Multinational Corporations in the International Market


This paper entails a critical analysis of some issues encountered in international business. The issues are based on some questions are illustrated herein.

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Why are governments in today’s world liberalizing cross-border movement of goods, services, and resources?

Governments have a responsibility to ensure that the diverse macroeconomic goals that include price stability, low unemployment, and economic growth are attained. Achieving these goals requires the governments to integrate effective macroeconomic policies. One of the most effective approaches to achieving these goals entails promotion of international trade. However, international trade is influenced by the prevailing trade regime. In the quest to stimulate international trade, most countries are favoring open trade regime as opposed to closed trade regime. The implementation of the open economic systems is being achieved through liberalization of cross-border movement of goods, services, and resources.

The rationale of liberalizing cross-border movements is based on the theory of comparative advantage. Based on this theory, countries can produce the goods and services that can be produced at the lowest cost locally and export them to other countries. Alternatively, countries can import goods and services that are costly to produce locally. Trade liberalization makes international trade possible by eliminating trade barriers across countries. By liberalizing the cross-border movement of goods, services, and resources, the capacity to achieve the economic goals is increased significantly. Some of the notable benefits that have been achieved because of trade liberalization entail attainment of the millennium development goals [MDGs] such as equitable distribution of income and poverty reduction. The rationale for increased liberalization of cross-border movements of goods, resources and services is further underscored by the Heckscher-Ohlin theory. The theory affirms that trade “liberalization increases the relative price of the abundant factor like unskilled labor in developing countries, which in turn reduces poverty incidence and income inequality” (Chaudhry & Imran, 2013, p. 570).

What are the approaches international managers seek to understand when instituting change in the international arena?

Multinational Corporations [MNCs] encounter diverse challenges in the course of operating in the international market. In spite of the market challenges, MNCs have a duty to adjust their operations accordingly to cope with the market changes. There are diverse approaches that the international managers can take into consideration. These approaches include the ethnocentric, polycentric and geocentric approach. However, the choice of the approach depends on the managers’ knowledge in applying the respective approach. The ethnocentric approach involves transferring the management practices and styles adopted in the parent country into the international market. The ethnocentric approach is mainly appropriate if the host and the parent country are characterized by a strong degree of congruence with reference cultural differences. Therefore, a high degree of cultural difference may lead to management failure in the international market.

Unlike in ethnocentric approach, the polycentric approach entails adapting the management practices in line with the host country. Under this approach, the MNCs standardize their operations by seeking an in-depth understanding of the host country’s work ethics, culture, and language. Therefore, the likelihood of MNCs succeeding based on this approach is substantially high. Nevertheless, Baker and McKenzie (2010) argue that this approach is only effective in well-developed economies. Conversely, the geocentric approach is based on the philosophy of generalization. The approach assumes that MNCs can utilize their best human resource managers in dealing with market changes irrespective of where the multinational corporation is situated. The approach further argues that multinational corporations experience similar challenges in their international market operations. The respective approaches provide international managers idea on how to institute change in the international arena.

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What are the differences between common law, civil law, customary law, and theoretical law?

There are different categories of law that have been formulated in the quest to deal with varying situations and issues that might be faced. The core categories include the common law, civil law, theoretical law and customary law.

  • Civil law; civil law focuses on protecting individuals’ property and rights that are not essentially protected under the criminal law. An aggrieved individual or the plaintiff against another party or parties mainly initiates civil law. The civil law further takes into account contractual or commercial disputes. Under the civil law, the plaintiff has a burden to proof his or her claim (Jentz, Miller, & Cross, 2010).
  • Common law; common laws entail the laws formulated by tribunals, courts and judges and are founded on the decisions that were technically used in ruling individual cases. Jentz et al. (2010) affirm that common laws act as precedents, which means that they are used in making rulings on future cases. Based on the precedential ruling, the common law ensures that principles are applied consistently based on the facts provided hence yielding similar outcomes.
  • Customary law; these laws entail the customs and practices of a specific category of local communities or indigenous people. Customary laws are mainly applicable to individuals within its scope and it becomes established because of their long usage. However, customary laws must not be in contradiction with the statute law (World Intellectual Property Organization, 2013).
  • Theoretical law: these laws are also referred to as hypothetical or abstract laws and are used to explain aspects that are difficult to measure using direct means or non-observables. The theoretical laws aid in expounding empirical laws and form the basis for derivation of additional empirical laws.

