Page 335 - Cambridge IGCSE Business Studies
P. 335
26: Business and the international economy
■ Access to bigger markets – mergers and joint ventures with companies in the host
country can lead to increases in revenue.
■ Lower production costs – energy costs and the purchase or rental of a business
site may be cheaper in the host country. If there is a local market then the company
can save on transportation costs.
■ Spreading of risk – MNCs are not dependent upon one market. Their business may
not be badly affected even if one of their markets is in decline or politically unstable
or has a natural disaster.
Growth and economies
of scale: see Chapter 3, ■ Premium pricing – MNCs may be able to charge higher prices for globally
page 36. recognised brands.
Sometimes the environment in the host country can pose a threat to the success of
MNCs. The main threats include:
■ Shortage of labour – MNCs may have to bring in specialist workers and managers
from other countries, which will be more expensive.
■ Lack of information about the local market – this may lead to fewer
sales as the products being sold by the MNC may not meet the market’s demand.
■ Language barrier – this may make it hard to communicate with the local workforce
in the host country, which might lead to mistakes, which reduce eff iciency.
■ Cultural diff erences – to be accepted, MNCs need to be sensitive to the culture of
the host country.
■ Strict regulations – for example different quality standards. This will make it
harder for the MNCs to operate in the host country.
333
■ Hostile business environment – for example high level of brand loyalty to existing
competitors, or competitors might retaliate through marketing tactics to defend
their market position.
■ Expensive labour costs – this will raise the overall costs of the business.
■ Local opposition or threat from pressure groups – this can lead to bad publicity
for the MNC.
■ Little brand awareness – the MNC may have to spend a lot of money on
advertising.
■ Currency fluctuations – can affect the profits of the MNC.
■ Political instability in the host country – can make government decision-making
slower and cause delays for the MNC.
Solutions to some of the above problems may be found through local joint
ventures, strategic alliances or use of local agents. For example, if a MNC forms
a joint venture with a local company in the host nation then the problems of
Opportunities and
problems of entering new language barriers, cultural differences and lack of knowledge of the local market
markets abroad: see may be solved easily.
Chapter 14, page 193.
Benefits of a multinational to the host country
The host country benefits from multinational companies that set up operations in
its country. The advantages include:
■ Increase in choice and quality of goods and services – the local market has
access to a greater variety of goods as there is more competition. Due to
competition and better production methods, the quality of goods may be
higher too.
