Welcome to class of International Government Relations by Dr. Satyendra Singh

Govt. Can Impose Nontariff Barrier WTO identifies 600 such barriers –Quota –Antidumping accusations –Countervailing duty by law –Labeling restrictions –Licensing mandatory –Product standards  health and safety –Custom inspection procedure  host’ll do it –Government procurement regulations –TRIM  Trade Related Investment Measure WTO: DSB  Dispute Settlement Board

So Form Govt. Relations Governments take actions –Regulate –Taxation –Expenditure –Privatize –Consultation It impacts MNCs Govt. actions  threats and opportunities for MNCs

Government Actions: Threats and Opportunities ThreatsGovernment ActionsOpportunities ↑ costs ↓ ROI Competitive disadvantage ↑ competition Co-opt  Regulation   Taxation   Expenditure   Privatization   Consultation  Control competition Competitive advantage Subsidies, grants, customer Level playing field Influence policy Given threats, MNCs need to formulate political strategy in both host and home countries  relations

Political Strategy – Elements Formulation –Objectives (form IJV, buy govt. assets, get permit, influence MPs to have favorable legislations) –Issues (current or emerging) –Stakeholders (allies, opponents, targets) –Position/Case (“public interest”) Implementation –Timing –Techniques Direct (negotiate, litigate) Indirect (advocacy advertising, political contributions) –Vehicles (association coalition, Government Relations department, consultants) –Style (confrontation or conciliation  depends on objective)

Objectives: MNCs, SoE, Govt

MNCs Strategic approach to Govt. Policy 1 “ Government Policy as lever for global competitiveness” approach base/cluster concept 3 Firm specific characteristics in MNC government interaction Use of strategic trade policy arguments to obtain government favors. 2 “ Good corporate citizen” approach Government policy not viewed as a major determinant of international competitiveness 4 Firm specific characteristics in MNC government interaction Influenced through lobbying, i.e., a proactive strategy MNC’s objectives in Business – Govt. Interactions To achieve Benefits of integration To achieve Benefits of National Responsiveness MNC Can NOT influence GovtMNC Can influence Govt Strategy: Choose one (say 4); determine who has the bargaining power: Govt or MNC

Bargaining Power Governments may discriminate Due to differing characteristics of subsidiaries Force MNCs to have IJV, impose taxes, fix prices Or they can give MNCs 100% foreign ownership and financial support! Sources of Bargaining power for host country Growing capability to replace the MNC’s products Control access to raw materials, labor and capital Sources of Bargaining power for MNC Global structure, Vertical integration MNCs avoid dealing with govts  unstable Globalization has made govt. FDI friendly

Govts Create Business Linkages