4.4 - Global industries and companies

Question 1

Define a multinational corporation (MNC)

Answer 1

Is a business who operates in more than one country

Question 2

State the impacts MNC’s have on the local economy (6)

Answer 2

Local labour and job creation
Wages and working conditions
Local businesses 
Infrastructure
Contribution to local taxes 
Impact on the local community

Question 3

Explain local labour and job creation as a impact MNC’s have on the local economy (positive)

Answer 3

For many people the opportunity to work for a MNC is welcomed and valued, the prospect of training, a regular income, financial security and opportunity to build a career very appealing.

Question 4

Explain wages and working condtions as a impact MNC’s have on the local economy (positive and negative)

Answer 4

P
The impact of a MNC will lead to an increased demand for workers and will cause an increase in wages. A MNC will also offer favourable working conditions due to their modern approach to business development and adopting internationally recognised standards of health and safety.

N
However mainly low paid jobs will be provided and high paid jobs will be occupied by people from the head office country, also widens the poverty gap

Question 5

Explain local businesses as a impact MNC’s have on the local economy (positive and negative)

Answer 5

P
Initially a local business is involved in the construction of the plant and then there may also be a need for the supply of materials, services and utilities. More employed people, due to the MNC, will lead to increased disposable income and provide demand for local businesses.

N
However MNC’s may lure workers and trade away from local businesses

Question 6

Explain infrastructure as a impact MNC’s have on the local economy (positive and negative)

Answer 6

P
MNC’s may invest some profits to help develop roads, electricity, water, gas supplies, schools and hospitals. They do this to help build trust in the community and to improve the quality of human capital

N
Will lead to increased urbanisation, due to the job created by MNC, leading to overcrowding of services and infrastructure.

Question 7

Explain the impact on the local community as a impact MNC’s have on the local economy (positive and negative)

Answer 7

Some MNC’s may participate in local cultural events or give money to local charities. However MNC’s cause significant environmental damage on the local community causing pollution and resource depletion

Question 8

Explain FDI flows as a impact MNC’s have on the national economy (positive)

Answer 8

Flows of FDI result in higher levels of GDP. Will increase economic growth and raise the standard of living for people

Question 9

Explain increased tax revenue as a impact MNC’s have on the national economy (positive)

Answer 9

Profit made by the MNC are taxed, can be spent on government services, can also reduce the country’s national debt

Question 10

Explain increased employment as a impact MNC’s have on the national economy (positive)

Answer 10

Helps reduce unemployment and saves money that would otherwise be paid out in benefits

Question 11

Explain the balance of payments as a impact MNC’s have on the national economy (positive and negative)

Answer 11

P
The initial investment will see money flow into the country’s account, improving the balance of payments. Any output produced and then sold abroad will further the balance of payments

N
However if MNCs buy resources from overseas and repatriate profits this will have a negative effect on the balance of payments

Question 12

Explain technology as a impact MNC’s have on the national economy (positive)

Answer 12

MNC investment in foreign countries often means of new technologies and modern working practices are introduced, helping businesses to improve efficiency and productivity. Will help make domestic producers more competitive, especially if they use reverse engineering to copy the MNCs practices

Question 13

Explain consumers as a impact MNC’s have on the national economy (positive and negative)

Answer 13

P
Are likely to benefit from increased choice, lower prices and improved quality
N
However in the long term the dominance of an MNC may force competitors out of the market, leading to reduced choice

Question 14

Explain business choice as a impact MNC’s have on the national economy (positive)

Answer 14

In some cases employees for MNCs may have saved enough money and developed the skills to set up their own operations

Question 15

Explain transfer pricing as a impact MNC’s have on the national economy (negative)

Answer 15

Multinationals are often accused of paying as little tax as possible and seeking out locations where tax is low

Question 16

Define Ethics

Answer 16

Are moral rules or principles of behaviour that should guide members of a organisation and make them deal honestly and fairly with each other and with their stakeholders

Question 17

Define a Institutional framework

Explain it’s impact on a MNC

Answer 17

Is the system of formal laws, regulations, procedures and customs and norms that shape activity and behaviour

If a firm establishes in a country it will have to work within the institutional framework of both the home and host country

Question 18

Define a code of conduct

Explain it’s impact on a MNC

Answer 18

Is a set of rules outlining the proper practices of an organisation that contributes to the welfare of key stakeholders and respects the rights of all those affected by its operations

Gift giving is common and accepted between businesses in Asian and Arab cultures but is considered illegal and bribery between businesses in North America and Europe

Question 19

Define a stakeholder

Answer 19

Are groups or individuals who can affect or be affected by the actions of a business

Question 20

State the stakeholder issues of: 
Consumers
Employees
Shareholders
Countries or communities

Answer 20

Consumers: MNC’s manipulating markets to justify higher prices, product safety, misleading advertising

Employees- employee safety (ensuring health and safety), employee redundancies, pay and working conditions

Shareholders- conflicts of interest between management and shareholders, short term vs long term returns on investment

Question 21

State the shareholder and ethical objectives

Answer 21

Shareholder: 
High profits
High dividends and return on investment
Growth
Positive corporate image

Ethical: 
Low emissions
Safe waste disposal
Paying fair wages to employees in other countries
Sourcing sustainable raw materials

Question 22

Explain pay and working conditions as a ethical problem for MNC’s (UK vs other countries)

Answer 22

UK law covers pay and working conditions of local suppliers, employees and managers. All employees have rights of work governing their pay, conditions, holiday entitlement, health and safety, discrimination and dismissal procedures.

