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.
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.