International Management · PDF fileInternational Management Prepared by: CHUOP Theot Therith, MBA, BIT, DPA 2 2. DEFINITION 2.1. MULTINATIONAL CORPORATION Multinational corporations

Discuss how the political

legal and technological

environment impacts the

operations of multinational

corporations (MNCs)

globally Providing with

relevant examples to support

the discussion

International Management Multinational Corperation

Mr CHUOP Theot Therith MBA BIT DPA

International Management

Prepared by CHUOP Theot Therith MBA BIT DPA 1

1 INTRODUCTION

Politic legal and technological environment is triangle corner that directly impact the

operation of Multinational Corporation globally It is one topic of International Management (IM)rsquos

course content ldquoInternational Management (IM) is a distinctive approach to understand the theory

and practice of managing across borders This course is about global management It focuses on the

cultural factors that influence behavior in the workplace and examines the skills needed to manage

across bordersrdquo (DR KENNETH KEE KIA HIONG Course syllabus of IM date updated 3rd

March

2010 pp1)

The topic is ldquoDiscuss how the political legal and technological environment impacts the

operations of multinational corporations (MNCs) globally You must provide relevant examples to

support your discussionrdquo

The purpose of this topic is in order to enhance the studentsrsquo learning skills that they will be

able to

- have knowledge of some of the major changes that are currently taking place in the

political environment of China Europe Russia and Central and Eastern Europe

- understand the legal and regulatory environment in which MNCs operate worldwide

- have knowledge on how key technological developments impact on MNCs now and in the

future



2 DEFINITION

21 MULTINATIONAL CORPORATION

Multinational corporations are business entities that operate in more than one country The

typical multinational corporation or MNC normally functions with a headquarters that is based in

one country while other facilities are based in locations in other countries In some circles a

multinational corporation is referred to as a multinational enterprise (MBE) or a transnational

corporation (TNC)

MNC is a corporation that has its facilities and other assets in at least one country other than

its home country Such companies have offices andor factories in different countries and usually

have a centralized head office where they co-ordinate global management Very large multinationals

have budgets that exceed those of many small countries

22 POLITICAL

Politics is a process by which groups of people make collective decisions The term is

generally applied to behavior within civil governments but politics has been observed in other

group interactions including corporate academic and religious institutions It consists of social

relations involving authority or power and refers to the regulation of a political unit and to the

methods and tactics used to formulate and apply policy

The Political Environment affects opportunities at a local or international level The critical

concern Political environment has a very important impact on every business operation no matter

what its size its area of operation Whether the company is domestic national international large

or small political factors of the country it is located in will have an impact on it And the most

crucial amp unavoidable realities of international business are that both host and home governments

are integral partners Reflected in its policies and attitudes toward business are a governments idea



of how best to promote the national interest considering its own resources and political philosophy

A government controls and restricts a companys activities by encouraging and offering support or

by discouraging and banning or restricting its activities depending on the government Here steps in

international law International law recognizes the right of nations to grant or withhold permission to

do business within its political boundaries and control its citizens when it comes to conducting

business Thus political environment of countries is a critical concern for the international marketer

and he should examine the salient features of political features of global markets they plan to

23 LEGAL

Legal is the meeting requirements under law The legal system maybe derived from common

law civil law socialist law or Muslim law and it is a reflection of the countryrsquos culture religion

and traditions

The legal environment including Legal Subjects (international law constitutional and

administrative law contract law etc) Legal Theory Legal Institutions ( Judiciary Legislature

Executive Military and police Bureaucracy Legal profession Civil society ) and Legal System

To find out how the legal environment impacts the operations of MNCs we should discuss on (1) -

Four global foundations of law and (2) - Basic principle of international law The detail will be

discussed on the point 32 ldquoLegal environment that impact MNCsrdquo

24 TECHNOLOGY

Technoglobalism is the phenomenon in which rapid developments in information and

communication technologies (ICTs) are propelling globalization and vice-versa An MNCrsquos major

concern is the appropriability of technology ndash that is the ability of the innovating firm to profit from

its own technology by protecting it from competitors



3 THE IMPACT TO THE OPERATION OF MNCs

31 POLITICAL ENVIRONMENT THAT AFFECT MNCs

The political environment has a huge influence upon the operation of MNCs and the

spending power of consumer and other business The issues are political stability the governmentrsquos

position on marketing ethics the governmentrsquos policy on investment economy the governmentrsquos

view on the culture and religion and the government is involved in trading agreements such as EU

