Non-Homogeneous World and MNCs

Introduction

With the advent of technology and fast means of communication, the world has become more connected than ever. The businesses have crossed borders at a rapid pace and truly global organizations are being formed. In order to carry out businesses, now it is simpler for the organizations to move to other countries in an attempt to make the best use of resources available there (Rugman & Verbeke 2004). In the recent past, the global businesses have been comprehensively influenced by the wave of globalization which has resulted in emergence of a number of multinational corporations (MNCs) around the world (Ambos, Andersson & Birkinshaw 2010). A multinational enterprise is a group of companies which operate in multiple countries. Headquarter of the group is settled in a home country while the subsidiaries or associated companies are settled in the host countries (Dai 2009, p. 355). The core purpose behind the existence of multinational enterprises is to benefit from cost saving opportunities provided by different countries such as tax relaxations, inexpensive labour, availability of raw materials, and favorable regulatory environment (deCarvalho, Ana Lucia & Faria de 1995). Some countries encourage the investment by multinational enterprises therefore they offer them easier tax terms which benefits both the host country and the multinational company (Dischinger et al 2014). The host country benefits from the presence of the multinational company because new investment enters the economic cycle of the country while the multinational company benefits because it has higher amount of net profits due to lower amount of tax (Dowling 2010, p. 77). Globalization refers to the convergence of global markets and the international integration arising from the interchange of different views about products and services, ideas and cultures across the globe. This has been made possible because of advancements in telecommunication and transportation through the availability of steam locomotives, jet engine, container ship, high speed internet, instantaneous communication, as well as removal of global barriers to international trade through various laws and regulations (Martin & Elizabeth 1990). The multinational enterprises are believed to be the most flexible entities that support the idea of globalization (Ionescu & Oprea). There is no shortage of such organizations as each country hosts numerous MNCs and each country is also home to some of them. With the advent of globalization, the restrictions on business have mostly been removed and it has become much simpler for organizations to establish their presence in other countries (Jaithen & Singh 2013). Due to this attribute, there have been a number of businesses that have determined to pursue global growth instead of domestic growth which had been the primary objective of most companies before the advent of globalization (Bartels, Ha Nem & Ohlenburg 2006).  Not all human beings are similar. This means the world cannot be homogenous. We are all differentiated by races and ethnic origins. This fundamental social construct is so strong that it has various social implications for the world. This cultural diversity cannot be eliminated by the similar policies and products being pursued by the MNCs in different parts of the world. Hence there is an inherent heterogeneity in the world.

Drive for Similarity and Differences in Humans of the World

Looking around us it is easy to realize that despite the convergence of global economies the world is different (and not homogenous) in so many other ways. The cultural diversity among people being the first of the reasons. For instance, the 8.6 million population of the Chad in North-Central Africa comprises of people belonging to more than 100 different ethnic groups all having different backgrounds, cultural values and artefacts that shape their behavior and define what are acceptable and non-acceptable norms for humans. Similarly Togo, a republic on the western coast of Africa on the Gulf of Guinea, comprises of around 37 different tribal groups speaking 39 different regional languages (Pew Research 2013). These cultural different incline the people and government of these countries to govern their states in the manner and in the way that is culturally is acceptable and adaptable for the people belonging to these cultures. This cultural diversity directly results in the differences in way people communicate, behave, conduct business and have an effect on their attitudes.

The following map is drawn by Max Fisher from The Washington Post. It highlights the results of the ethnic diversity study conducted by five economists for the landmark 2002 paper for the Harvard Institute of Economic Research. It highlights which countries are ethnically more diverse and which are homogenous (The Washington Post 2013).

It can be clearly seen that the sub-Saharan African nations are most diverse, whilst the European countries are most homogenous. The acceptable benchmarks of these behaviors and interaction among the many heterogenous people and their environment is governed by the various laws and regulations which therefore have several differences in contrast with each other. That’s where the hurdles come in for MNCs. Most of the MNCs have a large resource base and are able to finance their operations in various parts of the world through foreign direct investment (FDI) regulations which support their active involvement in particularly third world and developing countries. Since large organizations can play a great role in defining the way people think and perceive the environment around them, these MNCs are expected to have a significant influence on the culture and way of living of the people wherever they operate. So a debate arises as to whether these giant enterprises that mainly originated as a result of the globalization of economies could create a one giant homogenous culture for the global humans, binding together the people of thousands of different ethnicities all having distinct cultural attributes? Some people believe that the increase in number of MNCs is likely to accelerate the globalization process which would eventually turn every culture into one possessing somewhat similar features and characteristics. Whilst others have supported the notion that humans have their unique ‘capacity for culture’ which differentiate them from other living beings which is why regional differences cannot be eliminated altogether (BBC 2014). The debate is a complex one but a deeper insight of both sides of the argument reveals that as MNCs strengthen their presence in countries around the world these cultural differences will be slightly removed, although not entirely removed. The activities of these global organizations are therefore required to be regulated through codes of practice, laws and regulations for their businesses which define how they conduct their business in the host countries.