Why does the argument that ‘anything that is legal is ethical’ insufficient?

Despite the fact that businesses are required to adhere to diverse categories of laws, the laws do not necessarily lead to ethical operation. Ethics refers to what is generally considered right or wrong amongst a certain category of individuals. Some of the practices that might consider right based on the law might be unethical. For example, a logging company firm may be permitted to engage in the production of diverse timber products by law. However, engagement in such business practices might lead to the destruction of unique biodiversity, which to some parties such as the local community and environmentally conscious groups might consider unethical. This aspect underlines the fact that laws are insufficient in addressing the question of ethics. Carles (2005) supports this view by asserting that ethics are extensive and might include aspects that might not be stipulated in the law. Furthermore, the argument that ‘anything that is legal is ethical’ is insufficient because it does not appreciate the importance of respecting other stakeholders. On the contrary, the argument may lead to the development of a culture of self-centeredness, whereby individuals or businesses are concerned with their self-interests. This argument can have an adverse effect in the operation of multinational corporations, for example by promoting unfair competition amongst businesses.

Which stakeholders must companies satisfy? Why is this process more difficult for companies operating abroad?

Companies have a responsibility to address and satisfy the needs of different categories of stakeholders who include the internal and external stakeholders (Boland, 2009).

  • Internal stakeholders
    • Employees; Human capital is a vital component in companies’ quest to achieve sustainable performance. Therefore, companies must focus on instituting an environment conducive for working.
  • External stakeholders
    • The public; businesses have a duty to ensure their operations does not have a negative effect on the society in which it operates. On the contrary, businesses should focus on establishing a mutual relationship with the public to promote smooth business operations.
    • Credit financier, suppliers, and consultants; businesses’ success is influenced by the relationship between the firm and the credit financiers, consultants and suppliers. These stakeholder groups provide companies with critical resources necessary to enhance their performance.
    • Government; companies have a responsibility to adhere to the rules and regulations stipulated directly by governments and other agencies established under law.
    • Customers; businesses are established with the goal of offering or delivering specific goods and services to the target customers. Therefore, their capacity to succeed is dependent on the success in satisfying the target customers.

The process of satisfying the needs of the diverse stakeholders is considerably difficult for multinational corporations. One of the factors that make this process difficult entails the lack of sufficient understanding of the stakeholder needs. This aspect might arise from ineffective identification of the respective stakeholder categories. To overcome this challenge, multinational corporations should undertake an extensive research of the host country.

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The paper underlines the fact that the survival of multinational corporations in the international market depends on the extent to which they are conversant with the conditions prevailing in the host country.


Baker, P., & McKenzie, P. (2010). Australian master human resources guide. North Ryde, NSW: CCH Australia.

Boland, P. (2009). Redesigning healthcare delivery; a practical guide to reengineering. New York, NY: Jones & Bartlett Learning.

Carles, S. (2005). Lawyer’s ethics and the pursuit of social justice; a critical reader. New York, NY: New York University.

Chaudhry, I., & Imran, F. (2013). Does trade liberalization reduce poverty and inequality?  Empirical evidence from Pakistan. Pakistan Journal of Commerce and Social Sciences, 7(3), 569-587.

Jentz, G., Miller, R., & Cross, F. (2010). Business law; text and summarized cases, legal, ethical, global and e-commerce environment. Mason, OH: Cengage Learning.

World Intellectual Property Organization. (2013). Customary law, traditional knowledge and intellectual property; an outline of the issues. New York, NY: WIPO.

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