Explain the effects of MNS from the point of view of the developting countries

Multinational Corporations

Explain the effects of MNS from the point of view of the developting countries.

Meaning

An MNC is a commercial concern set up in one country having its base in that country (which is called the home country) & has its operations in many other countries (Host countries).

At least 25% of the world production of that concern is raised outside the home country. The MNCs are found in the field of manufacturing commodities, producing services & in the field of trade.

The MNCs confer several benefits on the host countries. The prominent amongst them are as follow:-

1. Raising the level of investment

A developing economy is caught in vicious circle of low level investment. The National income is low, the population is large. The effect is that the per capita income is low besides a part of that income is invested in unproductive assets, such as Gold & silver; therefore the productive investment is low. The rate of economic growth is slow. Addition to national income is low. Thus, the national income shows a tendency to remain at a low level.

The MNCs are helpful in breaking this vicious circle. They inject some capital into the developing economy. This is supplementary to own investment of the developing economies. The level of investment rises, the rate of economic growth rises. Thus, the MNCs are instrumental in expanding economic growth of the developing economies.

2. Carrying modern Technologies to developing economies

In any country the production is largely determined by the technology used. A developing economy has a comparatively backward technology. It is not able to send adequate amount of money on scientific research. The level of technology is also determined by the size of the marked. In less developed countries, the market for the goods excepting necessaries, is relatively small. The turnover is small. Consequently, the producers are not able to spend on research & introduce innovations.

The MNCs have most modern technology at their disposal. They carry that technology to the developing countries. The local producers belonging to the host countries are able to learn modern technology from MNC. They can also improve their technology.

3. Balancing the Balance of Payments

In general, the developing countries are confronted with the problem of a deficit in the Balance of payment. The MNCs are helpful in curing the deficit in BoP in two ways:-

1. MNCs bring in Foreign Direct Investment (FDI) into the developing economy. This is an incoming payment which is helpful in reducing the deficit in the BoP.
2. The MNCs have a high world wide reputation. Their products have a world wide market. A developing country can export them to near by countries & earn foreign exchange. This is also helpful in balancing the BoP.

4. Work discipline

The MNCs maintain a very high level of discipline amongst workers. They take care to maintain a high level of physical fitness & motivation. The workers employed in MNCs units carry that discipline to the local work force.

5. Catalytic Agent

The MNCs set up units mostly in basic & heavy industries. They purchase raw materials in the local markets; this increases the demand for raw materials & provides an incentive to the producers of the raw materials to increase their production. The workers employed in the MNCs spend their income on goods & services; this increases the demand for several goods & services, their production is increased. Many workers are employed in their production. Thus, the total increase in employment is a multiple of the initial addition to employment in the MNC unit.

6. Benefits to consumers

The MNCs are very particular about maintaining the high standard of their products. They bring out high quality goods. They are able to sell those goods at reasonable prices. Because, they produce them on large scale, the consumers belonging to the developing countries get the benefit of high quality goods at affordable price.

Harmful Effects of MNCs on developing countries

Though MNCs confer several benefits on the developing countries, they also create some problems for them. The more prominent amongst them can be described as follow:

1. Disturbing the plan priorities

The MNCs are profit oriented. They show a strong tendency to take up the production of those commodities in which they can earn a high profit margin. They ignore the production of more important commodities if they do not give them the required profit margin. This results into the allocation of resources to the production of low priority goods. The local producers also show a tendency to enter into the low priority industries if they are more profit earning.

2 .Inappropriate technology

The MNCs are accustomed to use a particular type of technology which is suitable for conditions in developed countries. They bring that technology to the developing countries, but that technology is not suitable for the developing countries. There is excessive supply of labor in developing countries. The technology introduced by MNCs is not proper for absorbing labor. It aggravates the problem of unemployment.

3. Excessive profits

Most of the MNCs earn excessive profit by selling their products at very high prices. A large part of the profit is sent by the MNCs to their home countries. The host country has to provide foreign exchange to the MNCs to enable them to remit the profit to the Home country.

1. Discrimination in staff

Often the MNCs give a cordial treatment to their own persons & a step motherly treatment to the staff belonging to the host country. This creates discontent amongst the staff & labor.

2. Over exploitation of resources

The aim of an MNC is to maximize profit in shortest possible period. They do not care for the long run effects of their activities. They use the productive resources at a very fast rate & finish them. They do not care to renew or replace the used resources.

3. Indifference to social cost

The MNCs are not very particular about controlling the social costs like pollution or loss of life in the event of an accident. They are careless in maintaining the required safety measure.

4. Political pressure

The MNCs often use their money power for bringing pressure upon the government & political parties of the host countries. They interfere in the administration of the developing countries.

Conclusion

Balancing the pros & cons of the business of the MNCs, we have to admit that they are beneficial to the host. The possible adverse effects of their working can be controlled by suitable action.