Role played by MNCs in facilitating free

trade and reducing trade barriers

among countries
Group 2 - Roll No 10 to 18

What are Multi national companies ?

Multinational corporations (MNC) or multinational enterprises (MNE)are organizations
that own or control production or services facilities in one or more countries other than
the home country.

For example, when a corporation is registered in more than one country or has
operations in more than one country, it may be attributed as MNC. Usually, it is a large
corporation which both produces and sells goods or services in various countries.
MNCs are playing a major role in the globalization process
More and more goods & services, investments and technology are moving between
countries
Most regions of the world are in closer contact with each other than a few decades back

How do MNCs facilitate free trade and

reduce trade barriers among countries?
1. MNCs help a developing host country by increasing investment, income and
employment in its economy

2. They contribute to the rapid process of development of the country through

transfer of technology, finance and modern management
3. MNCs promote professionalization management in the companies of the
host countries
4. MNCs help in promoting exports of the country

5. MNCs by producing certain required goods in the host country help in

reducing its dependence on imports.
6. MNCs due to their wide network of productive activity equalize the cost of
production in the global market
7. Entry of MNCs in the host country makes its market more competitive and
break the domestic monopolies

Facilitation of free trade and reduction in

trade barriers among countries Contd
8. MNCs accelerate the growth process in the host country through rapid
industrialization and allied activities
9. The growth of MNCs creates a positive impact on the business environment
in the host country

10. MNCs are regarded as agents of modernization and rapid growth

11. MNCs are the vehicles for peace in the world. They help in developing cordial
political relations among the countries of the world
12. MNCs bring ideas and help in exchange of cultural values
13. MNCs through their positive attitude and efforts work for the establishment
of social welfare institutions and improvement of health facilities in host
countries

14. Growth of MNCs help in improving the balance of payment status of the host
country

MNCs play an important role in the

economic development of the
underdeveloped countries
Filling Savings Gap:

The first important contribution of MNCs is its role in filling the

resource gap between targeted or desired investment and domestically
mobilized savings.
For example, to achieve a 7% growth rate of national output if the required
rate of saving is 21% but if the savings that can be domestically mobilized is
only 16% then there is a saving gap of 5%. If the country can fill this gap with
foreign direct investments from the MNCs, it will be in a better position to
achieve its target rate of economic growth.

MNC Positives
Filling Trade Gap:

The second contributions relates to filling the foreign exchange or

trade gap. An inflow of foreign capital can reduce or even remove the deficit
in the balance of payments if the MNCs can generate a net positive flow of
export earning.

Filling Revenue Gap:

The third important role of MNCs is filling the gap between targeted
governmental tax revenues and locally raised taxes.

By taxing MNC profits, LDC governments are able to mobilize public financial
resource for development projects.

MNC Positives
Filling Management/Technological Gap:

Fourthly, multinationals not only provide financial resources but they

also supply a package of needed resources including management
experience, entrepreneurial abilities and technological skills. These can be
transferred to their local counterparts by means of training programs and the
process of learning by doing.
Moreover, MNCs bring with them the most sophisticated technological
knowledge about production processes while transferring modern machinery
and equipment to capital poor LDCs. Such transfer of knowledge, skills and
technology are assumed to be both desirable and productive for the recipient
country.

Other benefeficial roles:

The domestic labor may benefit in the form of higher real wages
The consumers benefits by way of lower prices and better quality products
Investments by MNCs will also induce more domestic investment
MNCs expenditures on research and development (R&D), although limited is
bound to benefit the host country