Multination Companies and Government Policies

Multination companies are business entities whose operations are in two or more countries. Of rate, the number of these companies has increased rapidly owing to various factors. Technological innovation has been one of these factors. Globalization eased by advanced technology, search for market and cheap labour also has a big influence in development of multinational companies. These companies operate in different countries and therefore they face different business environment and policies from the destination countries. (Cavusgil 2007) Government policies can both assist and harm MNC’s.

Government policies discouraging domestic industries protection are likely to enhance free competition in the market. Government should view introduction of multinational company as an opportunity to encourage efficiency and productivity in the country. (Porter 1986 p 246). Undesirable labour policies from the government play a big role in harming the operation of multinational companies. Some government usually set minimum wages which are above the market wage. Mostly, wages are set far above the market wage. This is likely to increase the cost of production in this firm.

Consequently, this affects operations of the multinational companies. Increase in wages is usually not be accompanied by increase in productivity and it is likely that MNC’s will be forced to pay their workers more than their labour marginal productivity. This will lower their profits and act as a disincentive to MNCs. (Fischwick 1982 p 113) Some governments are also known of enacting laws that requires a multinational company to draw a certain percentage of its employees from the locals. Such a policy may assist or harm a multinational business entity.

The good side of it is the company will be accepted by the society where it operations are located. This may probably increase its sales since the locals will view it as part of them and like to be associated with it. It will be part of the company’s social responsibility relationship strategy. On the other hand, some multinational business deals with new technology and operations that requires high expertise. Such a policy will force a company to employ locals who has low skills incomparable to what the company’s management would prefer.

To operate in such an economy, the MNC will have no other option than to employ the low skilled labour available in the destination country. Low skilled labour force is likely to result to low productivity and undesirable products. This will adversely affect the firm’s sales and competitiveness in domestic and international market. (Matthews 1976) Some policies also involve discriminative treatment to various companies. The state owned enterprises are given priorities e. g. in tender allocation, access to certain scarce resources and other protective laws. This is against free competition and liberalisation of trade.

Such policies give the state owned enterprises an upper hand in competition against the multinational companies. The state owned companies may be able to offer their goods and services at a lower price as compared to the multinational companies. In such a case the sales to MNCs will be adversely affected and they may be forced to quit such market. (Matthews 1976) Taxation policies also play a great role in both harming and assisting the MNC’s. Some government will employ increase in corporation taxes. In an effort to increase its revenue the government may increase taxes on corporate profits.

Multinational corporations are not exceptional. Such policies will adversely affect the companies’ profits level and the ability to finance business operations. On the other hand, a policy to reduce taxes on companies profit is a great relief to the MNCs. Reduction in taxes will increase the profit margin to the company and its ability to finance the business operations. (Cavusgil 2007) Some governments also employ policies that are aimed at promoting exports. Under these policies, import duty pay back is employed to promote exports. Such a policy will encourage the MNCs.

This policy involves paying back any import duty levied on imports of raw materials which are meant to produce products for exports. Multinational companies which involve themselves in such business will be assisted to import raw material which is custom duty free. This will reduce cost of their production; increase their production and profits margin which is very essential in enhancing their operations. Long bureaucratic process in business process also affects MNCs operations. Some decision which needs government stamp and go ahead may be hampered by these processes.

Process such as registering a company and seeking for expansion of the MNC operations may take months and even years in some countries due to such policies. This is likely to hinder multinational companies operations and development. (Matthews 1976; De Ferranti 2003 p147-148) Another policy that in one way or another has affected MNCs is environmental rules. Policies such as emission standards, taxes on emissions and other regulations to control pollution greatly affect the operations of MNCs. Although this is very essential to the society and maintenance of good environment, it limits the production activities of the MNCs.

Since where large production is involved there is possibility of economies of scale, low production levels due to emissions standards will limit the economies of scale being enjoyed by the MNCs. On the other hand it encourages good relationship with the society which may have a positive effect on sales. 2. Retention and Turn over Issues. Multinational companies are facing the problem of employees’ turnover and retention as it is happening to many businesses. McGovern (1998 p136) assert that some multinational companies programs are reluctant to allow their employees leave their company for somewhere else-they would wish to retain them.

