Unit 1.6

Question 1

What is an MNC

Answer 1

an organization that operates in two or more countries. Often called Transnational Companies, these companies have grown and risen in importances due to globalization as the world has ‘shrunk’ due to changes in transportation and the technological benefits of the modern age.

Question 2

Globalization

Answer 2

Globalization is the increase in the flow of goods, services, capital, people, and ideas across international boundaries.

Question 3

How do MNCs benefit

Answer 3

Increased Customer Base, Cheaper Production Costs, Benefits from Economies of Scale, Protectionist Policies, Spread Risks

Question 4

Impact of MNCs on host countries (Advantages)

Answer 4

Create jobs- sometimes lower paying, although often higher than firms based in the host country
Boost GDP- MNCs create more output and increase standards of living
New skills and tech- teach local companies new ways of business thinking and efficiency
Competition- forces host country businesses to improve and innovate in order to stay relevant

Question 5

Impact of MNCs on host countries (Disadvantages)

Answer 5

Unemployment- MNCs pose a threat by making some local businesses redundant/ unattractive
Profits repatriated to home country- aka Profits go back to the home, not host, country
Social responsibility- MNCs exploit the resources and people of host countries
Competitive pressure- domestic firms may be forced to reduce prices to remain competitive, risk of takeover

Question 6

Tax Issues

Answer 6

Governments, such as the United States or Germany, have a business profit tax rate of around 30%. These MNC’s therefore do what they can to avoid paying such a large amount of tax. Smaller countries, such as Bermuda or The Cayman Islands, have a business tax rate of 0%. These countries are called Tax Havens and profits are often transferred here to avoid paying taxes in home or host countries.