Flashcards in Global Industries And Companies - 4.4 Deck (54):
what are the 6 main factors which MNCs impact in relation to the local economies:
1. FDI flows
2. Balance of payments
3. Technology and skills transfer
5. business culture
6. tax revenues and transfer pricing
how does flows of FDI positively impact national economies? (4)
An injection of money into the host economy.
1. Economic growth
2. Generation of revenue for the local government
3. job creation and related wealth
4. tax revenue
how does flows of FDI negatively impact national economies? (1)
However, following the initial investment a lot of the profits are likely to flow back to the domestic country (repatriate)
Is the overall impact of flows of FDI on the national economy positive or negative?
What is a balance of payments?
record of imports in relation to exports
what happens in the balance of payments when the exports are bigger than imports?
generation of income from trade (GDP increases). This mainly happens during a recession. This is called a surplus
what happens in the balance of payments when the imports are bigger than exports?
could also be: leakages are bigger than injections. This is called a deficit
what is the definition of transfer pricing?
price charged by one company to another within the same MNC.
how does technology and skills transfer positively impact national economies? (3)
1. New technologies and skills will be introduced to the host economies
2. collaborative work between countries will further development
3. spread of technology and skills across sectors to domestic companies
how does technology and skills transfer negatively impact national economies? (1)
1. may lead to brain drain
What are 4 positive impacts of MNCs on consumers?
1. cheaper prices - companies avoid trade barriers - less variable costs per unit (distribution/ raw materials)
2. more choice - competition increases
3. increased quality products
4. access to global brands
What are 2 negative impacts of MNCs on consumers?
1. damaging impact on traditional products/ industries on employment
2. MNCs can sometimes exploit consumers (become the price maker and set prices higher)
What are 3 negative impacts of MNCs on business cultures?
1. may introduce more aggressive cultures based on profit motive
2. could dilute traditional culture
3. could cause conflicts with other local firms who conduct business very differently
what is a direct tax?
tax on income (PAYE, corporation tax)
what is an indirect tax?
tax on spending ( VAT)
what do taxes paid to a host country do? (1)
boost government revenue, which could increase investment in public services
what is the definition of taxation?
a levy charged by the government as part of their fiscal policy
what is the definition of an MNC?
a business which has operations in more than one country
what are 4 positive impacts of MNCs on local labour markets?
1. Create jobs with opportunities (training/ promotion)
2. pushes wages up (increases standard of living)
3. greater skill development
4. better working conditions
what are 5 negative impacts of MNCs on local labour markets?
1. wage inflation for local businesses
2. exploit cheap workers
3. bring managers, making jobs low skilled
4. poor working conditions
5. lack of union representation
what are 4 positive impacts of MNCs on local firms?
1. incentivise businesses to be more competitive and efficient
2. provide support services (building, raw materials)
3. investment in infrastructure
4. greater spending power in local community
what are 3 negative impacts of MNCs on local firms?
1. increased costs
2. loss of supply of talented workers
3. loss of sales (demand for substitute products)
what are 2 negative impacts MNCs have on the environment and the local community?
1. Environmental impact - multinationals will want to produce in ways that are as efficient and as cheap as possible and this may not always be the best environmental practice.
2. Health and safety - multinationals have been accused of cutting corners on health and safety in countries where regulation and laws are not as rigorous.
what are 5 benefits of MNCs on host countries?
1. provision of employment and training the labour force in the host economy
2. transfer of skills and expertise - developing quality of labour force
3. add to host country GDP through spending (adds to economy from employment)
4. competition from MNCs act as incentive for domestic firms to improve their competitiveness (by raising quality/ efficiency)
5. source of significant tax revenues for local economy
what are 5 drawbacks of MNCs on host countries?
1. domestic businesses may not be able to compete with MNCs and some will fail (predatory pricing, price inelasticity, EOS)
2. MNCs may not feel the need to meet host countries expectations for acting ethically or in a socially responsible way
3. MNCs may be accused of imposing culture on the host country
4. profits earned from MNCs may be remitted back to MNCs home country rather than reinvested in host country (repatriated)
5. MNCs may use transfer pricing and other tax avoidance to reduce the profits on which they pay tax to the Government
what is the definition of a subsidiary?
a company set up to be subordinate to another
what is the definition of tax avoidance?
legal, but perhaps not moral, ways of artificially minimising the taxes companies owe to society
What is the definition of tax havens?
countries or districts where taxes on company profits are at or close to zero. multinationals an many other businesses artificially register their company headquarters in these 'homes'
what is the definition of skills transfer?
the way that technologies and management practices used by multinationals can generate spin off benefits locally
where are 5 common areas where ethics are tested in business?
2. personal selling
what do pressure groups do? (2)
1. tend to focus on activities and ethical practice of multinationals or industries with ethical issues
2. Combine direct and indirect action can damage the target businesses/ industry
who may consumers take action against? (3)
1. businesses they consider unethical
2. businesses acting irresponsibly
3. business that use business practice which they find unacceptable
what are 4 benefits to a business of acting ethically?
1. higher revenues
2. improved brand and business awareness
3. better employee motivation and recruitment
4. new source of finance
what are 3 negatives to a business of acting ethically?
1. higher costs - sourcing from fair-trade suppliers
2. higher overheads ( training and communication of ethical policy)
3. danger of building up false expectations
what are 2 environmental considerations which a business needs to consider?
2. waste disposal
what are 2 marketing considerations which a business needs to consider?
1. misleading product labelling
2. inappropriate promotional activities
Why do MNCs need to be controlled? (6)
1. powerful - could threaten/ overpower Governments (particularly with monopoly markets)
2. adopt unethical practices (e.g. tax avoidance, child labour)
3. use anti-competitive practices (e.g. predatory pricing)
4. could impact/ deplete resources/ environment for future generations
5.protect local culture
6. protect domestic businesses
What are 4 factors to consider to control MNCs:
1. political influence
2. legal control
3. pressure group
4. social media
how can political influence help to control MNCs? (4)
1. trade incentives and trade developments ( offering financial and non financial support, hosting trade events)
2. subsidies and tax incentives
4. trading blocs
how can legal control help to control MNCs? (2)
1. regulatory controls (competition policy, employee legislation, environmental protection)
2. taxation rates to influence location decisions
what are pressure groups?
organisations who fight to influence the actions of others for the good of a particular cause
who do pressure groups seek to influence? (3)
1. Government policies
2. consumer behaviour
3. business activities
What do some of the pressure groups actions include? (3)
1. media attention
2. protests and lobbying
what is the definition of social media?
use of virtual communities to communicate with actual and potential customers
how can social media help control MNCs? (4)
1. coverage/ usage of social media - targeting wide range audiences
2. targeting the younger generation - next working generation which are more easily influenced
3. free/ cheap message which can go viral quickly
4. powerful way to raise awareness
what is the definition of a scapegoat?
a person who is blamed for the wrongdoings, mistakes, or faults of others
what is the definition of ethics?
the morals and principles that underpin business decision making
what is the definition of ethical behaviour?
doing what is morally right
what is the definition of a stakeholder?
a group/ individual that has an interest in a business
what are the two types of stakeholders?
internal - managers, employees
external - suppliers, customers
what are the 5 common ethical concerns within a business?
1. stakeholder conflicts
2. pay and working conditions
3. environmental impact
4. supply chain management
what does a business face when deciding what stakeholders to satisfy?
a trade off
what are two ways which marketing can be unethical?
1. misleading product marketing
2. inappropriate promotional activities