Two truths underpin this argument: Firstly, society cannot realistically live in a purely capitalist, communist, free market or command economy. Due to market failures, there will always be need for some level government intervention both in the form of passive and active stabilization policies in order for optimal economic function. For this reason, most countries have mixed economies which give rise to the need for international businesses to be aware of both the microenvironment and the macro environment in which they are operating and to cultivate beneficial relationships with the host government. This leads to the second truth: the principle of pure democracy or dictatorship exists in theory but is unattainable in practice. This argument will show that such truths are the reason why the opportunities of a Multinational Enterprise (MNE) that is linked with the host government naturally exceed the risks.
Consistency, faithfulness and trust consolidate a positive relationship with the host government. This leads to minimal legal and political complications, allowing firms to maximize profits by minimizing the implicit and explicit costs of obtaining the necessary approval and therefore maximizing the ratio of costs to revenue. Implicit costs, which are less obvious than financial aspects include time, effort and possible loss of bargaining power, all of which can be translated to a monetary value. These constitute the cost of “red tape”, defined by (Bozeman, 2003) as unnecessary, meaningless paperwork and procedures that lead to inefficiency and unnecessary delays. Government favor has worked to the advantage of Chinese owned Citic Pacific which guaranteed consistent, long-term government revenue through tax to the Australian government and pledged to source Australian labor in return for elimination of “red tape” and easier integration into Australia’s mining sector.
Maximum Returns and Market Share
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