NAFTA ASEAN or others or not

311 Government Policies

Example Cambodia

In fact MNCs faces major obstacles when doing business in Cambodia such as

- Poor infrastructurehigh transporting cost (Almost physical infrastructure was destroyed by

civil warPOL POT regime

- Active involvement of government institutions in business affairsbureaucratic

- Government regulation is complexity or not enough

- Neglect corruption

- Lack of qualified employee

Facing with the issues above the Royal Government of Cambodia developed policy to

Strengthening Private Sector and Attracting Investment in side1-rectangular 3 of the ldquoRectangular

Strategyrdquo as following

a The Royal Government has ensured the reduction of business transaction costs and

expanded market access as well as reduced transportation costs and improved travel safety by



improving physical infrastructure thus ensuring integration of rural and urban economies The

Royal Government has developed necessary legal framework for private sector development and

strengthened the Government-Private Sector Forum to function as an effective dialogue and

dispute settlement mechanism Reduced requirements for documents has facilitated trade and

businesses particularly through the implementation of Single Administrative Document -SAD

system and Single Window service

b To facilitate private sector development the Royal Government will continue to accord

priority to improve physical infrastructure through increased public investment in transportation

networks including roads railways waterways (river sea) and air routes to increase the electricity

generating capacity and expand the distribution network in urban and rural areas to provide energy

at a reasonable charge to strengthen and expand the modern telecommunication network to make

services available at a reasonable low charge to enhance and widen the clean water supply network

and to enhance and expand infrastructure system for cultural and natural tourism sector

c The Royal Government will make further efforts to expand international market access

through concerted implementation of its obligations under the framework of WTO ASEAN and

sub regional and regional economic integration initiatives In addition the Royal Government will

continue to strengthen the supportive legal framework for the private sector including laws and

regulations and administrative procedures and improve productivity through training for employees

technicians and skilled labour ensure fair competition promote trade facilitation enforce the

labour law and strengthen the dispute settlement mechanism

d As an important part of the policy for diversifying the economic base the Royal

Government will promote a favourable climate for developing the agro-processing industry and

assembling industry including electronic and machinery assembly In addition the Royal



Government will continue enhancing necessary legal framework especially creating the law for the

efficient operations of Special Economic Zones

e The Royal Government will continue promoting the public and private sector partnership

for investment especially for physical infrastructure projects

Particularly Cambodia has the Council for the Development of Cambodia that is the sole

and one-stop service organization responsible for rehabilitation development and over-seeing

investment activities It is the Royal Governments Etat-Major responsible for the evaluation and

the decision making on all rehabilitation and development and investment project activities

Cambodia already had the Investment Law Commercial Law and recently it has just adopted the

Anti-Corruption Law

Regional Example China

Emerging economic power

Government attempting to open up economy

o Speed up conversion of state enterprises into corporations

o Trade liberalization a top priority since joining WTO in 2001

o Becoming a more open democratic society

o Greater tolerance of individual freedoms

o Worker retraining low-cost housing and other programs

o Seeking to unleash a more dynamic market economy

Regional Example Europe

Privatization and economic liberalization reinforce EU-wide political and economic

integration



Political power is variable and complex

Strong opposition to US-led intervention in Iraq sometimes spill over into business

relationships and dealings

Europe is a large interwoven region economically but contains vast cultural differences

