Theme 4 - Global industries and companies (MNC) Flashcards
MNC
A multi national corporation = a business that is registered in one country but has manufacturing operations outlets in a different country
Points about mncs
- Factors such as globalisation and deregulation have contributed to the growth of MNCS
- MNCS will choose locations based on factors such aa cost advantages and access to markets
- MNCS can affect economies of the countries they locate in both at local and national level
- MNCS offer advantages and disadvantages with regard to employment wages and working conditions
Advantages and disadvantages of mncs on emploment, wages and working conditions
Advantages:
* Job creation for the local community
* Offer more competitive wages than locak businessess
* May offer better working conditions than local businessess
Disadvantages:
* May exploit local workers if employment regulation is weak or not enforced
* MNCS tend to establish production facilities in regions where labour costs are lower and pay relativley low wages
* MNCS may not create jobs for local workers as they may relocate workers from their own country to work abroad
Advantages and Disadvantages on local businessess and the economy
Advantages:
* MNCS can help boost the local economy creating opportunities for local businessess
* If population is benefitting from higher wages they may spend more on local business products
* MNCS may utiliise the services of local businesses - may be potential opportunities for joint ventures and partnerships with mncs who seek to gain knowledge of the local market
* Local firms may learn new skills and production methods that allow them to become more effcient
* Improved standard of living in ledc as a result of increased employment
* MNCS might invest in infrastructure which can benefit the local economy/community
* Reduces how much money govt would need to spend on infrastructure
* More employment reduces demand for benefits - reducing local govts spending
Disadvantages:
* MNCS reduce the supply of workers avaliable to local businesses if they offer better pay and working conditions
* If mncs are able to produce at lower costs and compete with local businesses they may lose customers -may cause unemployment for workers or local businessess
* Forced up local wages - local firms cant afford
* Might employ children and exploit workers - health problems - strain on health services
* MNCS might extract large quantities of unsustainable natural resources - pollution and waste may fail to redevelop landscape when no more natural resources
Advantages of mncs on National economy
Advantages:
* Large fdi flows - contributes to a countries balance of payments (the money local firms or citizens who now have more money avaliable to spend in the economy anf if this money is reinvested back into the local economy it may help to boost new growth and generate new jobs fdi flows improve country balance of payment
* Any goods/services exported by mncs will help improve balance of payment - revenue - especially useful exporting rare, valuable goods
* MNCS can bring new skills and technologies to the local business - help improve effciency and productivity - help domestic become more competitive in national and international markets - if leave mncs etc nations skills improve
* Consumers benefit from; wider choice, lower prices, better quality, improved living standards
* Domestic businesses may be influenced by business culture
* The nations level of entrepreneurship may also increase as individual use the skills learnt from working in the MNC - boost overall economic growth
Disadvantages:
* Assets from the home country are now owned/ partly owned by the foreign country/businesses
* The local firms/individuals who sold the asset may not reinvest the money into the local economy but may move it abroad/offshore - cause money to leave the national economy - repatriation of profits
* MNCS can forced the domestic firms out of business by undercutting their prices or offering a better service to consumers - good in short term for consumers - long term could cause domestic firms to close less choice for consumers, loss of tax payments to govt
* A change in business culture reflects that of the mncs home country could lead to a loss of national culture - could lose tourism revenue if becomes industrial
* Unethical stance - ignore working conditions
* If mnc buys raw materials - outflow of money
Disadvantages of mncs on national economy
MNCS and tax revenue
MNCS have to pay taxes to national govt of host country - leads to increased govt tax revenue in country which might be spend on schools and hospitals
However mncs seek to maximise profits and will try to reduce tax liabiloties
MNCS and transfer pricing
Transfer pricing = method used by mncs to shift profits from where they are generated to countries with lower tax rates
What is transfer pricing
One part of the mnc can sell products to different parts fo the same mnc - move money illegally between countries - mnc can set the prices that it sells products for between the different parts of the mnc
If one part of the mnc is located in a country with low tax rate it might sell products to other parts of the mnc with very high prices - country with high tax rate to low tac rate - less tax rares - lower ratre paid to governments which reduces amount in national economy
What does the impact depend on?
