4.4.1. Impact Of Mnc’s

Question 1

Impact of MNC’s on Local economy-Employment

Answer 1

-Employment
1. Local labour
2. Wages
3. Working conditions
4. Job creation

Question 2

Impact of MNC’s on local economy- local businesses

Answer 2

-Local businesses
1.Tends to be +ve as creates many job and partnership opportunities for joint ventures(can learn new skills and production methods) but provides direct competition to an existing business causing them to lose customers.
2. MNC’s reduce supply of workers for local businesses if offering better pay and working conditions.

Question 3

Impact of MNC’s on local economy-Local communities and the environment

Answer 3

+ves:
-benefit from job opportunities and gritty
-MNC’s invest to improve infrastructure
-Need to pay tax and those funds may be reinvested back into the local community.

-ves:
-may damage local environment
-may leave unsightly production facilities behind once extracted all of resources.

Question 4

Impact of MNC’s on National economy

Answer 4

-FDI flows
-Consumers
-Business culture
-Tax revenue and transfer pricing
-Tech and skills transfer
-Balance of payments

Question 5

FDI flows

Answer 5

-Inflow of money into country if MNC chooses to invest into country
+ves:
-Initial lump sum of money enriches local firms and citizens.
-If that money is reinvested into local economy it can help generate new jobs and boost economic growth.

-ves:
-Assets from home country is partially owned by foreign businesses
-Once sold assets, local firms may not reinvest the money but move it abroad etc.

Question 6

Balance of payments

Answer 6

-Statement showing all financial transactions between country and rest of world.
-MNC’s can improve BOP of country as FDI flows into country will improve balance of payments.
-Any goods and services exported for sale by MNC will generate further inflows to countries BOP.
-MNC can have -ve impacts if they buy mater it aid abroad there is a flow of money out of country.

Question 7

Technology and skills transfer

Answer 7

-MNCs can bring new tech and skills to local businesses to improve efficiency and productivity
-This=more competitive in the national and international markets

Question 8

Consumers

Answer 8

Customers in countries which host MNCs benefit from:
-Wider choice of goods
-Lower prices of MNCs pass their cost advantages on on form of lower prices.
-Better quality of goods and services
-Improved living standards as people have higher incomes due to job creation reducing unemployment.

In long term MNCs push domestic businesses out of Barnet heaving customers with less choice. MNCs may exploit customer with higher prices and low quality due to limited choice.

Question 9

Business culture

Answer 9

+ves:
-Domestic businesses may be influenced by business culture of MNCs
-MNCs may encourage culture of entrepreneurship which can boost overall economic growth.

-ves:
-MNCs may demonstrate unethical behaviour and have a culture of exploitation.
-Ignores working conditions

Question 10

Tax revenues and transfer pricing

Answer 10

-Potential hosting country gains significant tax revenues. Government can use tax revenue paid by MNCs to invest in improving infrastructure and public services.
-MNCs will try maximise profits and reduce tax liabilities.
~Transfer pricing-where MNCs shift profits from
where generated to countries with lower tax
rates (tax avoidance.)

*When assessing impact of MNCs on local and national economy consider scale of MNC compared to country they are looking to establish in. ie. If they make more profit than the GDP of country then it’s likely to have stronger influence in country.