Risk and Return

Risk and Return
Risk and Return

Risk and Return

1.      Risk and its measurement

Risk is the probability of variation in actual return from the expected return on investment. It is related to future uncertainty of gaining or losing of investment value. The basic principle of investment is higher the risk, higher is the profit (Fidelity International, 2017). Broadly the risk can be classified in two categories: systematic risk and unsystematic risk. Systematic risk is also known as market risk and it is uncontrollable. Unsystematic risk is a specific risk which is controllable through diversification.

Management of risk is very crucial in any investment decision and it starts with the measurement of risk. There are various methods to measure the risk level. The most commonly used method is computation of standard deviation and variance of distribution of return on investment. The standard deviation measures the volatility of returns or the degree of fluctuation of actual risks from the expected returns.

The higher value of standard deviation denotes higher volatility and thus depicts high level of risk whereas the low value of standard deviation denotes lower volatility and thus depicts low level of risk.

2.      Source of firm specific risk and market risk

Firm specific risk is a risk which is specific to a particular firm or group of firms. It arises due to factors which are specific to a firm or group of firms. It is an unsystematic risk which can be controlled by making investment in portfolios instead of making investment in single security.

The main source of specific risk is business risk and financial risk. Business risk is the possibility of lower profits in a business than the expected one. It may be due to competition, low demand of product, high cost of production, bad management decision and input cost etc.

Financial risk is associated with liquidity position as well solvency position of company. In other words it is related to the capacity of the company to repay its short term liabilities as well as long term liabilities in time. For example, UK based banking organization Banco Espirito Santo (BES) failed in 2014 due to its financial irregularities. It is firm specific risk.

Market risk is the systematic risk which arises due to macro events which have impact on all firms (Weaver & Weston, 2001). The degree of impact may vary from industry to industry. It cannot be controlled with diversification that is why it is also known as undiversifiable risk. Sources of market risk can be any natural disaster, change in government regulation, political change, market recession, changes in foreign exchange rates and interest rates. For example, demonetization of currency in India in 2016 had same impact on all industries. It is market related risk.

3.      Coefficient of variation

Coefficient of variation is a statistical measure which expresses the ratio of standard deviation to average return of the data distribution (Damodaran, 2014). It is calculated as follows:

Coefficient of variation = Standard deviation of data distribution

                                           Mean of data distribution

 It measures the dispersion of data points in a data distribution around its average. It is also known as relative standard deviation as it can be used to measure and compare the degree of variation of two different data series with different number of samples. The higher value of coefficient of variation depicts higher degree of variation and thus higher risk and vice versa. For example stock A has return of 8% and its standard deviation is 25%. Stock B has return of 9% and its standard deviation is 30%.

The coefficient of variation will be as follows:

Stock A = 25% = 3.13%


Stock B = 30% = 3.33%


The coefficient of variation of stock A is low as compared to stock B, so the level of risk is low in stock A as compared to stock B.


Damodaran, A. (2014). The Investment Principle – risk and Return Model. Retrieved from http://people.stern.nyu.edu: http://people.stern.nyu.edu/adamodar/pdfiles/acf3E/presentations/risk&ret.pdf

Fidelity International. (2017). About risk and return. Retrieved from https://www.fidelity.co.uk: https://www.fidelity.co.uk/investor/getting-started/the-basics/understanding-investing/property/risk-return.page

Weaver, S., & Weston, J. F. (2001). Finance and accounting for non financial managers (3rd ed.). New York: NY: Mc Graw Hill.

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Implementation Plan, Strategic Controls, and Contingency Plan Analysis

Implementation Plan, Strategic Controls, and Contingency Plan Analysis
Implementation Plan, Strategic Controls, and Contingency Plan Analysis
Strategic Plan: Implementation Plan, Strategic Controls, and Contingency Plan Analysis


Netgear is a global American networking company dealing with delivery of goods to service providers, businesses and consumers. The company engages in three different business segments including commercial, retail, and service provider. Most of its products are proven technologies including Ethernet, power line and wireless-Wi-Fi. The products distributed by the company are usually reliable and easy to use. The company has over 28,000 retail shops all over the world with its headquarters in San Jose, Calif (Mandy, 2015).

Implementation, strategic controls, and contingency plan

Netgear requires new methods of growth, revenue sources, and product distribution. The implementation plan will identify the best course of action that will steer the business forward including, set objectives action plans, milestones, task and task ownership, resource allocation and tactics. Financial projection with breakeven analysis chart is included in the implementation plan.

The strategic implementation plan is essential because it gives the company as the sense of direction that will lead to its success. An implementation is a strategic option where it gives reasons to draw closer to customers, get a competitive advantage and pursue growth within the organization. It helps in setting dimensions to be followed to achieve the desired outcome (Mandy, 2015).

Planning is the first step in implementing a strategy.  This involves contracting the advertising company for them to run the advert. Communicating the change to employees is an important step to ensure that they fully understand what is going on in the organization. Motivating employee especially those that will be involved will ensure the success of the plan. The management of workload that come with change will ensure that employee is not overwhelmed by contracting external resources to assist with other activities especially the advertising company (Mandy, 2015).


Objectives, as describe by many authors, refer to measurable, achievable outcomes that are meant to be reached in less or within one year. Goals are usually simple to be easily communicated to all employees from those in top management to those at the lower level. Short term objectives enable those responsible for the company desired needs to break down long-term needs and make them a reality (Mandy, 2015).

Goals are usually broken down into time frames typically from weeks, months, to below one year. Netgear primary objective will be to grow its pool of customer to ensure the increase in sales, maintain customers already in the system by coming up with more reward systems to provide revenue increase and overall growth. The marketing campaign includes giving incentives and rewards to get more clients and to maintain those already in the system (Peter & David, 2014).

Functional Tactics

Functional tactics are statements detailed with activities that the company will use to achieve its short term goals while establishing a competitive advantage.  The key activities that to be undertaken in each area include; marketing, finance, and operations that will give the company opportunity to provide services to its clients. Within the organization, corporate managers, business managers, and functional must all agree to come up with a unified strategy and functional tactics that will lead to the achievement of organizational goals (Mandy, 2015).


Implementation process would then be followed by the outsourcing of different services. Outsourcing is the process of assigning certain jobs traditionally handled by company employees to outside source to take care of it.  Outsourcing services is a strategy applied by most companies to help save money and time. Netgear will outsource the services of the best advertising company for them to market our products and services to reach our target audience (Mandy, 2015).


Policies give guidance to employees on action to be taken that will benefit the organization. Netgear Company, therefore, needs to establish a set of policies that will drive the implementation of the strategy designed. Systems usually control the actions of employees and assigning the right personnel to the task and coming up with strategies that will be used should a problem arise during the implementation process. Policies help the organization to have a clear line of operations through assigning the right employees to take up the job. The set policies include giving Netgear employees actions that are expected to be done by them to ensure the success of set objectives (Mandy, 2015).


Payment plans are used to reward employees for their good deeds or for going an extra mile to do tasks assigned to them. This happens when the company set policies to be followed by employees and those who follow them are rewarded for their actions. Netgear Company seeking to improve its overall sales will give incentives and commissions to employees who meet targets given to them as a measure to encourage everyone within the organization to go an extra mile to improve the company sales hence boosting revenue (Peter & David, 2014).

Marketing Operations

Netgear Company will resort both to internal and external marketing to promote products and increase its overall revenue. The main aim of marketing will be to get the customers to know about us and to gain their trust through providing quality services. Marketing activities will be done through TV advertisement and social media platform to ensure broad audience coverage. Those in the company front end will also be encouraged to speak freely with walk-in customers to tell others about Netgear product and services (Peter & David, 2014).

Action items

Action plans are processes carried out within or outside the organization to achieve set strategic goals. Netgear strategic goals are focused on revenue growth, increased sales and marketing activities. Action plans aim at getting customers to trust us more than our competition to ensure their continued support.  Contracting an external company to brand our advertisement will be the next step in our action plan. Company employees will also be trained on our new marketing strategies to make them equipped with the knowledge to explain to customers about our new and improved products and services (Mandy, 2015).


Milestones are objectives set by a business at a particular span of time assess its achievements. Milestones play a role in reducing investor risks regarding marketing activities, reward systems and time. Netgear corporation marketing segments will be for a span of six months at most depending on the amount to be used on a daily basis and the money quoted by the advertising company. However internal marketing will be carried out up to ten months. After all the general activities the company will then assess the impact of both internal and external marketing to determine if it was a success (Mbaidheen & Alawneh, 2017).

Task and Task ownership

Advertising Company will design the advert and to run it on TV and social media. Front end employees will be trained to equip them with skills that improve business sales. Those assigned with tasks will foresee that it’s complete as they are rewarded (George & Yimin, 2017).

Resource allocation

Netgear Corporation will allocate enough funds to meet its advertising needs and rewards for performing employees. Training of employees to give them required skills will be budgeted for.


