Advantages & disadvantages of multinational corporations

Written by david karanja
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Advantages & disadvantages of multinational corporations
Multinationals contribute to employment creation. (Jupiterimages/BananaStock/Getty Images)

Multinational corporations are corporations that have operations in more than one country. They are usually big corporations that establish branches in other countries to gain more market, either when they have exhausted the local market or to tap the potential of emerging markets with less or no competition. Although multinationals are the hallmarks of success in business, they have various disadvantages.

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Raising Standards

Multinational corporations bring about competition in the foreign markets they venture in. Multinationals produce goods and services that adhere to the best possible standards. Since consumers are willing to spend their money on only the best products, local businesses are forced to improve on the quality of their products. This competition to produce good quality ends up benefiting consumers who get good value for their money.

Job Creation

Multinational corporations play a big role in creating employment in the foreign countries they venture in. Because of their massive operations, they employ many local people in those countries to work there. They also employ some to work in their headquarters, thereby giving foreign nationals a chance to gain international career exposure. This is especially important in developing countries where unemployment is high.

Destruction of Local Industries

Multinationals usually have more money in terms of capitalisation than local businesses. This means that they are able to finance operations for a long time even without making a profit in the knowledge that, once they have developed brand loyalty, they will start making sustainable profits thereafter. This means that they can deliberately set very low prices so as to take the market share of the companies they have found in that market. This may therefore lead to the local companies closing down as they cannot afford to charge these low prices.

Capital Outflow

Various countries have different laws regarding the movement of money from foreign businesses that operate in their jurisdiction. Some have set certain limits on the amount of money that can be repatriated from business proceeds. Regardless of the different laws, money that has been made as profit by multinationals ends up being repatriated to the country where they are headquartered. This results in capital outflow that harms the host country's economy in the long run.

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