MNCs have played an important role in modern society. Although their growing penetration is the inevitable trend of globalization, there are many arguments for and against their impact on the economic development of the world.
Cost advantages are the first reason for MNCs to expand in different countries. For example, Coca Cola can reduce its shipping cost by building bottling plants in foreign countries. Or Adidas chooses to set up its subsidiaries in some places which have cheap labor cost like Thailand, Vietnam, China … Another advantage of MNCs is that they can avoid trade barriers and have little restrictions from the government of foreign countries. For instance, Toyota decided to produce in UK to gain access to the European market without paying tariffs. Furthermore, MNCs are able to reach the global market and archive great economies of scale.
On the other hand, there are some risks that MNCs might face. Three main types of risk are foreign exchange risk, political risk and regulatory risk. The more countries MNCs trade in, the more dangers they have to confront. And these risks can directly affect the profit of MNCs.
MNCs influence many different aspects of the host country – economy, politics, culture and environment. These impacts may be both positive and negative ones.
MNCs bring new ideas and new techniques which allows the host country to improve productivity and catch up with the economic development. But in some cases, their technological advantage can be used like an effective barrier for other local firms to entry the market. This can lead to the increase of monopoly power.
MNCs create jobs in the host country and offer higher incomes to the employees. However, workers in poor countries can be exploited by MNCs because of low salaries, extra hours and poor working conditions. Recently, there is a fact that Nike is hiring children below 11 year olds in Asia to produce shoes at extremely low wage.
Because the investment of MNCs helps the...