What is a multinational company, why do they choose to locate in particular countries, and what effect do they have on host economies?
Multinationals: the meaning of a multinational company, the reasons they choose where to locate, and their advantages and disadvantages for a host country.
A focused answer to the SQA National 5 Economics content on multinationals, covering what a multinational company is, the reasons they choose where to locate such as cheaper labour, access to markets and resources, and their advantages and disadvantages for a host country like the UK.
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What this dot point is asking
The SQA wants you to define a multinational company, explain the reasons one chooses where to locate, and weigh the advantages and disadvantages a multinational brings to a host country such as the UK.
What a multinational is
A multinational company (MNC), also called a multinational corporation or transnational company, is a business that operates across national borders.
Multinationals are a key feature of globalisation - the growing connection of the world's economies through trade, investment and the movement of firms across borders.
Why multinationals choose where to locate
A multinational decides where to set up production or sales for hard commercial reasons. National 5 expects you to know the main ones.
Advantages and disadvantages for a host country
When a multinational locates in a country such as the UK, the effects cut both ways.
Advantages for the host country:
- Jobs are created, reducing unemployment.
- Investment flows in, bringing new factories, technology and skills.
- The multinational and its workers pay tax, adding to government revenue.
- It can raise output (GDP) and bring exports.
Disadvantages for the host country:
- Much of the profit may leave the country, going back to the multinational's home base.
- It can create strong competition for local firms, which may be forced out.
- The firm may pay low wages or have poorer working conditions in some countries.
- It can relocate suddenly if costs rise elsewhere, causing job losses, so the host becomes dependent on a footloose firm.
Why this matters across the course
Multinationals link global trade, exchange rates and the wider global economy. They are a major channel of globalisation and foreign investment, they affect a host country's employment and growth (from the UK economy area), and they connect to Scotland's economy when global firms locate there. The location reasons echo the determinants of supply and the role of costs from the market area.
Try this
Q1. Define a multinational company. [2 marks]
- Cue. A firm based in one country that produces or sells in two or more countries.
Q2. State two reasons a multinational might locate in a country. [2 marks]
- Cue. Any two of cheaper/skilled labour, access to a market or trading bloc, access to raw materials, lower taxes/grants.
Q3. Explain one disadvantage of a multinational for a host country. [2 marks]
- Cue. Profits may leave the country, local firms face strong competition, or the firm may relocate and cut jobs.
Exam-style practice questions
Practice questions written in the style of SQA exam questions on this dot point, with worked answer explainers. The year tag is the paper they imitate, not the source.
SQA N5 specimen4 marksDescribe what is meant by a multinational company and give an example.Show worked answer →
A multinational company (or multinational corporation) is a firm that has its headquarters in one country but produces or sells goods and services in two or more countries, operating across national borders (1 mark for "based in one country", 1 mark for "operates in two or more countries"). Examples include firms such as Apple, McDonald's, Toyota, Amazon or Coca-Cola, which have operations worldwide (1 mark for a valid example). A fourth mark can come from development, e.g. that they are usually very large and powerful (1 mark). Markers reward the cross-border definition plus a recognised example.
SQA N5 past-style6 marksExplain three reasons why a multinational company might choose to locate in a particular country.Show worked answer →
It may locate where labour is cheaper or where skilled workers are available, lowering its production costs (1 mark + 1 development). It may locate to gain access to a large market or to be inside a trading bloc such as the EU, avoiding tariffs and reaching customers easily (1 mark + 1 development). It may locate to be near raw materials or to benefit from lower taxes or government grants offered to attract investment (1 mark + 1 development). Markers reward three distinct, developed reasons such as cheaper/skilled labour, access to markets, access to resources, or lower taxes/grants.
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Sources & how we know this
- SQA National 5 Economics Course Specification — SQA (2026)
- National 5 Economics - Course overview and resources — SQA (2026)