Multinational companies

Question 1

What is a multinational company

Answer 1

Large business with significant production or service operations in two or more countries

Question 2

How do companies develop into multinationals

Answer 2

Exploit economies of scale
Marketing
Technical and financial superiority

Question 3

Benefits to a business of being a multinational

Answer 3

Access to a wider market
Lower costs
Higher profile
Avoiding trade barriers
Reduced taxation

Question 4

Benefits of multinationals to a country

Answer 4

Increase in employment and income
Increase in tax revenue
Increase in exports
Transfer of technology
Improving human capital
Enterprise development

Question 5

Disadvantages of multinationals to a country

Answer 5

Environmental damage
Exploiting less developed countries
Repatriating profits
Lack of accountability

Question 6

What are commodities

Answer 6

Products that are bought and sold

Question 7

What are patents

Answer 7

Legal documents giving a person or company the right to make or sell a new invention, product or method of doing something, and stating that no other person or company is allowed to do this

Question 8

What are ventues

Answer 8

New business activity that involves taking risks

Question 9

What are currency reserves

Answer 9

Money in foreign currency held by a country and used to support its own currency and to pay for imports and foreign debts

Question 10

What is human capital

Answer 10

People and their skills

Question 11

What is an enterprise?

Answer 11

The activity of starting and running businesses

Question 12

What is exploitation

Answer 12

Situation in which you treat someone unfairly by asking them to do things for you, but give them very little in return

Question 13

What is repatriation of profit

Answer 13

Where a multinational returns the profits from an overseas venture to the country where it is based

Question 14

Explain how multinationals develop through economies of scale

Answer 14

They sell to global markets so they will produce more than those who sell to domestic markets. This means that their costs will be lower. Therefore, they have more competitive edge
They can also lower costs by pressuring suppliers to lower their prices and through access to cheap global resources

Question 15

Explain how multinationals develop through technical and financial superiority

Answer 15

They develop into large businesses over a large period of time so they accumulate knowledge and develop advanced technologies.

They can afford to invest in research and development.

Experienced and can afford to employ the most qualified workers available.

Have resources to take risks and diversify

Question 16

Explain how multinationals can benefit from having a larger customer base

Answer 16

They have access to global markets therefore they can sell to more customers. This means that they can boost their sales revenue. Therefore profitability and market share increases

Question 17

Explain how multinationals can benefit from lower costs

Answer 17

They can buy resources for lower prices and borrow money for cheaper rates

Transport costs will be reduced as multinationals are likely to set up factories in new countries so that the distance from the production site to the market is reduced. This increases profit