How can the entry of a multinational retailer reduce the market share of local independent shops?

Its lower prices and wider range divert customers, so independents lose sales volume and may no longer cover their fixed costs.

Why can a multinational normally undercut a local competitor's price?

Its far larger scale of output gives it lower long-run average costs and greater buying power over suppliers.

What is monopsony power, and how does a multinational's monopsony power affect local suppliers?

Monopsony power is the buying power of a dominant purchaser, and it allows the multinational to force supplier prices down and impose long payment terms, squeezing supplier margins.

Give two ways a multinational's arrival can benefit local firms.

It buys inputs and services locally, creating a large and reliable source of demand, and it imposes quality and delivery standards that raise supplier efficiency.

Edexcel A-Level Economics B 9EB0

Scarcity, Choice and Potential Conflicts

Topic overview Scarcity and the economic problem Choice, trade-offs and opportunity cost Profit maximisation, sales maximisation and satisficing Survival, market share and other business objectives Stakeholders and their objectives Stakeholder conflicts and corporate social responsibility

Enterprise, Business and the Economy

Topic overview The entrepreneur and creative destruction Adding value Entrepreneurial motives Factors of production Division of labour and specialisation The wider economic environment and the firm

Introducing the Market

Topic overview Consumer objectives and the demand curve Movements along and shifts of the demand curve Producer objectives and the supply curve Movements along and shifts of the supply curve Equilibrium price and quantity Excess demand, excess supply and market forces Shifts in demand and supply in real markets Limitations of the supply and demand model Functions of the price mechanism Mass markets, niche markets and market growth Market research and consumer insight Market segmentation Market mapping and competitive advantage Adding value, pricing decisions and dynamic markets

The Role of Credit in the Economy

Topic overview Banks and the channelling of savings into investment Bank lending, interest rates and collateral Risk in business decision-making Limited and unlimited liability Loans, overdrafts and trade credit Venture capital, share capital and leasing Owner's capital, retained profit and other sources of finance Challenges in obtaining credit and the impact of credit on the economy

Market Failure and Government Intervention

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Revenue, Costs, Profits and Cash

Topic overview Sales volume and sales revenue Fixed, variable, total and average costs Percentage change in revenue, costs and profit Contribution and the break-even point Margin of safety and the limitations of break-even analysis Profit as an incentive: market entry and exit Gross, operating and net profit Profit margins and how firms increase profit Cash flow, cash-flow forecasting and business survival

Business Growth and Competitive Advantage

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Productive Efficiency

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Life in a Global Economy

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The Economic Cycle

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Introduction to Macroeconomic Policy

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Globalisation

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Economic Factors in Business Expansion

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Impact of Globalisation on Global Companies

Topic overview Globalisation and glocalisation Ethnocentric, polycentric and geocentric approaches to global markets Price and non-price competition in global markets Branding and differentiation in global markets Cultural and language barriers in global markets Adapting marketing strategy for niche and mass markets

Impact of Globalisation on Local and National Economies

Topic overview Multinational corporations and local labour markets Multinational corporations and local firms Multinationals, the local community and the environment Foreign direct investment, growth and the balance of payments Technology transfer, skills and business culture Multinationals and consumers Tax revenues and transfer pricing Stakeholder conflicts, pay and working conditions Emissions, waste disposal and supply chain ethics Ethical marketing: labelling and promotion Controlling multinational corporations

Global Labour Markets

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Inequality and Re-Distribution

Topic overview Absolute and relative poverty and how they are measured Measuring inequality: the Lorenz curve and the Gini coefficient Reducing poverty: growth, development and international aid The impact of inequality on individuals, firms and the economy Re-distribution of income and wealth through taxation and services

Competition and Market Power

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Market Power and Market Failure

Topic overview Cartels, collusion and restrictive practices Monopsony, natural monopoly and power in the labour market The implications of market failure for firms, consumers and government Promoting competition: anti-competitive practices, mergers and privatisation Regulating natural monopolies and protecting consumers and employees The Competition and Markets Authority and EU competition policy The benefits and costs of regulation

Market Failure Across the Economy

Topic overview Merit and demerit goods Factor immobility and information failure Externalities and social costs and benefits Environmental externalities and environmental change Policies to correct market failure

Macroeconomic Policies and Impact on Firms and Individuals

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Risk and the Financial Sector

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Impact of Globalisation on Local and National Economies

Multinational corporations and local firms

3 things to know
Papers 2 and 3

Overview

How multinational retailers take market share from local shops and undercut them, monopsony power over local suppliers, benefits to local firms, backward and forward linkages, productivity spillovers, crowding out, national sourcing, infant industries, dependence on one customer, joint ventures, competition in concentrated markets, and local innovation.

What you need to know

Answer each one before you reveal it.

Your recallNot started

Key term

What are backward linkages?

Key term

What are forward linkages?

Key term

Explain how a multinational can raise the productivity of local firms it does not trade with.

Questions from this subtopic

Each one with the model answer underneath.

1
How can the entry of a multinational retailer reduce the market share of local independent shops?
Model answer
Its lower prices and wider range divert customers, so independents lose sales volume and may no longer cover their fixed costs.
2
Why can a multinational normally undercut a local competitor's price?
Model answer
Its far larger scale of output gives it lower long-run average costs and greater buying power over suppliers.
3
What is monopsony power, and how does a multinational's monopsony power affect local suppliers?
Model answer
Monopsony power is the buying power of a dominant purchaser, and it allows the multinational to force supplier prices down and impose long payment terms, squeezing supplier margins.
4
Give two ways a multinational's arrival can benefit local firms.
Model answer
It buys inputs and services locally, creating a large and reliable source of demand, and it imposes quality and delivery standards that raise supplier efficiency.
5
What are backward linkages?
Model answer
Backward linkages are the purchases a firm makes from local suppliers of components, materials and services.
6
What are forward linkages?
Model answer
Forward linkages arise when local firms use a firm's output as an input, or distribute, install and service its products.

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Scarcity, Choice and Potential Conflicts

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