Controlling MNCs (Edexcel A Level Business)

Factors to Consider When Managing MNCs

• Both governments of LEDCs and MEDCs find it difficult to manage MNCs

  • MEDCs often benefit from the profits of MNCs and these firms carry significant political influence on government policy

  • LEDCs often have key decision makers (autocratic rulers) who receive payment for access to the country’s resources

  • It is important to control the activities of MNCs so as to enhance the benefits and reduce the disadvantages of what they offer

Factors to consider when controlling MNCs

Political Influence 

• Political institutions enforce laws and regulations which businesses need to adhere to 

• When MNCs establish themselves in a new country, they must work within the  institutional framework of that country 

• MNCs in developed countries are often able to exert pressure on national governments through lobbying to create favourable conditions for their business

  • Another common issue occurs when politicians may occupy roles on the board of directors for an MNC after retiring in return for reducing political control on the MNC whilst they are in power

• MNCs in developing countries can influence governments as they may establish deals which are beneficial to politicians

  • Bribes may be paid to secure lucrative contracts

Legal Control 

• Governments can enforce legislation and regulation to control the operations of MNCs 

  • The European Union has the Competition Commission, which protects producers and consumers from anti-competitive or unfair practices

    • Google were fined 2.24 billion euros by the EU Competition Commission for abusing their market dominance in the search engine market 

• Governments want to attract MNCs to help boost their economy, so creating legal control in areas relating to taxes and employment ensures stability for the MNC

  • E.g. Prior to Brexit, MNCs were attracted by the stability of the UK economy and it offered them access to the full EU marketplace

Pressure Groups

• Pressure groups are organisations that operate to influence company and public policy in the interest of a particular cause

• Pressure groups can operate on a national or international scale 

  • Save the Arctic campaigned for Lego not to sell their products at Shell petrol stations

  • Greenpeace campaigned for Kimberley Clark (the manufacturer of products such as Kleenex and Huggies) to dispose of their products in a sustainable way

• Pressure groups can take action in different forms, such as: 

  • Naming and shaming

  • Direct action

    • E.g. Protests, strikes and boycotting products 

  • Lobbying by taking issues directly to the government

• There are also pressure groups that work on behalf of MNCs, such as the Confederation of British Industry (CBI)

  • The CBI speaks and lobbies the government on behalf of member businesses

Social Media

• Social media involves the interaction of people via electronic devices using social media platforms 

• MNCs can use social media to their advantage to spread awareness and promote their business on a global scale 

  • However, social media also enables stakeholders to freely share information about the unethical behaviour of MNCs 

  • MNCs are forced to address the issues raised on social media as there is a high level of public exposure and information can spread rapidly

• MNC influence on social media may be limited in some countries as they have regulations in place to manage social media power

  • E.g. The Chinese and Russian governments closely monitor social media to regulate information being spread