Successful implementation will be possible through following the set objectives and tactics. The plan will involve looking into the long term strategies and breaking them into manageable short-term goals, functional tactics, Marketing, outsourcing, setting policies and compensation. Following the plan of contracting an advertising company and training internal employees will increase our sales and ensure business growth (Mbaidheen & Alawneh, 2017).

The process of implementation

All the key employees will be engaged or included in the plan and the process of implementing change. Different employees will be assigned specific tasks to work on. They will provide their insights, their fears, challenges and concerns. The next step will be to communicate to them the strategic implementation that the company will be undertaking to make them understand and to feel to be part of the decision. The last step will be to implement the changes once everyone is on board. That is running the advert both with the advertising company and with the help of front end employees.

Risk Management

Netgear Corporation will select the best advertising agency to develop the advert that will ensure growth or increase our customers. Once the advert has been rolled out its impact will be analyzed based on growth of customers immediately and over a period of time. Three month into running the advert; it it’s not successful then the company will reconsider its other option of using internet advertisement.

The verification of strategy effectiveness will be analyzed based on response collected from customers.  The marketing strategy will possibly work because of Netgear competitive advantage of having a global brand name which will trigger new customers and those already with us to start taking note of the company and plan to buy from us (Mbaidheen & Alawneh, 2017).

The plan, however, may face the challenge of not reaching a wider market during advertisement since the mediums used may not be effective. The risk will be avoided by contracting efficient advertising company even if we will spend more money. Employees may not be motivated, but we will reward them more to ensure their continued support in internal marketing (Mbaidheen & Alawneh, 2017).

Performance analysis chart for the period 2014-2019

The series 3 represents profit and loses posted; Series 2 represent Company spending while the first series represent growth in customer numbers. The growth in customer number will be high during the first year of implementing advertising activities however the trend will stabilize once all the potential list of clients has been reached hence there will be no big different in our client list over the years.

The company spending will be a bit high in the first two years from rolling out the strategy because it means more resources will be allocated than the normal budget. However, the situation will stabilize later and the budget will go a little bit down. The company during its first two year of implementing the strategy will get little returns in terms of profit but once the number of customers buying from us increases the company will post more profits over the year (Canadean Company Reports, 2013).

Financial position of Netgear

     Year Ending
Dec 2016
Year Ending
Dec 2015
Year Ending
Dec 2014
Year Ending
Dec 2013
Cash and Equivalents240.47M181.94M141.23M143.01M
Total Current Assets962.78M821.14M822.97M800.11M
Property, Plant & Equipment, Gross123.49M126.54M118.59M98.94M
Accumulated Depreciation & Depletion104.02M104.15M88.89M71.75M
Property, Plant & Equipment, Net19.47M22.38M29.69M27.19M
Other Non-Current Assets7.98M7.93M9.38M26.59M
Total Non-Current Assets221.67M229.43M225.72M293.82M
Total Assets1.18B1.05B1.05B1.09B

Netgear Company has experienced increase in cash flow for the past four years. The subsequent increase is attributed to growth of its business right from increased number of client who subscribes to the company services.  For example the company received 143.01 Million dollars in the year 2013 but the cash flow by the year 2016 has risen to reach 240.47 Million dollars. From the financial report Netgear is expected to post increased cash flow this year (Netgear, 2017).

Key Success factors, budget, forecasted financials and break even chart.

The company marketing estimates are 300, 000 thousand dollars for the nine months advertising period.

This excerpt taken from the NTGR 10-Q filed May 7, 2009

Break even chart

  Sales and Marketing

   Nine Months Ended 
   March 29,
  November 30,
   (In thousands, except percentage data) 
Sales and marketing expense  $25,902  (21.6%) $33,028 
Percentage of net revenue   17.0%   16.7%

During the first month of implementing the strategy the company will use 25,902 dollars in its spending to get 17.0% net Revenue. In the following months the company will post an average of 21.6% net revenue while spending 33028 dollars monthly in sales and marketing.


Canadean Company Reports, (2013). NETGEAR Inc. – Company Capsule: Basingstoke. Dec 18, 2013.

George, G., Yimin, L., (2017). Innovation: Analytics, innovation, and organizational adaptation. Organization & Management; Abingdon19.1. pp. 16-22.

Mandy, L., (2015).Tackling uncertainties in plan implementation: lessons from a growth area in England. The Town Planning Review; Liverpool86.1.

Mbaidheen, M., Alawneh, A. R., (2017). Assessing the Risk of Corporate Strategic Change: The Development of a Framework to Assist the Risk Management Process Adapted By a Contracting Company. International Journal of Information, Business and Management; Chung-Li9.1. pp. 45-57.

Netgear, (2017). Financial Statements. Retrieved From http://investor.netgear.com/financials-Statements.cfm

Peter, W., David, B., (2014). Why, how and to what effect do firms deviate from their intended marketing plans? Towards a taxonomy of post plan improvisations. European Journal of Marketing; Bradford48.3/4. Pp. 453-476.

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Non-financial Rewards effect on Organizational strategy

Non-financial Rewards
Non-financial Rewards

Non-financial Rewards effect on Organizational strategy



A major challenge in an organization is motivating its employees to become efficient with their tasks and how to encourage the workforce to become competitive in an inevitably uncertain and dynamic environment.  Thus, to uphold a higher level of productivity, the organization must run an effective strategy to motivate its employees. For this reason, there are managers in several organizations who see a reward system as an imperative factor that can influence its employee’s behavior.

These involve intrinsic and extrinsic motivation. Intrinsic motivation is driven by a natural sense of accomplishment; such as professional growth and personal achievement. Extrinsic motivation, on the other hand, is a tangible reward; and unlike an intrinsic reward system, the extrinsic reward can be identified as materials that can motivate its employees, such as salary and bonuses.

The objective of this study is to evaluate the impact of non-financial rewards on driving organizational strategy at the Communications Authority of Kenya (CA). Moreover, this study assumes that the use of non-financial rewards can retain employees in the organization.

1.1 Background of the Problem

The core objective of any business enterprise is to generate consistent and sustainable profits. All the internal functions must be aligned with this objective. Human resource management plays a critical role in harnessing skills and expertise needed to convert resources to finished goods and services.

The managers recruit and train the employees so that they meet individual and organizational goals for optimal performance. Doing so requires the application of strategies that keep the employees motivated to perform. Lack of motivation is detrimental to a firm since it leads to stagnation in performance and it’s the cause of high turnover rates.

As such, a Human Resource Management (HRM) department is mandated to ensure that a firm’s production capacity is optimal to ensure that performance is high by designing and implementing strategic human resource approaches. One of the main strategies that human resource managers can apply is a reward system (Irshad 2016). 

Zani et al. (2011) asserted that most of the successful public enterprises achieve better results and an increase in employee engagement by associating rewards directly to job performance. The strategy is not only applicable to sales personnel but to all levels and functions of a business. However, success of the reward system is guaranteed if proper implementation is observed.

Instituting a reward-based organizational culture may seem to be a short-term vision, but most successful managers claim that it’s an impeccable instrument for attaining success. A reward system unlocks employee capability, retains and motivates performers, and consequently generates higher revenues (Zani et al. 2011). Other benefits associated with a reward system include clear alignment of employee’s career path, a focus on development and growth, an increase in employee engagement and strategic decision making, and low turnover.

According to a research done by Giga Information Group on the impact of reward system to job performance, the researchers found out that retention improves by 27% when a firm exercises a reward system culture (Richard, 2010).

Like all strategic initiatives, a reward-based performance system requires comprehensive planning and flexibility. It should also integrate with HRM, the goal of the firm, and performance measurement. Since there hasn’t been identified a customized approach, managers should tailor the reward system to the current HRM processes and uniqueness of the firm. The approach is not just about setting up a framework and workers acting upon it.

Emotional and psychological realities have to be set up by asking the right questions and linking them to the human side of the incentives. While some employees are motivated by financial rewards, others get motivated through non-financial rewards (Lawler 2011).

According to Mowday et. al. (2013), some important questions that HRM should ask before deciding to apply a reward system is: “Are the tasks that people are taking moving the organization forward? Are the managers engaged with the employees throughout the year to make sure they carry out, and, achieve their objectives? Are individuals delivering against what is expected? Who is and who isn’t?

Are you objectively ensuring that bonuses, salary increases, and promotions are given to those high-performing individuals that you can’t afford losing?” These questions are paramount as they enable the managers to design a program that fits the needs of the firm; either a financial or non-financial reward system. Moreover, the employees should have full trust with the management in fairly administering the scheme and possess the needed skills and abilities to improve performance.

A reward system is in the form of financial or non-financial incentives. Financial incentives lead to extrinsic motivation whereas non-financial incentives generate an intrinsic motivation. It is crucial for managers to understand the difference between the two reward systems to determine the one that suits an organization. A financial reward system is tangible and usually involves the practice of provision of bonuses, commissions, and other monetary incentives to appraise employees for a job well done. The rewards are also given when an employee attains a certain target (Karwowski, 2014).

