4.4.1 The Impact of MNCs

🔗 Multinational corporations (MNCs) – A firm that has operations in more than one country. Headquarters in one, branches in others.

🔗 Transnational corporations – Firms that don't have a distinct founding country and are in several different countries.

Multinational corporations (MNCs)

Impact of MNCs on Local Economy

• Increases local employment -> Higher wages improve living standards and purchasing power
• Encourage local businesses to innovate and become more efficient to compete. Also, need them for supplies and to outsource tasks -> B2B sales for domestic firms
• Strong links to local communities (E.G Fundraising, activism support) -> Increases credibility and exposure of events.
• MNCs invest in local infrastructure -> Improve mobility of labour and reduce transport costs
• Wider choice of goods and services available to customers
• May enter the country to exploit economies of scale rather than help society
• May cause decline of sales for domestic businesses -> Unemployment
• May use local community for PR and therefore utilise ethical stances as cynical marketing -> Maximises profits and reduces commitment to future causes
• May bring their own workforce from home country -> No improvements to employment

Impact of MNCs on the National Economy

• FDI increases -> Improves economy's balance of payments
• Raises value of human capital (working training) -> High-skilled workforce
• Increases government tax revenue -> More incentives available for existing businesses
• Environmental impact -> Depletion of natural resources creates sustainability issues -> Bad PR for the country
• MNC profits are often repatriated (go back to home country)
• MNCs may dictate economic policy and negotiate lower tax rates due to power and value to the country