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  2.  
  3. PEARSON (PEARSON)
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  5. Business
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  7. Unit 4 - Global business

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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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  • September 28, 2020
  • 3
  • 2019/2020
  • Summary

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Theme 4 Topic 8
Multinationals
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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