1.6 Multinational companies (MNCs)
Companies that operate across borders, and what they bring to, and take from, host countries.
A multinational company (MNC) has its headquarters in one country (the home country) and operates, through production or service facilities, in at least one other country (the host country). Simply exporting goods does not make a firm an MNC. It must have operations abroad.
MNCs grow abroad to:
- Reach new customers
- Lower costs (labour, land, materials)
- Get around trade barriers by producing inside a market
- Spread risk across countries
Impact on host countries
Possible benefits
- Job creation and training for local workers
- Tax revenue for the host government
- Transfer of technology and management skills
- Investment in infrastructure (roads, ports, power)
- More choice and sometimes lower prices for consumers
- Business for local suppliers
Possible drawbacks
- Local firms may be forced out of business
- Profits sent back to the home country
- Low wages or poor working conditions
- Environmental damage and resource depletion
- Tax avoidance through transfer pricing
- Political influence and cultural change
Whether an MNC is good for a host country depends on how it behaves and on how strong the host government's laws and regulators are. A good way to evaluate is to ask who gains, who loses, and whether the effect is short term or long term.
- Listing MNC benefits for the host country when the question asks about the MNC itself (or the other way round). Check whose point of view is asked for.
- Ignoring the extra risks of operating abroad, such as exchange rates, different laws, politics and cultural differences in how business is done.
Practice questions
New IB style questions every time. You won't get the same one twice until you've done them all at this level.
All companies, people, products, places and figures in these questions are fictional. Any resemblance to real businesses or people is a coincidence and is not intended.