4.4.3 Controlling MNCs

Multinational Corporation

🔗 A business that operates in several other countries alongside its home country.

MNCs due to their size and dominance can sometimes dictate economic policy or get concessions (E.G Tax allowance)
MNCs can be controlled by the government by:
Tariffs, quotas, regulations – Help protect domestic businesses from international competition
Direct or indirect ownership (E.G China putting steel firms under state ownership)
Subsidies to assist domestic firms with exporting their goods
- However political influence can facilitate corruption and encourages inefficiency (E.G Lack of R&D from disincentives)

Competition policy – Organisations (E.G CMA) ensure markets operate efficiently and promote competition. Prevent collusion or anti-competitive tactics
Taxation policy – Increasing taxation rates can raise government tax revenue whilst strengthening control over MNCs.
- However, it may reduce FDI and push MNCs into countries with more desirable tax rates and less red tape
- High tax rates may also encourage tax avoidance

🔗 Organisations or groups that publicise undesirable firm behaviour to promote a change

Naming and shaming – Publicising behaviour considered to be unethical -> Damages the image of firms in the public eye -> Bad PR and reduced customer loyalty
- However, customers of the business may be too loyal (inelastic PeD) or the brand will be too strong to resist -> Firms not forced to accept change
Direct action – Using protests, strikes or sabotage to force change
- Firm may just leave the country and carry out practices elsewhere -> Reduced FDI -> Reduced tax revenue and local employment
Lobbying – Taking issues directly to government to influence change
- However, may take a large amount of time to respond -> Time lag for change
- May also prioritise economic benefits over ethics

🔗 The interaction between people via mobile devices and electronic applications.

Reduces asymmetric information and makes collection of details about a firm's activities easier
Able to spread word and influence of activism/unrest quickly to build up support and encourage change due to the effect on MNC PR
Communication encourages transparency between business and consumer
Bringing people together to create a social authority
- However, campaigns may be misinformed -> Reducing the credibility of the movement -> Less likely for change to happen
- A business' brand image may also be too strong to taint or deter customers from buying its products -> Social media ineffective for control