Explain the different between the entity approach and the enterprise approach when a country designs a...

Explain the different between the entity approach and the enterprise approach when a country designs a policy that affects the operation of a MNC.

Expert Solution

The approaches differ mainly between what the conuntry's laws affect.

The 'enterprise' is the whole MNC. The law will consider the whole MNC responsible/affected for any act done by any part of it. For example, when a conglomerate's subsidiary is involved in any issues with the local law- the whole company will be considered liable. Similarly, any law applied to one subsidiary will be applied to the whole 'enterprise'. A real life example of it would be Pepsi being responsible in India for something that their local unit of Lays chips had done.

The 'entitiy' approach is precisely the opposite. The whole enterprise will not be liable or affected by any act of an 'entity' within the 'enterprise'. An example of it would be, lets say, insolvency. When looking at bankruptcy the laws would only look for the status of the subsidiary and it wont matter to them how financially afloat the whole enterprise is. The decision would be taken only on the basis of the local entity.

Rahul Sunny answered 9 months ago

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