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Discuss how the political, legal and technological environment impacts the operations of multinational corporations (MNCs) globally?

Providing with relevant examples to support the discussion

International Management
Multinational Corperation

Mr. CHUOP Theot Therith, MBA, BIT, DPA.

International Management

1. INTRODUCTION
Politic, legal and technological environment is triangle corner that directly impact the operation of Multinational Corporation globally. It is one topic of International Management (IM)s course content, International Management (IM) is a distinctive approach to understand the theory and practice of managing across borders. This course is about global management. It focuses on the cultural factors that influence behavior in the workplace and examines the skills needed to manage across borders (DR. KENNETH KEE KIA HIONG, Course syllabus of IM, date updated 3rd March 2010, pp.1). The topic is Discuss how the political, legal and technological environment impacts the operations of multinational corporations (MNCs) globally? You must provide relevant examples to support your discussion. The purpose of this topic is in order to enhance the students learning skills that they will be able to: - have knowledge of some of the major changes that are currently taking place in the political environment of China, Europe, Russia, and Central and Eastern Europe. - understand the legal and regulatory environment in which MNCs operate worldwide. - have knowledge on how key technological developments impact on MNCs now and in the future.

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International Management

2. DEFINITION
2.1. MULTINATIONAL CORPORATION Multinational corporations are business entities that operate in more than one country. The typical multinational corporation or MNC normally functions with a headquarters that is based in one country, while other facilities are based in locations in other countries. In some circles, a multinational corporation is referred to as a multinational enterprise (MBE) or a transnational corporation (TNC). MNC is a corporation that has its facilities and other assets in at least one country other than its home country. Such companies have offices and/or factories in different countries and usually have a centralized head office where they co-ordinate global management. Very large multinationals have budgets that exceed those of many small countries. 2.2. POLITICAL Politics is a process by which groups of people make collective decisions. The term is generally applied to behavior within civil governments, but politics has been observed in other group interactions, including corporate, academic, and religious institutions. It consists of "social relations involving authority or power and refers to the regulation of a political unit, and to the methods and tactics used to formulate and apply policy. The Political Environment affects opportunities at a local or international level. The critical concern Political environment has a very important impact on every business operation no matter what its size, its area of operation. Whether the company is domestic, national, international, large or small political factors of the country it is located in will have an impact on it. And the most crucial & unavoidable realities of international business are that both host and home governments are integral partners. Reflected in its policies and attitudes toward business are a governments idea
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International Management

of how best to promote the national interest, considering its own resources and political philosophy. A government control's and restricts a company's activities by encouraging and offering support or by discouraging and banning or restricting its activities depending on the government. Here steps in international law. International law recognizes the right of nations to grant or withhold permission to do business within its political boundaries and control its citizens when it comes to conducting business. Thus, political environment of countries is a critical concern for the international marketer and he should examine the salient features of political features of global markets they plan to. 2.3. LEGAL Legal is the meeting requirements under law. The legal system maybe derived from common law, civil law, socialist law, or Muslim law, and it is a reflection of the countrys culture, religion, and traditions. The legal environment including Legal Subjects (international law, constitutional and administrative law, contract law, etc), Legal Theory, Legal Institutions ( Judiciary, Legislature, Executive, Military and police , Bureaucracy , Legal profession , Civil society ) and Legal System. To find out how the legal environment impacts the operations of MNCs, we should discuss on (1) Four global foundations of law and (2) - Basic principle of international law. The detail will be discussed on the point 3.2 Legal environment that impact MNCs. 2.4. TECHNOLOGY Technoglobalism is the phenomenon in which rapid developments in information and communication technologies (ICTs) are propelling globalization and vice-versa. An MNCs major concern is the appropriability of technology that is, the ability of the innovating firm to profit from its own technology by protecting it from competitors.

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International Management

3. THE IMPACT TO THE OPERATION OF MNCs


3.1. POLITICAL ENVIRONMENT THAT AFFECT MNCs The political environment has a huge influence upon the operation of MNCs, and the spending power of consumer and other business. The issues are political stability, the governments position on marketing ethics, the governments policy on investment /economy, the governments view on the culture and religion, and the government is involved in trading agreements such as EU, NAFTA, ASEAN, or others or not. 3.1.1. Government Policies Example: Cambodia In fact, MNCs faces major obstacles when doing business in Cambodia such as:

- Poor infrastructure/high transporting cost (Almost physical infrastructure was destroyed by civil war/POL POT regime.