Economic volatility has seen many firms try to find ways to supplement financial rewards by concentrating on the non-financial rewards. Richard (2010) defined nonfinancial rewards as those not consisting of an employee’s salary. Often, workers tend to feel unappreciated by their firms due to layoffs, stressful working conditions, and increasing demands leading to their disengagement.

Employees can perform optimally if they feel valued, appreciated, plus a sense of job security. As such, non-financial incentives are programs that address these needs. The common non-financial incentives are reward, recognition, provision of career advancement opportunities, job security, and flexibility. The perceived importance of non-financial rewards differs across employee levels and it’s up to the HRM to establish what is appealing to the different groups.

For example, a fast growing firm may focus on work environment but a slow growing firm can focus on career growth and development. Investing in employees by appreciating them in diverse creative ways is a critical strategic approach that managers can apply in instituting a non-financial reward system. It is for this reason that non-financial reward system formed the basis of the study by focusing on the Communications Authority of Kenya (CA).

Just like other large organizations, CA faces the challenge of maintaining the motivation and productivity of its employees as it tries to upgrade its performance. The organization has previously applied both the financial and non-financial rewards. It therefore drives the question of the implications that non-financial rewards have had in facilitating the implementation of the firm’s strategic goals.

1.2 Statement of the Problem

The challenge of most organizations is establishment of an efficient rewards systems aimed driving the strategy of the firm. One of the affected firms is Communications Authority of Kenya (CA). According to Murray et al. (2014), it is imperative for managers to keep track of the needs of employees to match the expectations of the organization towards productivity.

Most employees tend to underpin the impact of non-tangible rewards and seek satisfaction in tangible or extrinsic rewards. Thus, firms should involve employees in creating nonfinancial incentives, and ensure they understand each employee level and expectations for better results. According to a study done by Zani et al. (2011), the results stipulated that non-financial rewards such as recognition, praise, and kudos from the employers or the organization had a greater impact on the employee’s behavior and motivation towards their jobs.

Moreover, according to Westover & Taylor (2010), intrinsic rewards provide a clear view towards job satisfaction. Within their study, they had a wave of respondents towards non-financial rewards related to job satisfaction. In that case, it was determined that non-financial rewards have a greater value than providing tangible rewards to the employees.

However, the context of wages and bonuses is an important factor for employees and can continue to function within the organization. In the case of a research by Griffin and Moorehed (2014), the author asserted that financial rewards initially had greater impact onspecific employees. However, as the programs continue over a long period of time, managers should combine financial and nonfinancial rewards since they equally affect the employees’ behavior which in turn reduces employee turnover.

To simplify the result, both equities are important when done in complimentary proportions. This study emphasized on the impacts of non-financial rewards in driving performance in an organization. This is in order to understand how to retain skilled employees and subsequently sustain a successful work-related culture and organization without the use of monetary incentives.

The Communications Authority in Kenya (CA) had recognized both rewards system; however, sustaininga motivated and skilled employee had been their utmost dilemma, attaining minimal improvement in employee production and rate. This study seeks to address the gap that will be filled in the firm, and other related entreprises, if non-financial rewards are to be implemented in driving the strategies of the organization.

Moreover, this study also gives room to address criticisms and oppositions that may arise if non-financial rewards are introduced in different departments within the Communication Authority of Kenya. Furthermore, this study seeks to determine the employees’ flexibility towards a different form of rewards rather than aiming for tangible rewards.


Armstrong, M., Brown, D., & Reilly, P. (2011). Increasing the effectiveness of reward management: an evidence‐based approach. Employee Relations, 33(2), 106-120. http://dx.doi.org/10.1108/01425451111096668

Armstrong, M. & Taylor, S. (2014). Armstrong’s handbook of human resource management practice, 13th edition (1st ed.). London: Kogan Page.

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Price Cuts: Case Study

Price Cuts
Price Cuts




Significantly, under this section the main object will be to analyze how a certain economic phenomenon by a business is likely to impact on the targeted group and consequently ascertain the end result of such undertakings. Thus, microeconomics gives us an insight of what is likely to be anticipated when certain changes are instigated with regard to the operations of a company and this is important because it can further aid in making proper decisions and initiating sustainable operating strategies.

For this section, the microeconomic issue identified is the cutting of prices of products or equally giving of offers by business. The table below briefly illustrates on the tangible issues that will be further discussed.

PRICE CUTS/OFFERSWhy do businesses provide price cuts/offers on products?Competition Boost sales Brand promotion Market dominance Economic recession Market failure

Undisputedly, the pricing of a certain product eventually determines on whether it is likely to guarantee higher sales or losses. Ordinarily, customers are sensitive when it comes to the price of s product that they want to purchase because if it is not a pocket friendly price, then a majority will opt to buy an alternative product that will equally serve the same purpose but at a reasonable price (Dogan, et al 2013).

Similarly, when operating under a certain field competitors are bound to be present. This means that for one to outsmart them they have to come up with effective strategies to lure more customers to buying their products as compared to the rival’s and subsequently gain a large market share ( Pauwels & D’aveni, 2016). Hence, pricing seemingly plays a vital role under such circumstances.

Important to note is that before a business embarks on an initiative of providing price cuts on its products, there are certain essential factors that must be considered. This is so because not all price cuts may work for the advantage of the company. In fact, it is assumed that most price cuts tend to lead to low profit margin for the concerned business and this may hurt the overall operations of the business.

Among the things to be considered includes the long term implications of price cuts. For instance, one a price cut has been made and new customers have joined the bandwagon of purchasing it, increasing such a price thereafter may lead to loss of these customers as such a business must put in place other plans such as improving the quality of the product so as to demand a higher price because without such modification the initial price cut may end up hurting the business.

So as to answer the critical question of why do various businesses offer price cuts, the subsequent section of this paper will dwell on analyzing the various tools identified in discussing the economic issue.

  1. Competition

Foremost, competition is one of the key features of any market. However, stiff competition may force a business out of the market as only the dominant participants get to have the larger market share. To mitigate such an event occurring, businesses are inclined to offer price cuts to their products so as to retain a fair share of the consumers in the market.

By giving such price cuts, it means that such a company can compete fairly in the area of operation. Accordingly, one can argue that consumer would often resort to buying products at reasonable prices, hence if one of the competitors is offering the same product at a higher price it is highly likely that they will lose buyers to the company that gives relatively cheaper pricing. In such a situation, to promote a fair competitive market, prices will thus be relatively proportionate as a result leading to a fair share of each participant in terms of customers and the market place.

  • Sales

Significantly, when a product does not sale it may eventually cause the business to succumb to losses. Thus, the concept of sales can be boosted in a twofold channel. First, for new products that have been introduced to a market it is imperative that price cuts are given so as to entice customers into buying the products.

On the other hand, when there are low buy outs of products, then a company may opt to initiate price cuts all in a bid to try and revamp the product. Generally, price cuts that aim to boost the sale of a commodity have to address a certain deficiency. In this way, having reduced prices serves as an effective tool in enhancing the purchase power of consumers towards a specified product.

  • Brand Promotion

Particularly, for new products that are unknown to consumers, it is vital that price cuts are provided. This is so because, often consumers may refrain from interacting with new products in the market based on aspects such as having a preference of the already existing ones. Such circumstances may impair the emergence of new businesses in that market. Thus, when price cuts are offered as incentives for customers, it id then highly likely that new consumers will indulge in buying the given product based on its reduced pricing.

  • Market dominance

Naturally, for businesses that operate in the same field of operation the market share that one has over the other largely matters. The market share determines the profit that a company expects to acquire from its sales. Hence, companies are motivated to initiate strategies that would put them at an advantage position over their rivals. One of the ways of doing this is by providing price cuts on the products of the business. Price cuts as aforementioned in the discussed sections are an allure for new customers.

When one business obtains new customers that belonged to a rival company it subsequently means that the former company acquires a large market share. However, such an undertakings has its downside in that it forms a platform for emergence of a monopolistic market structure whereby there is only one dominant player. When this happens, consumers are put in the liberty of that dominant player in the market because such a business has all the power and keys of controlling how that particular market will operate.

  • Economic recession

Notably, the economic state of a country determines how consumers of products will purchase and spend on products. In the case where the economy is booming and businesses are not financially constrained, consumers are highly likely to purchase products without much limitations or considerations such as on pricing. In this scenario, offering price cuts whereas fellow competitors are not may harm the business because consumers may not give too much concern about their spending.

On the other hand, when there is an economic slump, in that businesses are not doing as well as they would normally do this thus calls for effective measures to retain and attract customers so as to continue operating.

Under an economic recession situation, consumers would preferably want to spend less. To match with such changed dynamics, then one would argue that price cuts on the products of a business are the most viable solution to follow.

  • Market failure

Considering market failure is a concept that occurs as a result of inefficient allocation of certain resources within the market of operation, then such a situation is consequently likely to affect the operations of the company (Fabella, 2015). For instance, a monopolistic market structure may be deemed as a market failure ingredient based on the fact that new businesses will find it hard to compete in a market that is largely dominated by one player.

