It is difficult to control an MNC as laws and other regulations passed only applies to the business operating within that country. Therefore, if there was a production subsidiary set up in a different country which violated regulations, the parent company would not be liable so the MNC is effectively unpunished. However, regulatory bodies do enforce what they can, through charging fines when firms fail to follow regulations, which causes a disincentive to break rules. Some larger firms may prefer to pay fines as it is proportionally easier for them to pay fines rather than change their way of operating.
FACTORS TO CONSIDER:
Larger, more economically powerful countries such as the US or China will have more influence over MNCs as they are important markets to firms. In comparison, smaller less economically developed countries are less likely to influence decision making. As well as this, FDI from these large firms are likely a larger source of input for these countries and they may not wish to risk losing this. This may stunt their economic growth
A legal system of control is more effective in a developed rather than a developing country. This is because there is likely to be less corruption in the system and will therefore be more influential within this country. Governments may set up their own regulatory bodies to monitor MNCs, in the UK, the CMA investigates larger firms and in China they insist on them forming joint ventures.
These are organised groups which seek to influence public opinion regarding political/legal issues. They can organise campaigns, protests and boycotts and they do not operate for financial gain. However, they cannot pass laws and have no real power to enforce on MNCs. Examples of such pressure groups are Killer (Greenpeace) and Tescopoly which aim to promote awareness and protest against MNCs and their negative impacts. Greenpeace caused KitKat to make the palm oil used in their products more eco-friendly.
Pressure groups often use social media to spread awareness of the ethical issues surrounding MNCs as it helps reach a wider audience and viral marketing can have a large audience. Greenpeace made a protest advert on YouTube which showed the KitKat fingers replaced by orangutan fingers to raise awareness of the impact they had on rainforests and the habitat of the animals. It has been watched by over 1 million people, conveying the influence had here.
This is when they follow a code of conduct which sets an organisation’s own standards of behaviour. This could be as it benefits the firm’s public reputation to act ethically and therefore is within their interest to do so. However, the downside to this is that forms may simply hide unethical behaviour from the public instead of acting ethically.
This is especially effective in countries where regulation and/or enforcement is weak which is generally more true in developing countries where they may not wish to lose the FDI gained from an MNC by regulating them. However, self-regulation can also be used in conjunction with government regulation. There are organisations which firms can join such as the Ethical Trading Initiative (ETI) which aims to improve the lives of workers across the globe. They encourage transparency in companies on how much they earn and pay to developing countries in which they operate. Another example is the Fairtrade Organisation which licenses the use of their mark in the UK based on internationally agreed standards.
Self-regulation arguably is a more efficient process of policy making as firms are aware of their own operations and can control their own behaviour rather than depending on a less efficient external governing body. This may then cause standards and good conduct to be norms for a business and removes the necessity for any form of regulation as it becomes habitual.
A limitation of self-regulation is that it may cause firms to become less competitive in the global market if they are concerned more about these standards than profit. Generally, a firm’s objective will be to maximise profit which they will take actions towards. Therefore, unless there are economic incentives for firms to adhere to certain standards, self-regulation may be ineffective as firms are disincentivised.