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global industries and companies - Coggle Diagram
global industries and companies
The Impact of MNCs
impact of MNCs on local economy
improvement in infrastructure
sometimes MNCs spend on developing roads and electricity supplies in order to build the trust in local community. if not government would develop the infrastructure to attract MNCs
wages and working conditions
if unemployment rate is low then job creation can cause wage rise due to rise in demand for labor. MNCs tend to have good working conditions because they are concerned about their reputation and MNCs usually have the latest technologies
wages and working conditions
if unemployment rate is low then job creation can cause wage rise due to rise in demand for labor. MNCs tend to have good working conditions because they are concerned about their reputation and MNCs usually have the latest technologies
local labor and job creation
people get full time job with possibilities of training, regular income, financial securities and opportunity to build up a career
local business
people who take up employment will have more income to spend. this spending will provide more demand for local business in general. moreover due to competition from MNCs, domestic firms make improvements and become efficient > innovation
contribution to local government tax
government tax revenue would increase. this money would be used in government projects to develop the economy.
help in local communities
some MNCs take part in local community events through donations
impact of MNCs on national economy
economic growth
employment rise > suppliers get more orders > national income rise > AD rise > living standards improve > more output produced > GDP increase
FDI Flows
increased income
extra output and employment form FDI must result in economic growth and increased income
more employment and increased tax revenue
employment > reduces government spending on welfare payment. increased income > more spending > increase in VAT collection. more employment > direct tax would also rise. MNCs also contribute in tax. government can use this money to improve the economy
reduced national debt
government can used this tax money to settle off it's debt. this would reduce the government financial/ opportunity cost > make the economy financially stable in future
balance of payment
FDI is a inflow of money> B.O.P improves. after creation of MNCs, if it wishes to sell the goods to other nation, it is accounted as exports. so further more B.O.P improves. however repatriation of profits and and buying resources ( machinery and equipment) from oversea will lead to outflow of money.
technology and skills transfer
:
horizontal transfers
are then knowledge is transferred across the same industry ( Nissan and Toyota, both from automobile industry copied each other's working practices)
vertical transfers
MNCs may provide technical assistance, training, provide resources and other information to suppliers. this is backward transfers
technological transfer improves efficiency and productivity> allow domestic firms to compete. however thread of
reverse engineering
for MNCS
Consumers
increased competition in domestic market > lower price> increased choice > improved quality since MNCs use new technology > better living standards because of higher income due to employment and cheaper goods
business culture
MNCs may help to create a culture of enterprise. coping working practices by domestic firms from MNCs can result in changes in corporate culture.
tax revenue
MNCs would avoid tax through transfer pricing
controlling MNCs
political influences
state ownership is very effective method of control. political power can be exercised to create, manage and end a business. therefore, political influence over these organizations is extensive.
however there can be corruption. state owned operations may take capital that other firms might better employ. it is because government might spend too much money on inefficient businesses because investment decision by government is not based on market forces. then shareholders rights may be ignored in state owned firms. the real beneficiaries are politicians. state owned firms may not spend retain profits on R&D because money will be spent for the economic projects or politicians obtain it. so less innovation
however private sector firms are influenced by government through:
tariff, quotas, regulations and admin barriers to protect domestic suppliers
countries may place indirect or direct ownership restrictions on business they consider to be critical
countries may offering subsidy to domestic firms and encourage them to export.
lobbying by politicians to influence the decision of businesses
retired politicians may be made as a member if board of directors, who can influence in business activities
legal control
competition policy
competition policy exists to ensure that markets operate as efficiently as possible, ensures that firms do not abuse their market power, do not attempt to fix prices or use pricing strategies to drive out competition, and do not work together illegal against other producers or the consumers
taxation policy
government use taxation polices to raise the revenue and to control MNCs activities. tax avoidance is legal. tax evasion is illegal. it brings bad publicity to firms
legislation
this includes a system of incentives and penalties to ensure that at risk groups are protected. it is important for govrt to find the right balance of intervention. too much intervention leads to low FDI> less employment > tax evasion > reduced national income > lower consumer choice when firms leave. And policies are not always easy to impose and maintain
consumer pressure
consumers can apply pressure by campaigning against an MNCs or by avoiding their products. if not consumer can express their power through the use of review system. review can be positive or negative and can be written by anyone,
pressure groups
they publicize bad behavior and threaten to damage the image of the firm. they attempt to provide information on the unethical practices of corporation
pressure groups can intervene through boycotting, media criticism, direct actions such as strike and demonstrations to achieve political or social goals and lobbying
through social media, message can be spread quickly and raise awareness that may otherwise not become public knowledge. it alerts politicians and authorities about public concerns
however campaigns may be ill informed or miss guided. then if information is shared virally, then it would be difficult for pressure group to later change the message. direct action may disturb other people or can lead to violence
social media
allow users create content, collect information, increase social awareness, ensure greater transparency, and organize people together.
self regulation this ensures that a group of companies uses common standards in their operations. regulations address issues like health and safety behavior, ethical behavior, responsibility to employees and customers and environmental practice.
advantages of self regulations: avoid govrt regulations, the needs of business stakeholders might be better served. the reputation and image of the firm is improved. it may be easier to encourage employees to adopt ethical behavior. govrt cost to recruit regulators to check tax pay will be reduced.
however it is difficult for firms to follow code of practice if it's financial performance is seriously threatened.