However, in our modern labor markets employees are ready to leave an organization for a better salary, good working conditions and even chances of career development. Many employees will always have a plan to leave a firm in case a better opportunity arises. A firm having uncertain future and struggling to survive in the competitive market is likely to have a large number of people leaving the company. Wish by employees to satisfy their need for growth will force them to move from one organization to the other. Therefore career advancement is one of the factors cited most for leaving one organization for another.

Other workers will wish to have an experience of another work challenge. New challenges are hoped to impart more skills and experiences to the employee. Job security will also play a big role to the employee turnover in a company. Employees who feel insecure are likely to take proactive measure by seeking new employment and by their current jobs. This will consequently increase the number of employees leaving and entering into an organization. Good compensation also has a great share to the turnover and retentions issues in a firm.

As rational beings, employees/managers will prefer more than less. They will opt to leave a firm where they are poorly remunerated for a firm where they are likely to receive a better pay. This is likely to lead to a high turnover. Location of the firm also determines the turnover status of the firm. Firms located in insecure places, countries with political instability, hard climate and environmental conditions are likely to have high turnover since managers will like to run away from such conditions for better life. (Budhwar & Bhatnagar2009)

Career development program is one of the factors that determine retention rates of the global and domestic employees of a MNC. The values related to the significance of project in a foreign country assignment to the company greatly determine retention and turn over issues among the managers employed by the Multinational companies. (Stroh 1995) Many firms have laid down strategies to both foster retention of the employees and at the same time mitigate losses of associated with unavoidable turnover. One of these strategies is selective retentions plans.

Some firms have been identifying and retaining those perceived as key human resources. The identification of such employees is through analyzing their performance, while the process of retaining them involve a firms policy framework to offer incentive to them so as they can be urged to continue working for the firm. On holding those considered important, the firm will then let others go. The firm develops a career route for the key employees, to allow for their development and commitment to the firm. (Dickmann 2008 p 295; McGovern 1998 p 140; Cavusgil 2007; Aswathappa & Dash 2007 p 96)

Some firms has also embarked on recruitment of more qualified, cheaper but less experienced workers to fill in the gaps left by the former employees. Since those with low experience will not mind receiving a relatively low wage as compared to those with high experience, this strategy mitigate some of the costs associated with high costs owing to high turnover. Identifying key employees and enhancing policies to retain them as well as recruiting the high qualified but less experienced employees is a hybrid combination of selective retention and labor market exploitation.

Under such strategy employers are able to employ prevailing internal and external labor markets. (McGovern 1998 p144) According to Li (2001 p P197), some firms have chosen to rely on internal promotions rather than external recruitments in ensuring retention of their workers. Creation of exciting and positive job environment also plays a big role in ensuring low employees turnover. Firms have sought to create a sense of belonging and pride among its employees so as to reduce level of personnel turnover. Another strategy has been to ensure fairness of the company.

This strategy is based on the fact that employees will consider a fair pay to be equivalent to that of the equal worker in another company. Paying attentions to workers needs and personal ambitions has been emphasized. Many firms understand that workers will desire to continue working for employers who enhance their ambitions and needs to their carriers. Thus, they have been offering chances for higher education, giving good allowances as well as desirable wages. Another strategy is development of house scheme so as to retain the employees. This involves investing in apartments for some key employees to the company.

After sometime, the firm transfers the ownership to the employees who show commitment to continue working for the firm. (p196). 3. Effects of e-commerce on organization of international business E-commerce involves business transactions which are conducted over the internet. The World Wide Web which is an international interconnection of computers has greatly influenced business transaction. Buyers can order goods and pay for goods and services online. On the other hand, sellers can reach out to the buyers, arrange for order completion, shipment and all process involved in business transaction. (Tassabehji 2003; Cavusgil 2007)

Development of ecommerce will greatly affect organization of the international companies. Ecommerce encourages Business to Customer (B2C) and Business to Business (B2B) relationships. B2C will greatly affect the range of transactions between the international businesses and the end users. Through the internet, and use of relevant informediaries and online marketing companies, international businesses will be able to reach out to a large number of end users of their products and services, arrange for purchases of goods and all services involved in the transaction without the need for personal services of their agents.

