impact of MNC's on the economy

Question 1

improvement in infrastructure

Answer 1

MNC’s may invest in roads, water, gas, facilities to help transport. Also to build trust with community

Question 2

balance of payments

Answer 2

money into national account from FDI
value of sales overseas represents a flow into national account
helps LEDC’s to become established in global market

Question 3

higher GDP

Answer 3

spent on establishing new facility overseas

Question 4

increased tax revenue

Answer 4

gov. can tax profits

increased employment means less unemployment benefits

Question 5

domestic businesses supported

Answer 5

MNC needs suppliers

Question 6

can encourage more FDI

Answer 6

income from original FDI used to reduce national debt making economy appear more stable, encouraging further FDI

Question 7

local environments

Answer 7

agriculture can be negatively affected

large production leads to pollution, oil spills, outs fishing and farming at risk

Question 8

employment competition

Answer 8

local employers can’t offer the same high wage

can put pressure on local firms to make competitive changes

Question 9

disposable income

Answer 9

higher employment rates means higher disposable incomes, boost in trade for restaurants

Question 10

restricting opportunities for high skilled workers

Answer 10

may offer low value jobs and bring in skilled workers from home country

Question 11

transfer pricing

Answer 11

MNC avoid tax
maintain a low profit in country A (high tax policy) and generate high profits in country B (low tax policy)
governments must consider attractive tax policies to encourage FDI, MNC will always want low tax

Question 12

business culture

Answer 12

some people may use the employment opportunities with MNC to learn skills and save up capital to open their own firms. MNC’s may encourage them to become supplier if they have been taught high quality standards. gives MNC flexibility
MNC culture also influences, e.g Japan in England influenced a lot of businesses to adopt Kaizen

Question 13

horizontal transfers

Answer 13

knowledge transferred across same industry e.g when Nissan became established in UK many car manufacturers copied their practices

Question 14

vertical transfers

Answer 14

training or assistance to suppliers

forward vertical when domestic firms buy from MNC e.g components to improve working practices

Question 15

reverse engineering

Answer 15

analysing how a computer product was made and copying certain parts to produce and sell at lower price

Question 16

lower prices for consumers

Answer 16

arrival of MNC’s increases competition
MNC’s use modern efficient production and can offer lower prices
competitive pressure forces domestic firms to offer low prices

Question 17

more choice for customers

Answer 17

they increase available products e.g Macdonalds and supply other firms allowing them to increase product range

Question 18

improved quality for customers

Answer 18

MNC’s usually use TQM and state of the art machinery

Question 19

better living standards

Answer 19

MNC’s can lead to higher income allowing them to spend more on now wider choice of available goods