The impact of multinational corporations (MNCs)

What is an MNC?

A multinational corporation (MNC) is a firm with assets in multiple countries. It has a home country HQ and operates in other nations.

How do MNCs create jobs in a host country?

• Factories and offices require local workers.

• Construction and equipment demand increase.

• Local suppliers and service providers benefit.

What ethical issues arise from MNCs' working conditions?

• Sweatshops, poor safety (e.g., 2013 Bangladesh factory fire).

• Workers may be exploited for low wages.

• However, some argue it provides financial independence, especially for women.

How do MNCs impact local firms? How do MNCs impact local firms?

• Positive: Local businesses supply materials & services (e.g., cotton for clothing).

• Negative: Small firms may struggle to compete on price & economies of scale.

What is the multiplier effect in a local economy?

More employment → higher incomes → increased spending → growth of local businesses.

How do MNCs impact skills and training?

• Pros: Can introduce new industries & training.

• Cons: Jobs may be low-skilled & repetitive, limiting workforce development.

What is Corporate Social Responsibility (CSR)?

When firms voluntarily act ethically by reducing pollution, improving working conditions, or investing in communities.

How can MNCs harm the local environment?

Pollution, landscape destruction (e.g., mining, oil drilling).

How do MNCs contribute to economic growth?

• More employment & wages → higher spending & tax revenue.

• Govt. can invest more in infrastructure & public services.

What is FDI?

Foreign Direct Investment (FDI) is the flow of capital from one country to another to establish business operations.

How can MNCs attract more FDI?

If one MNC sets up successfully, others follow, creating a positive business environment.

How do MNCs affect the balance of payments?

• Positive: Exports can improve the balance of payments.

• Negative: Repatriation of profits means money flows back to MNCs’ home countries.

What is the impact of MNCs on technology & skills transfer?

• Can introduce new industries & improve human capital.

• Might not invest in workforce skills, limiting long-term benefits.

What is the ‘race to the bottom’ in business culture?

• Firms relocate to countries with cheaper labor.

• Example: China → Bangladesh as wages rise.

• This can destabilize economies and increase unemployment.