theme 4 booklet 8- the impact of MNCs
IMPACT OF MNCS ON LOCAL ECONOMY
IMPACT OF MNCS ON THE NATIONAL ECONOMY
likely to be a positive influence
FDI
a MNC setting up in another country is an example of FDI this results in more spending in the economy and leads to new facilities and possible infrastructure in the host country
FDI encourages the transfer of new technology and know how between countries and allows the local businesses to benefit from new technology that the MNC brings with it. helping be more competitve
FDI can encourage the govt to improve infrastructure in order to attract the FDI benefiting all businesses.
CURRENT ACCOUNT
countries that import more than they export can run into current account deficit likely to lead to fall in value of currency due to low demand and good availability of the currancy which could increase inflation due to cost of imports rising
current account deficit leads to depreciation- expensive imports - inflation
however FDI leads to appreciation- cheaper imports- decreased inflation
however, of the country attracts FDI the inflow of cash from MNCs cancels out the current account deficit
MNC may decide to withdraw its FDI and therefore this represents another outflow form the country increasing the deficit
TECHNOLOGY AND SKILLS TRANSFER
When MNCs open facilities in new host countries this will bring new ideas then the local economy can copy and borrow these new ideas to improve their efficiency of local businesses
access to new technology can help unlock economic development and skills can be developed among the local workforce which increases development.
POSITIVE
CONSUMERS
consumers gain more choice when MNCs enter a new country
problems may occur if MNCS drives domestic firms out of business
capitalism problems- the fairness of the competition are often attached to the entry of MNCs to foreign markets
BUSINESS CULTURE
multinational business may run in a professional and consistent way which is not found in host countries as they may not have experience of large scale multinational trading.
as a domestic supplier deals with the MNC they are likely to adopt a business culture that matches that MNC.
TAX REVENUE AND TRANSFER PRICING
transfer pricing is a technique used by MNCs to adjust the internal prices paid by one branch of their operations to another as a way of minimising tax bill paid by the company
difference countries charge different rates of tax on business profit (transfer pricing)
MNCs will try and maximise their profits in countries where tax rates re the lowest declaring low profits in high tax countries
the multinational will move products between its different locations charging internal pricing this allows high prices to be charged by branches in high tax countries..
a new factory may look to local businesses for supplies
more employment locally will create more spending power increased spending in local shops and restaurants
increased income in an area can be exploited by local entrepreneurs
however if MNCs operation is in direct competition to an existing business it may have too much power for local rivals
IMPACT OF MNCs ON LOCAL COMMUNITY AND ENVIRONMENT
a very complex issue
multinationals invest in local communities raising standards of health care, education and infrastructure
some MNCs can cause damage to communities and bring problems of crime that can be associated with newly found wealth.
MNCs can damage physical environment especially if local environmental regulations are minimal to non existent
MNCs may need to stick to globally laid down international environmental standards
POSITIVE IMPACT OF MNC NATIONALLY
AN INCREASE IN EARNINGS INCREASES TAXES PAID WITHIN THE COUNTRY AND GIVES THE GOVERNMENT MORE MONEY TO SPEND ON SERVICES
MNCS OFTERN IMPROVE COMMUNICATION LINKS WITHIN A COUNTRY E.G. ROAD, RAILS ARE UPDATED AND EXPANDED
NEGATIVE IMPACT OF MNC NATIONALLY
PROFIT FROM FACTORIES OR HOTELS RUN BY MNC GOT TO HOME COUNTRY OF THE MNC
MNCS MAY LEAVE A COUNTRY OVERNIGHT IF PROFITS FALL, LEAVING THE LOCALS WITHOUT JOBS.