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Theme 4 Section 4.4

Edexcel Business Theme 4

What is an MNC? It is a business that has operations in more than one country. These operations are more than simply exporting to another country
What are the benefits of an MNC to a local economy? (1) MNC's; -provide employment and training to the labour force - usually pay more than local firms -transfer skills and expertise, which helps develop the quality of the local workforce force
What are the benefits of an MNC to a local economy? (2) -Competition from MNCs acts as an incentive to domestic firms in the host country to improve their efficiency and quality MNCs extend choice in the host country MNCs profits are a source of significant tax revenues
What are the drawbacks to a local economy from an MNC? -Local firms may not be able to compete and some may fail -MNCs may not act in an ethical manner -Profits often be sent back to their home country -MNCs often use transfer pricing and other tax avoidance measures -Global brands erode local traditions
Why MNC's are not trusted Tax avoidance Exploitation of local workforce Environmental damage
What impacts do MNC's have on a national economies? (1) 1. Inward FDI flows improve infrastructure 2. MNC's that generate exports improve the balance of payments 3. New technology and business method can copied 4. Skills transfer make the labour force more flexible
What impacts do MNC's have on a national economies? (2) 5. Consumers have greater choice 6. Business culture. MNC's may actually improve welfare in the workplace such as safety 7. Add to the host country's GDP through their spending, for example with local suppliers and via FDI
What impacts do MNC's have on a national economies? (Negatives) 1. Local governments may provide incentives that mean limited tax revenues 2. MNC widely use transfer pricing 3. MNC's may damage the environment where laws and regulations are less stringent
What are business ethics? Decisions about what is morally right in a business context. This can be in relation to employees, suppliers, customers, local community and the environment.
What is the shareholder concept? The idea that maximising shareholder value is the primary objective of business and therefore the main aim is to profit maximise. This will in turn lead to higher dividends and a higher share price.
What are the benefits to a business of ethical behaviour? Higher sales revenue due to higher levels of demand from customers who support an ethical stance Added brand value Improved motivation of staff and possible recruitment attraction Access to finance from ethical investment funds
What are the downsides to an ethical approach to business? Raised costs - paying more to staff, suppliers, etc. Danger of brand damage if expectations cannot be lived up to Focus on ethics may distract from innovation
How can a business treat it's employees ethically? Pay a living wage Provide safe working conditions Have a supportive culture Equality policies that go beyond the legal requirements
How can a business be ethical in monitoring it's supply chain? Refusing to buy from countries with poor human rights records Ban on suppliers who use forced labour and child labour Allow independent monitoring of supplier facilities Puchasing from sustainable sources
How can a business be ethical in its approach to the environment? Reducing waste Redesigning products to use less materials Recycling Using renewable energy sources Cutting emissions Creating innovative eco-friendly products
How can a business be ethical it it's approach to marketing? (1) Making realistic claims about the product i.e. not misleading Using appropriate marketing to children Setting affordable prices for essential products e.g. medicines
How can a business be ethical it it's approach to marketing? (2) Refusing to use destroyer pricing techniques Ensuring advertising is culturally and politically sensitive Strictly following government guidlines
Why do MNC's need to be controlled? To protect workers and consumers against exploitation To preserve local culture To prevent abuse of market dominance To protect domestic businesses To protect natural resources from depletion
How can multinationals be controlled? Political control Legal control Pressure group control Media and social media control
Why do the media find it difficult to control multinationals? MNC's are an important source of advertising revenue for the press who may not wish to portray them in a negative light
Why is legal control of MNC's difficult? 1. MNC's are not subject to one set of laws and have the ability to set up headquarters where legislation, tax and government policy is more favourable 2. MNC’s can afford to hire expensive legal teams. Governments do not want expensive legal battles
Why do politicians find it difficult to control multinationals? 1. MNC’s are large job creators and income generators for an economy so carry more influence than small businesses when lobbying government. 2. MNC’s make large donations to political parties in an attempt to ensure favourable treatment
Why do some governments find it easier to control MNC's than others? Trading blocs such as the EU can provide a multinational political approach to challenge the power of MNC’s Generally the stronger the government the more likely the MNC is to comply with relevant legislation.
How do pressure groups influence MNC's? Pressure gorups focus on activities & ethical practice of multinationals or industries with ethical issues They use a combination of direct and indirect action to damage the target business or industry to change their business approach
What can a pressure group do to restrict MNC power? 1. Raise awareness 2. Decrease sales via a boycott 3. Influence legislation 4. Damage brand image
What can government do to restrict MNC power? 1. Introduce competition law 2. Create stronger employment laws 3. Charge windfall (one-off) taxes on excessive profits 4. Support smaller, local firms through lower tax rates, subsidies, less regulations
How does social media limit MNC power? 1. Negative publicity spreads fast and global 2. A range of platforms can be used to criticise business practices and consumers are no longer reliant on TV or print news 3. Consumers can directly contact MNC's via social media platforms
What are the key factors in controlling any MNC? (evaluation) 1. The size of the MNC 2. The degree of concern their customers have for ethics 3. How ethical or unethical the company actually is 4. Whether the control is attempted in a developing or developed nation
Created by: mrholland



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