4.4

Question 1

What is an MNC

Answer 1

When a business operates in more than one country

Tend to be quite large but some are bigger than others

Question 2

Positive impacts of MNCs

Answer 2

Provides jobs -> workers pay tax

Helps infrastructure

Train workforce

Question 3

Negative impacts of MNCs

Answer 3

Pay low wages

Negative environmental impact

Question 4

6 positive impacts of MNCs on a local economy

Answer 4

• creates employment
• increase skills base
• increase standard of living
• raises country’s profile
• improves balance of payments
• improves infrastructure

Question 5

6 negative impacts of MNCs on a local economy

Answer 5

• profit leakage
• low paid jobs
• pull out quickly
• poor safety records
• increases urbanisation
• widens poverty gap

Question 6

Explain further about why a positive impact of MNCs on the local economy is creating employment.

What does it depend on

Answer 6

Jobs available for local people -> reduces unemployment -> less drain on local resources e.g benefit system

Depends if there’s a benefit system in place.

Effect of this depends on how many jobs it creates and how big the MNC is. By having lower rates of unemployment -> higher levels of disposable income -> demand more goods + services -> benefits local businesses

Question 7

Explain further about why a positive impact of MNCs on the local economy is increases skills base

What does it depend on

Answer 7

we may use training schemes to train local workforce -> improve knowledge + expertise -> attract other businesses to locate there and take advantage of it.

Depends on quality of training schemes and job role

Question 8

Explain further about why a positive impact of MNCs on the local economy is increase of standard of living

What does it depend on

Answer 8

Increase in earnings -> increases tax paid within a country + gives more money to spend on services and infrastructure. Improve rate of ease of doing business

Depends on political environment, political party decides how much tax is spent on services

Question 9

Explain further about why a positive impact of MNCs on the local economy is raising country’s profile

Answer 9

If MNCs plan their moves carefully. This is known worldwide and the movement into a particular country is a statement about its pro - business environment and political stability.
Publicity -> encourages other businesses to locate there as they see the benefits

Question 10

Explain further about why a positive impact of MNCs on the local economy is improving balance of payments

Answer 10

Many goods made by MNCs are exported to other nearby countries -> increases amount of money earned by the country

Question 11

Explain further about why a positive impact of MNCs on the local economy is improving infrastructure

Answer 11

Improve communication links within a country -> benefits country
Could be country or business or both who funds this improvement in infrastructure

Question 12

Explain further about why a negative impact of MNCs on the local economy is profit leakage

Answer 12

Profits from factories or hotels run by the MNC go to the country in which the head office of the company is found.

Naturally businesses locate their head office where there is low corporation tax -> may be unethical as you pay the corporation tax rate of the country your head office is in even if you aren’t fully located there. However it can be seen as good business as you’re lowering costs

Question 13

Explain further about why a negative impact of MNCs on the local economy is low paid jobs

Answer 13

Mainly low paid jobs are provided for local people. Higher laid managerial jobs go to workers brought in from the head office country.

Yes they’re providing jobs but only low paid ones.

In long term if they’re training local people to become managers, it’s good but not if they don’t

Question 14

Explain further about why a negative impact of MNCs on the local economy is pull out quickly

Answer 14

In times of recession/ low sales, jobs of workers in the head office country are protected for longer than in other countries

They may just pull out of the country and if they’re developing, it would devastate the local economy

Question 15

Explain further about why a negative impact of MNCs on the local economy is poor safety records

Answer 15

Poorer countries often have poorer safety standards + governments are willing to turn a blind eye to breaking the standards that exist.

Links to ethics

Question 16

Explain further about why a negative impact of MNCs on the local economy is increasing urbanisation

Answer 16

MNCs usually found close or in urban areas. Hope of securing these jobs attract more people from rural areas to cities

Question 17

Explain further about why a negative impact of MNCs on the local economy is widens poverty gap

Answer 17

Although wages are low in factories, they’re higher than elsewhere. Increases the cost of living for all and the prices of goods rise

Question 18

4 positive impacts of MNCs on a national economy

Answer 18

• FDI flows
• balance of payments
• technology and skill transfer
• impact on consumers

Question 19

2 negative impacts of MNCs on a national economy

Answer 19

• impact on business culture

* impact on tax revenues and transfer pricing

Question 20

Explain further why a positive impact on MNCs on a national economy is FDI flows

What does it depend on

Answer 20

An MNC invests -> scale of investment significant.

Governments offer incentives for big companies to locate there -> subsidies + tax breaks attract investment -> reduces cost of production -> increases incentive to supply there.

May increase profit margins of business.

Depends on conditions of incentivisation -> weigh up pros and cons, is there legislation making it hard to invest

Question 21

Explain further why a positive impact on MNCs on a national economy is balance of payments

Answer 21

Inward investment will help a country’s balance of payments.
The investment will be a direct flow of capital into the country and the investment is likely to result in import substitution and export promotion -> brings more revenue into country.

