Which of the following terms refer to working partnerships between Mncs Acrossnational boundaries and often across industries?

4 Economics and Politics of Multinational Corporations

Since the multinational corporation is definitionally equivalent to foreign direct investment, theories of foreign direct investment must account for why one country invests in another and why this investment is carried out within organizational boundaries of a firm (see Buckley and Casson 1976, see Foreign Investment: Direct). In distinguishing between portfolio and direct investment, Hymer noted that firms operate at a disadvantage in foreign markets and hence they must have an offsetting competitive advantage to compete overseas. These advantages for overseas investments are the same ones that allow a firm to compete and grow in the home market. These observations have important implications. The first is that direct investment is the growth of the firm across borders and hence the firm expands internationally on what it has learned at home. This observation is the basis for the evolutionary theory of the firm. The second observation that Hymer made is that firms that expand overseas, because they have competitive resources, are also likely to be large and to belong to oligopolistic industries.

In these observations, we can understand the ambivalence expressed in popular and policy debates regarding the multinational corporation. Competition among multinational corporations often is the extension of their home domestic and oligopolistic rivalry that spills across national borders. In many global industries, the same company names dominate each country's list of the largest firms inside their national frontiers. No matter if it is Poland or France, Singapore or Mexico, the same multinational corporations will be found in the local oligopolistic industries (e.g., consumer goods or automobiles). Because they are large even in their home markets, investments by multinational corporations can have a large impact on a host country (Caves 1974).

As a consequence, the multinational corporation has often been the subject of debates concerning national sovereignty and welfare. In recent decades, acquisitions have generally been the primary way by which multinationals invest in wealthy foreign countries, where the vast proportion of direct investment is concentrated. Given the size of a multinational corporation and occasional national importance of the targeted acquisition, even wealthy countries frequently evidence discomfort, if not outright public hostility, to multinational investments. Moreover, multinational corporations are sometimes the vehicles for foreign policies of their home or host country. The decision, for example, of the US to embargo technology and investment flows to Cuba, the former Soviet Union, Iran, and other countries periodically has caused conflict with other countries.

Multinational corporations are especially problematic in developing countries. By definition, developing countries are relatively poor, thus both in need of capital and yet concerned over their loss of independence. As discussed above, the history of multinational corporations in developing countries is marked by its origins in policies of imperialism and colonialism. Especially in Latin America, where a school of thought labeled Dependencia has been influential, the concern over dependence on the United States resulted in efforts to curb the power of the multinational corporations by restricting the amount of equity ownership a foreign firm could hold in a domestic company or by prohibiting investment in certain sectors. Mexico's constitution forbids foreign investment in the oil industry; Brazil pursued for a long time a policy to restrict foreign participation in the electronics industry.

The other side of the coin is that multinational corporations bring investment and technology to the foreign country. Vernon (1966) hypothesized that innovations start in wealthy countries. As the market is saturated and as oligopolistic rivalry increases, multinational corporations are pushed out from their home markets to expand abroad in new markets and to locate less expensive places. Thus, Vernon seized both sides of the debate, recognizing the value of the transfer of technology but also emphasizing the oligopolistic nature of multinational investment.

It is, in fact, difficult to draw simple conclusions regarding the relationship of foreign investment and national growth. Countries such as Singapore, Malaysia, and Thailand have encouraged foreign direct investment actively. The growth in China's coastal sector is indisputably linked to the massive investments by multinational corporations. However, historically Japan and Korea have pursued more cautious policies regarding investments by multinational corporations. In these countries, the state has often negotiated the terms for entry by multinational corporations, sometimes requiring licensing to domestic competitors as a price. The efficacy of such policies for these countries is much disputed. However, for many other countries, the intervention of the government in demanding licenses unquestionably leads to internal corruption and to insufficient domestic competition.

There are many channels by which a country can absorb foreign technology and managerial techniques. Most of the evidence shows, however, that prohibitions on the in-flows of direct investment can be very costly for many countries. With their domestic industries still to be developed, a developing country requires substantial investment. Some countries, primarily in Asia, have been able to achieve very high savings rates to finance their industries without direct investment. Moreover, high savings rates, plus political stability, create growth, and growth attracts foreign portfolio capital. A poor country that prohibits foreign direct investment but does not have high rates of saving is entirely dependent upon portfolio capital. The history of debt and currency crises in the 1990s convinced many poor countries that foreign direct investment was a preferable means of attracting capital, because it could not be easily pulled out of a country on short-notice in response to a financial crisis.