Nonetheless, in such a situation a company may opt to provide price cuts on its product so as to try and mitigate the market failure effects which if not diminished will certainly curtail the operations of the other businesses.

  • Government failure

Significantly, the government is duty bound to make sure that businesses operate in a fair and friendly environment. To do this, certain limitations must be imposed and constraining barriers broken down. For instance, take a situation whereby the government fails to monitor the operations of businesses through relative agencies, in such a situation certain business may drain consumers by instigation undertakings that would solely serve their own interest. One of such an undertaking may be over-pricing on the produced products.

However, such an undertaking may not suit all the businesses within the market as such prompting the need to lower prices of similar goods so as to counter the other business competitors.


Nonetheless, there may exist factors that may affect this equilibrium price such that a business may be forced to make adjustments. This is of essence because without such alterations, a business is likely to operate under losses. The aspect of price cuts maybe one of the ways that business may use to reach certain equilibrium.

By giving price cuts it fundamentally indicates that a company aims at first increasing its sales and similarly obtains new customers. Importantly, aspects such as the profit margin that the business aims at must be considered before making such a move. In doing this, prior research is essential because without having knowledge of such information then a business may orchestrate its failure.


Foremost, markets are placed that are guided by certain distinctive features that must be observed and preserved so as to allow business to operate efficiently. For instance, without embracing the concept of fair competition between rival businesses, then one may triumph over the other leading to unfair labor practices.

Significantly, the importance of government intervention in market practices cannot be ignored. The government plays a key role in regulation of various aspects of the market so as to facilitate proper co-existence between the firms themselves and the consumers that they serve. Without such an intervention, evidently every business would seek to protect their own interests putting aside all other basic requirements such as offering quality products.

When it comes to the various macroeconomic issues that may affect the operations of markets, first it is important to note that such issues may have a direct effect on the activities of consumers and as a result end up curtailing the operations of the business in the end. Microeconomic issues should be looked at from a wider scope. Their particular effects should be analyzed in depth so that the right techniques are initiated to mitigate on their possible hazards.

Significantly, these issues should never be ignored before they may have adverse effects on the operations of the company as such creating the need to find way to move around them and benefit the business.

Finally, without fair market practices, not only does firms suffer but consumers too share in the same suffering. This calls for proper market practices that protect both the interests of the businesses and consumers so that none is inclined to spear-head their own interests on the expense of the other. Where unfair practices may emerge, it is imperative that even the firms themselves take personal measures and approaches to meditate on the negative consequences.


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Knowledge Transfer Mechanism in the Multinational Enterprise Network

Knowledge Transfer Mechanism in the Multinational Enterprise Network
Knowledge Transfer Mechanism in the Multinational Enterprise Network

Knowledge Transfer Mechanism in the Multinational Enterprise Network

  1. Introduction

Knowledge sharing is a two-way process. It can be a vehicle for trust, regard, and change. This critical review has demonstrated knowledge sharing even inside contending specialty units can create an upper hand. An association is an aggregation of information. A knowledge drove cooperative approach gives many advantages: it will propel the organization, draw in staff at all levels, and positively affect “all that really matters”.

Knowledge administration separated the nearby site from other corporate auxiliaries with the neighborhood site illustrating “best in class” comes about on its key execution markers.  Reassuringly, there is adequate chance to enhance execution assist once information administration is completely installed as a business procedure over the association.

Recent ten years shows various productions managing transfer issues related to knowledge have been distributed in reports extending from Post-Communist, Conservative Biology, Economies, Youth and quarter of the European History focused to more business-related reports, for example, Research Strategy, Harvard Business Review, KM World, and Knowledge Journal Management.

For productive knowledge management (KM), it can be deal with the scan for “right” selective techniques and step by step procedures are significant. Although, the decisions made by this require a very much characterized scientific classification with clear ideas and terms. The substance and importance must be obvious and there ought to be no vagueness about the point when key ideas are utilized.

Despite the fact that this is without a doubt an alluring objective, it is not really the present situation with respect to usually utilized phrasing in Knowledge Management. Related to few of those cases, the creators utilize focal words conversely and with no alterations in refinement among them, what’s more, now and again without adequate clarification of from which point of view, the technical terminologies are used.

The primary part in managing the knowledge is to extent and create learning open which must be usable in organizations as well as between picked organizations. While assessing KM writing, there are a few terms that appear to be more focal and basic as compared to others. Let say, for knowledge based firm creation, the perspective, coordination, transfer, and also mix of learning makes aggressive preferences for different organizations (Ghosal and Moran 1996 (in Sambamurthy and Subramani (2005))).

Also when King (in Schwartz (ed.) 2006) nevertheless announced above, suggests the information exchange (KT) is a crucial procedure for human advancement and also it is integral to understanding that which one is from basic to advancement,  for investigating the term “information exchange”, there is clear support.

Knowledge Transfer is now and then utilized reciprocally with information sharing (Jonsson 2008), so keeping in mind the end goal to investigate learning exchange, learning sharing (KS) ought to be disregarded. Riege (2005; 2007) also deals with the obstructions influencing the “Knowledge Sharing” and “Knowledge Transferring” that have gotten small consideration while they negatively affect KM and its potential outcomes to convey a positive rate of profitability.

  1. Development of term knowledge transfer and knowledge sharing

The definition, source, and strategy for the term “Knowledge” in the fact from which it is increased has been examined by considering the philosophical verbal confrontations by Aristotle and Plato. It  would, along these lines, recommend that the underlying rise of the terms originates from these exchanges and that the proposals on the best way to manage proficient and compelling information exchange and sharing has been continuous to a shifting degree of power from that point forward. The recurrence of the relations can be followed to binary distinct floods of research.

Out of which, the first one is in item development and novelty move writing in which the relationship, what’s more, correspondence among units have been taking into considerations (e.g. Allen, 1977; Clark and Fujimoto, 1991).

Although the second one relies on upon the works of Michael Polanyi and the terms implied and express learning. In a convincing Harvard Business Review article, Ikujiro Nonaka addresses the issues of KT and KS, notwithstanding the way that he doesn’t state them explicitly. He communicates “Unequivocal data is formal besides, efficient. Along these lines, it can be easily passed on and shared” (Nonaka, 1991: 98).

Later in a comparable article, he says “This makes a “run of the mill scholarly ground” among laborers what’s more, in this way supports the trading of inferred data.” (Nonaka, 1991: 102).

Both the streams have, to some degree, united after Nonaka‟s one of a kind article. Since that article and later articles and books by him, (for instance, Nonaka and Takeuchi, 1995), in which they say that KS is an essential stage in KT) have unequivocally influenced the investigation gathering, we consider this to be the starting stage for the reemergence of KT and KS as we presumably am mindful them today.

Starting now and into the foreseeable future, the terms have developed a tiny bit at a time and extensively. At to begin with, the terms were used proportionally (e.g. Badaracco, 1991; Hansen, 1999) however as of late there has been an advancing separation between them, which we will show in the going with portions.

1.2 KT development

Since the principle years after its reemergence, KT was by and large treated as per the possibility of the data based theory of the firm (Kogut and Zander, 1992; Grant, 1996). A champion among the most consistently alluded to scholars here is Szulanski, who in different books and articles has developed the possibility of KT, especially as for intra-firm learning. His underlying work clearly communicates that data is seen as a firm‟s stock (Szulanski, 1996).

Since the late ’90s and mid ’00s, the focus inside this locale remains on the imperative level with makers who address the point of the piece of frailties in sharing and learning over affiliation subunits (Hansen, 1999), other individuals who focus on intercorporate data streams inside multinational endeavors (Gupta and Govindarajan, 2000) and other individuals who consider claim to fame unit headway and execution (Tsai, 2001).

One discernible extraordinary case is the time when the mental and sociological parts of this issue unite into the investigation stream when the effects from outward and trademark motivation in individuals on KT inside a firm are mulled over (Osterloh and Frey, 2000).

Till this day and age, there is a change from reasonable and hypothetically arranged research towards all the more exactly focused research. Paulin (2002 and 2006) thinks about KT forms in the car industry with a specific concentrate on the generation procedure confirmation handle. Schlegelmilch and Chini (2003) display a writing audit in which the writing alluded to (for the most part from 1997 to 2002) prevails fundamentally toward observational reviews.

Recent researches on knowledge exchange still adjust to the larger amount of investigation. Both the research journals Easterby-Smith, et al. (2008) and van Wijk, et al. (2008) have a reasonable concentrate on intra and/or between authoritative knowledge exchanges.

In any case, Easterby-Smith, et al. (2008) recognized different request of both speculative and conventional monstrosity to the recurring pattern investigate the matter inside the zone of between progressive learning move and in their question “How does the method of learning trade spread out at different levels of examination?” they in like manner open up for examination on the individual level. This redirection from the rule track is continued by Liyanage, et al. (2009) when they express that “data trade is the vehicle of getting the hang of beginning with one place, individual or ownership then onto the following.” (Liyanage, et al., 2009: 122).

