How MNCs Affect the Economy

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The activities of transnational corporations are most closely connected with the interests of the state of their origin. Moreover, you can argue that, in most cases, the fundamental interests of states and TNCs based on their territory coincide.

Developed countries, in turn, actively contribute to the development of their own TNCs, practicing a variety of measures to support transnational capital, among which are:

  • Provision of state guarantees and insurance of direct foreign investments.
  • Protection of TNC investments abroad by concluding relevant bilateral agreements and creating specialized international arbitration institutions in the investment sphere. Complete Controller. America’s Bookkeeping Experts
  • Creation of fair, non-discriminatory investment conditions, mainly excluding double taxation.

The relations of TNCs with less developed countries, including developing countries, are more complicated due to the frequent mismatch of their economic interests. In several cases, TNCs make a specific contribution to the development of the group of countries under consideration, which is reflected in:

  • In obtaining advanced production technologies for them in some national production sectors.
  • Helping developing countries move from raw material exporters to finished product sellers.
  • Accelerating the processes of technological innovation.
  • Increase in the employment of the local population and growth of incomes of local employees of corporations.
  • Modernization of management methods, etc.

However, the practice of relations between TNCs and developing countries also demonstrates a significant number of facts about the negative impact of transnational capital on the economy of the respective host countries. Among the reasons for this influence are the following.

  • Possibility of tough competition from TNCs to local companies.
  • The danger of the host country becoming a dumping ground for obsolete and environmentally hazardous technologies.
  • Capture by foreign firms of the host country’s most developed and promising industrial production and research structures segments. Transnational corporations, which have significant financial resources even in moments of upheaval, actively use bad market conditions to take over other companies.
  • Possibility of imposing on host country companies unpromising directions in the system of division of labor within transnational corporations. Download A Free Financial Toolkit
  • The orientation of transnational corporations towards acquisitions leads to an increase in the instability of the investment process. Large investment projects associated with real capital investments are distinguished by specific stability – they cannot be started without a long preparation and are suddenly completed without impressive losses. Conquest politics, on the other hand, presupposes financial instability.
  • The strong position of transnational corporations enables them to take more decisive action in the event of crises—the closure of enterprises, the reduction of production, which leads to unemployment, and other negative phenomena. This explains the phenomenon of disinvestment (mass withdrawal of capital from the country).
  • The propensity of transnational corporations to exaggerate their response to changing market conditions gives many reasons to reduce output if the competitiveness of a given state is reduced for one reason or another.
  • Opposition to implementing the economic policy of those states where TNCs operate.
  • Violation of the laws of the host country. Thus, by manipulating the policy of transfer prices, subsidiaries of TNCs circumvent national laws, hiding tax revenues by transferring them from one country to another.
  • Establishment of monopoly prices, the dictatorship of conditions that infringe on the interests of developing countries.

Considering the features of modern TNCs’ interaction with various national states and summarizing a brief review of the theoretical foundations for the emergence, essence, and typology of transnational companies, we note the following provisions of great methodological significance.

  1. The modern world is developing within the framework of a single system with its logic and dynamics. Its most important feature is the coexistence of transnational structures and national economic spaces.
  2. The emerging integral system of the global economy is not just the sum of national economies and TNCs but a kind of self-organizing (to a certain extent) system created by the totality of relationships between nation-states and TNCs. CorpNet. Start A New Business Now
  3. The transnationalization of production has an increasing impact on the development of national economies, determining their place in the hierarchical structure of the international division of labor. Intra- and inter-company flows of goods, services, capital, technologies, etc., circulating within TNCs seem to be “superimposed” on the traditional organization of inter-industry flows, having a complex effect on the exports of individual countries and increasingly defining their international specialization.
  4. The transnationalization of production leads to the emergence of new types of interdependencies that permeate national systems of production and regulation and increase their interconnections and vulnerability as an increasing part of the production apparatus of various industries is included in the transnational sphere of activity.
  5. The accelerating processes of transnationalization do not destroy national economies, although they contribute to their transformation and restructuring. Tendencies are intensifying towards forming a “planetary” system of production, prices, consumption, technology, information, culture, lifestyle, and ideas.
  6. Interaction between transnational structures and national states is dialectical and takes various forms, from confrontation to constructive and mutually beneficial cooperation.
  7. In cases where the interests of transnational capital objectively coincide with the interests of certain national states, it can provide them with a significant advantage in intercountry economic competition.
  8. Based on specific historical conditions, it is necessary to determine the directions for achieving a balance of interests of all parties covered by the processes of transnationalization of production to look for more acceptable forms of problem-solving.
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