Example The Middle East

In Iran and Saudi Arabia laws and government based on Islamic principles

Business conduct in Middle East similar to Western in many ways

Worldwide fallout from war on terrorism have made business environment there risky

and potentially dangerous

Example Russia

Neglect and confusing changes in economic policy

Infrastructure is weak and a political quagmire

312 Stability of the Government

Stability of the Government is very importance for investment-MNCs and countryrsquos

development as well

Therefore the Royal Government of Cambodia set out the Peace Political Stability

Security and Social Order as an overarching environment for the implementation of the strategy

a During the third legislature the Royal Government has strengthened peace political

stability security and social order in order to achieve macroeconomic stability development and

poverty reduction As a result Cambodia has managed to increase the confidence of investors and

tourists as reflected in the increase in investment and the number of visitors into Cambodia At the

same time Cambodian people are able to carry on their normal lives and actively participate in the



countrys economic development according to their ability Socio-economic development in turn

forms the foundation for a lasting peace political stability security and social order

b The Royal Government therefore will continue its efforts to further consolidate peace

political stability security and social order to ensure fundamental conditions to build and reform the

state in order for Cambodia to move further forward on the path of development and prosperity In

this spirit the Royal Government will do its utmost to strengthen security and substantially reduce

crimes promote the Rule of Law enhance the respect for human rights and dignity in all aspects

and open up equitable opportunities to Cambodians from all walks of life

32 LEGAL ENVIRONMENT THAT AFFECT MNCs

MNCs must carefully evaluate legal framework in each market before doing business

Whether which country of the four global foundations of law where the MNCs run and what basic

principles of international law of hostrsquos country is

321 Four Global Foundations of Law

Islamic Law derived from interpretation of Qurrsquoan and teachings of Prophet Muhammad It

founds in Islamic countries - Middle East and central Asia

Socialist Law it origins in Marxist socialist system that requires most property to be owned by

state or state enterprises Continues to influence regulations in former communist countries are

Members of former Soviet Union Peoplesrsquo Republic of China Vietnam North Korea and Cuba

Common Law it origins in English law and it is foundation of legal system for United States

Canada England Australia New Zealand

Civil or Code Law it derived from Roman law and it was found in non-Islamic and non-

socialist countries France some Latin American countries Louisiana in the US Kingdom of

Cambodia

322 Basic Principles of International Law



Sovereignty and Sovereign Immunity An international principle of law which holds that

governments have the right to rule themselves as they see fit

International Jurisdiction A jurisdictional principle of international law which holds that

every country has jurisdiction over its citizens no matter where they are located (Nationality

principle Territoriality principle Protective principle)

Doctrine of Comity A jurisdictional principle of international law which holds that there must

be mutual respect for the laws institutions and government of other countries in the matter of

jurisdiction over their own citizens

Act of State Doctrine A jurisdictional principle of international law which holds that all acts of

other governments are considered to be valid by US courts even if such acts are illegal or

inappropriate under US law

Treatment and Rights of Aliens Countries have the legal right to refuse admission of foreign

citizens and to impose special restrictions on their conduct right of travel where they can stay

and what business they may conduct

Forum for Hearing and Settling Disputes US courts can dismiss cases brought before them

by foreigners however they are bound to examine issues such as where the plaintiffs are

located where the evidence must be gathered where property to be used in restitution is located

Legal and Regulatory Issues in generally

Foreign Corrupt Practices Act

o Illegal to influence foreign officials through

personal payment

political contribution

Restrictive bureaucratization

Privatization



Legal and Regulatory Issues in Cambodia

and its solving measure during the global economic and financial crisis

To help the sectors directly affected by the crisis such as garment tourism construction and

real estate sector the Royal Government has made continuous fiscal interventions for the benefit of

textile factories garment factories and footwear manufacture as well as industry supporting this

sector In this regard the government has suspended the withholding tax on profits for garment and

footwear factories till end of 2012 although this caused the State to lose cash for monthly use on

average 4 billion Riels per month in 2009 and losses will be over 4 billion Riels in 2010 At the

same time to allow garment supporting enterprises to implement 0 VAT makes the State lose

recurrent revenue for monthly use of 43 billion Riels per month on average in 2008 and the loss

has increased to about 93 billion Riels in 2010 In addition to this intervention the Royal

Government has helped pay the 03 risk contribution on behalf of garment and footwear for 2

years (2009-2010) Along with the assistance to increase productivity in the garment sector through

the enhancement of social safety net as well as re-training and providing jobs for victims in the

sectors affected by the crisis the Royal Government has launched the Samdech Techo Prime

Ministers Special Fund This has provided training for a total 40140 adults and worker who had

lost their work and had been unemployed across the country At the same time the Royal