- Active involvement of government institutions in business affairs/bureaucratic.

- Government regulation is complexity or not enough

- Neglect, corruption

- Lack of qualified employee.

Facing with the issues above, the Royal Government of Cambodia developed policy to Strengthening Private Sector and Attracting Investment in side1-rectangular 3 of the Rectangular Strategy as following:

a. The Royal Government has ensured the reduction of business transaction costs, and expanded market access as well as reduced transportation costs and improved travel safety by
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International Management

improving physical infrastructure, thus ensuring integration of rural and urban economies. The Royal Government has developed necessary legal framework for private sector development and strengthened the "Government-Private Sector Forum" to function as an effective dialogue and dispute settlement mechanism. Reduced 'requirements for documents has facilitated trade and businesses, particularly through the implementation of "Single Administrative Document -SAD" system and "Single Window" service.

b. To facilitate private sector development, the Royal Government will continue to accord priority to improve physical infrastructure through increased public investment in transportation networks, including roads, railways, waterways (river, sea), and air routes; to increase the electricity generating capacity and expand the distribution network in urban and rural areas to provide energy at a reasonable charge; to strengthen and expand the modern telecommunication network to make services available at a reasonable low charge; to enhance and widen the clean water supply network; and to enhance and expand infrastructure system for cultural and natural tourism sector.

c. The Royal Government will make further efforts to expand international market access through concerted implementation of its obligations under the framework of WTO, ASEAN, and sub regional and regional economic integration initiatives. In addition, the Royal Government will continue to: strengthen the supportive legal framework for the private sector including laws and regulations, and administrative procedures and improve productivity through training for employees, technicians, and skilled labour; ensure fair competition; promote trade facilitation; enforce the labour law; and, strengthen the dispute settlement mechanism.

d. As an important part of the policy for diversifying the economic base, the Royal Government will promote a favourable climate for developing the agro-processing industry, and assembling industry including electronic and machinery assembly. In addition, the Royal
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International Management

Government will continue enhancing necessary legal framework, especially creating the law for the efficient operations of Special Economic Zones.

e. The Royal Government will continue promoting the public and private sector partnership for investment especially for physical infrastructure projects.

Particularly Cambodia has the Council for the Development of Cambodia that is the sole and one-stop service organization responsible for rehabilitation, development and over-seeing investment activities. It is the Royal Government's "Etat-Major" responsible for the evaluation and the decision making on all rehabilitation and development, and investment project activities. Cambodia already had the Investment Law, Commercial Law and recently it has just adopted the Anti-Corruption Law.

Regional Example: China


Emerging economic power Government attempting to open up economy:


o o o o o o

Speed up conversion of state enterprises into corporations Trade liberalization a top priority since joining WTO in 2001 Becoming a more open, democratic society Greater tolerance of individual freedoms Worker retraining, low-cost housing and other programs Seeking to unleash a more dynamic market economy

Regional Example: Europe

Privatization and economic liberalization reinforce EU-wide political and economic integration

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Political power is variable and complex Strong opposition to U.S.-led intervention in Iraq sometimes spill over into business relationships and dealings

Europe is a large interwoven region economically, but contains vast cultural differences

Example: The Middle East


In Iran and Saudi Arabia laws and government based on Islamic principles Business conduct in Middle East similar to Western in many ways Worldwide fallout from war on terrorism have made business environment there risky and potentially dangerous

Example: Russia

Neglect and confusing changes in economic policy Infrastructure is weak and a political quagmire

3.1.2. Stability of the Government Stability of the Government is very importance for investment-MNCs and countrys development as well.

