4.4.1 Impact of MNCs

Question 1

MNC

Answer 1

multinational company
operations in more than 1 country

• not MNC by selling goods/services overseas
• business operations in 2 + countries

Question 2

5 characteristics of MNCs

Answer 2

1-dominant mkt players
2-complex structures, multi site and multi product
3-organic growth (internal)e.g new shop inorganic (external) growth e.g. takeovers
4-heavy investment in R& D
5-globally recognised brands

Question 3

impact of MNCs on local labour markets

4 positives

Answer 3

positives:
1-job creation (promote/train)
2-working conditions improve(ethics) inv increase
3-local labour market (skilled workers) - develop
4-wages (SOL)

Question 4

impact of MNCs on local firms

positives and negatives

Answer 4

positives:

1. better economic conditions (infrastructure)
2. joint ventures/partnership = less risk = new skills
3. comp = innovative
4. skills transfer

negatives:
1. smaller pool of workers
2. MNC = cost adv over domestic
3. MNC = updated Tech/efficient = unwilling to return

Question 5

6 Impacts of MNCs of national economy

Answer 5

1. flows of FDI
2. balance of payments
3. technology and skills transfer
4. consumers
5. business culture
6. tax revenues and transfer pricing

Question 6

flows of FDI

Answer 6

-injection -> host economy,
ec growth GDP/job creation = wealth, rev national gov

-initial investment = profit = domestic economy (repatriate),
MNC big enough/enough of investing = affect local & national economy

Question 7

repatriate

Answer 7

profits earned in host country gets sent back to home country

Question 8

balance of payments

Answer 8

• record of international transactions/trade with rest of world
• surplus: sum of exports of goods/ service/ inv/ income transfers > imports
• deficit: … < imports

Question 9

impact of MNCs on balance of payments (BOP)

Answer 9

• FDI = flow of inv = improve BOP
• exports sold from MNC = inward flow of cash
• materials/services imported support MNC in host country = outward flow = -ve impact BOP
• UK receive £200mil in FDI (not significant for BOP) exports generated by MNC may be significant

Question 10

technology and skills transfer

Answer 10

skills transfer: aptitude and knowledge acquired through one role = used in performance of another

• new tech and skill -> host economies
• collaborative work countries = develop
• spread tech/skills across sectors -> domestic companies = productivity whole economy

Question 11

impact of MNCs on consumers
3 positives
2 negatives

Answer 11

positives:
1-choice (access to global brands)
2-quality
3-lower consumer prices (EOS)

negatives:
1-lose local/traditional businesses
2-exploit consumers desirability of premium global brand

Question 12

impact of MNCs on business culture

Answer 12

values/attitudes/beliefs determine how employees interact and behave an organisation

• aggressive cultures -> profit motive
• traditional = family based -> diluted
• conflict local firms conduct business differently

Question 13

tax revenues and transfer pricing

Answer 13

-taxes -> host country = boost gov revenue = increase inv in public services
(corporation tax, employ workers = income tax & national insurance, selling good = VAT value added tax)
-MNCs spread tax liabilities amongst no.of countries = diff tax rates (minimise tax liability)

-price charged = transfer price, may be unrelated to costs incurred, set at a level = reduced/cancels out profit hence total tax paid by MNC

Question 14

taxation

Answer 14

a levy (tax) charged by the government as part of their fiscal policy

Question 15

transfer pricing

Answer 15

pricing goods/services transferred within a multinational or transnational company -> reduce tax burdens & maximise profits
-price charged by one company to another within the same MNCs

-price for any transaction occurs, 2 companies part of same multinational group trade each other

Question 16

why there should be appropriate prices

Answer 16

• price supplier willing to supply at in market
• price buyer would be willing to pay in market
• used by MNCs = manipulate profits between subsidiaries-> tax liabilities
• governed by legislation

Question 17

3 effects transfer pricing has on impact of MNCs

Answer 17

1-reduced tax -> host country
2-reduces +ve impact tax rev in host economy
3-pay other taxes & provide jobs, tech and skills transfers & benefiting local suppliers

Question 18

FDI

Answer 18

investment made by business in 1 country -> another money spent by MNC to set up operations in host country

Question 19

impact of MNC on local labour markets

4 negatives

Answer 19

negatives: 
1-wage inflation for local business 
2-exploit cheap workers 
3-bring managers, jobs low skilled 
4-poor conditions/lack union representation

Question 20

impact of MNC on local firms

3 negatives

Answer 20

negatives:
1-increased costs (workers/other services)
2-loss of supply of talented workers
3-loss of sales (demand for substitute products)