4.4 Flashcards
Multinational company definition
A business that is registered in one country but has manufacturing operations/outlets in different countries
3 adv 3 dis of MNCs on Employment, Wages and Working conditions
ADV
MNCs lead to job creation for the local community
MNCs may offer more competitive wages that the local business
MNCs may offer better working conditions than local business
DIS
MNCs may exploit local workers if employment regulation is weak or not enforced
MNCs tend to establish facilities in regions where labour costs are lower and thus pay relatively low wages
May not create jobs for local workers as they may relocate workers from their own country to work abroad
2 adv dis of MNCs for local businesses
Can help to boost the local economy - higher wages - higher spending
May be potential for joint ventures with MNCs who wish to gain knowledge of local market - local firms may learn new skills and production methods
DIS
MNCs reduce supply of workers available likely due to higher pay and better working conditions
MNCs likley to be able to produce at a lower cost and compete with local businesses, thus losing customers
3 adv 2 dis of MNCs on local communities and environment
Local residents may benefit from job opportunities and growth in the local economy
MNCs often invest to improve infrastructure
Better roads, transportation and access to water and electricity would help the local community in addition to helping the MNC operate more efficiently
MNCs may have to pay taxes and business rates to local councils/ authorities
These funds may be reinvested back into the local community
DIS
MNCs may cause damage to local habitats/environment during production process
MNC’s may leave unsightly production facilities behind once they have extracted all of the resources and left the country
ADV and DIS of FDI flows from MNCs on national economy
ADV
There is an initial lump sum of money that enters the country to pay for the investment
This money enriches local firms or citizens who now have more money available to spend in the economy
If this money is reinvested back into the local economy, it may help to generate new jobs and boost economic growth
DIS
Assets from the home country are now owned (or partly owned) by foreign businesses
The local firms or individuals who have sold the asset, may not reinvest the money into the local economy but may move it abroad/offshore
How MNCs will impact Balance of payments
Improve as goods and services exported by the MNC will generate further inflows to the country’s balance of payments
BUT -
If the MNC buys raw materials or equipment abroad (imports), there is a flow of money out of the country
If the MNC send profits back to their home country, it will also represent a flow of money out of the country
How MNCs impact Technology and skills transfer
MNCs can bring new technologies and skills to local businesses
This will help to improve efficiency and productivity, helping domestic businesses to become more competitive in the national and international market
Impact on consumers of MNCs
Customers in countries which host MNCs benefit from:
A wider choice of goods and services
Lower prices if MNCs pass their cost advantages on in the form of lower prices
Better quality of goods and services
Improved living standards as people may have higher incomes due to the job creation and the resulting reduction in unemployment
However in the long run, MNCs can push domestic businesses out of the market leaving customers with less choice
This may lead to MNCs exploiting customers with higher prices and low quality products as they have limited choice
ADV and DIS of MNCs on business culture
Domestic firms may be influenced by business culture of MNCs such as Kaizen
MNCs may encourage a culture of entrepreneurship
However,
May demonstrate unethical behaviour, encouraging local firms to also ignore working conditions
Impact on Tax revenue by MNCs
There is the potential for the host country to gain significant tax revenue
Governments can use tax revenue paid by MNCs to invest in improving public services and infrastructure
However, MNCs seek to maximise profits and will try to reduce their tax liabilities
Transfer pricing is a method used by MNCs to shift profits from where they are generated to countries with lower tax rates
This is a method of tax avoidance and means that the businesses will pay less tax in the host country
Define business ethics
The principles and norms that govern business behaviour
The ethics of a business will determine how they operate and their decision making process
3 stakeholder conflicts
Managers VS workers
Management may be more focussed on output or reducing costs, than on worker safety or creating a positive working environment
Workers want to be safe and have a comfortable environment in which to work
Management vs Owners
The owners (shareholders) want management to maximise the business profits and, for example, be less interested in the mental well-being of the employees
The management work daily with the employees and will often sacrifice some profit in the interest of looking after their workers health and mental well-being
Company Profits V Resource Depletion
The owners (shareholders) aim to maximise output so as to generate increasing levels of profit
Higher output requires more rapid usage of natural resources and generates more environmental damage
2 factors to consider about a firm’s supply chain (ethics)
- Child labour
- Exploitation of labour ( low wages and poor working conditions)
2 factors to consider when Marketing (ethics)
Misleading labelling - must comply with regulation of the country
Inappropriate promotional activities - should not be offensive or illegal
Factors to consider when using Political influence to control MNCs
Political institutions enforce laws and regulations which businesses need to adhere to
When MNCs establish themselves in a new country, they must work within the institutional framework of that country
MNCs in developed countries are often able to exert pressure on national governments through lobbying to create favourable conditions for their business
Another common issue occurs when politicians may occupy roles on the board of directors for an MNC after retiring in return for reducing political control on the MNC whilst they are in power
MNCs in developing countries can influence governments as they may establish deals which are beneficial to politicians
Bribes may be paid to secure lucrative contracts
