Negative effects of multinational corporations pdf

Multinational corporations provide the developing countries around the world with the necessary financial infrastructure to achieve economic and social development.

But though they bring about several benefits to such nations, they also come with ethical conducts that happen to exploit the neediness of these countries. So, are multinational corporations really good for both the country of origin and the country of operation?


Let us take a closer look at their pros and cons. Their size benefits consumers. The operational size and scale of these corporations can give them the chance of taking advantage of the economies of scale, which paves the way for lower average costs and prices for consumers. This is particularly important to industries that carry extremely high fixed costs, such as car manufacturers and airlines. They can help a country in many ways.

Multinational corporations have the ability to bring advanced technology to poorer countries, while bringing low-cost products to the wealthier ones.

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They are cost-effective. By utilizing labor in parts of the world where the low cost of living does not require high wages for production, these companies can keep consumer costs down. As a result, many industries can also benefit. They can create jobs and wealth.

They help other companies. Through merger and acquisition, multinational companies can help other commercial organizations with achieving economies of scale in distribution and marketing, allowing well-managed businesses to take over those that are poorly managed. They adhere to the best brand standards. This is one of the best qualities of these corporations. For example, McDonalds is still McDonalds wherever it is operating in the world. There is a standard that this restaurant chain is expected to adhere to.

The same goes to the manufacturing sector, where standards are set and are expected to be adhered to. This builds trust and confidence among consumers, which is then converted to consumer loyalty. They ensure minimum standards. Somehow connected to the previous pro, the main reason for the success of multinationals is that consumers would usually purchase products and services on which they can go for minimum standards.

They help improve standard of living. Their large profits are consumed for development and research. Taking into consideration pharmaceutical companies, they can easily afford to pour millions of dollars into their research and development efforts. The same goes for automobile manufacturers and other large corporate entities. Without their global presence and large profit margins, they will not be able to do this. Another good example is oil exploration, which is both costly and risky.

As such, only large firms can undertake it by using significant amount of money and other resources. They allow for a wider market.MNCs have played an important role in modern society.

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Although their growing penetration is the inevitable trend of globalization, there are many arguments for and against their impact on the economic development of the world. Cost advantages are the first reason for MNCs to expand in different countries. For example, Coca Cola can reduce its shipping cost by building bottling plants in foreign countries. Or Adidas chooses to set up its subsidiaries in some places which have cheap labor cost like Thailand, Vietnam, China … Another advantage of MNCs is that they can avoid trade barriers and have little restrictions from the government of foreign countries.

For instance, Toyota decided to produce in UK to gain access to the European market without paying tariffs. Furthermore, MNCs are able to reach the global market and archive great economies of scale. On the other hand, there are some risks that MNCs might face. Three main types of risk are foreign exchange risk, political risk and regulatory risk.

The more countries MNCs trade in, the more dangers they have to confront. And these risks can directly affect the profit of MNCs. MNCs influence many different aspects of the host country — economy, politics, culture and environment. These impacts may be both positive and negative ones. MNCs bring new ideas and new techniques which allows the host country to improve productivity and catch up with the economic development. But in some cases, their technological advantage can be used like an effective barrier for other local firms to entry the market.

This can lead to the increase of monopoly power. MNCs create jobs in the host country and offer higher incomes to the employees.

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However, workers in poor countries can be exploited by MNCs because of low salaries, extra hours and poor working conditions. Recently, there is a fact that Nike is hiring children below 11 year olds in Asia to produce shoes at extremely low wage. Because the investment of MNCs helps the View Full Essay. Report Save Paper.Multinational corporations are agents of globalization. At the same time, many multinational corporations are also affected by globalization in ways they may or may not like.

This reality stems from the fact that multinational corporations have many subsidiaries, some of which benefit from globalization and others that do not. The effects of globalization on multinational businesses can be good or bad, depending on the nature of the corporation in question. Globalization gives businesses access to markets that would have been difficult to reach in the past.

Because of the internet, customers from anywhere in the world can order products from companies anywhere else in the world, and have those products delivered by airplane in just a few weeks.

