Business 1.6

multinational companies - The impact of multinational companies (MNCs) on the host countries (AO3)

multinational company

any business organization that has operations overseas (operating in two or more countries).

• headquarters in one country and operations are in another

foreign direct investment (FDI)

cross-border investment in which an overseas company establishes an ongoing and significant stake in its operations in another economy (e.g. McDonalds, apple)

positive impacts of MNCs

• Employment opportunities (in host country)

• Support for the workforce (create other opportunities for domestic workers, e.g. better wages)

• Support for local businesses (by purchasing stocks from domestic suppliers of raw materials, semi-finished goods and finished goods) provid revenue for local firms and supports domestic industries. In addition, MNCs are also likely to use the services of local firms, such as insurance and distribution.

• Choice and quality – MNCs offer consumers in host countries more choice and often better quality products. Domestic customers no longer have to rely only on local suppliers and must compete with the prices and quality of the products offered by MNCs.

• Efficiency gains – Similarly, MNCs create increased competition for local suppliers, forcing the domestic businesses to improve their operational efficiency. This covers aspects of the prices, quality and customer care of local firms.

• Tax revenues – The host country’s government benefit from profitable multinational companies as they pay corporate taxes. The additional finance can be spent to further improve the economy, such as better infrastructure to further entice foreign direct investment.

negative impacts of MNCs

repatriation of profits, effect on local businesses,Exploitative business practices,Loss of cultural identity