Role Of Multinationals In Gloablisation

Question 1

What is a MNC

Answer 1

A business that has operations in more than one country

Question 2

What is the control of MNCs in the global operating revenues

Answer 2

Around 1,300 companies control 80% of global operating revenues - 40% of this controlled by only 147 organisations

Question 3

Key reasons for the rapid growth of MNCs

Answer 3

• global brands seek to drive revenue and profit growth
• search for economies of scale
• need to supplement relatively weak demand in existing, developed economies

Question 4

Potential benefits of MNCs to the countries in which the operate

Answer 4

• significant employment and training to the labour force
• add to GDP through spending
• competition to domestic firms encourages competitiveness
• extended consumer bad business choice
• tax revenues

Question 5

Potential drawbacks of MNC activity in the countries in which they operate

Answer 5

• domestic businesses not able to compete
• non ethical or environmental behaviour
• imposed culture
• remittances
• exploitation of working conditions
• cheat tax

Question 6

Brands that have been caught using child labour of sweat shops

Answer 6

Calvin Klein
Nike
Gap
H&M

Question 7

Why have corporate taxes decreased recently

Answer 7

Many countries reduce their tax rates in bids to remain competitive - ‘race to the bottom’

Question 8

How can tax avoidance occur

Answer 8

Through over-reporting of costs and under-reporting of a global corporation’s production and revenues

Question 9

MNCs that have been known to be involved in tax avoidance

Answer 9

Starbucks
Apple
Amazon
Fiat IKEA

Question 10

What does the EU propose about tax avoidance

Answer 10

Legislation that will force companies to disclose their earnings and improve the transparency of their business models

Question 11

When does tax evasion occur

Answer 11

When individuals and businesses find tax loopholes that reduce the amount of tax they pay.

Question 12

What is transfer pricing

Answer 12

The price at which divisions of a company transact with each other

Question 13

Example of transfer pricing

Answer 13

MNC mining in Zambia might invoice their parent company for the costs of consultancy/engineering services or for loans

Question 14

Disadvantages of transfer pricing

Answer 14

This reduces their products and thus lowers their liability to pay corporation tax

Question 15

Key economic effects of corporate tax avoidance

Answer 15

• distortion of market competition between MNCs and domestic firms
• squeezing of tax revenues can lead to higher fiscal deficits and fewer resources for public and merit goods
• expensive given over to tax planning

Question 16

Limits to government ability to control global companies

Answer 16

• quick movement of capital
• many countries require inflows of external finance
• world’s biggest corporations have significant monopsony power in different countries
• national governments may be limited by the international agreements
• corporations often have huge lobbying budgets which might be used to lobby against new legislation that affects their most profitable industries

Question 17

Who voices their opposition to the worst excesses of corporate power

Answer 17

Well-organised pressure groups and consumer organisations many of whom are through social media to highlight their concerns and seek redress