International Business and Multinational Enterprises - Essay Example

WIKIS INTERNATIONAL BUSINESS al Affiliation Rolls-Royce accused of bribery As the world continually becomes an integrated global market, international business transactions have shown a tremendous growth. The strong economies of the world such as the U.S. and Japan produce and sell their finished products to developing as well as the developed countries. Multinational Enterprises (MNEs) have developed stiff competition as more and more companies are trying to penetrate the transnational market. The majority of these companies are looking towards expanding in developing countries. These countries have a lot of natural resources such as oil and gas. However, the runaway corruption in these countries complicates the operation of the multinational companies. This situation gives rise to the problem of bribery that intertwines with corruption. It is almost impossible to mention bribery without thinking of corruption. The corruption that arises out of bribery erodes the economic and social lives of people and businesses. It is important to fight corruption because it discourages investor confidence that lowers the economic growth of a country. A weak economy puts a heavy burden on people by lowering their living standards. Corruption in these developing countries has adversely affected the ethics of international business. Bribery in international business usually takes place in big tendering processes and contracts. The Rolls-Royce case is an example of such a deal where a company pays significant amounts in bribery to secure a lucrative deal. Many companies have resorted to illegal means of obtaining contracts due to the stiff competition in the international market. Corruption has become a legitimate cost of doing business with countries that require infrastructure or are rich in natural resources. Countries such as Nigeria and Brazil have an abundance of natural resources yet at the same time still require infrastructural development. These companies’ primary goal is to make profits, and they are, therefore, willing to do anything to beat their competitors and stay in business. However, there are a few measures that the MNEs can implement to put a stop to the scourge of bribery. Multinational companies often pay hefty bribes to corrupt officials who are immune from judicial processes in these emerging markets. It, therefore, demands collective action on the part of these companies in order to change the dynamics of this corrupt game. They should further form a partnership with the civil society. Intermediaries are the ones that conduct most transactions for MNEs working abroad. The multinationals should jointly demand that the intermediaries comply with all the international anti-corruption rules. This process may take a while hence in the short term whistleblowers play a crucial role. Whistleblowers often challenge the status quo of powerful people in these emerging markets by exposing their corrupt dealings. In most countries, authorities often subject those who report such wrongdoings to intimidation and even torture in some cases. Protection of whistleblowers is imperative with the goal of a sustained fight against corruption. The primary protection for whistleblowers is anonymity. Anti- corruption bodies should ensure that they do not disclose the identities of their informants. Secondly, authorities should outlaw all acts of violence against whistleblowers and further categorize such actions under criminal acts. Sources: http://www.standard.co.uk/business/business-news/rollsroyce-accused-in-brazilian-oil-firm-petrobras-bribery-scandal-10048205.html http://www.independent.co.uk/news/business/analysis-and-features/petrobras-scandal-gives-rollsroyce-a-new-headache-10050456.html http://www.thetimes.co.uk/tto/business/industries/naturalresources/article4355827.ece 2. Business and the Euro The Euro zone forms the base for most of multinational companies. These companies increasingly invest in the international market place with a greater focus on the emerging markets of the developing countries. The uncertainty of Greece’s future in the euro zone has further weakened the already weak euro. Most of these multinationals often buy in their currencies such as the dollar that have a higher valuation than the currencies in which they sell. The companies often sell in weaker currencies such as the euro hence any currency fluctuations affecting either of the currencies has far-reaching consequences on their profit margins. Currency fluctuations have both positive and negative impact on a company’s revenues depending on the direction it takes. Companies that trade internationally are at the mercy of global currency fluctuations. The strength of a currency of a nation has an inverse relationship with its exporting capacity. A weak home currency spurs the growth of export commodities as well as a stronger currency in the overseas markets. The growth in export commodities translates into addition profits for the company due to the company making greater sales, hence an increase in their bottom line. Companies who have their manufacturing plants in their overseas markets are more immune to the fluctuating value of the euro. This phenomenon is a type of natural hedging. However, the currency fluctuations also present a lot or risks for multinationals. Most multinational companies in the capital intensive industries such as oil and gas source their raw materials from developing countries that have a weaker currency than the euro. The current negative fluctuation in the euro affects the buying power of companies from countries