1.6 Growth and evolution Founded in 1847, Carlsberg is one of the largest breweries in the world with around 45 000 employees and annual sales in the region of $11bn. The Danish beer company has a long-established market presence in Western Europe, giving it a competitive advantage albeit in a stagnant market. Brand awareness and loyalty have been secured by its sponsorship of prominent sporting events and teams. More recently, Carlsberg has relied on new markets, such as Eastern Europe and Asia, for sales and profits growth. In 2013, Carlsberg announced a joint venture to establish a beer production facility in Bago Region, Myanmar. Source: www.carlsberg.com
(a) Outline the evidence that suggests Carlsberg is a multinational business.
[2 marks]
(b) Explain two reasons for Carlsberg choosing to expand in overseas markets.
[4 marks]
(c) Outline the factors that may have led to the globalization of the beer market.
[4 marks]
(d) Examine the possible threats to Carlsberg operating in overseas markets.
[6 marks]
Business Organization and Environment
Question 1.6.11 Carlsberg
The impact of MNCs on the host countries
CORE
The impact of MNCs on the host countries. AO3 © IBO, 2014
A host country is any nation that allows a multinational company to set up in its country. In addition to the reasons for the growth of MNCs, they have varying impacts on host countries, some of which are beneficial whilst others are detrimental. Table 1.6.f Advantages and disadvantages of MNCs to the host countries Advantages
Disadvantages
MNCs create jobs in the host country. For example, Volkswagen’s manufacturing plant in Kaluga, Russia created more than 3500 jobs with an initial investment of $400m. Although some MNCs have been criticised for paying ‘low’ wages to staff in poorer countries, MNCs tend to offer higher pay than local firms in these countries.
MNCs are capable of causing unemployment in the host country as they can pose a threat to domestic businesses. Competition can be good if it causes local firms to improve their efficiency, but it can also be a setback if it means that domestic firms are unable to compete and end up making people redundant or even having to close down.
MNCs help to boost the host country’s gross domestic product (the value of a country’s annual output) by creating consumption expenditure (since more people are in paid employment) and by boosting export earnings for the host country, thereby improving its standards of living. For example, Hungary’s largest exporter is German car manufacturer Audi, which has its Audi TT sports car produced in western Hungary.
Whilst MNCs can create wealth in a host country, the profits are repatriated to the home country. There is also a degree of insecurity as MNCs are increasingly footloose (see Unit 5.4), i.e. they are not tied to a specific location so can change at very short notice for cost advantages. For example, in 2012 French retailer Carrefour pulled out of Turkey, Poland, Romania, Malaysia, Taiwan, Indonesia and Singapore. continued >>
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