Businesses operating in their native country and others are known as multinational corporations (MNCs). Multinational corporations typically have a centralized headquarters in one country that coordinates global administration and a network of offices, factories, or other facilities across the globe. Many debates have emerged on whether or not the host countries have little influence on the MNC corporations. For instance, host countries’ factors influencing MNCs are socio-economic conditions, institutions, and norms (Panibratov et al., 2017). The host country has some leverage over multinational corporations’ investment decisions due to certain legislation and other factors. Despite these capabilities, nation-states often apply them inconsistently and to varying degrees. Therefore, this essay will discuss how the host country influences MNC operations.
Comparing multinational corporations to local businesses reveals their key distinctions. Their scope of investment goes beyond the borders of their own country and into other nations, where they establish branches of their business and hire locals, thereby becoming integrated into the economy of those nations (Orazgaliyev, 2018). When multinational corporations (MNCs) attempt to enter a host nation, they typically present a range of advantages they are willing to offer to the host country. These advantages give the MNCs a negotiation front in front of the host government.
The host countries have diverse welfare systems, which influence MNC operations. For instance, when workers cannot perform their jobs, protection from welfare systems is available to them. The statutory healthcare, unemployment benefits, pensions, sick pay, and paid maternity and paternity leave that countries provide their citizens might vary greatly. The different duties placed on employers to pay social security contributions may impact the employment contracts they choose to offer. Employers, for example, may use non-standard contracts to lower their contributions to social security. As a result of the limited availability of social services, it may be difficult for multinational corporations to recruit expatriates willing to relocate to a host country. MNCs typically take care of associated costs, such as health insurance premiums.
Different host countries have divergent approaches to conducting their employees’ organization and training system, which may be classified via Fordism and Toytism theories. Some countries may embrace the theory of Fordism, which relies on reducing employee discretion by training workers to do only specific jobs (Bednarek & Parkes, 2021). Such a method assists in minimizing the possibility of human error. Other states may prefer the theory of Toyotism, which allows corporations to train their employees in different work fields (Bednarek & Parkes, 2021). This approach helps to improve the company’s general productivity significantly. Thus, before building a business relationship with any nation, MNCs must take the host country’s most common organizational model into account.
Based on institutional theory, the environment in which multinational corporations (MNCs) conduct their activities has a significant impact on the formal structures that exist within any given organization. Organizations that succeed in becoming legitimated in their respective environments tend to have structures that demonstrate inventiveness, which leads to an increase in the technical efficiency of those companies (Van Zanten & Van Tulder, 2018). When the innovations reach a certain degree of acceptance, it is deemed neglectful and unreasonable not to have them accepted at that point because they have reached such a high level of acceptance. Even if there is no correlation between the structure and increased productivity, preexisting and newly formed organizations will nonetheless take on the form of the organizational structure.
Multinational firms have been a major contributor to economic growth in many countries. By supplementing the insufficient funds these countries receive from either international aid or domestic savings, FDI provides them with external financing. Companies like this provide foreign direct investment (FDI) that is more reliable and secure than commercial borrowing or portfolio investments. In developing countries, foreign direct investment (FDI) averaged $334 billion in 2005, accounting for more than half of all financial flows to these countries (Kuswanto et al., 2017). Companies in the auto industry make large financial investments in the nations where they do business, which can increase the country’s flow of foreign direct investment (FDI). The economy can expand, the trade deficit can narrow, and gross fixed capital creation can soar.
Due to institutional distance, human resource management (HRM) improvements in host country contexts can be more challenging. Hence the need to adjust to IHRM strategies as stated by contingency theory, according to which there is no universal best way to manage companies or other large institutions (Abba et al., 2018). The managing approach must heavily rely on the circumstances of individual cases in each country. Many talks have been about how competition impacts the host country (Van Zanten & Van Tulder, 2018). It is reasonable to anticipate that the presence of a corporation in the United States will stimulate domestic competition provided that there is not a monopoly position in the country. For domestic businesses in the country to remain competitive, they are being pressured to adopt manufacturing techniques or technologies that are more advanced, efficient, and effective.
