4.3.4 - Global industries and companies
- Syllabus
- 2017
- Topic
- 4.3.4
- Level
- A2
Learning objectives
4.3.41a - MNC impact on local economyAnalyse MNC impacts on local labour, wages, working conditions, job creation, local businesses, local communities and the environment.4.3.41b - MNC impact on national economyAnalyse MNC impacts on economic growth, FDI flows, balance of payments, technology transfer, skills transfer, consumers, business culture and tax revenues.4.3.42a - Stakeholder conflictsAnalyse stakeholder conflicts in international business ethics.4.3.42b - Environmental considerationsEvaluate emissions, waste disposal and sustainability.4.3.42c - Supply chain considerationsEvaluate pay, working conditions, labour exploitation and child labour.4.3.42d - Marketing considerationsEvaluate misleading product labelling and inappropriate marketing activities.4.3.43a - Controlling MNCsEvaluate control of MNCs through MNC power, political influence, legal control, consumer pressure, pressure groups, social media and self-regulation.
An MNC changes a local economy through connected spillovers
An MNC operates in more than one country. Its local impact is the change felt around the site of operation: direct jobs and business decisions create secondary effects on workers, suppliers, communities and the environment.
| Local channel | Potential benefit | Potential cost |
|---|---|---|
| labour and jobs | direct and indirect employment; training and career routes | insecure or low-paid work; weak conditions; dependence on one employer |
| wages | stronger labour demand can raise income and local spending | local firms may lose staff or face higher labour cost |
| local businesses | supply contracts, knowledge and extra customer demand | powerful competition or imported inputs can displace them |
| community | infrastructure, tax-funded services and multiplier effects | congestion, displacement, inequality or sudden decline if the MNC leaves |
| environment | investment may improve processes and infrastructure | emissions, waste, resource use and habitat damage may be localised |
Trace each effect through scale, job quality, local sourcing, skill transfer, environmental safeguards and duration. A capital-intensive project can bring large investment but few jobs; a labour-intensive plant can create more employment but limited skill transfer.
Job count alone cannot establish net benefit. Ask who gains, who bears the cost and whether effects persist. A positive national output effect can coexist with severe harm to one local community, while higher wages can benefit workers and raise local firms' costs.
National MNC effects depend on what remains in the host economy
National impact is the economy-wide result of an MNC's investment, production, trade, knowledge and financial flows. The key question is how much additional value and capability remain in the host country after imports, incentives and profit outflows.
| Required channel | Possible gain | Offset or condition |
|---|---|---|
| economic growth and FDI | new productive capacity raises output and investment | acquisition may transfer ownership without much new capacity |
| balance of payments | exports improve the current account; FDI is a capital inflow | imported inputs and repatriated profit create outflows |
| technology and skills transfer | training, suppliers and worker mobility diffuse capability | simple tasks or guarded knowledge may limit transfer |
| consumers and business culture | choice, quality, competition and new practices improve | local firms may be displaced and market power may rise |
| tax revenues | profit, payroll and spending can fund public services | incentives, avoidance, losses or relocation reduce receipts |
Judge the MNC's sector, local linkages, export share, labour intensity, value added, transfer arrangements and bargaining power. A scarce fixed resource can strengthen the country's position; a footloose operation can demand concessions or relocate.
FDI is not the same as permanent national benefit. Count both inflows and later outflows, distinguish gross output from locally retained value, and avoid adding local and national effects twice. The result can differ across consumers, firms, government and time.
International ethics exposes conflicts over who bears the cost
A stakeholder conflict occurs when one international business decision advances one group's objective while weakening another's. Ethical analysis identifies the affected groups, the benefit or harm, their power and whether the decision shifts cost to people who cannot easily refuse it.
| Decision pressure | Stakeholder gain | Stakeholder exposure |
|---|---|---|
| lower sourcing cost | owners may gain profit; consumers may gain lower prices | workers or suppliers may face low pay, unsafe conditions or exploitation |
| rapid production or expansion | employees and governments may gain jobs and tax | communities may bear congestion, displacement, emissions or waste |
| strict environmental or labour standards | workers, communities and future users gain protection | owners face investment cost; short-run prices may rise |
| aggressive tax or marketing practice | owners may retain revenue or gain sales | governments lose funds; consumers may be misled |
Compare severity, reversibility, legal minimums, informed consent, responsibility across the supply chain and long-run business effects such as trust, quality, retention and licence to operate. Different national laws do not remove the underlying conflict.
Ethics is not proved by a policy statement, nor disproved merely because a choice earns profit. Stakeholders within one group can disagree, and high consumer demand does not cancel harm to workers or communities. State the trade-off and evidence before judging.