Government has also established an Agriculture Support and Development Fund to advance

development of agriculture in general and in particular to increase productivity in this sector

especially rice and paddy and to diversify growth bases The Royal Government has paid attention

to and set out measures one after another to reduce entrepreneursrsquo expenditure both formal and

informal in order to promote competitive advantage and effectiveness in attracting investment



Further the Royal Government has set out a number of other measures through interventions

of public finance and measures to implement tax and excise policies for the private sectors as

follows

a To serve the agriculture sector the Royal Government has reduced the custom tariff from

35 to 7 for 6 tariff line on goods such as engine of the small tractors (ko yun) diesel engine for

tractors and grass cutting machines and has reduced the tariff from 15 to 0 for 12 tariff line on

such goods such as pesticide spraying machines harvestingthreshing machines and sorting

machine for fruit and other agricultural produce

b To promote development of small and medium enterprises the Royal Government has

reduced the tariff for 634 tariff line In this regard 252 tariff lines have received tariff reduction to

0 rate including barley gravel road rock some minerals and mineral residues cotton hemp fibre

barks textile fiber from plants some natural gemstones silver gold platinum etc

c The Royal Government has been implementing policies of trade facilitation through risk

management in order to establishment a national single window system by maximizing use of IT in

the future For instance the use of colour for treatment channels of Single Administrative

Documents (SAD) at the Sihanoukville International Port has achieved remarkable results In

general in 2009 the level of SAD red treatment channel which requires physical inspection was

about 21 of the total SADs a good level in compliance with the Royal Governments policy

specifying that inspection must not exceed 25 of the total SADs



33 TECHNOLOGICAL ENVIRONMENT THAT IMPACT MNCS

The technology has a major impact on the business It affects the business prospects cuts

down the profits and forces the management to change the course of business operations Any

change in technology changes the work cultures the methods and the systems It affects the speed of

the operations and gives a boost to the productivity of the production system Examples of

technological changes are seen in aviation electronics energy communication customer goods

industry optics medicines and manufacturing

331 Positive Impact

With all of the advances and the new technology there are many positive things that can be

accomplished We can shop online connect with our friends and family email to get things

communicated quickly and even download In doing business especially MNCs gains a lot of

benefits from technological environment such following

Changing at ldquolightning speedrdquo

Internet and telecommunications

o Increasing bandwidthhigh-speed access

o Reduced costs of entryleapfrogging

E-business is the integration of systems processes organizations value chains and entire

markets using internet-based and related technologies and concepts

o Customization (ldquothe long end of the tailrdquo)

o Business to business and Business to consumer

o E-retailing and financial services

Movement of money across borders

ldquoE-cashrdquo ndash a currency without a country

Outsourcing and off shoring



o Information as a commodity

o The 24-hour office ndash increased productivitylower cost

o Technology has reduced and eliminated some work in middle management and white

collar

o Global competition has forced some MNCs to outsource jobs to offshore productions

o Emerging technology makes work more portable

332 Negative Impact

Unfortunately with great things and the great technology there are negatives that come with

it The main concern is data security and technical error those negative impacts could be

Fear of losing data or electronic files

Decrease in person-to-person contact

Less tolerance for errors

Frustration with co-workers who are not up to date

Overload of data and information

Less distinction between work and personal time

Fear of Big Brother watching

Confusion about technical terms or jargon

Feeling unable to keep up with technology

Employer access to personal financial data

Employer access to personal health data

Fear of being displaced

Employees will lose their jobs

Wages may be reduced



4 CONCLUSION

Multinational corporations are very big with budgets that exceed some national GDPs

Multinational corporations can have a powerful influence in local economies and even the world

economy and play an important role in international relations and globalization The presence of

such powerful players in the world economy is reason for much controversy

To success in doing business as Multinational Corporation therefore the political legal and

technological environment is the major factor must be considered and concerned Means investors

should understand well about (1) the basic political systems that characterize regions and countries

around the world such as China NAFTA ASEAN Europe Russia Central-Eastern Europe and

host countries in particularly (2) the overview of the legal and regulatory environment in which

MNCs operate worldwide and (3) the key technological development as well as their impact on

