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Major Arguments For Protectionist Measures By Governments: Analysis And Discussion

1210 words - 5 pages

Challenges faced by MNCs
Protectionist interventions by host states provide challenges to MNCs wishing to expand into those countries. They constitute trade barriers limiting a firm’s ability to disperse its production activities in global locations where they can be performed most efficiently (Hill, 2011p224-5). Tariffs, for instance, raise the cost of exporting products to the country. This may put the MNC at a competitive disadvantage compared to domestic firms in the industry. The firm may find it more economical to establish production facilities locally in order to compete on an equal footing with indigenous firms. Thus an opportunity is availed to produce locally provided a cost ...view middle of the document...

Antidumping can also be used by domestic firms to keep in cheek competition from low cost foreign goods (Hill, 2011 p224). For example there was excess capacity in steel production from Asia due to recession there in 1998-9. This excess found its way to US which faced a surge of low cost steel imports. As a result US producers filed complaints with the International Trade Commission, which levied tariffs of between 18 and 67% on some Japanese steel products.
From a firm’s perspective, tariffs, subsidies, quotas, VERs and LCRs all have the same effect of raising the firm’s costs above the level that could be achieved without trade barriers. Hill (2011) argues that the higher costs resulting from the trade barriers do not necessarily translate into a competitive disadvantage provided they are applied (by a country imposing them) to all similar products by other foreign firms. He further notes that when trade barriers are targeted at a particular nation’s exports, then this places the firm from that nation at a competitive disadvantage compared to other foreign firms. In this case the firm has two options. The first option is to move production into the country imposing the trade barriers and the second is to move production activities into countries whose exports are not targeted. The choice of which strategic option to take is a management decision requiring a high level of skill.
Other challenges to MNCs do exist in addition to those deriving from trade barriers. Wu (2008) gives insight to the situation faced by multinationals in China. According to Wu, multinationals in China have serious problems on two fronts, firstly difference in culture and secondly human resources. Wu (2008, p172) advocates that MNCs wishing to conduct business in China must first learn the culture and Chinese business culture in particular. Wu describes three constructs that have shaped Chinese beliefs and attitudes, namely, Confucianism (based on trust, harmonious relationship & conflict avoidance), Taoism (people’s fortunes are affected by their environment i.e. siting, interior arrangement etc.) and Guanxi (relationship among individuals creating obligations for continued exchange of favours). According to Wu, “a people oriented approach and establishing a high level of trust relationship” is more important to a Chinese partner than a written contract. This is in contrast to western culture where a contract is valued more than any relationship.
On humane resourcing, Wu (2008, p169-72), warns of the shortage of professional talent in China. This problem is compounded by the cultural differences between the west and China, which makes it difficult to employ expatriates who would find it difficult to establish ‘guanxi’. Wu notes that even if an expatriate...

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