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Although globalization has brought with it a lot of benefits, it can sometimes have adverse effects as well. In this chapter, we will discuss how a country gets adversely affected by allowing multinationals to flourish.
Adverse Effects on Economy
When two countries get engaged in an international business, one country’s economic condition affects the economy of the other country. Large-scale exports also hamper and discourage the developments in industrialization of the importing country. Therefore, the economy of the importing country may feel the heat.
Due to internationalization, all countries come to a single platform of business. As developing countries cannot compete with the developed ones, the growth and development of the developing nations get affected. If the developing countries do not regulate international business, it may be detrimental for their economies.
Rivalry among Nations
Globalization has increased the level of competition among countries. Due to intense competition and eagerness to get an upper-hand in exporting more commodities, sometimes the nations may come across unhealthy business circumstances. It may lead to rivalry among nations, diminishing international peace and harmony.
Heavy exporters often undermine the issues of the importing nation. If the importing country depends too much on the imported products, it may turn into a colony. Overt economic and political dependence on the exporting nation coupled with industrial backwardness may harm the importing nation.
Developed countries, due to their economic prowess, may try to exploit the developing and third-world countries for their business motives. As the prosperous and dominant nations usually tend to regulate the economy of poor nations, international business may lead to exploitation of developing countries by the developed countries.
International businesses may also create various legal problems. It is a fact that there are many legal aspects of international business. The international business organizations may sometimes neglect these laws and indulge in illegal activities. Varied legal regulations and customs formalities are followed by different countries. This affects export and import and general trade. Legal problems are common in many nations.
There are many cultural effects of internationalization. A multinational company may not be vigilant enough to pay attention to host country’s cultural, norms. As cultural values and heritages differ among countries, there are many aspects of international organizations, which may not be suitable for the host country. The atmosphere, culture, tradition, etc., get affected due to this.
Dumping is a real danger. As the industrially mature economies can produce and sell the products in cheaper rate than the home country, the products may be dumped in the less developed nations. This creates an unfair competition in the local markets. People often go for the cheaper priced items, being unaware that their own country and the industries may get destroyed due this type of dumping policies.
Shortage of Goods in the Exporting Country
As exporting brings enough profit, sometimes, traders may prefer to sell their products in a foreign country. The exporters may sell the good quality products in foreign nations even when there is a demand in the local markets. This often results in shortage of quality goods within the home country.
Adverse Effects on Domestic Industry
International business poses a threat to the survival of small-scale industries. As the big companies have enough muscle power, they do not let the start-ups compete and add value. Due to such kind of unfair foreign competition and unrestricted imports, the start-ups in the home country find it difficult to survive.