Merits and demerits of multinational system
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Answer:
Advantages of Multinational System
1. Multinational corporations provide an inflow of capital.
Most multinational corporations have their headquarters in the developed world. They rely on the resources of mature markets to maintain their supportive revenue streams. These companies must move into the developing world to earn profits through investments made there. Multinationals are a leading source of capital inflows to the developing world, building factories, investing in training centers, and supporting educational facilities with the intention of improving their productive capacities overseas.
2. Multinational corporations reduce government aid dependencies in the developing world.
Since the 2000s, the reliance on foreign aid throughout the African continent is thought to be responsible for the overall weakness of the local economies. Some nations rely on foreign aid for more than 40% of their annual budget. Creating new assets in the developing world allows multinationals to begin improving the amount of trade which occurs in the developing world.
3. Multinational corporations allow countries to purchase imports.
The issue of economic development in non-developed countries is an overall lack of resource access. What is available to the average consumer in the United States is very different when compared to what is accessible in a country like Somalia. When multinationals build a presence in the developing world, their capital inflows help countries have more access to the import/export market. That allows them to access better goods, create more opportunities, and eventually raise the standard of living for everyone.
4. Multinational corporations provide local employment.
If you step outside of the developed world for a moment, the average person works in an agriculture-related position. Almost 70% of the jobs found in the poorest countries of the world are based on this industry, compared to less than 5% which is located in the wealthiest nations in the world. Multinationals come in, offer higher wages (which are still low compared to global standards), then shift the standard of living.
Disadvantages of Multinational system
1. Multinational corporations create higher environmental costs.
One primary advantage which multinationals see in doing business in the developing world is a lack of robust environmental legislation. Weaker governments tend to exchange environmental harm for additional profits. When these companies can outsource their production to countries with these lower standards, it does lower prices, but it also creates more damage. Countries like India even trade in waste and rubbish because of the revenues they earn from recycling and disposal, creating the potential for harm to local soil and water supplies.
2. Multinational corporations don’t always leave profits local.
There is evidence to show that the investments made by multinational companies improve the local infrastructure. Additional education and job training offer new opportunities for domestic workers. Once the investments are made, however, the profits earned by the company tend to be repatriated for use in other areas. If you were to look at the net inflow of capital instead of the gross, you usually find that the actual benefit offered by multinationals is quite low (and sometimes even negative).
3. Multinational corporations import skilled labor.
The amount of time necessary to create local skills that encourage high productivity levels is measured in years, not weeks or months. Multinationals invest in local workers to develop their skills, but they also need to get their venture off the ground quickly. Most companies in this position will import the skilled labor they require from other economies to meet their needs. That means the best jobs, especially in the developing world, are given to people who don’t even live in the local economy. Those wages do not offer the same economic benefits because spending occurs internationally instead of at the local level.
4. Multinational corporations create one-way raw material resource consumption.
There are exceptions to this disadvantage. Some Chinese companies are building roads to help them access raw materials in Central Africa, creating infrastructure benefits which should last for years, if not decades, to come. Many multinationals go into a new country looking to extract raw materials without infrastructure considerations, taking oil, rubber, or precious metals to create products.