Multinational favouritism

Multinational companies bring many advantages to host nations. Whether it is creating jobs, income, investment or sharing technology, governments across the world try to encourage firms to set up in their country. However, once a multinational has been set up, it’s natural for the owners and managers to favour their own countries when decisions have to be made. If there is some new investment planned, where to put it will be a key decision and not just for the firm. New investment may mean new jobs and better working environments. If job cuts are necessary, the decision-maker’s country of origin may determine where they occur.

This so-called ‘Headquarters effect’ is apparent in the case of Siemens, which has guaranteed the safety of all German jobs, both now and in the future. Those employees in the UK are understandably concerned. If job cuts are needed and German workers will not be affected, it takes little intelligence to realise that their jobs may be at risk. The following discussion by Robert Peston considers this issue.

British jobs, for German workers BBC News blogs, Peston’s Picks, Robert Peston (7/10/10)


  1. What is the ‘Headquarters effect’?
  2. The article states: “The HQ effect implies that when a British plant is owned by an overseas company, it may be more vulnerable to being closed down if the going gets tough”. Why is this the case?
  3. What are the advantages and disadvantages of multinational investment to (a) the multinational company and (b) the host country?
  4. How is multinational investment affected by the business cycle?
  5. It Trent UK were to shut down or if a particular office was closed in one part of the country, what type of unemployment would be created?