Following are various issues and controversies related to transnational corporations:
Disregard of National Priorities:
Transnational corporations (TNCs) invest in most profitable sectors e.g. consumer goods disregarding the goals and priorities of host countries. TNCs do very little for underdeveloped strategic sectors and backward regions. Due to their capital intensive technology and much emphasis on profit earning, TNCs create relatively few jobs and fail to solve the chronic problems e.g. poverty and unemployment of host countries.
Transnational corporations (TNCs) often transfer outdated technology to their collaborators in host countries. In many cases, technology transferred was unsuitable causing waste of resources TNCs’ technology is designed for worldwide profit maximization and not the development needs of poor countries. TNC’s technologies are not adapted to:
- The consumption needs.
- The size of domestic markets.
- Resources avail-abilities.
- Stage of development of host countries.
Repetitive imports of similar technology led to excessive royalty payments without adding to technical knowledge in host countries. Sometimes machinery available locally was imported or it remained idle for want of repairs and maintenance facilities. TNCs have failed to develop local skills and talents.
TNCs squeeze out maximum payment from their subsidiaries or affiliates and collaborators in the form of royalty, technical fee, dividend etc. By repatriating profits, TNCs put severe pressures on the foreign exchange reserves and balance of payments of host countries.
Creation of Monopoly:
TNCs may destroy competition and acquire monopoly powers. TNCs join hands with big business houses and give rise to monopoly and concentration of economic power in host countries. TNCs kill indigenous enterprises through strategic advantages like patents, superior technology etc. For example Pule Soft Drinks and Kwality Ice Cream company had to sell themselves to foreign MNCs in India.
Due to their strong bargaining power, TNCs introduce restrictive clauses in collaboration agreements e.g. technology cannot be passed on to third parties, pricing of products will by the TNCs, export from host country will be restricted and managerial posts will be filled by parent company. TNCs do not transfer research and development, training and other facilities to host countries.
Threat to National Sovereignty:
Transnational corporations (TNCs) pose a danger to the independence of host countries. These corporations tend to interfere in the political affairs of host countries. The tremendous power of TNCs poses the risk that they may threaten the sovereignty of the countries in which they do business. On political involvement, TNCs have been accused of following:
- Supporting repressive regimes.
- Paying bribes to secure political influence.
- Not respecting human rights.
- Paying protection money to terrorist groups.
- Destabilizing national government’s of which they do not approve. Some TNCs like International Telephone Industries are accused of over-throwing governments in countries such a Chile.
Transnational corporations (TNCs) tend to vitiate the cultural heritage of local people and propagate their own cultures to sell their products. TNCs have been criticized for their strategies and practices in the host countries. TNCs undermine local cultures and traditions. For example, TNCs have encouraged the consumption of synthetic food, soft drinks in India. TNCs change the consumption habits for their benefit against the long-term interests of the local community. TNCs promote conspicuous consumption and dump harmful products in host countries.
Depletion of Natural Resources:
TNCs cause rapid depletion of some of the non-renewable natural resources in host countries. TNCs have been accused of the following environmental problems:.
- Polluting the environment.
- Not paying compensation for the environmental damages.
- Causing harmful changes in the local living conditions.
- Paying little regard to the risks of accidents causing major environmental catastrophes.
Most of TNCs adopt transfer pricing Which enables them to avoid taxes by manipulating prices on intra-company transactions. As a result, the governments of host countries lose tax revenue. Transfer pricing keeps resources away from host countries. TNCs also deprive the partners from host countries of their legitimate profits.
Transnational corporations (TNCs) offer employment opportunities to local people only for lower and middle level positions. But they do not appoint the people of host countries at higher positions. TNCs. fail to solve the problem of unemployment of under developed countries.