Allies Through Participation
Allies Through Participation
The foreign company also may foster local participation designed both to reduce the image of foreignness and to develop local proponents whose personal objectives may be fulfilled by the foreign investor's continued operations. The parent company can follow a policy that involves its subsidiary in purchasing local supplies and raw materials whenever possible. It might be feasible for the local subsidiary to subcontract part of its assembly operations. In the case of purchasing component parts or subcontracting, it may be possible for the parent or the subsidiary to make a loan or give technical assistance to help the local supplier initiate or expand a plant. If it is economically reasonable, R&D activities may be undertaken within the host country.
Another possibility for local participation would be a stock-option plan for country nationals employed by the subsidiary, a practice that some firms have followed even in some LDCs. A company interested in improving its image in the host country also may establish a specific program for gradually replacing home-country personnel with local nationals. If local union officials are informed directly by management of possible company actions, they may cooperate with management rather than confront it.
If carried to extremes, local participation can mean that the host country becomes less dependent on the foreign firm. The company strategy might be to hold out on some resources so that the company is needed. For instance, a centralized R&D laboratory might be in charge of new product development, whereas the local R&D facility can handle the adaptations for local market and production conditions.
Some companies have taken on additional social functions to build support. For example, Dow Chemical financed a kindergarten in Chile, Citibank participated in a reforestation program in the Philippines, and McDonald's sponsored a telethon in Australia to raise funds for disabled children. Johnson and Johnson sends Kenyans abroad to study nursing. General Motors publishes a public-interest report to publicize its involvement in a wide array of activities, such as an overseas fellowship program, support for cancer research, AIDS education, and global celebration of Earth Day.45
Firms sometimes have been permitted greater latitude in their operations when they have agreed to invest in priority operations outside their normal line of business. These have been negotiated accords, such as a mining firm's agreement to lay out two plantations in Nigeria in exchange for relative freedom in operating its mining venture.46
Good corporate citizenship and the attendant publicity may not be enough to guarantee the continued conduct of business activity. If public opinion is directed against foreign private ownership in general, such as in the Cuban expropriations, all foreign firms lose out. If a firm is doing business as a key firm in a key sector, criticisms may come simultaneously from so many directions that the company defense gradually loses strength. Even in these exceptional situations, an investor's external affairs department may identify problem areas. If this is done sufficiently in advance, the company may forestall adverse actions and establish policies to prevent or minimize losses, such as decreasing new-parent obligations, selling ownership to local governments or private investors, and shifting into less visible types of local enterprises.
On occasion, an MNE may find it advantageous to be uncompromising in its dealings with a government, even when the adversary positions are reported publicly. The firm may assess its bargaining position as being sufficiently strong to afford to be adamant, or it may perceive that compromises will weaken its position in other countries. Even in these instances, however, the MNE should attempt to keep the government from losing face. Gulf & Western, for example, negotiated for five years with the Thai government for a zinc mine and refinery without coming to an agreement. Then the firm closed its office in Bangkok, which was widely reported as an effort to bully the government into accepting terms. Within a week, the Thai government did accept an agreement, but Gulf & Western announced that the office closing was simply a cost-reduction measure during a transition period.47
The foreign company also may foster local participation designed both to reduce the image of foreignness and to develop local proponents whose personal objectives may be fulfilled by the foreign investor's continued operations. The parent company can follow a policy that involves its subsidiary in purchasing local supplies and raw materials whenever possible. It might be feasible for the local subsidiary to subcontract part of its assembly operations. In the case of purchasing component parts or subcontracting, it may be possible for the parent or the subsidiary to make a loan or give technical assistance to help the local supplier initiate or expand a plant. If it is economically reasonable, R&D activities may be undertaken within the host country.
Another possibility for local participation would be a stock-option plan for country nationals employed by the subsidiary, a practice that some firms have followed even in some LDCs. A company interested in improving its image in the host country also may establish a specific program for gradually replacing home-country personnel with local nationals. If local union officials are informed directly by management of possible company actions, they may cooperate with management rather than confront it.
If carried to extremes, local participation can mean that the host country becomes less dependent on the foreign firm. The company strategy might be to hold out on some resources so that the company is needed. For instance, a centralized R&D laboratory might be in charge of new product development, whereas the local R&D facility can handle the adaptations for local market and production conditions.
Some companies have taken on additional social functions to build support. For example, Dow Chemical financed a kindergarten in Chile, Citibank participated in a reforestation program in the Philippines, and McDonald's sponsored a telethon in Australia to raise funds for disabled children. Johnson and Johnson sends Kenyans abroad to study nursing. General Motors publishes a public-interest report to publicize its involvement in a wide array of activities, such as an overseas fellowship program, support for cancer research, AIDS education, and global celebration of Earth Day.45
Firms sometimes have been permitted greater latitude in their operations when they have agreed to invest in priority operations outside their normal line of business. These have been negotiated accords, such as a mining firm's agreement to lay out two plantations in Nigeria in exchange for relative freedom in operating its mining venture.46
Good corporate citizenship and the attendant publicity may not be enough to guarantee the continued conduct of business activity. If public opinion is directed against foreign private ownership in general, such as in the Cuban expropriations, all foreign firms lose out. If a firm is doing business as a key firm in a key sector, criticisms may come simultaneously from so many directions that the company defense gradually loses strength. Even in these exceptional situations, an investor's external affairs department may identify problem areas. If this is done sufficiently in advance, the company may forestall adverse actions and establish policies to prevent or minimize losses, such as decreasing new-parent obligations, selling ownership to local governments or private investors, and shifting into less visible types of local enterprises.
On occasion, an MNE may find it advantageous to be uncompromising in its dealings with a government, even when the adversary positions are reported publicly. The firm may assess its bargaining position as being sufficiently strong to afford to be adamant, or it may perceive that compromises will weaken its position in other countries. Even in these instances, however, the MNE should attempt to keep the government from losing face. Gulf & Western, for example, negotiated for five years with the Thai government for a zinc mine and refinery without coming to an agreement. Then the firm closed its office in Bangkok, which was widely reported as an effort to bully the government into accepting terms. Within a week, the Thai government did accept an agreement, but Gulf & Western announced that the office closing was simply a cost-reduction measure during a transition period.47
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