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Increased Significance of MNC and FDI - Coggle Diagram
Increased Significance of MNC and FDI
Advantages
More job opportunities
When MNC arrive and establish businesses in the specific country, the unemployment will likely to fall. This results in an increase in income in the country. Moreover, the extra output and employment generated by MNC will increase the country's economic growth. When the economic growth rises, the living standars will also rise.
More investment in infrastructure
Countries with poor infrastructure often struggle to attract FDI. Why? Because if a certain country is insufficient towards infrastructures (Ex: bridges, airports, and other business facilities), then the business will be burdensome. Therefore, governments are more likely to invest in infrastructure to get the attention of potential investors. However, sometimes foreign investors also contribute to the country's infrastructure.
Developing skills & capitals
MNC provides training and work experience for workers when they locate operations in foreign countries. This will result in an increase in labor quality. This is why governments in less developed countries often spend more on education to help attract MNCs.
The arrival of MNCs will also help to boost the capital of the host country. How? When a business sets up facilities, it is to be expected they will use up-to-date technology. One example is the usage of renewable energy sources. MNCs might also encourage local suppliers and other businesses to invest in new capital projects.
Contributing to tax
Same as other businesses, MNC is also taxed by the government of the host nation. This will then increase the tax revenue for the government.
Reasons for globalization
Fewer tarrifs/quotas
Reduced cost of transportation / Communication
Disadvantages
Tax avoidance
There are many cases where MNCs avoid taxation. This even happens to a well developed countries with well developed legal systems. If they are even able to avoid taxation from well developed countries, imagine what will happen to less developed countries.
Environmental destructions
MNCs could cause various environmental damages in the host country. A few examples are such: mining, pollution, and many other damages to the environment.
Moving profit abroad
The profits made by MNCs abroad are called repatriation. This means that the profit they made will get back to where the MNC is based or where they belong. Therefore, MNCs brings much more benefits to well-developed countries than to less developed countries because most MNCs are based in well-developed countries.
Reasons
Economies of scale
Easy access to Natural Resources / Cheap Materials
Access to global customers