The Importance of Multi National Companies (MNCs) (Cambridge International IGCSE Business)
Exam board Cambridge International · IGCSEUpdated 2025-06-12
Multinational companies
Spec point — • Benefits to a business of becoming a multinational and the impact on its stakeholders
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A multinational company (MNC) is a business that is registered in one country but has manufacturing, processing and/or service outlets in many different countries
- E.g. Starbucks headquarters are in Washington, USA but they have 32,000 stores in 80 countries
Examples of multinational companies
Well-known multinational businesses include BP, General Electric (GE), McDonalds and FedEx
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Factors such as globalisation and deregulation have contributed to the growth of MNC’s
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MNC’s often choose locations based on factors such as cost advantages and access to markets
- Nike originates from the USA, but 50% of their manufacturing takes place in Mexico, China, Vietnam and Indonesia due to the lower production costs in these countries
Benefits of becoming a multinational
- Economies of scale: as they operate globally, they are able to increase their output and benefit from lowered costs created by economies of scale
- Increased profit: much of their profit is sent back to their home country. This point is debatable, as many MNCs have offshore bank accounts and do not bring the profit back home
- Create employment: new jobs are created in host countries each time a new facility is setup, and this raises income, which helps to improve the standard of living in that country
- New markets: MNCs can identify potential markets and begin to sell there
- Transportation costs: MNCs are able to setup facilities closer to their customers, which reduces transportation costs
- Risk management: By selling in many national markets, the risk of failure is reduced; e.g. if Egypt goes through a recession (with sales falling there), then this could be less impactful due to rising sales in a strong German market
- Tax incentives: MNCs are able to increase their profits by setting up in countries with low corporation tax - or countries that offer MNCs a tax break (no tax) for their first 5–10 years of operation
- Avoidance of protectionism: MNCs can establish bases in countries that are operating protectionistmeasures & by doing so, they avoid the measures, e.g. A Chinese MNC may set up shop in the USA and produce there, thus avoiding import tariffs on products exported from China to the USA
Impact of MNCs on stakeholders
- MNCs can have both positive and negative impacts on business stakeholder groups, including employees, local communities, governments, consumers and suppliers
The impact of MNCs on stakeholders
| Stakeholder group | Positive impacts | Negative impacts |
|---|---|---|
| Employees | - MNCs create good-quality jobs with opportunities for advancement - They offer more competitive wages than local businesses - They provide better working conditions than local businesses | - MNCs may exploit local workers if employment regulation is weak or not enforced - Limited job creation for local workers as they may **relocate workers from their own country **to work abroad (Chinese companies are notorious for this) |
| Local communities | - MNCs often invest to improve infrastructure such as roads, transportation and access to water and electricity - They establish charitable initiatives that may have a positive effect on the local community - They pay taxes and business rates to local councils/ authorities which are reinvested back into the local community | - MNCs often cause damage to local environments during the production process - They may leave unsightly production facilities behind once they have extracted all of the resources and left the country - They often erode local cultures as global brands and products become dominant, forcing out traditional products |
| Consumers | - MNCs increase choice/quality for consumers as the introduce new products and brands | - They often cause **existing businesses to fail, **leading to increased prices due to a lack of competition |
| Suppliers | - MNCs** increase demand** for their raw materials/components | - They demand** low prices from suppliers and extended credit periods**, impacting their cash flow |
| Shareholders | - MNCs generate high profits that may result in generous dividends | - Their focus on growth may mean profits are reinvested rather than shared with investors |
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