4.4 Flashcards
Multinational
A company that operates in its home country, as well as in other countries around the world
- Maintains central office located in one country, which coordinates the management of all its other offices
Features of a multinational
- High assets value and turnover
- Network of branches
- Rapid growth
- Use of technology
- Management skills
- Advertising spend
Reasons for multinational growth
- To operate closer to target international markets (reduces transport costs and improves market info and intelligence)
- Gaining access to lower costs of production (outsourcing/offshoring)
- Avoiding protectionism
FDI
- Foreign direct investment of foreign money into domestic structures, equipment, infrastructure etc
- Creates direct, stable and long-lasting links between economies
- Encourages transfer of tech etc so countries develop faster
Positive effect of MNC’s
- Creates employment
- Increases skills base
- Increased standard of living
- Raises the country’s profile
- Improve infrastructure
- Improves balance of payments
Negative effects of MNC’s
- Profit leakage
- Low paid jobs
- Interfere in politics
- Poor H&S
- Increased urbanisation
- Widens poverty gap
Ethical business behaviour
- Moral guidelines which govern good behaviour
Issues related to the ethical behaviour of multinationals
- Pay and working conditions
- Environmental damage
- Exploitation of labour
- Inappropriate marketing claims
- Stakeholder conflicts
Advantages of ethical behaviour
- Higher revenue (demand from positive consumer support)
- Improved brand (business awareness and recognition)
- Better employee motivation and recruitment
- New sources of finance - e.g. from ethical investors
Disadvantages of behaving ethically
- Higher costs (sourcing from fairtrade suppliers rather than lowest price)
- Higher overheads (training & communication)
- A danger of building up false expectations (window dressing)
CSR corporate social responsibility
- refers to a business considering and taking responsibility for its effects on the environment and its impact on social welfare
- Many businesses have responded to growing concerns of CSR by auditing their activities
Indicators of CSR
- Human right indicators
- Communities
- Business integrity & ethics
- Product responsibility
- The environment
Why multinationals need to be controlled?
- To prevent abuse of market power
- To ensure that environmental damage is reduced
- To ensure that MNCs pay a fair amount of tax
- To protect rights of workers
- To ensure that MNCs behave ethically
How multinations can be controlled
- Legal challenges/rulings/court cases brought by governments against MNCs
- Campaigns by pressure groups to change the actions of MNCs
- Adverse media coverage that mobilises public opinion against MNCs
- Use of social networks to organise a boycott that could hit sales
How much control do governments have over MNCs
- Strong governments in large countries can restrict the actions of MNCs
- less developed countries have less power as they need MNCs to help development
- All countries find it difficult to collect taxes from MNCs due to use of tax havens and subsidiary companies
- MNCs pay political lobbyists to influence law makers
How much control do pressure groups and social media have over MNCs
Pressure groups formed by concerned individuals to attempt to change behaviour of MNCs
- Lobby the government to demand change
- Publicity stunts to draw attention to issues
- Consumer boycott
- Set up campaigns to change public opinion
- Aim to damage reputation of MNCs
Transfer pricing
When a business avoids tax by transferring sales from one country to another with lower corporation tax