The host nations can greatly benefit from the expertise and resources that multinational corporations can provide. According to institutional theory, coercion, imitation, and normative ideals have significant institutional roles in IHRM (Van Zanten & Van Tulder, 2018). However, these institutions may bring insufficient ethical standards that exploit the vulnerability of developing nations. The size of these companies suggests that they will make large investments in the host country (Yeh, 2018). Governments frequently offer monetary incentives to businesses to lure them into setting up shop in their country. Foreign direct investment (FDI) may affect the home country positively and negatively.
The contrasting cultural theory connects with the cultural and mental side of MNCs’ cooperation with host countries. In addition, this theory greatly focuses on the individuality of workers with different cultural backgrounds as they may have contrasting views on authority and the concept of work ethics, which may significantly influence the MNC’s staffing practices (Lee et al., 2021). Companies with this type of arrangement try to adapt their working conditions to the mentality of each country they operate in.
The domestic trade policies of a country have the greatest impact on its competitiveness in global markets. Border regulations play a crucial role in how countries manage, control, and shape the operations of businesses within their borders. Governments often have wide latitude in determining export vetting, tariffs, and other trade regulations. Tariff and non-tariff obstacles are widely acknowledged as indicators of the trade policies’ restrictiveness (Chichilnisky-Heal & Heal, 2020). Tariffs are charges levied by a country on commodities that enter its territory. Importing raw materials is crucial for the production process of automobiles. Therefore, governments can utilize their control over import policies as a negotiating chip when courting MNCs.
Incentives and subsidies are two powerful tools that host countries can use to steer commerce in the desired direction. Tariffs and quotas are other tools that can be used. These are strategic policies, and the government can use them to boost trade in particular industries (Orazgaliyev, 2018). As a result of the influence that having control over capital flow and foreign exchange has on a multinational corporation’s ability to distribute profits and dividends, most MNCs consider such powers in their political risk assessments (Harzing & Ruysseveldt, 2019). The authority to restrict capital is delegated to the host nation’s government, which may implement stringent or lenient laws.
One distinct benefit of host countries is easier access to the host countries’ resources. Gaining access to a region’s labor force, raw materials, technological advances, and existing infrastructure is a win-win. This comparative advantage of host countries is based on the characteristics of individual states (Dodgson, 2018). A large domestic market that can easily consume the final products from the automobile industry is available in a highly populated nation like India or China. Due to the sizeable populace, there is likely to be significant demand for private and public automobiles (Seid, 2018). In addition, such countries provide plentiful skilled and unskilled labor essential to production. The government would emphasize the size and purchasing power of the domestic market in response to concerns about market demand. A second benefit is a well-developed infrastructure that allows easy transportation and communication (Lasbrey et al., 2018). Vehicle manufacturing relies heavily on aluminum and steel ores; therefore, countries with access to these resources have more negotiating leverage. Additionally, efficient transport networks make it less difficult and cheaper to get raw materials from their points of origin to the factories.
The host country’s bargaining powers are considered comparative advantages because they vary from country to country. There is a wide variety of trade policies among different nations; some governments employ interventionist strategies, while others employ non-interventionist ones (Kuswanto et al., 2017). It is more likely that governments that have foreign investment policies that are restrictive will have less significant bargaining power than governments that have policies that are favorable to MNCs and offer them subsidies and incentives (Clegg et al., 2018). In addition, as the MNCs grow over time, they decrease the government’s bargaining strength due to the overwhelming benefits they control.
The method of innovation utilized by MNCs is comprehensive in that it considers not just emerging technologies but also novel approaches to completing tasks. MNCs can generate a competitive edge in the host country’s market through innovations (Golovko & Valentini, 2018). This is especially true in situations where consumers have been taken advantage of for a significant amount of time by monopolies.
