Benefits to a Country of Hosting an MNC
- Many governments are in favour of MNCs establishing in their country as there are benefits to the wider economy, but their presence can also have negative consequences
- The extent to which their activities are regulated and the behaviour of individual companies determine the overall effect
Diagram: Impact of MNCs on the National Economy
MNCs impact several business metrics in the national economy
Foreign direct investment (FDI)
- There will be an inflow of money into a country if a MNC decides to invest into a country through foreign direct investment
- This money enriches local firms or citizens, who now have more money available to spend in the economy
- If this money is reinvested back into the local economy, it may help to generate new jobs and boost economic growth
Balance of payments
- MNCs can help improve the balance of payments of a country as FDI flows into the country
- Any goods and services exported for sale by the MNC will generate further inflows to the country’s balance of payments
- This is especially beneficial to a country when the MNC is exporting a rare and valuable raw material, e.g cobalt
Technology and skill transfer
- MNCs can bring new technologies and skills to local businesses
- This will help to improve efficiency and productivity, helping domestic businesses become more competitive in national and international markets
- This will help to improve efficiency and productivity, helping domestic businesses become more competitive in national and international markets
Consumers
- Customers in countries which host MNCs often benefit from
- Better quality, a wider choice of goods and services and lower prices if MNCs pass their cost advantages on in the form of lower prices
- Improved living standards as people may have higher incomes due to job creation and the resulting reduction in unemployment
Business culture
- Domestic businesses may be influenced by the business culture of MNCs
- E.g. In the 1990s, European businesses adopted the working practices of Japanese businesses such as Nissan
- Workplaces became more open and employers started to copy ideas such as Kaizen and continuous improvement
- MNCs may also encourage a culture of entrepreneurship
- This can help boost overall [popover id="-eNPhrJf1dSfjDYU" label="Economic Growth"]
- This can help boost overall [popover id="-eNPhrJf1dSfjDYU" label="Economic Growth"]
Tax revenue
- There is the potential for the host country to gain significant tax revenue
- Governments can use tax revenue paid by MNCs to invest in improving public services and infrastructure