ISSUES AND CONTROVERSIES OF-TNCs

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MASTER OF COMMERCE – M.Com First Year (IBO) Solved Assignments for July 2019 and January 2020 Admission Cycles

IBO Tutor Marked Solved Assignment

Course Code: IBO – 01
Course Title: International Business Environment
Assignment Code: IBO-01/TMA/2019-20

Coverage: All Blocks

IBO – 01 International Business Environment Solved Assignment for 2019-20

Q5.)Write notes on the following : 

ii) Issues and controversies of Transnational Corporations

ISSUES AND CONTROVERSIES OF-TNCs

Currently, there has been a broad consensus that TNCs are efficient allocates 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 that are not very essential for host developing countries and thus they divert scarce resources away from the production of necessary items.

b) The TNCs dominate high profit-oriented consumer sectors. They monopolize the profits of these sectors without providing any scope for local enterprises. This, they do through their market power which includes the promotion of brand name, trademark, etc. 

C) While the TNCs possess the 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) 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, export restrictions, and restrictive use of brand names and trademarks. 

e) Through the transfer pricing, the TNCs avoid paying taxes to the government of host countries and thus transfer resources away from them. The TNCs also deprive the partners of host countries of their legitimate profits. 

f) The TNCs do not appoint host country personnel at higher positions. 

g) The TNCs create the 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 the necessary backward and forward linkages. This failure very often leads to the 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 especially 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 labor is available thus creating unemployment in the home countries. 

iii) The TNCs also often violate environmental considerations by establishing industries in many countries where environmental regulations are lax. This leads to 

(a) Global environmental 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.