Dr. NICHOLAS WATSON

Business and Economic System

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Go the following site: https://quizlet.com/295268673/economics-and-business-flash-cards/

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Review all the cards and then complete the test. Screen shot the test results and forward to my email no later than MARCH 24, 2019.

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Multinational Organisations

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Adopted from: http://www.bbc.co.uk/bitesize/higher/business_management/business_enterprise/business_contemporary_society/revision/13/

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A multinational organisation is a company which has its headquarters in one country but has assembly or production facilities in other countries. Coca Cola, Nike and BP are examples of multinationals. 

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There are some reasons why companies wish to become multinationals:

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• To increase market share – companies may find they are at saturation point in the domestic market and need a new outlet. They may start by exporting to other countries but eventually they will want to being production overseas. Coca Cola started this way following US soldiers around the world after WW1.

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• To secure cheaper premises and labour – cost of land and labour will be cheaper in developing countries. Sweatshops in the Far East are an example of cheap labour, whereas production plants opening in the old Soviet Bloc nations like Poland, Bulgaria etc are examples of cheap factories.

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• To avoid tax or trade barriers – different nations have different levels of corporation tax and may have different barriers to entry. The Japanese only allow a small percentage of foreign cars to be sold in Japan to protect their own industry.

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• Government grants – many US companies were attracted to the UK in the 80s due to government giving them money to open up operations here.

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Advantages of multinational companies

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Multinationals create jobs which boosts the local economy and more workers to tax. They bring expertise in that skills of workforce are improved, some may use IT that would never have before or other skills now deemed basic by the western or developing world. Multinational companies can benefit from economies of scale Multinationals are in position to benefit from economies of scale. This means the cost per unit can be lowered through specialization – with a large workforce work can be divided up and people can do their limited job expertly. Technical economies can be gained with automated equipment, but only when fixed costs of machine can be spread out over outputs. Purchasing economies can be achieved, for example by buying in bulk companies can obtain supplies and materials at a cheaper cost per unit.

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Disadvantages of multinational companies

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Multinationals can, however, be accused that the jobs they create may be deskilled jobs (known by some as 'McJobs') and in fact may be low paid, repetitive assembly line work. Multinationals' profits are not usually kept in the host country. For example the money made and saved by General Motors moving car assembly production to Mexico would still go back to HQ in Michigan. Multinational companies can be environmentally irresponsible Multinationals have been accused of cutting corners. Social responsibility may be overlooked. They have been accused of exploiting the workforce and/or the environment. Workers can work below minimum wage and for longer hours. Both Levi jeans and Wal-Mart have been accused of exploiting workers in the Far East. Also, relaxed health and safety laws and little if any environmental laws may be in place. For example the Bhopal gas disaster in 1984 killed hundreds of people in India. Union Carbide was held accountable. They may exert political muscle. The multinational may threaten to pull out of a country if they don't get deals on workforce (wages) or overheads (land, rent and rates) and pollution/clean-up deals.

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Advantages and disadvantages of small firms versus large firms

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see comparison here: https://igcseedexceleconomics.weebly.com/23-advantages-and-disadvantages-of-large-and-small-firms.html