External business environment - effects on home and host countries

Question 1

Advantages to host country

Answer 1

• GDP (gross domestic product - amount of goods produced and sold in country) increases
• tax raised from MNCs improve infrastructure
• technology transfer benefits local businesses
• employment opportunities, training
• stimulates competition and improves efficiency

Question 2

Disadvantages to host country

Answer 2

• managerial positions from home and low skilled from host
• exploit resources and then relocate
• profits repatriated to home country
• transfer pricing to reduce tax paid
• local businesses close because they cannot compete

Question 3

Advantages for home country

Answer 3

• profits return home which improves host balance of payments
• high quality and technical managerial jobs created at MNC HQ
• home country exports demand increases if foreign subsidiary creates demand

Question 4

Disadvantages for home country

Answer 4

• burden on gov to provide college and uni places as no longer need for unskilled
• employment opportunities reduces as MNCs stop home operations to move elsewhere
• competition from foreign based subsidiaries take away business from home-based companies
• balance of payments suffer short-term as outflow of money to foreign country and profits reinvested for infrastructure