4.4 Flashcards
Multinational company (MNCs)
Business that operates in one country but has facilities and assets in more than one
Why MNCs may need controlling
- Protect against exploitation
- Discourage resource depletion
- Ensure local culture is protected
- Discourage use of market power
Reasons for rapid MNC growth
- Seek to drive revenue/profit in emerging economies
- Search for Economies of scale to reduce unit costs
- Needs to supplement weak demand in existing/developing countries
- Avoid protectionism - operating in different countries
Increase takeover activity
Pros/Cons to countries where MNCs operate
Advantages:
+ Provide employment/training (more opportunities)
+ Transfer skills/expertise
+ MNCs add to country’s GDP
+ Competition incentive for domestic firms
+ Source of tax revenue
+ Extend consumer/business choice (more options)
Disadvantages:
- Domestic businesses may not be able to compete
- MNCs ,ay not feel like they have to meet expectations
- Accused of imposing their culture on host country
- Profits (MNCs) may go back to base country not host
- MNCs may make use of transfer pricing and other tax avoidance measures
Influence of pressure groups to control MNCs
- Pressure groups – External stakeholders
- Tend to focus on activities and ethical practice of multinationals/ industries with ethical issues
- Combination of direct and indirect action can damage the target business or industry
They may do this by:
- Naming and shaming via social media
- Direct actions – Use of demonstrations, protests and strikes
- Lobbying – Taking issues directly to the government
- Would an MNC respond to pressure groups?
Pros and cons of pressure groups
Benefits:
- Enlist committed people including volunteers
- Alerts politicians and authorities
Drawbacks:
- Campaigns may be ill-formed or misguided
- Direct action could lead to violence
Ethics
Moral guidelines which govern good behaviour
Ethical considerations to make
Environmental considerations:
- Emissions
- Waste disposal
Supply chain considerations:
- Exploitation of labour
- Child labour
Marketing considerations:
- Misleading product labelling
- Inappropriate promotional activities
Ethics in global business
Ethics: Moral guidelines governing ‘acceptable behaviour’ (Doing what is morally correct)
Common MNC ethical issues:
- Staff pay/working conditions
- Marketing
- Supply chain management
- Environmental impact
Business/supply chain ethics
Business: Cannot claim to be ethical if it ignores unethical practises by suppliers e.g.
- Child labour
- Violation of workers rights
- Health/safety/environment
Businesses have to be concerned with the behaviour of the following:
- Suppliers
- Contractors
- Distributors
- Sales agents
Ethics pros and cons
+ Higher costs (fair trade suppliers)
+ Improved brand/business awareness
+ Better employee motivation/recruitment
+ New financial sources (ethical suppliers)
- Higher costs (fair trade)
- Overheads (communication/trining for ethical policy)
- Danger of building high expectations
