The impact of MNCs on host countries (AO3)
MNC – multinational company. Has business operations overseas
FDI – foreign direct investment.
- MNCs spend FDI in overseas markets. FDI is a cross border investment in a foreign company
Benefits of MNCs
- Employment! Lots of jobs in host countries
o Higher incomes, savings and tax revenues. Raises quality of life for host country (think taxes)
o Support for workforce: MNCs pay higher salaries. Also, developing countries may benefit from training of developed countries. + “training and development opportunities”
o Supports local businesses → purchase of raw materials, semi-finished goods and finished goods
o MNCs give better quality products
o Efficiency gains: MNCs increase competition for suppliers, so domestic businesses are forced to crank up production to compete à increases quality and customer care for local firms, and they may reduce price of their products as well.
o Tax revenues – MNCs pay corporate taxes
Drawbacks of MNCs
- Negatively impact local businesses → MNCs may dominate local market and some companies can be bankrupt : (
- Repatriation of profits: profit goes to home country instead of host country, so not actually improving life in host country much (think of manufacturing plants, terrible working conditions while the host country keeps the profits)
- Exploitive business practices: socially irresponsible à worker exploitation and damage to the environment ( COCA COLA )
- Loss of cultural identity: changes how people live
