4.4.1 The impact of multinationals/4.4.3 Control of MCNs

• How would multinationals impact countries via the multiplier effect, explaining using Toyota setting up a new factory at Derby and how it affects the local economy?

  When there is investment such as Toyota setting up a new factory in Derby, short term jobs will be created when building the factory and lange term jobs working in the factory building cars. There will be further jobs created through the multiplier effect. Firstly, jobs will be created in the car supply industry, particularly if these are given to British suppliers.
• 2) In addition, the workers from Derby will spend money in local businesses and create more jobs in places such as restaurants etc. As spending increases, GDP will be increased across the national economy creating more jobs. As businesses generate profits they will pay corporation tax to the government  and newly employed workers will pay income tax and national insurance, allowing the government to spend more on jobs in the NHS and education.
• 3) Therefore, the number of jobs initially created will be multiplied. However the size of the impact  will be dependent on whether high wage jobs are initially created and the percentage of supply contracts are given to british suppliers.
• What is a negative multiplier effect? What effect would nike threatening to pull out of producing trainers and clothing in the philippines have on the local economy

  A negative multiplier effect is when a business leaves a country. If nike were to stop producing trainers and clothes in the philippines jobs will be lost directly at the factory, then the jobs will be lost for Nike’s suppliers in the Philippines, so there will be a lack of spending in the local and national economies.
• 2) Nike - neg multiplier effect

  The government would receive less taxes from the workers who have lost their jobs, which means less money for the government to spend on public sectors.
• Why is FDI from multinationals so important to many economies?

  Because it has the positive multiplier effect which will create more jobs and more spending therefore benefiting many economies.
• Multinationals Transfer pricing

  Company uses a country like Luxembourg (1% corporation tax) to build a new office. Luxembourg buys materials from suppliers and sells to stores at higher prices so the store ‘doesn't make a profit.’ In reality they do make a profit but not in the UK (to avoid 25% corporation tax), make profit in the Lux office.
• Control through legislation and tax

  • Have to pay national living wage when operating in UK - minimum wage, health and safety at work act, have to adhere to legislations when operating in the UK so they have some element of control
  • However, if try to push certain companies with legislation, they will move elsewhere as another country will always accept the jobs created, and won't be able to do much about controlling them
  • 2 countries that may have control over a company such as Nike is America and China as they are very large markets and are valuable to Nike so they will adhere on some level
• Control through pressure groups, social media and customers

  • Customers boycott if not ethical, animal testing, unethically sourced food, carbon emissions, environmentally friendly - McDonalds giving into consumer pressure and changing to paper straws
  • Pressure groups try to get business to pay tax - e.g Starbucks don’t pay tax, pressure group started a trend to get people to say there name is tax payer, spread on social media 
• People say they care about ethics and control, but ignore it if they like the brand, product
• Advantages of being a multinational

  • Increased market share
  • May avoid tax or trade barriers
  • Secure cheaper premises and labour
  • Larger market - greater sales, revenue, profit
  • Reap EOS
  • May get grants to locate in certain countries
• Disadvantages of being a multinational

  • Higher costs
  • May reach DEOS
  • Harder to maintain a good reputation
  • May lose focus
• Ways to control MNCS

  • Introduce trade barriers to discourage
  • Implement laws to stop exploitation of workers
  • Increase tax rates/payments
  • Rely on consumers
  • Through pressure groups and social media activity
• Can MNCS be controlled?

  Most consumers aren’t interested or aren't aware of the ethics of a business so if MNCS act unethically, it is likely to have a very small impact on their sales as consumers will continue to shop there.

  Impact is often in the short term

  Some businesses are becoming much more sensitive to consumer pressure and trends

  Legislation - maybe only realistic for larger richer countries such as China and USA
• Advantages of a country attracting MNCS

  • Positive Multiplier effect - extra spending, supply industry (taxes raised may allow it to improve its infrastructure, education etc)
  • Importing technology and expertise
  • Job creation
  • Domestic firms may not be able to compete in many industries without foreign expertise, technology and money
  • May improve balance of payments position
• Disadvantages of a country attracting MCNS 

  • Loss of national identity - loss of culture
  • Closure of small traditional domestic businesses who can’t compete on costs
  • Exploitation of workers
  • Exploitation of environment (natural resources)