4.3.

4 Global industries and companies

(multinational corporations)
1 IMPACT OF MNCs

Starter statement – do you agree or disagree?

MNCs are good for the developing nations that they trade or
manufacture in

Yes I agree No I disagree

MNCs are extremely benefifcial to MNCs send all their profit back to
developing countries. This is in their home nation.
part due to the many new
employment opportunities brought
forth by the MNCs.

They also benefit developing nations by MNCs only give menial or

bringing in new technologies and ideas
temporary jobs to locals and give
that will slowly spill over to local firms.
all the important and high ranking
jobs to workers from their home
country.

Many MNCs find ways around

MNCs pay taxes to host nations. having to pay their taxes.

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Write a definition of the term MNC here:

A multinational corporation, also known as an MNC, is  one that has its

business operations in multiple countries. These companies are often
managed from and have their headquarters in their home country, but
with offices worldwide. Additionally, just exporting goods to be sold
abroad does not make a company an MNC.

Positive effects of MNCs

Positive impacts

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 Creates
employment There are jobs available for local people thus reduces
the numbers of unemployed and the resultant drain on
natural resources.

Increases skills
base Many MNCs operate training schemes for local people
to learn how to use machinery.

Increased
standard of
living

Raises country’s MNCs plan their moves carefully. This is known

profile worldwide and the movement into a particular
country is a statement about its pro-business
environment and political stability.

Improves Many goods made by MNCs are exported to other

balance of nearby countries. This increases the amount of
payments money in a region.

Improves
infrastructure

Negative effects of MNCs

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Negative impacts

Profit
leakage Profits from factories or hotels run by the MNC go to the
country in which the head office of the company is found.

Low paid Mainly low paid jobs are provided for local people. Higher
jobs paid managerial jobs go to workers brought in from the
head office country.

Pull out In times of recession an MNC will be quick to abandon its

quickly operations.

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 Poor safety Poorer countries often have poorer safety standards, and
record governments are willing to turn a blind eye to breaking the
standards that exist.

Increases Most jobs created by MNCs are usually found in or close to

urbanisation urban areas. Hope of securing these jobs attracts more
people from rural areas into cities.

Widens Although wages are low in factories, they are higher than
poverty gap elsewhere. This increase the cost of living for all as the
price of goods rise.

Impact on the local community / environment

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Impact on the local community / environment

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Impact of MNCs on national economy

MNCs and FDI flows

FDI is a foreign direct investment.

When a MNC invests in a host country, the scale of

the investment is likely to be significant.

Governments will often offer incentives to firms in

7 the forms of grants and subsidies.
MNCs and the balance of payments

MNCs and technology and skills transfer

Inward investment will help a country’s balance of
payment.

The investment will be a direct flow of capital into

the country and the investment is also likely to result
in import substitution and promotion.

MNCs and technology and skills transfer

MNCs will bring with them technology and

production methods that are probably new to the
host country and a lot can therefore be learnt from
these techniques.

Workers will be trained to use the new technology

and production techniques and domestic firms will
see the benefits of the new technology. This process
is known as technology transfer.

MNCs and impact on consumers

If the MNC manufactures for domestic markets as

well as for export
 Cultural and social impact: Large numbers of foreign
businesses can dilute local customs and traditional
cultures.

George Ritzer coined the term MCDonaldization to

describe the process by which more and more
sectors of American society as well as of the rest of
the world take on the characteristics of a fast-food
restaurant, such as increasing standardization and
the movement away from traditional business
approaches.

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[6]

An MNC also known as a multinational corporation, is a company that has its business
operations in multiple countries. MNCs can have some positive effects on a host country but
they can also have many negative impacts. An example of this is the loss of differences in
culture, this is called McDonaldization. McDonaldization creates an amalgamation effect,
making much of the world look the same and causing different countries to lose their
identities. This results in many parts of the world looking exactly like every other part. This
standardization of the retail world is pushes out small businesses like regional cuisine, local
fashion stores and other small businesses, making streets in Tokyo and London look almost
the same as those in LA or Ottawa.
Another negative impact that MNCs can have on a host country is increasing the cost of
living since the wages paid by MNCs are usually higher than elsewhere. This increases the
cost of living for the locals as the price of goods rise.

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An MNC also known as a multinational corporation, is a company that has its
business operations in multiple countries. These companies are often managed from
and have their headquarters in their home country, but with offices worldwide.
Additionally, just exporting goods to be sold abroad does not make a company an
MNC. MNCs help to promote growth and employment in developing countries like
Indonesia by creating new jobs, realising new investments, bringing in new
technologies that spill over to domestic firms, and by paying taxes to the host
economy.
Although wages for the jobs provided by MNCs seem very low by Western
standards, people in developing countries often see these new jobs as preferable to
working as a farmer with even lower income. MNCs can also help improve
infrastructure in the host countries economy, for example by purchasing materials
and resources from local suppliers and through capital investment. They may
improve the skills of their workforce. Foreign investment may stimulate spending in
infrastructure such as roads and transport.
Additionally, competition from MNCs can act as an incentive to motivate domestic
firms in the host country to improve their own firm, perhaps by raising their quality
and efficiency. However, it is also important to mention that jobs provided to locals
by MNCs are usually nothing more than some menial labour and any high paying job
is given to someone from the home nation. This means that most of the skills locals
would learn will be low level skills without much use. Additionally, the technology that
MNCs bring are usually very expensive and will be difficult for local firms to obtain.

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