  1. KS development

 The early work that was presented by Nonaka‟s HBR article, KT and KS is used alternately with power towards KT. One maker that grasps the term KS is Appleyard (1996). Here, she fuses both connections on the business level of participation (by taking a gander at KS in the semiconductor business with KS in the steel business) and on a national level (Japan is appeared differently in relation to the US) using solitary respondents. Diverse researchers in a comparative stream are Dyer and Nobeoka (2000). Their revelations consolidate the declaration that Toyota’s relative effectiveness great conditions are cleared up to some degree by their ability to make and oversee sort out level KS shapes.

Diverse perspectives that are strong in the KS stream of research are the mental and the sociological. Cabrera and Cabrera (2002), for example, fuse the mental thought of social issues while examining the inclination of individuals to bestow data to various individuals in spite of the way that the association that they work for has placed assets into specific advancement to enable such getting the hang of sharing.

Fernie, et al. (2003) has a strong comprehension on individual information. They battle that data is exceedingly individualistic and that it is introduced specifically social settings. This article is a fair instance of within learning sharing that is focused on the individual level – setting, especially on the subjective data. Another instance of this stream is when KS between individuals in affiliations is investigated (Ipe, 2003). Here, four principle contemplations that effect KS are perceived: 1) The nature of learning, 2) The motivation to share, 3) The odds to share and 4) The lifestyle and the work condition.

In a current distributed articles, an entire and exhaustive review of articles on individual-level data sharing is presented (Wang and Noe, 2010). They express that their article is the first to productively inspected singular learning sharing and that past explores have focused on inventive issues of data sharing or data trade transversely over units or affiliations, or inside between various leveled frameworks.

Barriers to knowledge sharing

Through expert experience, it is desirable that the people should have a tendency to promptly recognize obstructions to doing their employment and on account of this exploration would express reasons why hindrances exist in learning. A target of the critical research exercise was to progress proficient practice inside the association. Information boundaries ought to be caught on furthermore, where suitable evacuated if change in a specific region is to be accomplished. Thought was given to the accompanying to decide the effect of learning sharing (Reige, 2005)

  • Integration of a learning administration system into the Corporation or Sites’ objectives or vital approach might miss or misty
  • Lack of initiative and course as far as plainly conveying the fundamental estimations of learning sharing practices
  • Existing practices, arrangements, methodology, culture may not be helpful for learning sharing
  • Internal intensity inside specialty units, useful zones and backups can be high
  • Hierarchical association structure restrains or backs off most sharing practices
  • General absence of time to share learning
  • Apprehension of dread that sharing may lessen or risk individuals’ professional stability or, then again progression While these are all contemplations and all do exist at some level, they were most certainly not considered to be superseding or restrictive of the learning sharing procedure.
  1. The Knowledge Organization

Foss and Pedersen (2004) guarantee that there is an absence of comprehension of how hierarchical configuration issues identify with learning forms in multinational enterprises. Simonin (1997) analyzed regardless of whether organizations can create specific information by means of experience and after that utilization this information to get further advantages. Simonin’s (1997) comes about demonstrated that organizations do gain, as a matter of fact, predominantly identifying with cooperation.

Becerra-Fernandez and Sabherwal (2003) express the effect of information administration heights from people to people and after that to the whole association. Sandrone (1995) expressed all workers have suggest information of occupation conditions and are along these lines ready to make helpful commitments. This has been developed much further to propose certain parts of business that have been moved toward becoming ‘individuals driven’ because of both the knowledge develop and the mechanical intends to exchange data and information.

Keller (2003) contended the fact which was at that point when President of the University of California, Clark Kerr amid his Godkin Lecture of 1963, battled new information that had step by step turned into the key charge in the development, change for a “country’s wellbeing, military, financial aggressiveness, imaginative magnificence, social concordance, and political solidness”.

Knowledge administration frameworks are thought to be best in class advancement (Adams and Lamont, 2003). Dish what’s more, Leidner (2003) examine how an information administration framework must be deliberately outlined and executed. Alavi and Leidner (2001) state how authoritative and administration rehearse has turned out to be more learning centered.

As an association assembles and extends its learning base, it fabricates its scholarly capital furthermore, subsequently upgrades its upper hand. Information turns into an aggressive resource, particularly learning, which is firm particular, private information, specifically licenses, copyrights and “mystery” systems (Bailey and Bogdanowicz, 2002).

In any case, as best practices progress toward becoming dispersed inside an industry, they wind up noticeably open information (Matusik and Hill, 1998). As people in firm follow particular prescribed procedures, such learning ends up plainly versatile. It is a piece of a person’s and in addition a company’s human capital.

  • Literature Review

This is a critical literature review based on the published research journals about the knowledge mechanism in multination enterprise.

  • Multinational knowledge and Subsid

One research stream concentrates on the part of separation in information exchange or all the more extensively on its part in inter-organizational connections. Thinks that have been investigated the impact of separation on correspondence and trust in multination enterprises (Kashlak et al. 1998; Luo 2002), cross-fringe securing execution (Reus 2012), obtaining, what’s more, joint wander mix forms (Brock 2005; Hsieh et al. 2010; Uhlenbruck 2004) and regionalization (Williams and van Triest 2009).

Let’s get to the fruition on the effect of division on learning trade and between hierarchical associations have, not just this, it likewise highlighted the negative effects of partition (e.g. Dinur et al. 2009; Reus and Rottig 2009). In real, only two audits found that social detachment had a useful result either on information trade (Sarala and Vaara 2010) or on the between hierarchical relationship (Reus and Lamont 2009).

Sartor besides, Beamish (2014) found both positive and negative associations between different institutional partition estimations and various leveled control. Finally, a couple looks into found no effect of social partition (e.g. Cui et al. 2006; Park et al. 2012). Subsequently, it creates the impression that, practically identical to look at tending to market decision, an unmistakable plan ascends for the negative effect of partition – in particular social detachment – on data trade, likewise, between hierarchical associations. Additionally it must be stressed that most of studies focused on social separate to the inconvenience of other division estimations.

Accordingly, there is extraordinary requirement for more research investigating the impacts of different separation measurements on information exchange and inter-organizational connections.

  • Different ways of knowledge transfer mechanism in Multinational Enterprise and Subsidiary

I already clarified that the consideration towards the auxiliaries may influence the entrepreneurial procedures of the said auxiliary and its execution thusly.

Presently, we ought to know how these practices could give great conditions to the Multinational with everything taken into account. As I would see it, we should find the suitable reaction through those instruments, assumed by the written work as data trade.

The information exchange instrument strategy has been a subject for a couple surveys. It is insipidly observed as the improvement of learning inside the net. Specifically, it is the know-how and information shared between each unit of an affiliation (Appleyard 1996; Gupta and Govindarajan, 2000; Shulz, 2001; Tsai, 2001). In this recommendation, I suggest the definition refered to by Szulansky (1996:28). He battles that learning trade is a dyadic exchange of learning between a source and a recipient unit.

As Ciabuschi (2004) states, headways nowadays are deficient to redesign the force of an association if they are not shared all around. Those trades are genuinely troublesome and costly: Von Hippel (1994) used the modifier “sticky” to describe each one of the systems that occur with regards to the data trade or basic considering. The maker communicates that those frameworks are fundamentally held in one single zone, and just from time to time ventures are rolled out to look for after improvements or more adequacy in those said practices.

Data transfer is a sensible opportunity to improve the general execution of the MNC (Barlett and Goshal 1989; Kogut and Zander 1992; Szulanski 1996; Tsai and Goshal 1998; Gupta and Govindarajan 2000; Foss and Pedersen 2002), yet it can’t exist without the closeness of structures what’s more, frameworks that engage and support the procedure.

2.3.1 HQ attention given to the Subsidiary

According to (Michel Mazzoni, 2011), the consideration is characterized as the commitment to the general advancement of the backup given by the HQ, we centered our inquiries concerning the sum, sort and recurrence that assets, for example, money related, good or scholarly, are given by the Italian Multinational to the auxiliary.

Moreover we likewise needed to make sense of on the off chance that they know about any sort of reward as result for getting great outcomes, for example, rewards, open honors or affirmations.

2.3.2 Innovation and Subsidiary’s Performance

When they began discussing development, we generally needed to clarify that by that term they don’t just proposed new items or R&D. They really implied every one of the practices, forms and adjustments created by the auxiliary that are extensive novel to the organization.

It may be the adjustment to the Swedish market of an officially existing item, a different way to convey the items, managing providers and clients, how to confront strategic issues or finding any best hones that have all the earmarks of being more effective for the backup. (Michel Mazzoni, 2011).

They then asked whether those developments brought results, for example, budgetary ones or as a general development of the backup as far as learning and productivity and how they made sense of it.