This is naturally a tremendous advantage to businesses, who stand to increase their potential customer base by millions by reaching out to foreign buyers. Put multinational corporations and globalization together, and you get a business that can access labor at cheap prices.

Outsourcing and off-shoring allow businesses to hire employees in foreign countries, where labor and real estate costs may be lower than in the business' home country.

While these practices can have negative effects on workers looking for full-time jobs, there is no doubt that they decrease costs, and therefore increase profits, for businesses.

Companies affected by globalization are able to form partnerships with organizations all around the world. Many American, European, and Asian companies have corporate partnerships that stretch across continents. These kinds of partnerships minimize costs and maximize quality by playing to the strengths of teams all around the world.

Globalization gives multinational corporations the ability to seek out foreign countries for their investments when their current country adopts a tax policy they find to be unfavorable.

The Negative Impact of Multinational Corporations on Lesser-Developed Countries (LDCs)

Countries with low corporate tax rates are sometimes called "tax havens," as they allow corporations and individuals to lower their tax rates by moving assets offshore. These counties include Bermuda, Belize and Switzerland.

The international financial structure, comprised of encrypted information systems and private documents, makes all this possible. Multinational corporations may have a difficult time coordinating activities in a globalized economy. A company that operates in America, Japan and Europe, for example, will need to hire employees who speak many different languages, and it may be difficult for that company to make sure all employees are on the same page when only a few of them speak the same language.

Translators may be called upon to assist in information coordination where language barriers exist. Other coordination problems may come from differences in cultural norms, for example, marketing in the Muslim world, and business norms such as managing logistics in countries with low-quality infrastructure. Based in St. John's, Canada, Andrew Button has been writing sincecovering politics, business and finance. He has contributed to newspapers and online magazines, including "The Evening Telegram" and cbc.

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negative effects of multinational corporations pdf

About the Author.Although the nature of multinational corporations MNCs as capitalist enterprises makes them a force for progress in terms of maximizing economic efficiency, that same nature is problematic when considering a wider understanding of progress.

It is argued that only those countries that have reached a certain income level can absorb new technologies and benefit from technology diffusion, and thus reap the extra advantages that FDI can offer.

The mining industry in Nigeria is dominated by oil. Indeed, Nigeria is the largest producer of this commodity in Africa and sixth largest producers in the world. This research. How does. Post developed into the results-oriented approaches. The standard size foreign. A disadvantage is that when conditions are not ideal, different firms may have different costs of capital.

This can arise, for example, from operating in different countries and in different geographical conditions. This would reduce decision usefulness. A corporation is a form of business organization where the firm is a legal entity separate from its owners. As corporations grow and become multinational, their interests and influence extend accordingly. The decisions made by these corporations are always made with a primary goal of increasing profits.

Needless to say, the decisions taken by corporations often regard public interests as inferior to their own, so many of their decisions have a calamitous impression on the public. The multinational corporations, Wal-Mart, Nike, and Gap, had negative impact on the world through human rights violations, through their control of the media, and by putting smaller local companies out of business. Corporations are often major violators of …show more content…. Although they are providing jobs for people in the third world, it is immoral and cruel because of the extremely poor working conditions that the people are forced to put up with.

Furthermore, many corporations, such as Wal-Mart, ban unions that would be able to give a voice to their workers. Major corporations and its mainstream media are constantly demonizing unions. Even the United States suffers from the denial of worker unions by the corporations. Worker unions are associations of wage-earners for the purpose of maintaining or improving the conditions of their employment.

Wal-Mart is well known for its active anti-union stance in North America. Being able to influence and own most media companies, it is hard to be able to publicly debate the notions and ideals that corporations pursue.

The ownership of media outlets is becoming increasingly concentrated as mega-mergers take hold, resulting in a reduction of diversity and depth of content that the public can get, while increasing the political and economic power of corporations and advertisers. McChesney Another negative aspect of the corporate control of media is that companies see children as an enormous market with incredible purchasing power, which leads to a lot of advertising and marketing targeted directly at them.

