The Advantages & Disadvantages of Receiving an MNC Investment

by Walter Johnson

The multinational corporation and its investment strategies are to a great extent the very substance of "globalism." An MNC is a firm that invests a portion of its capital abroad. The debate over whether the MNC is an alien interloper and exploiter or a godsend to poorer countries continues, and it isn't likely to abate.

Financial Benefits

Proponents of the MNC stress the financial benefits they bring. Most importantly, MNCs usually pay far more than their domestic competitors. They bring many amenities to the host country, such as assistance developing the internal infrastructure that makes doing business locally much easier. Part of this infrastructure improvement leads to technological spillovers that benefit the entire population. More locals are educated in the newest technologies, and these can then lead a new development path for the host country. MNCs can, but do not always, boost local employment and economic growth. Many host countries, especially in the third world, like the increase in local tax revenue the MNC brings.

Political Drawbacks

The fact that governments like the new revenue and local improvements common to MNC investment is part of the problem. "Dependency" theorists argue that it is this alliance between the MNC, the state and a small number of native elites that makes MNC investment such a moral problem. The MNC helps perpetuate poverty by creating this state-centered alliance. Dependency theorists argue that poverty in the third world is the result of the global trade system that sees these states as sources of cheap labor and raw materials. Therefore, their development is distorted as growth benefits only a handful of well connected native elites.

Financial Drawbacks

Part of the dependency argument rests on the destruction of local industry. An MNC has nearly every advantage in investing overseas, especially concerning technology and knowledge. Local businesses cannot compete unless they seek state protection, which often comes at a high cost. The destruction of the local business infrastructure and network is an important aspect of dependent development. Once the local infrastructure is eliminated, development is done on the MNC's terms. If modernization is accomplished at the behest of the MNC, democracy in any real sense is gone.

Political Benefits

The spillovers from the MNC mean that more locals and natives are educated in newer technologies. Slowly, the presence of the MNC can lead to the education of many who would not have received it otherwise. Governments have an interest in building educational institutions that can serve the new arrivals and build some of their own. Locally owned businesses can serve the MNC by being part of its supply chain, giving them a source of income unknown before. Local output increases, and, in some instances, exports can increase markedly. Local employment can also soar, if the host country has enough educated young people to staff the new plants.

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