Import substitution because they may start buying domestically -> boosts domestic businesses -> keeps cash in economy -> stimulates domestic economy further -> incentivises new firms to create products the MNC needs

Question 22

Explain further why a positive impact on MNCs on a national economy is technology and skill transfer

What does it depend on

Answer 22

MNCs bring technology and production methods that are probably new to the host country and a lot can therefore be learnt from these techniques.

Workers will be trained to use the new technology + production techniques and domestic firms will see the benefits of the new technology.

This process is known as technology transfer

Depends on what skills + training they get + whether it’s well transferable

Question 23

Explain further why a positive impact on MNCs on a national economy is impact on consumers

What does it depend on

Answer 23

If the MNC manufacturers for domestic markets as well as for export, local population will gain from a wider choice of goods at a price possibly lower than imported substitutes -> increases competition lowers prices + pushes them down

Depends if the good/ service was already in that country -> prices higher if they weren’t.

Market development or diversification as they’re going in a new country -> Ansoff’s theory

Question 24

Explain further why a negative impact on MNCs on a national economy is impact of business culture

Answer 24

Cultural and social impact -> large numbers of foreign businesses can dilute local customs and traditional cultures.

George Ritzer coined the term McDonaldizatjon to describe the process by which more and more sectors of American society as well as of the world take on American culture

Question 25

Who coined the term McDonaldization

Answer 25

George Ritzer

Question 26

What’s McDonaldization

Answer 26

The process by which more and more sectors of American society as well as of the rest of the world take on American culture

Question 27

Explain further why a negative impact on MNCs on a national economy is the impact on tax revenues and transfer pricing

Answer 27

Transfer pricing -> shorthand for MNCs shifting profits to tax havens to avoid tax in developed countries

MNCs report vast profit in tax havens like Switzerland, Ireland and Luxembourg where there is little or no production going on

Christian Aid estimate developing counties lose $160 billion of tax revenue annually to transfer pricing

Question 28

What are ethics

Answer 28

Having moral principles that govern how a company does business. A moral principle is one that knows right from wrong

Question 29

What 3 things does ethical responsibility depend on

Answer 29

1. Size of business -> do they have the power to change the supply chain?
2. Situation of the business -> external environment
3. Power of different stakeholders -> who makes the decisions?

Question 30

Explain stake holder conflicts for owners

Answer 30

Owners have an objective of high profits so there are good dividends for shareholders + get a good return on investment.

Conflict with customers as owners want profit but customers want to push profits down

Conflict with managers as they want promotion prospects and bonuses on high profits

Conflict with suppliers as they want to charge high prices

Question 31

Explain stakeholder conflicts for customers

Answer 31

Customers want low prices, high quality, ethical products, availability, good service and choice

This means costs for the business to increase and profits fall.

Conflicts with owners as owners want profit but customers wants to push profits down

Conflicts with managers because they want promotion and bonuses from high profits but customers want to push profits down

Question 32

Explain stake holder conflicts for managers

Answer 32

They want promotion prospects and bonuses on high profits

Conflicts with owner as they want high profits and customers as they want to push profits down

Question 33

Explain stake holder conflicts for employees

Answer 33

They want job security -> relies on financially stable business so want it to make a profit

Want good working conditions -> pushes up costs

Conflict with suppliers because they want to charge high prices which affects profits and cash flow and employees want things that rely on the business making profit

Conflict with owners as they want high profits but employees are pushing costs up

Conflict with customers as they want low prices but employees push costs up so business has to charge more

Conflict with managers as they want bonuses from high profits but employees push costs up

Question 34

Explain stake holder conflicts for government

Answer 34

Want tax payments + lawful ethical businesses -> uses less public resources like policing

Conflict with owners as it makes it more expensive for them

Question 35

Explain stakeholder conflicts for suppliers

Answer 35

Want to charge high prices + to keep costs of production low.
Want to be paid on time which impacts cash flow and profits for business

Conflicts with owners as they want high profits

Conflicts with employees as they want a financially stable business

Question 36

Explain about pay

Answer 36

Pay varies around the world as does the cost of living

Some MNCs don’t pay fair wages that the locals can live on -> this is exploitation

A minimum wage that is too high will deter businesses setting up there

Is there a fair distribution of wages? Does the MNC have enough to pay all of its workers? At least it’s giving its employees something? What’s the CEO and managers being paid + are they exploiting workers further down the hierarchy?

Question 37

Explain about working conditions

Answer 37

Working conditions in a developing nation will be well below those of industrialised nations.

Owners want high profits and so may cost cut health and safety measures e.g. no fire escapes

Safety violations in garment factories.

If a country increases legislation, it will deter businesses setting up there

Question 38

Name the environmental considerations

Answer 38

Emissions

Waste disposal

Question 39

Explain about MNCs and emissions

Answer 39

Manufacturers will emit more than retailers

Climate crisis of 21st century has largely been caused by 90 companies which have produced nearly 2/3 of the greenhouse gases emitted

Tends to be legislation in developed countries to control how many emissions are created
May affect FDI if there’s legislation -> may deter businesses locating there

Are they selling business to business or to customer?