Business to Business relationships will offer a great platforms and opportunities in developing proficient ‘procurement and supply-chain management systems’ which will be appealing and helpful to the international business organization. E commerce will also enable Business to government (B2G) relationship that will enable many international business expand their operations into various countries. This will also increase the number of international business participators. (National Research Council U. S. 2001 p 173).

Ecommerce development is likely to affect level of competition among international business entities. It will encourage the new entries since cost of reaching out to customers and business will be reduced. (p 177; Jain, 2003 p313; Williams 2001 p 439) According to Tassabehji (2003 p 10), e-commerce impact on business and other disciplines of business management is substantial. It will affect the marketing, finance and accounting, supply and procurement functions of the business. E-commerce will greatly affect marketing strategies, advertising, consumer behavior and cultures.

International firms will be able to directly market their products to the consumers. It will be a great shift from TV and telemarketing to direct marketing. Firms will be able to have a good electronic Customer Relationship Management (eCRM) data mining and create new channels to enable direct sales and promotion. International business entities will also be required rearrange their information systems so as to have a global scope. Their e-business model will encompass information from the internet since it is through the World Wide Web business to customers and business to business will be taking place.

Ecommerce development has and will continue to reduce the cycle times. It will be easier to deliver products and services. International business entities will only require seconds to deliver a digitized product or service to the customer through the World Wide Web. Order processing time will also be from days to minutes. The MNCs will integrate their production systems with ‘finance, marketing and other systems as well as with business partners and customers’ so as to take advantage of the ecommerce. (Tassabehji 2003 p10; Cavusgil 2007)

Using the Web-based Enterprise Resource Planning Systems (ERP), international business will be able to directly forward orders to the production units (located in different countries) in few seconds and cut the production cycle substantially. ERP is going to be of great important to the international business organization whose products parts are sourced out from different countries where they operate from. (Tassabehji 2003 p10) E commerce development will also alter the international business information systems.

It will lead to redesigning these systems to allow analysis, design and implementation of e-commerce systems in an organization. The companies will have to solve issues such as ‘integration of front-end and back-end systems’. (Tassabehji 2003 p 12) E-commerce also affects human resource function of the business. It enables online recruitment and working at home which in one way or another will affect the organization of international business. E commerce is also raising some ethical and legal issues which the international business entities have to ensure their organization cater for.

The business entity will have to cater for copy right laws, customer privacy, and so on. E-commerce also entails informediaries whose main function is to gather information about markets, provide this information to the buyers and market the products of the sellers. These agents charge some subscription fee to the user of their information. Such arrangement will greatly affect the organization of international business. The marketing function of business will be only to ensure proper use of such agents. Marketing and sales costs will be highly reduced.

International business will also reduce their marketing personnel in various countries and take advantage of these informediaries. (Jain 2003; Tassabehji 2003) International business organization will also expand their business so as to reach out to small business partner incases where, previously, only relationship with large business partner had been emphasized. This owes to the fact that e-commerce greatly reduces cost of transaction and encourages reaching out to many business partners. Internet service, which is an important tool in ecommerce, is almost every where in the world.

E-commerce development is also likely to reform international business organization away from mass production to mass customization customer, demand-driven, ‘customer pull rather than the manufacturer push of the past’ (Tassabehji 2003 p11) Work Cited Aswathappa & Dash. International Human Resource Management. McGraw-Hill. 2007. Budhwar, R. , & Bhatnagar, J. The Changing Face Of People Management In India. Taylor & Francis. 2009. Cavusgil, T, Knight, G, and Riesenberger, J. International Business. Englewood Cliffs: Prentice Hall. 2007. De Ferranti, D. Closing The Gap In Education And Technology.

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