3.4 Impact of Globalisation on Local and National Economies

Question 1

What is an MNC

Answer 1

A multi-national corporation - A business that runs in more than one country, whether it be distribution, manufacturing or development

Question 2

What are the positive impacts of MNCs on the local economy? (3)

Answer 2

Employment - people are needed to fill certain job roles. This creates a multiplier effect because people have more disposable income and spend more, increasing demand and profits, which creates more jobs.

Efficiency methods are met which introduces new production methods such as JIT

Technology transfer - economic growth

Question 3

What are the negative impacts an MNC may have on the local economy? (5)

Answer 3

Small businesses suffer - no economies of scale for them and competition is hard, may close down

Businesses don’t always recruit locally

Wages may be low and workers are exploited

Pollution

May destroy the native culture

Question 4

What are the positive impacts an MNC may have on the national economy? (5)

Answer 4

Tax revenue increased (corporate & income from new workers) so, government spending increases, living standards rise

Economic growth from a higher GDP

Unemployment benefits reduce

Increases FDI

CSR policies could bring benefits

Question 5

What is the main negative impact an MNC may have on the national economy?

Answer 5

Transfer pricing/ repatriated profits

Question 6

How do MNCs increase FDI and improve the balance of payments?

Answer 6

Exports may increase which improves the BofP
As the economy develops, more tourists come
If one MNC brings FDI, others are likely to follow suit
The more FDI there is the stronger the currency becomes, therefore living standards rise as imports are cheaper

Question 7

Define technology transfer

Answer 7

When foreign businesses locate in emerging economies they bring new technology and new methods of production which are more efficient and therefore, more competitive

Question 8

Define transfer pricing

Answer 8

When one part of an MNC in one country sells goods in another country. This means the taxation in the country they profit in is lower and they pay lower taxes

Question 9

What is the stakeholder vs shareholder model

Answer 9

Shareholder model primarily focuses on objective of profit maximisation and increasing their dividends

Stakeholder model looks at all the needs of each stakeholder and tries to satisfy as many of these as possible

Question 10

What is ethical decision making?

Answer 10

Following codes of practice that embody moral values. Honesty and integrity is paramount.

Question 11

What is CSR

Answer 11

Corporate social responsibility - Where the company takes on its responsibilities and sees to the needs of everyone

Question 12

Define exploitation of labour

Answer 12

Paying employees less than the value of what they produce. An abuse of power can lead to poor working conditions and even child labour in some cases (Primark)

Question 13

What marketing considerations should MNC consider

Answer 13

Labelling is accurate and not misleading

Relevant to that culture, inoffensive

Question 14

What is the impact of behaving ethically in short term and long term?

Answer 14

Short term - Increased costs, reduced profitability

Long term - Increased reputation and competitive advantage which may increase revenue/profits

Question 15

Why are MNCs hard to control?

Answer 15

Transcend national boundaries
There is no world government/court that decides upon their actions
Emerging economies lack the same regulation and actually in the long term may benefit economically, and so they let certain ‘wrongdoings’ slide to avoid risk to their reputation

Question 16

What measures are in place to control MNCs (7)

Answer 16

Pressure groups
ILO - International labour organisation, set working standards
Public opinion
Social media/internet
Self-regulation
Government regulation

Question 17

What do controlling methods of MNCs depend upon

Answer 17

The size/power of host government
Size of the MNC
Importance of MNC to country (in terms of later economic growth)

Question 18

What are pressure groups

Answer 18

Organisations which attempt to influence public opinion and the government, usually regarding ethical concerns

Question 19

Give an example of how a pressure group has made an impact and whether that impact has lasted

Answer 19

A campaign made against Nestle, KitKat advert, social media influence which targeted Nestlé’s damage to the environment by extracting palm oil and causing deforestation. This gained a lot of attention and they said they would stop buying palm oil from Sinar Mas. However, now they’re out of the limelight, they’ve gone back to buying from them

Question 20

Give an example of how an MNC has got away with regulations, until its too late

Answer 20

Rana Plaza in Bangladesh in 2013
1,137 people died due to poor health and safety standards, they were by passed because of the employment and growth it was bringing to the Indian emerging economy

Question 21

What does the impact of pressure groups depend upon

Answer 21

The strength of public opinion
The degree to which public opinion matters to the MNC
The vigour of the pressure group

Question 22

Why do the main ethical issues lie with sub-contracting?

Answer 22

Companies don’t always know or make effort to look into what companies they outsource to and pass the blame onto them if a scandal comes out