• Share
  • Email
  • Embed
  • Like
  • Save
  • Private Content
The influence of political and legal challenges facing mnc
 

The influence of political and legal challenges facing mnc

on

  • 5,462 views

The Influence of political and legal challenges facing MNC ...

The Influence of political and legal challenges facing MNC
Name :















Introduction
A Multinational Corporation is an enterprise that delivers services or production in more than one country. There are two models of Multinational Corporation. The first model of a multinational corporation is the one with an established headquarter that is based in one nation while some other facilities are based in locations in other countries. This type of a model allows the company to take advantage of benefits of incorporating in a given locality while at the same time they are able to produce goods and services in areas where the cost of production is lower. Multinational Corporations have risen as one source of foreign direct Investment in the major industrialized nations (Spero & Hart, 1997). The second model of a multinational corporation is a case whereby there is a parent company in one nation and subsidiaries in other countries around the world. With this model all the functions of the parent are based in the country of origin the subsidiaries more or less function independently. Multinational corporations have a powerful influence in international relations and local economies they play an important role in globalization. Multinational Corporations have grown in power a visibility but they have also been viewed more differently with both governments and consumers worldwide (Alan & Alain, 2008).
In addition, multinational corporations often access new markets by creating joint ventures with existing firms operating in the markets. In joint ventures, the venture partner in the market to be entered remains with a considerable share or even complete autonomy. The establishment of joint ventures has most of the time proved unsuccessful in the long run for multinational corporations, which are likely to find their venture partners have tough competitors when a more direct entrant of the new market is attempted. Multinational corporations are thus able to succeed on new markets in a number of ways which allows existing concerns in the market to be accessed with a varying degree of autonomy and control over operations. Because of the enormous size of MNC’s they enjoy massive economic, legal and political power which enables them to dictate the markets (Stopford, 1998). This research paper digs deep into identifying the political and legal challenges that have hit the Multinational Corporation. It also discusses various theories of MNC’s and how they have impacted in existing corporations.

Politics and power within MNC
While there are no doubts about the economic success and pervasiveness of multinational corporations, their motives and actions have been called into question by social welfare, environmental protection, labor organizations and government agencies worldwide. Due to these conflicts, there has arose numerous concerns about the influence of politics and legal constrains that should be met. Multinational companies are faced with vario

Statistics

Views

Total Views
5,462
Views on SlideShare
5,462
Embed Views
0

Actions

Likes
0
Downloads
82
Comments
0

0 Embeds 0

No embeds

Accessibility

Upload Details

Uploaded via as Microsoft Word

Usage Rights

© All Rights Reserved

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Processing…
Post Comment
Edit your comment

    The influence of political and legal challenges facing mnc The influence of political and legal challenges facing mnc Document Transcript

