Formation of Global Companies Long Answer Type Questions

Question 1.
What are the merits and demerits of MNCs.
Benefits of MNCs can be considered under two heads.
(a) Benefits to the host countries: To the host countries MNCs bring the following benefits.

  • Transfer of technology, capital and entreprencurship to the host country.
  • Creation of local job and career opportunities.
  • Better use of available resources.
  • Greater access to high quality managerial talent that tends to be scarce in host countries.
  • Encouragement to world economic unity.

(b) Benefits to home countries.

  • Continuous -and sufficient supply of raw materials at lower rates from foreign countries.
  • Technology and management expertise acquired from competing in global markets.
  • Home country can derive good income from overseas profits, royalties, licensing fees and management contracts.
  • Job and career opportunities at home countries are increased through overseas operating problem of MNCs.
  • MNCs are working in host countries for profit maximisation and not for the developmental needs of home countries.
  • Sometimes host country may loss of control over its own nation.
  • MNCs may destroy competition and acquire monopoly powers in host countries.
  • The profits of MNCs are remitted to home countries Therefore profits of MNCs are not available for further investment in host countries.

Question 2.
Explain the organization structure of MNC.
Multinational companies, especially smaller ones, face more organizational challenges than companies operating in only one national market. They have to maintain functional organizational units, but they have to fulfill these functions in different ways, depending.on where the business in operating. The essential challenge is to create differentiated organizational units responsible for the foreign markets while coordinating operations across the whole company.

A functionally organized multinational company uses corporate functions as the basis for its organizational structure. Production, human resources, design and customer service are typical functional units. If a functionally organized company has a centralized structure, all operations are based in the home country and individual employees have responsibilities for different national markets.

This type of organization is efficient and effective for companies that are too small to have overseas subsidiaries. Larger companies can have this type of organization, but in a decentralized form, where foreign employees carry out some of the work in their own countries. In this case, companies have to pay special attention to coordinating activities.

A common form of organizational structure for larger companies and businesses that require a presence in the foreign markets is one that’s based in geography. In addition to the home office or headquarters, semi-independent operations are established in the countries where the company is active.

For larger corporations, these can take the form of subsidiaries, while smaller companies can have something as simple as an agent or a small office. This structure affords flexibility; the head office can transfer responsibilities abroad if required by local conditions and if the foreign operation is competent, but it can also take over local operations if needed.

Question 3.
Explain the legal practices of MNC.
Multinational companies (MNCs) are responsible to host countries for their actions there. If they have a presence in the U.S. as most multinationals do they are also responsible under U.S. law for their actions even if they were conducted abroad. Further complicating matters, MNCs are also subject to international law. A clear policy of best practices and a corporate support structure are required for the sake of clarity and compliance.

Competing Laws:
MNCs have a responsibility to obey the laws of each host country, international laws and those of countries with a record of legal intervention in areas such as human rights. Fulfilling this responsibility can be tricky because laws in one country are often incompatible with those in another. That difficulty has increased as international non-governmental organizations (NGOs) have begun pursuing legal remedies in one country for alleged violations elsewhere.

Areas of Concern:
Some legal issues, such as human rights and employment practices, have been particularly troublesome. For example, U.S. financial company JPMorgan Chase was accused of corruption by the Department of Justice for hiring the sons and daughters of prominent Chinese government officials.

The circumstances, as reported in The New York Times, suggested that company executives in China may have wandered into the. problem naively, believing they were engaging in a common hiring practice in China. U.S. investigators then began probing similar practices by five more Wall Street firms doing business in China.

Problem Awareness:
A guidance paper from Pinsent Masons, a U.K. law firm with an extensive international practice, suggests that MNCs should address potential problem areas sooner rather than later. Legal departments can conduct preventive research to identify which areas may cause trouble, promote corporate awareness of those problems and suggest solutions before legal issues arise and. the courts intervene.

Policy Information:
Best practices can also arise from an awareness of a company’s culture and of what kinds of policies have worked in the past. They may also arise from position papers, in-service education programs or the wisdom of senior legal staff with experience abroad. Countries and NGOs can also help MNCs by informing them of best legal practice in specific countries from an international perspective. The International Law Office, for example, distributes its “Code of Best Practice for Corporate Governance” for Nigeria to global counsel.