1.6 Multinational companies (MNCs)

Question 1

Multinational company/corporation

Answer 1

a company that operates in 2 or more countries. It is generally a very large company, but it does not have to be.

Question 2

Globalization

Answer 2

the process by which the world’s regional economies are becoming one integrated global unit

Question 3

Impact of globalization on the growth of domestic businesses

Answer 3

• Increased competition –> Large foreign businesses can force domestic producers to become more efficient as the domestic consumer has more choice. This can mean lower goods and services prices for costumers
• Greater brand awareness –> Domestic producers have to compete with big brand names and so they need to create their own unique selling point (USP)
• Skills transfer –> Foreign businesses, no matter how big, must use some local knowledge. The MNC will learn from the workers hired in particular countries, while those workers can learn new approaches and develop new skills
• Closer collaboration –> Whether through joint ventures, franchises, or strategic alliances, domestic producers can create new business opportunities

Question 4

Reasons for the growth of multinational companies

Answer 4

1. Improved communications - in ICT, but also transport and distribution networks
2. Dismantling of trade barriers - allowing easier movement of raw materials, components and finished products
3. Deregulation of the world’s financial markets - allowing for easier transfer of funds, as well as tax avoidance
4. Increasing economic and political power of the MNCs - this can be of enormous benefit, especially in middle and low-income countries

Question 5

Advantages of MNCs on host countries

Answer 5

Economics growth: MNCs can boost domestic economy by providing employment, developing a local network of suppliers, and paying taxes and providing capital injections

New ideas: may introduce new ways of doing business and new ways of interacting socially

Skills transfer: may help develop the skills of local employees. Domestic businesses can benefit from starting their own business with the skills learned

Greater choice of products: the domestic market will benefit as the variety of products will increase

Short-term infrastructure projects: they often help to build infrastructure e.g roads to factory, schools for workers

Question 6

Disadvantages of MNCs on host countries

Answer 6

Profits being repatriated: they may pay into the local tax system, but the bulk of their profits will be recruited away from the host country

Loss of cultural identity: the appeal of domestic products, ways of doing business, and even cultural norms may suffer

Brain drain (skilled workers leaving country): many highly skilled workers may look to work for the MNC in another country

Loss of market share: as MNCs take over more of the domestic market, domestic producers may suffer

Short-term plans: MNCs may not intend to stay for a long time, if lower-cost producers can be found elsewhere, they may move out at short notice