Evaluate competing stakeholder and host-country effects of multinational companies using evidence about investment, jobs, technology, competition, culture and environmental impact.
FrioAire Appliances (FA)
FrioAire Appliances (FA) manufactures medium-priced and medium-quality refrigerators. It is a multinational public limited company. Its factory is located in a less economically developed country that has high unemployment, a tradition of autocratic leadership and labour costs lower than FA's home country. The factory is profitable, and FA pays consistently good dividends. Market growth for medium-priced and medium-quality refrigerators is limited.
As part of a strategic objective to increase productivity and to enter a fast-growing market for high-priced and high-quality refrigerators, F A is considering building a new factory in and relocating production to Germany. This would require closing the factory in the less economically developed country. The new factory will:
- use innovative technologies, including advanced robotics and 3D processes
- require fewer employees, but those it does require will need to have better skills and qualifications.
Germany has a highly skilled, qualified and productive workforce. The new factory would allow FA to reposition its products. However, FA would need to raise significant finance to build and equip the new factory.
FA's leadership style at the factory in the less economically developed country is autocratic. Members of FA's board wonder whether this style would be suitable for the new factory in Germany, where workers have more bargaining power because of their high skill level and the labour-friendly cultural traditions. In Germany, FA would have to follow more regulations regarding the environment, health and safety, and employee rights.
FA workers in the less economically developed country are very loyal to F A, which has continued operation through a civil war at significant cost to itself (for security). If FA were to close in the less economically developed country, the workers would not find such good jobs.
Explain one positive and one negative impact of FA on the developing country.
Explain one positive and one negative impact of F A on the less economically developed country.
Positive impacts of FA on the developing country include:
- Provides employment at wages better than those available in the less economically developed country.
- Was loyal during the civil war.
Theoretically possible other positive impacts include:
- Technology and skill transfers from FA's host country to the less economically developed country.
Negative impacts of FA on the less economically developed country include:
- FA relies on an autocratic leadership style.
- FA does not use the most advanced technology in the less economically developed country.
- FA could leave the country, leaving many people who are currently dependent on the company out of work.
- FA does not provide the same employee rights provisions or health and safety provisions that it would in a less economically developed country.
Theoretically possible other negative impacts include:
FA may pollute to a level in the less economically developed country that it would not in Germany. In addition FA may cause an overdependency of the LDC on its presence in the country
Mark as [2 + 2]. For [2], candidates must identify a positive and a negative impact, explain it, and apply to the less economically developed country.
Award [2] for a positive impact with application to the less economically developed country.
Award [2] for a negative impact with application to the less economically developed country.
If there is no application to the less economically developed country at all then the maximum mark per impact is [1].