    • The influence of political and legal challenges facing MNC [Year]The Influence of political and legal challenges facing MNCName :1|
    • The influence of political and legal challenges facing MNC [Year]2|
    • The influence of political and legal challenges facing MNC [Year]IntroductionA Multinational Corporation is an enterprise that delivers services or production in more thanone country. There are two models of Multinational Corporation. The first model of amultinational corporation is the one with an established headquarter that is based in one nationwhile some other facilities are based in locations in other countries. This type of a model allowsthe company to take advantage of benefits of incorporating in a given locality while at the sametime they are able to produce goods and services in areas where the cost of production is lower.Multinational Corporations have risen as one source of foreign direct Investment in the majorindustrialized nations (Spero & Hart, 1997). The second model of a multinational corporation isa case whereby there is a parent company in one nation and subsidiaries in other countriesaround the world. With this model all the functions of the parent are based in the country oforigin the subsidiaries more or less function independently. Multinational corporations have apowerful influence in international relations and local economies they play an important role inglobalization. Multinational Corporations have grown in power a visibility but they have alsobeen viewed more differently with both governments and consumers worldwide (Alan & Alain,2008).In addition, multinational corporations often access new markets by creating joint ventures withexisting firms operating in the markets. In joint ventures, the venture partner in the market to beentered remains with a considerable share or even complete autonomy. The establishment ofjoint ventures has most of the time proved unsuccessful in the long run for multinationalcorporations, which are likely to find their venture partners have tough competitors when a moredirect entrant of the new market is attempted. Multinational corporations are thus able to succeedon new markets in a number of ways which allows existing concerns in the market to beaccessed with a varying degree of autonomy and control over operations. Because of theenormous size of MNC’s they enjoy massive economic, legal and political power which enablesthem to dictate the markets (Stopford, 1998). This research paper digs deep into identifying thepolitical and legal challenges that have hit the Multinational Corporation. It also discussesvarious theories of MNC’s and how they have impacted in existing corporations.3|
    • The influence of political and legal challenges facing MNC [Year]Politics and power within MNCWhile there are no doubts about the economic success and pervasiveness of multinationalcorporations, their motives and actions have been called into question by social welfare,environmental protection, labor organizations and government agencies worldwide. Due to theseconflicts, there has arose numerous concerns about the influence of politics and legal constrainsthat should be met. Multinational companies are faced with various challenges most of themsurrounding politics and power. In his book, The Economist, Bill Emmott argues that the powerof multinationals as well as their predominance cannot be undermined. He further evidenced theextent to which they have powers. Due to interests from developing countries on MNC’s, thelatter have gained indirect power influence, upon policies that a state may adopt, they have botheconomic powers and political influence (Emmot, 1993).Multinational Corporations operations are likely to affect political, social environmental andeconomic factors that diminish the risk of an outbreak of armed conflicts. Although MNC’sinvolved in large scale extractive operations have developed extremely comprehensivemethodologies for undertaking stakeholder analysis and impact assessments. Multinationalcorporations have a number of means in which they can influence corporate decisions.Governments can restrict access to grants, subsidies, tax credits, loans, and investmentsinsurance. Multinational Corporation has effect on employees and labor unions in influencingfirm practice and the expected standards of operation.Interference and regulations by governments have played a role in multinational corporations.There have been political interferences with the affairs of multinational corporations especiallyhost governments which demand certain conditions that should be met with the MultinationalCorporations. In developed countries, these limitations tend to cluster mostly on industries thatare of impact to the economy such as telecommunication equipments industry. Most moderngovernments have given priority to the goals of public policy of economic efficiency,improvement and growth and betterment of living standards. In analyzing the legal and politicalinfluence, one must examine the types of interventions from governments (Geppert, 2003). Hostgovernments have in many instances restricted the freedom of a multinational corporation indeploying resources and limitations to strategic freedom. Governments have moved towards4|
