Disadvantages of Multinational Corporations

Cost and Risks to the Host Country

 i.  Multinationals employ capital intensive technology which is not appropriate to the needs of developing countries.

 ii.  Due to their immense power, multinationals can undermine economic and political sovereignty of developing countries.

iii.  Multinationals may kill the domestic industry and acquire monopoly over the host country’s market.

iv. Employment growth in the host country may be retarded because multinationals may employ foreign staff.

v.  Multinationals may cause fast depletion of host country’s natural and non-renewable resources through their indiscriminate use.

vi. The host country’s balance of payments may be under pressure when multinationals repatriate huge amount in the form of profits, dividends and royalty.

vii. Multinationals may undermine local culture, distort consumption patterns and promote conspicuous consumption in the host country.

viii. Multinationals tend to invest in high profit sectors ignoring the high priorities of host nations.

Dangers to Home Country

i. Pressure on balance payments due to transfer of capital to host countries.

ii. Loss of employment for home country people due to location of manufacturing and marketing facilities abroad.

iii. Investment in more profitable countries may retard industrial and economic development in the home country.

iv. Cultures of foreign countries may distort home country’s culture.