Growth of Multinationals (Edexcel IGCSE Business)

Low costs

• MNCs can access lower-cost labour and/or raw materials by moving to cheaper locations or exploiting economies of scale

Potential for high sales

• They have access to a large customer base with potential for high levels of sales

High profile

• Multinationals are well-know businesses whose products have a greater chance of becoming household names and achieving market dominance

Bypass trade barriers

• Multinationals can set up operations inside trade blocs or in countries that impose import tariffs or quotas

Low tax liabilities

• Multinationals can locate their head office in countries with low tax rates such as Ireland or Cyprus
  • This allows them to maximise profits to distribute as dividends to shareholders

Local residents

• Residents in countries with multinationals benefit from well-paid high-quality job opportunities and growth of other local businesses 
  • MNCs provide training for their employees, improving their skills
  • E.g. Drinks company Diageo employs and trains 6,500 well-paid workers in African countries, including Tanzania, Cameroon and Nigeria
    
    
• The presence of MNCs in an economy encourages entrepreneurship as citizens' skills and motivation to succeed are increased
  
  
• In some instances, multinationals have been found to pay low wages, employ child labour and offer poor working conditions

Local businesses

• Local businesses grow and employ more workers to meet demand created by an MNC
  
  
• MNCs may share knowledge with local suppliers and support them with funding to invest in new technology
  • E.g. Electronics manufacturer Samsung transferred patented technologies free of charge to support the growth and innovation of SMEs in South Korea

Local government

• MNCs may have to pay taxes and business rates to local councils and authorities
  • These funds may be reinvested back into the local economy to fund local amenities
  • E.g. Nissan's decision to locate in Sunderland, a city in the North-East of England, provided much-needed funds for the council to invest in infrastructure to support the growth of export businesses

National government

• MNCs output is recorded in the country it is produced in, so when exported, it has a positive impact on the country's balance of payments which benefits the government
  • E.g. Exports from MNCs located in Poland, such as Pfizer and Merck, make up around two-fifths of the country's total 
    
    
• MNCs may invest to improve infrastructure
  
  • Better roads, transportation and access to water and electricity help the economy and allow the MNC to operate efficiently
  • E.g. In exchange for market access for its MNCs, the Chinese government has invested more than $600 million in Costa Rican infrastructure, such as improvements to roads and sports venues, including its national football stadium
    
    
• Multinationals have been accused of poor behaviour in the countries in which they operate
  • Causing environmental damage
  • Paying minimal tax revenue
  • Lacking accountability to the countries in which they operate
    • Once resources have been used, they leave the country to locate elsewhere, causing unemployment