Unit 3 - Multinationals Flashcards
What is a multinational?
This is a firm that operates in more than one country. The firm will have its headquarters in its home country and operations in more than one host country.
What are the advantages of operating as a multinational? (6)
-An organisation may be given grants from governments or tax breaks to locate in that country and the grants will not require to be paid back
-Can allow organisations to increase their sales as able to sell to a larger market
-Could allow organisations to employ cheaper staff
-May locate closer to market and/or raw materials, reducing transport costs
-Raw materials may be cheaper in other countries
-May help avoid legal restrictions in the organisation’s own country which could allow them to sell/produce their products abroad at a lower cost
Why would an underdeveloped country multinational locate in another country? (4)
-Skilled labour force: MNEs are looking for a workforce, a highly skilled labour force is essential. This access to a higher educated and more skilled workforce may result in higher quality products being made.
-Government assistance: The government might offer subsidies to attract MNEs or the rate of corporation tax could be lower in the UK. This allows the firm to retain higher profits.
-Good Infrastructure: MNEs want to transport their goods to market cheaply. Therefore, good roads, ports and airports enable firms to lower the costs of production.
-Proximity to other developed countries meaning they have access to a wider market and can reduce overall costs.
Why would a more developed country multinational locate in another country? (6)
-Reduced health & safety laws
-Access to cheaper raw materials
-Access to other trading blocks
-Locate close to raw materials to reduce transport costs
-Reduced tax
-Cheaper Labour
What are the advantages of a multinational locating in Scotland/UK? (5)
-Increases employment and income
-Exchange of new technology and management techniques. This can improve efficiency of production leading to increased output and economic growth.
-Increases choice and variety for Scottish/UK consumers.
-Increases Scottish/UK exports.
The increased competition could increase efficiency and reduce costs and prices.
-It can provide a boost to local economies/areas of the country suffering high unemployment.
What are the disadvantages of a multinational locating in Scotland/UK? (4)
-Repatriation of Profits: Firms might send profits back to their home country. This represents a leakage from the circular flow.
-Reliance on foreign firms who may lack loyalty: Foreign firms will not feel as loyal to the UK or areas in the UK. Therefore, they will be less likely to remain open in a downturn.
-Top jobs may go to employees from abroad: Foreign MNEs might bring in managers and executives from abroad so this does not increase the skill base or income of the UK’s population by as much as it would if they used UK nationals in top jobs.
-Negative externalities - external costs such as increased traffic congestion/pollution will be created.
