Multinationals and Franchises Flashcards
Advantages to HOME country…x7
Transfer pricing reduces total tax paid which results in higher dividends to shareholders
Economies of scale reduces prices when bulk buying which can be reinvested to grow the business
New production techniques can be learned and installed dingo the business improving efficiency and productivity
Cheaper labour due to no or low minimum wage which increases profit
Closer to raw materials/suppliers reducing transportation costs and carbon footprint gaining the business a good reputation
Increased brand awareness will increase demand
Can become powerful and influence the government meaning the MNC can dominate the market and control prices. This reduces competition
Advantages to HOST countries are…x4
Brings new jobs to an area which reduces unemployment. It also provides indirect employment for local suppliers.
This improves the standard of living which improves the levels of disposable income that can be used in the country, improving their economy
Can provide training which means employees can transfer new skills and use them to set up new businesses or improve their business, increasing their competitiveness.
May improve infrastructure by providing finance to rebuild it e.g. roads or rail networks which is beneficial for both MNC and HOST
An MNC is…
An MNC is a business which owns or controls production or service facilities in more than one country
Franchise is when…
A franchiser grants permission to a franchisee to sell or distribute their companies goods or services in a certain area
Franchisee is…
The individual taking on a business
Franchisee is…
The individual taking on a business
Franchisee is…
The individual taking on a business
Franchiser is…
The business who’s name is being used
Advantages to franchiser…x4
Allows them to increase their market share and customer base
Strengthens brand name
Benefit from franchisee ideas
Increases profitability as they receive regular royalties from branch
Disadvantages of franchiser…x3
Lose some reputation if the franchisee isn’t so good which can tarnish brand
Only share of profits received- not all profit back to franchiser
Franchisee can change and adapt things if franchise agreement isn’t clear which means the franchiser loses control and may give a difference experience for customer
Advantages to franchisee…x3
Experience, help and advice available
Risk of business failure is reduced
Franchiser advertises nationally meaning little advertising needs to be done in the first year
Disadvantages to franchisee…x4
Have to follow strict rules set out which reduces initiative
Hard to respond to local PESTEC factors
High start up fees
Reputation is dependant upon how good the other franchises are
Disadvantages to HOME countries are…x3
Balance of payments may suffer as in foreign country profits are reinvested in the horse country it provides machinery or buildings
Reduces demand for unskilled workers in home country which increases unemployment. This increases benefits and lowers tax revenues
Unfamiliar with local cultures can cause conflicts and misunderstandings gaining the business a bad reputation and losing customers
Disadvantages to HOST countries are…x5
Foreign MNCs can become so powerful they can influence government.. Payment may need to pay grants or tax breaks to MNC so they don’t leave the country
Strategic decisions are made in the home country which means business could decide to close production which could result in increased unemployment which reduces living standards
May use transfer pricing if host country corporation tax Ishai which deprives the government of tax revenues which pressures the rest of the population with overtaxation
Made monopolise local materials e.g. Coca-Cola requires local water thus creating a depletion of local resources meaning farmers for unable to water their crops
Local businesses in whose country will face increase competition which could result in bankruptcy and business closures
