A-Level Edexcel Business 4.4

What is a Multinational Company (MNC)?

A business that is registered in one country but has manufacturing operations/outlets in different countries

MNCs offer both advantages and disadvantages with regard to:

- Employment, wages and working conditions

- The impact on local businesses

- The impact on the local community and environment

What are the Advantages and Disadvantages of MNC's on Employment, Wages and Working Conditions?

+ MNC's lead to job creation for the local community

+ May offer more competitive wages than local businesses

+ May offer better working conditions than local businesses

- MNC's may exploit local workers if employment regulation is weak or not enforced

- MNC's tend to establish production facilities in regions where labour costs are lower and pay relatively low wages

- MNC's may not create jobs for local workers as they may relocate workers from their own country to work abroad

What are the Advantages and Disadvantages of MNCs for Local Businesses?

+ Can help to boost the local economy creating opportunities for local businesses

+ May be potential opportunities for joint ventures and partnerships with MNCs who seek to gain knowledge of the market

+ > Local firms may learn new skills and production methods that allow them to be more efficient

- MNCs can reduce the supply of workers avaliable to local businesses if they offer better pay and working conditions

- If MNCs are able to produce at a lower cost and compete with local businesses they may lose local customers

- > If local businesses lose customers, this may cause unemployment for workers of local businesses

What are the Advantages and Disadvantages of MNCs to Local Communities and the Envrionment?

+ Local residents may benefit from job opportunities and growth in the local economy

+ MNCs often invest to improve infrastructure

+ MNCs may have to pay taxes and business rates to local councils/authorities

- MNCs may cause damage to local habitats/environment during production process

- MNCs may leave proudction facilities behind abandoned once they have extracted all the resources and left the country

What is the impact of MNCs on the national economy ?

- FDI Flows

- Balance of Payments

- Technology and Skills Transfer

- Tax Revenue and Transfer Pricing

- Business Culture

- Consumers

How would MNCs impact the National Economy with FDI?

There will be an inflow of money into a country if a MNC decides to invest into a country through FDI.

+ Initial Lump sum of money that enters the country to pay for the investment

- Assets from the home country are now oened by foreign businesses

How would MNCs impact the National Economy with Balance of Payments?

Balance of Payments is a statement showing all the financial transactions between a country and the rest of the world

- MNCs can help to improve the balance of payments of a country as the FDI flows ino the country will help.

- > Any goods and services exported for sale by MNCs will generate further inflows

- MNCs can also have a negative impact on the balance of payments

- > If the MNC send profits back to their home country, it will also represent a flow of money out of the country

How would MNCs impact the National Economy with Technology and Skills Transfer?

MNCs can bring new technologies and skills to local businesses

- This will help to improve efficiency and productivity, helping domestic businesses to become more competitive in the national and international market

How would MNCs impact the National Economy with Consumers?

Consumers in countries which host MNCs benefit from:

- A wider range of goods and services

- Lower prices if MNCs pass their cost advantages in the form of lower prices

- Better quality of goods and services

- Improved living standards

- However in the long term, MNCs can push domestic businesses out of the market leaving customers with less choice

- > This may lead to MNCs exploiting customers with higher prices and low quality products as they have limited choice

How would MNCs impact the National Economy with Business Culture?

+ Domestic business may be influenced by the business culture of MNCs

+ MNCs may also encourage a culture of entrepreneurship

- MNCs may demonstrate unethical behaviour and have a company culture of exploitation

- > This may encourage local firms to also ignore the working conditions

How would MNCs impact the National Economy with Tax Revnue and Transfer Pricing?

Potential for the host country to gain significant tax revenue.

- Governments can use tax revenues paid by MNCs to invest in improving public services and infrastructure

- However MNCs seek to maximise profits and will try to reduce their tax liabilities

- > Transfer pricing is a method used by MNCs to shift profits from where they are generated to countries with lower tax rates such as Ireland

What is Business Ethics?

Refers to the principles and norms that govern business behaviour.

- The ethics of a business will determine how they operate and their decision making process

What is a Stakeholder?

An individual or a group that has an interest in and is affected by the activities of a business.

