Chapter 35/36 Flashcards
Globalisation/MNCs and FDI
What is globalistation?
The growing interconnection between the world’s economies. Markets are on a global scale so businesses sell to anyone.
What are the features of globalisation?
- Free trade, less laws
- People working/living in any country they choose
- Greater interdependence between nations
- Capital flows between countries
- Free exchange of intellectual property
What are the reasons for globalisation?
Fewer tariffs/quotas, reduced cost of transport, reduced communication costs, increasing importance of MNCs
Why are fewer tariffs/quotas a reason for globalisation?
It means that there are fewer trade restrictions, so more imports are brought in. Govs stop protecting domestic firms.
Why are reduced transport costs a reason for globalisation?
International transport networks have improved and become cheaper, this makes it easier to sell exports since units are sold efficiently.
Why are reduced communication costs a reason for globalisation?
Technological developments have helped globalisation since info can be transferred more easily and people can online shop.
Why is the growing importance of MNCs a reason for globalisation?
If domestic firms have been saturated (supply>demand) businesses will want to sell abroad. Large MNCs can do this because they produce where cots are low.
Who is impacted by globalisation?
Govs, Businesses, consumers, produces and individual countries, the environment.
How are countries impacted by globalisation?
If a business builds a factory in a foreign country, the foreign country will experience lower unemployment. econ growth (higher GDP). Also, the base country counts the sale of goods as an export, benefitting the current balance.
How are govs impacted by globalisation?
The profits made are taxed by the host nation, so there is a higher tax revenue. This can decrease income taxes or improve the quality of gov services. Also, MNCs might encourage people to build accommodation/restaurants.
How are producers affected by globalisation?
They gain access to huge markets which increases their sales and profits, they sell more output and achieve economies of scale for lower costs. Also have access to better quality labour/resources.
How are consumers affected by globalistation?
If MNCs can produce more cheaply in foreign countries, their costs are lower and their prices will likely be lower. Also means their is greater choice of goods + travel destinations.
How are workers affected by gloabalisation?
New jobs created, can work in any country they choose. Reduces labour shortages and attracts FDI. However offshoring may cause unemployment.
What is meant by offshoring?
Businesses moving work to another country to save money.
How are environments affected by globalisation?
Economic growth= more environmental damage as more land is used for business activity and more emissions produced in manufacturing.
Define multinational company.
Firms that operate in different countries and sell to global markets whilst production occurs in several countries.
What are the features of MNCs?
- Huge assets and revenue
- Highly qualified staff
- Powerful advertising capabilities
- Advanced technology
- Exploit EoS
What is Foreign Direct Investment?
When a firm invests into a foreign country.
What are the reasons for MNCs/FDI?
EoS: Large business get lower avg costs so they can produce more for global markets.
Access to customers in different regions: MNCs can sell more goods if they have a larger market.
Access to cheap resources: Can extract cheap resources, cheap labour
Lower transport costs: Lower costs so more can be transported + online shopping.
What are the advs of MNCs and FDI?
Job creation: As factories are built, locals are employed which inc national income. + local suppliers get work.
Develop skills: MNCs train workers, so govs invest in education, which attracts FDI
Develop capital: MNCs make big purchases (tech) which remain in the country.
Develop infrastructure: Ig govs want FDI, they’ll improve roads/power.
Contribute to taxes: More people working= income tax + business tax.
What are disdvs of MNCs/FDI?
Environmental damage: increased production = emissions + extractions. Becomes a cost for gov.
Moving profits abroad: Repatriation, returning profits to home country.
Tax avoidance: MNCs have power, so they can find legal ways to avoid taxes.
