Demerits Of Multinational Companies


Demerits Of Multinational Companies: –

1)    Provide outdated technologies: – MNC’s design the technologies, which can be used in different countries. They don’t supply technology to poor countries for industrial development but for profit maximization. The technologies designed for profit maximization and not purely for meeting the needs of developing countries. The technologies supplied may be costly and may be outdated and obsolete or may not be suitable for the needs of developing countries.

2)    Harm the national interests: – the activities of MNC’s in the host countries may be harmful to the national interests as MNC’s are solely guided by the profit maximization. They ignore the interests of host countries. MNC’s even make profits at the cost of developing countries.

3)    Charge heavy fees: – MNC’s charge heavy fees and service charges from the enterprises in the host countries. They repatriate profits of their subsidiaries to their home countries. This leads the outflow of countries.

4)    Develop monopolies: – MNC’s restrict competition and acquire monopoly power in certain areas in the host countries.

5)    Use resources recklessly: –MNC’s use the resources in the host countries in a very reckless manner, which leads to fast reduction of non-renewable natural resources.

6)    Dominate domestic policies: –MNC’s use their money power for political purposes. They take undue interest in political matters in the host countries. MNC’s are being openly termed as an extension of the imperialistic forces.

7)    Adverse effects on life style/culture in the host countries: – MNC’s create demand for goods and services in developing countries through advertising and sales promotion techniques. As a result, people purchase costly/ luxury goods which are not really useful nor within their capacity to purchase. MNC’s create adverse effects on the cultural background of many developing countries.

8)    Interfere in economic and political systems: – they put indirectly pressures for the formulation of policies that are favorable to them. They even topple the government in the host countries if its policies are against the MNC’s and their operations.

9)    Avoid tax liabilities: – transfer pricing enables multinational corporations to avoid taxes by manipulating prices in the case of intra company transactions.

10)                       Lead to brain drain in developing countries: – multinationals are now entering in countries like India in a bigger way. They hire   qualified technocrats and managerial experts. These people work for a few years in India, acquire experience and relocated as experts in Singapore, Korea or the United States for managing the activities of MNC’s. This leads to brain drain in developing countries.



MNC’S have helped and also harmed the developing countries. It is a

peculiar mixture of virtues and vices, boons and banes. However no

country can afford to avoid MNC’s only because it has dangers

associated with them. It may be concluded that MNC’s constitute a

mixed blessing to developing countries. They are helping as well as

harming the developing countries. It is rightly said “MNC’s are

bound to exist and developing countries have to learn to live with


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