Chapter 10: The Importance & Growth Of Multinational Companies

Question 1

Benefits to business being multinational

Answer 1

• Lower costs
• Higher profile
• Avoiding trade barriers
• Lower taxes
• Larger customer base

Question 2

Commodities

Answer 2

Products that are bought & sold

Question 3

Patents

Answer 3

Legal documents giving a person or company the right to make or sell a new invention, product or method of doing something and stating that no other person or company is allowed to do this

Question 4

Ventures

Answer 4

New business activity that involves taking risks

Question 5

Benefits of multinations to country economy

Answer 5

• Increase in income & employment
• Increase in tax revenue
• Increase in exports
• Transfer of technology
• Improvement in the quality of human capital
• Enterprise development

Question 6

Currency reserves

Answer 6

Money in foreign currency held by a country & used to support its own currency & to pay for foreign imports & foreign debts

Question 7

Human Capital

Answer 7

People & their skills

Question 8

Enterprise

Answer 8

The activity of starting & running businesses

Question 9

Larger customer base

Answer 9

Multinationals can boost sales revenues by selling to global markets rather than just domestic markets, helping them to increase profits & win market share from competitors

Question 10

Lower costs

Answer 10

Able to exploit economies of scale & therefore reducing costs, helping them to gain competitive edge & put pressure of rivals

Question 11

Higher profile

Answer 11

Large companies with strong brand names are recognisable. This helps to encourage existing customers & attract new ones

Question 12

Avoiding trade barriers

Answer 12

Multinationals can set up operations in other countries, therefore they can bypass the trade barriers by establishing operations in countries that have barriers in place

Question 13

Lower taxes

Answer 13

Multinations able to reduce taxes on profits by setting up their head offices in countries where taxes are lower. This means higher dividends can be paid to shareholders

Question 14

Increase in income & employment

Answer 14

Multinationals create jobs therefore income rises in those countries. Employment & extra output generated by multinationals increases economic growth & raises living standards

Question 15

Increase in tax revenue

Answer 15

Profits made by multinationals are taxed by host nation which increases tax revenue for government & helps improve government services

Question 16

Increase in exports

Answer 16

Output produced by a multinational that is sold out of the host country is an export which helps countries increase their foreign currency reserves

Question 17

Transfer of technology

Answer 17

Multinationals often provide foreign suppliers with technical help, training & information and may help local suppliers purchase resources & modernise production facilities

Question 18

Improvement of quality of human capital

Answer 18

Training & work experience are provided for workers by multinationals, which is especially beneficial for developing countries where training may otherwise be unavailable

Question 19

Enterprise development

Answer 19

Multinationals provide skills needed for enterprise & may encourage local people & companies to supply services (e.g. transport, accomodation)

Question 20

Drawbacks of multinationals to country/economy

Answer 20

• Exploitation of less developed countries
• Environmental damage
• Repatriation of profits
• Lack of accountability

Question 21

Exploitation

Answer 21

Situation in which someone is unfairly treated & asked to do things for someone for very little in return

Question 22

Environmental damage

Answer 22

May cause environmental damage as they are heavily involved in extraction industries & mining is often destructive

Question 23

Exploitation of less developed countries

Answer 23

• Encourage developing countries to rely on producing primary products which limits their own independent development
• Low wages & child labour in poor conditions
• Taxes to host nation minimal

Question 24

Repatriation of profits

Answer 24

The profits earned by the multinational could be sent back to their home country. Host country loses out

Question 25

Repatriation

Answer 25

Where a multinational returns the profits from an overseas venture to the country where it is based & has its headquarters

Question 26

Lack of accountability

Answer 26

Able to evade law, especially in countries where government is corrupt or weak, & look to operate in places where regulation is insufficient or non- existsent