Currently there has been a broad consensus that TNCs are efficient allocators of resources in the world economy. Further, they are also technological giants and innovators. Yet there are a large number of issues on which the controversies exist. They are:
a) The TNCs interest and the interest of host countries specially developing ones conflict with each other. TNCs produce products which are not very essential for host developing countries and thus they divert scarce resources away from production of necessary items.
b) The TNCs dominate high profit oriented consumer sectors. They monopolize profits of these sectors without providing any scope for local enterprises. This, they do through their market power which includes promotion of brand name, trade mark etc.
C) While the TNCs possess technology, they are extremely reluctant to transfer technology to the host country. Therefore, they make developing countries depend on TNCs for their technology. TNCs preserve all their important R & D in home countries.
d) In order to protect their market share they take recourse to restrictive business practices. These restrictive business practices include tying imports to specific sources of interests of TNCs, conditions of technology transfer, price fixation, exports restrictions, and restrictive use of brand names and trademarks.
e) Through the transfer pricing, the TNCs avoid paying taxes to government of host countries and thus transfer resources away from them. The TNCs also deprive the partners from host countries of their legitimate profits.
f) The TNCs do not appoint host countries personnel at higher positions.
g) The TNCs create balance of payments problems for the host developing countries through large imports and repatriation of huge dividends, royalty, technical and management fees.
h) The TNCs do not create necessary backward and forward linkages. This failure very often leads to non-industrialization of host countries.
i) The TNCs are not necessarily very efficient institutions. Lately, many of the giant TNCs have met with huge losses.
j) The TNCs increase their dominant power through mergers and acquisitions thus preventing the needed competition.
k) The TNCs have a tremendous capacity to influence their home governments and international organizations. This capacity enables them to promote national and international legal frameworks consistent with their needs at the cost of interest of many countries specially the developing ones.
The Home Country Perspective
While home countries promote their TNCs, their operations are not without criticism
i) The TNCs divert resources away from their home countries without paying adequate taxes.
ii) The TNCs establish production centers in those countries where cheap labour is available thus creating unemployment in the home countries.
iii) The TNCs also often violate environmental considerations by establishing industries in many countries where environment regulations are lax. This leads to
(a) Global environment problems and
(b) Import of environmentally hazardous goods.
Currently, however, the supporters of TNCs argue that these criticisms are exaggerated and not based on adequate evidence. They argue that TNCs assist host developing countries to develop. Very often they refer to the economic development of Malaysia, Thailand and some Latin American countries. The late eighties and nineties are considered to be a period of cooperation between governments and TNCs.
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