What are the Important Issues related with MNEs?
Such options include forming international guidelines and codes of conduct, using international standards of invoicing and custom procedures, harmonizing global tax systems, negotiating and concluding international conventions, and establishing international arbitration procedure.
Technology is the practical and methodical application of knowledge and use of techniques which supports/enables application of science, existing resources and human know-how in productive activities and contributes in development.
Technology transfer means ‘the movement of the technology required for economic firm’, or horizontal (one industry or country to another industry or country). MNEs account for approximately three fourth of the worldwide civilian research and development. Hosting MNEs from developed countries is, potentially one important way to gain access to that technology.
The three problems associated with technology transfer by MNEs are – one, MNEs will employ technology that most suits their strategic needs, not that required by host countries (Capital Intensive Vs Labour Intensive); two, MNEs conduct their RED in their home bases rather than in host countries; and three, at what price. There is no standard pricing model and the price shall depend upon the bargaining strength of the buyer and the seller.
Technologies can be thought of as falling into three categories. Product technology (specifics of a product/service -features and uses), which may be proprietary (being used by someone) and non-proprietary (freely reproduced without infringing on proprietary rights); Process technology, which comprises of hard technology (capital goods, technical specifications, knowledge and necessary support to use the listed technology) and soft technology (management, marketing, finance, et al); and Management technology (human skills to manage an organisation) being specified as bundled technology (being transferred as part of a package) or unbundled technology (accessed independent of a package of resources).
MNEs and Corporate Governance:
Corporate Governance is the system by which business corporations are directed and controlled. It specifies the distribution of rights and responsibilities among different participants in the corporation, such as the board, managers, shareholders, and other stakeholders; and spells out the rules and procedures for making decisions on corporate affairs.
Corporate governance requires developing internal procedures and structures within a firm to minimise agency costs between shareholders, or more broadly, stakeholders, and top management.
Corporate governance reflects and enforces the company’s value and contributes to the firm’s legitimacy and the credibility of its decisions and reporting. Corporate Governance motivates managers to maximise firm value, to create a competitive advantage for the firm and also to engage in social welfare.
The importance of corporate governance in MNEs has never been more evident than today. Recent MNEs debacles, corporate accounting scandals (like Satyam) and the drastic deflation of market values around the globe have resulted in extra attention to this issue.
Although external regulations are one way to improve governance, the prime responsibility for good governance and accountability should lie within the company rather than outside it. Corporate governance remains the same for the domestic and MNEs. However, it differs in following ways:
i. MNEs have to deal with more demanding and more diverse global shareholders and stakeholder groups that seek greater disclosures and more transparent explanations for major decisions.
ii. As a growing number of MNEs get listed on different stock exchanges in different countries, and certain overseas units become independently listed on host exchanges, MNE corporate governance is also becoming much more complex and subject to many more institutional constraints.
iii. Unlike domestic firms that have only one board and one executive team, MNEs may have several boards or executive teams at different levels or in different countries. Many second-tier subsidiaries are legally and financially independent from their parent company and have their own boards and independent executive teams. Effective corporate governance in an independent subsidiary enhances its agent’s (second-tier CEO) compliance with the principal’s (subunit board and the parent company) interest by minimising divergent and opportunistic behaviours.
iv. The corporate governance framework for MNEs includes additional governance mechanisms. There should be three simultaneously operating governance system: (i) market-based governance (as prescribed by SEBI in India), culture-based governance (governance culture and corporate integrity) and discipline-based governance (ethics, compliance and penalties).
v. MNE corporate governance must be designed to cope with much more complex strategies, structures, and environments than domestic corporate governance. Governance design requires not only independence, transparency, and accountability but also a balance of effective governance and business growth.
vi. Finally, MNEs face heterogeneous governance standards institutionalised by different countries throughout the world.
MNEs of developed countries have also to face home country employment issue while going in for outward FDI. The effect of MNEs’ FDI on employment at home varies, depending on the type of FDI and their employment strategy. It is true that due to rapid growth of their FDI in past decade, the share of foreign affiliates in the total employment of developed countries MNE has raised, while that of domestic employment in headquarters and affiliates at home fell. President Obama’s recent measures must be seen in this light only.