Keshav PoudelJuly 04, 2012
Multinational companies are large business firms established and operated in two or more countries. Although they have various advantages, they suffer from certain disadvantages or drawbacks such as high competition, loss of sovereignty, outflow of resources, economic exploitation etc.
Demerits or disadvantages of multinational companies can be discussed as follows:
1. Loss of sovereignty
This is the most common disadvantage of all the multinational companies. Multinational companies are economically very powerful. They disregard national priorities. They interface in the internal affairs of host countries. They influence policy makers to protect their own interests. Host countries face the threat of losing their sovereignty and independence.
2. Competition
Multinational companies have big budgets for market development and promotion. They provide competition to domestic industries which doe in most cases. They tend to gain monopoly power.
3. Resource outflows
Another major disadvantages of multinational companies is resource outflows Multinational companies take out resources from host countries in the form of dividend out of profits, interest payments on loans, royalties on licences, fees for management and other services.
4. Inappropriate technology
The technology transferred by multinational companies can be inappropriate for host countries. It can be out-of-date. It can be too advanced. Also they may not train local people to acquire skills in new technology. Unemployment can increase.
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Multinational companies are guided by profit motive. They can make economic exploitation of host countries by excessive use of natural resources and raw materials. They can pay low wages to local people. They can charge high price for products to exploit consumers.
6. Sociocultural evils
Multinational companies promote sociocultural values of their home country It can be in food, dress and life styles. Local cultural evils appear. They increase the gap between rich and poor. They lack social responsibility towards host country.
