Benefits of Multinationals

Benefits that multinationals bring to
overseas countries
A2 Economics and Business
Unit 3
By Mrs Hilton for revisionstation
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 past paper questions
based on the topic
• From what you know – would you consider
that MNEs are good for the poorer countries
that they operate in?
Suggested answers to starter
Incoming multinationals bring FDI (Foreign Direct Investment
MNEs Create jobs
New investment will increase output of goods & services
Any extra output sold abroad, thus increasing exports, also imports
could be reduced
Taxes paid increases government funds enabling them to improve
their services
An efficient multinational might make high-quality products
available at lower prices than there were previously found, helping
Increased competition
Improved trade flows
Multinational Defined
• A multinational company,
sometimes called a
transnational corporation, is a
company that owns or
controls production or service
facilities in more than one
• You may see it written as:
– MNC – multinational
corporation or company
– MNE – multinational
– These are both the same
Great website with videos and activities
In support of MNEs
• 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?
• Most of the largest
MNEs are US, Japan, or
• India and China growing
• Example Tata
• Tata:
Why have they grown? - To
access new markets
• Domestic market
saturated, profits from
expansion overseas is
• Extension strategy for
the product life cycle
• PMI (Phillip Morris
International) and BAT
have aggressive
expansion in developing
Why have they grown? - To
reduce costs
• Economies of scale
• Lower unit costs
• Enhanced competitive
• Especially if products can
be standardised across
• Available, cheap
adaptable labour see
Global services location
Index (Most attractive
offshore destinations)
Off shoring video
Positive effects of MNEs in other countries
Increases skills
standard of
Improves balance
of payments
Raises country’s
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
Positive impact
• 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.
• FDI stands for Foreign Direct Investment. Foreign direct
investment is investment of foreign money into domestic
structures, equipment, and investment in businesses and
organisations based in the host country
• FDI creates direct, stable and long-lasting links between
economies. It encourages the transfer of technology and
know-how between countries, and allows the host
economy to promote its products more widely in
international markets.
• FDI is also an additional source of funding for investment
and, under the right policy environment, it can be
important for the development of the economy of the
Sample question 1
• Evaluate the likely impact of multinationals on
the economic growth of countries such as
Chile. [12]
Answer question 1
• e.g Chile is a developing economy, greater development of Chile’s
• 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
• 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.
Sample question 2
How marks are awarded for Q2 [15]
Mark awarded
Answer question 2
e.g. defines multinationals or identifies aspects of economic
development such as living standards
e.g. any specific examples illustrating the points made such as
BP and the Gulf of Mexico, or Microsoft and Egypt
e.g. FDI, job creation, technology transfer, multiplier effects,
raising productivity and wages OR negative aspects such as
environmental damage etc.
At this level candidates may just contrast the positive and
negative effects of multinational activity, e.g. wages higher
than local employers yet cause further inequality of incomes.
e.g. weighs relative significance of points raised such as
employment and incomes are often more important to the
unemployed than some externalities
Sample question 3
Answer question 3
Knowledge 2, Application 2, Analysis 2
Knowledge: up to 2 marks (one for each reason) for
identifying possible reasons. e.g. government incentives,
infrastructure, skills/education of workforce, part of EU
Application: up to 2 marks (one for each reason) for
contextual answers such as linking the above specifically to
London or Britain, e.g. familiarity with the English language,
access to EU markets, time zone and access to skilled labour.
Analysis: up to 2 marks (one for each reason) are for
developing the reasons e.g. government incentives such as
grants or tax concessions may be greater in the UK which
reduce costs and can increase profitability.
Sample question 4
Answer question 4
Knowledge 2, Application 2, Analysis 2
Knowledge: up to 2 marks are available for stating two
reasons why a government might want to attract FDI, e.g.
increased employment/reduce unemployment, increased
investment from other MNCs, GDP growth etc.
Application: up to 2 marks are available for relating the above
to the context e.g. Croatia is getting ready for EU accession,
evidence shows current negative growth and unemployment
of 9.5%
Analysis: up to 2 marks are available for consideration of why
this might lead to growth e.g. jobs are created, extra incomes
are earned which leads to multiplier effect and economic
growth. If only one reason cap at 3 marks
Revision Video
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