1AL Business and its environment

1AL.2 Business Structure

 Local, national and  Main differences between local, national and
multinational businesses multinational businesses
 The growing importance of international trading links
and their impact on business activity

 Multinationals  Benefits and disadvantages that a multinational might

bring to a country
 Possible relationships between multinationals and the
state

 Privatisation/nationalisation  Advantages and disadvantages of privatisation or

nationalisation in a given situation

 Public/private partnerships  The nature of public/private partnerships including

private finance initiatives (PFI)

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Local, National and Multinational Businesses
A local business only trades in one town. Example a sundry shop.
A national business trades all over one country, usually having stores in all the big towns and
cities. Example Post Office
A multinational operates in lots of countries around the world and in all the major cities of
the world. Example Dell

What is a Multinational Business?

Business which has its operations, factories and assembly plants in more than one country is
known as a Multinational Business. They are also known as Transnational businesses.

Advantages of being a Multinational

 Multinational can set up their business operations in countries where the labour and raw
material is cheaper, which can give them cost advantage in the international market.
 Multinational have access to many markets which spreads the risk of failure. If any
product may not be successful in a particular market, it might be successful in another.
 MNCs produce in large quantities thus achieving greater economies of scales.
 A multinational business is less vulnerable to trade barriers. MNCs set up their local
operations in countries where there is potential market for them and get away with
import duties and restrictions.
 MNCs can locate their operations near the potential market which results in lower
transportation cost.

Advantages of Multinational to the host country

 Multinationals create employment.
 They bring new technology and techniques of production.
 MNCs usually provide training to their worker which results in better skills for the
country’s workforce.
 Multinational businesses usually produce in large quantities and export to other countries
which can result in valuable foreign exchange for the host country.
 They pay huge taxes to the government which can be used for the development of the
host country.

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Privatisation
Privatisation is the transfer of public sector resources to the private sector. It is the process of
selling the state owned and controlled business organizations to the private sector.

Forms of Privatisation
1. The sale of nationalized industries completely.
2. The sale of part of the nationalize industry (partial privatisation)
3. De-regulations: It involves lifting restrictions and lowering down barrier to entry in a
particular market.
4. Contracting out
5. Sale of previously government owned land and property.

Argument For

1. Profit oriented, efficiency

2. Slow and bureaucratic
3. Management responsible. Strong motivation because direct involvement.
Empowerment
4. Market forces, fittest survive. No growth limit. Increase in profit
5. Political reasons and non-commercial reasons. Subsidised elect rate
6. Money from selling nationalised industries
7. Regulatory body to ensure free competition and no consumer exploitation
8. Access to private capital mkt. Increase in investment

Argument Against

1. Decision has to be society not shareholder needs. Keep unprofitable biz for the society
needs
2. Difficult achieve coherent and coordinated national policy
3. Relevant minister responsible and accountable to parliament
4. Reduce opportunities for economies of scales

Public/private partnerships (PPP)

Government services or business ventures that are funded and managed through a partnership
of government and one or more private-sector companies.

Two main types

1. Government funded-privately managed
2. Private funded –government managed

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