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Multinational Corporation
Multinational Corporation
Multinational corporations have played an important role in globalization. Countries and sometimes subnational
regions must compete against one another for the establishment of MNC facilities, and the subsequent tax
revenue, employment, and economic activity. To compete, countries and regional political districts sometimes
offer incentives to MNCs such as tax breaks, pledges of governmental assistance or improved infrastructure, or
lax environmental and labor standards enforcement. This process of becoming more attractive to foreign
investment can be characterized as a race to the bottom, a push towards greater autonomy for corporate bodies,
or both.
However, some scholars for instance the Columbia economist Jagdish Bhagwati, have argued that
multinationals are engaged in a 'race to the top.' While multinationals certainly regard a low tax burden or low
labor costs as an element of comparative advantage, there is no evidence to suggest that MNCs deliberately
avail themselves of lax environmental regulation or poor labour standards. As Bhagwati has pointed out, MNC
profits are tied to operational efficiency, which includes a high degree of standardisation. Thus, MNCs are likely
to tailor production processes in all of their operations in conformity to those jurisdictions where they operate
(which will almost always include one or more of the US, Japan or EU) that has the most rigorous standards. As
for labor costs, while MNCs clearly pay workers in, e.g. Vietnam, much less than they would in the US (though
it is worth noting that higher American productivitylinked to technologymeans that any comparison is
tricky, since in America the same company would probably hire far fewer people and automate whatever
process they performed in Vietnam with manual labour), it is also the case that they tend to pay a premium of
between 10% and 100% on local labor rates.[10] Finally, depending on the nature of the MNC, investment in any
country reflects a desire for a long-term return. Costs associated with establishing plant, training workers, etc.,
can be very high; once established in a jurisdiction, therefore, many MNCs are quite vulnerable to predatory
practices such as, e.g., expropriation, sudden contract renegotiation, the arbitrary withdrawal or compulsory
purchase of unnecessary 'licenses,' etc. Thus, both the negotiating power of MNCs and the supposed 'race to the
bottom' may be overstated, while the substantial benefits that MNCs bring (tax revenues aside) are often
understated by FIROZKHAN PATHAN VTU BELGAUM.
[edit] Market withdrawal
Because of their size, multinationals can have a significant impact on government policy, primarily through the
threat of market withdrawal.[11] For example, in an effort to reduce health care costs, some countries have tried
to force pharmaceutical companies to license their patented drugs to local competitors for a very low fee,
thereby artificially lowering the price. When faced with that threat, multinational pharmaceutical firms have
simply withdrawn from the market, which often leads to limited availability of advanced drugs. In these cases,
governments have been forced to back down from their efforts. Similar corporate and government
confrontations have occurred when governments tried to force MNCs to make their intellectual property public
in an effort to gain technology for local entrepreneurs. When companies are faced with the option of losing a
core competitive technological advantage or withdrawing from a national market, they may choose the latter.
This withdrawal often causes governments to change policy. Countries that have been the most successful in
this type of confrontation with multinational corporations are large countries such as United States and
Brazil[citation needed], which have viable indigenous market competitors.
Lobbying
Multinational corporate lobbying is directed at a range of business concerns, from tariff structures to
environmental regulations. There is no unified multinational perspective on any of these issues. Companies that
have invested heavily in pollution control mechanisms may lobby for very tough environmental standards in an
effort to force non-compliant competitors into a weaker position. Corporations lobby tariffs to restrict
competition of foreign industries. For every tariff category that one multinational wants to have reduced, there
is another multinational that wants the tariff raised. Even within the U.S. auto industry, the fraction of a
company's imported components will vary, so some firms favor tighter import restrictions, while others favor
looser ones. Says Ely Oliveira, Manager Director of the MCT/IR: This is very serious and is very hard and takes
a lot of work for the owner.pk
Multinational corporations such as Wal-mart and McDonald's benefit from government zoning laws, to create
barriers to entry.
Many industries such as General Electric and Boeing lobby the government to receive subsidies to preserve
their monopoly.[12]
Patents
Many multinational corporations hold patents to prevent competitors from arising. For example, Adidas holds
patents on shoe designs, Siemens A.G. holds many patents on equipment and infrastructure and Microsoft
benefits from software patents.[13] The pharmaceutical companies lobby international agreements to enforce
patent laws on others.
Culture
Culture is the set of values and beliefs shared by a group. This includes groups as small as social groups, and as
large as a whole country. Since multinational companies operate in more than one country, they are exposed to
many different cultures. Each culture has its own beliefs and values. To be successful in these foreign countries,
multinational companies must have a global mindset, and be able to recognize and adapt to the differences.
Different methods of communication across different cultures
Communication is the process of conveying messages. Successful communication in the international business
environment requires not only an understanding of language, but also the nonverbal aspects of communication
that are part of any community[14] (Ferraro, pg 73). Different countries are going to have different ways of
communicating. If certain executives of a company want to do business with people from different countries,
they need to understand how to communicate clearly with them, without mistakenly doing something wrong.
