4.4 - Global industries and companies (MNCs)

Question 1

What is foreign direct investment (FDI)?

Answer 1

A substantial and long lasting investment made by a business or government into another country. Investment by foreign firms which results in more than 10% share of ownership of domestic firms. e.g. Nissan, a Japanese firm, building a car factory in the UK.

• Inward FDI occurs when a foreign business invests in the local economy
• Outward FDI occurs when a domestic business expands its operations to a foreign country

Question 2

Describe the EU and the single market trading block

Question 3

Describe the ASEAN trading block

Question 4

Describe the USMCA trading block

Answer 4

United States–Mexico–Canada Agreement - an intergovernmental agreement between North American Nations (i.e. US, Mexico & Canada) that reduced trade barriers. Formerly called NAFTA

Question 5

Explain transfer pricing?

Answer 5

• An accounting practice that represents the price that one division in a company charges another division for goods and services provided.
• Payments between subsidiaries, affiliates, or commonly controlled companies that are part of the same larger enterprise.
• Transfer pricing can lead to tax savings for corporations, though tax authorities may contest their claims.
• Companies charge a higher price to divisions in high-tax countries (reducing profit) while charging a lower price (increasing profits) for divisions in low-tax countries.

Question 6

Balence of payments

Answer 6

Spec - Impact of MNCs on the national economy:
* Summarises all transactions between residents of a nation and non-residents during a period. It includes the value of trade flows, investment incomes and other financial transactions across national borders.
* The method countries use to monitor all international monetary transactions in a specific period.
* How much money is going in (credit) and out (debit) of a country.
* Investment by MNCs has positive affect on host contries BOP - e.g. FDI from setting up factoryy, and thenthe selling of goods abroard.
* However, MNCs repratriating profits to base country and importing supplies into host country will worsen balence of payments.
* Balence of payments should balence in theory, although coutries usualy have a deficit/ surplus

Question 7

What is meant by political influence in the context of controlling MNCs

Answer 7

Political influence is the way in which government policies, laws, and beliefs can be used to affect the action of a multinational

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