1.6 Multinational Companies Flashcards
Define globalisation
increasing economic integration of different countries through ⬆️ freedoms in the cross-border movement of: people, g.&.s., technology & finance.
—> facilitates businesses entry to new markets, allowing it to grow its brand + operations
Define a Multinational Company
company that operates in at least one other country other than its home country or is legally registered in more than one country.
Adapt to local needs while leveraging global resources & cost advantages
State 2 features of a multinational company (MNCs)
- Global presence: operate in multiple countries
- Adaptations to global markets: customised products to suit tastes + preferences of consumers in different countries
What is an FDI
foreign direct investment, host country wants to boost FDI from MNCs
Benefits of Operating Internationally
✅ Economies of scale
• ⬇️ unit costs = ⬆️ profit margins
✅ Brand recognition
• Global presence = improved loyalty + repeat customers
✅ Spreading risks
• Global operations = ⬇️ exposure to downturns in one market
✅ Increased customers
• More markets = more potential revenue
✅ Extending product life cycle
• Selling in new markets = delays decline of aging products
Benefits of Multinational Corporations (MNCs)
✅ Economies of scale
• Operating globally = ⬆️ output → ⬇️ unit costs
✅ Increased profit
• Profits can be repatriated to home country → benefits MNC & shareholders
✅ Employment creation
• New jobs in host countries → ⬆️ income & living standards
✅ New markets
• Able to identify new customer bases → ⬆️ revenue potential
✅ Transportation efficiency
• Setting facilities closer to customers → ⬇️ transportation costs
✅ Risk management
• Global sales = ⬇️ dependency on one market → ⬇️ risk of failure
✅ Tax incentives
• May operate in low-tax countries → ⬆️ retained profits
✅ Cost advantages
• Can locate production in low-cost labour countries → ⬇️ wage expenses
Advantages of MNCs on Host Countries
✅ Boosting local economy
• MNCs create jobs and business opportunities → stimulates economic activity
✅ Improving infrastructure
• Investment in transport, utilities, and facilities also benefits local community
✅ Economic growth
• Injection of capital and payment of taxes = ⬆️ national income (GDP)
✅ Technology & skill transfer
• MNCs bring training, expertise, and new technologies to the local workforce
Disadvantages of MNCs on Host Countries
❌ Exploitation of local workers
• May occur if local labour laws are weak → poor wages or working conditions
❌ Negative impact on local businesses
• MNCs can produce at lower costs → outcompete domestic firms
❌ Environmental damage
• Operations may harm local environment → pollution, waste, overuse of resources
❌ Profit repatriation
• Profits may not be reinvested locally → sent back to home country instead
