4.4 - Global industries and companies Flashcards
Define a multinational corporation (MNC)
Is a business who operates in more than one country
State the impacts MNC’s have on the local economy (6)
Local labour and job creation Wages and working conditions Local businesses Infrastructure Contribution to local taxes Impact on the local community
Explain local labour and job creation as a impact MNC’s have on the local economy (positive)
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.
Explain wages and working condtions as a impact MNC’s have on the local economy (positive and negative)
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
Explain local businesses as a impact MNC’s have on the local economy (positive and negative)
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
Explain infrastructure as a impact MNC’s have on the local economy (positive and negative)
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.
Explain the impact on the local community as a impact MNC’s have on the local economy (positive and negative)
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
Explain FDI flows as a impact MNC’s have on the national economy (positive)
Flows of FDI result in higher levels of GDP. Will increase economic growth and raise the standard of living for people
Explain increased tax revenue as a impact MNC’s have on the national economy (positive)
Profit made by the MNC are taxed, can be spent on government services, can also reduce the country’s national debt
Explain increased employment as a impact MNC’s have on the national economy (positive)
Helps reduce unemployment and saves money that would otherwise be paid out in benefits
Explain the balance of payments as a impact MNC’s have on the national economy (positive and negative)
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
Explain technology as a impact MNC’s have on the national economy (positive)
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
Explain consumers as a impact MNC’s have on the national economy (positive and negative)
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
Explain business choice as a impact MNC’s have on the national economy (positive)
In some cases employees for MNCs may have saved enough money and developed the skills to set up their own operations
Explain transfer pricing as a impact MNC’s have on the national economy (negative)
Multinationals are often accused of paying as little tax as possible and seeking out locations where tax is low
Define Ethics
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
Define a Institutional framework
Explain it’s impact on a MNC
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
Define a code of conduct
Explain it’s impact on a MNC
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
Define a stakeholder
Are groups or individuals who can affect or be affected by the actions of a business
State the stakeholder issues of: Consumers Employees Shareholders Countries or communities
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
State the shareholder and ethical objectives
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
Explain pay and working conditions as a ethical problem for MNC’s (UK vs other countries)
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
Explain environmental considerations as a ethical problem facing MNC’s
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).
Explain the supply chain considerations as an ethical problem facing MNCs
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