MNCs now and in the future

MNC investment makes benefits for LDCs (Less Developing Country) - MNCs used to be

considered exploitative and developing countries used to adopt policies to keep them out and

nationalize their assets by the 1990s however developing countries were competing with each

other to attract MNCs even those countries that used to completely keep MNCs out (Mozambique

Angola China Vietnam Cambodia etc)

To sum up the advantages of MNC investment are employment balance of payments

technology transfer and tax revenues Working together there are some disadvantages of MNC

investment such as uncertainty power and control by the MNC over the host transfer pricing and

the environment



1 INTRODUCTION

Politic legal and technological environment is triangle corner that directly impact the

operation of Multinational Corporation globally It is one topic of International Management (IM)rsquos

course content ldquoInternational Management (IM) is a distinctive approach to understand the theory

and practice of managing across borders This course is about global management It focuses on the

cultural factors that influence behavior in the workplace and examines the skills needed to manage

across bordersrdquo (DR KENNETH KEE KIA HIONG Course syllabus of IM date updated 3rd

March

2010 pp1)

The topic is ldquoDiscuss how the political legal and technological environment impacts the

operations of multinational corporations (MNCs) globally You must provide relevant examples to

support your discussionrdquo

The purpose of this topic is in order to enhance the studentsrsquo learning skills that they will be

able to

- have knowledge of some of the major changes that are currently taking place in the

political environment of China Europe Russia and Central and Eastern Europe

- understand the legal and regulatory environment in which MNCs operate worldwide

- have knowledge on how key technological developments impact on MNCs now and in the

future



2 DEFINITION






corporation (TNC)





22 POLITICAL





















23 LEGAL



and traditions







24 TECHNOLOGY















Example Cambodia

















































Anti-Corruption Law












integration












Example Russia





development as well
































Cambodia
























personal payment



Privatization





























follows


























331 Positive Impact






















collar



332 Negative Impact



















4 CONCLUSION




















the environment



2 DEFINITION






corporation (TNC)





22 POLITICAL





















23 LEGAL



and traditions







24 TECHNOLOGY















Example Cambodia

















































Anti-Corruption Law












integration












Example Russia





development as well
































Cambodia
























personal payment



Privatization





























follows


























331 Positive Impact






















collar



332 Negative Impact



















4 CONCLUSION




















the environment










23 LEGAL



and traditions







24 TECHNOLOGY















Example Cambodia

















































Anti-Corruption Law












integration












Example Russia





development as well
































Cambodia
























personal payment



Privatization





























follows


























331 Positive Impact






















collar



332 Negative Impact



















4 CONCLUSION




















the environment











Example Cambodia

















































Anti-Corruption Law












integration












Example Russia





development as well
































Cambodia
























personal payment



Privatization





























follows


























331 Positive Impact






















collar



332 Negative Impact



















4 CONCLUSION




















the environment





































Anti-Corruption Law












integration












Example Russia





development as well
































Cambodia
























personal payment



Privatization





























follows


























331 Positive Impact






















collar



332 Negative Impact



















4 CONCLUSION




















the environment












Anti-Corruption Law












integration












Example Russia





development as well
































Cambodia
























personal payment



Privatization





























follows


























331 Positive Impact






















collar



332 Negative Impact



















4 CONCLUSION




















the environment












Example Russia





development as well
































Cambodia
























personal payment



Privatization





























follows


























331 Positive Impact






















collar



332 Negative Impact



















4 CONCLUSION




















the environment

























Cambodia
























personal payment



Privatization





























follows


























331 Positive Impact






















collar



332 Negative Impact



















4 CONCLUSION




















the environment























personal payment



Privatization





























follows


























331 Positive Impact






















collar



332 Negative Impact



















4 CONCLUSION




















the environment





























follows


























331 Positive Impact






















collar



332 Negative Impact



















4 CONCLUSION




















the environment





follows


























331 Positive Impact






















collar



332 Negative Impact



















4 CONCLUSION




















the environment










331 Positive Impact






















collar



332 Negative Impact



















4 CONCLUSION




















the environment






collar



332 Negative Impact



















4 CONCLUSION




















the environment



4 CONCLUSION




















the environment