Show More. Read More. Popular Essays. Open Document.A multinational corporation is an agency which owns assets in at least one country other than its domestic market. Anything of value qualifies for this label, ranging from a partnership, office space, or retail product. A joint partnership could also transform a company into a multinational corporation under certain circumstances. The nature of the multinational corporation is that it runs through a centralized hierarchy that focuses on the primary office in its home nation.

Each office, product, or contract receives direct, local support from the organization to create revenues, but those who manage the foreign markets must still report to the C-Suite of the firm — which could be half of a world away.

negative effects of multinational corporations pdf

This structure is what makes a multinational corporation different, by definition, from a transnational organization. The latter allows each market to operate independently from every other one — making it more like a DBA rather than a true satellite from the central office.

There are three regions of the world where most multinational corporations have their headquarters: Japan, the United States, and Europe. The advantages and disadvantages of operating under this structure involve the money and power that these organizations control. Most multinational corporates rely on merchants and distributors for their goods and services.

Some even use these third-party entities to create additional sales opportunities. Because of their global presence and overall sizes, these organizations use leverage with their associates to produce a required action for each customer. If the vendor fails to do so, then the multinational corporation can move to a different supplier immediately.

This practice directly eliminates some distribution businesses overseas with a single decision, which is why this structure creates competences of scale that keep prices down while still ensuring reasonably excellent product quality.

Innovation happens because of the investments made by multinational corporations. Only two companies, Stanley Black and Decker and Apple, qualify as high-leverage innovators because of their investments today. Without these investments, the world would be a very different place.

The world has more cultural awareness because of multinational corporations. When an organization decides to expand to a foreign market, then they are presented with brand-new sociological certainties. Multinational companies are amazingly diverse, giving them additional power because of this diversity. The current marketplace requires agencies to know what the pain points of the local market are before it becomes possible to create products or services for them.

When each person expands their reasoning to include new viewpoints, the planet becomes a healthier place because of that action. These organizations provide a resolute influence on cross-culture information when this advantage becomes a prime preference for them. Multinational companies focus on consistency for the consumer. Multinational companies work from centralized structures.

That means there is a fundamental expectation that every asset will look and function as every other item does. Even though a company in China serves different products than one in Canada, the core ethics and values of the corporation are still displayed for all to see. Customers believe in these institutions because they realize what the value proposition is before they ever spend any money with that brand. This advantage works the same way for every business which excels because of their status in different markets.

Diversification becomes possible because of multinational corporations. Most populations, developing nations, and marketplaces depend on a set of core products for their survival. Most of the items tend to link up with agriculture-based industries, such as farming. Multinational companies offer these economies more variety in product and price choice, which creates another layer of diversity for the local consumer.

This advantage reduces their reliance on materials that often have volatile pricing structures due to their supply and demand levels frequently changing — sometimes daily.

negative effects of multinational corporations pdf

Local infrastructures improve with the presence of multinational corporations. The Coca-Cola Company developed a Vision Program to encourage more local infrastructure development in the Asia-Pacific region as a way to develop more middle class households.

Other multinational companies have similar development projects in the works. Multinational corporations must make infrastructure improvements to encourage local populations to develop skill-based workers that can take on their needed tasks.

Communities must be able to access the local market and reach their employment opportunity.This paper stems from the recognition that, in the current globalized world, the achievement of economic development goals is not necessarily accompanied by improved social conditions, or respect of people?

19 Advantages and Disadvantages of Multinational Corporations

Impact of multinational companies on the host country AO3. Multinational corporations can provide developing countries with many benefits. However, these institutions may also bring with them relaxed codes of ethical conduct that serve to exploit the neediness of developing nations, rather than to provide the critical support necessary for countrywide economic and social development. Multinational Corporations, Technology Spillovers and The purpose of this study is to investigate the contingencies of supply chain risk management SCRM in manufacturing multinational corporations MNCs by exploring the moderating role of international asset dispersion in the performance effect of SCRM, as well as the counteraction effect of supply chain integration SCI.

negative effects of multinational corporations pdf

Levels: A Level; Join s of fellow Business teachers and students all getting the tutor2u Business team's latest resources and support delivered fresh in their inbox every morning. Study notes. Globalisation - Benefits and. Economic Effects of Multinational Corporations. Get Help With. Developing countries are attracting a significant portion of global foreign direct investments. Governments of such countries often compete fiercely for attracting multinational corporations MNCs in the expectation of the advantages they will bring to their economies, often prioritising economic goals over fundamental human rights.

