Political and Legal impact of Multinational Corporations
Political Factors Affect Multinational Corporations
Political factors are government regulations that influence business operation positively and negatively. Managers must keep a bird’s eye view over political factors. These factors may be current and impending legislation, political stability and changes, freedom of speech, protection and discrimination laws are factors affecting business operation and activities
There are many external environment factors affect business negatively and positively. Business managers must address these factors and make decisions that minimize the impact of external environment. These factors include political factors, economic, social, technological, legal and environmental also known as PESTLE Analysis.
Political factors and environment of a country impacts any business organization and can also introduce a risk factor can cause the business to suffer losses or compromise over its profit stream. Political environment can change because of the policies and actions of the prevailing government at every level, federal to local level. It is very important that a business should plan for the variability in the policies and regulations of the government to maintain a stable business environment.
Political Factors Affect Multinational Corporations Environment
With a change in administration policies, there arise political factors that can change the entire business scenario. These changes can be economic, legal or social and can include the following factors:
- Tax and economic policies: Increasing or decreasing rate of taxes is a good example of a political component. Government regulations may raise the tax rate for some businesses and can lower the same for others due to specific reasons. This decision will directly impact businesses. This is why maintaining a strategy which can deal with such situations is very important.
- Political stability: Lack of political stability within a country can significantly impact the operations of a business. This can especially be true for businesses that are operating on the global scale. For instance, a hostile takeover can take over a government. Eventually, such a situation will lead to looting, riots and general disorder within the environment. Such situations can disrupt business operations and activities which can have a major impact on its bottom line.
- Foreign Trade Regulations: Every business has a need to expand business operation to other countries. However, political background of a country can influence the desire for a business to expand its operations. Tax policies that are particularly controlled by the government can induce a particular business to expand operations in different regions whereas; other tax policies can hinder the process of business expansion for some industries. Government initiatives, which have been designed to support local businesses, might work against international companies when the question is of their competitiveness in a foreign region.
- Employment Laws: Employment laws are made to protect the rights of employees and include every aspect of employer/employee relationship. Employment law is an aspect that is very complex and involves several pitfalls as well. When businesses’ are in touch with the latest developments in this law, they can manage to take their business in the right direction however, those who get it wrong needs to be completely prepared for the expensive results it will generate. In modern corporations, employees are almost 98% of the company for the accomplishments or lack thereof and any changes within employment law will, of course, have a great impact on the business operations.
Legal Challenges Faced by Multinational Companies
Multinational companies, or MNCs, conduct business worldwide. While this model greatly increases the number of potential customers, it also requires companies to know the laws and practices of nations with which they do business. Different nations have different laws on human rights, environmental resources and competition — all of which could make for greater profits or greater troubles.
- Lax Laws
Businesses based in the United States must follow strict laws regarding the treatment of workers, minimum wages, antitrust, anti-bribery, discrimination and environmental responsibility. Often, American companies find laws regarding these subjects much more lax in other countries. While U.S. companies remain bound to follow American laws regarding such activities as equal opportunity hiring, they may capitalize on lower local wages or safety practices that save them money. But though activities such as bribery might be expected in some countries, American companies remain bound by U.S. laws against such practices.
Nearly every country has its own tax system designed to earn money from companies doing business there. But though they are technically required to do so, some companies exploit loopholes and vague tax laws in order to duck paying taxes to host nations. Such tactics can cost host nations billions and can generate U.S. Treasury investigations into tax avoidance and evasion.
- Public Policy Abroad
U.S.-based multinationals technically are forbidden from interfering with the public policies, governments and elections of other countries. Companies can, however, legally contribute to political candidates abroad as they may do at home. Legal and ethical issues arise when mega-corporations exert financial pressures on countries that depend on U.S. aid. Large multinationals may, for example, urge U.S. legislators to cut off aid to a country if certain environmental laws are not relaxed. And illegally influencing foreign policies can carry stiff penalties at home.
- Human Rights and Child Labor
No two countries have identical definitions of human rights or treatment of citizens. This can complicate how multinationals operate within the laws of other countries. In the 1990s, clothing makers such as Nike faced domestic investigations over accusations that their foreign manufacturing sites used child labor, even though the practice was within the laws of the host nations. In 2001, a Sudan church sued Talisman Energy for having built roads and airstrips that were used in a civil war.