Globalization and Multinational Firms

Pages: 14 (4193 words) Published: April 18, 2014
University of Ljubljana – Faculty of Economics
Graduate Programme
Course: Globalization and Multinational Firms
Mentor: Črt Kostevc Ph.D.
Academic year: 2012/2013

Globalization and Multinational Firms
Seminar paper

MNCs and the role of the state

Author:
Aljaž Bešter Cerar – 19489662
Ljubljana, 10.6. 2013

Summary
The seminar paper is logically divided into two related parts. The first part of the paper looks at a multinational corporation (MNC) as a principally passive object, more often than not simply reacting to a given environment. The most important part of that environment is the host government, in our case the government that hosts the MNC’s foreign venture. I present the environment as two separate entities depending on the whether a MNC has a chance to influence the changes that might bring uncertainty to its future. I then turn to the concept of country risk to gain a better understanding of the relationship a MNC has with the host government. Usually, country risks express the managers’ worries as to whether or not the present host government or a successor government will one-sidedly change the "rules of the game" that will lead to a loss of earnings or assets of his company’s venture in that country. I end the first part of the paper with several strategies a MNC may use when dealing with country risk. The following part of this document focuses on the notion that a MNC holds a predominantly strong position towards a nation state. I look into the various ways a MNC might influence the institutional workings of a host government. The theory examined distinguishes between three different positive effects a MNC can have on government institutions. Regulatory pressure effect describes how corrupt government officials face uncertainty when dealing with MNC that are pressured by others to conduct business without bribes. Demonstration effect shows how a legitimate and more efficient way of doing business demonstrated by a MNC, could affect the government to change its ways in order to become more attractive to the global business community. Professionalization effect analyses how people who worked for a MNC use the knowledge gained to change the workings of their host governments. I continue the paper with what I think is the most important factor in the relationship between nation states and MNCs. I examine the importance of bargaining power and the impact it has on the potential outcome of negotiations between these two subjects. I focus on the notion that bargaining power depends largely on the concept of perception. I end this section with several strategies a MNC might use to change the perception and increase its bargaining power towards a nation state.

The last section of this paper deals with facilitation payments that many believe are yet another sign of how MNC used their influence to make questionable methods a viable way of doing business.

Table of contents
Introduction ................................................................................................................................ 1 1

Who influences whom? MNC as primarily passive objects .......................................... 2 1.1

Transactional and contextual environment .............................................................. 2

1.2

MNC reacting to country risk .................................................................................. 4

1.2.1
2

Risk exposure and risk control strategies for managing country risk ............... 4

Who influences whom? MNC as active objects ............................................................. 6 2.1

MNC as an agent of change to the host institution .................................................. 6

2.1.1

Regulatory pressure effect. ............................................................................... 7

2.1.2

Demonstration effect...
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Essay on globalization
  • GLOBALIZATION Essay
  • Essay on Cost of Capital in Multinational Firms
  • Globalization and the Multinational Enterprise Essay
  • Globalization and Firms Essay
  • Why do firms become multinational enterprises Essay
  • Business Security and Globalization of Multinational Businesses Located in India Essay
  • Essay about the firm

Become a StudyMode Member

Sign Up - It's Free