Foreign Direct Investment Reasons

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Table of Contents

Reasons against MNCs/FDI
Conclusion
Works Cited

The Multi-National Corporations (MNCs) accomplish several goals, key among which are the allocation capital resources, starting and sustaining economic growth, enhancing standards of living and minimizing poverty (Cohen 284). They are engaged in distributing capital all over the world since they are able to determine which country to invest in after assessing the cost of doing business in order to realize maximum profits for their capital. However, such benefits can only accrue in countries with sound labor policies (Cohen 285).

Foreign Direct Investment (FDI) grants the host country economic benefits marked by lower prices of quality goods and services (Cohen 289). This becomes possible through the presence of superior production systems, through training of staff members as well as managerial skills necessary for maximization of technology (Cohen 289). Also, FDI contributes to the gross domestic product of the host country more than any other capital flows to the host country (Cohen 288).

FDI, through MNCs, provides one of the best routes for technology transfer in the manufacturing, data processing, telecommunications, oil exploration, and drilling as well as mineral extraction sectors (Cohen 289). This becomes possible because of their modern research techniques. They are able to take advantage of the research and development on a large scale since they easily sell the products in mass volume.

MNCs employ many people in the host country and grant the employees good working conditions, high wages, and benefits that are always above the existing standards. Mostly, MNCs create new job portfolios that require above average expertise and as such, they hire the best and pay them well (Cohen 292).

Reasons against MNCs/FDI

MNCs, by their nature, make the environment unfit for the competition since they often reduce their competition and obtain excessive profits due to domination in the market. They practice a form of imperialism knowingly or unknowingly (Cohen 313). MNCs develop monopolistic tendencies through mergers and forced acquisitions of related businesses in the host country. This means less competition but lower investment by the citizens of the host country (Cohen 313).

It is important to note that MNCs dominate most of the strategic business sectors in the host country like pharmaceuticals, telecommunications, software and hardware, car manufacture and selling, mass media, among others (Cohen 313). More often than not, the local industries get stifled in the process hence sending so many employees home. As much as the MNCs offer jobs and pay well, they are not able to absorb the employees who fall victim to their expansionist intentions (Cohen 313).

MNCs sometimes decide to operate as cartels in the host country making it hard for a new business to penetrate the market (Cohen 314). They agree on low prices on their products across several host countries and lock out potential investors.

In other situations, MNCs bring in low-quality FDIs where they are interested in taking over local companies through mergers and acquisitions only and import expertise to those countries (Cohen 315). They only hire local people to engage in casual and low paying jobs. When they hire local people to higher positions, they pay them relatively lower wages compared with their counterparts in the parent country.

Conclusion

Expansion of FDI/MNCs is beneficial because, with proper and stringent business policies in the host country, the citizens can benefit through low prices, new technologies, well-paying jobs as well as variety in their shopping sprees. It is up to the government in the host country to set regulations that protect the workers and local industries from exploitation, but at the same time enable the MNCs/FDI to operate in a good environment. The MNCs should also engage the local community more through corporate social responsibility activities, which should start by understanding the culture of the host country.

Works Cited

Cohen, Stephen D. Multinational Corporations and Foreign Direct Investment: Avoiding Simplicity, Embracing Complexity. Oxford: Oxford University Press, 2007. Print.

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Foreign Direct Investment Reasons

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