When managing interdependence, international managers must go beyond general issues of social responsibility and deal with the specific concerns of the MNC subsidiary and host-country relationship. Outdated MNC attitudes that focus only on profitability and autonomy are shortsighted and usually result in only short-term realization of those goals; MNCs must learn to accommodate the needs of other organizations and countries:
Interdependence rather than independence, and cooperation rather than confrontation are at the heart of that accommodation. . . the journey from independence to interdependence managed badly leads to dependence, and that is an unacceptable destination.
Most of the past criticism levied at MNCs has focused on their activities in LDCs. Their real or perceived lack of responsibility centers on the transfer-in of inappropriate technology, causing unemployment, and the transfer-out of scarce financial and other resources, reducing the capital available for internal development. In their defense, MNCs help LDCs by bringing in new technology and managerial skills, improving the infrastructure, creating jobs, and bringing in investment capital from other countries by exporting products. The infusion of outside capital provides foreign-exchange earnings that can be used for further development. The host government's attitude is often referred to as a love-hate relationship: it wants the economic growth that MNCs can provide but does not want the incursions on national sovereignty or the technological dependence that may result.5' Most criticisms of MNC subsidiary activities, whether in less developed or more developed countries, are along these lines:
1. MNCs raise their needed capital locally, contributing to a rise in interest rates in host countries.
2. The majority (sometimes even 100 percent) of the stock of most subsidiaries is owned by the parent company. Consequently, host-country people do not have much control over the operations of corporations within their borders.
3. MNCs usually reserve the key managerial and technical positions for expatriates. As a result, they do not contribute to the development of host- country personnel.
4. MNCs do not adapt their technology to the conditions that exist in host countries.
5. MNCs concentrate their research and development activities at home, restricting the transfer of modern technology and know-how to host countries.
6. MNCs give rise to the demand for luxury goods in host countries at the expense of essential consumer goods. 7. MNCs start their foreign operations by purchasing existing firms rather than by developing new productive facilities in host countries.
8. MNCs dominate major industrial sectors, thus contributing to inflation by stimulating demand for scarce resources and earning excessively high profits and fees.
9. MNCs are not accountable to their host nations but only respond to home- country governments; they are not concerned with host-country plans for development. Specific MNCs have been charged with tax evasion, union busting, and interference in host-country politics. Of course, MNCs have both positive and negative effects on different economies; for every complaint about MNC activities (whether about capital markets, technology transfer, or employment practices), we can identify potential benefits
Numerous conflicts arise between MNC companies or subsidiaries and host countries, including conflicting goals (both economic and noneconomic) and con flicting concerns, such as the security of proprietary technology, patents, or information. Overall, the resulting trade-offs create an interdependent relationship between the subsidiary and the host government based on relative bargaining power. The power of MNCs is based on their large-scale, worldwide economies, their strategic flexibility, and their control over technology and production location. The bargaining chips of the host governments include their control of raw materials and market access and their ability to set the rules regarding the role of private enterprise, the operation of state-owned firms, and the specific regulations regarding taxes, permissions, and so forth.53
MNCs run the risk of their assets becoming hostage to host control, which may take the form of nationalism, protectionism, or governmentalism. Under nationalism, for example, public opinion is rallied in favor of national goals and against foreign influences. Under protectionism, the host institutes a partial or complete closing of borders to withstand competitive foreign products, using tariff and nontariff barriers, such as those used by Japan. Under governmentalism, the government uses its policy-setting role to favor national interests, rather than relying on market forces. An example is the decision of Britain to privatize its telephone system.54
Ford Motor Company came up against many of these controls when it decided to produce automobiles in Spain. The Spanish government set specific restrictions on sales and export volume: the sales volume was limited to 10 percent of the previous year's total automobile market, and the export volume had to be at least two-thirds of the entire production in Spain. Ford also had to agree that it would not broaden its model lines without the authorization of the government.55 The intricacies of the relationship and the relative power of an MNC subsidiary and a host-country government are situation specific. Clearly, such a relationship should be managed for mutual benefit; a long-term, constructive relationship based on the MNC's socially responsive stance should result in progressive strategic success for the MNC and economic progress for the host country. The effective management of subsidiary and host-country interdependence must have a long-term perspective. Although temporary strategies to reduce interdependence via controls on the transnational flows by firms (for example, transfer-pricing tactics) or by governments (such as new residency requirements for skilled workers) are often successful in the short run, they result in inefficiencies that must be absorbed by one or both parties, with negative long- term results.56 In setting up and maintaining subsidiaries, managers are wise to consider the long-term trade-offs between strategic plans and operational management. By finding out for themselves the pressing local concerns and understanding the sources of past conflicts, they can learn from mistakes and recognize the consequences of the failure to manage problems. Further, managers should implement policies that reflect corporate social responsibility regarding local economic issues, employee welfare, or natural resources. At the least, the failure to manage interdependence effectively results in constraints on strategy. In the worst case, it results in disastrous consequences for the local area, for the subsidiary, and for the global reputation of the company.
The interdependent nature of developing economies and the MNCs operating there is of particular concern when discussing social responsibility because of the tentative and fragile nature of the economic progression in those countries. MNCs need to set a high moral standard and lay the groundwork for future economic development; at the minimum they should ensure that their actions will do no harm. Some recommendations by De George for MNCs operating in, and doing business with, developing countries are as follows:
1. Do no intentional harm. This includes respect for the integrity of the ecosystem and consumer safety.
2. Produce more good than harm for the host country.
3. Contribute by their activity to the host country's development.
4. Respect the human rights of their employees.
5. To the extent that local culture does not violate ethical norms, MNCs should respect the local culture and work with and not against it.
6. Pay their fair share of taxes.
7. Cooperate with the local government in developing and enforcing just background (infrastructure) institutions (i.e., laws, governmental regulations,
unions, consumer groups, which serve as a means of social control).58
One issue that illustrates conflicting concerns about social responsibility and interdependence is the North American Free Trade Agreement (NAFTA), discussed in the Comparative Management in Focus.
Managing Subsidiary and Host-Country Interdependence : Managing Interdependence article from Global Management Catagory Managing Subsidiary and Host-Country Interdependence
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