Multinational enterprises are businesses that engage in economic activities within more than one country but which guides the activities from a central decision-making center. Many companies become multinationals due to comparative advantages. The increase in outsourcing and overseas manufacturing has prompted many companies to establish factories, supply chains, and call centers worldwide. There, however, exist various issues that multinationals have to address before venturing into international markets to avoid the risk of losses or closure. To avoid such problems, MNE’s have to consider several factors before establishing a business in a particular country. The factors to consider include economic stability, labor relations, laws, and regulations, and the level of government-provided and mandated benefits in the country.
Economic factors include significant trends in the economy that can promote or hinder a business organization from achieving its goals. Some economies favor capitalists, while others favor socialism, where the government runs most businesses. Some of the economic factors affecting MNE’s include exchange rate fluctuations and inflations, which affect the costs of raw materials and final products (Kang & Jiang, 2012). Organizations also consider financing arrangements since the discount rate captures financing costs. The issue of blocking funds where countries require that foreign companies plow back profits for a set period before remitting them to the parent company is also a critical factor. Some host governments also offer incentives to international companies to investors. Economic factors affect the HR departments of companies significantly since it influences the talent pool and might affect the ability of the company to acquire employees. MNE’s and HR can address the economic factors by researching to understand the economic patterns of a country. The organizations can also plan and set aside funds to handle economic downturns.
Labour relations refer to the system in which employers, employees, and their representatives interact. The government may also be involved in the system either directly or indirectly. MNE’s have to understand a country in terms of the availability and type of labor, and the policies governing the relationship between employers and employees (Cerone, 1978). The crucial issues that MNE’s consider under labor relations include societal values and techniques. The societal values include freedom of association, urge to maximize profits and the question of group solidarity.
Conversely, the crucial techniques include negotiation methods, contract negotiations, consultations, and methods of solving disputes. How an organization handles the issues may encourage or discourage employees from joining a company. Moreover, companies that have poor negotiating skills and which do not allow for consultations are likely are negatively impacted in countries that encourage dialogue between employers and employees. MNE’s and the HR can address the issues of labor relations by training and reviewing employment regulations, avoiding litigation, and complying with the laws.
Laws and Regulations
Recently, the rules meant to manage MNEs have increased, and thus companies have to learn the requirements of a country before venturing into business. Governments understand that MNEs have the potential to foster growth, employment, and skills in the regions they invest in. However, they also know the negativities that the companies may cause in the absence of rules to govern them (Edwards et al., 2017). The companies, therefore, are responsible for their actions under the host country’s laws and also subject to international laws. Other issues affecting MNE’s under laws and regulations include human rights and employment practices, tax laws, interference with the decision-making process, direct bargains by the host government, buying a power of state-owned customers, and differences resulting from product markets, technology, finance, and exports. The issues have a direct impact on the HR department in that the host nation may have policies dictating how the company should manage its employees and how they should reward them. Some of how MNEs and HR could address the issues include policy information where companies note the types of policies that worked before and apply them. Companies should also learn to solve potential problems before they expand and by complying with all laws that are required of them.
Level of government-provided and mandated benefits.
Benefits are defined as services or rights other than wages and salaries provided by the employer to the employee. Different governments bound MNEs by law to pay employees different levels of benefits, which may include Worker’s compensation insurance, unemployment compensation contributions, social security, and social security contributions (Manoli & Weber, 2016). Experts advise MNEs to investigate the level of mandated employee benefits before establishing businesses because some may be too expensive and thus affect the company’s profitability. Some issues that may arise from the benefits are legal matters since most benefits, such as health insurance, are scrutinized by the government, yet the calculations of benefits are prone to mistakes. Some of the mistakes include leaving employees out of the plan, giving unwanted benefits, failing to inform employees what their benefits costs, and sloppy work. HR and MNE can protect themselves by checking the plan’s underwriter, ensuring to abide by state regulations, and compare prices with those of other plans.
Globalization continues to motivate firms to compete globally, and the competition necessitates the need for MNEs. The new competitive market, however, requires managers to understand the external environments of the places they are willing to venture into before venturing into the economies. The location decision remains to be one of the most critical and complex decisions that MNE managers have to make. Factors like the economic characteristics of the company and labor relations that determine the interaction between employer and employees are the most critical factors MNE managers have to address. The laws of a country are also important as they help the firm to avoid illegalities, and the types and amounts of benefits that the government suggests for their employees are also an area of concern as they have a direct impact on the company’s profits.
Cerone, R. J. (1978). Regulation of the Labor Relations of Multinational Enterprises: A Comparative Analysis and a Proposal for NLRA Reform. BC Int’l & Comp. LJ, 2, 371.
Edwards, T., Sanchez-Mangas, R., Jalette, P., Lavelle, J., & Minbaeva, D. (2016). Global standardization or national differentiation of HRM practices in multinational companies? A comparison of multinationals in five countries. Journal of International Business Studies, 47(8), 997-1021.
Kang, Y., & Jiang, F. (2012). FDI location choice of Chinese multinationals in East and Southeast Asia: Traditional economic factors and institutional perspective. Journal of world business, 47(1), 45-53.Manoli, D., & Weber, A. (2016). Nonparametric evidence on the effects of financial incentives on retirement decisions. American Economic Journal: Economic Policy, 8(4), 160-82.
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