How Will Changes in the Political and Legal Environment in the Middle East and North Africa affect U.S. MNCs Conducting Business there?
Increasing trade pact between the Middle East and North Africa has seen significant improvement in the relationship between the United States MNCs and cooperation in the Middle East. However, political instability and uncertainty in addition to legal constraints remain as some of the most challenging factors for business transactions. Over the last couple of years, the Middle East has experienced upheavals especially in their political and legal aspects of the business environment. American MNCs often pose to face some of the most challenging changes that stand as impediments to the peaceful and uninterrupted flow of trade activities between the three nations. MNCs call for an in-depth assessment of some of the political risks and approaches to muddle through such uncertainties.
The Arab Spring brought forth some of the risks and unpredictable situation arising from political and legal changes. The most affected would be disruptions in the supply chain. The case may involve goods blocked or held at seaports. Border restrictions may also pose a challenge for goods destined for inland countries. At the same time, at the borders goods may take long using clearance, a fact that may be due to bureaucracy by political leaders. If goods under transportation are delicate or perishable, their quality may be affected due to the extended period at the seaport or border points. Luthans and Doh (2009), maintain that regional conflicts between two or three countries may also destroy trade facilities such as ports, infrastructure, and workforce critical in the maintenance of a steady chain supply from MNCs goods. With the disruption of the supply chain, U.S. MNCs may experience loss regarding workforce, time, evacuation of staff, and loss of goods due to the disruptions brought forth by changes in political and legal factors in the Middle East and North Africa.
As the most commonly used and sold commodity in the Middle East and North Africa, oil prices may increase to unprecedented levels. The situation may bring forth increase in transportation cost, maintenance of the infrastructural network, and increase in the overall cost of carrying out business in the Middle East and North Africa (Rogmans et al., 2013). In the Middle East and North Africa, well known for their large supply and sale of oil, any political or legal changes are poised to bring forth a significant increase in oil prices. For example, during the 2014 political turbulence in Libya oil prices rose as the country blocked nearly all oil exports. Geopolitical crisis remains one of the most powerful disruptions to regional trade, a fact that may affect any business transaction between the United States MNCs and both the Middle East and North America (Luthans & Doh 2009). With increased prices of oil, business activities between U.S MNCs will obviously require massive amounts of money a factor that will increase operating costs thus reduce profit realization. If the political or legal challenges remain unchanged, U.S MNC may consider a temporary closure of and stop to all the business activities in the hot spot areas. According to Rogmans et al., (2013), prolonged challenges may all together result in permanent closure or disengagement in the trade pact between the U.S MNCs and the Middle East and North Africa countries. It thus means that the U.S MNCs are losing on the lucrative markets of the region, reduced profits, loss of jobs, and new changes to international trades and agreements. Oil remain a critical factor in businesses involving the Middle East and North Africa countries and any significant legal, or political changes are poised to affect prices in the region, a fact that may pose a serious challenge to U.S MNCs (Luthans & Doh 2009).
Due to the changes in political and legal environments in the Middle East and North Africa, United States MNCs may be forced to engage with regional governments with the aim of addressing the changes arising (Rogmans et al., 2013). For example, political tensions between warring groups in a country may force U.S MNCs to coordinate with the countrys government to provide them with sufficient security measures and personnel to safeguard their business interests. Additionally, for new policies and legal aspects of undertaking business activities in a tensed country, the U.S MNCs may be forced to undertake strategic measures. The measures will aim at safeguarding its business interests such as collaborating with regional business companies, a strategy that will only increase the cost of the business transaction and exposure of their plans of activities to third parties (Luthans & Doh 2009).
Changes in the political and legal environment in the Middle East and North Africa may also give rise to weak markets, market uncertainties, and high stakes in trade conditions. A business environment muddled in such complicating scenarios may pose a serious challenge to any credible business activity thus hindering future growth prospects, trade pacts, and withdrawal from strategic markets. MNCs capitalizing on manufacturing economies may find the legal frameworks challenging and unsuitable for any likely business opportunities. For example, according to Luthans and Doh (2009), due to legal frameworks, a government may deport an alien working with the MNCs, a scenario that may result in worker shortages and employee challenges. The situation may create a dent in a company's regional business strategy, a fact that forces the company to stop or be cautious in undertaking business with the said country. With the stakes, risen, business risks also pose serious threats to the company's survival in taking any international trade. The company may be forced to stop its business activities altogether, a move that may disrupt regional and international cooperation between the United States and the Middle East and North Africa.
Luthans, F., & Doh, J. P. (2009). International Management: Culture, Strategy, and Behavior. New York, NY: McGraw-Hill Irwin.
Rogmans, Tim, and Haico Ebbers. "The determinants of foreign direct investment in the Middle East North Africa region." International Journal of Emerging Markets 8.3 (2013): 240-57. Web.
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