Summary
Summary Multinationals
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Explains the impact of MNCs on the local and national economy, ethics and morals, stakeholder conflicts, and the benefits and drawbacks of controlling MNCs
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Theme 4 Topic 8Multinationals
Multinational (MNC) – a firm with its headquarters in one country but with bases or assembly plants in others
Impact of MNCs on the Local Economy
Local Labour and Job MNCs can train local workers and provide a secure, regular income
Creation Can lead to a multiplier effect of spending in the area creating more jobs
Higher demand for workers can drive up wages especially if
unemployment in the area is fairly low
MNCs tend to have favourable working conditions as they have modern
Wages and Working working practices
Conditions Adopt internationally recognised standards for health and safety and
employee welfare
- MNCs are often accused of exploiting workers in less developed
countries by mistreating them
Local businesses may be involved in the construction of a new factory
Jobs may be created for suppliers to the MNC
Local Businesses Forces local firms to innovate and become more efficient to compete
- MNCs may lure workers away by offering better pay or conditions
- Creates more competition and reduces sales for local firms
The local community can benefit from:
Improvements in infrastructure e.g. investments in improving
roads, electricity, schools, hospitals, etc.
Local Community and Helping local communities e.g. sponsoring local events
the Environment Paying local taxes e.g. business rates help local governments
spend more on the community
- There could be a negative effect on communities e.g. oil spills and
pollution could damage the health of locals
Impact of MNCs on the National Economy
Creating higher GDP and therefore higher incomes and better living
standards
Tax revenue for the overseas government e.g. paying corporation tax
FDI Flows Reducing unemployment and therefore reducing unemployment benefit
payments for governments
Reducing national debt due to the tax revenue received by the overseas
government
The FDI could make domestic firms more competitive by improving
Balance of Payments
quality and design meaning exports increase
Transfer of knowledge and skills from an MNC to domestic firms could
Technology and Skills help improve their efficiency, quality and productivity
Transfer - Can threaten MNCs as domestic firms copy their technologies, products
and working practices
Consumers can benefit from more choice, lower prices, better quality
and better living standards (through job creation)
Consumers
- If domestic firms lose market share and close due to the MNCs, there
could be less choice in the long term
MNCs may set an example of entrepreneurial spirit and create a culture
of enterprise
MNCs bring their own cultures e.g. TQM and Kaizen from Japanese car
Business Culture
manufacturers is now used by many firms
- Overseas MNCs could be seen as a threat to some cultures, so locals may
fight against them
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