4.4.1 Impact of MNCs Flashcards
Impacts of MNCs
Positive impact on poor country -
MNC in poor country = positive
+ provides jobs- gov can tax and spend money on infrastructure
+ companies pay tax - increased gov funds - improve services
+ companies invest in infrastructure and education - skills
+ inward fdi
+ improved trade flows
Impact of MNCs
Negative impact on poor countries
- take advantage if low wages and long hours
- push small businesses out
- less health and safety laws
- countries economy may become dependent on money from company - may relocate
- less health and safety laws
- may feel don’t have to follow countries expectations
- may use tax avoidance measures
Multinational -
Company that owns or controls production or service facilities in more than one country
in support -
MNCs = beacon of capitalism, bringing emloyment, income and new technology to poorer countries driving up incomes and aiding development, in return wealthier countries benefit from being able to buy cheaper goods
Why have they grown? To reduce costs
- economies of scale
- enhanced competitive advantage
- available, cheap adaptable labour
Impact of MNC on local economy
\+ creates employment \+ increases skills base \+ increased standard of living \+ drives up countries profile \+ improves balance \+ improves infrastructure
Negative
- profit leakage
- low paid jobs
- pull out quickly
- poor safety record
- increases urbanisation
- widens poverty gap
Potential benefits of MNCs to the countries in which they operate
+ provide employment and training to labour force
+ transfer of skills and expertise - develops quality of host labour force
+ MNCs add to host country GDP through their spending
+ competition = incentive for host country to improve their competitiveness
+ extend consumer and business choice in the host country
+ profitable mcs = source of tax for host economy
Potential drawbacks of MNC activity in the countries in which they operate
- domestic businesses may not be able to compete with MNCs and some will fail
- MNCs may not feel they need to meet the host countries expectations e.g acting ethnically/ socially responsible way
- MNCs may be accused of imposing their culture on the host country, perhaps at the expense of the richness of local culture
- profits earned by MNCs may be remitted back to the MNCs base country rather than reinvested in the host country
- MNCs may make use of transfer pricing and other tax avoidance measures - reduce tax to government
How can MNCs be controlled
- legal challenges brought by governments to change behaviour
- campaigns by pressure groups forcing compliance
- public opinion and boycotts which impact on sales and bring pressure
- pressure groups that launch a campaign against actions of MNC to change behaviour
- adverse media coverage that mobilises public opinion
- use of social networks
Political influence to control MNCs
- Governments can apply pressure to change behaviour of MNCs
- Governments have worked together to prevent tax avoidance
- The spread of e-commerce and the odd nature of international corporate tax rules have left governments trailing behind as they shift profits around the glove
Can laws be used to control MNCs
- If a country introduces laws to reduce pollution or protect children from child labour then this will all cost the MNC money to improve practices
- This means MNC may simply move production to a country where there are less laws and restrictions
- The host nation does not want to loose the economic input of the MNC so this defers laws from being passed
Pressure groups to change behaviour of MNCs
Lobby government to demand change
Protest march
Publicity stunts to draw attention to the problems
Consumer boycott
Set up campaigns to change public opinion
can challenge behaviour of business by
- writing letters to MPs
- contacting the press
Social media controlling MNCs
Tools e.g. twitter saw swift of public opinion and hence pressure