However, guidance does not exist in some countries, MNC’s are able to exploit no legal requirement for good pay and working conditions. Sweatshops occur which can be hazardous with poor ventilation, a lack of space and exposure to dangerous chemicals.

Countries continue to offer no minimum wage in order to attract MNCs. However MNCs are now facing criticism for bad pay and working conditions in other countries. The ethical trading initiative was is an NGO set up concerned with the employment practices of MNCs

Question 23

Explain environmental considerations as a ethical problem facing MNC’s

Answer 23

MNC’s are now concerned about the environment due to: the effect on stakeholders, the ramifications of increasing government regulation and operating costs.

Emissions- 2/3 of greenhouse gas emissions have been caused by 90 businesses based around the world. There is strict legislation in the UK, requiring all firms operating in the UK to report their greenhouse gas emissions. LEDCs do not have environmental legislation, meaning urbanised areas suffer from bad pollution.

Waste disposal- The UK in forces legislation regarding how firms dispose of their waste, which is not the same in LEDCs who have barriers to waste disposal such as a lack of infrastructure (poor roads).

Question 24

Explain the supply chain considerations as an ethical problem facing MNCs

Answer 24

MNCs have global supply chains, there are issues with the supply chain is that firms are reluctant to look closely at because of the cost of doing so.

Exploitation of labour- Is common throughout the world, often begins when an individual in an LEDC seeking work contacts a recruiter, who charges to find a job, employees are binded into paying back the debt.

Child labour- MNC to outsource production overseas rely on local suppliers to follow local norms and traditions, which may not be excepted in developed countries. Child labour is not excepted in the UK but is normal in some countries, MNCs can choose to relocate in countries without child labour

Question 25

Explain marketing considerations as an ethical problem facing MNCs

Answer 25

Misleading labelling – in the UK legislation means labels must be accurate, cannot contain false information on price, quantity or what it does. However some countries may have different requirements on labelling and some cultures may find a label misleading while others may not.

Inappropriate promotional activities- some branding promotion can be considered inappropriate if they are illegal or offensive. Many MNCs acknowledge that these cultural aspects are part of the business context when operating in a global environment

Question 26

Explain the present day control that governments have over MNC’s

Answer 26

Today controlling MNC’s is much more complex, due to interconnected international markets and globalised businesses.
Many MNC’s have huge economic power and can relocate their headquarters with ease, giving national governments less direct control over their behaviour.
MNC’s can simply threaten to relocate out of the country and take their FDI, tax revenue and employment with them

Question 27

Explain how political influence can be used to influence the control of MNC’s

Benefits and drawbacks

Answer 27

Governments can apply pressure to attempt to change the behaviour of MNC’s.
Tariffs, quota’s and regulations can be used to protect domestic businesses from MNC’s
Many governments place direct ownership on businesses they see as key, e.g. preventing MNC’s controlling water and gas in a country.
Governments can give subsidies or tax breaks to do domestic businesses to make them more competitive and reduce MNC’s control.

B: MNC’s will wish to gain political approval from host governments to gain trade benefits.
D: Politicians can be bribed (Brazil’s largest firm bribed the former president for favourable terms), some MNC’s bring so much wealth and employment that a weaker government might ignore unethical activities of MNC’s

Question 28

Explain how legal control’s can be used to influence the control and behaviour of MNC’s

Benefits and Drawbacks

Answer 28

If a country introduces laws to control MNC’s this will cause them to improve their practices.
Competition policy can be used, which prevents MNC’s from abusing their market power, fixing prices and colluding against consumers. E.g. EU Regulatory challenges to Google in response to tax avoidance
Taxation policy can be used to control the amount of corporation tax MNC’s pay, to avoid tax avoidance from occurring.

Benefits: laws can be passed at any point which MNC’s legally have to follow, consumer protection.
Drawbacks: the MNC may move production to a country with less laws and restrictions , the host nation may deter laws being passed to prevent the loss of output, MNC’s can afford expensive legal defence of any legal challenge.

Question 29

Explain how pressure groups can be used to influence MNC’s control and behaviour

Benefits and drawbacks

Answer 29

Are organisations which campaign for changes in the law or new legislation, having a strong influence over public opinion and the behaviour of MNC’s (if they want to avoid a poor brand image)
Can name and shame MNC’s by publicly criticising unethical behaviour. E.g. Starbucks and Amazon have been shamed and boycotted by some for tax avoidance.
Direct action by protests and strikes can be used to achieve political or social change.

Benefits: can raise public awareness of MNC’s activities, can create PR problems for MNC’s
Drawbacks: the pressure group needs to be large and organised if it is to have any impact
The size and wealth of MNC’s means they can easily counter pressure group activity

Question 30

Explain how social media can be used to influence MNC behaviour

Benefits and drawbacks

Answer 30

Can act as a means of controlling MNC behaviour by making the collection of information easier, can increase social awareness and can bring people together to collectively challenge the unethical behaviour of MNC’s

Benefits: can be a powerful way to challenge MNC’s as a large collective group of people around the world become aware of MNC behaviour
Drawbacks: can only effect short term change, after a while most people will lose interest and allow the behaviour of MNC’s