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10: The importance and growth of multinational companies 

How have multinationals developed:

Economies of scale:

  • Many companies have developed into MNCs because larger companies enjoy lower costs.

  • They can then exploit economies of scale as they sell to global markets and produce more, meaning they have lower costs.

  • MNCs are powerful and can put pressure on suppliers to lower prices.

  • MNCs have access to cheap global resources: labour, capital and commodities.

Marketing:

  • Some firms become MNCs by relying on effective marketing.

  • They protect brands with patents and use heavy advertising and innovative marketing to attract customers globally.

Technical and financial superiority:

  • MNCs develop into large businesses and enjoy superiority using advanced technologies and a huge bank of knowledge.

  • They can afford to invest heavily in research and development.

  • They can also afford specialised and talented employees and take risks, hence exploring business ventures.

Benefits to a business of becoming a MNC:

MNCs enjoy higher revenues and lower costs.

  • Larger customer base: MNCs access wider markets and boost sales revenue, increase profit and win market share by selling globally.

  • Lower costs: MNCs enjoy lower costs and rates by exploiting economies of scale.

  • Higher profile: encourages existing customers and attracts new ones.

  • Avoiding trade barriers

  • Lower taxes: MNCs can base head offices in countries with low tax rates. Minimised tax = higher dividends.

Benefits of multinationals to the economy :

  • Increased income and employment: overseas operations leads to increased income in a particular country and new jobs in developing countries. Extra output and employment increases economic growth.

  • Increase in tax revenue: profit by MNCs are taxed by the host nation which increases government tax revenue.

  • Increased exports: MNC output is regarded as output for the country and helps increase foreign currency reserves in that country.

  • Transfer of technology: MNCs help foreign suppliers with technical help and modernise production facilities.

  • Improved quality of human capital: MNCs provide training and work experience for works which may otherwise be unavailable.

  • Enterprise development: arrival of MNCs has encouraged more people to set up businesses in less developed countries.

Drawbacks of multinationals to the economy :

  • Environmental damage

  • Exploitation of less developed countries: low wages, child labour, poor working conditions, minimal taxes, reliance on producing primary products

  • Repatriation of profits: profit is often returned to the country where a MNC is based and the host country loses it

  • Lack of accountability: may evade the law especially in developing countries and where the government is weak.

10: The importance and growth of multinational companies 

How have multinationals developed:

Economies of scale:

  • Many companies have developed into MNCs because larger companies enjoy lower costs.

  • They can then exploit economies of scale as they sell to global markets and produce more, meaning they have lower costs.

  • MNCs are powerful and can put pressure on suppliers to lower prices.

  • MNCs have access to cheap global resources: labour, capital and commodities.

Marketing:

  • Some firms become MNCs by relying on effective marketing.

  • They protect brands with patents and use heavy advertising and innovative marketing to attract customers globally.

Technical and financial superiority:

  • MNCs develop into large businesses and enjoy superiority using advanced technologies and a huge bank of knowledge.

  • They can afford to invest heavily in research and development.

  • They can also afford specialised and talented employees and take risks, hence exploring business ventures.

Benefits to a business of becoming a MNC:

MNCs enjoy higher revenues and lower costs.

  • Larger customer base: MNCs access wider markets and boost sales revenue, increase profit and win market share by selling globally.

  • Lower costs: MNCs enjoy lower costs and rates by exploiting economies of scale.

  • Higher profile: encourages existing customers and attracts new ones.

  • Avoiding trade barriers

  • Lower taxes: MNCs can base head offices in countries with low tax rates. Minimised tax = higher dividends.

Benefits of multinationals to the economy :

  • Increased income and employment: overseas operations leads to increased income in a particular country and new jobs in developing countries. Extra output and employment increases economic growth.

  • Increase in tax revenue: profit by MNCs are taxed by the host nation which increases government tax revenue.

  • Increased exports: MNC output is regarded as output for the country and helps increase foreign currency reserves in that country.

  • Transfer of technology: MNCs help foreign suppliers with technical help and modernise production facilities.

  • Improved quality of human capital: MNCs provide training and work experience for works which may otherwise be unavailable.

  • Enterprise development: arrival of MNCs has encouraged more people to set up businesses in less developed countries.

Drawbacks of multinationals to the economy :

  • Environmental damage

  • Exploitation of less developed countries: low wages, child labour, poor working conditions, minimal taxes, reliance on producing primary products

  • Repatriation of profits: profit is often returned to the country where a MNC is based and the host country loses it

  • Lack of accountability: may evade the law especially in developing countries and where the government is weak.

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