Therefore the Royal Government of Cambodia set out the Peace, Political Stability, Security and Social Order as an overarching environment for the implementation of the strategy.

a. During the third legislature, the Royal Government has strengthened peace, political stability, security and social order in order to achieve macroeconomic stability, development and poverty reduction. As a result, Cambodia has managed to increase the confidence of investors and tourists as reflected in the increase in investment and the number of visitors into Cambodia. At the same time, Cambodian people are able to carry on their normal lives and actively participate in the
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International Management

country's economic development according to their ability. Socio-economic development in turn forms the foundation for a lasting peace, political stability, security and social order.

b. The Royal Government, therefore, will continue its efforts to further consolidate peace, political stability, security and social order to ensure fundamental conditions to build and reform the state in order for Cambodia to move further forward on the path of development and prosperity. In this spirit, the Royal Government will do its utmost to strengthen security and substantially reduce crimes, promote the "Rule of Law", enhance the respect for human rights and dignity in all aspects and open up equitable opportunities to Cambodians from all walks of life. 3.2. LEGAL ENVIRONMENT THAT AFFECT MNCs MNCs must carefully evaluate legal framework in each market before doing business. Whether which country of the four global foundations of law where the MNCs run and what basic principles of international law of hosts country is. 3.2.1. Four Global Foundations of Law

Islamic Law: derived from interpretation of Quran and teachings of Prophet Muhammad. It founds in Islamic countries - Middle East and central Asia.

Socialist Law: it origins in Marxist socialist system that requires most property to be owned by state or state enterprises. Continues to influence regulations in former communist countries are Members of former Soviet Union, Peoples Republic of China, Vietnam, North Korea, and Cuba

Common Law: it origins in English law, and it is foundation of legal system for United States,

Canada, England, Australia, New Zealand.

Civil or Code Law: it derived from Roman law, and it was found in non-Islamic and non-

socialist countries: France, some Latin American countries, Louisiana in the U.S., Kingdom of Cambodia. 3.2.2. Basic Principles of International Law
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Sovereignty and Sovereign Immunity: An international principle of law which holds that governments have the right to rule themselves as they see fit.

International Jurisdiction: A jurisdictional principle of international law which holds that every country has jurisdiction over its citizens no matter where they are located (Nationality principle, Territoriality principle, Protective principle).

Doctrine of Comity: A jurisdictional principle of international law which holds that there must be mutual respect for the laws, institutions, and government of other countries in the matter of jurisdiction over their own citizens.

Act of State Doctrine: A jurisdictional principle of international law which holds that all acts of other governments are considered to be valid by U.S. courts, even if such acts are illegal or inappropriate under U.S. law.

Treatment and Rights of Aliens: Countries have the legal right to refuse admission of foreign citizens and to impose special restrictions on their conduct, right of travel, where they can stay, and what business they may conduct.

Forum for Hearing and Settling Disputes: U.S. courts can dismiss cases brought before them by foreigners; however, they are bound to examine issues such as: where the plaintiffs are located, where the evidence must be gathered, where property to be used in restitution is located.

Legal and Regulatory Issues in generally

Foreign Corrupt Practices Act


o

Illegal to influence foreign officials through:


personal payment political contribution

Restrictive bureaucratization Privatization 9

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International Management Legal and Regulatory Issues in Cambodia

and its solving measure during the global economic and financial crisis

To help the sectors directly affected by the crisis, such as garment, tourism, construction, and real estate sector, the Royal Government has made continuous fiscal interventions for the benefit of textile factories, garment factories, and footwear manufacture as well as industry supporting this sector. In this regard, the government has suspended the withholding tax on profits for garment and footwear factories till end of 2012, although this caused the State to lose cash for monthly use on average 4 billion Riels per month in 2009, and losses will be over 4 billion Riels in 2010. At the same time, to allow garment supporting enterprises to implement 0% VAT makes the State lose recurrent revenue for monthly use of 4.3 billion Riels per month on average in 2008, and the loss has increased to about 9.3 billion Riels in 2010. In addition to this intervention, the Royal Government has helped pay the 0.3% risk contribution on behalf of garment and footwear for 2 years (2009-2010). Along with the assistance to increase productivity in the garment sector through the enhancement of social safety net as well as re-training and providing jobs for victims in the sectors affected by the crisis, the Royal Government has launched the Samdech Techo Prime Minister's Special Fund. This has provided training for a total 40,140 adults and worker who had lost their work and had been unemployed across the country. At the same time, the Royal Government has also established an Agriculture Support and Development Fund to advance development of agriculture, in general, and, in particular, to increase productivity in this sector, especially rice and paddy, and to diversify growth bases. The Royal Government has paid attention to and set out measures, one after another, to reduce entrepreneurs expenditure, both formal and informal, in order to promote competitive advantage and effectiveness in attracting investment.

