. Some nations even trade in recycled materials and trash, which can place even more stress on local resources.
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