However, multinational corporations also respond to the volatility in the global market. This volatility derives from changes in exchange rates, politics, and productivity. Once having achieved sufficient experience and having established subsidiaries around the world, the multinational corporation might choose to close a plant in one location and open plants in new locations. Of course, such actions might provoke a response by labor, but historically, labor has been organized by national, not by international, organizations (Martinelli 1975). Yet, there is also the possibility that locations lose some kinds of plants but gain more sophisticated investments. Cantwell (1999) proposed that some regions and countries pull multinational investments. Yet, it has long been noticed that foreign direct investment among developed countries flows to high cost locations. Regions such as Silicon Valley, Baden-Wuertemberg, and Singapore attract multinational investments not because wages are low, but because productivity levels are high and workers are well trained. In many cases, developing countries have given rise to their own multinational corporations acting in the region and sometimes globally (Lall 1983). In this sense, the multinational corporation acts as a training center in the developmental strategies of emerging economies.

Abstract

Transnational corporations (TNCs) are engines of economic growth in developing countries. TNCs are the primary drivers of foreign direct investment inflow to developing countries; TNCs are job creators and TNCs create spill-over effects in developing countries through the procurement of domestic goods and services; however, the relationship between TNCs and developing countries is primarily exploitative due to the financial and technological power of TNCs viewed in the context of the poverty, incapacity, and ill-governance of most developing countries. Investment contracts between TNCs and developing countries are often lopsided in favor of TNCs. TNCs also engage in tax evasion through unethical business practices such as round-tripping and transfer pricing. Moreover, TNCs are sometimes complicit in the violation of human rights, environmental rights, and labor rights in developing countries. Undoubtedly, developing countries possess legitimate power under domestic and international law to regulate the activities of TNCs within their jurisdiction. The problem, however, is that most developing countries lack the capacity and expertise to regulate the highly sophisticated activities of TNCs.

VI. Organizational Issues

Infrastructural and operational constituents are key external factors to the success of GIS deployment for MNEs and other international organizations. Ives, Jarvenpaa, and Zwass suggest that strategic alignment between management information systems (MIS) strategy and business strategy is critical for the success of international operation. To gain insight into the GIS execution, this organizational constituent—strategic alignment between MIS and business strategy—needs to be addressed.

The Ties That Bind

Transnational corporations are, undoubtedly, one of the – arguably the most important – primary shapers of the contemporary global economy. There is no doubt that their significance is increasing as more companies, from a widening range of home bases, become transnational at an earlier stage of their development. But TNCs are far more diverse than is often claimed. Not all are ‘global’ corporations. Indeed, very few are. TNCs come in a whole variety of shapes and sizes and there remain significant differences between TNCs from different countries of origin. Diversity, rather than uniformity, rules.

Both the organization and the geographies of large TNCs, and of their transnational production networks, are immensely complex and dynamic. In a very real sense, the global economy can be pictured as intricately connected localized clusters of activity embedded in various ways into different forms of transnational corporate network that, in turn, vary greatly in their geographical extent. Some TNCs are globally – or at least regionally – extensive; others are more restricted geographically. In all cases, however, firms in specific places – and, therefore, the places themselves – are increasingly connected into transnational networks. Inevitably this creates tensions between TNCs and other significant actors in the global economy: states, local communities, labor, consumers, and civil society organizations. TNCs not only have their own geographies, but they also create new geographies in which places across the world become incorporated. Whether this is good or bad is a matter of heated debate.

4.2.1 Risks in foreign markets

TNCs’ internationalization is not easy due to many obstacles, including different languages, economic systems, cultures, and different governmental and institutional regulations (Hymer, 1968). When foreign corporations first enter a totally unfamiliar market, the unfamiliarity with host countries will bring many risks. Goerzen et al. (2013, p. 431) have summarized those risks as the “liability of foreignness” (LOF). It is the general definition of challenges and risks that TNCs have to face when they are in overseas markets as a foreign investor. The key factors of LOF are “complexity, uncertainty, and discrimination” (Goerzen et al., 2013, p. 431).

Complexity refers to the complex problems that are brought by running business across national boundaries. For example, the information asymmetries between headquarters and subsidiary offices may present difficulties for parent companies to control and prevent branches from appropriation of profits and moral hazard (Bergen, Dutta, & Walker, 1992; Gómez-Mejia & Palich, 1997; Sassen, 2001). Complexity will result in higher costs for TNCs in communicating and coordinating with overseas subsidiaries than keeping businesses in the same country.

Uncertainty is brought by the unfamiliarity with different environments in host counties, including different cultures, languages, and laws. This requires foreign firms to spend additional money and time on getting to know the uncertain factors; and the inexperience of operating cross-border businesses is likely to bring losses to corporations if they make any mistakes (Goerzen et al., 2013).

