Exporting and Trading info

OPERATIONAL IMPACT OF INTERNATIONAL BUSINESS ACTIVITIES The relationship between international firms and societies has generated so many allegations and controversies that it is impossible to examine all of them in this chapter. A number of them deal not so much with whether international business should take place but rather with some specific practices. These latter allegations apply to specific operational areas of management and can, fortunately, be examined in later chapters of the text. They are no less important than the overall areas discussed in this chapter and are listed as follows to illustrate the wide range of criticisms: 1. In transferring technology to LDCs, prices are set too high and sales are restricted too stringently (Chapter 15). 2. If a country attempts regulation, MNEs merely divest and move where regulations are less stringent (Chapter 16). 3. The centralization and control of key functions by MNEs in their home countries perpetuate a neocolonial dependen...

Bribery Extent No discussion of the impact of MNEs would be complete without mentioning the disclosures in the 1970s of payments to governmental officials variously described as "scandalous," "improper," "extorted," "unauthorized," "questionable," and "illegal." Inquiries by the Securities and Exchange Commission (SEC) revealed that such payments amounted to several hundred million dollars.32 While much of the criticism has been vented against MNEs (especially those from the United States), it is interesting to note how widespread the practice has been. The investigations showed that officials in industrial as well as developing countries, foreign as well as U.S. nationals, communists as well as noncommunists, have all participated in bribery.33 Bribery is commonplace in many countries, and international firms have conformed. Motives By far the biggest motive for the outlays was to secure business that otherwise might not...

Political Involvement There is concern that the foreign firm will meddle in local politics to toster its own objectives rather than local ones. As recently as 1949, an association of     six European firms handled 66 percent of Nigeria's imports and 70 percent of      jts exports; other European firms had a virtual monopoly on shipping and  banking. Because of this economic power, the foreign companies, through forced regulations, forbade Nigerian competition and employment except in the more menial and lower-paying activities. Despite the headline examples, such as the discovery in 1972 of offers by ITT to support a group that planned to overthrow the Chilean government, most evidence shows that international firms have avoided local political involvement in recent years. Even in the ITT situation, the argument could be made that the action was no different than that taken by many locally controlled firms facing nationalization. Nevertheless, such inst...

Host-Country Captives Critics have made allegations that MNEs may become so dependent on foreign operations that they begin to try to influence their home government to adopt policies favorable to the foreign countries although those policies may not be in the best interests of the home government. Such assertions are difficult to support because there is always disagreement on what policy will lead to the "best interests." However, there are certainly many examples of lobbying efforts by MNEs seeking the adoption of policies that ar more palatable to the people abroad with whom they are doing business. For instance, MNEs have lobbied for different U.S. treatment toward governments in Angola, Nicaragua, and South Africa.

MNE Independence The discussion thus far has centered on the fear that international firms are unduly influenced by their home governments. Many observers also fear that these companies can, by playing one country against another, avoid coming under almost any unfavorable restrictions. For instance, if they do not like the wage rates, union laws, fair-employment requirements, or pollution and safety codes in one country, they can move elsewhere or at least threaten to do so. In addition, they can develop structures to minimize their payment of taxes anywhere. This ability to play off one country against another is more likely to be evident when negotiating initial permission to operate in a country and among countries within a regional trade agreement. For example, France has become less bureaucratic in approving FDI entries, a change that was implemented after an experience in which General Motors opened a plant in Spain to export to France after France had refused the GM entry.31...

Key Sector Control Closely related to the extraterritoriality concept is the fear that if foreign ownership dominates key industries, then decisions made outside of the country may have extremely adverse effects on the local economy or may exert an influence on local politics. This suggests two questions: (1) Are the important decisions actually made outside the host countries? (2) If so, are these decisions any different from those that would be made by local companies? There are many examples of business decisions that can and have been made centrally, such as what, where, and how much to produce and sell and at what prices. These decisions might cause different rates of expansion in different countries and possible plant closings with pursuant employment disruption. Furthermore, by withholding resources or accepting strikes the international firm may affect other local industries adversely as well. Some observers argue that governments generally have more control over companie...

Extraterritoriality When governments extend the application of their laws to the foreign operations of companies, the term used to describe the situation is extraterritoriality. Host countries generally abhor these situations, since they weaken the host country's sovereignty over local business practices. Companies likewise fear situations in which the home and foreign laws conflict, since settlement inevitably must be between governmental offices, with companies caught in the middle. Laws need not be in complete conflict for extraterritoriality to exist. Laws requiring companies to remit earnings or to pay taxes at home on foreign earnings certainly have affected foreign expansion and local governments' control over the expansion. French firms (such as Moet-Hennessy, Piper-Heidsieck, Tattinger, and Mouton-Rothschild) are prevented by French law from using the term champagne for the sparkling wine they produce in California.16 Although extraterritoriality may result from le...

POLITICAL AND LEGAL IMPACT OF THE MNE Because of the size of many MNEs, there is much concern that they will undermine through political means the sovereignty of nation-states. The foremost concern is that the MNE will be used as a foreign policy instrument of its home government.15 Since the home countries for nearly all MNEs are industrial countries, it is understandable that this concern is taken most seriously in LDCs, although it is not restricted to them. Two other sovereignty questions are raised less frequently. One is that the MNE may become independent of both the home and the host country, thus making it difficult for either country to take actions considered to be in the best societal interest. The other is that the MNE might become so dependent on foreign operations that a host country can then use it as a foreign policy instrument against the home or another country.

Growth and Employment Effects  Unlike balance of payments, the growth and employment effects of MNEs are  not necessarily a zero-sum game among countries. Early economists assumed  production factors were at full employment; consequently, a movement  OI anY °f these factors abroad would result in an increase in output abroad  and a decrease at home. Even if this assumption were true, the gains in the recipient country might be greater or less than the losses in the donor country. The argument that both the donor and the recipient country may gain from direct investment is premised partly on the assumption that resources are not necessarily fully employed and partly on the industry-specific and complementary nature of capital and technology. A farm-machinery manufacturer may, for example, be producing maximally for its domestic and export market. This firm may not move easily into other product lines or use its financial resources to effect domestic prod...

ECONOMIC IMPACT OF THE MNE Balance-of-Payments Effects Place in the Economic System Of international economic relationships few topics elicit as much discussion as the balance-of-payments effect of trade and investment transactions.5 Discussion itself often leads to incentives, prohibitions, and other types of governmental interference as countries try to regulate the capital flows that parallel trade and investment movements. The distinction between balance-of-payments arguments and other cross-national problems is that gains are a zero sum, meaning that one country's surplus shows up as another country's deficit. If both countries were looking only at a limited time period and if both were interested only in the balance-of-payments effect of international transactions, then one country might justifiably be described as a winner at the expense of the other. In fact, objectives are not this limited. A country may be willing to endure deficits in order to achieve other aim...

Introduction to the impact of the multinational Prime Minister Brian Mulroney was elected in late 1984 and soon thereafter replaced the agency formed by the eleven-year-old Foreign Investment Review Act (FIRA) with a new agency called Investment Canada. Whereas the FIRA's purpose had been to limit foreign control of the Canadian economy, Investment Canada's intent is to persuade foreign firms to invest in Canada. Investment Canada reduced substantially the number of investment applications that are subject to scrutiny: Under it, direct takeovers of Canadian firms with assets of less than C$5 million and indirect takeovers of less than C$50 million need not be examined. The old review board criterion that an investment be of "significant benefit" to Canada has been replaced with a loosely denned "net benefit" to Canada. The birth of Investment Canada did not mark the first time Canada had changed its stance toward foreign investors. In 1972, after decades...