Yes profit is basic and primary objective for any Multinational Company or Domestic company, but how is the money made in profit used is lot different for these two? Foreign Direct Investment FDI) and Foreign Institutional Investment (FII) are the two main sources of foreign reserves for any country and thus they try their best to lure these money churning machines. By liberalizing the economy the host country allows the various Multinational Companies to establish and operate in its environment. Government of host county invest a lot to build basic infrastructure for these MNC’s and also provide them with a lot of other privileges like tax exemptions and subsidies. But is this a fair and a healthy deal for any host country? Let’s go through some of the facts given below:
The amount of investment done by FDIs and MNCs in the host country is just only upto 30% of the earnings which are required for just meeting the basic needs of the company like salaries to employees, procurement of raw material, transportation etc. and the remaining 67 to 90% in the home country and the money is invested in the research and development etc.
The subsidies and exemptions that the government offers for setting up the industries to the MNCs is also a major area of exploitation. The MNCs get the land for setting up the plant, raw material at the subsidized rates and also concession in various taxes. The MNCs take the advantage of these subsidies to minimize their production cost and eventually they sell the processed goods in the developed markets at higher cost for making huge amount of profits.
The MNCs also exploit the loop-holes in various accounting standards to make profits which are generally not apparent in the financial papers and generally goes unnoticed. For e.g. The MNCs show the Plant and machinery at a lower price to that of the original market price or show some additional liabilities like loans which never existed in real life to evade out money into the tax havens.
MNCs employed about 7 million peoples from the third world countries in 1992. In very few countries this amounts to more than 5% of economically active population, meaning that the direct impact of MNCs on employment is insignificant. Moreover the MNCs employ a significant number of foreigners, usually in the well paid positions. Such expatriates often relocate to these countries by the parent corporations to help manage the firm, are growing fewer but still makes up 0.5% of employment in America and about 3% in Japanese firms. So there is lower propensity to employ the local peoples then local firms do.
