Question

Identify some benefits and costs for the host country from allowing a multinational corporation to locate there, despite its developing economy.

Answer 1

Multinational corporation refers to the companies operating in a country other than domestic country. Earlier there were so many barriers for a comany to enter in an international market. But after the emergence of WTO, various companies have started operating in other countries. Today most of the developing countries like India are allowing MNCs to operate. There are some costs that host countries have to bear but surely there are various merits of MNCs.

Benefits of MNCs:-

Innovation:- when a developed country like USA decides to operate in developing country, it takes its knowledge and technology there which helps in economic development of host country. When new technology comes, it gives them better ways to produce and gives competitive advantage over other developing countries.

Multiculturalism:- MNCs bring their culture along with them. It helps in promoting professionalism, work ethics, workforce diversity etc. It helps the host country to explore other cultural values for their development.

Supply of products and services:- MNCs help in satisfying demand of host country by providing goods and services. MNCs emphasis on consumer satisfaction and therefore they try to give best possible products and services in order to survive in the international market.

Employement generation:- when MNCs come to developing country, they bring several employement opportunities for host country. People get work and thus their standard of living improves which leads to overall development of country.

Entry in import- export market:- Emergence of MNCs helps the developing country to communicate and explore international market. We all know that resources are scare and in order to survive, countries import materials, goods etc. And export goods and services to other country. Therefore, this hepls both the countries in trade agreements.

Costs involved in allowing MNCs to operate:-

Threat to domestic market:- It is considered that MNCs take away the domestic market. Outside comany comes with advanced technology and better products which make difficult for domestic country to compete and survive in that environment.

Depletion of reaources:- these companies use the resources of host country and exploite them. They pollute the environment and use resources of host country like water, electricity etc.

Technological gap:- most of the time it becomes difficult for an underdeveloping country to adopt the new and advanced technology because of lack of skills and resources required to operate these technologies.

Unwanted/ unnecessary demand:- most of the time MNCs come up with the products which are not essential for a developing country. These comanies create artifical demand by their huge investment in advertising and promotional activities.

Import of labour:- many companies do not go for local labour market due to lack of skills and knowledge and they import employees from their domestic country which helps only their economy and host country just becomes the provider of market.