Globalisation & Trade Restrictions
International Trade & Globalisation
A multinational company (MNC) is a firm that owns or controls production in more than one country, for example a carmaker with factories in several nations.
MNCs are a major force in globalisation, and they affect both the host country (where they invest) and their home country (where they are based).
Advantages to the host country
- Employment. MNCs create jobs directly and through their local supply chains, raising incomes.
- Technology and skills. They bring advanced production methods and training, raising the productivity of local workers.
- Investment and output. They add capital the country could not raise itself, increasing output and economic growth.
- Tax revenue and exports. Their profits and sales can raise government tax revenue and boost the country's exports, helping the current account.
Disadvantages to the host country
- Profit repatriation. MNCs may send much of their profit back to their home country rather than reinvesting it locally.
- Competition for domestic firms. Local firms may be unable to compete and close down, and a dominant MNC may later raise prices.
- Use of weak regulation. MNCs may exploit lower wages or weaker environmental rules in the host country.
Effects on the home country
The home country gains the repatriated profits and may keep high-skilled head-office and design jobs, but it can lose lower-skilled jobs as production moves abroad.
Common exam question
What an MNC brings to its host and home countries
Question: Explain two ways a multinational company (MNC) can benefit the country it sets up in (4 marks).
Asked in 1 of the 11 structured papers. Each benefit earns a mark for naming it and one for its effect: more jobs, raising incomes and living standards; training that lifts skills; more exports or fewer imports, improving the current account; extra output and growth; more competition, raising efficiency and cutting prices; new technology, raising productivity and lowering costs; a wider range of products; more tax revenue; infrastructure such as roads. Only the first three benefits given are considered.
Set in 2 of the 13 multiple-choice papers. As a cost to the host, pick more competition for its own firms, which can drive local producers out though consumers gain; technology, jobs and tax revenue are benefits. As the benefit to the home country, pick the flow of profits sent back; jobs, higher wages and new investment go to the host.
Common exam question
Discussing MNCs in a host country
Question: Discuss whether attracting foreign MNCs will lower inflation, or whether an MNC will keep producing in a host country (8 marks).
Asked in 1 of the 11 structured papers (will the MNC stay?), and the specimen mark scheme for the 2027 papers sets the inflation version. Both are levels-marked: Level 3 (6–8) needs both sides developed, so a one-sided answer stays in Level 2 (at most 5).
On inflation, for: advanced technology and well-trained workers give MNCs low costs, easing cost-push inflation; their competition holds down domestic prices; local output replaces imports made dear by tariffs. Against: they may drive out domestic firms, then raise prices; higher wages and more exports raise total demand, risking demand-pull inflation; depleted resources may have to be imported.
On staying, for: high demand and profits, low wages or raw-material costs, well-educated workers, subsidies. Against: resources run out, taxes rise, a higher exchange rate makes exports dearer, industrial action, better opportunities elsewhere, new regulations.