Environmental factors affecting? multinational? companies Essay Example

token, the forces that affect the operations of the business in the home country is what is referred to as the ‘home environment’ as the company grows and expands it might as well expand its operations to other countries. According to Drucker (1974) he asserts that multinational companies grow as a result of emergence of a genuine world’s market demand transcending national cultural and ideological boundaries due to the information explosion. When this happens and the business begins to operate in another country, it ought to abide by the legal, political policies and all other forces that will affect the business in the country and these new forces are what we refer to as the ‘foreign environment’ as every country provides different regulations and/or policies that the business has to comply with. Thus, this research will seek to outline some difference in environmental forces which exist, and it should be noted that depending on the nature of the forces, the impact inflicted on the business can either be positive or negative.

2.0 Multinational companies

Many authorities, scholars and authors have vividly defined Multinational Companies from different perspectives. Some of these vivid definitions are meticulously outlined below. Research Machines (2004) asserts that there are four (4) definitions to MNCs. Firstly; it defines a MNC as a corporation that has its facilities and assets in at least one country other than its home country. It further defines it as that which has offices and/or factories in various countries and usually has a centralized head office where they coordinate business enterprise with manufacturing, sales or service subsidiaries in one or more foreign countries, also known as Transitional

or International Corporation (TN or INC). Moreover, the third definition as postulated by Research Machines as it sees MNC as outlined by Research Machines (2004) identify that Multinational companies operate outside its own home country. The Encyclopedia of Management (2005) refines these definitions by stating that Multinational Companies are businesses concerned with operations in more than one country. These operations outside the company’s home country may be linked to the parent by merger, operated as subsidiaries or considerate autonomy. Among the multinational companies, this research will use the Zambia based First Quantum Minerals ltd as the model example to explain and differentiate environmental factors affecting multinational companies. It will serve as a skeleton to support our arguments to refute the idea that “conducting business in a home environment is the same as conducting business in a foreign environment.”

2.1 First quantum

First Quantum Minerals founded in 1996 is a Vancouver, Canada parented mining minerals and metals company whose principal activities include mineral exploration, development and mining. Firsts Quantum’s common sales are listed for trading on the Toronto Stock Exchange in Canada (symbol: FQ) and on the London Stock Exchange (symbol: FQM) in the United Kingdom. It is a well-established, fast-growing mining business with mining and exploration activities in Australia, Zambia, Mauritania, Finland, Spain, Turkey and Peru. Thus, First Quantum is an excellent model example when looking at how both home environment and foreign environment imposes different effects on multinational companies. Needless to say, seeing that First Quantum operates in the prescribed various parts of the world, it is unarguable that it is faced with different environment factors. These include; political, economic, social, legal,

environment (ecology) and technology. The next chapter will explore these in details.

3.0 Environmental factors

3.1 Political-legal factors

Political factors are elements within the government that have an effect on other non-political areas of the society while the legal environment deals with all legal policies set up by the society to regulate and govern operations of the business. These political factors and legal policies vary from country to country as countries with different political structure have different ways and methods they use to ensure they get maximum gains from use of their resources and protect the rights of their citizens.

From our society it is noticed that First Quantum like any other business seeks to maximize profits and will not operate in countries with unfavorable political structure. This is evident in The Democratic Republic of Congo where First Quantum has shut down all operations. Though the Ore deposits in Congo are rich, it is unlikely that First Quantum can operate there well seeing that the area has been subjected to a series of unequivocal hostile political climatic civil wars that are prone to lead to unforeseen stoppages in production which would in turn reduce revenue. Nevertheless, in the case of Zambia where First Quantum (FQM) is showered with thrilling peace and stable working environment in its mining and other supportive endeavors, it saves millions which could have otherwise been used to create alternative courses of action as a result of many uncertainties.

Moreover, another valid difference FQM faces is that it carries out operations in different countries outside its home country as the rigidity and weight of laws .Such laws

include labour laws, tax policies, trade restrictions and more direct involvement such as subsidizing of products and determining price ceilings. Looking at laws regulating minimum wage that is witnessed in Zambia, the minimum wage is K1,200.00 for all age groups, meanwhile, other countries in which ‘FQM’ is operating have a different approach, for instance when we look at Mauritania’s minimum wage, it is unarguable that it is awarded according to age groups were young employees’ wages differ from that of older staffs. This element disadvantages the business operations as the firm may spend more money on wages which in turn reduces profit incomes. The amount of freedom a company has to operate also differs from country to country and a classic example is explained between Zambia and Mauritania where freedom is at 60% and 43% respectively.

