Provided that I had to represent a multinational corporation such as Toyota in negations over building a factory in a foreign country, I would ask the host government for several concessions. First of all, I would ask for tax concessions that should be offered to Toyota for at least two years. In this way, the company can better cover the costs of investment. Secondly, I would insist that Toyota should choose the location for the factory.
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It should be noted that the geographical location of the manufacturing facility is critical for the successful functioning of the supply chain and distribution networks of the company. Moreover, this organization should have access to skilled workers who live predominantly in urban areas of the country. This is why the new factory should be opened in the area where the company can easily recruit workers.
These are the major requirements that I would set. In turn, the major offer of the corporation is the creation of jobs for a variety of employees. In particular, one can speak about the builders, who will construct the factory, suppliers, distributors, and most importantly, people who will manufacture Toyota cars. So, Toyota’s operations in this state can greatly benefit many local people. Secondly, local consumers will be able to purchase Toyota vehicles at a lower price. Finally, the opening of this factor can improve the local infrastructure, for instance, the construction of roads that lead to the factory.
These are the main benefits that Toyota can offer to the host country. In turn, if I had to represent the host government, I would be interested in job creation. One of my tasks would be to ensure that the rights of workers are not violated by the company. For example, this organization should be able to cooperate with local trade unions. Additionally, I would be interested in the environmental practices of the company. If its activities can result in significant air or water pollution, I may object to the opening of the factory. These are the main points that I would stress in my report, and I will assess this corporation in terms of these criteria.
The peculiarities of the international finance system can significantly affect my negotiating position. Special attention should be paid to the host-country currency and the way in which its value is measured (Trent, 2007). For instance, if it is not pegged against the U.S. dollar, I would ask for more concessions from the host government. One should take into consideration that when exchange rates are pegged or fixed level, the fluctuation risks are significantly reduced (Trent, 2007, p. 241).
The revenues of Toyota may significantly depend on the financial situation within a country. Furthermore, this organization should insure itself against the sudden changes in the exchange rate of the currency. Therefore, the management of this company should give preference to those countries that have achieved sustainable economic growth.
When selecting a country in which the factory should be opened, the management should pay close attention to such aspects as its legislature, judicial system, and attitude toward foreign investors. These are the main criteria, according to which different states should be evaluated. In particular, it is necessary to determine how much time it will take to open a subsidiary branch in a foreign country. For instance, such a country as India eliminated legal barriers that prevent investors from entering the market (Wei & Balasubramanyam 2004). Moreover, one should focus on the enforcement of contracts (Goldsteing & Pevehouse, 2012).
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The management of Toyota should know that its business partners in India will fulfill their obligations; otherwise, it would be extremely difficult for this organization to protect its rights. On the whole, the legal environment of the country is essential for the successful functioning of the new subsidiary. If the regulations implemented by the government are not efficient, a foreign company will have to be involved in corrupt practices such as kickbacks or pay-offs. I am a strong opponent of such practices because they are unethical and because they can make an organization vulnerable. Such a corporation can be easily blackmailed into bribery. This is the main danger of being engaged in corrupt practices. It seems that the management of Toyota will agree with this perspective.
So, these are the steps that I would take in order to choose a country and negotiate the agreement with its government. Provided that these steps are not taken, a multinational corporation can make a strategic mistake that will result in significant losses. The agreement that will be developed with the government may have several pros and cons. First of all, Toyota will have access to the skilled labor force and a new market. Nevertheless, at the same time, the corporation will become dependent on the policies of a foreign state. This is the most important point that should be kept in mind. There are several peculiarities of a country that managers should consider, namely the availability of skilled labor force, legal environment, and financial incentives that the government can offer.
Goldsteing, J. & Pevehouse, J. (2012). International Relations. New York: Longman Publishers.
Trent, R. (2007). Strategic Supply Management: Creating the Next Source of Competitive Advantage. New York: J. Ross Publishing.
Wei, Y., & Balasubramanyam,V. (2004). Foreign Direct Investment: Six Country Case Studies. New York: Edward Elgar Publishing.