4.4 Global industries and MNCS Flashcards
What is a MNC ?
A multinational company is a business that is registered in one country but has manufacturing operations in different countries
What is deregulation?
The process of removing gov controls from markets in order to increase competition
What are the advantages and disadvantages of MNCs on Employment, Wages and Working Conditions
Benefits
-MNCs lead to job creation for the local community
-MNCs may offer more competitive wages than local businesses
-MNCs may offer better working conditions than local businesses
Drawbacks
- MNCs may exploit local workers if employment regulation is weak or not enforced
- MNCs tend to establish production facilities in regions where labour costs are lower and pay relatively low wages
- MNCs may not create jobs for local workers as they may relocate workers from their own country to work abroad (Chinese companies are notorious for this)
Advantages and Disadvantages of MNCs for Local Businesses
Advantages
- MNCs can help to boost the local economy creating opportunities for local businesses
- Local firms may learn new skills and production methods that allow them to become more efficient
Disadvantages
- MNCs reduce the supply of workers available to local businesses if they offer better pay and working conditions
- Produce at a lower cost and compete with local businesses, they may lose local customers
Advantages and Disadvantages of MNCs to Local Communities and Environment
Advantages
- job opportunities
- invest in infrastructure
- mncs will have to pay taxes and business rates to councils
Disadvantages
- damage to local habitats
- leave unsightly production facilities
What is the impact of MNCS on national economy
- fdi flows
- balance of payments
- consumers
- culture
- tax revenue and transfer pricing
- skills transfer
What is FDI ?
There will be an inflow of money into a country if a MNC decides to invest into a country
Advantages and disadvantages of FDI
Advantages
- There is an initial lump sum of money that enters the country to pay for the investment
- Money is reinvested back into the local economy, it may help to generate new jobs and boost economic growth
Disadvantage
-Assets from the home country are now owned (or partly owned) by foreign businesses
- May not reinvest the money into the local economy but may move it abroad/offshore
What is the balance of payments ?
Statement showing all the financial transactions between a country and rest of world
How can mncs help to improve the balance of payment of a country ?
Any goods and services exported for sale by the MNC will generate further inflows to the country’s balance of payments
How can mncs have a negative impact on balance of payments ?
If the MNC buys raw materials or equipment abroad (imports), there is a flow of money out of the country
If the MNC send profits back to their home country, it will also represent a flow of money out of the country
What are advantages and disadvantages of MNCS on business culture ?
advantages
- domestic businesses influenced by the business culture
- encourage entrepreneurship
disadvantages
- demonstrate unethical behaviour
- local firms ignore working practices
What is transfer pricing ?
MNCS shift profits out of countries where they operate & into tax havens ( countries with lower tax rates )
What is business ethics ?
The principles and norms that govern business behaviour
What marketing considerations do they take ?
Misleading product labelling
Innaproproate promotional activites
What supply chain considerations do they take ?
Labour exploitation
Child labour
What stakeholder conflicts do they have to consider ?
Management v workers
Company profits v resource depletion
Managers v owners
What environmental considerations do they have to consider
waste disposal
emissions
What are some unethical pay and working conditions ?
Exploiting workers
Sweatshops
Child labour
What are the four factors needed to control mncs ?
- Political influence
- Legal influence
- Pressure groups
- social media
How does political influence control mncs ?
- Political institutions enforce laws and regulations which businesses need to adhere to
- When MNCs establish themselves in a new country, they must work within the institutional framework of that country
- MNCs in developing countries can influence governments as they may establish deals which are beneficial to politicians
How does legal influence control mncs ?
- Governments can enforce legislation and regulation to control the operations of MNCs
How does pressure groups influence mncs control ?
- Pressure groups are organisations that operate to influence company and public policy in the interest of a particular cause
- Naming and shaming
- Direct action
E.g. Protests, strikes and boycotting products - Lobbying by taking issues directly to the government
how does social media influence mncs control ?
- use social media to advantage
- spread awareness
