Globalisation + MNC & FDI

• What is globalisation?

  The growing interconnection of the world's economy
• What are MNC's?


  Multinational Corporations
• Define the term MNC

  Businesses that operate in many different countries
• What is a saturated market?

  When there is more of a product for sale than people want to buy
• What is offshoring?

  Practice of getting work done in another country in order to reduce costs
• Features of globalisation are?

  1. Goods and services are traded freely across international borders
  2. People are free to live and work in any country
  3. There is a high level of interdepence between nations
  4. Capital can flow between different countries
  5. There is a free exchange of technology across borders
• Reasons for globalisation

  1. Fewer tarrifs & quotas to restrict imports and exports
  2. Transportation costs have reduced
  3. Reduced communication costs
  4. Increased significance of MNC setting up in different countries to expand their business as their home market has become saturated
• What do tariffs and quotas lead to?

  • Many firms set up operations in different countries to get around these restrictions
  • This benefited the host country as they had new businesses being set up
  • Leading to increased employment
  • Contributing to the economic growth of the country
• What do reduced transportation costs lead to?

  • Bigger ships carry more containers reducing average costs
  • Flights become cheaper resulting in people being able to do business in other countries
  • Goods being transported by air freight (cargo)
• What do reduced communications costs lead to?

  • With the help of modern computing and the internet large amounts of data can be sent safely across international borders
• What does globalisation impact?

  1. Individual countries
  2. Governments
  3. Producers
  4. Consumers
  5. Environment
  6. Workers
• How does globalisation impact individual countries?

  They benefit from it.

  • MNCs set up production bases which create employment and wealth helping to grow the economy
  • MNCs produce goods in a country and sell those to other countries, increasing exports which increases demand for their currency and helps strengthen their currency
  • Comes with improved technology which can benefit the country's economic growth
  • Results in greater interdependence - good for free flow of information and economy
• Where did the 2008 global financial crisis start?


  United States of America and spread to most economies globally
• How does globalisation impact governments?

  • Profits made by companies are taxed by host nations, more tax raised can help with government spending and tax revenues
  • MNCs generate employment - governments able to raise more taxes and pay less welfare benefit
• What can governments do to make globalisation work?

  • Keeping borders open for trade
  • Allowing free trade without protectionism (restrictions)
  • Allowing free movement of people to live and work in host countries
  • Allowing businesses to set up in host countries
• How does globalisation impact producers?

  They benefit from having larger access to larger (global) markets than just domestic markets

  • Lower costs
  • Access to labour
  • Low operational costs
  • Reduced tax
• What do lower costs lead to for producers?

  • Access to larger markets may help them to produce in larger quantities and benefit from economies of scale
• What does access to labour lead to for producers?

  A larger pool of labour leads to:

  • Employing people with the necessary skills from different countries
  • This can be beneficiary when there is a shortage of labour in a country
  • Helping to keep labour costs down
• What do low operational costs lead to for producers?

  They benefit from production in different countries where labour costs are lower leading to low operational costs
• What does reduced tax lead to for producers?

  Increased profits to reinvest and help grow business.

  • By locating their head office in countries where corporations tax are lower
• How does globalisation impact consumers?

  Products produced by MNCs in different countries may be cheaper

  • Reduced costs passed onto consumers and benefit from lower prices
  • Provide wider choices of goods and services
• How does globalisation impact workers?

  New jobs are created which may result in an increase in jobs in the supply chain for these businesses

  • Fast economic growth leads to workers from other countries filling labour shortages to support this growth
• How does globalisation impact workers negatively?

  Job insecurity. Home jobs are being lost to cheaper overseas labour which is referred to as offshoring.

  • Businesses do this to exploit cheap labour costs
• How does globalisation impact environments negatively?

  • Increase in carbon emissions as economies grow and people become wealthier
  • People travel more often and more cars are bought
  • Uses up more natural resources and takes away from future generations
  • Increase in deforestation as companies grow, needing more land and space
• What are reserves?

  Amount of something valuable such as oil, gas or metal ore
• What is tax avoidance?

  Practice of trying to pay less tax in legal ways
• What is boycott?

  Refuse to buy something, use something or take part in something as a way of protesting
• What is repatriation?

  Where a MNC returns the profit from an overseas venture to the country where it's based, typically from developing to developed country.
• What is tax evasion?

  Practice of trying to pay less tax in illegal ways (paying cash in hand)
• Features of MNC?

  • Huge assets, well-resourced and can take on big projects.
  • Executives are highly skilled - businesses can afford to hire the best.
  • Invest huge amounts of money into advertising and marketing to outcompete smaller rivals
  • Efficient factories, machinery & equipment and latest technology
  • Influential economically & politically which can influence government decisions
  • Efficient through economies of scale
• What is FDI

  Foreign Direct Investment
• FDI term definition

  Where a company makes an investment in a foreign country
• Why do companies work with companies in the host nation?

  To develop a joint business venture so that local knowledge supports the business with investment from overseas
• How do MNCs benefit from economies of scale?

  Cost savings - producing big quantities which they sell globally. The bigger they become, the more influence they have on suppliers to lower their costs
• Why do MNCs invest in overseas ventures?

  More access to resources needed to make their products
• Some countries are dependent on imported food. Leading to them investing in other countries to meet their food needs
• Why have MNCs/FDI emerged?

  • Transportation & communication costs are lower, businesses find it easier to operate in different countries whilst gaining access to global markets
  • Data to support businesses in different countries - Transfer of funds between banks in different countries is fast and secure
  • Operating in different countries opens up new markets and allows more sales to be made.
• Advantages of MNCs & FDI

  Governments keen to attract FDI from foreign businesses offering tax breaks, subsidies, grants and low rates of interest. They may also remove restrictions and regulations to make it easier for businesses to set up in host country
• What is the main benefit of FDI when MNCs arrive?

  • Creation of jobs leads to a reduce in unemployment rates, improving income which increases demand and leads to economic growth
  • Workers also pay tax contribution to government income to spend on infrastructure
• Why would governments invest in infrastructure?

  To attract foreign MNCs AND some MNCs may invest in infrastructure so they can get their workers and products to market