Chapter 5 Multinational Companies

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iGCSE Edexcel Business


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iGCSE Business Studies:

iGCSE Business Studies Chapter 5 Multinational Companies


Read through the case study P22 and think about the answers to the questions Class discussion


Globalisation Some firms expect to sell their products anywhere in the world Firms and consumers are behaving as though there is just one market in the world This is known as globalization These are the key features of globalization Products are traded freely across international borders without government restriction People are free to live and work in any country they choose (e.g. EU) High level of interdependence between nations – events that affect one economy will affect another e.g. Financial crisis started in the UK Capital/money flows freely between different countries


The importance and growth of multinationals MNCs contribute to about 10% of the world GDP and about 2/3 of global exports They have been created because…. Economies of Scale – Because they produce more their costs should be lower for example they can put pressure on their suppliers to lower prices and they will access resources from the least expensive places in the world Marketing – they develop a successful brand at home and then exploit it globally. They have protected their brand with patents and use heavy advertising and innovative marketing e.g. Starbucks & McDonalds Technical & Financial superiority – they can afford to employ the most talented people and invest heavily in research and development


Read through the case study P23 and think about the answers to the questions Class discussion


Advantages of Multinationals Increased income and employment Bigger market equals more revenue They create employment wherever they set up an operation Local suppliers also benefit from extra orders and may expand This all increases economic growth and raises living standards for people in these countries Increase in tax revenue – the profit the MNC makes in the country will be taxed by the host government which can be used to improve government services Increase in exports – the output that is produced by the MNC and then exported is recorded as an export for that country – this helps increase foreign currency reserves Transfer of Technology - Local suppliers and employees will learn from the MNC Improvement in the quality of human capital – often governments will spend more money on educating their people to create a skilled workforce which attracts MNCs Enterprise development – gives ideas to locals to set up their own businesses perhaps as suppliers to the MNC


Disadvantages of Multinationals Environmental damage – MNCs are often heavily involved in extraction industries such as coal, oil and gold mining which can often be destructive Exploitation of less developed countries Some MNCs will encourage developing countries to rely on producing primary products but this is risky because prices are very volatile and relying on one industry makes the country vulnerable MNCs often pay low wages and may not worry about using child labour and working conditions Resources are extracted and sold with little money going to th e host nation Taxes paid are often minimal because the host wants to attract MNCs As little as possible is put back into the country so that maximum profit is made Repatriation of profit – the profits are sent to the country where they are based Lack of accountability – they may evade the law where government is weak or corrupt and may be keen to operate where regulations are few. Some are monitored by pressure groups which helps


Read through the case study P25 and write the answers to the questions Class discussion

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