Business – MNC Questions and Answers

Business – MNC Questions and Answers Multinational Business Headquarters in one country and operating branches, factories or assembly plants in other countries. Must produce goods or services in more than one country. Globalisation Integration of economic, social, technical and cultural aspects of the worlds economies. Globalisation has accelerated in recent years with the rapid growth of mulit nationl companies and the expansion of free internationsl trade. Three important aspects: Increased trade in Goods and services. Increased movements of labour from country to country. Increased movment of financial capital Why firms become MNC Brings firms closer to their main markets Reduces production costs- cheap labour Gain access of natural resources in other country's Takes advantage of expanding markets in other countries Takes advantage of global economies of scale-whole globe as their market and supply chain Factors that contribute to globalisation Contributing factors: Consumer tastes- most consumers are now willing to buy foreign products. Our demand for products from overseas is stimulated by advertising and our exposure to international marketing via the internet and social media Technological change- powerful communications technology and the internet have dramatically changed the way we purchase products. Cost of transportation - the single most important factor in the falling cost of transportation has been the is of containerised transported Liberalisation of trade- trade protection has been reduced due to the operation of organisations such as the World Trade Organisation and inter-country agreements such as Closer Economic Relationships (CER) between NZ and Australia and the NZ and Thailand Closer Economic Partnership Emerging markets and competition-new markets have opened up in some countries that have seen a growth in their national income. As businesses in countries such as South East Asia have become more successful that have been able to compete in western economics Reduction in the cost of communications and increase in their speed. Disadvantages of MNCs Exploitation of local workforce if cheap labour rates are paid Pollution and the depletion of limited resources : coca cola Reduce market share for local businesses MNC can denominate local suppliers, causing them to force up prices for raw materials Imposition of western culture MNC accused of paying little taxes - off shore accounts Profits are often returned to home country Sustainable development: benefits>costs Have the ability to affect the host country in a very positive way Impact on host countries (of MNC) Firms operate to meet the need of shareholders - may not consider whats best for the country they are operating in. MNCs can use their power selfishly or responsibly Ethical firms may consider the stakeholder {consider implications and the effect on the community and environment} MNC could cut costs - child labour (Nike). Or could be ethical to get higher revenue(Nestle). Creates employment for locals Creates competition in host countries- encourages local businesses to be more efficient Local suppliers gain extra market Inflow of foreign currency benefits the wider business community. Workers and businesses gain management and technology expertise MNC pay taxes to host companies