Different stakeholders have different levels of power and different priorities which inevitably creates the potential for conflict

What is the Ethical Conflict between Management and Workers?

- Management may be more focused on output or reducing costs, than on worker safety or creating a positive working environment

- Workers want to be safe and have a comofrtable working environment

What is the Ethical Conflict between Management and Owners?

- The owners (shareholders) want management to maximise business profits and, for example be less interested in the mental well-being of employees

- The management work daily with the employees and will often sacrifice some profit in the interest of looking after their workers health and mental well-being

What is the Ethical Conflict between Company Profits and Resource Depletion?

- The owners (shareholders) aim to maximise output so as to generate increasing levels of profit

- Higher output requires more rapid usage of natural resources and generates more environmental damage

Why are Pay and Working Conditions a Ethical Concern?

MNCs operate in countries which have different employment regulations and working conditions

- MNCs need to decide if they will comply with the regulations of their base location or the country abroad

- MNCs may demonstrate unethical behaviour by exploiting workers in host countries by paying them lower wages

- Also, poor working conditions and child labour are significant issues

Why are Environmental Considerations an Ethical Concern?

Climate Change and Global Warming have become a priority for governments across the world

- Governments are encouraging businesses to improve the envrionmental impact of their business activity

- Emissions are often released from factories or from products made by MNCs

- Waste management is a huge issue also with many devleoped countries having regulations as to how businesses should dispose of waste. However in less regulated nations there is usually a poor waste management infrastructure

What is a Supply Chain?

Consists of all the suppliers involved in the manufacturing of a product/service.

What are the Issues with Child Labour in the Supply Chain?

Some MNCs have manufacturing facilities in countries where child labour is common

- Usually in areas where children are working to generate income for the family

- MNCs using child labour in their supply chain can face backlash which can damage their brand and affect their sales

What are Issues with Exploitation of Labour in the Supply Chain?

Exploitation of labour can take the form of low wages and poor working conditions

(e.g. Working long hours with poor ventilation)

- MNCs are under increasing pressure from governments, customers and institutions such as the International Labour Organisation to take action to ensure their product/services do not involve exploited labour

Why are Marketing Considerations an Ethical Concern?

When developing their marketing strategy MNCs must consider the cultural and social differnces in the country in which they operate

- Misleading labelling is a consideration as the information must be correct and not include any false information aimed at generating higher sales

- Promotional activities should not be offensive or illegal

What Factors must be considered to Manage MNCs?

1. Political Influence

2. Legal Control

3. Pressure Groups

4. Social Media

Why should Political Influence be Considered when Managing MNCs?

Political institutions enforce laws and regulations which businesses need to adhere to.

+ MNCs in developed countries are often able to exter pressure on national governments through lobbying (influecing decisions of governments) to create favourable conditions for their business

- Officals may be bribed for lucrative contracts creating inequality

Why should Legal Control be Considered when Managing MNCs?

Governments can enforce legislation and regulation to control the operations of MNCs

- They want to attract MNCs to help boost their economy so creating legal control in areas relating to taxes and employment ensures stability for the MNC

+ Laws can be passed anytime to control the actions of MNCs who are faulty

- Due to MNCs being able to afford legal fees they may still purposely break these laws as the benefits of doing so outweigh the costs

Why should Pressure Groups be Considered when Managing MNCs?

Pressure Groups are organisations that operate to influence company and public policy in the interest of a particular cause.

- They campaign for changes in the law or new legislation for MNCSs

- They can take action in the form of Lobbying which is where they take issues directly to the government

+ Can raise public awareness and encourage boycotts

+ Can create Public Relations problems for MNCs, which can influence a change in their behaviour

- The pressure groups need to be organised to have an actual impact on changing the values of the MNCs

- The size and wealth of the largest MNCs may mean that they can easily counter or quieten pressure group activity

Why should Social Media be Considered when Managing MNCs?

Social media involves the interaction of people via electronic devices using social media platforms.

- Tools such as twitter can influence public opinion and spread awareness about something on a global scale

+ Can influence change

+ Can help to promote the business on a global scale

- MNC influence on social media may be limited with some countries having regulations in place to manage social media power

- Typically only affects short term change with 'trends' going out of date relatively quickly