A level-readyAll subjects · Business · WBS14 Global business
The impact of MNCs on the local economy
Edexcel IAL Business · WBS14 Global business
When a multinational corporation opens a factory, mine, hotel or office, the surrounding area feels the effects first. The specification asks you to weigh the impact on local labour, local businesses, the community and the environment.
Local labour, wages, working conditions and job creation
Positive: direct jobs at the MNC, often at higher wages than local firms pay; indirect jobs at suppliers; induced jobs from workers' spending (the multiplier effect); training and skills.
Negative: jobs may be low-skilled and low-paid, with senior roles filled by expatriates; poor working conditions where regulation is weak; local firms lose their best workers to the MNC, pushing up local wages; jobs may disappear if the MNC moves on (footloose).
Local businesses
Positive: new customers for local suppliers (components, food, cleaning, transport, security); pressure to raise quality and efficiency to meet MNC standards; spending by MNC employees boosts local shops.
Negative: local competitors may be driven out by the MNC's scale, brand and lower prices; local firms may become dependent on one big customer with strong buying power.
The local community and environment
Positive: investment in infrastructure (roads, power, water) and sometimes schools or clinics as part of corporate social responsibility (CSR); higher local incomes.
Negative: pollution, waste, deforestation and water use; congestion and rising house prices; changes to traditional ways of life; displacement of communities for large projects.
Evaluation: the impact depends on the type of activity, the MNC's ethical standards, the strength of local regulation, and how far the MNC buys locally (linkages).
Worked example
An MNC opens a plant employing 1,200 people. Each direct job is expected to create 0.8 further jobs at local suppliers and shops. Calculate total jobs created.
- Indirect and induced jobs = 1,200 x 0.8 = 960
- Total = 1,200 + 960 = 2,160
Answer: 2,160 jobs in the local area.
Check yourself
- An MNC creates 850 direct jobs, and each creates 1.3 indirect jobs locally. Calculate the total jobs created.
Show answer
1955 jobs. 850 + 850 x 1.3 = 1,955.
- An MNC pays $420 a month; local firms pay $350. How much higher, in percentage terms, is the MNC wage?
Show answer
20 %. 70 / 350 x 100 = 20%.
- An MNC spends $18 m a year on inputs, of which $7.2 m is with local suppliers. What percentage is spent locally?
Show answer
40 %. 7.2 / 18 x 100 = 40%.
- Which is a positive impact of an MNC on local businesses?
- Local rivals losing customers to the MNC
- Higher wages making it harder for local firms to recruit
- New orders for local suppliers of components and services
- Increased pollution near local farms
Show answer
New orders for local suppliers of components and services. MNCs buy inputs and services from local firms.
- Explain one negative impact an MNC may have on local businesses.
Show answer
The MNC's scale, brand and lower prices may attract customers away from small local competitors, reducing their sales and forcing some to close.. MNCs compete with local firms for customers and workers.
- Explain one way an MNC could harm the local community.
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Its operations may pollute air, rivers or land, or use large amounts of water, damaging residents' health and livelihoods such as farming or fishing.. Environmental and social costs fall on local people.
- Why might jobs created by a 'footloose' MNC be insecure?
- The MNC can easily move production to a cheaper country
- MNCs are not allowed to employ local workers
- Footloose firms always pay the minimum wage
- The jobs are all in local government
Show answer
The MNC can easily move production to a cheaper country. Footloose firms are not tied to one place and may relocate if costs rise.
Sources
Last updated 8 November 2026. Spotted a mistake? Tell us.