Paper Sample: Complexities and Risks that Face Multinational Corporations

Paper Type:  Essay
Pages:  5
Wordcount:  1191 Words
Date:  2021-04-09

The management of global organizations is complex and requires a unique set of conceptual instruments. This is because there is a high level of diversity involved in the process. Some of the factors that influence the operation of multinational corporations include culture, language, laws, regulations, environmental impact, communication and technology (Moran, 2014). With the aim of establishing business in a foreign country, an organization ought to comply with the laws and regulations. The laws relating to taxes, licensing, export and import duties have direct effect on foreign companies. The corporation should thoroughly understand the rules and regulations governing the type of goods and services that it intends to provide (Ang, Benischke & Doh, 2015). Some countries have strict rules on the kind of business operations allowed, labor, employment policies and pension restrictions.

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Furthermore, cultural and language diversity pose a challenge to MNCs. Overseas operations can be hindered by language barrier due to difficulty in communication between the business and the consumers.It also acts as a limiting factor to reach the local customers in the foreign countries who might not be familiar with conventional languages such as English. Cultural differences also affect the operation of a multinationalcompany. The company needs to familiarize itself with the cultural beliefs and practices of the country in order to operate smoothly and effectively (Moran, 2014). Additionally, the influence of the business on the environment contributes significantly to its success. There is a challenge of complying with environmental pressures such as recycling, pollution and energy conservation standards (Tran, 2016). Besides, multinational companies are required to constantly keep up with the dynamics in the technological world. Information and technology are the most essential requirements in the globally competitive market arena.

Some of the risks facing multinational organizations include political risk, economic risks and social risks. Political factors are associated with the government policies and the stability of the target country. The governments rules and policies can change suddenly and affect the operations and income of the multinational company. Such policies include the tax rules, tariffs, import, exportand labor rules (Ang, Benischke & Doh, 2015). Political instability in some countries also distract businesses due to conflicts and violence. Economic risks on the other hand entail the possibility of financial loss in the prospective investment. It includes Currency risk which refers to the uncertainty of the future exchange rate (Moran, 2014). Establishing a multinational corporation involves the use of different currencies and therefore; foreign exchange rate volatility becomes a sensitive matter .It affects the returns on the investment directly and plays a crucial role in the success of the business.

These companies also face interest rate risk that greatly affects the value of the investment. Instability of the interest rate causes unstable returns and therefore posing a great challenge to the MNCs.They require prudent and strategic management as the major aspect in the business operation.Besides some countries experience slow economic growth and mismanagement which do not favoreconomic activities especially from foreign investors.Another risk that MNCs face is the social risk which is brought about by the diversification in culture,lifestyles,beliefs and practices.Multinational Corporation operate in different countries with different social aspects which require learning and adaptation in order to succeed in the business. Besides, societal pressures and unrest can jeopardize its operations leading to immense losses(Tran 2016). Besides, the issue of human resources requires the organization to totally embrace diversity so that employees from all walks of life can work with them without feeling discriminated.

Importance of Ethics in Business

Ethics are an important element of businesses because they are directly linked to profitability.They are key determinants in the success of the both the short term and long term goals of an organization (Bowie, 2017). Even though many laws exit to control the operations of businesses, it still takes an ethical person to obey the laws and follow their requirement. Therefore, laws cannot work effectively in an unethical business.Ethics shape the public image of an organization which creates an optimistic environment for it to thrive (Shaw, 2016).The reputation of the business from its leadership,employees,investors and society controls its worth in the outside world.Unethical business does not attract great customers and investors because of the devastating reputation. No one can afford to underestimate the importance of ethics in businesses and organizations.

Business ethics involve fair market practices, respect to the environment and fair human resource policies. A company with strong business ethics is able to attract and retain great investors. They establish loyalty with the investors who believe in the promises given by the company to work in a responsible and ethical manner with their money. Employee turnover is also reduced because the workers are treated well and compensated fairly and therefore find no reason to leave the company. They are comfortable working in an environment that upholds business ethics. Customers on the other hand become attracted to the products of an ethical company because they know their quality and quantity is worth their money(Bowie, 2017). They believe that the processes and end-products of the organization are genuine and suitable for consumption. This gives such a business the ability to attract and retain viable customers.

Another benefit of business ethics is that the company maintains consistent ethical practices to the extent that it eliminates the risk of being penalized for poor behaviors. Such companies are not easily found in fraud or corruption scandals because they have a strict code of ethics which every stakeholder adheres to. This means that ethics in some way brings discipline in an organization such that immoral issues are easily noticed and dealt with internally, before they come to the public knowledge.Business ethics help to drive the organizational culture and practices into the right direction (Shaw, 2016).An organization that upholds ethics shows concern not only for their stakeholders, but also for environment. They practice environmentally friendly methods in the business operations.This eliminates constant problems with the laws or the environmental organizations which might cost the business a fortune (Shaw, 2016). It also shows a high level of responsibility hence contributing to the positive image of the company.

Ethics start from the leadership of the organization.A businesswhose leaders uphold ethical manners build a stronger connection between the top and the lowest individuals hence ensuring business stability (Bowie, 2017).The employees follow the footsteps of their leaders and also comply with the required ethical standards. Business ethics also guide the employees in decision making ability. Their integrity and honesty increases performance and productivity hence benefiting the business as a whole. It reduces recruitment costs and labor turnover. It is therefore clear that ethics are the strongest pillar on which any business should operate and realize substantial gains.


Ang, S. H., Benischke, M. H., & Doh, J. P. (2015). The interactions of institutions on foreign market entry mode. Strategic Management Journal, 36(10), 1536-1553.

Bowie, N. E. (2017). Business ethics: A Kantian perspective. Cambridge University Press.

Moran, T. (2014). Multinational corporations.

Shaw, W. H. (2016). Business ethics. Nelson Education.

Tran, B. (2016). Communication (intercultural and multicultural) at play for cross cultural management within multinational corporations (MNCs). Handbook of research on impacts of international business and political affairs on the global economy, 62-92.

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