Problems and Challenges Faced by Multinational Corporations (Mncs) Operating in Less Developed Countries (Ldcs)

1824 WordsJul 10, 20128 Pages
Introductions A multinational corporation (MNC) is a corporation that operating in two or more countries, known as host countries but managed from one country, known as home country. Multinational Corporation is also known as international corporation (Wikipedia, 2011). Besides that, MNC can be defined as a corporation that derives revenues from operations in countries other than home country (BusinessDictionary, 2011). The objective of MNC to operate in other countries is to gain competitive advantage through several ways. Firstly, MNC is able to take advantage of difference in country-specific circumstances. For example, MNC may choose to locate its productions in less developed country like Vietnam to gain cheap labor cost. Secondly,…show more content…
There is a very good example which can reflect the situation perfectly is the case happened at Argentina in 2001, where the country has changed the government for three times in just two weeks time due to the financial crisis that lead to collapse of the economy. Then, foreign investors faced problems like utilities and energy as there was a new legislation against them issued by the new government (Alvaro & Mehmet, 2007). 3) Government effectiveness According to World Bank, government effectiveness is referring to captures perceptions of the quality of public services, the quality of the civil service and the degree of its independence from political pressures, the quality of policy formulation and implementation, and the credibility of the government's commitment to such policies. This is important for foreign investors because they do not wish to pay for the deficiencies in the provision of public goods by government. Developing country MNCs may have more experience as they used to doing so at home where home governments do not supply them goods. Therefore, MNCs may suffer for the ineffectiveness of the government which can lead to unexpected cost and also size of the operations being limited in the country. LDCs have lower government effectiveness which causes the government systems and establishments are slow and politically dependant, thus lead to lack of high quality of public goods. 4) Regulatory quality According to World Bank, regulatory

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