Presentation Transcript

1. A2 Economics and BusinessBenefits and negative impacts that MNCs bring to overseas countriesUnit 3

   By Mrs Hilton for revisionstation
2. Lesson Objectives To be able to discuss how multinationals have contributed to an improvement in local living standards, employment and economic growth in overseas countries. To be able to answer a past paper questions on the topics
3. In support of MNCs Multinationals are a beacon of global capitalism, bringing employment, income and new technologies to poorer countries, driving up incomes and aiding development. In return wealthier countries (Like UK) get cheaper goods. Can you argue against?
4. In opposition of MNCs They represent everything that is bad about global trade and globalisation. They are seen as bullies, using power to exploit workers and natural resources with no regard for economic or environmental well being of any country or community. Child labour video
5. BIG MNCs Most of the largest MNCs are US, Japan, or European India and China growing rapidly Example Tata (Show presentation) Tata:
6. Why have they grown? - To access new markets Domestic market saturated, profits from expansion overseas is tempting Extension strategy for the product life cycle PMI (Phillip Morris International) and BAT have aggressive expansion in developing markets
7. Why have they grown? - To reduce costs Economies of scale Lower unit costs Enhanced competitive advantage Especially if products can be standardised across markets Available, cheap adaptable labour see Global services location Index (Most attractive offshore destinations)
8. Off shoring video
9. Why have they grown? -To control resources MNCs have to go where the resources are to extract and process them. E.g. Petrochemicals, minerals, commodity industries They secure resources to prevent rivals from acquiring them Bolivia owns 50-70% of the world’s lithium reserves needed for batteries. Glencore used to own the mines but have since been nationalised by the government to protect the resources. See video next slide.
10. Why have they grown? – To take advantage of governments and getting round trade barriers Government incentives offered to MNCs to attract them to their countries – Dell was given 52.7 million Euros by Poland to move its factory from Ireland to Lodz in Poland. See video next slide.. Beijing (capital of China) waive tariffs and quotas to attract regional HQs of MNCs Toyota began production in USA to access NAFTA markets
11. Why have they grown – because they can. Advances in travel and technology – easier to organise and coordinate business activity Email and VC makes some travel unnecessary New trade blocs, WTO, expansion of India and fall of communism in Europe have all encouraged the growth of MNCs Handout a guide to world trade blocs. Video on trade blocs
12. Multinational companies Are multinational companies good or bad for poorer countries? Which view is true? Do they increase wealth and wellbeing within these countries? or Do they suck wealth out of these countries and reduce wellbeing?
13. Negative impact of MNC on overseas countries Profit leakage. Why? Widens the poverty gap. Why? Low paid jobs. Why? Increases urbanisation. Why? Pull out quickly. Why? Poor safety record. Why? Click to continue
14. Negative impacts Profit leakageProfits from factories or hotels run by the MNC go to the country in which the head office of the company is found. Low paid jobsMainly low paid jobs are provided for local people. Higher paid managerial jobs go to workers brought in from the head office country. Pull out quicklyIn times of recession/low sales, jobs of workers in the head office country are protected for longer than in other factories.
15. Negative impacts continued Poor safety recordPoorer countries often have poorer safety standards, and governments are willing to turn a blind eye to breaking the standards that exist. Increases urbanisation Most jobs created by MNCs are usually found in or close to urban areas. Hope of securing these jobs attracts more people from rural areas to cities. Widens poverty gap Although wages are low in factories, they are higher than elsewhere. This increases the cost of living for all, as prices of goods rise.
16. Creates employment. Why? Improves infrastructure. Why? Increases skills base. Why? Increased standard of living. Why? Improves balance of payments. Why? Raises country’s profile. Why? Click to continue
17. Positive impact Creates employment There are jobs available for local people, thus reducing numbers of unemployed and the resultant drain on local resources Increases skills base Many MNCs operate training schemes for local people to learn how to use machinery. Such skills also attract other firms to the country Increased standard of living An increase in earnings increases taxes paid within the country and gives more money to spend on services
18. Positiveimpactcontinued Raises country’s profile MNCs plan their moves carefully. This is known worldwide and the movement into a particular country is a statement about its pro-business environment and political stability. Improves balance of payments Many goods made by MNCs are exported to other nearby countries. This increases amount of money earned by the country. Improves infrastructure MNCs often improve communication links within a country, e.g. road, rail and port facilities are updated and expanded. This benefits the country.
19. Sample question 1 Evaluate the likely impact of multinationals on the economic growth of countries such as Chile. [12]
20. Answer question 1 e.g Chile is a developing economy, greater development of Chile’s Infrastructure e.g. job creation given Foreign direct investment (FDI) e.g. Technology and skills transfer may lead to improved domestic businesses and economic growth. Alternatively downside may be developed to show damaging effect on economic growth e.g. Competition and possible loss of production for domestic rivals, race to the bottom
21. e.g. employment created may be only temporary or of menial variety, profits repatriated, limited technology and skills transfer e.g. evaluation becomes more sophisticated perhaps with short term contrasted with long term etc. Multinationals may be contrasted with one another with different outcomes for growth. Tradeoffs may be considered such as environmental damage vs. long term supplies of cheap power to aid economic growth.