The impact of MNCs Flashcards
What is an MNC?
A MNC is a multinational corporation, a business which operates in more than one country.
What are the positive impacts of MNCs?
Create employment Increases skill base Increases standard of living Raises country's profile Improves balance of payments Improves infrastructure
What are the negative impacts of MNCs?
Profit leakage Low paid jobs Pull out quickly Poor safety record Increases urbanisation Widens poverty gap
Explain MNCs and FDI flows.
FDI is foreign direct investment
When a multinational invests in a host country, the scale of the investment (given the size of the firms) is likely to be significant.
Governments will often offer incentives to firms in the form of grants, subsidies and tax breaks to attract investment into their countries.
Explain MNCs and the balance of payments.
Inward investment will help a country’s balance of payments.
The investment will be a direct flow of capital into the country and the investment is also likely to result in import substitution and export promotion.
Export promotion comes due to the multinational using their production facility as a basis for exporting, while import substitution means that products previously imported may now be bought domestically.
Explain MNCs and technology and skill transfer.
MNCs will bring with them technology and production methods that are probably new to the host country and a lot can therefore be learnt from these techniques.
Workers will be trained to use the new technology and production techniques and domestic firms will see the benefits of the new technology. This process is known as technology transfer.
Explain MNCs and impact on consumers.
If the multinational manufactures for domestic markets as well as for export, then the local population will gain from a wider choice of goods and services and at a price possibly lower than imported substitutes.
Consumers get the benefit of new products and services from the more industrialised nations
Explain MNCs and the impact on business culture.
Cultural and social impact - large numbers of foreign businesses can dilute local customs and traditional cultures.
George Ritzer coined the term McDonaldization to describe the process by which more and more sectors of American society as well as of the rest of the world take on the characteristics of a fast-food restaurant, such as increasing standardisation and the movement away from traditional business approaches.
Explain MNCs and the impact on tax revenues and transfer pricing.
The phrase “transfer pricing” as shorthand for multinational corporations shifting profits to tax havens to avoid tax in developed countries
Multinationals report vast profits in tax havens like the Cayman Islands, Luxembourg, Switzerland and Ireland where there is little or no production going on.
