4.4- Global Industries And Companies

Question 1

What is a Multi National Corporation (MNC)?

Answer 1

A MNC is a multinational corporation, a business which operates in more than one country. For example Coca Cola produces in over 200 countries.

Question 2

What are the positive effects of MNC’s?

Answer 2

• Creates employment
• Increases skills base
• Increased standard of living
• Raises country’s profile
• Improves balance of payments
• Improves infrastructure

Question 3

What are the negative effects of MNC’s?

Answer 3

• Profit leakage
• Low paid jobs
• MNC’s pull out quickly
• Poor safety record
• Increased urbanisation
• Widens the poverty gap

Question 4

What is a FDI?

Answer 4

• FDI is foreign direct investment
• When a multinational invests in a host country, the scale of the investment (given the size of the firms) is likely to be significant.
• Governments will often offer incentives to firms in the form of grants, subsidies and tax breaks to attract investment into their countries.
• India has had $300billion of FDI to date

Question 5

What are MNC’s role in the balancing of payments through FDI?

Answer 5

• 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 also likely to result in import substitution and export promotion.
• Export promotion comes due to the multinational using their production facility as a basis for exporting, while import substitution means that products previously imported may now be bought domestically.

Question 6

How do MNC’s bring technology and skills transfer through FDI?

Answer 6

• MNCs will bring with them 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 and production techniques and domestic firms will see the benefits of the new technology. This process is known as technology transfer.

Question 7

How do MNC’s and their FDI impact consumers?

Answer 7

If the multinational manufactures for domestic markets as well as for export, then the local population will gain from a wider choice of goods and services and at a price possibly lower than imported substitutes.

Consumers get the benefit of new products and services from the more industrialised nations

Question 8

How do MNC’s and their FDI impact business culture?

Answer 8

• Cultural and social impact - large numbers of foreign businesses can dilute local customs and traditional cultures.
• George Ritzer coined the term McDonaldization to describe the process by which more and more sectors of American society as well as of the rest of the world take on the characteristics of a fast-food restaurant, such as increasing standardisation and the movement away from traditional business approaches.

Question 9

How do MNC’s impact tax revenues and transfer pricing?

Answer 9

• The phrase “transfer pricing” as shorthand for multinational corporations shifting profits to tax havens to avoid tax in developed countries
• Multinationals report vast profits in tax havens like the Cayman Islands, Luxembourg, Switzerland and Ireland where there is little or no production going on
• Christian Aid estimates that developing countries lose $160 billion of tax revenue annually to transfer pricing

Question 10

What is ethics defined in business?

Answer 10

Ethics means having moral principles that govern how a company does business. A moral principal is one that knows right from wrong.

Question 11

What are the 6 types of stakeholders that have different personal aims within a business?

Answer 11

• Owners
• Customers
• Managers
• Government
• Suppliers
• Employees

Question 12

What are the objectives of shareholders within a business?

Answer 12

• High profits
• High dividends
• Growth
• Return on their investment
• A positive corporate image

Question 13

What are the ethical corporate objectives within a business?

Answer 13

• Low emissions
• Safe waste disposal
• Paying fair wage rates to employees in other countries
• Sourcing sustainable raw materials.

Question 14

What is a supply chain defined?

Answer 14

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

Question 15

What 4 factors can control activities of MNC’s?

Answer 15

1. Political influence
2. Legal control
3. Pressure groups
4. Social media

Question 16

How can political influence control MNC activity?

Answer 16

Governments can apply pressure to attempt to change the behaviour of MNCs. For example MNC’s such as Starbucks and Google avoiding paying tax in the UK.

Question 17

What are the benefits of the use of political influence to control MNC activity?

Answer 17

MNCs may wish to get political approval from the governments of the host nations, this may help trade and setting up in a new country
• If the MNC gains political approval they may find trading smoother and less troublesome

Question 18

What are the negatives of the use of political influence to control MNC activity?

Answer 18

Politicians can be bribed, not such an issue in the UK but quite common in other countries
• Some MNCs bring so much wealth and employment to an economy that a weaker government might ignore unethical activities, for example: Brazil, Nigeria, Mali

Question 19

How can legal controls control MNC activity?

Answer 19

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 20

What are the benefits of the use of legal controls to control MNC activity?

Answer 20

Laws can be passed at any point to control the actions of a MNC which are already established in a country
• Laws mean that consumers have some rights against the MNC as in the McLibel case
• However even if laws are introduced they may still be broken by the MNCs

Question 21

What are the negatives of the use of legal controls to control MNC behaviour?

Answer 21

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 22

What are pressure groups?

Answer 22

Pressure groups are organisations which campaign for changes in the law or new legislation in specific areas. They can have a strong influence on public opinion and behaviour of MNC, if they want to avoid a PR disaster.

Question 23

Benefits of the use of pressure groups to control MNC activity?

Answer 23

Pressure groups can raise public awareness of MNCs activities in host countries
• Pressure groups can create PR problems for MNCs peacefully, which can lead to a change in their behaviour

Question 24

Negatives of the use of pressure groups to control MNC activity?

Answer 24

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 25

How can social media control MNC activity?

Answer 25

Tools such as Twitter can see the swift mobilisation of public opinion and hence pressure on MNCs to change their behaviour
• Social media can turn a product scare into a national crisis within hours
• Social media networks can be used to orchestrate a boycott which will affect the sales and reputation of the MNC

Question 26

What are the benefits of the use of social media to control MNC activity?

Answer 26

Social media can be a very powerful way to change the behaviour of MNCs
• For example twitter can put pressure on large corporations
• Trip Advisor has become a very powerful way for customers to alter policy, activity and services of large hotel chains

Question 27

What are the negatives of the use of social media to control MNC activity?

Answer 27

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