Global Industries And Corporations (MNCs) Flashcards
What is a multinational company?
A multinational company is one that has branches or manufacturing plants in several countries.
What are the positive impacts of MNCs?
Local labour: western training methods may make the local workforce more productive/employable.
Wages: MNCs usually pay higher wage rates than local firms, improving standards of living.
Working conditions: MNCs have international reputations to maintain so they will tend to provide above average conditions.
Job creation.
What are the negative impacts of MNCs?
Local labour: western employees may attract over qualified people possibly stripping local businesses and public services of skilled staff.
Wages: some locals may feel bitter that they are paid less than Westerners for doing the exact same job.
Working conditions: conditions may be above average, yet still quite shocking to Westerners. Some MNCs may have impressive policies in place yet the workplace reality may be worse than the paper theory.
Job creation: the success of MNCs may sometimes be at the expense of local independent firms, the key measure is net job creation.
What is the impact of MNCs on local businesses?
Creates hundreds of jobs will look to local businesses for some supplies,
Create more spending power locally and will add income to the area that local entrepreneurs can exploit.
However if the operation started by an MNC provides direct competition to an existing business, it may have too much power for local rivals.
What is the impact of MNCs on local communities and the environment?
Investment in local communities, raising standards of health care, education and infrastructure can be found.
Alongside these multinational firms can cause damage to local communities, disrupting social structures and indirectly bring problems of crime that can be associated with suddenly newly found wealth.
What does foreign direct investment mean?
Foreign direct investment occurs when a business purchases non-current asset in another country.
What are the impacts of MNCS on the national economy?
- FDI flows: investing directly into other countries means they are injecting cash into the national economy which creates jobs. However once a multinational is generating profit, likelihood is that the profit will be sent out of the country, back to the multinationals home country.
- Balance of payments: countries that import more than the export run a current account deficit. This is likely to lead to a fall in the value of currency which creates a risk of inflation.
- Technology and skills transfer: when multinational open facilities in the new host nation, they are likely to introduce ideas and methods that may be new to the country which allows the local economy economy to copy or borrow the techniques and methods being used, this improves the efficiency of local businesses.
- Consumers: consumers within those countries gain more choice which is a good thing however problems may emerge if the competition for multinational drives domestic firms out of business.
- Business culture: the consistency of operation may not be commonly found in host countries. As domestic supplies deal with multinational they are likely to adopt a more consistent and professional business culture.
- Tax revenues and transfer pricing: different countries charge different rates of tax on business profits, it is logical to maximise the profits in countries where tax rates are lowest. Mechanism used by multi nationals to engineer this is transfer pricing.
What is transfer pricing?
Transfer pricing is a method of pricing goods and services transferred within a multinational or trans-national company in order to reduce tax burdens and maximise profits.
It is one of the reasons why globalisation has increased and why operating in more than one territory can be beneficial for firms looking to minimise their overall tax liability.
The purpose of transfer pricing is to push profits into territories where either the tax rates are more favourable, or where more loopholes exist to be exploited.
What are business ethics?
Business ethics concerns the morality of business decision-making and actions. The natural conflict between operating in a morally acceptable way and boosting profit can be intensified when a multinational begins operating in a less economically developed country.
What are stakeholders conflicts?
Large businesses operating on a global scale and more likely to be pursuing a objective of maximising profit profit, under pressure from the shareholders. Given the power of large shareholders, they are likely to be the dominant stakeholder group, who get in their way.
Give an example and the ethical problem for retailers and their suppliers?
It’s difficult to track whether suppliers are acting in an ethical way, e.g. whether they exploit children with child labour.
Price negotiation is tough, but once the price is agreed, it is unethical to bully a small supply in to receiving this.
What are the issues relating to pay and working conditions?
- Should wealthy consumes feel comfortable wearing clothes made by factory workers paid pence, rather than pounds, per hour?
- Should multinational companies be responsible for the pay and working conditions in their supplies factories?
What’s the working conditions that could be seen to be ethically acceptable?
- Cramped and hot, where profit margins are too low to allow more space in air-conditioning.
- Long working hours, perhaps up to 12 hours a day.
- Agricultural workers planting rice-bending over for perhaps 12 hours a day.
What’s the working conditions that are unconditionally unacceptable?
- Dangerous Conditions with machinery and fire risk-and perhaps chemical application.
- Forcing people to work long hours. Perhaps by threats or dismissal.
- Long backbreaking hours in agriculture with little pay-wall while farmers and dealers get rich.
What are the ethical issues on waste disposal?
In developed economies, disposal of hazardous substance is highly regulated and expensive. However some business is the less developed countries with a week or non-existent regulations as a cheap solution. Don’t be hazardous products or byproducts on less-developed countries is unethical.
The major ethical issues highlighted on the specification of the exploitation of workers and the child labour, both of these practices are clearly wrong. However which two issues can be raised?
- What is the alternative for the work of the child?
- should the business be responsible for the employment practices of the suppliers, or the suppliers suppliers?
What are the ethical issues around product labelling?
- Implications of messages about the big benefits of the product.
- Inferences about the products ingredients or methods of production, implying it is all natural but without being clear about the level of highly processed ingredients used in it.
- On helpful imagery on packaging or an advert which is designed to infer, suggest or imply something on true, without explicitly claiming an untruth.
A range of promotional activity that businesses undertake can be criticised for being unethical. What are these examples?
- Promotions that encouraged to consumers to buy more than they need can lead to food waste.
- Food retailers have also received criticism for running BOGOF promotions on sugary drinks and food.
- Advertising has also been blamed for social issues, such as body image issues, especially among teens.
- Companies offering credit to try to encourage people to buy products they really cannot afford not to be accused of unethical promotion.
What is lobbying?
Lobbying describes the process of directly trying to influence key political decision-makers to act in the best interests of the business.
What may businesses try to achieve from lobbying?
- Granting licences to run phone, rail or electricity networks.
- Granting licences to extract raw materials.
- encouraging changes in laws and regulations affecting the multinational operations.
- offering taxbreaks.
- overlooking instances where a multinational has failed to adhere to regulations.
How can pressure groups influence governments?
They can influence government in order to try to curb business actions they do not support. No power though, is limited to influencing rather than controlling the actions of multinationals. However in many cases multinationals have stopped or adjusted activities that powerful pressure groups objected to.
Why does social media have an impact on company behaviour?
Social media is power is to be able to almost instantaneously shine a light on the events to audiences of millions. Multinational businesses are aware of the potential number of customers who may discover mistakes or malpractice that cost the business poor publicity, leading to the customers going to rivals.
How does social media have little impact on company behaviour?
The speed with which issues appear on social media is tremendous but they also disappear from social media quickly to. If a company can weather the storm for a week or so Twitter users are likely to have moved onto the next issue.
