Final answer:
The agency costs of an MNC are likely to be lower with a centralized management style that allows for more effective control and oversight over geographically diverse operations, counteracting the complexities that can increase agency costs. Option 3 is the correct answer.
Step-by-step explanation:
The agency costs of a Multinational Corporation (MNC) are likely to be lower if they use a centralized management style. Agency costs refer to the costs associated with resolving conflicts of interest between managers and shareholders, and in ensuring that managers act in the shareholders' best interests. While scattering subsidiaries across many foreign countries may increase the complexity and potential for high agency costs, a centralized management style can mitigate these costs through more rigorous control and oversight.
Proponents of MNCs often highlight the economic benefits, such as creation of jobs, infrastructure improvements, and introduction of new technologies, all of which can contribute to a rise in the standard of living in the host countries. However, critics argue that MNCs can exploit labor and resources due to lax regulations in developing nations, focusing on profit maximization over social and public goods.
Ultimately, whether an MNC scatters its subsidiaries or increases international business volumes, it is the management style that plays a crucial role in the stewardship of the company's resources, and a centralized approach can help streamline decisions and reduce agency costs. This does not rule out the possible benefits of geographic diversification or expanding international operations, but these strategies need to be managed effectively to avoid increasing agency costs.