2.3.3 Flow of knowledge between HQs and subsidiaries and between subsidiaries

According to (Michel Mazzoni, 2011), they began managing the information exchange segment of the meeting. We got some information about the way and the repeat they grant information to the headquarter starting from a general viewpoint (workshops, email, telephone and social events) and getting a perpetually expanding number of unpretentious components concerning the way they team up with the HQ about organizing and decision techniques.

We moreover understood that various MNCs have started using mechanically pushed IT System remembering the true objective to deal with the gathered learning stream (Ciabuschi, 2003). We thought it was authentic to ask the interviewees if they have any and why.

To comprehend the learning streams amongst HQ and auxiliaries we chose to center, as a first approach, on how the correspondence is directed – how and how frequently they convey and about what.

2.3.4 Overall performance of the multinational enterprises

 Upsides of the knowledge sharing was in the end calculated by making inquiries with respect to the likelihood that those prescribed procedures, development or thoughts were contemplated from the HQ and after that mutual inside the MNC‟s net. In addition, we were likewise keen on comprehension the singular view of the chiefs about the information exchange components, inquiring as to whether any issue happened and which was surely their own fulfillment.

It would have likewise been fascinating to meet the HQ general administration about this subject at the same time, because of absence of time and assets, we were not ready to reach them. In any case I discovered a few truly fascinating data from the backups administration. (Michel Mazzoni, 2011)

In particular, I solicited whether any sort from neighborhood advancements, finest observes or queries about actually exchanged to the HQ. Along these lines, it didn’t concentrate on the kind of development itself, however in the way the HQ acknowledges it. Furthermore, I was keen on seeing the way that HQ sees the data and in what way it reinforces it or discards it.

2.3.5 Level of the HQ attention to the subsidiaries

In (Michel Mazzoni, 2011), they at first focus our energy on the level of thought given by the HQ to the helper. They on a very basic level need to fathom to which degree the Italian-based HQ gives any kind of resources for the Swedish reinforcement in order to propel the change of improvement and best practices. By resources we don’t imply simply budgetary ones, yet we also consider intangible ones, for instance, “insightful assets”, time, and affirmation.

They met with Company A battled that the HQ does not normally give financial resources of any kind except for from rebates for some promoting operations or business practices.

What’s more he also communicated this reimburses are given reasonably direct. Startlingly, the helper acknowledges an anomalous condition of steady sharing of data, advancement and organization in demand to develop new plans or general activities.

For Company B the situation is fairly uncommon, the HQ gives enough respect for the helper yet only for reasons regarding the compass of targets. For various practices the thought level is lower and they don’t slant high measures of time therefore. (Michel Mazzoni, 2011),

The thought for Company B sways in the midst of the year and the interviewee ensures that the thought depends on upon the goals come to. The more targets the reinforcement accomplishes, the less thought the HQ accommodates the helper besides, the a different way. In any case, for what regards the progression and change of improvements and also best practices the thought is lower or non-existent.

Organization C situation is somewhat particular. The HQ thought is to an awesome degree low concerning each day operations. Out of the blue, the HQ tends to give higher thought regard to more vital endeavors. In any case, for this circumstance the Italian organization tends to wander out routinely to the Swedish reinforcement to amass information and perceive how practices are directed.

This immediate contact may not be adequate for a perfect thought yet rather it proposes, as communicated by the Manager met, an awesome level of support between the HQ and the reinforcement. (Michel Mazzoni, 2011),

2.3.6 Degree of Liberty held by Subsidiaries

As per (Michel Mazzoni, 2011), Depending upon the essentialness or radical level of the decision or the change completed by the helper, each one of them need, as an essential, the underwriting by the HQ. For instance, Company A has free decisional control as for the choice of suppliers, outsource of co-appointments, framework of business practices at neighborhood level, esteem exchange with customers, generation of post arrangements channels, unmistakable confirmation of new customer sections.

On the other hand, it needs the last support concerning the contracting of new delegates, remunerations and prizes, all the advancing structures (not to undermine the brand picture), re-esteeming and re-alteration of things to adjacent needs and acquisitions.

Notwithstanding the underwriting need for some business sharpens, the interviewee feels that the HQ genuinely takes each one of his suppositions and suggestions into thought. The HQ, frankly, respects the importance of the auxiliary’s part and makes its boss being proactive and determinant for the conduction of the practices. (Michel Mazzoni, 2011).

The case with Company B is fairly phenomenal as the interest for underwriting is for the most part more formal and bureaucratic. Other than critical suggestions which require point by point procedures for achievement, the different sales need to take after strict guidelines and timing given by the HQ. Additionally, due to the high forcefulness of the market, the insecurity of the costs of unrefined materials and the too much confounding and wide structure of the MNC, the HQ portrays a strategy completely in light of the achievement of fiscal destinations and offering volumes. (Michel Mazzoni, 2011).

Notwithstanding the managers of the assistant acknowledge for the most part high decisional control concerning the conduction of the association. For example, due to the on-going cash related subsidence, they anticipated that would make cuts in the backup’s structure. They decided to solidification two divisions of the reinforcement: customer organization and get ready. It wound up being a successful choice as the customer advantage division could set up the agents due to the cognizance of customer needs and issues of declare. (Michel Mazzoni, 2011).

Organization C, when stood out from interchange assistants, has the most essential level of decentralization. They acknowledge high decisional control with respect to advancing endeavors, web promoting, thing modifications, esteeming, enrolling and get ready, regardless of the way that they are obliged to imply a substantial segment of their key courses of action to the executive of Northern Europe and, discontinuously, to the top managers of the association. (Michel Mazzoni, 2011).

2.3.7 Knowledge transfer and communication inside the multinational enterprise The Formal Communication Channels

As indicated by (Michel Mazzoni, 2011), the formal correspondence channels are made by the HQs to give a comparative sum and nature of picking up sharing to each reinforcement.

The formal correspondence coordinates are the same in each MNC conversed with; they essentially include in huge social occasions for each region, for instance, yearly get-togethers, quarter get-togethers, month to month get-togethers and semester get-togethers. The objective is to improve and share best practices, new creation limits, new markets entrance practices, et cetera.

Also, they are in like manner proposed to make a net of associations between chiefs in different countries. This would allow a prompt contact for future getting the hang of sharing inside the MNC.

According to the interviewees, one of the rule focuses of the customs, social events, fairs, and other formal channels is to make associations and, through that, trust between different administrators. Those correspondence channels allow limit social affairs of people to work together with each other in a compelled extent of time. (Michel Mazzoni, 2011)

Various kind of social affairs exists. Yearly social affairs concern normally general executives in the HQ a couple times each year, all around for business reports. Quarter social events generally concern a reduced number of countries and normally they are neighborhood get-togethers. Amid those social events, countries from the same land district meets to demonstrate their activities and practices grasped amid the year.

Finally, we found that every association has its own specific standardize practice to pass on specific necessities to the HQ. This is, for example, gotten for enrolling shapes, techniques for achievement presentations what’s all the more, any kind of sales or prerequisites asked for by the reinforcement. This standardized practice allows the HQ to comparatively survey the request of each reinforcement.

The cutoff purposes of formal correspondence channels ensured by the interviewees – the high cost of affiliation, the time spent to travel and at beyond what many would consider possible the probability to wind up noticeably more familiar with the entire potential framework instigate the generation of an easygoing correspondence channel, worked all together to evade the HQ insinuating particularly to various backup’s chiefs inside the MNC‟s organize. (Michel Mazzoni, 2011). The Informal Communication Channels

As indicated by (Michel Mazzoni, 2011), Informal correspondence channels are created by the reinforcements as alternative correspondence strategies to improve their ability to oversee step by step issues and to manufacture their flexibility face to the HQ.

In all reinforcements, the standard easygoing channel used, to avoid the HQ, is the helper to-reinforcement contact. The Company B‟s director gave us one case concerning this issue. The HQ had presented another IT-structure specifically helpers yet one of these reinforcements arranged in Eastern Europe had a couple challenges using the new programming. After a couple of correspondences with the HQ, they reached another helper in Western Europe to deal with their issues. As opposed to sitting tight for the HQ to make a move, surmising time delays, they needed to evade the HQ and contact particularly another assistant.

Another easygoing correspondence channel is generally in light of composed contact among administrators. Association A‟s interviewee gave us a few information about this stress. The chairman contacts its accomplice in another Country to get to specific information that would take extra time through the HQ. The interviewee ensured that the probability to get to specific data in different reinforcements with different goals is almost the sole approach to share information, in view of the need of learning trade parts inside the MNC.

For example, specific conclusions, for instance, equipment or era techniques is troublesome accessible through the HQ however by achieving the creation plant they can deal with issues snappier. Giving better customer advantage.

One of the practices includes in building singular associations among reinforcements chiefs. Through that, correspondence is quick and the danger to by-pass the HQ is high. Organization A’s boss communicated that the individual contact with various reinforcements managers is basic for their work.

