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Effect Of Multinational Companies In Developing Countries

There are many arguments that are for and against multinational corporations that are operating in third world countries. Some see these MNCs as allies that foster economic development while others see them as predators or a menace in the developing economies. Multinationals are large organizations whose parent company is situated in one particular country but the operations are carried out in many countries and various parts of the world. These are owned by shareholders who demand annual returns and mostly are listed, public companies in the country of the parent company. They may pursue policies that are world oriented, home country oriented or host country oriented. However MNCs have a huge impact on third world, developing countries and this article explores its effects.

MNCs as an ally

In economics it is believed that to have investments an economy has to have savings. But with the arrival of multinationals developing economies with poor savings levels are stacked with large investments that enable growth and development. Foreign direct investments increase while foreign resources are transferred to the country. Offshore companies are also somewhat similar to MNCs but they are only operated in one particular country whereas MNCs are spread across sovereignties. However both inject investments to an economy fostering growth.

Technology and skills of the developed countries are transferred to under developed countries opening up new opportunities for them. Technology advancements require a huge cost on research and development that a developing country cannot afford. Henceforth it is freely received through MNCs and offshore companies in Dubai. Experience, expertise and a lot of knowledge also flows into the economy with the arrival of MNCs and it helps in developing and training the labor of the under developed economy. Governments of the developing nations can earn higher tax revenue from MNCs and it encourages competition among the existing local competitors as well. Overall creates a good job market in and increase the living standards of people by offering high quality products for them.

MNCs as a predator

It is said that MNCs tend to worsen the balance of payments of a developing nation as profits by doing business in the country are sent abroad to their home countries. This results in an outflow of the wealth of the nation. This phenomenon is labeled as “western colonialism” by most economists. MNCs are in every way, stronger, larger and better than almost all the local small scale producers. Therefore the quality, technology and the volume are unmatchable by the local producers making the MNC s gain a monopoly in the market. Another problem with MNCs is that they have no national interest or concern towards the natural environment, values or the culture of the country and therefore rarely will work towards the welfare of the entire society but focus only on profits.