Global industries and companies Flashcards
1
Q
MNCS
A
Business that has operations in more than one country
2
Q
Reasons for MNCs
A
- Global brands seek to drive revenue and profit growth in emerging economies.
- For EOS – reduce unit costs by concentrating production in a few key international locations.
- Need to supplement relatively weak demand in existing developed economies.
- To avoid protectionism
- Increased takeover activity.
3
Q
Advantages of MNCS
A
- Provide significant employment and training to labour force in host country.
- Transfer skills and expertise helping to develop the quality of the host labour force.
- Add to the host country GDP through spending (e.g) local suppliers and through capital investments)
- Competition acts as incentive to domestic firms in the host country to improve their competitiveness ( by raising quality or efficiency)
- Source of significant tax revenues for the host economy
4
Q
Disadvantage of MNCS
A
- Domestic businesses may not be able to compete with MNCS and some will fail.
- May not feel that they need to meet host country expectation for acting ethically or socially responsible way.
- May be accused of imposing their culture on the host country ( at expense of the richness of local culture)
- Profits earned may be remitted back to the MNC base country rather than reinvested in the host economy.
- May make use of transfer pricing and other tax avoidance measure to significantly reduce profits on which they pay tax to the government in the host country.
5
Q
Why some MNCs have low level of public trust?
A
- Tax avoidance
- Exploitation of workers and supply chains – working conditions
- Damaging domestic firms
6
Q
Ethics
A
- Moral guidelines which govern acceptable behaviour
- Crucial in decision making.
7
Q
Pay and working conditions
A
- “sweatshop” labour in low labour cost countries such as Bangladesh and Vietnam
- Low labour costs – might spend less on things such as safety equipment and proper sanitation – saves money and increases profits – leads to poor working conditions ( exploiting labour)
- Child labour – profits can be increases – due to them being paid lower wages – less aware of any rights they have – difficult for firms to assess whether suppliers use child labour as company record may not give accurate D.O.B as people might actively hide their use of child labour.
- Consumer may protest or refuse to buy the products – due to workers being treated unethically – lead to public pressure and protest – could force MNC to start take control of working condition for its employees.
8
Q
Environmental impact
A
- Consumers becoming more aware of the environmental impacts – puts MNCs under increasing pressure to act ethically – reduce their environmental impacts.
- Waste disposal – very costly for business to do the legal and safe way – might not have the legislation or infrastructure to deal with waste in an environmentally friendly manner – meaning they dispose their waste unsafely.
9
Q
Marketing
A
- Adapt marketing – avoid inappropriate promotional activities.
- Countries can also have different laws of how products are labelled and using the same labelling in different countries may be misleading to customers (e.g: EU requires food labels include the amount of salt in the food whereas in the US the label must include the amount of sodium
10
Q
Controlling MNCs
A
- Government often tries to control the activities of MNCs in order to ensure that MNC does not exploit stakeholders or have negative effects on the economy. This can be done through legal control or political influences.
- Protect against exploitation.
- Discourage resource depletion.
- Ensure local culture is protected.
- Discourage abuse of market power.
- Protect domestic businesses.
11
Q
Changing law
A
- Can change tariffs and quotas ( might increase tariffs on import of raw materials in order to encourage MNC’s to use resources within country – help reduce FDI outflows)
- Employment law – enforce minimum wages.
- Consumer laws – ensure product safety standard are met.
- Environmental protection laws – limit greenhouse gas emissions
12
Q
Political influence
A
- Polices are course of action used by government to address or make changes.
- Tax avoidance – low tax rates – come under criticism from other governments – may be seen to be stealing tax revenue from other nations (e.g: Ireland in 2018 for its low rates of corporation tax)
- Business ethics
- Dominant market positions
13
Q
Pressure groups
A
- External stakeholders – tend to focus on activities and ethical practice of industries with ethical issues.
- Name and shame specific MNCs that they think are unethical and may also use direct action, like sit-ins and strikes.
- Might target campaigns at governments to cause legislative change which well then force MNCs to change their behaviour to avoid breaking the law.
- Raise awareness of issues quickly
- May not be able to stop excessive behaviour by their members (property damage) – could harm their campaign – weaken their influence against MNCs.
14
Q
Social media
A
- Allows users to quickly share information about an MNCs unethical practices and organise large campaigns.
- Can put pressure on a firm to change its practices to save its brand image.
- Downside – can lead to the spread of distorted or incorrect information – not that effective as interest and trends change very quickly.
15
Q
Amount of control
A
- Can vary depending on the relative power of a government and its country ( e.g : USA have high disposable income – MNC might do more to make sure they operate there – rather than a country with lower disposable incomes
- Relative power of MNC – firm reliant on scarce resources found in 1 country – easier to control rather than one that can operate anywhere.
- Pressure groups and social media – have less effect on MNCs that make niche products for a small number of consumers – campaign against them might not get as much interest – less likely to cause them to lose sales.
