Challenges Faced by Multinational Enterprises Operating Abroad

Explore the political, legal, economic, and environmental/ethical challenges faced by Multinational Enterprises (MNEs) operating abroad. Learn about the implications of governmental risks, legal complexities, economic factors, and sustainability expectations on MNEs.

Hi Everyone,
Operating abroad presents Multinational Enterprises (MNEs) with a
multitude of implications across political, legal, economic, and
environmental/ethical dimensions.
Politically, MNEs must contend with various risks stemming from
governmental and non-governmental actors. Macropolitical risks,
such as war or sudden regime changes, can disrupt operations and
lead to asset expropriation. For instance, the expropriation of oil
assets by the Venezuelan government in the early 2000s
significantly impacted multinational oil companies operating in the
country (Vera, 2015). Micropolitical risks, like changes in regulations
or taxes, can also affect MNEs on a smaller scale, altering business
landscapes and profitability.
Legally, MNEs face a variety of challenges, including navigating
different legal systems, enforcing contracts and protecting
intellectual property rights (IPR), and complying with local labour
laws (Hill, 2008). In addition, understanding local tax laws is
essential to avoid legal disputes and financial penalties. MNEs must
also comply with antitrust and competition laws to mitigate the risk

of legal disputes. For example, the European Commission imposed a
fine of 2.42 billion euros on Google for violating EU antitrust rules
due to its abuse of dominant position in many European countries
(European Commission, 2017).
Economically, MNEs must assess factors such as GDP growth,
inflation rates, exchange rates, and market competition in host
countries (Caves, 1996). Economic instability, currency fluctuations,
and market volatility can impact investment decisions and financial
performance. For example, the economic downturn in Argentina in
the early 2000s led to significant losses for MNEs operating in the
country (IMF, 2019)
.
From an environmental and ethical standpoint, MNEs are
increasingly expected to adhere to sustainability practices and
ethical standards (Kolk, 2008). Failure to do so can lead to
reputational damage and regulatory scrutiny, affecting long-term
viability and stakeholder trust, for example, Major clothing brands
such as H&M and Adidas have come under intense scrutiny for the
environmental impact of their unsustainable production practices,
including excessive water consumption and pollution (Zhu, 2023).

In summary, the impact of MNEs operating abroad is multifaceted
and requires a comprehensive understanding of global dynamics.
MNEs must critically evaluate the motives for internationalization to
address associated barriers and risks.
Question: In terms of environmental and ethical aspects,
multinational enterprises face increasing pressure to adhere to
sustainable practices and ethical standards. When facing these
requirements, what specific measures do you think multinational
enterprises should take to ensure that their business activities
minimize their impact on the environment and society?
References：
Caves, R. E. (1996). Multinational enterprise and economic analysis.
Cambridge university press.
European Commission (2017). Antitrust: Commission Fines Google
€2.42 Billion for Abusing Dominance as Search Engine by Giving
Illegal Advantage to Own Comparison Shopping Service - Factsheet.
[online] European Commission - European Commission. Available at:
https://ec.europa.eu/commission/presscorner/detail/es/MEMO_17_17

85 [Accessed 20 Feb. 2024].
Hill, C. (2008). International business: Competing in the global
market place. Strategic Direction, 24(9).
IMF (2019). The Role of the IMF in Argentina, 1991-2002, Issues
Paper/Terms of Reference for an Evaluation by the Independent
Evaluation Office (IEO), July 2003. [online] Imf.org. Available at:
https://www.imf.org/External/NP/ieo/2003/arg/index.htm [Accessed
20 Feb. 2024].
Kolk, A. (2008). Sustainability, accountability and corporate
governance: exploring multinationals' reporting practices. Business
strategy and the environment, 17(1), 1-15.
Vera, L. (2015). Venezuela 1999–2014: Macro-policy, oil governance
and economic performance. Comparative Economic Studies, 57,
539-568.
Zhu, H. (2023). CATALYST PLANET - Ethical Concerns and Negative
Environmental Impact: the Dark Side of H&M’s Fast Fashion Empire.
[online] CATALYST PLANET. Available at:
https://www.catalystplanet.com/travel-and-social-action-stories/the-

dark-side-of-hampms-fast-fashion-empire [Accessed 20 Feb. 2024].