Disadvantages of Multinational Corporations

What are Multinational Corporations? Multinational corporations are those companies that set up their plants in different countries giving better job opportunities to the public. They typically have their headquarters in one country and are registered in numerous others. MNCs can manufacture, market, and sell their products in the host country. Everyone loves to be a part of multinational corporations considering the working environment and benefits offered. But, did you know that they also carry some disadvantages?

Yes, like everything has its pros and cons, multinational corporations also have disadvantages. Some of the disadvantages of multinational corporations are

Damage to the Environment

While multinationals come off as more informed and environmentally conscious, they contribute a lot to environmental waste. Waste control in developing countries is not well regulated, and the governments are not mindful of the consequences considering the benefits of multinational corporations. The companies manufacture products in bulk with low-quality material sometimes, increasing water and air pollution. Many MNCs reduce costs by ignoring the need to reduce pollution caused by them.

Affect Other Businesses

MNC usually produce their products on a large scale with a more efficient plant involved and skilled labor. Despite giving the best results, the cost of their products comes out to be less than local companies trying to compete with them in their capacity. By spending more money improving their production and marketing strategies, MNCs win the competition and gain a monopoly. It hurts the business of domestic industries, and some companies also die due to a lack of resources.

Exploitation of Government

Some MNCs are big names and bring a lot of money to a country when setting a plant there. Besides engaging people to work for them at low wages often, they also tend to make changes in the country that the government may agree on for short-term benefit. However, in the long run, these policies or changes do not benefit the people.

Economic Exploitation

Many multinational companies are good at exploiting people and the host countries to their benefit. From internal and external sources of recruiting employees and labor at low costs to exploiting that country’s natural resources, they do it all. Despite paying low wages and producing products at low costs, their branding allows them to sell their products at high prices. When these companies push others out of business and create a monopoly, consumers have to pay a high price to buy their star products.

Uncertainty

Most multinationals stay in a country for their monetary benefits only and do not care about the welfare of the people of that country. “Hire and fire” culture is quite common in multinational corporations, and many people lose their jobs for one reason or the other. One of the most common causes of job loss is the shifting or shutting down operations in a particular country. It usually happens when that region faces economic uncertainty. Working in a multinational is amazing, but you never know when they will stop operating in your country.

Unsuitable Technology

Most multinational corporations move to developing countries, and some expand their business in developed countries. A technology designed for working in the home country of the MNC might not be suitable for the host country. It could either be outdated, too advanced, or difficult for people to understand. This also contributes to the import of employees from countries who know about that technology and can work well on it.

Labor Import

Apart from the common perspective of MNCs employing local people and providing better job opportunities, multinationals also import skilled labor and personnel from other places. MNCs typically want to reach high efficiency quickly and make their name in the market, yet this is difficult if the operational area lacks skilled professionals. To cut down on time and training costs, they often import staff from other parts of the world. So, eventually, the jobs meant for the locals are taken by others, and only low-level jobs are available.

Export Profits

MNCs mostly work in multiple countries yet provide minimal benefit to the host country. They use raw materials, natural resources, and low-level labor from the host country but do not give back enough. The profits for the host country are nothing compared to what the MNCs make. The money made by the MNCs is exported to their home countries in the form of royalties, interest payments, profit dividends, and service charges. Thus they do not help improve the host’s economic condition much.

Sociocultural Issues

When multinational companies set up their business in other countries, they bring their cultural and social values. With passing time, the people working with MNCs begin adopting their culture, leading to cultural issues in the region. Other local people feel a distance from them because of the social and cultural changes they adapt to through the MNC.

Less Jobs For Home Country

Multinationals shift from their home country to other countries, offer jobs to the locals, and sometimes import labor from other areas. While it increases work opportunities for others, setting up MNCs in various countries results in fewer jobs in the home country. The people who could have been employed and improved their lives if the company expanded the business in the host country lack the chance.

The Bottom Line

Multinational corporations are registered and operate in many countries. Apart from the headquarters in the home country, they set up their plants in multiple countries to produce and sell their product. While MNCs have benefits, MNCs also have some disadvantages like fewer jobs for the job-seekers in the home country, unsuitable technology, and uncertainty of job.

Multinational corporations use resources from the host country yet take away the profits to the home country. Locals of developing countries experience sociocultural changes when working in MNCs. Multinationals also possess the power to pressure the government into altering policies and making changes that do not benefit the locals in the long run.