Discrimination stems from the closed-minded attitude of host countries. This “discrimination” will come from all of the actors in economy, i.e., governments and clients. Undoubtedly, the arrival of TNCs’ branch firms will be a great threat for local corporations in the same industry. So, by aiming to protect domestic companies, government may place different regulations on foreign firms (Kostova & Zaheer, 1999). The regulations include those of investment industries, taxes, annual incomes, a certain number of local employees, etc. Additionally, when clients are choosing products in the market, they usually prefer the brands or corporations with which they are familiar (Goerzen et al., 2013). Such behavior of government and clients may put TNCs in an unfavorable position in the competition with local companies and bring more risks to TNCs.

Many academics argue that by aiming to reduce the above risks, world cities with “global interconnectedness, cosmopolitanism and abundance of APS (advanced producer services)” (Goerzen et al., 2013, p. 427) are the best choices for TNCs. To be specific, possessing advanced communication facilities and playing the role of information centers in the world (Hymer, 1968; McCallum, 1999; Sassen, 1991; Wang, Zhao, & Wang, 2007), world cities are well integrated in the global city network and they are able to help solve the complexity issue to some extent by helping headquarters monitor their subsidiary companies with reduced communication costs. Moreover, the cosmopolitan environment in world cities enables TNCs to decrease discrimination and uncertainty risks. World cities have diversified cultures and more open-minded attitudes, which could guide TNCs to a fairer arena (Goerzen et al., 2013). Discrimination and uncertainty could also be decreased by acquiring specialized business services (e.g., accountancy, advertising, law, and consultancy) of APS companies that are also agglomerative in world cities (Goerzen et al., 2013; Sassen, 2001). APS firms have important significance to help support foreign companies’ localization: accounting firms know local tax regulations very well, they can help foreign enterprises avoid duty reasonably; advertising firms are helpful to widen TNCs’ brand awareness; law and consultancy firms can help investors get familiar with the host environment. As the concentration point of APS firms, world cities are able to offer TNCs the most professional services to reduce LOF and be involved into host markets as soon as possible. Compared to seeking help from the APS partners in the TNCs’ own countries, Seo (2011, p. 73) argues that APS firms in host countries have the advantage of getting access to “opaque information.” The modern economy is an information-based economy, and getting informational advantage is very important for companies. APS firms in host countries are more familiar with the market and have more corporate/individual relations with local government or institutions so that they have better access to “opaque information” than outside APS firms. Undoubtedly, world cities are the best choice of location for overseas corporations to reduce LOF; however, they have negative aspects for attracting foreign investors as well, such as the high business operating costs—notably rents and salaries. Not all companies would like to locate in world cities. Because risks in foreign markets are not the only thing that concern TNCs, their investment motives are the decisive factor of location patterns.

Abstract

A multinational corporation (MNC) is an organizational vehicle to transfer knowledge from one country to another while preserving cash flow and control rights. The MNC has its origins in the uncertainty of international trade and investment, and its modern form coevolved with the emergence of institutional and political structures that permitted owners to realize and retain profits from the utilization of its organizational knowledge in foreign countries and territories. Since operating overseas incurs costs, the MNC is only viable if its transfer of organizational capabilities permits it to compete effectively against domestic and other foreign competition. With the diffusion of knowledge, local competitors often compete with the MNC in the long run. However, an MNC has the advantage of profiting from arbitraging across markets and leveraging its scale and scope globally. The impact of the revolution in information technologies has consequently an ambiguous effect, both enabling the MNC to operate globally more effectively and enabling markets to contract to more efficiently compete against organizational solutions.

Multinational Outsourcing Service Providers

MNC outsourcing service providers are no strangers to outsourcing globally. Many companies like IBM, HP, and Keane (data systems firms) or ADP, EDS (payroll and accounting) offered service solutions internationally, prior to the rush of outsourcing to India in 2000s. After 2000, many of these firms entered the Indian market due to competition from the Indian independents and the demands for lower cost from customers. By locating in India, MNC outsourcing service providers were able to deliver nearshore and offshore services, at a lower cost base. These companies were able to enter the Indian market quickly and scale up operations rapidly. While MNC outsourcing providers had long established customer relationship and experience of offshoring, entering India was a response to cost and delivery pressures.

8.2.2.4 Training and development

MNCs recognise the lack of skills and qualifications in Vietnam's labour force and, especially, the need for management training. They make a significant effort and investment to train their management staff, as this is a key to retaining local managers. In general, T&D programmes are centrally controlled, especially during the early years of establishment. Management training programmes in Vietnam need to start with the very basics of business education in their curriculum. Compared with their SOE counterparts, training methods in MNCs are more diverse and advanced, such as the use of e-learning and blended learning. Besides the formal T&D channels, companies are aware of and use informal cultural aspects of management development, such as emphasising the company's philosophy, management forum, e-forums, e-networks and so on, to create a common language and shared attitude. In order to encounter high turnover rates and poaching, companies develop strategies such as legally binding their staff for a certain number of years after providing them training or firm-specific programmes.

