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Direct foreign investment usually allows the formation of MNCs, although their existence does not necessarily reflect a net capital flow from one country to another.MNCs can raise money for the expansion of their subsidiaries in the host country rather than in the home country. Among the major factors that influence firms’ decisions to go global are (a) appropriation of raw materials, (b) reduction in costs, mainly labor costs, (c) search for new markets and consequently for demand, (d) circumventing trade restrictions such as import tariff barriers, and (e) taking advantage of government policies offered by the host country, particularly relatively lower taxes.Among these the most important are reduction in potential production and employment; transfer of technology to other nations, which might undermine the current and future technological superiority of the home nation; and reduction of potential tax revenue of the home country.
In addition, the technology transfer usually has very limited linkages with the other sectors of the host country and consequently “the spillover effects” are very limited.
A third criticism is MNC exploitation of domestic resources.
A second criticism is MNC utilization of inappropriate technologies.
In many developing countries, MNCs use capital intensive production techniques that are inappropriate for labor abundant nations, where they would increase unemployment.
For example, MNCs may resist government attempts to redistribute national income through taxation.
One example of political influence is in the case of Chile.
While there are no magic bullets here, naming and shaming coupled with consumer boycott can at times produce the desired effect.
Bibliography: This example Multinational Corporations Essay is published for educational and informational purposes only.
Horizontally integrated MNCs produce basically the same or similar goods in several countries.
One example is the auto manufacturer Toyota, which produces automobiles in both Japan and the United States. oil company Exxon Mobil acquired a foreign copper-mining subsidiary in Chile in response to anticipated declines of future investment opportunities in oil and gas.