IGBizStudies

May 26, 20212 min

What are multinational firms and their roles

Updated: Jun 5, 2023

Multinational firms (MNCs) are large firms that operate in different countries

They usually originate from developed countries and are considered as foreign direct investments to developing economies. Being an MNC has manage advantages. They can

  1. Access to cheaper raw materials not found in home country

  2. Expand market by selling to more consumers as they export their products

  3. Better chance of raising capital for business expansion, research and development and recruiting high skilled workers.

  4. Reduce transportation cost as they are located in multiple countries around the world.

  5. Reduce wage cost as they may be located in developing countries where wages are low

  6. Benefit from economies of scale through large scale production

  7. Able to spread risk and avoid trade barriers by operating in different countries in different regions.

  8. Obtaining government support with reduce rent on premise/land and lower taxes

  9. Increasing brand awareness in the new country

Multinationals can benefit the country it operates in as they;

  1. Provide employment to locals

  2. Inject capital into the country through FDI

  3. Provide more variety of goods and services

  4. Increase competition lowering price of product

  5. Transfer technology and improve the skills of local talent

  6. Contribute in taxes

  7. Improves balance of trade as output is exported

However, while there are a lot of benefits of having a multinational company operate in a country, its profits will be sent back to their home country. They may also generate low skilled jobs and reduce resources available for local business by increasing competition and reducing demand for local businesses

RELATED CONCEPTS

  1. Capital

  2. Investment

  3. Taxes

  4. Technology

  5. Balance of trade

  6. International business

  7. Recruitment

PAST YEAR QUESTIONS

  1. What is meant by ‘multinational company’? (2 marks) Oct/Nov 2018/11

  2. Identify two advantages to a firm of being a multinational company. (2 marks) Oct/Nov 2018/11

  3. Identify and explain two advantages to DGC of being a multinational company.
         (4 marks) Feb/Mar 2019/12

  4. Define ‘multinational company’. (2 marks) May/June 2020/11

  5. Explain two advantages to a firm of being a multinational company. (6 marks) May/June 2020/13

  6. Explain two benefits to ABA of being a multinational company (6 marks) Feb/Mar 2021/12

  7. Do you think multinational companies always benefit the countries they operate in? (6 marks) May/June 2021/11

  8. Identify four potential benefits to a country’s economy of a multinational company locating there. (4 marks) May/June 2022/13

Read all post from Unit 6 - External Influences on Business Activity

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