4.4.1 Impact of MNC's Flashcards
MNC
a multinational company is a business that has operations in more than one country
Transfer pricing
the price established for any transaction that occurs whenever two companies that are part of the same multinational group trade with each other
Balance of payments
the record of international transactions
Business culture
the values, attitudes and beliefs that determine how employees interact and behave within an organisation
FDI
– investment made by a business based in one country, into another business which is based in another country
Skills transfer
– aptitude and knowledge that is acquired through performing one role that can be used in the performance of another job
Factors that are caused by MNC’s on the national economy:
- FDI flows
- Balance of payments
- Technology and skills transfer
- Consumers
- Business culture
- Tax revenues and transfer pricing
How does the flow of fdi impact the national economy?
-An injection into the host economy
How does the flow of fdi impact the national economy? - positives
- Creates economic growth – rise in GDP
- Generation of revenue for the local government
- Job creation and related wealth
How does the flow of fdi impact the national economy? - negatives
-Following the initial investment, a lot of the profits are likely to flow back to the domestic economy
How does the balance of payments impact the national economy?
- 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
How does the balance of payments impact the national economy? - Positives
- 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
How does the balance of payments impact the national economy? - negatives
-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
How does the technology and skills transfer of MNC’s impact the national economy? - positives
- 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
How does the technology and skills transfer of MNC’s impact the national economy? - negatives
- This may lead to brain drain
- Disruptive technology – may cause domestic businesses to fail as they aren’t needed anymore
How do MNC’s impact the business culture on the national economy? - positives
- Traditional businesses may be more likely to be family based
- this encourages enterprise due to recognising capital
- might encourage innovation
How do MNC’s impact the business culture on the national economy? - negatives
- 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
Taxation
Positives and negative impact
- 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
Transfer pricing
-A method of pricing goods and services transferred within a MNC company in order to reduce tax burdens and maximise profits
Negatives of transfer pricing
- Can be used by MNC’s to manipulate profits between subsidiaries and therefore tax liabilities
- Governed by legislation
MNC’s impacts on local labour markets
- local labour
- wages
- working conditions
- job creation
MNC’s impacts on local labour markets - local labour positives
western training methods may make the local workforce more productive and employable
MNC’s impacts on local labour markets - local labour Negatives
western employers may attract overqualified people - which could strip local businesses and public services of skilled staff
MNC’s impacts on local labour markets - wages - positives
-usually pay higher wages – improving standards of living
MNC’s impacts on local labour markets - wages - negatives
some locals may feel bitter that they are paid less than westerners for doing exactly the same job
MNC’s impacts on local labour markets - working conditions - positives
- better working conditions due to more investment into it
- they have international reputations to maintain so they will tend to provide above average conditions
MNC’s impacts on local labour markets - working conditions - negatives
- 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
MNC’s impacts on local labour markets - job creation - positives
- creates jobs with opportunities
- training and promotion
- greater skill development
MNC’s impacts on local labour markets - job creation - negatives
the success of mnc’s often come at the expense of local firms