Question

what are the major economic effects of MNE's on home and host countries?

Answer 1

MNC's and their effect on both home and host countries

A corporation that has its facilities and other assets in at least one country other than its home country.

FDI: direct investment by a company in production located in another country either by buying a company in the country or by expanding operations of an existing business in the country

Firms becomes Multi-National when they undertake FDI

The objective of FDI is to provide the investing company with the opportunity to actively manage and control a foreign firm's activities.

Advocates say: they create jobs, wealth and improve technology in host countries

Critics say: they have undue political influence, poor working conditions/child labor, can exploit developing nations as well as create job losses in their own home countries.

Most MNC's are in third world countries for low wages and lax regulations

• Increase market share
• secure cheaper labor and land
• employment, regulations, safety, pollution, and government are more relaxed
• minimize/completely avoid tax payments
• take advantage of government grants
• save on transportation costs
• avoid trade barriers

Japanese car companies who produce in the UK can export to EU countries without additional fees or limitations

Positive effects on the home economy

• Repatriation of Profits
• Have the right to demand part of international affiliates' profits as the initial resources to set up international activities came from the domestic market. The domestic government can tax incoming funds, and the organization can use them for new investments

wealth, jobs, boost in economy, & money for other investments or social sustainability/responsibility.

Negative effects in home countries:

Domestic Tension

• out-sourcing jobs overseas destroys jobs domestically, causing a variety of issues:

• Forced to find new jobs
• Pay cuts
• Union degradation
• Lack of Bargaining power

shift in labor demand: “white-collar” employees at the expense of “blue-collar” workers

• export of production activities, while concentrating management, marketing, and Research & Development at the home base.

Economic issues:

• Decrease in:
• tax revenue
• exports
• buying power

Advantages for Host Country

1 . The investment level, employment level, and income level of the host country increases due to the operation of MNC's.

2. The industries of host country get latest technology from foreign countries through MNC's.

3. The host country's business also gets management expertise from MNC's.

4. The domestic traders and market intermediaries of the host country gets increased business from the operation of MNC's.

5. MNC's break protectionalism, curb local monopolies, create competition among domestic companies and thus enhance their competitiveness.

Disadvantages for Host Country

1. MNC's may transfer technology

2. May pose a threat to the economic and political sovereignty of host countries.

3. MNC's may kill the domestic industry by monopolizing the host country's market.

4. In order to make profit, MNC's may use natural resources of the home country and cause depletion of the resources.

5. A large sums of money flows to foreign countries in terms of payments towards profits, dividends and royalty.

- Multinational corporations are important factors in the processes of Globalization.

- National and local governments often compete against one another to attract MNC facilities, with the expectation of increased tax revenue, employment, and economic activity.

- To compete, political entities may offer MNCs incentives such as tax breaks, pledges of governmental assistance or subsidized infrastructure, or lax environmental and labor regulations.