Study Notes

Impact of Multinational Companies (MNCs) on their Host Countries

AQA, Edexcel, OCR, IB, Eduqas, WJEC

Last updated 22 Mar 2021

A key feature of the process of globalisation has been the increasing impact of MNCs as they expand their operations into more than one country? What is the overall balance of this impact?

Potential Benefits of MNCs on Host Countries

The potential benefits of MNCs on host countries include:

  • Provision of 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 MNCs on Host Countries

The potential drawbacks of MNCs on host countries include:

  • 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. Might MNCs reduce cultural diversity around the world as they continue to expand, particularly into less developed or developing countries?
  • 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

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