Multinational Corporation and State Relations in Emerging Markets Introduction The development of the economy is a major goal of state authorities. For developing countries which lack capital and technology, the fastest and most effective way to develop is by attracting capital from abroad in the form of foreign direct investments (FDI)…
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The situations suggest that a possible synergy exists between an MNC and an emerging state. There are strong advantages in multinationals setting up their operations, or at least part of it, in emerging countries, since this may establish a mutually beneficial arrangement. At the beginning, this is usually the case. Time passes, the country’s economy develops and the increasingly affluent population creates higher demand for the firm’s products. With the rising standard of living, the state finds the need to raise legislated wages, which usually works against the interests of the multinational corporation – because after all, MNCs seek to lower their costs. The MNC’s costs rise and their reason for setting up operations in a developing country slowly goes away. Other sources of disagreements emerge, such as the exploitation of natural resources, the repatriation of earnings out of the host economy and to the MNC’s headquarters in the home country, the regulation of certain policies and processes considered standard by the MNC but unacceptable by the locality, and so forth. There is therefore a difference of roles and interests between the MNC and the host state, which may sometimes lead to conflicting goals; to maintain their working relationship, a balance of these interests must necessarily be achieved for the MNC to continue its productive and marketing activities in the country and for that country’s economy to continue to reap the benefits of the MNC’s presence. This study examines the dynamics and implications of the relationships between MNC and host countries. The purpose is to understand how these relationships are changing over time in response to the increasing globalization, and how problems about them may be addressed and resolved. Multinational corporation defined There is no formal definition of what a multinational corporation essentially is (Ajami, Cool, Goddard & Khambata, 2006, p. 6), and the term is often applied to a variety of business entities which have nothing in common except that they have some form of international participation or involvement. Some see multinationals loosely as companies that have parts of their production located in two or three different countries (Hoos, 2000), and some with markets in two or three different countries. Some see the MNC as “a number of affiliated business establishments” (Logar, 1980, p. 7), while others define it as “a single organization with a need to coordinate its operations across multiple environments” (Haghirian, 2010, p. 46). The presence of multinationals in a country need not be directly through wholly-owned subsidiaries. MNCs can operate through joint ventures with local firms, or by acquiring controlling interests in businesses already strategically located in a particular country. MNC interests with the least commitment to the country is in the form of exports where the products are shipped to the country in completion of orders from institutional customers, followed by franchises or licenses which the MNC may extend to established firms that would like to operate under the license and with the trade mark of the MNC. In these cases, the multinational corporation could extend their presence in another country without directly investing in it (Johnson & Turner, 2009, p. 247). An example of such MNC operation is seen in the Taiwanese market. Quanta Computers, Inc., a Taiwanese firm, served as contract
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INTRODUCTION: The essay focuses on the multinationals of emerging economies and their increasing importance in today’s economy due to their extensive globalization and the scale of demand they cater in emerging and developed markets. It further discusses the beneficial factors that only an emerging market, like the one from which the multinational comes from, can provide to these companies when compared to the developed markets.
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