Multinationals

Question 1

Describe the main features of a multinational organisation.

Answer 1

A multinational is a company which has its headquarters in one country but has production facilities in other countries. Examples of multinationals include Apple, Adidas and BP.

Question 2

State the advantages that a multinational enjoys over other business organisations.

Answer 2

Advantages

• Access to a wider market – producing overseas expands the market the company’s product and leads to increased sales revenue, market share and increased profitability.
• Producing overseas increases brand awareness beyond the home country.
• Cheaper production costs – the cost of land and labour is cheaper in developing countries, eg lower wage rates.
• Economies of scale - cost per unit can be lowered through specialisation.
• Greater access to cheaper suppliers and skilled workers.
• Tax breaks – different nations have different levels of corporation tax.
• Avoidance of trade barriers such as tariffs and quotas.
• Accessing government grants – the governments of some countries offer financial incentives to locate new production facilities.
• Legislation in other countries may be more relaxed.
• Creates jobs and boosts the local economy of developing countries.

Question 3

Outline any disadvantages of multinational companies.

Answer 3

Disadvantages

• Much overseas production work is deskilled jobs that may be low-paid, repetitive assembly line work. This does not benefit the host country in the long term.
• Profits are not retained in the host country, for example, profits made by Apple from production to Vietnam would still go back to HQ in California.
• Relaxed legislation may lead to cutting corners, for example health and safety laws.
• Social responsibility may be overlooked if there are no environmental laws in place.
• Multinationals are often accused of exploiting the workforce by enforcing minimum wages and longer hours.
• Multinationals can exert influence national governments by threatening to pull out of a country if they don’t get deals on workforce (wages) or overheads (land, rent and rates) and pollution/clean-up deals.