Role of MNC’sAccording to an ILO repot, “the essential nature of multinational enterprises liesin the fact that its managerial headquarters are located in one country (homecountry) while enterprises carries out operations in number of other countries aswell. (host countries).Domivance of MNC’sThrough liberalization there has been expansion & growth of MNC’s. The GDPhas increased from about 5% in beginning of 1980’s to nearly 7% at end of1990’s. The MNC’s are estimated to employ directly, at home and abroad around73 billion people.For example, the US footwear company Nike currently employees 9000 people,while nearly 75,000 people are employed by its independent sub-contractorslocated in different countries.Merits of MNC’sThe important arguments in favour of MNC’s are given below:-MNC’s help the host countries in following ways:-1) MNC’s help to increases the investment level & thereby the income &employment in host country.2) The transnational corporations have become vehicles for the transfertechnology, especially to developing countries.3) They also kind a managerial revolution in host countries through professionalmanagement and employment of highly sophisticated management techniques.4) The MNCs enable that host countries to increases their exports & decreasestheir import requirements.5) They work to equalize cost of factors of production around the world.6) MNC’s provide and efficient means of integrating national economies.7) The enormous resources of multinational enterprises enable them to havevery efficient research & development systems. Thus, they make acommendable contribution to inventions & innovations.8) MNC’s also stimulate domestic enterprise because to support their ownoperations, the MNC’s may encourage & assist domestic suppliers.
9) MNC’s help to increase competition & break domestic monopolies.Demerits:-1) MNC’s may destroy competition & acquire monopoly powers.2) The transfer pricing enables MNC’s to avoid taxes by manipulating prices onintra-company transactions.3) Through their power and flexibility , MNC’s can evade national economicautonomy & control, and their activities may be inimical to national incomeinterests of particular countries.4) MNCs retard growth of employment in home country.5) MNCs technology is designed for world-wide Profit maximization, not thedevelopment needs of poor countries. In general, it is asserted, the importedtechnologies are not adopted to (a) Consumption needs (b) size of domesticmarkets (c) resource availabilities (d) stage of development of many ofdeveloping countries.Multinationals in IndiaComparatively very little foreign investment has taken place in India due toseveral reasons, some multinationals, Coca Cola and IBM, even left India in late1970s as the government conditions were unacceptable to them.A Common criticism against MNC’s is that they tend to invest in low priority &high profit sectors in developing countries, ignoring national priorities. Howeverhigh technology and heavy investment sectors of national importance & exportsectors. Firms which had been established non-priority areas prior toimplementation of this policy have, however been allowed to continue in thosesectors.It is not a right approach to estimate the net impact of multinationals on foreignexchange reserves by taking net foreign exchange outflow or inflow. If amultinational is operating in an import substitution industry, the net effect inforeign exchange reserves could be favorable even if there is net foreignexchange outflow of company.