Problems and Challenges Faced by Multinational Corporations (Mncs) Operating in Less Developed Countries (Ldcs)

Topics: Developed country, Developing country, Multinational corporation Pages: 6 (1833 words) Published: July 19, 2012
A multinational corporation (MNC) is a corporation that operating in two or more countries, known as host countries but managed from one country, known as home country. Multinational Corporation is also known as international corporation (Wikipedia, 2011). Besides that, MNC can be defined as a corporation that derives revenues from operations in countries other than home country (BusinessDictionary, 2011). The objective of MNC to operate in other countries is to gain competitive advantage through several ways. Firstly, MNC is able to take advantage of difference in country-specific circumstances. For example, MNC may choose to locate its productions in less developed country like Vietnam to gain cheap labor cost. Secondly, MNC is trying to reach economies of scale. For example, MNC is able to obtain cheaper price in bulk purchasing then production in bulk and sell in bulk. Therefore, unit cost of production and selling can be reduced so increase revenues. Thirdly, MNC is also able to choose the best serving mode in particular country such as exporting, licensing and direct investment. For example, exporting enables MNC to enter a low-price or commodity-type market with the absence of set-up costs. Less developed countries can be referred as least developed countries (LDC). According to United Nations (UN), LDCs are countries that which have low income, human resource weakness and high degree of economic vulnerability. Low income criterion in LDCs are judged based on a three years average estimate of the gross national income (GNI) or gross domestic product (GDP) per capita (Nationsonline, 2011). Weak human resources can be measured by a composite index based on the indicators of health, education and adult literacy which may cause poor development in certain countries. Lastly, the economic vulnerability is another characteristic of LDCs which can be measured by composite index based on the indicators of the share of manufacturing in GDP, the share of the labour force in industry, annual per capita commercial energy consumption, and UNCTAD's merchandise export concentration index (UNESCO, 2011).

Challenges faced by multinational corporations (MNCs) operating in less developed countries (LDCs) Generally, MNCs focus on efforts in order to decrease the cost by maximizing the economies of scale. MNCs normally make investments in locations that outside the home country are to get different advantages from host countries. LDCs can be very challenging as they have many problems or factors and yet they under development as compare to developed countries. 1)Voice and accountability

Voice and accountability show and reflect on how the governments are being selected, monitored and replaced. Besides that, voice and accountability also stand for the perceptions of the level on which citizen participating in government selections with freedom of expression and political rights (Worldbank, 2011). This can represent features of the governance environment of the particular country. However, foreign investors may not get influenced to make investment in a country that the voice and accountability is low. Foreign investors normally concern about good business opportunities. In fact, managers of developing country MNCs would have sufficient experience to face this problem and yet overcome it with current or past totalitarian regimes at home country. In addition, non-governmental organizations (NGO) and home country government could be the source of pressure for the MNCs as operations in totalitarian regimes would be limited at certain level (Alvaro & Mehmet, 2007). 2)Political stability and absence of violence

Political stability and the absence of violence are referring to the probability of chances for the current government to be overthrown and replace by new government which can lead to the changes of existing policies. Foreign investors are concerned about the stability of politic in countries that they wanted to...
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