The impact of MNC's (4.4.1) Flashcards
What is a Multinational corporation (MNC)?
Is a business that is registered in one country but has manufacturing operations/ outlets in different countries
What factors contribute to the growth of MNC’s?
Globalisation and Deregulation
What factor will MNC’s choose locations based on?
-Cost advantages (lower production costs)
-Access to markets
What are the advantages of MNC’s on employment and working conditions?
-MNC’s lead to job creation for the local community
-MNC’s may offer more competitive wages than local businesses
-MNC’s may offer better working conditions than local businesses
What are the disadvantages of MNC’s on employment and working conditions?
-MNC’s may exploit local workers if employment regulation is weak or not enforced
-MNC’s tend to establish production facilities in regions where labour costs are lower and pay relatively low wages
-MNC’s may not create jobs for local workers as they may relocate workers from their own country to work abroad (Chinese companies are notorious for this)
What are the advantages of MNC’s on local businesses?
-Help boost local economy creating opportunities for local businesses
-May be potential opportunities for joint ventures and partnerships with MNC’s who seek to gain knowledge of the local market
What are the disadvantages of MNC’s on local businesses?
-Reduce supply of workers available to local businesses if they offer better pay and working conditions
-Able to produce at a lower cost and compete with local businesses, they may lose local customers
What are the advantages of MNC’s on local communities and environments?
-Local residents may benefit from job opportunities and growth in the local economy
-Often invest to improve infrastructure
-Pay taxes and business rates to local councils/authorities
-Can establish charitable initiatives that have a positive effect on the local community
What are the disadvantages of MNC’s on local communities and environments?
-May cause damage to local habitats/environment during production process
-May leave unsightly production facilities behind once have extracted all of the resources and left the country
What are the impacts on MNC’s on the national economy?
- FDI flows
- Balance of payments
- Technology and skills transfer
- Tax Revenue and transfer pricing
- Business Culture
- Consumers
What are the advantage of FDI flows from MNCs?
-Initial lump sum of money that enters the country to pay for the investment. This money enriches local firms or citizens or reinvest back into local economy
What are the disadvantages of FDI flows from MNCs?
-Assets from the home country are now owned or partly owned by foreign businesses
-Local firms or individuals who have sold the asset, may not reinvest the money into the local economy but may move it abroad/offshore
What is the balance of payments?
Is a statement showing all of the financial transactions between a country and the rest of the world
How can MNC’s have a positive and negative impact on the balance of payments?
Positive impact:
FDI helps to improve BofP.
-Any goods and services exported for sale by MNC will generate further inflows to the country’s BofP
Negative Impact:
-If MNC buys raw material or equipment abroad there is a flow of money out of the country
-If MNC send profits back to their home country, it will also represent a flow of money out of the country
How can MNC’s bringing in new technology and skills to local businesses be good?
This will help to improve efficiency and productivity, helping domestic businesses to become more competitive in the national and international market
How do customers in countries which host MNC’s benefit?
-Wider choice of goods and services
-Lower prices if MNC’s pass their cost advantages in the form of lower prices
-Better quality of goods and services
-Improved living standards as people have higher incomes due to the job creation therefore resulting in reduction in unemployment
How do customers in countries which host MNC’s not benefit?
In long run can push domestic businesses out of the market leaving customers with less choice. This may lead to MNC’s exploiting customers with higher prices and low quality products as they have limited choice
What is business culture?
Set of behavioral and procedural norms within a company, including its policies, ethics, values, employee behaviors, and attitudes
What are the advantages of MNC’s on business culture?
-Domestic businesses may be influenced by the business culture of MNC’s
-MNC’s may also encourage a culture of entrepreneurship. This can help boost overall economic growth
What are the disadvantages of MNC’s on business culture?
-MNC’s may demonstrate unethical behaviour and have a company culture of exploitation
How does MNC’s affect Tax Revenue?
MNC’s increase Gov Tax Revenue which can be used to improve public services and infrastructure. However, MNC’s seek to maximise profits and will try to reduce their tax liabilities and will tax avoid
