The impact of MNCs — Edexcel A-Level Business
Test yourself on The impact of MNCs with PEARSON EDEXCEL A-Level practice questions.
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The impact of MNCs explained
A large foreign employer changes a town's labour market, its supply chain and its environment at once, and the exam wants both sides weighed rather than one side asserted.
Read the full explanation
Jobs and training raise incomes, and pay is often above the local average, which pulls skilled staff away from domestic employers and can bid up their costs. Suppliers gain contracts and the multiplier spreads the spending, while local retailers and manufacturers may be undercut and close. The environmental side is hardest to judge, since land use, traffic, water and waste fall on residents who get no share of the profit. Amazon's fulfilment centres are the familiar case of jobs created alongside disputes about conditions and about the effect on high street retailers. Evaluation turns on the counterfactual, what the area would look like with no investment at all.
b) Impact of MNCs on the national economy: FDI flows; balance of payments; technology and skills transfer; consumers; business culture; tax revenues and transfer pricing
Inward investment shows up in more than one place in the national accounts, and confusing them is the commonest error here. The money coming in is an inflow on the financial account, exports produced by the new plant improve the current account, and the profits sent home later are an outflow of primary income that can eventually exceed what arrived. Beyond the accounts the host may gain technology, management practice and a trained workforce that later moves to domestic firms, while consumers gain choice and lower prices. Tax is the contested part, because a multinational can price internal transfers between its own subsidiaries so that profit lands in a low tax country, which is why an international minimum corporate rate of fifteen percent was agreed. The judgement usually rests on whether the gains outlast the investor.
Your focus
- a) Impact of MNCs on the local economy: local labour, wages, working conditions and job creation; local businesses; the local community and environment
- b) Impact of MNCs on the national economy: FDI flows; balance of payments; technology and skills transfer; consumers; business culture; tax revenues and transfer pricing
The impact of MNCs exam tips
Marking Points
- Arguing a benefit and a cost for the same group, for example job creation alongside wage and recruitment pressure on existing employers.
- Using the multiplier, so that spending by newly employed workers supports local shops and services and the employment effect exceeds the headcount at the plant.
- Separating short run effects, construction work and a spending boost, from long run effects such as skills, supplier capability or the closure of local rivals.
- Naming the stakeholder whose view is taken, since the same investment reads differently to a worker, a local competitor and a resident.
- Placing the money in the right part of the balance of payments: the investment on the financial account, the trade it generates on the current account, and repatriated profit as a primary income outflow.
- Explaining transfer pricing as the internal price charged between subsidiaries that shifts where profit is taxed, then saying what the host government loses and what it can do.
- Giving a genuinely two-sided argument on technology and skills transfer, that it happens only where local staff are trained and promoted rather than held in assembly roles.
- Judging with a condition, such as whether the operation is footloose and can relocate once a grant or tax holiday ends.
Examiner Tips
- 💡This is examined through stakeholder analysis, so structure the answer around workers, local businesses and residents, and say who gains and who loses.
- 💡Extracts usually give an employment number or an investment value; quote it and work with it rather than writing about many jobs.
- 💡A conclusion that depends on a condition, such as whether local suppliers are developed rather than displaced, scores above a flat verdict.
- 💡Longer questions here ask you to assess the impact on a named economy, so use an economic lens and a stakeholder lens and close with a supported judgement.
- 💡Bring in one real case briefly and use it to carry an argument rather than to fill a paragraph.
- 💡If the extract gives an investment value or a tax figure, calculate a percentage so the evaluation has a number behind it.
Common Mistakes
- Listing benefits to the multinational, lower costs or market access, when the question asks about the local economy.
- Assuming every job is a new job, when some are transferred from local firms that then shed staff, so the net figure is what matters.
- Calling environmental damage inevitable, or ignoring it altogether, instead of weighing it with evidence from the extract.
- Writing that foreign direct investment improves the balance of payments with no timescale, when later profit outflows can reverse it.
- Describing transfer pricing as illegal; it is lawful pricing of internal transactions, and the criticism is that it is used aggressively to avoid tax.
- Assuming tax revenue automatically rises, ignoring the grants, tax holidays and infrastructure a government offers to attract the investor.