Multinational corporations have been a major force behind the economic expansion in many nations. Foreign direct investment supplies host countries with external financing, compensating them for the inadequate cash they receive from foreign aid or home savings. Foreign direct investment (FDI) from companies like these is more dependable and secure than commercial borrowing or portfolio investments. For example, foreign direct investment (FDI) in developing nations accounted for more than fifty percent of the overall finance in 2005, with an average flow of $334 billion (Pandya & Sisombat, 2017).
In conclusion, this essay explained the impact host countries have on MNCs, utilizing Fordism and Toytism theories, contingency, institutional and cultural theories. MNCs and host countries have player-specific powers that aid them in effective bargaining before entering a relationship. Host governments facilitate commerce by providing access to domestic markets, while multinational corporations (MNCs) provide citizens with income and services. As multinational corporations (MNCs) continue developing bargaining leverage over host countries, governments increasingly favor collective bargaining over bilateral agreements. This method allows governments to collect as much tax money as possible from multinational corporations. Corruption, political instability, controversial politics, bureaucratic difficulties, inadequate infrastructure (such as roads, ports, or electricity supplies), and an insufficiently competent, trained, and experienced labor force can threaten nation-states’ strength.
Abba, M., Yahaya, L., & Suleiman, N. (2018). Explored and critique of contingency theory for management accounting research. Journal of Accounting and Financial Management, 4(5), 40-50.
Bednarek M. & Parkes A. (2021). Legacy of Fordism and product life cycle management in the modern economy. Management and Production Engineering Review, 12(1), 61-71.
Chichilnisky-Heal, N., & Heal, G. M. (Eds.) (2020). Handbook on the Economics of Climate Change. Edward Elgar Publishing.
Clegg, S., Geppert, M., & Hollinshead, G. (2018). Politicization and political contests in and around contemporary multinational corporations: An introduction. Human Relations, 71(6), 745-765.
Dodgson, M. (2018). Technological collaboration in the industry: Strategy, policy and internationalization in innovation. Routledge.
Golovko, E., & Valentini, G. (2018). Exploring the complementarity between innovation and export for SMEs’ growth. Journal of International Business Studies, 42(3), 362–380.
Harzing, A., & Ruysseveldt, J. V. (Eds.) (2019). International human resource management. (5th Ed). SAGE Publications Ltd.
Kuswanto, K., Hoen, H. W., & Holzhacker, R. L. (2017). Bargaining between local governments and multinational corporations in a decentralized system of governance: The cases of Ogan Komering Ilir and Banyuwangi districts in Indonesia. Asia Pacific Journal of Public Administration, 39(3), 189–201. https://doi.org/10.1080/23276665.2017.1368246
Lasbrey, A., Enyoghasim, M., Tobechi, A., Uwajumogu, N., Chukwu, B., & Kennedy, O. (2018). Foreign direct investment and economic growth: Literature from 1980 to 2018. International Journal of Economics and Financial Issues, 8(5), 309-318.
Lee, H. J., Yoshikawa, K., & Harzing, A. W. (2021). Cultures and Institutions: Dispositional and contextual explanations for country-of-origin effects in MNC ‘ethnocentric’ staffing practices. Organization Studies, 43(4), 497–519.
Orazgaliyev, S. (2018). Reconstructing MNE-host country bargaining model in the international oil industry. Transnational Corporations Review, 10(1), 30-42.
Pandya, V., & Sisombat, S. (2017). Impacts of foreign direct investment on economic growth: empirical evidence from Australian economy. International Journal of Economics and Finance, 9(5), 121-131.
Panibratov, A., Ermolaeva, L., & Pantic, B. (2017). The role of international institutions in MNC-host country relations. Working Papers 8597, Graduate School of Management, St. Petersburg State University.
Seid, S. (2018). Global regulation of foreign direct investment. Routledge.
Van Zanten, J. A., & Van Tulder, R. (2018). Multinational enterprises and the Sustainable Development Goals: An institutional approach to corporate engagement. Journal of International Business Policy, 1(3), 208-233.
Yeh, C. P. (2018). Vulnerability in shaping the MNC-host government relations in different institution-distant contexts. Academy of Management Proceedings. Academy of Management, 2018(1), 17128