    • The influence of political and legal challenges facing MNC [Year]regulating the entire industrial sectors. The regulations have primarily affected multinationals inthe form of sensitive issues as product choice, level of employment, use of technology andnational trade balance (Phil and Anthony , 1998).There are other legal challenges of compensation plans as drawn by different countries. Thecomplexity of developing a systematic compensation programs requires corporate widesolutions. There are significant problems of compensation programs for expatriates, hostcountries and the third country nationals. The expatriates pay systems are often different fromthose used for host country. There have been conflicts of expatriate employees paid more thanthe local employees who have jobs equal or greater importance and complexity. A successfulstrategy of compensation involves keeping expatriates motivated at the same time meeting theobjectives of the MNC. International compensation systems have become more challenging, theinternational compensation policies can produce intense internal conflicts within an MNC anystage of globalization. Over time there has been an increase on legal challenges whereby aMultinational Corporation requires legal advice with respect to various facets of their operationsand organizations (Imber, 1983).In an organization where there are un-equal power relations, identity disclosure and culturaldistinction drawing in MNC’s political conflicts are norms. Political conflicts in headquarters aresubject number of important factors still limiting the effectiveness of MNC in the region. Whenthe government is unable to integrate consultation across all issues related to national planningand development conflicts in the organization are evidenced. In addition a lack of political will tomake the process work for example failure to consult and lack of follow-up on agreed matters isa catalyst of political conflicts. According to Macdonald, politics within an organization thatinvolves workers and their managers affects their technical and organizational capacity. Lack ofrepresentatives and coordination of views with federations or employers also contributes toincreased conflicts within an organization.In most countries, little emphasis has traditionally been given to building strong bilateralrelations between managers and workers. Attempts have been made to institutionalize worker-involvement in decision-making in several countries a workers for example should be allowed toattend management committees. Many of these institutions have not worked satisfactorily. There5|
    • The influence of political and legal challenges facing MNC [Year]has been too much emphasis on form, not substance. Globalization has exerted competitivepressure and they are resulting in greater emphasis being given to improved workplace relationsand higher level contributions to enterprise performance from workers. There is therefore roomfor greater optimism about progress being made in this area. A critical issue will be the extent towhich trade unions can increase their profile and influence through these pressures (Macdonald,1997)Nonetheless, multinational corporations have also suffered a blow on legal challenges. The socialorganizations concerned about the actions of multinationals have set strict measures that shouldbe met with the corporations. Environmental protection agencies are equally concerned about theactivities of multinationals, which often maintain environmental hazardous operations incountries with minimal environmental protection statutes. These are legal issues that must be metwith a Multinational Corporation. According to Burton, all these concerns are valid and haveundoubtedly occurred, but many forces should also be at work to keep multinational corporationsaway from power wielding over their operations. International labor unions have expressedconcern that multinational corporations in developed countries can avoid negotiations for laborby moving their jobs to developing countries where the costs for are less. Burton came up withvarious recommendations he suggested that consumer awareness be increased throughsensitizing them on the standards of goods from Multinational Corporations. He furtherrecommended that government run industries be privatized and then develop partnerships withthe Corporations in order to improve the efficiency of multinational corporations. Lastly herecommended that Multinational Corporations should operate on the regulations of a country andtheir activities should be legal and accepted by the state (Thornton Bradshaw, Burton, Daniel F,2003).On the other hand also, the power of a Multinational Corporation is judged mainly in terms ofeconomic capabilities. In most cases the state has every right to retain the control that sometimesthe Multinationals do not have. No matter how small a state is, it does not impair its ability tocontrol a Multinational Corporation and lay down the conditions under which multinationalcorporations may establish subsidiaries within its borders to restrict and regulate their operations6|
    • The influence of political and legal challenges facing MNC [Year]when they are established or to nationalize them. The states still maintain their ability to havedirect control and influence over their internal and political affairs (Grigsby, 2011).Theories of MNC and their effects on real lifeMultinational Corporations allocate many different theories to achieve the status of amultinational entity. Internalization theory, product cycle theory, obsolescing bargain theory, andoligopoly theory along with the tariff-jumping hypothesis, bring light on how the foreigncorporations continue their path of vertical integration. However, even with these lucrativeinvestment strategies it is not easy to distinguish benefits or hurt to the host country. Theseresearch paper compares who benefits the most Four theories and one hypothesis have been putforward to explain how structural goals are achieved by Multinational Corporations.Internationalization theoryInternalization theory explains the existence and functioning of the multinational enterprises. Itcontributes to understanding the boundaries of the MNC’s, its interface with the externalenvironment and its internal organizational design. This theory is based on activities in thepresence of market imperfections just as they domestically expand, there are three prerequisitesto be met by a Multinational Corporation to compete with local firms firstly it must have marketpower that is derived from specialized knowledge. Secondly it has to consider the particularforeign location that is hungry for new investments relative to the alternative locations includingthe home market (Rugman, 1981).The product cycle theoryThis is an economic theory that was developed to explain the observed pattern of internationaltrade. The theory suggests that a product’s life-cycle in all the parts in the world markets’production gradually move away from the point of origin. In most instances, the product isimported by its original country of invention. Personal computers in the United States mark aperfect example of this theory. This theory is best explained by the five stages of productionwhich firstly include the introduction stage where a new product is introduced to meet localneeds and it is then exported to other countries which have similar needs and incomes. Anexample is the IBM personal computers that were produced in the US and they later on spread toother industrialized countries (Dennis, et al. 2009).7|