- Highly skilled labour force
Business ethics
Refers to the principles and norms that govern business behaviour
* Ethics of a business will determine how they operate and their decision making process
* Many businessess have an ethical code to guide the decisions and behaviours of the employees according to the firms values
* Unethical actions can damage the brand and result in a loss in profitabiloty - unethical actions are usally pusrused as they result in higher levels of profit for the business or its owners
* Custmers around the world are putting more pressure on branfs to behave ethically
* Businessess are being judged more on how they handle ethical considerations
What are the different ethical considerations?
Stakeholder conflicts
Enviromental considerations
Supply chain considerations
Marketing considerations
Stakeholder conflicts
Management v workers
Management v owners
Company profits v Resource depletion
SC management v workers
- Managemnt may be more focused on output or reducing costs than on worker saftey or creating positive working enviroment
- Workers want to be aafe and have a comfortable enviroment in which they work in
SC management v owners
- The owners (shareholders) want management to maximise the business profits and would be less interested in the mental well being of their employees
- The management work daily with the employees and will often sacrafice some profit in the interest of looking after their employees health and mental wellbeing
SC Company profits v resources depletion
- Owners (shareholders) aim to maximise output as to generate increasing levels of profit
- Higher output requires rapid usage of natutal resources and generates more enviromental damage
- E.g. ethical code might state it will always pay a fair wage - good for employees but shareholders have reduced profit
- An mnc that mines resources migh have ecoc to always clean up but this would lead to higher costs and a rise in prices for consumers
Pay and working conditions
- LDCS have lower rates of pay and lower levels of health and saftey due to lack of regulations - mncs will have lower labour costs and spend less on health and saftey equipment which saves money and increases profit - lead to poor working conditions and exploiting workers for cheap labour
- However MNCS argue that the wages they pay provide a basic standard of living within that country anf host countrys often have encouraged low wages and ignored poor working conditions to attract mncs and the revenue and fdi they bring to the country - higher wages - mncs will relocate as the costs rise - can lead to sweatshops
Supply chain considerations
A supply chain is a system of businesses, people, activities,
information, and resources involved in moving a product or service
from supplier to customer.
Having part of a supply chain in a developing nation can be a
problem for the MNCs - dont know how they are operating labour exploitation - negative impact upon the mnc
Consumers aware
Consumers become aware of this and may protest against businesses creating lots of public pressure for mncs
Products less in consumers eye for b2b so they can get away with this
Not breaking the laws lower costs of living in those countries
Intiatives to improve conditions worldwide - fairtrade
Enviromental considerations
Waste disposal
Emissions
Emission
- MNCS have large impacts through GHG emissions and waste disposal
- Most medcs have strict reguclations on emissions which is expensive for mncs - locate in ldcs to reduce these costs
- Emissions produced have negative impact upon the local communities causing health problems suh as asthma and skin irritations
Waste management
- Most medcs have legislation regarding waste disposal because of potential enviromental and health effects of some waste products - can be very costly for mncs to dispose of waste in mdecs so will locate in ledcs with less regultion on waste disposal to reduce costs - unsafe, also dump toxic wastes in ledcs
- MNCS (cola, pepsi, nestle, unilever dispose 1/2 million metric tonnes of waste plastic across six developing countries
- Consumers are becoming aware of the envirometal impacts of mncs operating in ledcs and this put mncs under increasing pressure to act ethically and reduce their enviromental impacts
Marketing consideration
- MNCS must consider the social and cultural differences in the countries in which they operate in - should be ethical in all the countries it operates in - might have to adapt for different markets
- MNCS might need to adapt to avoud inappropriate promotional activivties - misinterpretations fue to different meanings in different countries may be offesnive or illegal - unethical
- Labelling must complu with the laws of the country - may be misleading to use same labels in all
- False information advertsied at generating sales to do with the desigh mix
- Negativly damages the image of the brand
Child labour
Child labour - when children work in jobs that have harmful effects on their well being - may be harmful to their physical, mental or social development - leads to lack of education
* Increased profits as children are paid lower wages as they are less aware of any wage sthey have
* Acceptance in mant countries to allow families to have an income for tuition fees and if it was banned could hace negative effect as children will be hidden away w less protection
