Transcript Section A Briefing Presentation Final

Impact of Multinational Corporations
4.4 Global industries and companies (multinational corporations)
What you need to know
• MNCs
• a) Impact of MNCs on the local economy:
– local labour, wages, working conditions and job creation
– local businesses
– the local community and environment
• b) Impact of MNCs on the national economy:
–
–
–
–
–
–
FDI flows
balance of payments
technology and skills transfer
consumers
business culture
tax revenues and transfer pricing
What is a Multinational Company (MNC)?
A multinational company (MNC) is a business
that has operations in more than one
country. Note that a business does not
become an MNC simply because it sells its
goods and services overseas. The key to
being an MNC is that the business has
business operations in two or more
countries.
Key Reasons for the Rapid Growth of MNCs
• Global brands seeking to drive revenue and profit growth in
emerging economies (in particularly seeking rising demand
from increasingly affluent consumers)
• The search for economies of scale, to reduce unit costs by
concentrating production in a few key international locations
• The perceived need to supplement relatively weak demand in
existing, developed economies
• The need to operate in many countries to avoid
protectionism
• Increased takeover activity that has built businesses with
widespread international operations
Potential Benefits of MNCs to the Countries in
Which They Operate
• MNCs provide significant employment and training to the
labour force in the host country
• Transfer of skills and expertise, helping to develop the quality of
the host labour force
• MNCs add to the host country GDP through their spending, for
example with local suppliers and through capital investment
• Competition from MNCs acts as an incentive to domestic firms
in the host country to improve their competitiveness, perhaps
by raising quality and/or efficiency
• MNCs extend consumer and business choice in the host country
• Profitable MNCs are a source of significant tax revenues for the
host economy (for example on profits earned as well as payroll
and sales-related taxes)
Potential Drawbacks of MNC Activity in The
Countries in Which They Operate
• Domestic businesses may not be able to compete with MNCs and
some will fail
• MNCs may not feel that they need to meet the host country
expectations for acting ethically and/or in a socially-responsible
way
• MNCs may be accused of imposing their culture on the host
country, perhaps at the expense of the richness of local culture.
• Profits earned by MNCs may be remitted back to the MNC's base
country rather than reinvested in the host economy.
• MNCs may make use of transfer pricing and other tax
avoidance measures to significant reduce the profits on which
they pay tax to the government in the host country
Perspectives on Multinationals and Bribery
Source: Statista 2016
Perspective on Public Trust in Multinationals
(UK – 2014)
Source: Statista 2016, quoting YouGov survey June 2014
Some Reasons Why Some MNCs Have A
Low Level of Public Trust
MNCs are accused of using
sophisticated tax planning
schemes to avoid paying
taxes on their activities
A challenge of addressing
MNC tax avoidance is that
they operate across so
many different countries
Some Reasons Why Some MNCs Have A
Low Level of Public Trust
Some MNCs are accused of
exploitation of working
conditions in developing
economies in search of low
production costs
The complexity of
international supply chains
makes it hard for MNCs to
control & monitor all aspects
of their production
Are MNCs Destroying Local and National
Businesses?
Uber is one of the fastestgrowing MNCs and has faced
significant resistance from
national markets it has
entered
However, in many national
markets, domestic firms are
proving able to compete
effectively with MNCs –
particularly in China
Example: Global Growth of Google as an MNC
Annual revenue of Google from 2002 to 2015 (in billion U.S. dollars)
80
74.54
Revenue in billion U.S. dollars
70
65.67
60
55.51
50.18
50
37.9
40
29.3
30
21.8
20
23.7
16.6
10.6
10
0.4
1.5
2002
2003
3.2
6.1
0
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013*
2014
2015
The Global Growth & Impact of Starbucks
Revenue of Starbucks worldwide from
2003 to 2015 (in billion U.S. dollars)
Revenue in billion U.S. dollars
25
19.16
20
16.45
14.9
15
13.3
9.4
10
5
4.1
5.3
6.4
10.4
9.8
10.7
11.7
7.8
0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
The Global Growth and Impact of Ikea
IKEA's revenue worldwide from 2001 to
2015 (in billion euros)
35
32.7
29.3
27.6 28.5
Revenue in billion euros
30
25
20
20
21.5 21.8
23.5
25.2
17.5
15
15
10.4
11
11.4
12.9
10
5
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Year
The Global Growth and Impact of Netflix
Number of Netflix streaming subscribers worldwide
from 3rd quarter 2011 to 2nd quarter 2016 (in millions)
90
Number of subscribers in millions
80
70
60
50
40
30
81.5 83.18
74.76
69.17
65.55
62.27
57.39
53.06
50.05
48.36
44.35
40.28
36.3237.55
33.27
29.41
26.4827.56
22.9323.53
20
10
0
Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2011 2011 2012 2012 2012 2012 2013 2013 2013 2013 2014 2014 2014 2014 2015 2015 2015 2015 2016 2016