4.4 - Global Industries Flashcards
What is a multinational corporation
a business that operated from 1 country but has facilities & assets in more than 1 country
4 characteristics of an mnc
-dominant players in the market
-complex structures
-heavy investment in R&D
-globally recognised brands
Name 4 positives MNCs have for the local economy
-create jobs
- ^ wages -> ^ standard of living
-^ working conditions
-skills development
Name 3 disadvantages MNCs have on the local economy
-creates wage inflation for local businesses
-may look to exploit cheap workers
-working conditions may be poor
Name 4 positives MNCs have on local businesses
-provide support services -> raw materials, factories
-improved infrastructure
-higher spending power from local community -> ^ demand for other businesses
Name 4 disadvantages MNCs have on local businesses
- ^ costs
-loss of talented workers
-loss of sales -> subsitutes
Name 3 positives MNCs have on the local community
-higher employment
-improved infrastructure
-improved education
Name 2 disadvantages MNCs have on the local community and environment
-loss of traditions, cultures
-environmental disasters
Name 4 positive impacts of MNCs on the national economy
FDI flows -> when MNCs invest into other countries -> inject cash into national economy -> creates jobs -> ^ local economy
tech & skills transfer -> MNCs can bring new tech & skills to local businesses -> ^ efficiency, productivity -> ^ competitiveness
consumers -> wider choice of goods, lower prices, better quality
balance of payments -> MNCs help improve BOP of a country as FDI flows will improve the BOP
business culture -> MNCs run professionally -> influences local businesses to do so
How do MNCs benefit the national economies technology and skills transfer
MNCs can bring new tech & skills to local businesses -> ^ efficiency, productivity -> ^ competitiveness
How do MNCs impact the national economies consumers
wider choice of goods
lower prices
better quality
improved living stndards -> higher incomes -> ^ jobs
but
MNCs can push out domestic businesses -> less choice -> higher prices, lower quality products produced -> know cust have less choice
How do MNCs impact the national economies FDI flows
positively:
-initial lump sum enters the country -> enriches local firms/ citizens -> generates new job -> economic growth
negatively:
-assets from home country -> now owned by foreign businesses
What is a balance of payments
statement showing all financial transactions between country and world
How do MNCs impact the national economies business culture
positively:
-MNCs are run professionally -> domestic businesses may be influenced by this -> start copying ideas like kaizen, continuous improvement
negatively:
-MNCs may demonstrate unethical behaviour -> may exploit -> encourage local firms to ignore working condition laws
How do MNCs impact the national economies tax revenues and transfer pricing
positively:
What is transfer pricing
technique used by MNCs to shift profits out of where they operate & into tax havens -> method of tax avoidance
What are business ethics
principles and norms that govern business behaviour
Name the 6 ethical considerations businesses need to consider
-pay & working conditions
-stakeholder conflicts
-environmental considerations
-supply chain considerations
-marketing considerations
-inappropriate promotional activities
What stakeholder conflicts may occur in the workplace
management vs workers -> managers may be more focused on output/ reducing costs, than worker safety/ creating a positive working environment
management vs owners -> owners want management to maximise profits
-managers want to sacrifice some profit to ensure workers are safe, good wellbeing
How do pay and working conditions become ethical issues for MNCs
-MNCs operate in countries which have diff employment regulations and working conditions - need to decide if they comply with base location rules/ abroad country rules
-some MNCs behave unethically -> expoloiting workers in LEDCs -> paying them lower wages
-or provide poor working conditions to cut costs -> ‘sweatshops’ -> e.g. Nike in Vietnam
-or child labour -> sch children are working rlly long hrs
How do environmental considerations become ethical issues for MNCs
-emissions -> often released from factories/ products made by MNCs -> impacts local communities -> health issues
-waste management -> products that are hard to dispose of -> often dumped in LEDCs -> cheap -> harmful to ppl living there
How do supply chain considerations become ethical issues for MNCs
MNCs have suppliers in different countries and increasingly they are held accountable for the working conditions of these suppliers
issues:
-child lavbour - Some MNCs have manufacturing facilities in countries where child labour is common -> MNCs facing backlash -> damage brand -> decreasing sales
-exploutation -> low wages, poor working conditions may be present
How do marketing considerations become ethical issues for MNCs
-MNCs must consider cultursl, social differences in countries they operate in
-misleading labelling -> labelling must comply with regulation of the country - info must be correct - e..g size, features, content of product must be correct -> otherwise damages brand
-inappropriate promotional activites -> should not be offensive/ illlegal - e.g. promotions that encourage ppl to buy more than they need -> food waste
Who has control over MNCs and who has influence
-control- large shareholders
-government
-small shareholders
-influence- customers
-pressure groups
Name 4 factors to consider when controlling MNCs
-political influence
-legal control
-pressure groups
-social media
What is lobbying
process of trying to influence key political decision makers to act in the best interests of a business
What is Corporate social responsibility (CSR)
-self-regulating business model that helps a company be socially accountable
-enhances society & environment rather than degrading it
What is a stakeholder
person, group that has an interest in a company
Give 4 examples of why MNCs need to be controlled
-safety concerns -> MNCs producing in LEDCs may squeeze life out of unsafe machinery - unsafe for workers -> must be controlled
-short-term mineral extraction -> by their nature minerals can only be extracted once -> important host country receives correct rewards for allowing MNCs to have irreplaceable minerals
-weakening local cultures -> MNCs sell many products abroad -> have good marketing -> locals changing their habits & lifestyles -> loss of tradition
-lack of commitment to host country -> MNCs lack ties to countries -> leave country when they want to -> unemployment/ social problems
What 4 benefits can MNCs gain through lobbying politicans
-encouraging changes in laws & regulations
-offering tax breaks
-overlooking instances when they fail to adhere to regulations
-granting licenses to run phone, rail/ electricity networks
How can you control MNCs through political influence
-by enforcing laws and regulations which businesses must stick to
-must work within the institutional framework of that country
Meaning of instituional framework
system of formal laws, regulations that shape a country
How can you control MNCs through legal control
-govs can enforce legislation & regulation to control operations of MNCs
-EU has the Competition Commission which protects producers and consumers from anti-competitive or unfair practices
What are pressure groups
voluntary organisations that operate at all levels of society,
-aim to change other political or commercial decision-making
How is Direct Action defined?
the use of demonstrations, protests, strikes, or even sabotage to achieve a political or social goal
How is Naming and Shaming defined?
Publicising behaviour that is considered to be unethical as widely as possible and thereby threatening a business’s reputation
How is Tax Avoidance defined?
Using legal method to reduce the amount of tax that a company pays
How is Tax Evasion defined?
using illegal means to avoid paying taxes that are owed
How can you control MNCs through pressure groups
-pressure groups can take action through; naming & shaming, direct action, lobbying
-e.g. they can publicise undesirable behaviour and thereby threaten to damage the image of the firm
Give an example of a pressure group
Greenpeace
How can Social Media be used to Control MNCs?
-stakeholders can freely share information about the unethical behaviour of MNCs -> ^ caution in how ethical businesses are - know they will get found out
-MNCs are forced to address the issues raised on social media as there is a high level of public exposure and information can spread rapidly
What is reverse engineering
method of analysing a product’s design by taking it apart