There are assorted ways to deal with make frameworks, however the essential strategies that allow it are the social affairs called by HQ. The fundamental obstacle is that not everybody can go to them because of physical, time and cost objectives.                                                                              

  • Enhancing Knowledge Transfer

Experts have endeavored to propose some control techniques that a HQ may grasp to overhaul the learning exchange component.

  • Social Interaction

 Information outpourings may be proficient through various leveled socialization, for instance, a headway of a social part that improves the generation of heightened and pleasing HQ-reinforcement relationship (Tsai and Ghoshal, 1998; Tsai, 2001; Ghoshal and Bartlett, 1988).

  • Trust

“Trust, by keeping our minds open to all affirmation, secures correspondence and trades” (Misztal, 1996:10).

Trust is in like manner a critical part that enhances the data trade. Examiners conceptualized it as an essential part to finish intra-and between various leveled joint effort (Smith et al, 1995) and encourages the sharing of academic capital (Nahapiet and Ghoshal, 1998).

Implying Knez and Camerer (1994) and to Kramer, Brewer and Hanna (1996), Nahapiet and Ghoshal (1998) total trust may be seen as an “expectational asset” to rely on upon and to update investment and coordination.

  • Conclusion

Amid the review, it can be said that couple of information sources and segments impact the path for a compelling data trade inside the MNC. Composing credits issues concerning the learning trade insinuating motivational and enthusiastic factors (Szulanski, 2006). Not simply learning is “sticky” (Von Hippel and Tire 1994), moreover boss may consistently be narcissistic and enthusiastic and they need to go over the wheel rather than use what someone else starting at now created.

Numerous factors happen. Both Subsidiary and HQ have their own particular needs and longings. On one side, HQs tend not to recognize musings that don’t begin from the top and, as a result, reinforcements are on edge and don’t authenticate their entrepreneurial effect as much as they could (Birkinshaw, 2000).

In our cases, managers know the centrality of the learning trade inside the affiliation, in any case they every now and again observe their errands as the accomplishment of given targets. In any case, it is the HQs‟ undertaking to enhance those segments remembering the true objective to stimulate the picking up overflowing.

Pros have proposed control methods that support this technique. For instance, Ghoshal and Bartlett (1988) confirm that social joint effort and regularizing coordination improve the HQ-assistant support, and in addition gainful reward and persuading power structures (Szulanski, 2006).

As confirmed in our review, trust is a basic segment without which the correspondence and learning sharing are avoided and the general favorable position of the MNC is minor (Nahapiet and Ghoshal, 1998).

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Competitive Advantage: Case Study

Competitive advantage
Competitive advantage

The new product that is being introduced as part of Whirpool production will be marketed along the market chains that the company has used and has competitive advantage over other products in the market. The company will concentrate on marketing the product in the Western nations, followed by the Asian countries and lastly the African nations based on the sales margin of their earlier products (Chakraborty, 2017).

Customers in the industry have expressed the problem of having their refrigerator doors not tightly closing when they are shut.The company GE appliances that is one of the competitors has admitted to the existence of the problem on their website, but they have only provided a limited number of solutions (Refrigerator-Freezer Door Pops Open, 2017).

In the industry, none of the companies have come up with a long-lasting solution like the new invention. The product will provide the company with a competitive advantage in the consumer home appliances. The company does sell their products in over 170 countries, and by the first quarter of 2017, they had a market share of 34.33% (Whirlpool Corp Comparison to its competitors, market share, and competitiveness by Segment-CSIMarket, 2017).

How to Achieve a Competitive Advantage

In order to succeed in any market a company has to decide which strategy is more appropriate to use, which means identifying the sources of a potential competitive advantage such as skills or resources. Superior skills in creating a special product can represent the element that is setting the company apart from its competitors. That is easily translated into a very good quality of the products.

Reference List

Chakraborty, A. (2017). Leverage Analysis: A Study on Whirlpool LTD. Nopal Institute of Management Studies-Department of Management.

Refrigerator-Freezer Door Pops Open. (2017). Products.geappliances.com. Retrieved 15 September 2017, from http://products.geappliances.com/appliances/gea-support-search-content?contentId=16979

Whirlpool Corp Comparison to its Competitors, Market share, and Competitiveness by Segmet-CSIMarket. (2017). Csimarket.com. Retrieved 15 September 2017, from https://csimarket.com/stocks/compete-glance.php?code=WHR

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Foreign Direct Liability Research Paper

Foreign direct liability
Foreign direct liability

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Foreign direct liability 

Critically analyse what you understand by foreign direct liability 


Critically evaluate the legal obstacles in regulating the activities of multinational companies.

An analysis of Multinational corporation operations and foreign direct liability.

Foreign direct liability 


Over time, parent companies mostly in developed countries have set their sights on foreign markets. This has led to an increased number of multinational companies. Multinational companies (MNCs) are defined as enterprises that have production and delivery services in more than one country.[1]  Thus, the location of the company’s headquarters is referred to as the home country while the host countries are the other countries that it has invested in.

This has been facilitated by increased competition and globalization. Driven by the motivation to maximize profits, these companies have extended their boundaries all over the world. Most of them have even penetrated what would be termed as high risk areas. These are mostly war torn countries or those that have poor governance relating to dictatorial leadership.

In their quest to set base in foreign markets, these companies have to interact with the locals.  Foreign direct Investment has experienced exponential growth in developing countries. World trade has exceeded $15 trillion over the last three decades. In the 1990s, a large portion of external finance in developing countries was attributed to foreign direct investment.[2]Their presence in these markets has led to great benefits.

Not only do the people benefit from employment, but impartation of new skills. Moreover, the multinational companies introduce new technology and knowledge[3]. In addition to this, the entry of multinational companies into these markets has put the developing nations on the trade map. Their entry has also contributed to the utilization of a country’s resources.[4]

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In order for these companies to establish themselves, they consider certain factors. These are known as the push and pull factors. The push factors force the companies from their home countries whereas pull factors lure them to new locations. Market based factors consider labor costs, information skills, investment incentives and management prowess. Efficiency based factors include common governance, economy of scope, production incentives and product specialization.

Strategic based factors on the other hand consider market access, distribution of the product, customer access and performance and input quality protection. Lastly, resource based factors are another key consideration. These include availability of capital and natural resources, supply stability and market controls.

In choosing to establish themselves in host countries, the MNCs are forced to adapt to the standards set by the jurisdiction they’ve chosen to operate in. Hence they align their production processes to the demands of the host country. With regards to labor costs, MNCs trend over the years is to pay the workers in the developing countries low wages.

It should be noted that once MNCs establish enter foreign markets, they become vulnerable to arbitrary government actions such as sudden contract renegotiations, being forced to but licenses or arbitrary withdrawal of the same or in some instances, expropriation.

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Nevertheless, MNCs play a major role in any market they enter. They impact government policy significantly. They influence how the government formulates policies regarding the country’s economy. Where the policy does not favor the multinational corporations, they threaten to withdraw from the market.[5] This is especially common with MNCs that have monopoly in a particular sector. Countries like the United States however, have managed to curb this through the presence of domestic market competitors.

Another avenue provided for MNCs to influence government decision is through lobbying. In the United States, an individual or group’s ability to lobby is enshrined in the right of petition contained in the Amendment to the United States Constitution.[6] Lobbying in the United Kingdom is considered as a way of promoting democracy. A statutory register for lobbying and lobbyists was recommended by the House of Commons Public Administration Select Committee.[7] 

In the European Union, lobbying is done with the aim of influencing the European Parliament, the Council and the Commission.[8] Multinational corporations lobbying is directed at a range of issues such as the tariff structures and environmental regulations. Their purpose for lobbying on some of these issues is to filter out competitors. For instance, if a multinational company pushes for stringent standards on environmental safety, any other competitor that is unable to meet the requirements is automatically locked out.

Wal-Mart, a multinational corporation in the USA benefited from the zoning laws that created barrier to entry for other companies.[9] The zoning laws spelled out the areas that could be developed and for what purpose, regulating building heights, lot coverage and other aspects pertaining to land use.[10]

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In maintaining monopoly in a given sector, these corporations acquire patents. For instance, Adidas, renowned shoe manufactures, holds a patent to protect its shoe designs whereas Microsoft holds a software patent.[11]

International law and treaties.

Besides the individual national laws that govern sovereign states, the public international law was instituted to govern the relationship among sovereign states.[12] Hence, multinational corporations are affected by the international law. Increased global trade, environmental degradation and human rights violations have increased the importance of international law which is used to govern these issues.

In addition to this, international law is used to solve disputes that arise from the interpretation of and implantation of national laws.[13] The sources of international law are customs and treaties.  Treaties result from consent to follow them by a number of countries while customary international law emerge from practices carried out by nations that believe they ought to be part of international law.[14] 

Customary law has been used by environmentalists to affirm the need for countries and corporations to take care of the environment. This is clearly outlined in Principle 21 of the Stockholm Declaration and Principle 2 of the Rio Declaration.[15] These principles give the countries the right to exploit their resources but not to the extent of damaging the environment of areas beyond their jurisdiction.

