Explain organization forms used by Multinational corporations to respond to intensifying global competition. Develop your answer using industry example as appropriate.

Basics of an answer Outline of what corporate governance is and why it affects the strategies of multinational corporations. Discussion of the view that the more formal rules based corporate governance systems in advanced economies reduce the risks to owners of capital and other stakeholders compared to the more informal trust and reputation corporate governance systems in many emerging economies. This occurs as formal requirements can at least in principle be understood and monitored by stakeholders. Discussion of the alternative view that in principle at least a trust and reputation based corporate governance systems may be better at protecting stakeholder risks because it avoids the continual closing of loopholes in regulations as corporations seek to find ways around extensive and complex regulations. In other words, less use of expense of lawyers and accountants to reduce costs to principals (stakeholders – labour, suppliers, customers, and governments) of stopping agents (senior managers of Multinational Corporation) of acquiring the surplus. Discussion of the implications for multinational corporations of the conflicting corporate governance systems they face due to the institutional distance between home and host locations. This presents both opportunities to avoid compliance to unwanted corporate governance requirements by allocation of activities and financial flows to, for example, avoid tax or legal and/or social constraints on executive pay – but also imposes costs due to required changes to corporate government in host locations to fit in with host location corporate governance systems. Good answers may relate this to another argument that the world is not flat.

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