ADVHB TEST Flashcards
Factors contributing to increase in globalisation
Larger cargo ships and bulk air freight mean that the costs of transporting goods between countries has decreased.this means, transportations improvements also mean that goods and people can travel more quickly.
Removal of trade barriers can cause organisations to promote free trade between countries eg World trade organisation. This means, the organisation can export more quantity of goods
Improvement of communication and technology have facilitated huge growth in e commerce. This means the org can communicate better with their staff, supplier and customers easier
Labour availability and skills like countries such as India have lower labour costs and high skill levels. This means business can take advantage of this and create high quality products at a lower cost per unit
New opportunities in emerging markets such as China and Japan. These countries have made significant investments in infrastructure and manufacturing capabilities. This means the market can attract foreign investment.
Development of global media has made Demand less variable between countries. This means, the business can advertise globally.
Definition of Home and Host countries.
Home
The country that the MNC originated, where the head office tends to be located.
Host
The country that the MNC has chosen to invest and operate in.
Definition of transfer pricing
Transfer pricing is the amount of money that one branch of a business charges for goods/services transferred to another branch across international boundaries
Ads of transfer pricing
Tax liabilities can be reduced by using transfer pricing to shift earnings from a high-tax country to a low tax one. | Reduces costs and increases profits
Import duties can be reduced where the tariff to be paid is calculated as a percentage of the value of the goods
The reduction in tax paid can enable the company to increase investment, spend more on research, expand more widely, pay bigger dividends to shareholders etc.
A country with low tax rates will encourage MNCs to operate in that country to use transfer pricing to pay lower tax which will create employment and improve wealth of the host country. This can often be a legal agreement. | Created employment in host country
Disads of transfer pricing
The MNCs reputation may be negatively affected if home/host consumers protest against it.| boycotting will reduce sales
MNCs can be taken to court by a host country if it is felt that they have used transfer pricing inappropriately
Many governments, particularly in the US, limit companies freedom to manipulate transfer pricing because if it effectively decreases that country’s legitimate income
Company may be fined for doing this, eg google was fined $130 million for doing this in Ireland
Positive impacts on MNCs home country
Because of less demand for unskilled labour, people are encouraged to seek education to ensure they can be employed and as a result have a higher income.
The home country’s balance of payments benefits from the inward flow of foreign earnings and also from the demands created for income country exports.
Improvement of standard of living for employees
Exports can be taxed which increased income for the home country’s government.
Negative impacts on MNCs of home country
The low cost of unskilled labour in other countries can cause unemployment in the home country
The wage rate for unskilled labour in many advanced countries has decreased significantly over the years because of competition from other countries.
Pressure on government to provide training and skills development
If the objective of FDI is to serve the home market from a low cost production location the profit will be made abroad and not in the home country, therefore tax revenue paid to host country government
Positive impact for MNCs on host country
Increased tax revenues for host country
Employees have more disposable income and improved standard of living
Competition from MNCs may act as a stimulus to domestic firms to find ways to cut costs and increase efficiency
MNCs may improve roads, Rail networking and communications facilities if they are not adequate for their needs. This can benefit whole communities.
Tax raised as a result of companies profits is an important source of revenue for the government of the host country.
Negative impacts on an MNCs in a host country
Jobs may be lost in smaller business if they close due to competition from MNCs
MNCs can create competition with domestic companies and result in such companies cutting their labour direct or indeed closed down
Exploit cheap labour
The host country will collect reduced VAT payments as a result of any price war. The arrival of Aldi in the UK is an example.
Positive Impacts if MNCs expanding overseas
The business has cheaper labour
Reduced in taxes
Economies of scale
Increase in high skill labour
Negatives impacts of MNCs expanding overseas
May have to hire linguists
May get sued
Bad publicity
High initial set up costs
Positive Impacts of being socially responsible
Can help reduce costs, which can then be passed onto the consumer
Using less packaging and minimising transportation costs
Can be used in marketing campaigns
Being seen to be environmentally responsible can develop customer loyalty
Can make consumers feel they are helping less developed countries eg fair trade
New technologies (eg reducing emissions, cleaner engines) allow companies to access a growth in market share.
negative impacts if being socially responsible
Some fair trade products are more expensive.| consumers may prefer to buy cheaper non fair trade goods.
Some changes maybe costly as the business may have to buy or upgrade machinery and might need to pass costs on the consumers through higher prices
Environmental mistakes can effect profits and share price eg oil spill in environmentally sensitive areas.(fines, clean up costs, boycott, decrease in rep)
If not seen to be environmentally friendly they may lose customers to competitors.|1991 she’ll was boycotted by German car users when it proposed dumping an oil rig in the see.
Impact of CST on Marketing
Marketing campaigns may need to be changed to include CSR policy e.g Fair Trade logo. This mean, this could create a unique selling point and attract customers. Therefore, boost sales and improve reputation.
May limit who a business targets with its advertising which may affect sales growth. This means, the business will have a decrease in market share.
The business may have and increase in customer loyalty. This means, the business will have a larger customer base. Therefore, an increase in customer footfall.
Impact of CSR on operations.
Business may have to alter its production methods to become more environmentally friendly. This means, the business will have a reduction in costs.
Increase in R&D to find ways of reducing the level of raw materials used in the production process. This means, the business can make more money on the units of products sold.
The business can alter packaging/product to market more social acceptable. This means, less space required for storage and transportation.
