Are Multinational Companies a Boon or a Bane?

The economic power that many multinational companies wield is commendable, to say the least. Companies like Amazon and Apple have a valuation of over a trillion dollars. This is more than the GDP of most countries! Hence, in purely financial terms, multinational companies do wield tremendous influence on the day to day operations of many countries. However, there are few oil companies which have been known to misuse this economic power to exploit the countries that they operate in.

In this article, we will have a closer look at why these multinational corporations are so important to the economy of the country where they operate. Also, we will have a closer look at some of the negative points where multinational companies exert their power to bully countries.

Part 1: Advantages Offered By Multinational Companies

Multinational companies offer a lot of advantages to their host country. Some of these advantages have been listed below:

Multinational Companies Provide Jobs

Multinational companies control the job creation process around the world. It is estimated that multinationals single-handedly control more than 25% of global trade. As a result, they have been responsible for creating 86 million jobs until now. It is a known fact that countries where multinational corporations set shop witness a drastic increase in employment. Also, most of the jobs created by multinational companies are high tech. Therefore, the workers of the developing country also benefit from technology transfer as they get trained in the usage of high tech machinery and software.

Multinational Companies Provide Tax Revenues

Since multinational companies control one-fourth of the trade in the world, they also control a significant portion of the tax revenue, which is generated as a result of increased production. As a result, they control the behaviour of governments as well. Individual citizens don’t seem to have a choice when governments increase tax rates. However, since multinational companies control so much revenue, they can’t be bullied. As a result, they exercise a lot of power over the governments in countries where they operate.

Multinational Companies Improve Balance of Payments

Maintaining the balance of payments is important for the economic growth of any country. Balance of payments is nothing more than an accounting record of the value of goods that a country has exported as opposed to the value of goods that it has imported. More exports generally imply a more favourable balance. Countries which have more multinationals tend to have a more favourable balance of payments. This is because when multinationals set up shop, a lot of capital inflows come into the country. Also, when the goods and/or services are exported, a lot of foreign exchange is generated. This obviously has a positive impact on the balance of payments situation.

Part 2: Disadvantages of Multi-National Corporations

Many developing countries have been unable to control multinational corporations because of the power that they wield over these countries. Some of the negative points against the multinationals have been listed in this article.

Multinationals Exploit Resources

Multinational companies do not have long term interest in the well-being of any country. Instead, they are generally there for monetary gain. This is the reason why sometimes they end up exploiting resources in countries where they operate. This is particularly true for many African countries which are resource-rich and have corrupt government officials. Oil is being refined in many African countries. However, the process in which it is done has no regard for the environment. Oil spills are common, and ecological resources often end up getting destroyed. The same case is often seen in the diamond industry as well as many other industries. In fact, companies like Nike have also set up sweatshops in countries like Bangladesh. This is also a mechanism to exploit the abundant human resources which Bangladesh has.

Therefore many multinational companies are getting rich at the expense of the poor people in developing countries. Hence, the idea that multinational companies end up raising countries from poverty may just be a myth if the government and the people are not watchful enough.

Multinationals Stifle Reforms

In many cases, multinational companies may have an inherent interest in keeping the host country poor. For instance, as long as Bangladesh is poor, there will be an abundant supply of cheap labour. This is the reason why many multinational companies exert pressure on local governments. They often put the governments in debt so that the amount of money spent on education and human resource development can be controlled. Also, many of these companies are known to block regulations which increase the likelihood of worker welfare. For instance, these companies often resist any legislation which mandates increased wages or better working conditions. Also, they are frantically opposed to workers right to organize in order to bring about more reforms. It is therefore important that a host country does not become too dependent on a single company or a group of companies, or they will be at risk of losing their independence.

The bottom line is that multinational companies can be a double-edged sword. If the government uses them well, they can benefit the economy. On the other hand, if the government is not careful, these companies may end up dominating the entire economy and affecting it negatively.


❮   Previous  Article Next  Article   ❯

Similar Articles Under - Globalization

View All Articles


Authorship/Referencing - About the Author(s)

The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.


Globalization