Theme 3 - The impact of multinational corporations

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  • Created by: becky.65
  • Created on: 17-02-18 10:28
What are multinational corporations?
Businesses that operate or have assets in more than one country. They have offices or factories in different countries and usually have a centralised head office where they co-ordinate global management
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What are the other countries aside from where MNCs are based called?
Host countries
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How can MNCs create employment?
The initial investment for the location creates building work for local people, a workforce will be needed, local businesses may supply MNCs and see an increase in business, local people will have more disposable income so spend in domestic markets
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How can MNCs be detrimental to the domestic market?
Local businesses will have a reduced market share, the mass produced standardised products threaten national product variety and destroys native culture and they cause damage to the environment
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How do MNCs improve workers' lives?
Cheap labour for MNCs is often higher than the average wage in the host country which increases motivation and productivity, decreased staff turnover and creates a wider choice of workers
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How can MNCs be detrimental to workers' lives?
Wages can be low, working conditions poor, health and safety conditions are poor, regulations may be ignored and child labour may be used and exploited
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What multiplier effect will MNCs have on the local economy?
A positive one as they will create economic activity
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How can MNCs have a positive effect on local firms?
New businesses will develop to offer goods and services to the MNC, businesses may outsource and use local businesses to provide services and training may lead to technology transfer
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How can MNCs have a positive effect on local communities and the environment?
Governments may insist on deals that involve the MNC in infrastructure development, environmental protection and communal facilities
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How can MNCs have a negative effect on local communities and the environment?
Some governments of developing economies may be weak, allowing MNCs to minimise their contributions to local facilities and to be careless about environmental damage
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How can MNCs stimulate economic growth?
The growth of business activity will stimulate the whole economy, provided the MNC recruits local people, increased employment and wages will increase government revenue and reduce unemployment benefits, training will make local people more successfu
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How can MNCs increase FDI?
Exports may increase, improving BOP, as the economy develops more export opportunities will be created, if one MNC is successful other MNCs will be keener to locate there, introducing new technologies
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How can MNCs increase FDI? (continued)
With increased growth, governments can invest in infrastructure which will generate more MNC interest, this will push the exchange rate up if flows of FDI are large
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How can MNCs increase the skilled workforce?
They will train the local workforce, which means workers will have transferable skills, technologies, techniques and methods can be adopted into the host country which will make the country more competitive and grow
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What is technology transfer?
When foreign businesses locate in emerging economies, bringing with them new skills and techniques. Trained employees may go on to work in local businesses where they can pass on their technological knowledge to their new colleagues
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What are the potential issues of MNCs training the workforce?
They may not train workers to a high level, locals may only get unskilled jobs, managers are not often locals, R&D facilities may be kept in the home country, reducing technology transfer and many MNCs only enter a new market for sales and marketing
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How have MNCs improved the lives of consumers?
Incomes rise so consumers spend more and create more demand, they have been lifted out of poverty due to urbanisation and famines are rare
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How have MNCs not improved the lives of consumers?
Many people in emerging economies have limited welfare policies so they may rather save their money than spend and they may cause great inequality
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How can MNCs avoid contributing to the host country's economy?
Profits can be repatriated to the home country, taxation can be avoided by transfer pricing, MNCs are likely to move when the incentives to stay stop and leave behind unemployed workers and a weak economy
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What is transfer pricing?
When one part of an MNC in one country transfers (sells) goods to another part in another country. The price charged is the 'transfer price'. This may be unrelated to costs incurred an can be set at a level which reduces or cancels out profit and tax
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Other cards in this set

Card 2

Front

What are the other countries aside from where MNCs are based called?

Back

Host countries

Card 3

Front

How can MNCs create employment?

Back

Preview of the front of card 3

Card 4

Front

How can MNCs be detrimental to the domestic market?

Back

Preview of the front of card 4

Card 5

Front

How do MNCs improve workers' lives?

Back

Preview of the front of card 5
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