Multinational Corporations (MNCs) (Edexcel IGCSE Economics)
Revision Note
Written by: Lorraine
Reviewed by: Steve Vorster
An Introduction to Multinational Corporations (MNCs)
A multinational corporation (MNC) is business that has production facilities in two or more countries
E.g. Tesla makes major decisions at its headquarters in Texas while assembly operations are in China
MNCs have facilitated increased international trade and a greater choice of goods and services on the global market
They have also increased cultural globalisation, as global brands such as Coca-Cola, Nike, and Apple dominate markets and western values replace local cultures
Foreign Direct Investment (FDI)
Foreign direct investment (FDI) occurs when investment by foreign firms results in more than a 10% share of ownership of domestic firms
Businesses typically grow through FDI as mergers, takeovers, partnerships or joint ventures are created with a foreign business in order to enter new markets
E.g. EE was formed in 2012 as a joint venture between the French company Orange and the German company T-Mobile, allowing greater share of the UK market
Inward FDI occurs when a foreign business invests in the local economy
E.g. In 2017, Kenya opened the Kenya Standard Gauge Railway Line built by Chinese investors
Outward FDI occurs when a domestic business expands its operations to a foreign country
E.g. Dyson has moved its manufacturing from the UK to Malaysia, China and the Philippines
The impact of FDI on economic growth depends on how the FDI occurs
E.g. Chinese firms frequently invest overseas, but bring their own employees with them and send all of their profits home; the economy and individuals within the economy benefit less than they could have
E.g. Indian firms frequently invest overseas, tend to hire local employees and reinvest more of the profits into the host country than Chinese firms generally do
Reasons for the Growth of MNCs and FDI
Globalisation has made it easier for firms to do business on a global scale
The number and size of MNCs and and the level of FDI continue to increase
Reasons for Growth of Nike (Case Study of a MNC)
Reason | Explanation |
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Economies of scale |
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Access to resources |
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Lower transport costs |
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Lower communication costs |
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Access to new consumers |
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Evaluation of MNCs and FDI
MNC and FDI have the potential to generate significant economic growth as more economic activity, employment and output are generated
Advantages and Disadvantages of MNCs and FDI
Advantages | Disadvantages |
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