with stronger currencies such as the U.S. A weakening currency means an increase in the exchange rates of international markets. An increase in the exchange rate implies that the transnational companies will spend more but buy less. Further, plants that have their manufacturing plants in their domestic country face higher costs of operation that may lead to eventual closure. Importing raw materials at exorbitant leads to a reduction in profits hence companies risk losing investors and may have to face the anger of shareholders. Multinational companies must keep monitoring close the political, social and environmental factors of their host countries. The political landscape of a host country affects the operations of a foreign company since political instability is a clear sign of economic unrest. These companies must also be cautious of countries that have very high cases of negative societal actions such as terrorism and revolutions. Political instability coupled with political instability provides a hostile environment that is not conducive for investment. Macro and micro political risks have significant effects on the operations of these companies. Macro risks are the governmental policies that affect foreign investment while micro factors are the selective regulation that specifically affect the industries. The governmental policies of some countries put stringent controls on the profit levels of multinationals. Transnational companies should put more emphasis on the less publicized governmental policies that will adverse effects on their operational profitability. Works cited http://www.publications.parliament.uk/pa/ld200708/ldselect/ldeucom/90/9006.htm http://www.strategic-risk-global.com/how-can-firms-reduce-the-effects-of-currency-fluctuations/1411969.article http://www.currencysolutions.co.uk/news/the-euro-advantages-and-disadvantages-of-a-single-currency.html 3. Global Family Companies Critics had foretold the demise of the family business, but these firms have proved them wrong since they are still around to date. The family business will continue to exist and play a significant role in the world economy due to their resilient nature. The primary motivation behind a family business is the availability to pass on the company to future generation hence they strive to ensure the business survives regardless of the circumstances. Family businesses have an innate tendency to survive and re-invest in themselves so that they can pass the wealth to future generations. They have the ability to resist the pressures of holding securities in preparation for adverse events in the future. These businesses often maximize on their short-terms sources of revenues. They have the ability to overcapitalize while maintaining lower levels of debt and liquidity. The future of family businesses looks brighter than public corporations due to their personalized style of management. Managers of these companies are often members of the family that owns the establishment. The family tie gives them a greater sense of responsibility hence they conduct the company’s transactions with more precision and a clear understanding of the consequences of their actions. They always strive to make decisions that contribute to better revenues for the business hence ensuring the survival of the firm for future generations. Employees’ trust in the large, public corporations has been significantly eroded due to the recent downsizing drive of their workforce. In contrast, the culture of family enterprises enforces a family culture in the workplace with more direct contact with management and less bureaucracy. Talented minds will soon opt for secure jobs in family-owned firms and further assure the growth of family businesses. Family businesses have played and still continue to play an important role in the economy. However, private companies need to develop new strategies to enable them adapt to the increasingly capitalist environment. Family businesses should develop structures that will allow them choose qualified managers. New structures will cushion the company in the event that the ownership of the business will change or enter into a partnership. Family businesses face a myriad of obstacles such as the lack of skilled staff due to the inability to pay the salaries that such skills require. There are also many succession challenges as well as family wrangles. However, family businesses have risen to make a tremendous contribution to the economy. The importance of family enterprises to the global economy is entirely undeniable. Family businesses are thriving with a 65% growth in sales with prominent growth in Latin America, the Middle East and also Eastern Europe. In the U.S. family businesses contribute between 30 percent and 60 percent of the nation’s gross domestic product (GDP) (Ibrahim and Ellis, 1994). $2.1 trillion is a conservative estimate of the annual turnover of these family businesses. Family businesses outnumber large public corporations with a ratio of 50 to 1 (Dreux, 1990) hence the privately held firms make a greater contribution to the global economy. The family enterprises further contribute to 27 percent of overall employment with lower rates of employee turnover. Sources: http://www.cambridge.org/us/academic/subjects/history/economic-history/endurance-family-businesses-global-overview http://press.pwc.com/global/family-business-are-unsung-heroes-of-the-global-economy-with-increased-sales-and-aggressive-five-/s/378a4402-5959-4d4d-859d-e2e73b631e2a http://vision.ae/articles/family_business_setting_a_benchmark https://hbr.org/2015/04/leadership-lessons-from-great-family-businesses Read More