Chapter 26: Continuation Flashcards
What are the benefits of a business becoming a multinational?
- Easier to access raw materials
- Lower cost of labour
- Economies of scale
- Access to bigger markets
- Premium pricing
Easier to access raw materials
- By setting up operations where the raw materials are easily found, businesses can reduce transportation time and costs
- May even be able to avoid any trade barriers
- These advantages help to lower productions costs and improve reliability of supply
Lower cost of labour
If there’s a plentiful supply of labour in the host country then it’s likely to be available cheaply.
Economies of scale
- By selling in many countries, businesses can benefit from economies of large-scale production
- Makes them very competitive
Access to bigger markets
Mergers and joint ventures with companies in the host country can lead to increases in revenue.
Premium pricing
MNCs may be able to charge higher prices for globally recognised brands.
What are the threats of a business becoming a multinational? (Card 1)
- Shortage of labour (more expensive if MNC has to bring in specialist employees and managers from other countries)
- Lack of information about the local market (fewer sales as products being sold by MNC my not meet the market’s demand)
- Language barrier
- Cultural differences (to be accepted, the MNC needs to be sensitive to the culture of host country)
What are the threats of a business becoming a multinational? (Card 2)
- Local opposition or threat from pressure groups (could lead to bad publicity)
- Little brand awareness (may have to spend lots of money on advertising)
- Political instability in the host country (can make government decision-making slower and cause delays for the MNC)
What may be a solution to these threats?
- Local joint ventures
- Strategic alliances
- Use of local agents
- E.g. if an MNC forms a joint venture with a local company in the host nation then the problems of language barriers, cultural differences and lack of knowledge of the local market may be solved easily
What are the benefits of a multinational to the host country?
- Increases the choice and quality of goods and services (competition may increase quality of goods)
- Improves the country’s reputation
- Increases employment opportunities (also governments of host countries provide incentives to MNCs to set up in areas with high unemployment and a plentiful supply of labour)
- Generates incomes in the form of tax…leading to improved infrastructure (income generated by the MNC will be taxable)
How does a MNC improve a country’s reputation?
- The fact that a foreign company has decided to invest in the host country shows that it has a positive regulatory and economic environment
- Encourage more MNCs to set up there
How can an MNC improve the balance of payments in the host country?
- Imports may reduce as the MNC may be able to provide the products that were previously imported
- Exports will increase as the MNC has global presence and will export its goods
What are the drawbacks of a multinational to the host country? (Card 1)
- Undue influence on the government
- Increased competition
- Environmental damage
What are the drawbacks of a multinational to the host country? (Card 2)
- Exploitation of labour
- Repatriation of profit
- Exploitation of natural resources
What is undue influence?
Undue influence occurs when an individual is able to persuade another’s decisions due to the relationship between the two parties.
Often, one of the parties is in a position of power over the other due to elevated status, higher education, or emotional ties.
The more powerful individual uses this advantage to coerce the other individual into making decisions that might not be in their long-term best interest.
