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Global Industry 4.4


Define a Multinational company Sometimes called a transnational corporation, is a company that owns or controls production or service facilities in more than one country e.g. Shell/McDonalds
Explain Saturation The point when most of the customers who want to buy a product already have it, or there is limited remaining opportunity for growth in sales.
Define Transitional or multi-national companies (MNCs) Companies that own or control production or service facilities outside the country in which they are based.
Describe Foreign Direct Investment Investment of foreign money into domestic structures, equipment, and investment in businesses and organisations based in the host country
State what is meant by Pressure Groups Formed by concerned individuals to attempt to change behaviour of MNC e.g. Greenpeace
Describe Naming and shaming Publicising behaviour that is considered to be unethical as widely as possible and thereby threatening a business's reputation.
Define Balance of Payments The difference in total value between payments into and out of a country over a period.
Describe Transfer pricing A method of pricing goods and services transferred within a multinational company in order to reduce tax burdens and maximise profits. The purpose of transfer pricing is to push profits into territories where the tax rates are more favourable.
Explain Tax avoidance Using legal methods to reduce the amount of tax that a company pays.
Discuss Tax evasion Using illegal means to avoid paying taxes that are owed.
Benefits of MNC's Local labour and job creation/Better wages and working conditions/MNCs add to the host country GDP through their spending/Profitable MNCs are a source of significant tax revenues for the host economy
Drawbacks of MNC's Domestic businesses may not be able to compete with MNCs /MNCs may not feel that they need to act ethically/MNCs may make use of transfer pricing/ tax avoidance measures to significant reduce the profits on which they pay tax
What is the Institutional framework? The system of formal laws, regulations and procedures, and informal conventions customs and norms that shape activity and behaviour.
Are MNE's good for poorer countries? Incoming multinationals bring FDI (Foreign Direct Investment) MNEs Create jobs/New investment will increase output of goods & services/Taxes paid increases government funds enabling them to improve their services
Why are multinationals a beacon of global capitalism? They bring employment, income and new technologies to poorer countries, driving up incomes and aiding development. In return wealthier countries (Like the UK) benefit from being able to buy cheaper goods.
Why is FDI important? FDI creates direct, stable and long-lasting links between economies. It encourages the transfer of technology and know-how between countries, and allows the host economy to promote its products more widely in international markets.
How do MNCs improve the balance of payments? Many goods made by MNCs are exported to other nearby countries. This increases amount of money earned by the country.
How do MNCs improve a country's profile? A movement into a particular country is a statement about its pro-business environment and political stability.
How do MNCs increase the skills base of a country? Many MNCs operate training schemes for local people to learn how to use machinery. Such skills also attract other firms to the country.
What are the negative affects of MNC's on local businesses? Their market dominance makes it difficult for local small firms to thrive e.g. it is argued that big supermarkets are squeezing the margins of local corner shop. Big multinationals can use their economies of scale to push local firms out of business.
What is profit leakage? Profits from factories or hotels run by the MNC go to the country in which the head office of the company is found rather than the host nation.
A negative of MNCs is they increase urbanisation. What is this? Most jobs created by MNCs are usually found in or close to urban areas. Hope of securing these jobs attracts more people from rural areas to cities.
MNCs widen the poverty gap. What does this mean? Although wages are low in factories, they are higher than elsewhere. This increases the cost of living for all, as prices of goods rise.
A negative of MNCs is low paid jobs. Why? Mainly low paid jobs are provided for local people. Higher paid managerial jobs go to workers brought in from the head office country.
What are ethics? System of moral principles based on right and wrong
What is ethical trade? Ethical trade means that retailers, brands and their suppliers take responsibility for improving the working conditions of the people who make the products they sell. 
Define Corporate Social responsibility CSR obliges businesses to consider more than just profit, to take account of the interests of workers, suppliers, customers and the wider community as well as stakeholders
What are shareholder objectives? High profits/High dividends/Growth/A say in the business/A positive corporate image
What are ethical corporate objectives? Low emissions/Safe waste disposal/Paying fair wage rates to employees in other countries/Sourcing sustainable raw materials
What is a definition of labour exploitation? Any work or service exacted under the menace of any penalty, and for which the worker has not offered himself voluntarily.
