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Highlight the Advantages and Disadvantages of TNCs for the Investing Country.

Highlight the Advantages and Disadvantages of TNCs for the Investing Country.

Course: M.Com

1 Answer

Transnational corporations (TNCs) Advantages to Investing (Home) Country:

Following advantages to investing country.
  • Lower Cost: The home country can obtain raw materials and labor at comparatively lower cost. TNCs help in acquiring a steady supply of raw materials from abroad.
  • Wider Market: The home country can export components and finished products and thereby market is widened.
  • More Revenue: The home country can earn huge revenue by way of dividends, royalty, licensing fees etc.
  • Increase in Domestic Employment: The home country is benefited by increase in domestic employment due to higher scale of operations.
  • Expertise: The home country can acquire technical and managerial expertise of foreign nations.
  • Foreign Exchange Reserves: TNCs export components and finished goods in foreign markets and strengthen the country’s foreign exchange reserves.

Transnational corporations (TNCs) Disadvantage to Investing (Home) Country:

Following disadvantages to investing country.

  • Diversion of Resources: TNCs divert resources available in the home country to host countries without paying adequate taxes. Marketing practices of TNCs may create scarcity of goods in the home country and home country does not get the benefit of availability of goods at cheaper rates.
  • Unemployment: TNCs established production centers in those countries where labor is relatively cheap. This may create unemployment in the home country.
  • Blow to Environment: TNCs do not follow environmental standards. This creates environmental problems in the home country.
  • Transfer of Technology: TNCs export their technology abroad to combine with. other foreign factors. This is done to maximize corporate profits. The technological superiority of the home nation is, thus, undermined.
  • Loss of Tax Revenue: TNCs shift their operations to lower tax nations and, thus, reduce the tax revenue of home country. There is substantial loss of tax revenue to the home country if the companies are operating abroad.

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February 8, 2019