Part E – IMPACT OF MULTINATIONAL BUSINESSES ON HOST COUNTRIES

1. AS 91380 (3.2): Demonstrate understanding of strategic response to external factors by a business that operates in a global context Part E – IMPACT OF MULTINATIONAL BUSINESSES ON HOST COUNTRIES

2. A multinational company has a lot of power which it can use responsibly or selfishly. While many firms operate to meet the needs of its shareholders, ethical firms also carefully consider the implications of what they are doing and the effect it might have on the community and the environment.

3. For example, a multinational business may have the option of cutting costs by hiring child labour at very low wages in developing countries. Other businesses may have built their brand on acting ethically, believing that customers are prepared to pay more for products that consider the environment and pay a reasonable wage. For these companies, higher sales compensate for higher costs.

4. Benefits of multinationals for host countries It is clear that multinationals have brought many benefits to communities who would otherwise not have experienced, as quickly, the increase in standards of living.

5. When a corporation makes the strategic decision to enter into production in a foreign country, it is seeking to benefit from conditions or markets that serve its primary goals. Profit will be high on the list of a corporation’s goals.

6. Creation of employment opportunities for locals. This increases workers’ incomes and standards of living. Training local workers to take high-level jobs within the company is an investment that strengthens the multinational and spills over into the local economy by raising the level of human capital.

7. Multinationals can create competition in the host nations. This encourages local businesses to be more efficient which, in turn, reduces costs and increases their profits. • Local suppliers gain extra markets and therefore an increase in sales and profits. • The inflow of foreign currency benefits the wider business community.

8. Workers and businesses gain management and technology expertise. Multinationals can bring new infrastructure, production processes and staffing processes that can lead to an improvement in quality and productivity of host country firms. • Multinationals pay taxes to host economies. This can then be invested in areas such as health and education. Economic growth is improved by the presence of multinationals.

9. Accusations multinationals face over their operation in host countries • Exploitation of local workforce if cheap labour rates are paid. • Pollution and the depletion of limited natural resources.

11. Multinationals can reduce market share for local businesses, decreasing their revenue and profitability. • Multinationals can dominate local suppliers, causing them to force up prices for raw materials; this increases costs for local businesses, reducing their profitability.

12. Imposition of Western culture ~ the introduction of new global brands or marketing strategies might undermine traditional brands/customs and encourage the westernisation of consumers at the expense of the social and cultural sustainability of the host country. • Multinationals are often accused of paying as little tax as possible by seeking locations where taxes are low. • Profits are often returned to home country.

14. While it is clear that multinationals have brought many benefits to host country communities, the benefits must be weighed against the costs to determine whether the impact on society qualifies as sustainable development. Socially and environmentally responsible multinationals have the ability to affect the host country in a very positive way.