Environmental responsibility connects emissions, waste and continuity
Environmental considerations ask how an MNC reduces harm from emissions and waste while operating sustainably. Sustainability means meeting current operating needs without undermining the resources and environmental systems needed in future.
| Area | Business mechanism | Evidence of improvement |
|---|---|---|
| emissions | energy choice, efficiency, process design and transport alter greenhouse gases and pollutants | absolute and intensity measures with a defined boundary and time period |
| waste disposal | prevention, reuse, recovery and safe treatment reduce landfill, leakage and hazardous exposure | material flows, disposal method and verified destination |
| sustainability | resource efficiency, renewable inputs and durable supply relationships protect future operation | targets linked to investment, operations and outcomes rather than slogans |
Improvement can reduce resource cost, regulatory exposure and disruption while strengthening customer trust and employee motivation. It can also require capital, redesign and supplier coordination. Judge the full operation and supply chain, not one visible project.
Compliance is a floor, not proof of sustainability. A lower rate per unit can coexist with higher total emissions when output grows. Claims become greenwashing when presentation overstates or obscures real performance; credible comparison needs clear scope, baseline and outcomes.
Supply-chain ethics follows the worker beyond the first supplier
Supply-chain considerations cover pay, working conditions, labour exploitation and child labour wherever inputs or services are produced. Outsourcing a task does not remove the buying firm's exposure to the human conditions embedded in its purchasing decisions.
| Consideration | Harm mechanism | Useful control |
|---|---|---|
| pay | workers lack a fair or reliable income while value is captured elsewhere | trace wage terms, deductions, hours and payment records |
| working conditions | unsafe sites, excessive hours or denial of rights harm health and dignity | standards, worker voice, independent checks and corrective action |
| labour exploitation | coercion, withheld pay or abuse of vulnerable workers transfers cost to labour | map subcontracting, provide reporting routes and enforce remedy |
| child labour | children perform harmful work or lose education | age verification, root-cause response and protection rather than concealment |
Responsible treatment can improve retention, quality, continuity and trust. Poor practice can bring disruption, adverse publicity and lost demand. Purchasing price, lead times and last-minute order changes should be checked because they can make supplier compliance unrealistic.
A supplier code is not evidence of conditions, and a single audit can be staged. Immediate contract cancellation can push harm out of view without protecting workers. Effective control follows lower tiers, verifies outcomes, corrects causes and preserves access to remedy.
Ethical marketing requires the claim and the method to be appropriate
International marketing ethics covers both what the business says and how it seeks sales. Misleading product labelling creates a false or materially incomplete understanding; inappropriate marketing uses a message, audience, channel or pressure tactic that causes avoidable harm or offence.
| Required issue | Ethical test | Controlled response |
|---|---|---|
| product labelling | are origin, contents, quantity, performance, risk and environmental claims clear and supportable? | use specific evidence, disclose material limits and keep translation equivalent |
| marketing activity | is the audience vulnerable, the portrayal respectful, the comparison fair and the selling method proportionate? | screen audience, message, placement and incentive before release |
| international transfer | does a lawful home-market claim retain its meaning and acceptability locally? | test language, symbols, norms and local rules in context |
Misleading or inappropriate activity may win short-run attention or sales but can impair informed choice, trust and long-run brand value. Correction, withdrawal and consistent internal evidence can cost more than checking the claim before launch.
A technically true statement can still mislead through omission, scale or imagery. Legal approval does not prove ethical appropriateness, and local adaptation does not justify stereotypes or manipulation. Judge the likely interpretation by the target audience, not only the wording intended by the business.
MNC control works when the controller's leverage exceeds resistance
Controlling an MNC means changing or constraining its conduct. Effectiveness depends on enforceable leverage, information, market exposure and the MNC's ability to resist, relocate or influence rules.
| Factor or route | Mechanism | Main limit |
|---|---|---|
| MNC power and political influence | investment, jobs, legal resources and lobbying shape bargaining | a government may fear relocation or lost FDI and tax |
| legal control | rules, investigation, orders, fines and licence conditions make conduct costly | weak institutions, slow enforcement or trivial sanctions reduce deterrence |
| consumer pressure | switching and boycotts threaten sales and brand value | weak where buyers lack information, alternatives or concern |
| pressure groups and social media | evidence and rapid publicity mobilise consumers, courts or government | claims can be disputed, short-lived or countered by MNC campaigns |
| self-regulation | internal standards change conduct before external sanction | conflicts of interest and weak verification permit symbolic compliance |
Combine routes: evidence supports public pressure, law supplies consequences and internal systems implement change. Control is stronger when exit is difficult and sanctions exceed the gain from non-compliance.
Control does not mean eliminating MNC activity. A fine may be weak relative to turnover, while reputation pressure can affect a consumer brand but not an upstream supplier. Judge the country, MNC, activity and time horizon.