4.4.1 MNC Flashcards
What is an MNC?
A multi-national corporation is a business that has branches or departments in more than one country.
Positive effects of MNCs on local economies?
. Creates jobs
. Improves local standard of living
. Improve Infrastructure
. local firms benefit from higher wages and higher levels of employment.
Negative effects of MNCs on local economies?
. Force up local wages which local firms can’t afford
. Might employ children or exploit workers.
. May extract vast amounts of unsustainable natural resources.
. Sourcing external labour/its own
What is transfer pricing?
It is a tax avoidance method where an MNC can sell its own products to different parts (countries) of the MNC. Eg Legally moving money from a country with a high tax rate to a country with a low tax rate.
One benefit of MNC’s paying tax to the host nation:
There will be increased tax revenue to the government which can be spent on public services like hospitals and schools.
Positive effects that MNCs have on the national economy:
. Creates large FDI flows
. Can cause FDI Inflows
. Brings new skills and technology to the country-skills transfer from jobs
. They offer cheaper products because they benefit from economies of scale.
. They pay for training or technical help for their suppliers located in the host nation.
Negative effects that MNCs have on the national economy:
. Can cause money to leave the national economy affecting the host’s balance of payments
. Can cause domestic businesses to close down because MNC’s offer cheaper and better service/product
. Loss of national culture as MNC’s force domestic businesses to close down- loss of tourism revenue- reduced revenues from domestic businesses
Why do many MNC’s have an ethical code?
. To guide the decisions and behaviours of its employees according to the firm’s values.
One negative reason for MNC’s having ethical codes:
. Can cause conflict between its stakeholders.
