Evils Of Mncs
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Evils of MNCs
Multinational corporations are often criticized by several people. In India, many arguments have been advanced to check the entry of MNCs into the country. The main points of criticism against the multinationals are as follows:
(i) Disregard of National Goals. The role of MNCs in the under-developed countries does not serve the purpose as required. The sectors in which they invest create relatively few jobs and thus they fails to help eradicate unemployment and poverty- two chronic problems of any developing economy.
(ii) Repetition of Technology. It is alleged that the government permitted multiple collaborations, i.e., repetitive import of similar technology. This resulted in repetitive payments of royalty without addition to technical knowledge in the country.
Since the responsibility of specification and supply of equipment is often entrusted to the foreign collaborators, there is close tie-up between the designers and suppliers resulting not only in price mark-up but also in the over-import of equipment. Sometimes equipments are imported even when they are available locally, and sometimes, they remain idle for want of spares, and maintenance facilities.
(iii) Restrictive Clauses. The multinationals have a greater bargaining power as compared to their collaborators in the host country. As a result, they are able to introduce restrictive clauses in the agreement, e.g., technology can’t be passed to any one else, pricing of products will be done by the MNC, exports form host country will be subject to some conditions, and so on.
(iv) Growth of Monopolies. Foreign collaborations have helped the growth of monopolies and concentration of economic power. They joined hands with the big business houses and the latter were only too eager to enter into understanding with them. The presence of foreign links often conferred certain strategic advantages (patent, resources, foreign exchange, etc.) to the big business houses to diversify and expand.
(v) Obsolete Technology. In many cases, there has been adverse effect of technology diffusion by the MNCs on income, employment and growth of indigenous technology of the host countries. Even obsolete and defective machines and technology have been passed on to the partners by the foreign collaborators. In many cases, technologies imported were absolutely unsuited to the conditions of the host countries leading to waste of capital with eh natural and human resources on the one hand and increasing dependence on imports for intermediate goods, tools, parts and equipments, etc. on the other.
(vi) Failure to Develop Local Skills. MNCs establish their plants in developing economies to exploit the cheap labour available there. Hence, they are interested in maintaining a gap between the wages prevailing in their home country and the host country. They are not interested in developing local skills and talents. Because of this, they fail in diffusing advanced technical know-how and skills among the workers of the host country.
(vii) Competition with Home Industries. It has been alleged that the MNCs do not want to promote the interests of the host countries, rather obstruct their growth by putting restrictive clauses and stiff competition to local entrepreneurs. They spend heavily on advertisement to increase their market share. The home industries are not able to compete with the giant MNCs and at time have to close down their business or even acquired by the MNCs.
(viii) Consumer Goods for Higher Income Groups. MNCs undertake the production of consumer goods like chocolates, soft drinks, synthetic foods, tooth pastes, cosmetics, T.Vs., V.C.Rs.etc., which have no growth relevance. The constitute an important part of the budget of the higher income groups of the society. Thus, MNCs do not produce for the lower income groups of the society.
(ix) Threat to Nation’s Sovereignty. MNCs are held to be dangerous agents of imperialism and neocolonialism, seeking to substitute colonial exploitation by a new brand of organized operation through business monopolies. They have ever been reluctant to collaborate with the public sector so as to escape exposure of secrets of excess profiteering, tax evasions, managerial skills, technological know-how etc. MNCs are said to be politically motivated and have the tendency to interfere in the affairs of the host countries and persistently influence their internal and external policies. This might threaten the sovereignty of the nation in which they do business.
(x) Excessive Remittances. It is said that MNCs take away more than they invest. Remittances due to excessive profiteering, dividend, royalties consultation fee, etc., to head offices situated in foreign countries may create exorbitant foreign exchange crisis or balance of payment problem in the host country.
(xi) Depletion of Natural Resources. The transnational corporations may cause fast depletion of some of the non-renewable natural resources in the host country as they are interested more in their profits than the economic welfare of the host country.
(xii) Lack of Research and Development. Although MNCs could have played a catalytic role in the promotion of research and development in the developing economies, their performance in this context has been discouraging. Their investments on scientific research in developing economies have been negligible looking to their assets and turnover.
Thus, multinational corporations are a mixed blessing as they have both positive and weak points. The Indian experience shown that MNCs have not fully justified their entry into the Indian economy. The following safeguards may be taken to ensure the effective role of MNCs in India:
(a) MNCs should be allowed entry only in high-tech industries such as telecommunication, petro-chemicals, etc. It must be ensured that they bring latest.
(b) MNCs in the area of consumer goods such as tooth pastes, toilet soaps, cosmetics etc. should be discouraged.
(c) MNCs must ensure direct foreign investment. They should not be allowed to control India affiliates unless they have majority stake in them.
