The disadvantages are described as follows:
1. Uncertainty:
MNCs often scale down their production facilities and close the operations in situation of economic uncertainty. They practise hire and fire; hence, people employed in MNCs often lose their jobs.
Such uncertainty may lead to internal problems in the country.
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2. Control:
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MNCs often exert control over the local government, both economically and politically. Such control may even go against the interest of the nation as a whole.
3. Transfer Pricing:
This is done by lowering the internal price structure. Through this, MNCs can reduce their profits in the countries, where they operate and thus deprive their host countries from the legitimate tax payouts.
4. Environmental Imbalance:
MNCs can create environmental imbalances extracting natural resources and polluting the environment of the host countries.
5. Killing Domestic Producers:
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MNCs can kill the local organizations while competing with the local firms.
6. Profit Repatriation:
MNCs may repatriate their profits to their own country of origin, and thereby, deprive the host countries from the benefit of new investment.
7. Transnationalism:
The term ‘transnationalism’ indicates specific strategies of MNC/TNC to control production facilities in more than one country through direct foreign investment. A very recent example is Ford and General Motors.
These companies enjoy specific advantage of global market, availing low-cost transshipment of their finished goods in markets where they can get a bargain-able price. To take an example, in China many multinationals have their own production facilities not for China market but for other markets, where the price offer is competitive.
8. Micro-Multinationals:
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Organizations of this type try to become global through Internet-based communication tools. Basically, they are small business entities (mostly software companies) and coordinate their activities across the borders through Internet. They establish their dispersed virtual business with the employees, clients and resources located in various countries.
They enjoy economy of scale, as their cost of operation becomes relatively less for the use of cheaper Internet, telephony and lower travelling costs. Hence, this type of organizations quickly grow, creating unique business opportunities.
9. Globally Integrated Enterprises:
The globally integrated enterprise is a term coined in 2006 by Sam Palmisano, the CEO of IBM Corp. This type of enterprises strategically integrates their production and value chain worldwide. This is also known as the multinational model of the 20th century. For IBM, this was a successful model to grow internationally, understanding customers, local market requirements and cultivating local talent.
Now such enterprises can locate functions anywhere in the world, based on the right cost, skills and environment. Palmisano mentions the Law of Global Integration, driven by three forces—economics, expertise and openness.
