4.4.1 Impact of MNC's

Question 1

Multi National Company

Answer 1

A business that has operations in more than one country.

Question 2

Impacts of MNC’s on labour markets

Answer 2

+ Create jobs.
+ Pushes wages up.
+ Great skill development.
+ Better working conditions.

• Exploit cheap workers.
• Wage inflation for local businesses.
• Poor working conditions.
• Bring managers; jobs low skilled.

Question 3

Impacts of MNC’s on local firms

Answer 3

+ Higher disposable income in community.
+ Investment in infrastructure.
+ Provide support services.

• Increase costs (workers and ancillary services).
• Loss of supply of talented workers.
• Loss of sales.

Question 4

Impacts of MNC’s on the local community and environment

Answer 4

+ Increased funds for local government (taxes).
+ Investment in projects to improve local environment.
+ Lower poverty/crime.
+ Improved education.

• Loss of traditions/cultures.
• Environmental disasters.
• Damage to traditional industries (land for farmers).

Question 5

Impact on the National Economy

Answer 5

1. Flows of FDI
2. Balance of payments
3. Technology and skills transfer
4. Consumers
5. Business Culture
6. Tax rates and Transfer Pricing

Question 6

Flows of FDI

Answer 6

An injection into the host economy:
- Creates jobs.
- Economic growth.
- Generation of revenue for local government.
However following initial investments profits are likely to flow back to domestic economy.

Question 7

Balance of payments

Answer 7

A record of a countries transactions with the rest of the world.
- A surplus is when the sum of exports is greater than imports.
- A deficit is when the sum of exports is less than imports.

• FDI flow boosts balance of payments as well as product and services exported by MNC’s.
• However, MNC’s may send profits back to domestic economy having a negative effect on the balance of payments.

Question 8

Impact of MNC’s on consumers

Answer 8

+ Wider choice.
+ Better quality
+ Lower prices.

• Loose local traditional businesses.
• May charge high prices.

Question 9

Impact of MNC’s on business culture

Answer 9

+ Encourage a culture of entrepreneurship.

• May introduce aggressive cultures based on a profit motives.
• Could dilute traditional business culture.

Question 10

Tax revenues and transfer pricing

Answer 10

Transfer pricing = Price charged by one company to another within the same MNC.
Can be used by MNC’s to manipulate profits and hence tax liabilities.