The impact of MNCs (Multi-National Companies) relocation on the host country
A Multi-National Company (MNC) is a business which trades in one or more countries. MNC´s are major contributors to accelerating the globalization process creating increased global interdependence.
Generally, MNC´s outsource or offshore their production, or portions of their production process to emerging economies (e.g India) in search of lower production costs, grants, relaxed laws and legislation etc.. and this brings with it both positive and negative impacts for both the source and host country.
By outsourcing production, MNC´s create massive employment in the host country, making disposable incomes of those employed rise, contributing to a general rise in well-being. Furthermore by employing they provide workers with training and skills that make them experienced and specialized hence increasing their chance of being employed again. MNC´s also generate big amounts of revenues to the host government through tax (e.g corporation tax) which can be spent in improving healthcare, infrastructure etc…
These large companies with abundant capital supporting them, will also be willing to invest in improving communications and infrastructure, so they can benefit from increased efficiency and reduced transport costs, that is vital to remain competitive. Local business will hence benefit too from any improvements in infrastructure financed by these MNC´s, as the costs for transporting goods will fall, and the time required also, allowing local firms to adopt strategies such as JIT( Just-in-time) that will overall make them more efficient and profitable.
However MNC´s tend to commit unethical practices such as exploitation. This implies little health and safety regulations at their production plants, which often leads to illnesses and injuries for the workers (e.g abusive working routine lead to suicides in Ipad´s factory (China), hence implying sanitation costs for the government.
The extremely low unit costs that MNC´s achieve through relocating their production, allows them to set extremely low prices. Local business which don´t benefit from economies of scale, have higher chances of being unable to compete against these low prices, and may go bankrupt by loosing customers and revenues, which switch to MNC´ s products to save money.
MNC´s are also major exporters of the ´Western Culture` which brings with it capitalism and materialism that may impose themselves and erode local cultures and values of the places these companies outsource to, making the country suffer a degradation of it´s identity
Overall, MNC´s are proved to be essential for a emerging country to grow as they provide vital employment and finance that creates a multiplier effect, allowing for many people to break-out of poverty and national business to grow and expand in a profitable manner, and despite they exploit the nation´s workers and resources, it is a necessary step in the cycle of any economy to boost out into a developed country.