Theme 3, 3.4 Impact of Globalisation on Local and National Economies

Question 1

Define Multiplier effect?

Answer 1

Bigger change in economy stimulated by initial injection.

Question 2

Define technology transfer

Answer 2

Means the adoption of efficient technology from abroad. FDI will often involve the use of new technology which can spread from MNCs into local businesses.

Question 3

Define Transfer Pricing

Answer 3

Is the settling of prices for transactions between legally separated businesses which have the same ownership or control. It can be used to manipulate profit sharing and tax liability, ( a different form of tax avoidance).

Question 3

Define Repatriate

Answer 3

MNCs are businesses and seek to make profit for their owners. These owners are generally shareholders in the home country so MNCs will repatriate profits to provide dividends.

Question 4

Define Shareholder model

Answer 4

Some shareholders believe that MNCs must put their interest above all else.

Question 5

Define Stakeholder conflict

Answer 5

Different stakeholders have different objectives. The interests of different stakeholder groups can conflict.

Question 6

Define CSR

Answer 6

Refers to the extent to which a business accepts obligations to society over and above the legal requirements.

Question 7

Define Subcontracting

Answer 7

A business practice where main contractor hires additional individuals or companies called subcontractors to help complete a project.

Question 8

Define Cost minimisation

Answer 8

Cost savings that can sometimes lead to exploitation and ignoring obligations.

Question 9

Define External costs

Answer 9

Costs which impact on third parties

Question 10

Define Supply chains

Answer 10

The sequence of processes that starts with the basic inputs to delivering the product to the consumer.

Question 11

Define Exploitation.

Answer 11

Taking advantage of local workers, communities and environment.

Question 12

Define Pressure group

Answer 12

Groups that gather people with shared interest or concern to influence the public, gov or firms.

Question 12

Define Subsidiary

Answer 12

A company that is partly or completely owned by another company that holds a controlling interest in it. They have their own separate legal identity.

Question 13

Define Subsidy

Answer 13

Financial or other incentive to encourage investment.

Question 14

What are MNCs?

Answer 14

Multinational Corporations are corporations with assets in multiple foreign countries.

Question 15

How would investing in foreign countries help the people of that country?

Answer 15

It would create jobs for these people, which could potentially improve their quality of life.

Question 16

Why would MNCs choose to shift their production processes abroad?

Answer 16

To take advantage of the low cost of labour.

Question 17

How would local firms benefit from MNCs in that area.

Answer 17

Local firms may supply the MNC with raw materials or other goods, thus increasing their revenue.

Question 18

Briefly describe Corporate Social Responsibility (CSP)

Answer 18

This is when firms ensure that their actions are beneficial to society.

Question 19

How could the presence of an MNC hinder the growth of local firms.

Answer 19

If local firms can’t benefit from economies of scale and provide goods at the same price level as the MNC, they may lose out on revenue which will affect their scope for profit.

Question 20

How would the local economy Benefit from MNCs ?

Answer 20

MNCs would increase employment in the area, and through the multiplier effect this would increase spending and lead to stronger economic growth.

Question 21

Would an increase in exports improve or damage the balance of payments?

Answer 21

This would improve the balance of payments.

Question 22

Who are stakeholders?

Answer 22

These are anyone with an interest in how a particular business is run.

Question 23

What do cheap products imply about the workers making those products?

Answer 23

That those workers are paid very poorly.

Question 24

Why do some countries fear trying to control MNCs?

Answer 24

If they impose too much regulation and red tape, the MNC may cease activities in that country, which could lead to unemployment and less economic growth.

Question 25

Why would a firm monitor its own behaviour?

Answer 25

It may have high ethical standards.

Question 26

What are the OECD guidelines for MNCs?

Answer 26

They encourage firms to adhere to the principles of human rights.

Question 27

How might self-regulation harm a firm’s profit?

Answer 27

They may lose out in a competitive market, thus reducing the profit potential of a firm.