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Varnika RAMJEE4.4 Global industries and companies (MNC’S)
4.4.1 The impact of MNCs
- A MNC is a multinational corporation, a business which operates in more than two countries.
E.g., Coca Cola has production in over 200 countries
Positive effects of MNCs Negative effects of MNCs
1. Creates employment 1. Profit leakage
- There are jobs available for local - Profits from factories or hotels run by
people, therefore reducing numbers of the MNC go to the country in which the
unemployed and the resultant drain on head office of the company is found
local resources 2. Low paid jobs
2. Increases skills base - Mainly low paid jobs are provided for
- Many MNCs operate training schemes local people. Higher paid managerial
for local people to learn how to use jobs go to workers brought in from the
machinery, such skills also attract head office country
tother firms to the country 3. Pull out quickly
3. Increased standard of living - In times of recession/low sales, jobs of
- An increase in earnings increases taxes workers in the head office are
paid within the country and gives more protected for longer than in other
money to spend on services factories
4. Raises country’s profile 4. Poor safety record
- MNCs plan their moves carefully, this is - Poorer countries often have poorer
known worldwide and the movement safety standards, and governments are
into a particular country is a statement willing to turn a blind eye to breaking
about its pro-business environment and the standards that exist
political stability 5. Increases urbanisation
5. Improves balance of payments - Most jobs created by MNCs are usually
- Many goods made b the MNCs are found in or close to urban areas, hope
exported to other nearby countries. of securing these jobs attracts more
This increases amount of money people from rural areas to cities
earned by the company 6. Widens poverty gap
6. Improves infrastructure - Although wages are low in factories,
- MNCs often improve communication they are higher than elsewhere. this
links within a country e.g., road, rail increases the cost of living for all as
and port facilities are updated and prices of good rise
expanded
Impact on local community/environment
- The Unocal Corporation which recently became a subsidiary of Chevron, is an oil and gas
company based in California with operations around the world. In December, the company
settled lawsuit filed by 15 Burmese villagers in which the villagers alleged Unocal’s complicity
in a range of human rights violations in Burma, including execution, torture, forced labour
and forced migration
- In India, Coca Cola extracted 1.5 million litres of deep well water which they bottled and sold
under the names Dasani and BonAqua. The ground water was severely depleted, affecting
thousands of communities with water shortages and destroying agricultural activity. As a
result, the remaining water became contaminated with high chloride and bacteria levels,
leading to scabs, eye problems and stomach aches in the local population
, Varnika RAMJEE
Impact of MNCs on national economy
MNCs and FDI flows
- When a multinational invests in a host country, the scale of the investment is likely to be
significant
- Governments will offer incentives to firms in the form of grants, subsidies and tax breaks to
attract investment into their countries
Balance of payments and MNCs
- Inward investment will help a country’s BOP
- The investment will be a direct flow of capital into the country and the investment is also
likely to result in import substitutions and export promotion
- Export promotion comes due to the multinational using their production facility as a basis
for exporting while import substitution means that products previously imported may now
be bought domestically
MNCs and technology and skills transfer
- MNCs will bring them technology and production methods that are probably new to the host
country and a lot can therefore be learnt from these techniques
- Workers will eb trained to use the new technology and domestic firms will see the benefits
of the new tech, this process is known as technology transfer
MNCs and impact on consumers
- The multinational manufactures for domestic markets as well as for export, then the local
population will gain from a wider choice of goods and services and at a price possibly lower
than imported substitutes
- Consumers get the benefit of new products and services from the more industrialised
nations
MNCs and the impact on business culture
- Culture and social impact – large number of foreign businesses can dilute local customers
and traditional cultures
- McDonaldization to describe the process by which more and more sectors of American
society as well as of the rest of the world take on the characteristics of a fast-food restaurant
such as increasing standardisation and the movement away from traditional business
approaches
MNCs and the impact on tax revenues and transfer pricing
- Transfer pricing is shifting profits to tax havens to avoid tax in developed countries
- Multinationals report vast profits in tax havens like the Cayman Islands Luxembourg,
Switzerland and Ireland where there is little or no production going on
4.4.2 Ethics
- Ethics mean having moral principals that govern how a company does business. A moral
principal is one that knows right from wrong
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