Question

Describe various company strategies to manage government intervention.

Answer 1

Answer:

Reasons for Government Intervention:

Governments establish markets and hold them in place. Companies will not be able to function without the government services. Host governments 'attempts to preserve power of their own national economies have steadily limited MNC managers' ability to deploy economic capital. Of equal value, host governments often interfered with the autonomous cycle of formulating MNC strategies.

The first, which sets the fiscal and regulatory ground rules for a decision by an MNC to participate in a host country, is better understood as a restriction of strategic independence.

The second, which attempts to control the internal dynamics of the decision-making process of an MNC, is better interpreted as a challenge to the autonomy of the management. Those together constitute a significant violation of MNC managers' general strategic autonomy.

Strategic responses to manage government intervention:

• Companies may respond to host government interference by either changing their operations or withdrawing their operations entirely from the country.
• For example, Du Pont of the USA, accepted new regulations following government intervention and adapted to maintain market presence and market penetration (Doz & Prahalad, 2000).
• Through the use of processes of internalization, such as a subsidiary's central procurement of raw materials, companies may perhaps escape the most basic form of government intervention; corporate taxation. This ability to minimize one's tax burden is one of the most important benefits that globalization provides businesses, but it can also be very harmful to the home country due to the tax revenue losses.
• Mostly corporate entities plans to make keen search and evaluate their external environment in order to gather adequate political intelligence, if the business can better plan for policy interference than its rivals, it can also act as a competitive advantage.
• Proactive firms will create contingency plans for things that could happen but are not fully understood. These are the known unknowns. They choose the following opportunities like:
  • Choose the most appropriate entry strategies.
  • Take advantage of duty free foreign trade zones.
  • Seek favorable duty classification for exports.
  • Take advantage of investing incentives and Lobby for freer trade and investment.

In conclusion:

Governments include the laws and regulations relating to legal, social, physical, and intellectual property that keep businesses alive. In controlling themselves, companies could return the favor, but this never worked.

There is the law breaker model in which you break the law and see the penalty as part of the cost of doing business, but this is the least sustainable model of all. Sometimes the market is worth the pain of the restrictions and sometimes it’s not.

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