Edexcel- Impact of MNC'S 4.4 Flashcards
Multinational companies
Business that is registered in one country but has manufacturing operations/outlets in different countries.
Example of a multi national company
Starbucks
Advantages of MNC’s on employment, wages and working conditions
Job creation
Better working conditions than local businesses.
Disadvantages of MNC’S on employment, wages and working conditions
Labour costs lower so pay low wages to staff
Relocate workers from own country
Advantages of MNC’S for local businesses
Boost local economy
Higher wages so spend more on local business products
Disadvantages of MNC’s for local businesses
Unemployment for workers of local businesses
Local businesses may local customers.
Advantages of MNC’S for local communities and environments
Improve infrastructure
MNC’s have to pay taxes and business rates to local authorities which can be reinvested into the local community.
Disadvantages of MNC’S for local communities and environments
MNC’s can cause damage to local environments
Loss of traditions and culture
FDI
Inflow of money into a country if a MNC decides to invest into a country.
Advantage of Impact of MNC’s on the national economy
generate new jobs
economic growth
Disadvantages of Impact of MNC’s on the national economy
Assets from the home country are now owned by foreign businesses
Local firms or individuals may not reinvest the money into the economy but move it abroad.
Balance of payments
statement showing financial transactions between country and the rest of the world.
Balance of payments advantages
MNC’s can help improve the balance of payments as FDI flow will help improve the balance of payments.
Balance of payments disadvantages
MNC buys raw material or equipment abroad there will be a flow of money out of the country.
Technology and skill transfer
MNC’s can bring new skills and technologies to local businesses.
What can technology and skill transfer do?
Improving efficiency and productivity
helping domestic businesses be more competitive
Customer positive
Wider choice of goods and services
Lower prices
Customers negative
push domestic businesses out of the market leaving customers with less choice leading to exploitation of customers.
Business culture advantages
Domestic businesses may be influenced by the business culture of MNC’s
MNC’s may also encourage a culture of entrepreneurship
Business culture disadvantages
MNC’s may demonstrate unethical behaviour and have a company culture of exploitation
Tax revenue and transfer pricing Positives
Potential for host country to gain significant tax revenue which they can invest in improving public services and infrastructure.
Tax revenue and transfer pricing Negatives
businesses may use transfer pricing.
Transfer pricing
Method used by MNC’s to shift profits from where they are generated to countries with lower tax rates.
Reasons for transfer pricing
Search for economies of scale
Avoid protectionism
Transfer pricing advantages
Provide significant employment and training
Transfer of skills and expertise
Transfer pricing disadvantages
Domestic businesses may not be able to compete with MNC’S
MNC’S may not feel they need to meet expectations of host countries and act ethically.
