Final answer:
The question of whether establishing a new subsidiary is less expensive for MNCs compared to acquiring a foreign subsidiary depends on several factors. While MNCs can offer better pay and benefits compared to local businesses, there are concerns about labor exploitation and impact on host countries. The ultimate decision for MNCs involves assessing both the potential costs and strategic benefits.
Step-by-step explanation:
The establishment of a new subsidiary is commonly considered by MNCs because the cost can sometimes be less expensive than acquiring a foreign subsidiary of the same size. However, this is not always true as the decision to establish a new subsidiary versus acquiring an existing one depends on various factors, including the cost of entry, competitive dynamics, and strategic objectives. When multinational corporations (MNCs) operate in developing countries, they often provide higher wages and better benefits than local businesses, which can make establishing a new subsidiary in those locations financially appealing.
Proponents of MNCs argue they keep the price of consumer goods down and create jobs in poorer countries, contributing to infrastructure and economic development. However, there are significant drawbacks to MNC operations, such as the tendency to prevent union formation, long working hours, and unsafe working conditions. Additionally, practices like subcontracting make it difficult for MNCs to ensure fair wages and safe working conditions, which exacerbates issues relating to labor exploitation.
MNCs are driven by profit motives, and this can lead to them prioritizing private over public goods, even if it involves exploiting labor and resources in developing countries. On the other hand, supporters claim that MNCs contribute to the local economy by providing industrial jobs, investing in infrastructure, and leading to technology spillovers.