Empowering Local Communities: How Mncs Are Driving Economic Growth In Developing Countries

By Ankita Tripathy

November 13, 2023

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The growth of an economy leads to an increase in the state's capacity and the provision of public goods.

As a result, states can generate revenue through taxation and allocate resources for essential services such as:

  • Social protection.

In addition, multinational corporations apos; investment in infrastructure can stimulate the growth of the local private sector. This, in turn, leads to increased economic growth.

This has the potential to attract foreign investment, further boosting economic growth.

Why Do Minces Establish Offices In Developing Countries?

MNCs establish offices in developing countries for various reasons.

Some major reasons are as follows:

  • Cheap labor.
  • Flexible labor laws.
  • Good markets.
  • Proximity to target consumer markets.
  • Easy access to raw materials.

These locations provide lower production costs with increased profits. Moreover, the operational costs for several foreign countries can effectively go down in these countries.

With the emergence of coworking spaces and meeting rooms in Bengaluru and other major IT hubs, several foreign companies found their perfect start in countries like India.

For example, Amazon, Apple, and IBM have now established strongholds in these countries, generating revenue and employment opportunities.

Additionally, MNCs can use capital from developed countries to establish factories and plants in developing countries. This allows them to access raw materials more cheaply and reduce transport costs.

Mncs&Apos; Contributions To Local Communities

MNCs close the gap between foreign capital requirements and foreign investment in developing nations.

Over the years, several countries have witnessed the benefits of allowing MNCs to operate in their nation.

Given below are some major ways that local communities in developing nations can benefit from MNCs—

Investment In Infrastructure

Infrastructure plays a crucial role in international trade and investment.

Sufficient provision of electricity, telecommunications, transport networks, and access to clean drinking water are crucial for developing countries to become competitive in the global market.

In order to develop these necessary facilities, multinationals often provide essential capital to developing countries.

They build factories, which help the economy develop and increase its productive capacity.

Moreover, to help MNCs thrive in developing countries, aligning their efforts with national development plans is important.

Therefore, this drives investment in large-scale infrastructure improvements supporting competitive exports.

Job Creation

According to a report by UNCTAD in 2002, MNCs have been steadily creating more jobs through their subsidiaries in developed and developing countries.

These jobs are beneficial as they increase productivity and expertise within the economy.

When multinational corporations transfer and spread technology, it affects employment levels. This can lead to improved productivity and higher pay for workers with more skills while reducing the availability of jobs that require fewer qualifications.

Moreover, working in a multinational company offers opportunities to travel. You can work on-site and get higher remuneration. You can also visit new cities and countries and even have international mobility, depending on one's role.

Transfer Of Technology And Knowledge

Multinational corporations (MNCs) can facilitate the transfer of technology and knowledge to developing countries through various methods.

These include research and development, backward and forward linkages, imitation, training, and licenses.

MNCs can introduce new technologies, production methods, and managerial practices, while domestic firms can learn by watching.

Moreover, training ensures foreign workers are well-trained, and technology can be transferred directly when a license is purchased.

However, invention and creation processes remain in developed countries, while productive knowledge and follow-on innovation occur in developing countries.

Multinational corporations (MNCs) can help stimulate technological development in developing countries. By involving these companies, we can achieve progress in this area.

In 2019, developing countries accounted for 54% of the global foreign direct investment (FDI), which is a new record. At this time, Africa experienced an 11% increase, Asia a 4% increase, and developing economies overall a 2% increase.

Criticisms And Challenges

Multinational corporations (MNCs) in developing countries can also have negative impacts. Some of these impacts are as follows:

  • Exploitative practices.
  • Limited job opportunities.
  • Outcompetence of local businesses.
  • Human rights abuses.
  • Limited investment.

MNCs often exploit cheap labor, pay low wages, and subject workers to poor conditions.

They may also engage in bribery to gain favorable government treatment.

Additionally, MNCs may disregard labor laws, denying workers fair wages, safe working conditions, and the right to unionize.

Thus, MNCs may prioritize profit over local infrastructure, education, and healthcare.

Future Outlook On MNCs' Role In Developing Countries

To stay competitive in the borderless economy, multinational corporations (MNCs) expand their operations beyond national borders.

MNCs are important to developing nations because they bring new technologies and job opportunities that benefit local businesses. They frequently get government subsidies, which may be connected to capital investments in regional businesses.

Regardless of technical advancement, the number of multinational corporations (MNCs) operating in important markets is rising quickly.

It is preferable to produce end products near local markets because it satisfies local demands, uses less energy, produces jobs, and lessens air pollution.

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Ankita Tripathy

Ankita Tripathy loves to write about food and the Hallyu Wave in particular. During her free time, she enjoys looking at the sky or reading books while sipping a cup of hot coffee. Her favourite niches are food, music, lifestyle, travel, and Korean Pop music and drama.

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