Globalisation refers to the increasing integration of world economies through the flow of goods, services, capital, people and ideas. While it creates opportunities for growth, governments may impose trade restrictions (tariffs, quotas, subsidies, standards) to protect domestic industries, preserve jobs or achieve political objectives.
Multinational Corporations (MNCs)
An MNC is a company that owns or controls production facilities in more than one country. MNCs are key agents of globalisation because they move capital, technology and managerial expertise across borders.
Objectives of This Lesson
Identify the main advantages of MNCs for host (host) and home (home) countries.
Identify the main disadvantages of MNCs for host and home countries.
Analyse how these impacts relate to trade restrictions and globalisation.
Advantages of MNCs
For Host Countries
Benefit
Explanation
Foreign Direct Investment (FDI)
Injects capital that can be used for infrastructure, factories and new technologies.
Employment Creation
Creates jobs directly in factories and indirectly in supporting industries.
Technology Transfer
Introduces advanced production techniques, management practices and R&D.
Export Promotion
Products made for export increase foreign exchange earnings.
Skill Development
Local workforce gains new skills through training and on‑the‑job learning.
For Home Countries
Benefit
Explanation
Access to New Markets
Home‑based firms can sell products abroad through their overseas subsidiaries.
Higher Profits
Profit repatriation from host countries can boost national income.
Economies of Scale
Production spread across several countries reduces average costs.
Innovation Spill‑over
R&D conducted abroad can be transferred back, enhancing domestic competitiveness.
Employment in Headquarters
Jobs in management, finance, marketing and R&D remain in the home country.
Disadvantages of MNCs
For Host Countries
Profit Repatriation – A large share of profits is sent back to the home country, limiting domestic wealth accumulation.
Market Dominance – MNCs may out‑compete local firms, leading to monopolistic or oligopolistic structures.
Environmental Concerns – Some MNCs may exploit lax regulations, causing pollution or resource depletion.
Labour Exploitation – Low‑wage, low‑skill jobs may dominate, with limited upward mobility.
Dependence on Foreign Capital – Host economies can become vulnerable to decisions made by distant parent firms.
For Home Countries
Job Losses at Home – Production may be shifted abroad, reducing manufacturing employment.
Balance‑of‑Payments Issues – Large outward FDI can create a capital outflow, affecting the current account.
Loss of Domestic Control – Strategic industries may be dominated by foreign subsidiaries, reducing national sovereignty.
Economic Inequality – High profits accrue to shareholders and executives, widening income gaps.
Linking MNC Impacts to Trade Restrictions
Governments may use trade restrictions to mitigate the disadvantages of MNCs while preserving the advantages.
Tariffs on Imported Inputs – Protect domestic suppliers from being displaced by MNCs.
Quotas on Foreign Investment – Limit the amount of FDI to maintain control over strategic sectors.
Environmental Standards – Impose regulations to prevent harmful practices by foreign firms.
Local Content Requirements – Require a percentage of inputs to be sourced locally, encouraging domestic industry growth.
Anti‑Monopoly Laws – Prevent MNCs from dominating markets and stifling competition.
Key Points to Remember
MNCs are a major driver of globalisation, moving capital, technology and jobs across borders.
Host countries gain investment, jobs and technology but risk profit outflows and market dominance.
Home countries enjoy market expansion and higher profits but may suffer job losses and capital outflows.
Trade restrictions are policy tools used to balance these effects, aiming to maximise benefits while minimising harms.
Suggested diagram: Flow of benefits and costs between home and host countries when an MNC operates abroad.