3.4: Impact of globalisation on global and national economies

Question 1

what is the multiplier effect?

Answer 1

a bigger change in overall economic activity stimulted by an initial injection

Question 2

what are the impacts of mncs on local firms? different industry

Answer 2

local businesses in construction and infrastructure receive first benefits from mncs –> once plant is operational suppliers etc benefit
mncs may help to reorganise suppliers to be more efficient and productive –> growth

Question 3

what are the impacts of mncs on local firms? same industry

Answer 3

overwhelmed by mncs - mncs have global brands and cost advs from economies of scale
mncs may even take some skilled workers from local businesses, by offering higher wages

Question 4

what are the impacts of mncs on local communities and environments?

Answer 4

when a new factory is built, mncs will want infrastructure like reliable power supplies and fast access to the internet etc

Question 5

examples of mncs not following local environment regulation

Answer 5

27 tons of deadly gases escaping from Union Carbide in Bhopal, India –> killing thousands of people and injuring more than 500,000
1100 people killed when Rana Plaza collapsed in Dhaka, Bangladesh

Question 6

what types of countries tend to have relatively low levels of investment?

Answer 6

developed countries with low levels of growth, like the uk

Question 7

when can it be bad for a country if an mnc moves there or invests in the country?

Answer 7

if they arrive to exploit a natural resource then the resource can be quickly depleted and the mnc can then move to the next country that has stocks of the resource

Question 8

what are multinational corporations

Answer 8

businesses that operate or have assetin more than one country

Question 9

what are the characteristics of mncs

Answer 9

have offices and factories in more than one country & usually have HQ to control global management
can be large powerful corporations with huge turnover greater than GDP of host country
can act unethically and abuse their power

Question 10

what are the points for mncs

Answer 10

brings employment, wealth and dvlopment
raise incomes & standard of living
technology transfer & employees gain scarce skills
gain economies of scale so produce cheaply and efficiently

Question 11

what are the points against mncs?

Answer 11

use size and power to exploit employees and host countries
damage environment
footloose and leave when advantage exploited
cultural imperialism

Question 12

how has technology led to the expansion of mncs?

Answer 12

internet and comms improved, as has transport meaning overseas operations now cheaper

Question 13

how has liberalisation led to the expansion of mncs?

Answer 13

increased liberalisation
collapse of communism, more countries like China joined WTO

Question 14

how has harmonisation of laws led to the expansion of mncs?

Answer 14

increased harmonisation - trading blocs make trading easier

Question 15

what are the 5 main objectives of mncs?

Answer 15

access new markets
reduce costs
control resources
government incentives
trade barries avoidance

Question 16

how is access new mkts a mnc objective?

Answer 16

home mkts saturated
overseas mkts can act as an extension strategy
overseas mkts with rising incomes lead to future growth in sales, revenue and profits

Question 17

how is reduce costs mnc objective?

Answer 17

gain economies of scale
reducing input costs
less regulation
being closer to mkt
lower cost per unit - comp advantage

Question 18

how is control resources mnc objective?

Answer 18

many companies follow raw materials to access a cheap and secure source
esp with minerals or agricultural products

Question 19

how are govt incentives a mnc objective?

Answer 19

in the form of grants or tax breaks can be offered to attract mncs and fdi
effectively lower costs and so comp adv is gained

Question 20

how are avoidance of trade barriers mnc objective?

Answer 20

if mnc moves to within a trading bloc
eg nissan in newcastle - japanese car manufacturer now operating within EU

Question 21

what are the benefits of mnc

Answer 21

employment increases
wage costs low
tech and skills transfer
wider economy benefits
csr benefits local community

Question 22

how does increased employment by mncs benefit?

Answer 22

employment increases due to initial investment and ongoing operation
local supply chain increases employment
local multiplier creates jobs

Question 23

how does low wage costs mnc benefits?

Answer 23

low compared to developed economies
mncs do not always exploit workers for low wages - many pay higher than average local wage eg nike in vietnam
attract and keep best workers and raise productivity

Question 24

how does technology and skills transfer mnc benefits?

Answer 24

mncs train local workers and managers - learn new techniques
skills and work practices useful if employee moves to other local businesses - even mnc leaves country

Question 25

how does wider economy benefit with mncs?

Answer 25

employment and wages go up - AD rises - more taxes paid by workers and mncs on profit - govt spending increases - exports rises - balance of payment improves

Question 26

how does csr mnc benefits?

Answer 26

higher wages - better conditions - improved infrastructure environmental policies good for local community - improve mnc reputation - comp adv gained

Question 27

what are the 4 downsides of mncs?

Answer 27

employment exploitation limited technology and skills transfer local community suffer wider economy loses out

Question 28

how can exploitation employment bad mncs?

Answer 28

low wages - poor and dangerous conditions, child labour and sweatshops

Question 29

how is limited technology and skills transfer mnc downside?

Answer 29

many jobs low skilled - little training managers often from head office - best job: foreigners high level skills like r&d kept at hq - not benefit host country

Question 30

how does local community suffers mnc downside?

Answer 30

local businesses lose out to larger mnc competitors cultural imperialism threatens local culture and great environmental damage often occurs

Question 31

how does the wider economy losing mnc downside?

Answer 31

transfer pricing - profits moved overseas and less tax paid 'race to the bottom' - exploit cheap resources, mnc moves to new economy when no comp advt

Question 32

summary of mnc benefits

Answer 32

fdi jobs regional multiplier skills and technology transfer demand for local suppliers increased tax revenue export earnings other mncs follow csr policy benefits community

Question 33

summary of mncs downside

Answer 33

illegal and unethical behaviour exploits employees, low wages, child labour environmental damage unsustainable practices tax avoidance profits move back overseas 'race to the bottom' footloose

Question 34

summary of lithium in bolivia mncs

Answer 34

bolivia holds around half of the world's proven lithium reserve used in the manufacturing of batteries - important for growing electric car mkt china japan mncs trying to gain access

Question 35

give examples of mnc bad behaviour

Answer 35

bhopal - union carbide nigeria - shell

Question 36

ecuador case study

Answer 36

mncs flloded into ecuador in 70s - discovery of oil by texaco 312 mile oil pipeline opened to transport oil from Amazon across Andes mass deforestation devaststed rainforest

Question 37

how do you evaluate control of mncs?

Answer 37

relative size of mnc size and resources of host govt importance of mnc to host country public opinion - does it matter etc

Question 38

where can the control of mncs come from?

Answer 38

public opinion pressure groups media self-regulation govt control legisaltion

Question 39

describe public opinion in controlling mncs

Answer 39

poor pr damage rep - sales fall - revenue falls - profits fall

Question 40

evaluate self regulation

Answer 40

want to avoid damaging PR and loss of comp advantage SR: increased costs LR: better reputation - compt adv - higher profits