1.6 Flashcards
what is globalisation in business?
Globalization is defined as the growing integration and interdependence of the worlds economies. With globalization, economic and political decisions taken in one region of the world will affect those in other parts of the world.
This a concept that has been changing during time. Specifically, intensity, scale and economic value of goods and services being exchanged nowadays is in a completely different magnitude as in earlier periods.
what are transnational business?
Also, globalization is now characterized buy a small number of “post-national” business. These types of business are legally registered in one “home” country but are mainly transnational business.
what are some characteristics of a transnational business?
These transnational business market their products to a world audience. Consumers around the globe recognize the brands or the products (i.e. Mc Donald’s)
They will do business wherever they can do business and the loyalties belong to the company and NOT to the host country
what are the main impacts of globalization in domestics business?
Increased competition – forces domestic business to be more efficient . This “greater efficiency” leads to cheaper prices on goods and services for consumers. This could be dangerous since sometimes domestic business just use wage/productivity to be more efficient
Greater brand awareness – domestic business need to compete with big brands so they will have to emphasize their local production” as a selling point. Basically, they need to create a Unique Selling Point (USP) that will make them more competitive.
Skills transfer – foreign business always need to use “local labour” , they will learn from them but the local workers will learn from the forewing company as well. It is a two-way transfer knowledge.
Closer collaboration – domestic producer can create new business opportunities in the form of Joint Ventures, Strategic Alliances or Franchises.
What is a Multinational Corporation (MNC)?
It is a business that operates in more than one country or is legally registered in more than one country. It could be small or large, it doesn’t matter if the term Multinational is used.
Big companies are not necessarily MNC but small companies can be , as long as they operate in more than none country.
MNCs are the biggest type of business and sometimes they make greater revenues than the country they operate in.
MNCs grow very fast due to four main factors, what are they?
Improved communications – transport, distribution and obviously ICT.
Dismantling of trade barriers – this allows the free movement of raw materials and also finished products
Deregulations of the worlds financial market – this allows easier transfer and funds and also tax avoidance
Increasing economic and political power of the MNCs – which benefits the companies that work specially in middle and low income countries
What is a host country?
A host country is any country that allows any MNC to set up in their country.
Besides the reasons for MNCs to grow, they have various impacts on the host countries. Of course, some are positive and some are negative.
what are some Potential advantages of MNCs on Host Countries?
Provision of significant employment and training to the labour force in the host country
Transfer of skills and expertise, helping to develop the quality of the host labour force
MNCs add to the host country’s GDP through their spending, for example with local suppliers and through capital investment
Competition from MNCs acts as an incentive to domestic firms in the host country to improve their competitiveness, perhaps by raising quality and/or efficiency
MNCs extend consumer and business choice in the host country
Profitable MNCs are a source of significant tax revenues for the host economy (for example on profits earned as well as payroll and sales-related taxes)
what are some Potential disadvantages of MNCs on Host Countries?
Domestic businesses may not be able to compete with MNCs and some will fail
MNCs may not feel that they need to meet the host country’s expectations for acting ethically and/or in a socially-responsible way
MNCs may be accused of imposing their culture on the host country
Profits earned by MNCs may be remitted back to the MNC’s base country rather than reinvested in the host economy.
MNCs may make use oftransfer pricingand othertax avoidancemeasures to significant reduce the profits on which they pay tax to the government in the host country
