Multinational companies are often regarded as both heroes and villains. Yes, they boost employment and help the GDP, but there’s always profit repatriation and importing raw materials that balance the scale. So, can we really gauge whether MNCs benefit a country?
MNCs can undoubtedly boost a country’s GDP in several ways. MNCs can primarily increase the scope for employment in an economy, increasing people’s personal disposable income as well as government tax revenue. With higher disposable incomes, people can spend more money in the local economy, and the government can increase its expenditure on education, healthcare and infrastructure.
Besides this, MNCs can also help consumers while enjoying economies of scale themselves. Availing economies of scale lower firms’ average costs and prices for consumers. With lower costs and higher profits, these companies can also invest in research and development, creating more jobs and wealth worldwide.
MNCs also set the bar high with products that attain global dominance, showing the goods’ universal appeal and consumers’ preference for them. Apple, Coca-Cola, and McDonald’s are examples of companies that earn a fair market share by meeting consumer demand. Multinational companies additionally engage in foreign direct investments, which help create a flow of capital to poorer, developing economies.
However, all that glitters isn’t gold, and MNCs can also negatively impact a country. Profit repatriation is one of the biggest culprits in demoting a country’s economy. When MNCs send profits back to their home country and increase the home country’s inflow, it’s called profit repatriation. Running an MNC can also prove to be financially draining since importing raw materials can be expensive not just for a firm but also for a country since imports negatively affect their balance of payments.
Besides this, MNC employment may also be biased since many companies may not employ locals in high managerial positions. Employment can increase, but for lower-level jobs and manual labour. In fact, MNCs that gain monopoly power can also abuse it by charging higher prices for their goods due to inelastic supply.
MNCs can also make it arduous for smaller companies to survive, let alone thrive, in developing countries. The economies of scale available to MNCs can put smaller companies out of business due to their cost advantage. In pursuit of profits, multinational companies don’t often prioritise the environment and can thus pollute the environment gravely alongside exploiting non-renewable resources.
MNCs have their own set of pros and cons, which are often equally balanced for an economy. While their benefits often boost the economy, their disadvantages can equally hinder economic and social progress. It is up to the government to regulate these firms with rules, import quotas, taxation, and more, to ensure that they can avail of the benefits of MNCs while protecting locals from their disadvantages.
