4.4.1 - Impact of MNCs Flashcards
What is a MNC?
Business that is registered in one country but has manufacturing operations in different countries
Advantages of MNCs regarding Employment, Wages and Working Conditions
- Job creation for local community
- May offer more competitive wages
- May offer better working conditions
Disadvantages of MNCs regarding Employment, Wages and Working Conditions
- May exploit local workers
- Usually set up with low costs therefore pay lower wages
- May not create jobs as may relocate workers from their own countries
Advantages of MNCs for Local Businesses
- Help boost local economy as if higher wages = more spending
- Possibility of joint ventures so local firms may gain new skills
Disadvantages of MNCs for Local Businesses
- Reduce supply of workers available
- May loose local customers as MNCs can produce at lower costs and therefore lower prices
Advantages of MNCs to Local Communities and Environment
- Job opportunities
- May invest in local infrastructure
- MNCs may have to pay taxes and business rates to local councils/ authorities
- Can establish charitable initiatives that have a positive effect on the local community
Disadvantages of MNCs to Local Communities and Environment
- May have damage to local habitats/environment by production
- Unsightly production facilities
6 impacts of MNCs on national economy
- FDI flows
- Balance of payments
- Tech and skills transfer
- Tax revenue
- Business culture
- Consumers
What is FDI?
Funds to buy machinery/factories etc in another country
Advantages of FDI for national economy
- Initial lump sum to invest
- Funds enrich local firms
- Reinvestment could generate new jobs and boost economic growth
Disadvantages of FDI for national economy
- Assets now owned by foreign countries
- Local firms who have recieved FDI may not reinvest to local economy as may move it abroad
What is a balance of payment?
Statement showing all of the financial transactions between a country and the rest of the world
Advantages of Balance of payment for national economy
- Goods or services exported by MNC will generate further inflows
- Favourable exchange rates means that it will strengthen the national currency
Disadvantages of MNCs on balance of payment
-If the MNC buys raw materials or equipment abroad (imports), there is a flow of money out of the country
- If the MNC send profits back to their home country, it will also represent a flow of money out of the country
Advanatges of MNCs providing technology and skills transfers
- Helps efficiency and productivity
- Enhances competitiveness
Disadvantages of MNCs providing technology and skills transfers
- Over reliance on foreign tech may lead to vulnerability regarding external factors
- Environmental costs
Advantages of MNCs for consumers
- Increased product availability and choice
- Competitive price and EoS makes more affordable
- Job creation
Disadvantages of MNCs for consumers
- MNCs often promote western lifestyles which can lead to loss of cultural identity
- Profit repatriation- lots of MNCs profit is sent back to their home countries so limits reinvestment
- Market monopolisation- Large MNCs can dominate the market, reducing competition
Advantages of MNCs on Business Culture
- Domestic businesses may be influenced improving their company and efficiency
- MNCs may also encourage a culture of entrepreneurship boosting economic growth
Disadvantages of MNCs on Business Culture
- May demonstrate unethical behaviour
What do MNCs allow in terms of tax revenue?
Increased in amount gained
Advantages of MNCs providing tax revenue
- Governments can use tax revenue paid by MNCs to invest in improving public services and infrastructure
Disadvantages of MNCs providing tax revenue
- MNCs seek to maximise profits and will try to reduce their tax liabilities
What is transfer pricing?
Transfer pricing is a method used by MNCs to shift profits from where they are generated to countries with lower tax rates
- Leads to tax avoidance
