Multinational companies (MNCs) practice questions.

A multinational company (MNC) is best defined as a business that:

• Only exports goods but produces entirely in its home country
• Is owned by more than one national government
• Has production facilities in more than one country
• Sells exclusively online with no physical premises

Answer: Has production facilities in more than one country

An MNC operates across national borders, typically with a headquarters in one country and production, sales or service facilities in others.

State which of the following is the clearest sign that a firm operates as a multinational company (MNC) rather than simply an exporter.

• It sells its products to customers located in more than one country
• It owns and operates production facilities in more than one country
• It sources some of its raw materials from overseas suppliers
• It employs a small number of staff who are foreign nationals

Answer: It owns and operates production facilities in more than one country

An MNC has direct operations (production, offices or subsidiaries) in more than one country; merely exporting or importing goods does not make a firm multinational.

Explain which of the following is most likely to be a drawback for a host country of attracting a large multinational company (MNC).

• Creation of new jobs for local workers
• Transfer of technology and management skills
• Repatriation of profits to the home country
• Increased tax revenue for the host government

Answer: Repatriation of profits to the home country

MNCs often send (repatriate) their profits back to the home country, meaning much of the wealth generated does not stay in the host economy; the other options are benefits.

Determine which impact on a host country is best described as an economic benefit of an MNC's arrival.

• Local firms may be forced out of business by superior competition
• The local labour force gains improved skills and higher employment
• Cultural homogenisation reduces local traditions
• Environmental damage from increased production

Answer: The local labour force gains improved skills and higher employment

Higher employment and workforce upskilling are economic benefits; the other options are recognised drawbacks of MNC entry.

Suggest which factor most strongly links MNC activity to the concept of sustainability in the IB Business Management framework.

• MNCs always use renewable energy in every operation
• MNCs can raise or lower environmental standards abroad
• MNCs are legally required to be carbon neutral worldwide
• Sustainability has no relevance to multinational operations

Answer: MNCs can raise or lower environmental standards abroad

Sustainability concerns arise because MNCs' choices (e.g. production standards, resource use, treatment of workers) can improve or damage environmental and social conditions in host countries.

Outline which of the following is a benefit for the home country (where the MNC is headquartered) of its firms operating as MNCs.

• Loss of domestic jobs when production moves abroad
• Repatriated profits flow into the home economy
• Reduced tax revenue at home
• Increased dependence on foreign governments

Answer: Repatriated profits flow into the home economy

Profits earned abroad and returned home boost the home economy; job losses and reduced domestic activity are the drawbacks for the home country.