4.4.1 The Impact Of MNCs Flashcards
What are the 6 positive effects of MNCs
1.) Creates employment - Jobs available, reducing no. unemployed.
2.) ^ skill base - Operate training schemes for local people. Skills also attract other firms.
3.) ^ standard of living - ^ earnings = ^ taxes — more money to spend on services.
4.) Raises country’s profile - Movement into a country is a statement of it’s pro-business + politically stable environment.
5.) Improves balance of repayments - MNCs’ goods are exported = ^ amt. money earned by the country.
6.) Improves infrastructure - Improve communication links within a country.
Positive impacts (Creates employment, ^ skill base, ^ standard of living)
-Creates employment; Jobs available for locals = reduced numbers of unemployed + the resultant drain on local resources.
-Increases skill base; Many MNCs operate training schemes for locals to learn how to use machinery —> attracts other firms to country.
-Increased standard of living; ^ in earnings = ^ taxes paid within the country + gives more money to spend on services.
Positive impacts (Raises country’s profile, improves balance of payments, improves infrastructure)
-Raises country’s profile; MNCs plan moves carefully. Movement into a particular country is a statement about it’s pro-business + political stability.
-Improves balance of payments; Many goods made by MNCs are exported to nearby countries. Increases amt. money earned by the country.
-Improves infrastructure; MNCs often improve communication links within a country.
What are the 6 negative impacts of MNCs?
1.) Profit leakage
2.) Low paid jobs
3.) MNCs pull out quickly
4.) Poor safety record
5.) Increased urbanisation
6.) Widens the poverty gap
Negatives (1-3)
-Profit leakage; Profits from factories or hotels run by the MNC go to the country in which the head office is found.
-Low paid jobs; Mainly low paid jobs are provided for local people. Higher paid managerial jobs go to workers brought in from the head office country.
-Pull out quickly; In times of recession/low sales, jobs of workers in the head office country are protected for longer than in other factories.
Negatives (4-6)
-Poor safety record; Poorer countries often have poor safety standards, and governments are willing to turn a blind eye to breaking the existing standards.
-Increased urbanisation; Most jobs created by MNCs are usually found in or close to urban areas. Hope of securing theses jobs rural—urban migration.
-Widens poverty gap; Although wages are low in factories, they are higher than elsewhere (^ cost of loving for all).
-Can also impact local people/environment
MNCs and FDI flows
-When a MNC invests in a host country, the scale of investment is likely to be significant.
-Governments will often offer incentives to firms in the form of grants, subsidies and tax breaks to attract investment into their countries.
MNCs and the balance of payments
-The investment will be a direct flow of capital into the country and the investment is also likely to result in import substitution and export promotion.
MNCs and technology + skills transfer
-MNCs will bring with them technology and production methods that are probably new to the host country and a lot can therefore be learnt from these techniques.
-Workers will be trained to use the new tech + production techniques and domestic firms will see the benefits of the new tech (tech transfer).
MNCs and impact on consumers
-The wider pop. may gain from a wider choice of goods/services and at a price possibly lower than imported groups.
MNCs and the impact on business culture
-Cultural and social impact: large number of foreign businesses can dilute local customs + traditional cultures.
MNCs and the impact on tax revenues and transfer pricing
‘Transfer pricing’ - MNCs shifting profits to tax havens to avoid tax in developed countries.
