3.4 Impact of Globalisation on Local and National Economies Flashcards
What is an MNC
A multi-national corporation - A business that runs in more than one country, whether it be distribution, manufacturing or development
What are the positive impacts of MNCs on the local economy? (3)
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
What are the negative impacts an MNC may have on the local economy? (5)
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
What are the positive impacts an MNC may have on the national economy? (5)
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
What is the main negative impact an MNC may have on the national economy?
Transfer pricing/ repatriated profits
How do MNCs increase FDI and improve the balance of payments?
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
Define technology transfer
When foreign businesses locate in emerging economies they bring new technology and new methods of production which are more efficient and therefore, more competitive
Define transfer pricing
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
What is the stakeholder vs shareholder model
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
What is ethical decision making?
Following codes of practice that embody moral values. Honesty and integrity is paramount.
What is CSR
Corporate social responsibility - Where the company takes on its responsibilities and sees to the needs of everyone
Define exploitation of labour
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)
What marketing considerations should MNC consider
Labelling is accurate and not misleading
Relevant to that culture, inoffensive
What is the impact of behaving ethically in short term and long term?
Short term - Increased costs, reduced profitability
Long term - Increased reputation and competitive advantage which may increase revenue/profits
Why are MNCs hard to control?
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
What measures are in place to control MNCs (7)
Pressure groups ILO - International labour organisation, set working standards Public opinion Social media/internet Self-regulation Government regulation
What do controlling methods of MNCs depend upon
The size/power of host government
Size of the MNC
Importance of MNC to country (in terms of later economic growth)
What are pressure groups
Organisations which attempt to influence public opinion and the government, usually regarding ethical concerns
Give an example of how a pressure group has made an impact and whether that impact has lasted
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
Give an example of how an MNC has got away with regulations, until its too late
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
What does the impact of pressure groups depend upon
The strength of public opinion
The degree to which public opinion matters to the MNC
The vigour of the pressure group
Why do the main ethical issues lie with sub-contracting?
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