    • The influence of political and legal challenges facing MNC [Year]Growth is the second stage of a product after production. Normally a product is producedelsewhere and introduced in the country of origin and this moves production to other countries.Upon maturity of a product, the industry concentrates on the lowest cost of production. Thefourth stage according to this theory is the saturation stage which is at the time when the sales ofa product reach the peak and there is little possibility to increase. At the early part of this stage,sales remain stable which then starts falling and the process continues until the substitutes enterthe market. The last stage of a product cycle is the decline stage which is mostly evidenced inpoor countries which remain the only market for the productions. An example of this stage is thetextile industry where goods are exported to developing countries due to lack of market (Hill,2007).The obsolescing modelThis theory was first developed by Raymond Vernon and it explains the changing nature of thebargaining relations between a Multinational Corporation and a host country as a function ofgoals, resources and constrains on both parties. In this model, the initial bargain favors theMultinational Corporation but the relative bargaining power is shifted to the host country fromthe MNC’s. This ranges from higher taxes to complete expropriation of MNC’s assets. Theobsolescing model theory gives an explanation of a firm that has invested in a host countrywhereby it starts with a good bargaining position with the host countrys government because ofthe specific firm advantages such as superior technology, access to capital markets, and access tofinal product markets. After the firm has made an investment, the bargaining advantage mayslowly shift to the host country (Vernon, 1977).The oligopoly theoryOligopoly theory contends that firms move abroad to exploit the monopoly power they enjoythrough the best market expertise, unique products, managerial skills and control of technology.The theory is characterized by a few suppliers producing a heavily differentiated good throughmassive advertising and marketing. In this theory, firms set their prices and outputs on theassumption that their rivals would not react at all. Under this scenario, each firm decreases itsprice and increases the output in order to control a larger share in the market. This theory has adirect relevance to studying the behavior of businesses in oligopolistic markets. There are other8|
    • The influence of political and legal challenges facing MNC [Year]influences like the legal structures that must be adhered strictly. For example, the decision onhow much to invest on projects for research can be contentious because it might pose a risk toany business. If one firm invests on Research and design spending, another competitor mightdecide not to follow and this leads to loss of competitive edge in the market which may lead tolong term decline on market share and profitability (Kreps, 1990).The tariff jumping-off hypothesisThis theory dwells mainly on foreign direct investments maintaining that firms normally useforeign direct investments in order to jump over the existing tariff barriers of host countries. TheJapanese electronics products and the response of the United States played to let firms receivelower duties is an example of tariff- jumping off. The move was more attractive to foreign anddomestic firms because it achieved similar outcomes (Blonigen, 2000).ConclusionIn conclusion, the greatest potential threat posed by multinational corporations would be theircontinued success in a still underdeveloped world market. While the productive capacity ofmultinationals increases, the buying power of people in much of the world remains relativelyunchanged. This could lead to the production of a worldwide excess supply of both goods andservices. In turn it can lead to wage and deflation of prices, rapid slow down in phases ofeconomic life and contraction of corporate activities. These possibilities are only hypotheticalhowever the operations of multinational corporations will continue to expand.9|
    • The influence of political and legal challenges facing MNC [Year]ReferencesBlonigen, B. A. (2000). Multinational Corporations. Tarriff Jumping off Antidumping Duties,17-19.Dennis R. Appleyard,Alfred J. Field Jr,Cobb. Steven L. (2009). International Economics.New York: Irwin Proffesional .Grigsby, E. (2011). Analyzing Politics: An Introduction to Political Science. Cengage Learning.Hill, C. W. (2007). International Business. Canada.Imber, M. F. (1983). Teaching the politics of international organization. london: Macmillan.Kreps, D. M. (1990). A Course in Microeconomic Theory. Princeton : Princetob university press.Macdonald, D. (1997). Challenges for employers. industrial relations and globalization , 7-19.Phil, A and Anthony, F. (1998). American multinationals in EuropeNew YorkSensemaking and Politics in Multinational Corporations . (2003).Journal of Management Inquiry 20-30Stopford, J. (1998). Multinational Corporations Foreign Policy, Winter.The Economist. (1993). London MccgrawThornton Bradshaw, Burton, Daniel F. (2003). The challange of newly industrializing countries.London: Harper Collins.10 |