6. Research and Development
Research and development can cause a conflict of interests between the MNC and the host country in several ways. The first is the location of the research and development facilities. Most host countries urge MNCs to establish local research and development capacity. Having creative work going on helps to accelerate efforts in other areas of scientific research and innovation in the host society. MNCs, however, tend to concentrate research efforts in the home country. Of host countries the most advanced nations are preferred because of their educational institutions and scientific talent. Whatever the scope of the affiliate’s research and development program, growth of such a department is dependent on the home office. And whatever the pattern of relationships concerning research within the firm, it is not one that eliminates the dependence of the host economy on the parent company’s technological priorities. Even if research is done by the affiliate in the host country, the issue of ownership rights over the findings can cause conflict. Should the company decide to use the results of the research in some other country, the benefit to the local economy is minimized.
In sum, the MNC usually helps the host country reach a higher level of technology, but not as fast as the nation wants, nor is the technology necessarily the type that the host government deems appropriate for its needs. Further more, there is the problem of who controls the results of the research. So long as domestic ownership and control over key sectors and key technology have not been achieved, national governments feel threatened. The conflict over ownership of technology is taking on new dimensions as MNCs expand their research bases to host countries and as more and more host countries assume the dual role of both host and home country.
7. Human Resource Policies
In the early stages of international growth, a firm tends to staff its foreign-based affiliates with headquarters country managers, that is, home country expatriates. The advantages here are twofold: first, simplicity of selection, appointment, and promotion, all of which can be done in a unilateralist frame of reference without disturbing the established practices and routines of the firm, and second, the relative uniformity of backgrounds of all managerial cadres throughout the multinational structure-everybody is the product of the same national and corporate cultures and has reached his or her position by playing by the same rules.
- Third Country Expatriates: Another source of executive talent is the third country expatriate, who may be defined as a manager who is a citizen of Country A and works in Country B for a company headquartered in Country C. Most of these are multilingual Europeans or Orientals with a European education. Third country nationals are reported to be adept at integrating themselves into new situations and making friends in a foreign social setting than the unilingual U.S. expatriates. A number of U.S. companies have expressed a definite preference for third country expatriates in overseas management positions. The versatility of third country executives may indicate high mobility toward top management positions. All expatriates are a potential source of host country conflict. The local society generally views them with mixed reactions. The upper classes may resist the expatriate because he or she is an influential outsider who threatens the local power and prestige structures. At the same time, they realize the expatriate brings new technologies and behavior patterns that benefit their country and themselves. The lower classes resent the presence of expatriates because they are foreigners and because they hold prestigious high paying positions. Racial or religious biases tend to compound the resentments further. The MNC must learn to sense and be guided by the strength of these nationalistic and xenophobic feelings. Host society reactions will range from slowing of permits and documents in government offices to acts of terrorism and destruction of property.
- Host Country Nationals: Established MNCs have come to rely heavily on host country nationals as the source of executive personnel. The reasons for this switch have been the following: the need for understanding the local environment, the rapid growth of overseas operations requiring speedy expansion of the management group, the increased ability to utilize individuals with different national backgrounds successfully in the corporate structure, and direct or subtle pressures by host country authorities to replace expatriate managers with indigenous employees. While all host governments appear to favor their people strongly in executive assignments, they nonetheless can violently object to the salary policy of the MNC. In this area the MNC can be criticized if it holds fast to local salary standards, for underpaying local nationals in comparison with headquarters executives, and criticized if it exceeds the local standards, for under mining local firms and pirating their best people. This is a real dilemma.
- Personnel Practices: In the arena of employment policies, there are several potential conflicts. One is the attempt to impose the home country’s methods, mannerisms, and behavior patterns on the host society through the operations of the affiliate. For example, an Italian affiliate of one MNC scheduled two hours for lunch and a half day of work on Saturday, as is customary in Italy. Taking for granted that shifting the working hours and workdays of the week would lead to greater productivity, the head office ordered the affiliate to drop the Saturday shift and to shorten the lunch time to 45 minutes. This change met such strong resistance from the Italian workers that productivity plummeted. The hiring and firing policies of affiliate of most U.S. based MNCs parallel those of the parent company; that is, firms shift management personnel, lay off redundant employees, and regroup and retrain labor to meet new tasks. These dynamic and sometimes harsh policies are contrary to the social values of many foreign countries, where customarily both managers and labor receive more stable treatment by the firm and are tied to the firm for extended periods of time. In the area of worker recruitment and training the MNC encounters several problems. In less-developed countries, the most common problem is the scarcity of skilled people – workers, managerial personnel, research and development scientists, and technicians. If the firm imports the needed skills, the host country must forego both the training and the jobs for its own nations; for the MNC to undertake the required training programs locally is often financially prohibitive. In certain host countries manual work cannot be included in any training programs for supervisory personnel because of the strong social stigma attached to it. The same may be true sales. There are difficulties in interesting educated nationals in sales positions in certain countries because in those countries sales work is low in social esteem.
Conflicts may arise also from the promotion policies of the MNC. Some countries have rigid social stratification in which on-the-job achievement and economic performance are not recognized. Merit-based promotion of the most competent or deserving personnel to management or supervisory positions, thus, flies in the face of expectations and notions of social propriety. While less obvious, the same conflict is encountered in many other, particularly developing, countries in a more subtle context.
Transborder Data Flow
Recent advances in both computer and telecommunication technologies have led to their convergence into a new activity, telematics. Modern telecommunication facilities have overcome time and distance as major obstacles to the access of sophisticated computer services for the processing, storage, and retrieval of machine-readable information. Data did, of course, move across national boundaries before the advent of telematics. But traditional media (such as postal, telephone, and telex services) are increasingly being replaced by the electronic transmission of data. The fusion of advanced electronic processing capabilities with modern telecommunications facilities and the speed, accessibility, and interactive capabilities through which time and distance are overcome as obstacles to largescale information mobility, give transborder data flow its potency. MNCs play a central role in establishing the required telecommunications infrastructure; they produce the necessary computer hardware, software, and peripheral equipment; and they offer a growing range of data-processing services as well as access to an expanding amount o machine-readable data.
This situation poses a dilemma to all LDCs. On one hand they recognize the great significance of telematics for obtaining accurate economic and political information both in their domestic and international spheres; on the other hand they feel vulnerable because of their inability to match the MNC’s capacity with their own facilities of telematics and transborder data transmission. The competitiveness of their domestic companies is thus threatened by the MNCs growing superiority in identifying alternatives and reducing uncertainties, facilitating implementations, and effectively pursuing profitable business ventures. Beyond the activities of the MNCs, the host governments perceive the increasing role of telematics and transboundary data flows as negatively affecting all aspects of relations between the poor and the rich countries; to the extent that their ability to collect, store, process, and access information is inferior — and the lag has been increasing — they fear their ability to negotiate persuasively and interact effectively with other nations will be eroded.
Because of these concerns, less-developed host countries have started to promulgate regulatory measures requiring MNCs to share their telematic equipment and software technology with various indigenous installations for the production, processing, transmission, and dissemination of a wide variety of data: economic, scientific, political, social, and legal. It is highly doubtful that MNCs will be able to accommodate all these demands. The telematics issue is too new to allow any informed predictions as to the compromises that will be ultimately struck between the host governments and MNCs to resolve it.
Credit: International Business Environment(MBA-IB)-AU