Evaluate effects of a multinational company on a host country
Balance jobs, exports, choice and investment against competition, environmental damage, resource use and profit repatriation.
Section 6 · External influences on business activity
Cambridge IGCSE (9–1) Business 0774, 2027–2029 Version 2, Topic 6. Trace each external change through the business and state which effects depend on its market, costs or response. Candidates are not assessed on exchange-rate calculations. Written practice is self-checked and does not certify exam readiness
Before you begin
- No previous study of external influences is assumed. Identify who is affected, which business decision changes and what evidence or condition would affect the outcome.
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
Which is a possible advantage to an MNC's host country?
What you will learn
- Explain host-country advantages
- Explain possible host-country disadvantages
- Evaluate using local conditions
Host countries may gain
An MNC may create jobs, increase exports, widen customer choice and bring investment. Suppliers and workers may also gain orders or experience when the MNC operates locally.
The size and durability of these effects depend on local hiring, sourcing, the activity performed and whether the MNC expands or remains. Announced investment does not automatically mean every benefit reaches local households.
Costs and distribution matter
An MNC may increase competition for local firms, damage the environment or exploit natural resources if activity is poorly controlled. Repatriation of profits means some profit may be transferred to owners elsewhere rather than retained locally.
Assess who gains, who bears costs and the relevant controls. A host-country decision can weigh investment and jobs against local firms, workers, communities and environmental effects; do not assume every MNC has the same impact.
Pause and explain
What does repatriation of profits mean?
Worked example
An overseas food company opens a factory in a rural region. Explain one benefit and one possible cost for the host country.
Show the worked solution
- The factory may create jobs and investment.
- It could also affect water, land or local producers.
- Check employment terms, sourcing, environmental controls and how value is retained locally.
Answer The factory may create jobs and investment in the region. It could also increase pressure on local resources or competitors; assess employment terms, environmental controls, sourcing and whether local suppliers and communities share the benefit.
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Write your answer and reasoning first. Use a hint only if you are stuck. The model solution is for self-checking; your written work is not automatically marked.
An MNC invests in a local factory and sources some materials locally. Explain two possible benefits and one question about how lasting they are.
Give me a hint
Consider jobs, local supplier demand, investment and what happens if the operation changes.
Compare my reasoning
- The factory can create jobs and local supplier orders.
- Investment may improve productive capacity or exports.
- Check job quality, supplier contracts and the firm's long-term commitment.
The factory may create employment and increase local supplier sales, while investment may add production capacity or exports. The host country should check job quality, supplier terms and whether the MNC plans to stay; benefits can shrink if activity moves elsewhere.
Look for these in your work
- Two benefits
- Local linkage
- Durability considered
A local government welcomes an MNC because it offers jobs, but residents report water pollution. Explain how the government could balance the issue.
Give me a hint
Compare economic gains with an external environmental cost and enforcement options.
Compare my reasoning
- Assess the number and quality of jobs and local investment.
- Measure the pollution and the residents or ecosystems affected.
- Apply environmental rules and compare compliance costs with community harm.
The government should assess the jobs and investment while measuring the pollution and affected residents. It can enforce environmental controls and require remediation; the decision should account for compliance cost and community harm rather than treating jobs as a complete offset.
Look for these in your work
- Benefit measured
- Cost evidence identified
- Control and trade-off addressed
A factory exports most of its output and sends some profit to its overseas owners. Explain why the host country may still benefit and identify one limit.
Give me a hint
Exports and jobs can create local activity even if some profit leaves.
Compare my reasoning
- Local wages, purchases and exports may contribute to host-country activity.
- Some profits may be repatriated rather than reinvested locally.
- Check local sourcing, taxes, employment and the distribution of value.
The host country may gain jobs, supplier orders and exports even when some profit is repatriated. The scale of local value depends on sourcing, wages, taxes and reinvestment; exported output alone does not show how benefits are distributed.
Look for these in your work
- Local channels named
- Profit repatriation explained
- Distribution limitation noted
Common mistakes
- Treating jobs created as the only host-country outcome
- Assuming repatriation means no local benefit
- Assuming every MNC harms the environment
What can you explain now?
Which is a possible advantage to an MNC's host country?
Compare with the explanation
More local jobs
Local employment is a listed possible benefit.
After trying it yourself, choose your next review. This is your self-assessment.
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Make it stick
Name two possible benefits and two possible costs of an MNC locating in a host country.
If you needed the solution, close it and solve the problem again from a blank page. A correct answer is stronger when you can explain the reason for each step.