(d) MNCs should not be allowed to damage the India units. Though fee competition is necessary in the long-run, the MNCs should be discouraged from competition with Indian units through excessive advertisement and publicity.
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(i) Disregard of National Goals. The role of MNCs in the under-developed countries does not serve the purpose as required. The sectors in which they invest create relatively few jobs and thus they fails to help eradicate unemployment and poverty- two chronic problems of any developing economy.
(ii) Repetition of Technology. It is alleged that the government permitted multiple collaborations, i.e., repetitive import of similar technology. This resulted in repetitive payments of royalty without addition to technical knowledge in the country.
Since the responsibility of specification and supply of equipment is often entrusted to the foreign collaborators, there is close tie-up between the designers and suppliers resulting not only in price mark-up but also in the over-import of equipment. Sometimes equipments are imported even when they are available locally, and sometimes, they remain idle for want of spares, and maintenance facilities.
(iii) Restrictive Clauses. The multinationals have a greater bargaining power as compared to their collaborators in the host country. As a result, they are able to introduce restrictive clauses in the agreement, e.g., technology can’t be passed to any one else, pricing of products will be done by the MNC, exports form host country will be subject to some conditions, and so on.
(iv) Growth of Monopolies. Foreign collaborations have helped the growth of monopolies and concentration of economic power. They joined hands with the big business houses and the latter were only too eager to enter into understanding with them. The presence of foreign links often conferred certain strategic advantages (patent, resources, foreign exchange, etc.) to the big business houses to diversify and expand.
(v) Obsolete Technology. In many cases, there has been adverse effect of technology diffusion by the MNCs on income, employment and growth of indigenous technology of the host countries. Even obsolete and defective machines and technology have been passed on to the partners by the foreign collaborators. In many cases, technologies imported were absolutely unsuited to the conditions of the host countries leading to waste of capital with eh natural and human resources on the one hand and increasing dependence on imports for intermediate goods, tools, parts and equipments, etc. on the other.
(vi) Failure to Develop Local Skills. MNCs establish their plants in developing economies to exploit the cheap labour available there. Hence, they are interested in maintaining a gap between the wages prevailing in their home country and the host country. They are not interested in developing local skills and talents. Because of this, they fail in diffusing advanced technical know-how and skills among the workers of the host country.
(vii) Competition with Home Industries. It has been alleged that the MNCs do not want to promote the interests of the host countries, rather obstruct their growth by putting restrictive clauses and stiff competition to local entrepreneurs. They spend heavily on advertisement to increase their market share. The home industries are not able to compete with the giant MNCs and at time have to close down their business or even acquired by the MNCs.
(viii) Consumer Goods for Higher Income Groups. MNCs undertake the production of consumer goods like chocolates, soft drinks, synthetic foods, tooth pastes, cosmetics, T.Vs., V.C.Rs.etc., which have no growth relevance. The constitute an important part of the budget of the higher income groups of the society. Thus, MNCs do not produce for the lower income groups of the society.
(ix) Threat to Nation’s Sovereignty. MNCs are held to be dangerous agents of imperialism and neocolonialism, seeking to substitute colonial exploitation by a new brand of organized operation through business monopolies. They have ever been reluctant to collaborate with the public sector so as to escape exposure of secrets of excess profiteering, tax evasions, managerial skills, technological know-how etc. MNCs are said to be politically motivated and have the tendency to interfere in the affairs of the host countries and persistently influence their internal and external policies. This might threaten the sovereignty of the nation in which they do business.
(x) Excessive Remittances. It is said that MNCs take away more than they invest. Remittances due to excessive profiteering, dividend, royalties consultation fee, etc., to head offices situated in foreign countries may create exorbitant foreign exchange crisis or balance of payment problem in the host country.
(xi) Depletion of Natural Resources. The transnational corporations may cause fast depletion of some of the non-renewable natural resources in the host country as they are interested more in their profits than the economic welfare of the host country.
(xii) Lack of Research and Development. Although MNCs could have played a catalytic role in the promotion of research and development in the developing economies, their performance in this context has been discouraging. Their investments on scientific research in developing economies have been negligible looking to their assets and turnover.
Thus, multinational corporations are a mixed blessing as they have both positive and weak points. The Indian experience shown that MNCs have not fully justified their entry into the Indian economy. The following safeguards may be taken to ensure the effective role of MNCs in India:
(a) MNCs should be allowed entry only in high-tech industries such as telecommunication, petro-chemicals, etc. It must be ensured that they bring latest.
(b) MNCs in the area of consumer goods such as tooth pastes, toilet soaps, cosmetics etc. should be discouraged.
(c) MNCs must ensure direct foreign investment. They should not be allowed to control India affiliates unless they have majority stake in them.
(d) MNCs should not be allowed to damage the India units. Though fee competition is necessary in the long-run, the MNCs should be discouraged from competition with Indian units through excessive advertisement and publicity.
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