The Impact of MNCs

Question 1

Define an MNC

Answer 1

A multinational corporation is a business that has operations and assets in more than one country. This includes production plants, sales outlets, subsidairies.

Question 2

What areas of the local economy can MNCs impact?

Answer 2

• local labour: working conditions and job creation
• local businesses
• the local community and environment

Question 3

What areas of the national economy can MNCs impact?

Answer 3

• FDI flows
• balance of payments
• technology and skills transfer
• consumers
• business culture
• tax revenues and transfer pricing

Question 4

What are the positive impacts MNCs have on local labour?

Answer 4

• create jobs with better opportunities
• pay higher wages than local firms, thus helping to improve living standards
• training methods are more efficient, making the workforce more employable
• better working conditions

Question 5

What are the negative impacts MNCs have on local labour?

Answer 5

• can exploit local workers
• create wage inflation by paying more
• attract talented locals, reducing the labour pool for local firms
• working conditions may be poor despite policies stating otherwise

Question 6

What are the positive impacts MNCs have on local businesses?

Answer 6

• provide support services (builders, cleaners, supply of raw materials)
• improved infrastructure
• more local start ups/ firms expand to compete. This creates more jobs and eventually a positive multiplier effect

Question 7

What are the negative impacts MNCs have on local businesses?

Answer 7

• drive up wage costs for local businesses who compete for workers
• local firms may become less competitive if MNCs have more favourable terms
• local firms may lose customers to MNC competition

Question 8

What are the positive impacts MNCs have on the local community/environment?

Answer 8

• more jobs created leads to less poverty
• improved infrastructure
• higher tax revenues
• projects used to improve environmental standards

Question 9

What are the negative impacts MNCs have on the local community/environment?

Answer 9

• damage to local industries
• loss of traditions and culture
• environmental disasters

Question 10

What are the positive impacts MNCs have on the national economy?

Answer 10

• FDI increases economic growth
• new technologies and skills brought in my MNCs ‘rubs off’ on the local economy
• MNC training improve workers skills, which are transferred when they move jobs
• improves the productivity/competitiveness of a country
• increases the choice and quality for consumers
• may help to introduce innovative/customer focuses cultures
• more tax revenue for the government, reducing the need for borrowing

Question 11

What are the negative impacts MNCs have on the national economy?

Answer 11

• may send profits back to their home country
• MNCs may suffer copy-cat production
• may erode traditional ways of life
• may introduce more aggressive cultures due to profit motives
• different countries have different tax rates so MNCs may relocate to tax havens
• can be used to manipulate profits between subsidaries.

Question 12

Define FDI FLOWS

Answer 12

FDI flows are a record of the value (expressed in US dollars) of direct investments made between countries in a given period of time.

Question 13

Define BALANCE OF PAYMENTS

Answer 13

BoP is a record of a country’s trade in goods and services, investment income and transfers with the rest of the world.

Question 14

Define TAX REVENUE

Answer 14

Tax revenue is the money that a government earns from tax.

Question 15

Define TRANSFER PRICING

Answer 15

Transfer pricing is the price charged by one company to another within the same multinational corporation.