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International Management

Further, the Royal Government has set out a number of other measures through interventions of public finance and measures to implement tax and excise policies for the private sectors as follows: a. To serve the agriculture sector, the Royal Government has reduced the custom tariff from 35% to 7% for 6 tariff line on goods such as engine of the small tractors (ko yun), diesel engine for tractors, and grass cutting machines; and has reduced the tariff from 15% to 0% for 12 tariff line on such goods such as pesticide spraying machines, harvesting/threshing machines, and sorting machine for fruit and other agricultural produce. b. To promote development of small and medium enterprises, the Royal Government has reduced the tariff for 634 tariff line. In this regard, 252 tariff lines have received tariff reduction to 0% rate, including barley, gravel, road rock, some minerals and mineral residues, cotton, hemp fibre, barks, textile fiber from plants, some natural gemstones, silver, gold, platinum, etc. c. The Royal Government has been implementing policies of trade facilitation through risk management in order to establishment a national single window system by maximizing use of IT in the future. For instance, the use of colour for treatment channels of Single Administrative Documents (SAD) at the Sihanoukville International Port has achieved remarkable results. In general, in 2009, the level of SAD red treatment channel, which requires physical inspection, was about 21% of the total SADs, a good level in compliance with the Royal Government's policy specifying that inspection must not exceed 25% of the total SADs.

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International Management

3.3. TECHNOLOGICAL ENVIRONMENT THAT IMPACT MNCS

The technology has a major impact on the business. It affects the business prospects, cuts down the profits and forces the management to change the course of business operations. Any change in technology changes the work cultures, the methods and the systems. It affects the speed of the operations and gives a boost to the productivity of the production system. Examples of technological changes are seen in aviation, electronics, energy, communication, customer goods industry, optics, medicines and manufacturing. 3.3.1. Positive Impact With all of the advances and the new technology there are many positive things that can be accomplished. We can shop online, connect with our friends and family, email to get things communicated quickly and even download. In doing business, especially, MNCs gains a lot of benefits from technological environment such following:

Changing at lightning speed Internet and telecommunications


o o

Increasing bandwidth/high-speed access Reduced costs of entry/leapfrogging

E-business: is the integration of systems, processes, organizations, value chains and entire

markets using internet-based and related technologies and concepts.


o o o

Customization (the long end of the tail) Business to business and Business to consumer E-retailing and financial services

Movement of money across borders E-cash a currency without a country

Outsourcing and off shoring 12

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o o o

Information as a commodity The 24-hour office increased productivity/lower cost Technology has reduced and eliminated some work in middle management and white collar

o o

Global competition has forced some MNCs to outsource jobs to offshore productions Emerging technology makes work more portable

3.3.2. Negative Impact Unfortunately, with great things and the great technology there are negatives that come with it. The main concern is data security and technical error, those negative impacts could be:

Fear of losing data or electronic files Decrease in person-to-person contact Less tolerance for errors Frustration with co-workers who are not up to date Overload of data and information Less distinction between work and personal time Fear of "Big Brother" watching Confusion about technical terms or jargon Feeling unable to keep up with technology Employer access to personal financial data Employer access to personal health data Fear of being displaced Employees will lose their jobs Wages may be reduced

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International Management

4. CONCLUSION
Multinational corporations are very big, with budgets that exceed some national GDPs. Multinational corporations can have a powerful influence in local economies, and even the world economy, and play an important role in international relations and globalization. The presence of such powerful players in the world economy is reason for much controversy. To success in doing business as Multinational Corporation, therefore, the political, legal and technological environment is the major factor must be considered and concerned. Means, investors should understand well about (1) the basic political systems that characterize regions and countries around the world such as China, NAFTA, ASEAN, Europe, Russia, Central-Eastern Europe and host countries in particularly, (2) the overview of the legal and regulatory environment in which MNCs operate worldwide and (3) the key technological development as well as their impact on MNCs now and in the future. MNC investment makes benefits for LDCs (Less Developing Country) - MNCs used to be considered exploitative and developing countries used to adopt policies to keep them out and nationalize their assets; by the 1990s, however, developing countries were competing with each other to attract MNCs; even those countries that used to completely keep MNCs out (Mozambique, Angola, China, Vietnam, Cambodia, etc.); To sum up, the advantages of MNC investment are employment, balance of payments, technology transfer and tax revenues. Working together, there are some disadvantages of MNC investment such as uncertainty, power and control by the MNC over the host, transfer pricing, and the environment.

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