Local Government Regulations

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2. GOVERNMENT REGULATIONS By imposing various regulations, local governments affect the current operation of multinational companies as well as their headquarters’ decision-making and control implementation. Local governments have the power to support, but also to limit the activities of multinational companies. If the government in a certain host country believes that the activities of multinational companies are compatible with their national interests, they may assist their operation by placing various stimulating regulations. If, however, the activities of multinational companies do not meet their expectations, then local governments may impose various restrictive regulations that limit the operation of multinational companies (Fatehi,…show more content…
The most common regulations imposed by local governments are those related to the financial participation in foreign subsidiaries. Many multinational companies are not against this type of regulations because they consider that sharing ownership with local investors is an effective protection from adverse local government policies. However, some multinational companies reject to operate in countries where they are not allowed to be a majority equity owner and have a comprehensive and effective control on their operations. Other restrictive regulations imposed by local governments are related to the profit repatriation. The governments of some host countries limit the repatriation of multinational companies' assets. This type of restriction is considered as most difficult by the multinational companies because it significantly impedes the implementation of investment strategies and forces the companies to reinvest in the host country. Reinvestment in the host country is not always the best option for multinational companies. The financial regulation that is often subject to disagreement between the local government and multinational companies is the allocation of R&D expenses as well as the location of the research facilities. All local governments, especially those of developing countries, are interested in transferring the technology and establishing research centers in the…show more content…
The local government may impose foreign subsidiaries to appoint host nationals on top managerial positions. The fulfillment of these demands significantly impedes the control over multinational companies’ local operations. Therefore, the headquarters increase control when a host national is appointed as the head of a foreign subsidiary. The appointments at lower organizational levels are considered as secondary or less important, and they are made by the host country subsidiary. All decisions that directly affect the headquarters or other subsidiaries, on another hand, are heavily controlled and made exclusively by the headquarters. Otherwise, when a certain host country subsidiary is strategically significant for the multinational company, it is to be expected that for control purposes, the expatriates are appointed as subsidiary’s managers (Biderbos & Heijltjes,

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