GK
ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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can only invest overseas, but not at home
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can only invest at home, but not overseas
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cannot benefit from the advantage of comparative advantage
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may raise political problems in countries where their subsidiaries operate
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Detailed explanation-1: -Challenges of multinational companies Cultural differences: This refers to difficulties in localisation of not only products and marketing strategy but also the corporate culture. Different political and legislative environments: MNCs have to adapt to different regulations affecting their products.
Detailed explanation-2: -The host nation may lose control over its own economy. Negative impact on the host’s balance of payments because of heavy imports of spares and components. Exploitation of the hosts’ irreplenishable natural resources leading to the dwindling of these. Exploitation of labour of the host when the country needs it.
Detailed explanation-3: -MNCs add to the host country GDP through their spending, for example with local suppliers and through capital investment. Competition from MNCs acts as an incentive to domestic firms in the host country to improve their competitiveness, perhaps by raising quality and/or efficiency.
Detailed explanation-4: -Weak economic conditions or unstable political conditions in a foreign country can reduce cash flows received by the MNC, or they can result in a higher required rate of return for the MNC. Either of these effects results in a lower valuation of the MNC.