What constitutes labour exploitation/forced labour? Threats or actual physical harm to the worker/Restriction of movement or confinement to the workplace/Debt bondages/Withholding of wages or excessive wage reductions/Retention of identity documents
What is misleading product labelling? (1)No sugar added; but they may still have high sugar content (2)Sugar free - still has calories, not necessarily any better for you (3) Fat free products - may be loaded with sugar
What is the link between CSR and Ethics? A socially responsible firm should be an ethical firm/An ethical firm should be socially responsible
How can MNCs be controlled? (1)Legal challenges/court cases brought by governments to force (2)MNCs to change behaviour. (3) Campaigns by pressure groups (4)Public boycotts which impact on sales and bring pressure
Can political influence be used to control MNCs? Yes. Governments can apply pressure to change the behaviour of MNCs e.g. George Osbourne joined forces with the German finance minister to prevent tax avoidance from MNCs such as Amazon or eBay
How can laws be used to control MNCs? If a country introduces laws to for example reduce pollution then this will all cost the MNC money to improve their practices. However, the host nation does not want to lose the economic input of the MNC so this deters laws being passed
How can pressure groups control MNCs? (1) Lobby the government to demand change (2) Protest march (3) Publicity stunts to draw attention to the problems (4)Consumer boycott (5) Set up campaigns to change public opinion
Can social media control MNCs? Social media can turn a product scare in one state into a national crisis within hours e.g. Consumers are shunning Alaska over its wolf hunting, Burberry over its animal treatment, and Chevron for its toxic dumping.
State two factors that influence where an MNC will locate MNC’s will choose locations based on factors such as cost advantages and access to markets e.g. Nike originates from the USA but 50% of their manufacturing takes place in China, Vietnam and Indonesia due to the lower production costs in these countries
Give two disadvantages of MNCs to the Local Community and Environment (1) MNCs may cause damage to local environment during production process E.g. Shell has a track record of oil pollution in in Nigeria (2) MNC's leave unsightly production facilities behind once they have extracted all the resources & left the country
MNCs lead to job creation for the local community. State two other advantages of MNCs for employment, wages and working conditions. (1) MNCs may offer more competitive wages than local businesses (2)MNCs may offer better working conditions than local businesses
MNCs may exploit local workers if employment regulation is weak or not enforced. State two other disadvantages of MNCs for employment, wages and working conditions. (1)MNCs tend to establish production facilities in regions where labour costs are lower (2) MNCs may not create jobs for local workers as they may relocate workers from their own country to work abroad (Chinese companies are notorious for this)
State two advantages of MNCs for Local Businesses (1) If the population is benefiting from higher wages because MNCs pay more, then they may spend more on local business products (2) MNCs may utilise the services of local businesses
State two disadvantages of MNCs for Local Businesses (1) MNCs reduce the supply of workers available to local businesses if they offer better pay and working conditions (2) If MNCs are able to produce at a lower cost and compete with local businesses, they may lose local customers
State one way that MNCs can improve the balance of payments Goods and services exported for sale by the MNC will generate further inflows to the country’s balance of payments
State one way that MNCs can have a negative impact on the balance of payments (1)If the MNC buys raw materials or equipment abroad (imports), there is a flow of money out of the country (2)If the MNC send profits back to their home country, it will also represent a flow of money out of the country
Explain three ways that MNCs benefit consumers (1) A wider choice of goods and services (2) Lower prices if MNCs pass their cost advantages on in the form of lower prices (3) Better quality of goods and services
Explain how MNCs influence Business Culture Domestic businesses may be influenced by the business culture of MNCs E.g. In the 1990s, UK businesses adopted the working practices of Japanese businesses such as Nissan (Kaizen)
Created by: durquhart1
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