Disadvantages of incorporating a Multinational Corporation (MNC)
While there are many advantages gained by a multinational corporation (MNC), there are also a list of downturns they need to be aware of.
1. Loss of sovereignty
This is one of the most well-known disadvantages faced by MNCs. They might be economically powerful, but at the end of the day, they are required to stick to the host countries rules and regulations.
The policy makers will be protecting their own interest and, in the end, resulting for MNC to lose their sovereignty and independency.
Unless the Company is producing something no one can replicate such as Tesla, Inc. then of course there are competition in every country. Once the Company has opened the opportunity for the local to learn about their products, there is a high chance for them to replicate it and rebrand it within the local market for cheaper price.
This results in MNC requiring to invest more on their market developments, promotions, and R&D.
3. Economic exploitation
A Company is incorporated with the aim to gain profit. No one wants to invest into something that does not gives them anything in return. Hence, economic exploitation of host countries is often the case by excessive use of natural resources and raw materials.
They pay low wages to local employees with the exchange of selling their products at high price to exploit consumers. This indirectly make policy makers to lower the bar of their national minimum wage to keep attracting foreign investors such as what happens in Philippines, India and Indonesia.