Lessening Political Vulnerability

Foreign investors frequently are accused of exploiting a country’s wealth at the expense of the national population and for the sole benefit of the foreign investor. This attitude is best summed up in a statement made by a recent president of Peru: We have had massive foreign investment for decades but Peru has not achieved development. Foreign capital will now have to meet government and social goals. Such charges are not wholly unsupported by past experience.

As long as these impressions persist, the political climate for foreign investors will continue to be hostile. Companies must manage external affairs in foreign markets to ensure that the host government and the public are aware of their contributions to the economic, social, and human development of the country. Relations between governments and MNCs are generally positive if the investment (1) improves the balance of payments by increasing exports or reducing imports through import substitution; (2) uses locally produced resources; (3) transfers capital, technology, and / or skills; (4) creates jobs; and / or (5) makes tax contributions.

In addition to the economic contributions a company makes, corporate philanthropy also helps to create positive things among the general population. Many MNCs strive to benefit countries through their social programs, which polish their image as well. For example, Microsoft, recognizing that developing countries need sophisticated technical assistance, pledged more than $ 100 million in technology and training as part of a deal to put government services online I Mexico. Cisco Systems, the leading maker of Internet hardware relies on nonprofit organizations to run its 10,000 networking academics, which train college and high school students to create computer networks in 150 countries. In China, Procter & Gamble is helping local schools and universities to train and educate leaders. And in Malaysia, Motorola and Intel have instituted training programs to enhance the skills of local workers.

Merck, the pharmaceutical company, has developed a pill to fight river blindness in Africa and Latin America. River blindness is a parasitic diseases transmitted to humans through the bite of the black fly commonly found along the river banks in some African countries. The parasite infiltrates, multiples, and spreads throughout the body for as long as 15 years causing acute skin rashes, terrible itching and sometimes disfigurement or blindness. The pill is taken just once a year and has been proven to prevent the diseases. Merck contributed millions of doses to fight the diseases in developing countries.

Lever Brothers has a strong commitment to corporate social responsibility with a focus toward children. It sponsors the Missionaries of Charity in Chittagong, Bangladesh. Similarly it has completely renovated the children’s ward of a hospital. The company also sponsors the National Polio day. Its Pepsodent brand plays a pivotal role in oral hygiene awareness through its Dental health Week and School Education Program. Lifebuoy sponsors the Lifebuoy Friendship Hospital, a floating hospital aimed to provide healthcare facilities and health education to the poor. Although these philanthropic gestures may be seen as enlightened self interest any activity that improves the welfare of the population will ultimately cerate a stronger economy benefiting the country as well as the MNC.

Even though companies strive to become good corporate citizens in their host countries, political parties seeking publicity or scapegoats or their failures often serve their own interest by focusing public opinion on the negative aspects of MNCs whether true or false. Companies that establish deep local roots and show by example, rather than meaningless talk, that their strategies are aligned with the long term goals of the host country stand the best chance of overcoming a less than positive image. In times like these says one executive global citizenship is perhaps more important than ever. An effective defense for the multinational company is to actively participate in improving the lives of local citizens.

In addition to corporate activities focused on the social and economic goals of the host country and good corporate citizenship, MNCs can use other strategies to minimize political vulnerability and risk.