 

Implications for MNCs in the Heterogenous World

The biggest problem associated with the operations of multinational enterprises is the lack of accountability of the companies due to lack of corporate regulations in international law. Practically, most of the multinational enterprises are only subjected to the laws and regulations that apply locally in the region where the company operates. Beyond that, the company are not subjected to any standardized laws and regulations which apply to the companies on an international level (Schleper, Martin & Busse 2013). Although the companies are not subjected to any international laws, there are certain codes of conduct, guidelines, and voluntary initiatives that apply to multinational enterprises. Although the implementation of such codes may be voluntary for the multinational enterprises, the existence of these codes influence the behavior of these companies because the companies, specifically those with large scale of business around the world, are required to perform ethically and in accordance with the best practices (Islam 2015, p.67).

 

International Laws and Codes Applicable to Multinational Enterprises

The international codes are normally developed by international organizations empowered through treaties and agreements entered into by multiple countries (Godiwalla 2012). Some of the international organizations that develop codes for multinational companies include: International Labor Organization (ILO), Organization for Economic Cooperation and Development (OECD), European Union, and Foundation for International Environmental Law and Development (FIELD). The codes released by each of these organizations and the impacts of those codes on the way multinational companies operate is presented as follows.

 

ILO Guidelines

The International Labor Organisation addresses the labor related issues on an international level. The organisation collects the domestic standards pertaining to labor regulations and laws, and presents the collection of best standards in a standardized form to help multinational enterprises adopt the standards (Cazes, Verick & Hussami 2011). This collection of local labor laws allow multinational enterprises to ensure compliance with labor laws on an international basis. By ensuring compliance with all the labor laws in the countries where the company operates, the multinational company can ensure compliance with labor regulations on an international basis. ILO has established NATLEX which is a database of national labor, social security and related human rights legislation (Jean 2011, p. 53). This database includes nearly 88,000 records which cover labor laws from 196 countries (Nyland, Bruce & Burns 2014). These records include texts of legislations from different countries. The purpose of this database is to help multinational enterprises comply with the labor laws of all the countries where they operate (Hollifield, Martin & Orrenius 2014).  Another such database is NORMLEX. These guidelines and standards significantly influence the behavior of multinational enterprises on a global level increase the likelihood of the companies to follow the international and local regulations and there will be a marked decline in violations of international labor rights (Ruggiero, Cohen & Cole 2014).

OECD Guidelines

For multinational companies, there are OECD Guidelines which are recommendations put forward by governments to MNCs operating in or from countries that adhere to the OECD guidelines (Doak et al 2012). These guidelines provide non-binding principles and standards for MNCs in an international context which is also in line with the applicable laws and internationally recognized standards (Kühnel & Nickel 2014). These guidelines are the only detailed code of business conduct that multiple governments have agreed to promote among MNCs (Blowfield 2004, p.61). There are a number of aspects which are covered by the OECD guidelines. Some of the aspects which are covered by the guidelines include: environment, promoting sustainable business practices, human rights, employment, consumer interests, science and technology, taxation, competition, fighting bribery, innovation, corporate governance, and information disclosure. Thus, it can be said that the OECD guidelines are very comprehensive and cover a large extent of aspects which pertain to the operations of the multinational enterprises. The purpose of the organisation is to develop and promote policies that can help ensure improvement of economic and social well-being all around the globe. The organisation perform evidence based research and analysis on the conditions prevailing in different industries and different countries and on the basis of the analysis, makes recommendations and develops guidelines which can be used by multinational companies to ensure best practices in an international context.

FIELD Guidelines

The Foundation of International Environmental Law and Development is an independent NGO which operates alongside international institutions and NGOs, and local partners with an objective of enhancing implementation of international environmental law and reduce the exploitation of disadvantaged nations (Werksman, Cameron & Roderick 2014). FIELD is a group of international lawyers which help countries and communities negotiate better international environmental laws (Nanda, Pring & Smith 2013). Ensuring conformity with the environmental laws in different jurisdictions is also one of the challenges for the MNCs.

 

Conclusion

The multi-national enterprises are having a great impact on the lives of people no matter from which part of the world they belong. Changes in lifestyles and living behavior is brought by the products and services offered by these organizations. There are a lot of global brands ranging from Coca-Cola and Unilever to Facebook and Starbucks that are making a global impact through their presence in most of the countries of the world. Every day these companies’ identical stores sell homogenous products to the largely diverse human population which are hence subject to similar product no matter where they live. A loss of diversity can be easily experienced in the global environment where a person in Northern America has the same cup of coffee as a person in Pakistan. Over a short period of time, MNCs have brought together people from relatively diverse cultural backgrounds which leaves us to question if the cultural make-up is an inherent part of our history, how will we survive in a world that is totally homogenous?

The essay also highlighted that the most significant issue pertaining to operations of multinational enterprises is the lack of accountability of the companies which is mainly because of lack of corporate regulations in international law. A large number of the multinational enterprises are only required to follow the laws and regulations that apply locally in the region where the company operates. There are no standardized laws and regulations which apply to the companies on an international level. The chapter presented a critical analysis of the some of the codes that apply internationally to all the multinational enterprises and evaluated the impacts of these codes on the way multinational companies operate. ILO, OECD, and FIELD which are independent international organizations function with a focus on enhancement of economic, environment, and social well-being on a global scale.

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