Research from Fedderke and Romm supports this by showing that there is a crowding out effect of domestic investment from FDI in the short run and positive effects in the long run. Multinational Corporations in Kenya. However, in order to grasp the effect of this impact, a survey of the national economy will be necessary for acquaintance.

Negative Impacts of Multinational Corporations

This will be in a comparative form to enable a broader perspective of the economy's relative weight and how much of the MNC effects it can handle. Multinational companies like Nike, Sony, Apple, Toyota, Coca-Cola all have investments and operations in developing economies. This can lead to both benefits and disadvantages for developing economies. Advantages of Multinational Corporations in developing countries.

Multinationals provide an inflow of capital into the developing country. Risk management of manufacturing multinational Impact of multinational companies on the host country The Effects of Diversity on Multinational Organisations theory explains the negative sides that come with cross-culturalism and diversity, Multinational companies face a customer base that does not only consist of customers with a similar cultural background, like the company is used to in their home country.Today's global economy is a Gordian knot, a completely tangled group of strands that are endlessly intertwined.

Multinational corporations are a natural result of this economic environment and have become a staple of the American business world. Multinational corporations that are majority U. While these companies can claim a significant portion of the United States' economic power, there are definite disadvantages to this situation.

Creating jobs and wealth are good, but the social and environmental costs can be extreme. One natural advantage that multinational corporations have is the ability to produce goods using the least expensive methods possible worldwide. With few ties to any one political entity, their desire to work cheaply and efficiently often is at odds with sound environmental practices.

With their economic importance to their host countries, they often find themselves in a power position when lobbying for beneficial environmental regulations that favor profits over nature. If host countries are at an economic disadvantage, their desire for increased revenue can override their need to regulate environmental impacts. One unique way multinational corporations can increase their profit margin is by transfer pricing.

The goal of this practice is to reduce their tax liability in those countries that may have a higher tax rate for their products and increase their liability in countries with a lower tax rate.

They do this by shipping partly finished goods and components between different factories in different countries.

Transferring expensive goods from countries with a high tax rate make their bottom line look more healthy while transferring goods at a lower price to markets with a lower tax rate will decrease their final tax bill. The result is two or more different countries losing valuable tax revenue because of financial loopholes in the tax laws.

The increasing number of multinational corporations is creating a sort of homogenization effect, making much of the world look the same and causing different countries to lose their identities.

This process, known as "McDonaldization," results in more and more parts of the world looking exactly like every other part.

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This standardization of the retail world is pushing out small businesses such as local artisans, regional cuisine and other small businesses, making streets in Tokyo and London look much the same as those in Chicago or Orlando. With profit being the primary goal and the world as their environment, multinational corporations can afford to pick and choose when it comes to finding governments that enact employment laws that benefit their business over the workers. Their head office may be in a country with stringent employment laws, but they're free to set up factories in economic deserts where people are eager to work for pennies a day.

These workers tend to be low-skilled, resulting in a general loss of quality in the product line. Also, corporations tend to build in countries without strict health and safety laws, adding to the social decline of host countries.

Because they're not tied to any one country, multinationals may not have a reason to feel loyal to one country over another, which creates economic uncertainty, both for the workers and for the community in which they base their production. If laws change and a multinational finds that it can produce the same goods elsewhere for a fraction of the cost, they have no good reason to maintain their original factory.

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These corporations can ship jobs overseas to wherever they can build their products cheaper, which can leave some communities financially devastated.

Victoria Bailey has owned and operated businesses for 25 years, including an award-winning gourmet restaurant and a rare bookstore. She spent time as a corporate training manager in the third-largest restaurant chain in its niche, but her first love will always be small and independent businesses.

Bailey has written for USAToday, Coldwell Banker, and various restaurant magazines, and is the ghostwriter for a nationally-known food safety training guru. Share It. About the Author.

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