On the contrary, T&D in some Asian MNCs are limited to meeting production needs and focus heavily on technical knowledge while neglecting people management skills. Furthermore, in all Asian subsidiaries in Vietnam, job rotation is not a popular practice. Although rotation for workers in production lines is more popular, Vietnamese managers in these companies are often seen as stuck in narrow specialisms. This shows that MNCs’ investment on T&D is dependent not only on the host country's situation, in this case Vietnamese labour market situation and the output of the educational system, but also on the MNCs’ HRM strategies, such as global staffing strategy, and business strategies.

Need for this study

Multinational corporations heavily influence the strategy of their overseas subsidiaries. Several studies have investigated the relationship between MNC overseas subsidiaries and their parent companies (Bartlett and Ghosha, 1986; Jarillo and Martinez, 1990; Prahalad and Doz, 1987; Taggart, 1996; Gupta and Govindarajan, 1991; Birkinshaw and Morrison, 1995). A common element of these studies is a focus on how overseas subsidiaries handle the pressures and the balance between globalisation needs and local demand while formulating their strategy.

With the increasing importance of subsidiaries’ function and contribution in the overall development of MNCs, the study of subsidiaries’ enterprise development has been of great recent interest (Pan and Lu, 2003). Perspectives such as enterprise network theory, resource-based theory and enterprise development theory have been applied to study interactive relationships between subsidiaries and their external and internal environments (Birkinshaw and Hood, 1997, 1998).

In the late twentieth century, many MNCs began to establish subsidiaries in China. In the Chinese context, the emphasis of the studies on enterprise development has been on: 1) small and medium-sized enterprise growth (Gu, 2000); 2) family enterprise development, particularly entrepreneurial capability change in the process of organisation growth and succession (Wu, Jia and Chen, 2003); 3) product life cycle management (Zhang, 2003); 4) new century modes for enterprise development (Li, 2002); 5) digital modes for enterprise development (Du and Tang, 2002); and 6) entrepreneurial spirit and capability (Li, 2002; Liu and Chen, 2001). Most of these research studies have a macro focus, such as MNC investment in China, enterprise structure and the impact on the national economy. A few studies have a micro focus, such as subsidiary strategies, subsidiary operations and subsidiary management; yet these studies are mostly descriptive. There is a scarcity of empirical analyses at the micro level for MNC subsidiaries’ growth and development strategy in China. The present study fills this gap.

The study of MNCs’ overseas subsidiaries began more than 20 years ago in the 1970s, with studies such as those conducted by Youssef and Hulbert (1975). The subsequent literature on MNCs overseas subsidiaries’ growth and developmental strategy can be organised into four genres of studies: strategy-structure, headquarter-subsidiary relationship, subsidiary role and subsidiary development. After reviewing this literature, we propose that the growth and development strategy system for multinational overseas subsidiaries is formed by three layers: corporate strategy, system strategy and functional strategy. We empirically analyse the tactics for growth and development in each layer.

We investigate MNC subsidiaries’ horizontal and vertical behavioural trends. Horizontal trends involve various countries, industries and roles, while vertical trends suggest time sequences of growth and development strategies. From the horizontal angle, the model compares common and specific features of MNC subsidiaries in China based on country of origin and industry of operation. From the vertical point of view, the model analyses the evolutionary process in which MNC subsidiaries in China have changed their strategic system, strategic tendency and strategic intent and describes the stages for their evolution. The strategic evolution model provides a rational framework for comprehensive theoretical analysis of MNC subsidiaries in China.

At present, most MNC studies in China use second-hand materials, data and other sources with very low empirical validity. In order to obtain a more objective understanding, we use a questionnaire survey to obtain first-hand information. We summarise new features of these subsidiaries that have emerged in recent years.

Entry mode choice

All MNCs must make decisions on their entry mode when they plan business operations in foreign countries. In our research, we focus only on the transfer of HRM practices to French wholly owned subsidiaries and joint ventures in China.

Scholars state that it is more difficult to transfer management practices in a joint venture than in a wholly owned subsidiary (Bresman et al., 1999; Meyer, 2001). Put simply, a joint venture is established when two or more existing companies, which have their own organisational practices, come together. In such a case, the MNC has to share power with a local partner. In addition, protection of ownership may become a barrier to knowledge transfer. By contrast, wholly owned subsidiaries have few problems with this issue. Hence, in this chapter we attempt to clarify the real situation for transfer of HRM practices in French wholly owned subsidiaries as well as joint ventures.