Multinational companies are business entities that have their operations spread out in more than one country. This implies that they have one headquarters which is based in a certain country and the other branches answer to them. However, they do have their own heads that all responsibility is placed on. It operates from a home country and operates in other host countries. The main advantage of this model of organization is that it allows the executive to take advantage of incorporating in a given locality while at the same producing goods and services in localities where costs are lower (Pitelis, 2008). This helps in the increase of company shares as well as low-cost access to local markets. However, this venture is not entirely a smooth one. There are several barriers and challenges that these companies face in the wake of their expansion progress. Language barrier among others really underestimates their expansion since they cannot communicate very well with the locals. This implies extra costs in getting people that will work for them before they can establish themselves and gain public confidence. This leaves the company with no option but to practice multiculturalism. Multiculturalism is defined in this sense as the ethnic diversity applied to demographic make-up of a specific place especially in an organization. This implies that there must be definite deliberations before establishing any contacts anywhere in the world (Banks, 2007).
There will be repercussions observed whenever any country accepts MNCs in their midst. These companies could easily drive the local firms out of business due to their cheap prices or an overflow in the market. Despite having resources at cheaper prices, they might be forced to export these commodities at their own expense whereas the initial goal was to maximize the market in these host countries. The other result could be the transfer of pricing and its effects on tax revenues (Sell, 2003).
On the contrary, there are several other means within which the country can gain from such expansions. There will be an increase in the employment rates as these MNCs will offer the jobless yet skilled personnel a chance to exercise their aptitudes. This will increase tax revenues for the government since these employed people will be under the rules of the host country where tax revenues will be in accordance to the stipulated laws and policies (Pitelis, 2008). There will be balance of payment since the government will not be the sole employer monopolizing the payments. There will be technological transfer from developed countries to the developing countries which will help bring them to par with what the rest of the world is using.
Cultural barriers really affect these MNCs whenever they venture in host countries. Language is a common barrier that really puts them down. Lack of communication can affect the company very much since it would be expensive to ship workers from the home country to the host country to have them work there. There is a need to involve the locals very much if they are to make it in the market (Putnam, 2007). The cultures there might be restrictive especially when it comes to the production of some of goods. In areas where certain foods are a taboo, the company venturing into the hotel industry would be affected if it was not aware of this before hand. Same case applies to countries that observe region and are against widespread manufacture of alcohol or such drugs. The location could also become a problem since some communities observe nature as their home hence clearance of areas to have them build their enterprises.
Diversity cannot be ignored in the modern day world because of the implications involved. Diversity encourages the growth of the MNC in size. If it will be willing to encompass other cultures in its development of goods and services, there will be enough room for expansion as the people will be more willing to welcome them in their midst if they observe their culture and respect their values (Putnam, 2007). Another aspect is that employing local people will definitely reduce the costs of production as well as the costs of employment. This implies that they will be willing to accommodate more people in their company hence increasing production at lower costs as compared to their mother company. Ignoring this could lead to failure in the business since the local people will view you as a foreigner.
Political issues also arise when such MNCs seek permits to have them operate in foreign countries. For instance, there could be the issue of policy making which could be changing at different times weakening the power of these MNCs (Nodia, 2006). This can be solved by signing contracts and treaties that are recognized under international laws that will protect the company’s patents. Another issue would be the threat of nationalization that could force a company to sell its local assets to the government or local nationals (Sell, 2003). This can be solved by signing contracts with the government to protect their existence in their countries. Zoning laws could also be established to suite these companies to their favor.
Economic issues such as taxation are a great hindrance to MNCs. These taxes are sometimes overrated especially for global companies which would raise their costs of production. Another issue is the trade blocs that the country may be signatory to. The solution here would be evaluation of the SWOTS in the country before venturing into such areas. If the sanctions are within international limits, then it would be okay to venture (Nodia, 2006). Therefore, the PPQ executives must be overly aware of such issues that would hurt their business endeavors. Moving to economic powers like Germany and Japan require one to establish a good foundation that can support them incase the need arises.
References:
Banks, J.A. (2007) Issues and Perspectives: Multicultural Education:, Boston: Allyn & Bacon.
Nodia G., (2006)‘Nationalism and the Crisis of Liberalism’, London: Oxford University Press
Pitelis, Christos (2008). The nature of the transnational firm. Michigan: Routledge. p. 74
Putnam, Robert D. (June 2007), ” Diversity and Community in the Twenty-first Century ” Scandinavian Political Studies 30 (2), p.475-480
Sell S. (2003), The Globalization of Intellectual Property Rights: Private Power, Public Law. Cambridge: Cambridge University Press
