part e – impact of multinational businesses on host countries

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

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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. - PowerPoint PPT Presentation

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Page 1: Part E – IMPACT OF MULTINATIONAL BUSINESSES ON HOST COUNTRIES

Part E – IMPACT OF MULTINATIONAL BUSINESSES

ON HOST COUNTRIES

AS 91380 (3.2): Demonstrate understanding of strategic response to external factors by a business that operates in a global context

Page 2: Part E – IMPACT OF MULTINATIONAL BUSINESSES ON HOST COUNTRIES

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. 

Page 3: Part E – IMPACT OF MULTINATIONAL BUSINESSES ON HOST COUNTRIES

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.

Page 4: Part E – IMPACT OF MULTINATIONAL BUSINESSES ON HOST COUNTRIES

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.

Page 5: Part E – IMPACT OF MULTINATIONAL BUSINESSES ON HOST COUNTRIES

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.

Page 6: Part E – IMPACT OF MULTINATIONAL BUSINESSES ON HOST COUNTRIES

O 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.

Page 7: Part E – IMPACT OF MULTINATIONAL BUSINESSES ON HOST COUNTRIES

O 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.

O Local suppliers gain extra markets and therefore an increase in sales and profits.

O The inflow of foreign currency benefits the wider business community.

Page 8: Part E – IMPACT OF MULTINATIONAL BUSINESSES ON HOST COUNTRIES

O 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.

O 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.

Page 9: Part E – IMPACT OF MULTINATIONAL BUSINESSES ON HOST COUNTRIES

Accusations multinationals face over their operation in

host countries O Exploitation of local

workforce if cheap labour rates are paid.

O Pollution and the depletion of limited natural resources.

Page 10: Part E – IMPACT OF MULTINATIONAL BUSINESSES ON HOST COUNTRIES
Page 11: Part E – IMPACT OF MULTINATIONAL BUSINESSES ON HOST COUNTRIES

O Multinationals can reduce market share for local businesses, decreasing their revenue and profitability.

O Multinationals can dominate local suppliers, causing them to force up prices for raw materials; this increases costs for local businesses, reducing their profitability.

Page 12: Part E – IMPACT OF MULTINATIONAL BUSINESSES ON HOST COUNTRIES

O 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.

O Multinationals are often accused of paying as little tax as possible by seeking locations where taxes are low.

O Profits are often returned to home country.

Page 13: Part E – IMPACT OF MULTINATIONAL BUSINESSES ON HOST COUNTRIES
Page 14: Part E – IMPACT OF MULTINATIONAL BUSINESSES ON HOST COUNTRIES

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.