Multinational corporations have assets or facilities in at least one additional country than its domestic location. These assets may include offices or factories, which are then managed at a centralized location within the home country. Some multinational corporations are so large that their annual budget exceeds some small nations.
Most multinational corporations are based in the United States, Japan, or Western Europe. The largest multinational corporation in the world in 2018 was Walmart, with an estimated value of $482.1 billion. All of the top 10 multinational corporations have an actual value of more than $200 billion.
Here are the pros and cons to consider when evaluating multinational corporations.
List of the Pros of Multinational Corporations
1. They create consistent experiences for consumers.
If you visit a Walmart, then you have a reasonable expectation of what you’ll find there, no matter what country you happen to be in. There will be regional variations of the products sold within the store, of course, but there will also be familiar items. That is because large multinational corporations are able to leverage their size to create consistent pricing for consumes at every location.
2. They can enforce minimum quality standards.
Vendors want to do business with multinational corporations because it allows them to enter new markets or contact new demographics for their goods or services. Multinational corporations improve the consumer experience because they naturally enforce minimum quality standards on the goods and services they make available. If a vendor doesn’t deliver something of a proper quality, the corporation will find another supplier who will.
3. They create jobs.
Multinational corporations operate based on the living standards of each location. Let’s take Information Technology as an example here. Walmart might pay an IT specialist in the United States about $60,000 per year for their expertise. If Walmart were to hire an IT specialist in India, they might pay that person $12,000 per year. Both employees would receive a comparable lifestyle with their salary. That means multinational corporations create jobs that meet or exceed local expectations.
4. They inspire innovation.
Most multinational corporations designate a certain percentage of their budget, usually between 2%-6%, for research and development. Although that may not seem like much, a 2% investment from $1 billion in overall profits is still $2 million. That is why many of the innovative products that we use today have come from the world of multinational corporations. They pay for the creativity that inspires tomorrow’s inventions.
5. They fuel cultural and ethnic awareness.
Multinational corporations become successful when they are able to be in multiple markets with different cultural and ethnic requirements. They serve as a bridge between the various cultures they serve, helping their customers become aware of the diversity that strengthens the world. With this influence, multinational corporations can have a positive influence on other businesses, in politics, and in the general welfare of people at the local level.
List of the Cons of Multinational Corporations
1. They can limit consumer options.
Multinational corporations make the world a smaller place. That fact can be beneficial, though it is usually harmful to the local consumer. Big companies make it difficult for small companies to stay competitive. That forces smaller companies, entrepreneurs, and freelancers into niche areas of their preferred industry. If they grow big enough, the larger corporation might decide to buy them out instead. Walmart owns more than 6,200 units internationally, including brands like Ekono, Maxi Pali, and Best Price Modern Wholesale.
2. They can exploit local workers because of local conditions.
Is it truly ethical to pay someone in the United States $60,000 and someone in India $12,000 for the exact same services? Multinational corporations tend to follow local rules when it comes to employment opportunities. That means what may be acceptable in one location is permitted to occur, even if it may not be acceptable in the country’s home location. According to Amnesty International, numerous large brands, such as Kellogg’s, use products that come through child labor practices.
3. They can bankrupt local businesses.
Multinational corporations may provide new opportunities for some markets, but they do so at the expense of the current businesses already operating in that space. Being able to offer low prices comes at a high cost. Even when brands have an established name, retail pricing efforts can disrupt the entire supply chain. Vlasic discovered this first-hand when Walmart began selling 1-gallon jars of pickles for just $2.97. Their share of business through Walmart climbed to 30%, but their profits reduced by more than 25%. In January 2001, the company filed for bankruptcy.
4. They look for monopoly opportunities.
When Walmart finally decided to stop selling the 1-gallon jar of pickles, the response when something like this: “We’ve done to pickles what we did to orange juice. Now we can move on.” Large companies look for opportunities to monopolize markets. In doing so, they drive the competition away, allowing them to set their own prices on items. Over time, this actually reduces economic growth, because consumers eventually pay more for less of what they need.
5. They might remove jobs from local economies.
If you could save $48,000 by transferring a job from the U.S. to India, would you do it? Now imagine the savings if you transfer 100 jobs at that rate. Or 1,000 jobs. Or 10,000 jobs. Multinational corporations use their size to create a race to the bottom when it comes to worker wages. They look for the best value possible. For many workers in high-value economies, that means their jobs either go away or they are forced to take a large pay cut to keep their position.
6. They enter a community at a high cost.
According to Forbes, Walmart workers in 2014 cost U.S. taxpayers a total of $6.2 billion in public assistance funds. That is because the wages they offered workers, though legal, was not enough to meet standard of living needs. A single Walmart in the U.S. could cost up to $1.75 million for local taxpayers. At the same time, in 2013, Walmart captured 18% of the SNAP food stamp market. That means they generated $13.5 billion in food stamp sales while not paying workers competitive wages.
These multinational corporation pros and cons give us a glimpse of what can happen when a few hold power over the many. When that power is ethically and morally wielded, then societies benefit from what can be accomplished. If that power is used for profit over anything else, then households are harmed by their activities. We need multinational corporations to accomplish our daily tasks. We also need to ensure that their power doesn’t grow so great that it overwhelms who we are or what we do.
Blog Post Author Credentials
Louise Gaille is the author of this post. She received her B.A. in Economics from the University of Washington. In addition to being a seasoned writer, Louise has almost a decade of experience in Banking and Finance. If you have any suggestions on how to make this post better, then go here to contact our team.