Several treaties have also been established in relation to environmental protection. For instance, 2001 Stockholm Convention on Persistent Organic Pollutants prohibits the use of certain chemicals while putting restrictions on the use of others.[16] Nuclear and air pollution is also regulated by the International Convention on Oil Pollution Preparedness. Voluntary Corporate Codes of Conduct have also been established. The ISO 14000 established by the International Organization for Standardization is a set of environmental management standards that corporations voluntarily adopt to prevent pollution.[17]

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Foreign Direct Liability.

The negative impacts of multinational companies have led to the emergence of the foreign direct liability concept. The negative impacts have driven the locals to seek legal action against the multinational companies in their home countries.[18] The claims often relate to negative environmental and health impacts on the locals caused by a company’s operations in the area. For instance, in the US, cases have been brought forth against Union Carbide, Texaco, Unocal and Freeport McMoRan.

Union Carbide, a US based corporation invested in India. On December 3, 1984, the plant experienced a gas leak that killed 3,787 people and another 8000 that died from gas related diseases. [19] Immediately after the catastrophe, the company, Indian and U.S governments embarked on legal proceedings. The CEO of Union Carbide, Warren Anderson was summoned to the US Congress.

Not satisfied, in March 1985, the Indian government formulated the Bhopal Gas Leak Act that mandated it to be the legal representative of the victims.[20] The case was later transferred to India for hearing. This was challenged by Union Carbide management but was not supported by the US courts. In June 2010, 7 of the former UCC employees were convicted for negligence that caused the deaths. 

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This is just one of the cases where foreign citizens have sought litigation in the home countries. As seen in the Bhopal case, due to failure to determine under which law the case was to be heard, there was a lot of back and forth between the Indian and the US government. Consequently, those responsible for the 1984 disaster were convicted sixteen years later. This clearly outlines the need to harmonize the legal systems between the home and host countries. Whenever a multinational company invests in another country, there should be clear guidelines on how cases involving the locals will be handled.

Foreign direct liability may have an impact on corporate performance.[21] Since the litigation process is an expensive course and in the event that the corporation losses against the plaintiffs and are forced to compensate them, then this is a factor that would cause the corporations to rethink their actions in the host country. Therefore, foreign direct liability may push them towards implementing risk management strategies.

In addition to this, the home countries can however play a role in regulating the influence of multinational corporations in the host countries in terms of the foreign direct investment.[22] The home country governments can limit the amount of investments an MNC can have. This will help to reduce their monopoly in foreign markets.

However, the MNCs have devised other means of avoiding foreign direct liability.[23] Among the measures they use is contracting what they view as the risky parts of their activities to subcontractors. Secondly, they insulate the parent company from any claims by separating the day to day management of the parent company from those of its subsidiaries.

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Another factor to be considered is the involvement of the local government in the corporations’ activities. They take part as business partners or beneficiaries. Hence, the host governments are likely to turn a blind eye on the MNCs activities.[24] This makes the victims’ quest for justice a big challenge. Worse yet is that even if the victims win and are to be compensated, the local subsidiaries may not be in a position financially to fulfill their obligations. 

When analyzed from a corporate social responsibility (CSR) point of view, it ought to be the responsibility of these corporations to ensure that their workers have favorable working conditions.[25] By this, they should apply the same standards they apply at home in the host country. The issue of different standards at home and abroad should not arise. Hence, the best environmental and health standards should be applied wherever they choose to invest.

On the other hand, foreign direct liability opens up the host country to impositions by the home country.[26] The home country courts are likely to demand to have their way with regards to the host government’s choices. They may demand very high standards that the host government may not be in a position to meet based on the developing countries’ status. In the event that a disaster occurs, then the company together with the home government absolve themselves from any responsibility laying the blame on the host government for failure to implement their recommendations.

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Political, legal and social risks.

Besides this, multinational corporations face a lot of risks in their foreign operations. They are forced to deal with additional costs arising from their unfamiliarity with the foreign market, discrimination from the customers, suppliers or government entities[27]. Moreover, other costs are associated with international operations.

Multinationals also stand the risk posed by political decisions arrived at by a country’s governance.[28] Political changes that alter the expected outcome of a given economic action determine the probability of a company’s prosperity in the given country. These risks may be classified as micro-level political risks and macro-level political risks.

Macro-level political risks do not only refer to country level political risks, rather it is a coupling of local, national and regional political events. These risks may result in confiscation or seizure of a businesses’ property. Micro-level political risks on the other hand may be termed as project-specific risks. These risks tend to favor the local industries compared to multinational companies.

Micro risks arise from prejudicial actions or corruption. A good example of how companies can suffer from political risks is illustrated by Cuba. Following Fidel Castro’s takeover of Cuba in 1959, American owned assets and companies were expropriated as explained by Simon.[29] These companies incurred losses to the tune of hundreds of millions of dollars.

Macro level risks can be mitigated by the company understanding the political uncertainties of the host country. At the micro level, political risks can be mitigated through political risk insurance and hedges.  Institutions such as Multilateral Investment Guarantee Agency (MIGA) and Overseas Private investment Corporation (OPIC) are just but a few of the public sector insurers that provide project specific political risk insurance.

Through insuring investors, MIGA promotes foreign direct investment in developing countries[30].  OPIC is an American based agency that mobilizes the private sector to invest in new and emerging markets. Portfolio of investments can be covered by private market insurers. Political risk insurance covers a variety of risks that the investor may face. These are currency inconvertibility, expropriation; loss of an investment due to confiscation by the host government; and political violence.

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In addition to this, legal risks are another challenge for MNCs. This results from a lack of clear guideline on the law applicable when a legal matter arises. For instance, the foreign direct liability cases prove to be a challenge as to which law to apply in determining the cases. The difference in the legal cultures of the host and home countries become barriers to the resolving of such cases.

Social risks on the other hand arise from crimes, violence and racial discrimination.[31] Multinational companies tend to be victims of crimes. This may be attributed to lack of confidence by the locals in their operations.[32] To add to this, people’s perception about a company influences the decisions they make. Multinational companies fall prey to this menace especially from customers who may view a company in a particular way. Wrong perception may also arise from lack of information about a company’s operations.[33]

Wal-Mart Company has faced a series of criticism from labor organizations, human rights activists and other entities.[34] This has given their consumers a negative perception about the company. Apart from this, multinational companies face racial discrimination from locals in the host countries. The domestic markets have a higher tendency of favoring the local industries compared to the foreign companies. 

One of the ways of mitigating social risks is through corporate social responsibility.[35] Creating programs that help the MNCs keep in touch with the locals serves a good strategy to deal with the perceptions the locals may have about it. Some of these programs include creating social events where both parties can interact such as fun days for the employees. In addition, some MNCs have gone ahead to engage in programs that meet the needs of the locals such as establishing schools, providing water and other social amenities. Moreover, transparency about the companies’ operations also contributes to mitigating social risks.

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In conclusion, multinational corporations are companies that have extended their operations from the home countries to foreign markets that are referred to as the host countries. These companies take into consideration the viability of the foreign markets before they establish themselves. Their entry into the host country implies involvement of the locals in the company’s operations. In addition to these, international laws have been put in place to govern the management of resources with respect to health and environmental safety.

Multinational countries tend to have different standards in the home and host countries. This gives rise to foreign direct liability. Access to justice is the underlying issue in foreign direct liability. The victims in most instances seek justice in the home country. However, this is still a foreign concept to many countries. As seen, multinational companies face several risks including legal, political and social. All in all, there is a need to develop a strategy where foreign direct liability is handled amicably and justice is served. Moreover, multinational companies need to not only be driven by the desire to make profits but work towards corporate social responsibility.

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Enneking , F.H. Liesbeth,  “Crossing the Atlantic? The political and legal feasibility of European Foreign Direct Liability Cases,” The George Washington International Law Review, p 903, 2009.

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[1] Christos Pitelis & Roger Sugden, The nature of the transnational firm 2000.

[2]  Brian J. Aitken and Ann E. Harrison, “Do Domestic Firms Benefit from Direct Foreign Investment?

Evidence from Venezuela,” June 1999, p.1

[3]  Gerald K. Helleiner,“Transnational Corporations and Direct Foreign Investment Handbook of development economics. Amsterdam: North-Holland, 1989.

[4] Seun Oluwanisola, Ezine articles, < http://ezinearticles.com/?Benefits-and-Challenges-of-Multinational-Companies-> ,2011, ( accessed on 30 Nov 2011)

[5] Barnett, Richard, Global Reach: The Power of the Multinational Corporations, 1975

[6] “The Right to Petition”. Illinois First Amendment Center.

[7] Public Administration Select Committee < http://www.parliament.uk/business/committees/committees-a-z/commons-select/public-administration-select-committee/> (accessed on 30Nov 2011)

[8] Kierkegaard, Sylvia, How the Cookie (almost crumbled). Computer Law and Security Report Vol.21 Issue 4, 2005.

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