3.2 Economic environment

The economy of a country greatly contributes to acting as a ‘magnet’ to attracting of new companies and investors. First Quantum Minerals ltd has therefore recorded remarkable performance pertaining Peru’s free market economy and its economic policies helps to: Promote private investment

Reduces inflation Gets rid of corruption and terrorism. Peru’s economy has proved to be a great place for business operations with inflation rates falling below 4% each year. Moreover, Zambia has proved to be a great business place with inflation rates declined to an annual average of 6.5% from 8.7% in 2011.In the next two years growth is expected to remain strong and inflation low. Growth in GDP accelerated to 7.3% in 2012 from 6.8% recorded in 2011. Economic prospect for the future appears bright if growth can be sustained and broadened to

accelerate job creation and reduce poverty as contributed by first Quantum. Unlike Congo DR, the economic environment of Zambia is calm and stable. There has been alarming rates of illegal mining in Congo DR due to corrupt officials. Apart from that, tax evasion is not an exception but one contributor to the country’s present unstable environment for mining and other business operations. Having well researched and talked about the prescribed facts, we stand firm to refute the idea that “operating business in a home environment is as good or rather the same as operating business in a foreign environment.” In contrast, despite having recorded a few couple of trivial cases of illegal mining acts (theft) of minerals by the group well-known as “Jerabos”, the issue was quickly handled and quenched. So far, we have not received or experienced any sort of tax invasion from Kansanshi mine and this is proof enough for our claims.

3.3 Social-cultural factors

Social environment refers to immediate physical and social settings in which people live. FQM Zambia has been carrying out operations for a long time now, thus there is no doubt that the society is well-equipped to perform well at that job. But what is Mauritania’s social-cultural environment in line with Guelb Moghrein mine? Despite it being the second major privately owned operations to be developed in the country, the people around seem to know less about mining activities. The local people who were not exposed to any such activities before find it very difficult to cope with undergoing operations, therefore, cultures also differ and so we do not expect the business operations to be the same among

countries.

3.4 Ecology

Drawing our attention to ecology, it is an undeniable fact that inputs vary from country to country. Pertaining mines, mineral ore deposits vary from one country to the other. It is evident in the table below that portrays First Quantum’s financial report among the seven countries. This is another standing ground for our support.

Examinations of this environment include a look at the “global common” of air, water, and space. Raw materials of every type also are important parts of what can be thought of as the earth’s “natural” environment. The environment is the condition, circumstances and influences under which an organization. It may be affected or described by physical, chemical and biological features both natural and man-made. In this assignment, Zambia is serving as a model example to illustrate a home environment. It is noted that Zambia has been operating favorably in this natural environment due to the abundance of mineral resources. It boasts one of the most important and complex metal octets hosting enormous reserved copper-cobalt ore, together with gold, Uranium, Nickel, Lead and Zinc. Unlike Mauritania which its mineral sector dominated only by copper ore mining, FQM operations in Zambia are not affected by any natural and human disasters unlike Mauritania which is hot, dry dusty/sandy with periodic droughts.

Diseases also have an impact on a business and the economy, for instance, in Congo DR, Health and Safety standards are largely specified in the Congolese law, making it yet another cost incurred by businesses operating there.

3.5 Technological factors

So far we have considered some typical arguments put forward concerning various business environments. Finally

we will look at the technological environment. By definition, technological environment encompasses influences that have an impact on how an organization operates that are related to the equipment and methods used in production within the organization’s environment. Regarding technology, it is incontestable that FQM business in Australia is financially advantageous. This is because Australia’s technological environment has improved such that operational cost regarding technology are minimal in a blink of an eye production is carried effectively and efficiently. The same applies in Turkey; however, the same cannot be said for Zambia, were FQM had to invest millions on technological improvements. It can be argued then that technological levels in countries vary. Moreover, pertaining to the social environment, in Turkey, First Quantum has reduced poverty levels by getting goods from local suppliers. Meanwhile, Australia has made an ally or rather agreement with Turkey to provide employment and innovative Training. Depending on the gravity of the social requirements expected a business either be attracted to working in a country or not.

Conclusion

In conclusion we must say that from all the information gathered in this research, it is definite that the statement ‘there is nothing like foreign environment in conducting business. It is just the same as conducting business in a home environment’ is incorrect. Though there may be some similarities in different environments it is an undisputed fact there are differences in operations nonetheless.