4.4.1 Impact of MNC's

Question 1

MNC

Answer 1

a multinational company is a business that has operations in more than one country

Question 2

Transfer pricing

Answer 2

the price established for any transaction that occurs whenever two companies that are part of the same multinational group trade with each other

Question 3

Balance of payments

Answer 3

the record of international transactions

Question 4

Business culture

Answer 4

the values, attitudes and beliefs that determine how employees interact and behave within an organisation

Question 5

FDI

Answer 5

– investment made by a business based in one country, into another business which is based in another country

Question 6

Skills transfer

Answer 6

– aptitude and knowledge that is acquired through performing one role that can be used in the performance of another job

Question 7

Factors that are caused by MNC’s on the national economy:

Answer 7

• FDI flows
• Balance of payments
• Technology and skills transfer
• Consumers
• Business culture
• Tax revenues and transfer pricing

Question 8

How does the flow of fdi impact the national economy?

Answer 8

-An injection into the host economy

Question 9

How does the flow of fdi impact the national economy? - positives

Answer 9

• Creates economic growth – rise in GDP
• Generation of revenue for the local government
• Job creation and related wealth

Question 10

How does the flow of fdi impact the national economy? - negatives

Answer 10

-Following the initial investment, a lot of the profits are likely to flow back to the domestic economy

Question 11

How does the balance of payments impact the national economy?

Answer 11

• A record of a country’s trade/transactions with the rest of the world
• A surplus is when the sum of exports of goods, services, investment income and transfers is greater than imports
• A deficit is when the sum of exports of goods, services, investment income and transfers is less than imports

Question 12

How does the balance of payments impact the national economy? - Positives

Answer 12

• FDI represents a flow of investment into the host country and will therefore improve the balance of payments
• Exports sold from the MNC will also represent an inward flow of cash

Question 13

How does the balance of payments impact the national economy? - negatives

Answer 13

-However, if materials and services are imported to support the MNC in the host country this represents an outward flow and will have a negative impact on the balance of payments

Question 14

How does the technology and skills transfer of MNC’s impact the national economy? - positives

Answer 14

• New technologies and skills will be introduced to the host economies
• Collaborative work between countries to further development
• Incentives to innovate
• Spread of technology and skills across sectors and to domestic companies

Question 15

How does the technology and skills transfer of MNC’s impact the national economy? - negatives

Answer 15

• This may lead to brain drain

- Disruptive technology – may cause domestic businesses to fail as they aren’t needed anymore

Question 16

How do MNC’s impact the business culture on the national economy? - positives

Answer 16

• Traditional businesses may be more likely to be family based
• this encourages enterprise due to recognising capital
• might encourage innovation

Question 17

How do MNC’s impact the business culture on the national economy? - negatives

Answer 17

• Could dilute traditional business culture
• Could cause conflicts with other local firms who conduct business very differently
• May introduce more aggressive cultures based in a profit motive

Question 18

Taxation

Positives and negative impact

Answer 18

• a levy charged by the government as part of their fiscal policy
• Taxes paid in host country will boost governments revenue increasing investment in public services
• However, MNC’s may spread their tax liabilities amongst a number of countries who have different rates of tax – minimising tax liability

Question 19

Transfer pricing

Answer 19

-A method of pricing goods and services transferred within a MNC company in order to reduce tax burdens and maximise profits

Question 20

Negatives of transfer pricing

Answer 20

• Can be used by MNC’s to manipulate profits between subsidiaries and therefore tax liabilities
• Governed by legislation

Question 21

MNC’s impacts on local labour markets

Answer 21

• local labour
• wages
• working conditions
• job creation

Question 22

MNC’s impacts on local labour markets - local labour positives

Answer 22

western training methods may make the local workforce more productive and employable

Question 23

MNC’s impacts on local labour markets - local labour Negatives

Answer 23

western employers may attract overqualified people - which could strip local businesses and public services of skilled staff

Question 24

MNC’s impacts on local labour markets - wages - positives

Answer 24

-usually pay higher wages – improving standards of living

Question 25

MNC’s impacts on local labour markets - wages - negatives

Answer 25

some locals may feel bitter that they are paid less than westerners for doing exactly the same job

Question 26

MNC’s impacts on local labour markets - working conditions - positives

Answer 26

• better working conditions due to more investment into it

- they have international reputations to maintain so they will tend to provide above average conditions

Question 27

MNC’s impacts on local labour markets - working conditions - negatives

Answer 27

• conditions may be above average, yet still quite shocking to westerners
• some mnc’s may have impressive policies in place yet the workplace reality may be worse than the paper theory

Question 28

MNC’s impacts on local labour markets - job creation - positives

Answer 28

• creates jobs with opportunities
• training and promotion
• greater skill development

Question 29

MNC’s impacts on local labour markets - job creation - negatives

Answer 29

the success of mnc’s often come at the expense of local firms