The most obvious way of communicating with different people is with words, and therefore, some executives
learn how to speak the language spoken in the foreign country. This act can show that the executive is truly
dedicated to the work, and that he is willing to do anything to complete the deal. Greeting rituals are sometimes
overlooked, but they shouldnt be because they are more important in some parts of the world than others. In
Japan, failure to show respect by exchanging business cards can get negotiations off to a very bad
start(Schneider and Barsoux, pg 26) .[15] While in France, greetings are highly personal and individualas
workers expect to be greeted individually(Schneider and Barsoux, pg 26)[16] Another form of communicating is
through hand gestures. Often goes unnoticed, hand gestures are as important as words themselves because they
too have meaning behind them. Cultures located in southern Europe and the Middle East employ a wide
variety of gestures frequently with purposefulness(Ferraro, pg 79).[17] Some hand gestures have different
meanings in different countries. For example, the hand gesture where the index finger and thumb touch and
create a zero can mean different things in different places. In the US and UK, it means ok. In Russia it means
zero. In Japan it refers to money. While in Brazil, it is viewed as an insult. [18] Time is another communication
system. In western cultures, people like to get to the point of the matter in business meetings and
conversations. However, in other countries like Saudi Arabia and Russia, it is customary to converse first about
unrelated matters before starting the business discussions for which the meeting was arranged. Barging straight
into the business issue, without informal small talk at the beginning, may make them very uncomfortable and
may ruin the negotiations.(Miroshnik pg 12)[19]
Seven Methods of managing across cultures
(1) Hierarchy: "This refers to the way people view how much they defer to people in authority, whether they
feel entitled to express themselves and how empowered they feel to take the initiative on matters before them.
For example, Canada believes in egalitarianism, while nations like India, Japan, China, Germany, Mexico are
highly hierarchical." (Schachter, pg b15)[20]
(2)Group focus: This refers to whether people consider that accomplishment and responsibility are achieved
through individual or group effort, and whether they tend to identify themselves as individuals or members of a
group. Canadians are individualists while Brazilians, Chinese, Mexicans and Japanese are groupfocused.(Schachter, pg b15)[21]
(3)Relationships: This is about whether trust and relationships are viewed as a prerequisite for working with
someone. Canadians focus primarily on the transaction, rushing to deal, while the Chinese, Italians, and
Spaniards, for example, focus on nurturing relationships first.(Schachter, pg b15)[22]
(4)Communication styles: This covers matters like verbal and non-verbal expression, how directly or
indirectly people speak, and whether brevity or detail is valued in communication. Israel, Denmark, Germany
and Sweden use a direct style, while indirect communication styles are the norm in China, United Arab
Emirates, and Japan (Schachter, pg b15)[23]
(5)Time orientation: This refers to the degree to which people believe adhere to schedules United States,
Germany, Denmark and Switzerland follow schedules while countries like Saudi Arabia, Spain, Thailand, and
the United Arab Emirates are unconcerned about schedules and deadlines. (Schachter, pg b15)[24]
(6)Change tolerance: How people are comfortable with change, risk-taking and innovation. Along with
Australians, Canadians are the most tolerant of change, while Saudi Arabia, Indonesia, Mexico and Russia are
change-averse. (Schachter, pg b15)[25]
(7)Motivation: work/life balance: This characteristic examines whether people work to live or live to work.
Canadians are driven by work and the status it provides - although not as much as people in China, Japan, and
the U.S. - while in Norway, Saudi Arabia, United Arab Emirates, India and Mexico, family-work balance is
treasured. (Schachter, pg b15) [26]
Advertisement in different countries
Another way for multinational companies to prove that they understand the specific market is through
advertisement. Advertising products in different countries requires the companies to use specific methods of
advertisement that is allowed by the tradition and culture of the country. For example, in western countries, sex
appeal is used a lot in advertising many different products. It is used to grab attention of customers and is used
to boost sales. This strategy however wont be successful in countries that are very religious like most Arabic
countries where the dominant religion is Islam. In those countries people, especially girls, are mostly covered
and so wont be wearing very revealing clothes. Therefore, ads that use sex appeal, like girls in bikinis for
example, wont be used. One company that used proper advertisement was Procter and Gamble. Companies
adjust advertisements to the nationality of their clients. The Japanese prefers to buy shampoo which uses
Japanese girls in its advertisements. Russian housewives prefer washing powder that uses Russian housewives
instead of American housewives in its advertisements.(Miroshnik, pg 8)[27]
Companies that adapted to foreign market successfully
Just because a large company is very successful in one country, it doesnt mean that it will be successful in
another country, especially if that country has a completely different culture. McDonalds is one of the largest
companies in the world. However, it has adapted to the different cultures to make sure it is successful. In
France, McDonald's added tablecloths and candles to improve the ambience at some eateries and introduced
waiter service at certain outlets because they found that most Europeans prefer leisurely rather than fast food
dining (Stern, pg A07).[28] In addition to space, McDonalds has changed its menus from one country to another,
offering food that locals usually eat: in France, a burger has mustard and ciabatta rolls instead of regular buns.
In Japan, fried egg burgers were offered. In Saudi Arabia, in accordance with the religious beliefs there,
Starbucks has changed its logo and removed the girl from the picture. In addition, Starbucks branches there
usually have two sections, one for the females and one for the males. This is the case with most stores since men
arent allowed to sit with women.