Chapter-26 Flashcards
Business and the international economy
What is a multinational company?
An organisation that has operations in more than one country.
What is globalisation?
The process by which countries are connected through the trade of goods and services.
What is a trade bloc?
A group of countries that trade with each other and are usually part of a free trade agreement.
What is a home country?
The domestic country where a multinational first establishes its operations.
What is a host country?
The foreign country where a multinational sets up its operations.
What are the benefits of globalisation for businesses?
i) Access to more markets may increase sales.
ii) Labour may be cheaper in host countries, reducing costs.
iii) Increased competition encourages efficiency and cost-effective innovation, leading to higher profits and lower prices.
What are the limitations of globalisation for businesses?
i) Local businesses in host countries may suffer from cheaper foreign products.
ii) Exchange rate fluctuations can reduce profits.
iii) Competition increases for both local and international businesses.
iv) Higher marketing and distribution costs for international businesses.
What are the drawbacks of a multinational company (MNC) to the host country?
i) MNCs may have undue influence on government policies.
ii) Increased competition can harm local businesses.
iii) MNCs may cause environmental damage due to cost-cutting.
iv) Exploitation of labour by paying low wages to unskilled workers.
v) Repatriation of profits reduces financial benefit for the host country.
vi) Exploitation of natural resources may lead to scarcity.
vii) Negative social impact by changing lifestyle and culture.
viii) Less sense of social responsibility due to profit-driven motives.
What is a tariff?
A tax applied to the value of imported and exported goods.
What is a quota?
A physical limit on the quantity of goods that can be imported and exported.
What factors create a positive environment in a host country for multinational companies (MNCs)?
1) Economic factors:
i) Few restrictions on foreign investment
ii) Tax incentives and stable currency
2) Social and political factors:
i) Security and safety
ii) Productive and skilled workforce with lower wages
iii) Political stability and clear legal controls
3) Infrastructure:
i) Good transport, communication, and reliable power supply
4) Operational factors:
i) Close to raw materials and sales outlets
ii) Low factory lease and land costs
iii) Reliable and reasonably priced raw material supply
What are the benefits of a multinational company (MNC) to the host country?
i) Increase in choice and quality of goods and services due to competition.
ii) Improves the country’s reputation, attracting other MNCs.
iii) Increases employment opportunities for the local workforce.
iv) Generates income through taxes, funding public services.
v) Improves infrastructure, benefiting the entire country.
vi) Knowledge-sharing of new technology and techniques.
vii) Improves the balance of payments by reducing imports and increasing exports.
What are the benefits to a business of becoming a multinational?
i) Easier access to raw materials, reducing costs and avoiding trade barriers.
ii) Lower cost of labour in host countries.
iii) Economies of scale from larger production.
iv) Access to bigger markets through mergers or joint ventures.
v) Lower production costs (e.g., energy, rent, transport).
vi) Spreading of risk across multiple markets.
vii) Premium pricing for globally recognised brands.
What is the impact of increased imports and exports on a country?
i) Increased imports: Can trigger inflationary pressure on the economy.
ii) Increased exports: May lead to a higher demand for the country’s currency, improving the balance of payments.
What is depreciation in terms of currency?
Depreciation occurs when the value of a currency decreases in relation to another currency.
What are the possible threats to a multinational company (MNC) in a host country?
i) Shortage of labour may require expensive foreign workers.
ii) Lack of local market knowledge can reduce sales.
iii) Language barriers may reduce efficiency.
iv) Cultural differences can affect acceptance.
v) Strict regulations increase operational difficulty.
vi) Hostile business environment from competitors.
vii) High labour costs increase expenses.
viii) Local opposition or pressure groups harm reputation.
ix) Low brand awareness increases advertising costs.
x) Currency fluctuations affect profits.
xi) Political instability causes delays.
What is an exchange rate?
An exchange rate is the rate at which one country’s currency can be exchanged for that of another.
What is the impact of currency depreciation on importers and exporters?
i) Impact on importers: Imports become more expensive, which increases costs for businesses relying on imports.
ii) Impact on exporters: Exports become cheaper overseas, potentially increasing demand and sales.
What is appreciation in terms of currency?
Appreciation occurs when the value of a currency increases in relation to another currency.
What is the impact of currency depreciation on importers and exporters?
i) Impact on importers: Imports become cheaper, benefiting businesses that rely on imported goods.
ii) Impact on exporters: Exports become relatively more expensive, reducing demand. Exporters may cut prices or reduce output to maintain sales.
What is the impact of currency depreciation on a country?
i) More imports may lead to a decrease in the balance of payments.
ii) A fall in exports could result in a decline in GDP and higher unemployment.
iii) Local businesses may face competition from cheaper imported goods and may reduce costs and selling prices.