Chevron, BP and Exxon are the biggest polluters

Question 40

What are emissions

Answer 40

The production and discharge of something, especially gas or radiation

Question 41

Explain about MNCs and waste disposal

Answer 41

MNCs regularly flout or ignore weak environmental laws in India or other developing nations

Owners want to keep costs down, good waste management is expensive so there’s a stakeholder conflict with those that live near these toxic dumps

Question 42

Name the supply chain considerations

Answer 42

Forced labour

Child labour

Question 43

What’s is a supply chain

Answer 43

A system of businesses, people, activities, information and resources involved in moving a product or service from supplier to customer

Question 44

What are the supply chain problems

Answer 44

• Having part of a supply chain in a developing nation can be a problem for the MNCs
• Many garment factories or labour intensive production processes outsource to slums, refugee camps and unlicensed back street businesses with poor working conditions
• This can mean that labour is intentionally or unessentially exploited by the MNCs

Question 45

What’s forced labour

Answer 45

• threats or actual physical harm to the worker
• restriction of movement or confinement to the workplace
• debt bondages
• withholding of wages or excessive wage reductions
• retention of identity documents
• threat of denunciations to the authorities

Question 46

What’s child labour

Answer 46

• Some children are trapped in forms of slavery in armed conflicts, forced labour and debt bondage (to pay off debts incurred by parents and grandparents), drug trafficking and organised begging and in many other forms of labour.
• For some work, children receive no payment, only food and a place to sleep
• Poverty is the most common reason why children work
• Poor households spend the bulk of their income on food and the income provided by working children is often critical to their survival

Question 47

What’s the marketing consideration

Answer 47

Misleading marketing

Inappropriate promotional activities

Question 48

Explain misleading marketing

Answer 48

• If your cereal says its has no added sugar - it may still be high in sugar, hidden as fructose or glucose
• Rowntrees fruitsome bar is 38% sugar
• None of these products is breaking the law, but they are giving a false impression to consumers

Question 49

What are the 4 methods to control MNCs

Answer 49

Political influence

Legal control

Pressure groups

Social media

Question 50

Explain about political influence

Answer 50

• Governments can apply pressure to attempt to change the behaviour of MNCs
• For example MNCs have been avoiding paying tax in the UK
• Starbucks
• Google
• Amazon

• Since 2012, when the UK Chancellor at the time, put tax avoidance on the G20 agenda, the UK has helped reform international tax rules and led the way with action to prevent corporations from paying little or no taxes

Question 51

Explain about legal control

Answer 51

• If a country introduces laws to reduce pollution or protect children from child labour then this will all cost the MNC money to improve their practices
• Quite often the MNC may ignore or flout these regulations
• Prime example is the Deepwater Horizon where the US government legally made BP pay compensation to Mexicans affected by the disaster

Question 52

What are the benefits of political influence

Answer 52

MNCs may want to stay on side of the government as they may get tax breaks, help trade ect

If the MNC gains political approval they may find trading smoother and less troublesome

Question 53

What are the drawbacks of political influence

Answer 53

Politicians can be bribed (especially in developing countries)

Some MNCs bring so much wealth and employment to an economy that a weaker government might ignore unethical activities e.g Brazil, Nigeria, Mali

May affect trade deals e.g trump adding tariffs to stop Americans buying Chinese goods

Question 54

What are the benefits of legal control

Answer 54

• Laws can be passed at any point
• Laws mean that consumers have some rights against the MNCs
• However even if laws are introduced they may still be broken by the MNCs

Question 55

What are the drawbacks of legal control

Answer 55

• The MNC may simply move production to a country where there are less laws and restrictions
• The host nation does not want to lose the economic input of the MNC so this deters laws being passed
• MNCs can afford expensive legal defence of any challenge

Question 56

Explain about pressure groups

Answer 56

• Pressure groups can have a strong influence on public opinion and behaviour of MNC, if they want to avoid a PR disaster
• Pressure groups such as
• Greenpeace
• WWF
• Friends of the Earth
• War on Want

Question 57

What’s a pressure group

Answer 57

Organisation that tries to get businesses to change

Question 58

Benefits of pressure groups

Answer 58

• Pressure groups can raise public awareness of MNCs activities in host countries
• Pressure groups can create PR problems for MNCs peacefully

Question 59

Drawbacks of pressure groups

Answer 59

• The pressure group needs to be large and organised if it is to have any impact on changing the activities of the MNCs
• The size and wealth of the largest MNCs mean they can easily counter or quieten pressure group activity

Question 60

Explain about social media

Answer 60

• can see the swift mobilisation of public opinion and hence pressure on MNCs to change their behaviour
• can turn a product scare into a national crisis within hours
• can be used to orchestrate a boycott

Question 61

Benefits of social media

Answer 61

Very powerful as it has so many behind it.

Powerful way for customers to alter policy, activity and services of large businesses

Question 62

Drawbacks of social media

Answer 62

• Social media can only effect short-term change the Internet is a dynamic medium, fickle customers become bored easily and move on to the next scandal
• A MNC can just dust itself down and carry on with very little impact on their activities