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Reasons For Globalization - Coggle Diagram
Reasons For Globalization
Reduce Cost of transportation/communication
Less tariff/quotas
Increased significance of MNCs/ FDI
Reasons
Economies of scale
Firms that exploit economies of sccale can reduce costs. Economies of scale is when the system gets efficient as the cost gets lower for the output it produces. (The cost advantages from increasing their output)
Access to Natural Resources and cheap materials
Companies are happy that they can buy huge quantities of resources as they have large reserves of valuable resources to sell and make profit
Access to Global Customers
They can sell far more goods and services , this equals more profit
Disadvantages
Tax Avoidance
MNC can do tax avoidance in well developed legal systems, however less develop nations have little chance of getting their share of taxes from MNC
Environmental Damage
MNC may cuase environmental damage as they are heavily involved in extraction industries that is destructive.
Moving Profit Abroad
Profits made by MNC are often to repartriation where profit are returned to the country where MNC is based, the host country loses out, this means MNC based in developed countries can get more benefits from less developed countries
Advantages
More Job opportunity
Multinational companies need employees and this increases economic growth and raise standard of living
Investment in infrastructure
If there is MNC, governments are more likely to invest in infrastructure in order to attract the attention of investors. FDI can also contribute to nation infrastructure as as building new roads.
Developing skills and capitals
MNC provide training and work experience for workers when they locate operations in foreign countries & help to boost the stock of capital such as up to date technology
Contributing to tax
Profits made by MNC are taxed by the host nation, this increase tax revenue can be used to improve government services.