Multinationals

Multinationals

1. Businesses who are active or have assets in more than one country.

   • To access new markets
   • To reduce costs
   • To control resources
   • To take advantage of government incentives
   • To get around trade barriers

2. Bad

   • Use their size and power to exploit employees and host economies
     • Wages can be low and working conditions often poor
   • Damaging to the environment
   • Can harm economic prospects of the host country
   • They are often footloose. This means they can pick up and relocate somewhere else at any time.
   • Local businesses suffer and lose market share
   • Cultural imperalism - promoting and injecting the culture of one society into another.
   • Profits can be repatriated to the home country
   • Illegal and unethical behaviour

3. Good

   • Create employment and wealth
     • Raise incomes
       • Should increase the tax base and raise government revenue
   • They help poor countries develop
   • They reap economies of scale and cater for the mass market.
   • Skills and technology transfer
   • CSR, on the workforce, community or environment
   • Creates FDI
   • Regional multiplier effect
   • Increases demand for local suppliers
   • Other MNCs may follow
   • Export earnings

4. Factors affecting the ability to control MNCs

   • Size of the MNC
   • Size and importance of the host government
     • May be desperate for FDI and overlook low pay and poor working conditions
       • Government control and regulation.
     • May be reluctant to confront a company that may be important to it economically
   • Strength of public opinion
   • Social media/internet
   • The strength and vigour of a pressure group
   • Self regulation - following a code of conduct
   • Legal enforcement
   • Shareholders

5. Case studies

   • In china workers started campaigning for higher wages, some committed suicide leading to considerable publicity. The companies eg Foxconn, realised this was alarming, 30% increases were made in some places and the minimum wage was lifted in China.
   • Japanese car makers in the UK (Toyota, Honda, Nissan) located here to avoid the EU tariff imposed on cars produced outside the EU.
   • Asian economies have welcomed MNCs for more han 40 years, such as Taiwan, Singapore, South Korea and Hong Kong, they now have high standards of living. Innovation and new technologies have taken hold and competition has forced local businesses to become more efficient.
   • Shell have been widely criticised for the way they have treated staff in Nigeria. People living near the oil wells still have to contend with widespread environmental damage. Shell may be losing sales revenue and cusomers may not buy their petrol if they can avoid it.
   • The boycott of Nestle is the worlds longest running. It began in 1977 in response to agressive marketing of Nestle baby milk formula in poorer countries.
   • Public concern over phone hacking by the media led to the closure of the News of the World.