MKIB253 International Management
- What are managers primarily worrying about when doing business in foreign countries? Please exemplify one of their concerns with business cases and/or some empirical evidence.
Foreign Laws and Regulations
Venturing foreign markets has been challenging for managers due to issues of foreign laws and regulations in those countries (Filatotchev et al., 2016). Managers as they get their company structure in place, they are highly challenged by comprehensively understanding the foreign local laws and regulations prevailing in the foreign markets. Some countries present a more significant challenge to managers due to their policies and legal regulations. Some states have weak regulatory institutions, although they perform well in business. Moreover, some have less transparent policies that govern their markets. Generally, this presents a more significant challenge to managers when they have to obtain business approval in those countries.
Now, considering the Asian region, managers have experienced a more significant challenge while venturing the Asian markets (Ahmad, 2016). The Asian region does not favor the comfortable establishment and nourishment of foreign countries in their markets. The part has been criticized for their asymmetric regulatory institutions which support their local businesses (Safari, 2018).Recently, China and the U.S have had trade negotiations about Chinese subsidies, which affects the establishment of foreign companies in China. Chinese state-manned banking for long has provided local businesses and firms with credits that favor their growth, reducing the competitiveness of foreign firms (Froese et al., 2019). Managers have met challenges in overcoming the impacts of those regulations and laws.
Chinese business case is a real depiction of challenges that affect managers in establishing their business structures in China markets (Anglès, 2019). China, for long, has been using its domestic legal and regulatory institutions to favor the growth and nourishment of the local firms. Chinese business case depicts the country’s model of capitalism, and this has received strategic responses from European countries (Joachim, 2017).
The states highly regulate the Asian markets through interventions and regulatory policies which support local businesses. Foreign managers in this region find it hard to establish a competitive industry in the region’s market. Arguably, foreign companies in the Asian markets face much discrimination as most of the state’s support the local firms to remain unrivaled.
Furthermore, conformity issues in establishing companies in foreign markets is a great challenge to managers. In the case of the Asian markets, international businesses have to comply with the Foreign Corrupt Practices Act. Now, this is normal in almost every country, but in the case of Asian markets, obtaining such compliance certifications is hectic for foreign businesses. Lengthy bureaucratic procedures discourage venture into these markets. Weak legal institutions inform high instances of bribery and corruption in obtaining compliance certificates such as the Foreign Corrupt Practices Act.
Some countries have poor legal policies that do not favor the growth of foreign firms. Foreign managers in countries like Malaysia and China face great challenge due to the legal policies in these countries which support domestic enterprises. Further, foreign firms in business regions such as Asia are less protected from business malpractices such as business theft and counterfeit production. Insights from the International IP theft report indicate a mega annual loss to the U.S through exportation into Asia markets.
In conclusion, managers have a lot to do to overcome impediments in establishing competitive businesses in foreign markets due to the impacts of local laws and regulations. Their companies must be able to develop highly innovative products to withstand competition in some foreign markets. Laws and legal regulations in some foreign markets do not favor foreign firms, and this is a great area of worry for managers.
- What are the main impacts of MNCs on host countries? Please elaborate on the positive effects as well as the adverse effects.
Globalization is a key activator of the impacts of MNCs as it has enabled the expansion of companies’ operations into more than one country. The effects of MNCs on host countries are(Svystunova& Edwards, 2019);
Positive Impacts
(1) Improvement of the balance of payments: When a company invests in a country, the balance of payment in the country improves. Investments ensure a direct capital flow into a nation, and it may lead to the substitution of imports while promoting exportation. Import substitution results from the local manufacturing of imported products. Overall, this improves the balance of payments in the host country.
(2) Employment Opportunities: Foreign direct investment leads to mass recruitment of local employees. Arguably, the host government uses this as an advantage to address employment challenges in a country. The
attracts foreign firms into areas highly hit by unemployment or areas with good labor supply.
(3) Tax Revenue: In every host country, multinational companies’ profits are subjected to taxation. This tax is a source of revenue for the domestic government. Income from taxation of multinationals may be used in development projects such as infrastructural development and other sectors of the economy.
(4) Increasing choice: Mostly, multinational companies manufacture products for the local markets and export. Now, this gives the local population a wide range of choices in determining the favorable priced products.
(5) Technology transfer: When multinational companies enter into a country, it may bring new technology and product innovation. Other domestic firms can, therefore, learn from these multinational companies’ techniques. Moreover, local employees are trained to use the new technology, and this influences the adoption of new technology by domestic firms.
(6) Building reputation of the host country: when a multinational company enters a state, other more giant corporations may be influenced to enter the country based on the performance of the multinational company in the country.
Negative Impacts
(1) Environmental impact: Mostly, multinational companies aim to manufacture in cheap and efficient ways, and sometimes this option presents a great threat to the environment. Lobbying practice is commonly used by most multinational companies to receive maximum favor from regulations due to their economic importance. Sometimes this leads to significant environmental degradation.
(2) Increased competition: Arrival of a multinational company in a county may present a high competition to the domestic firms. Local firms may see great competition given the fact that multinationals produce at lower costs.
(3) Cultural and social impact: In some cases, multinationals may dilute existing cultures such as local customs and traditions. For instance, McDonaldization is a term coined to describe how most of the American society sectors and the world as at large, adopt the features of the fast-food restaurant (Ritzer, 2017). Consequently, this has increased standards and thus neglecting the traditional approaches to business.
(4) Profit exportation: Mostly, some multinational companies deprive host countries of financial benefits through repatriating profits back into their home countries.
(5) Transfer pricing: Multinational companies mostly aim to lower their tax liability as much as possible. Arguably, transfer pricing is one of the ways multinationals reduce their tax liability. Often, they reduce the liability in countries with high rates of taxation while increasing the liability in low rate taxation countries. Now, this is achieved through component and part-finished goods transfer at differing prices to other countries they operate. Arguably, at high tax liability, multinationals transfer the products at high prices to make the costs seem higher. Generally, the aim is to reduce their tax burden.
References
Froese, F. J., Sutherland, D., Lee, J. Y., Liu, Y., & Pan, Y. (2019). Challenges for foreign
companies in China: implications for research and practice. Asian Business & Management, 18(4), 249-262.
Anglès, V. (2019). Doing business in China: Challenges and opportunities. Global Business and
Organizational Excellence, 38(2), 54-63.
Ahmad, A. U. F. (2016). Regulation, Performance and Future Challenges of Sukuk: The
Evidence from Asian Markets’. Advances in Islamic Finance, Marketing, and Management. Emerald Group Publishing Limited, 27-48.
Safari, F. (2018). Restrictions and legal challenges for foreign investment in the media market in
Iran. In Competitiveness in Emerging Markets (pp. 187-209). Springer, Cham.
Joachim, A. (2017). State Capitalism in Eurasia. World Scientific.
Brown, H. L. (2016). Emerging Issues in Compliance with the Foreign Corrupt Practices Act: A
Case of Arrested Development. Santa Clara J. Int’l L., 14, 203.
Svystunova, L., & Edwards, T. (2019, July). MNC Interactions with Host Country Institutions: A
Systematic Review and Future Research Agenda. In Academy of Management Proceedings (Vol. 2019, No. 1, p. 16773). Briarcliff Manor, NY 10510: Academy of Management.
Ritzer, G. (2017). Theorizing McDonaldization. The Wiley‐Blackwell Encyclopedia of Social
Theory, 1-5.
Filatotchev, I., Bell, R. G., & Rasheed, A. A. (2016). Globalization of capital markets:
Implications for firm strategies. Journal of International Management, 22(3), 211-221.