The Impact of Multinational Corporations (MNCs) on Developing Countries
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Multinational enterprises date back to the era of merchant-adventurers, when the Dutch East India Company and the Massachusetts Bay Company traversed the world to extract resources and agricultural products from colonies (Gilpin 278-79). While contemporary multinational corporations (MNCs) do not command the armies and territories their colonial counterparts did, they are nevertheless highly influential actors in today’s increasingly globalized world.
Gilpin discussed the MNC’s evolution through the lenses of a number of business economic theories. Using Raymond Vernon’s Product Cycle Theory, the overseas expansion of American companies until the 1960s was shown as a means of preempting foreign competition and preserving monopoly…show more content…
Their influence is apparent when one considers that General Motors’ revenues exceed 148 countries’ respective GDPs (Stiglitz Ch. 7, location 3353). Such economic power inevitably results in both positive and negative aspects.
The domestic political economies of developing countries are positively impacted by the large amount of capital MNCs infuse into the economy, allowing for the creation of physical infrastructure that a developing country might otherwise not be able to afford. MNCs also improve both the quantity and quality of jobs available in a domestic market (Gilpin 303). As a citizen of one such developing country where MNCs are an economic force, I can attest that employment at an MNC such as Unilever and Nestle is aspired to by many in the population, from low-skilled workers looking for factory jobs to business school graduates seeking better-paying management positions. MNCs can also be given credit for helping to bridge the knowledge gap between industrial and developing countries through the transfer of technology and the pooling of research and development resources (Stiglitz Ch. 7, location 3362). In addition to domestic gains, the international political economy also benefits from what Gilpin calls the “paradox of increased scale and increased competition”, which leads to the availability of a larger variety of goods at better quality and lower prices (Gilpin 303).
While the positive aspects of an MNC’s influence
Role of MNCs in Indian Economy
MNCs are enterprises that operate in several countries but they are managed from one home country. Every year, there are hundreds of MNCs finding their way into the Indian market. These enterprises have played a major role in contributing towards the economy of India. Some of the primary reason behind the ever increasing number of MNCs in the country is as highlighted below:
- Stable governments
- Huge market
- Great policies
- Educated workforce that is compromised of young people
There are a couple of features that make MNCs standout such as having a large number of customers and competitors, investment of huge intellectual capital, operation in many countries and they are structured in the manner they make decisions. The presence of these enterprises India can be listed as follows:
- Provision of increased revenue
- The country, through the MNCs collects large amounts of tax
- Improved economic health
- Increased foreign relations
Multi-nationalism driver is none other than globalization and there are large MNCs (Fortune 500 companies) that have looked at the Indian industry as an ideal growth market. This is because the Indian economy is the 4th largest in regard to Purchasing Power parity. It is also projected that by 2025, the economy will be 60% that of the US economy.
Because of the large corporations that have entered into the Indian economy, it has resulted to acquisitions and mergers. This means that those local companies that have the potential of multi-million businesses are not only been merged but acquired by some of the largest organizations in the world. This has in turn created or increased stake holders’ wealth of the Indian companies as well as that of employees. While this is the case, the balancing act between the poor and the rich in the country has not been maintained.
Medium and small companies however have suffered huge losses as a result of MNCs. This means that not all companies are able to see profits and growth unless local needs are first met especially in terms of emotional fitment, longevity and cost. Most of the local companies close and sell up as a result of desperation and this in the long term affects the economy.
There are several merits though of MNCs in India and these include the following:
- Increase in the investment level
- Transfer of technology
- Increase host company export rather than imports
- Integration of national economy
- Implementation of new innovation
MNCs also play the following roles in the Indian economy:
- Diversification policy
- Cultural explosion
- Consumer goods concentration
- Profit maximization
- Cultural explosion
- Planned economic development
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