1.

Market Imperfections

It may seem surprising that a company would want to do business in a nation

where it is unfamiliar with the laws, cultural habits, or commercial norms since it would
likely encounter difficulties that will make it more difficult for the management to predict
how the market will develop. The increased expenditures associated with entering
overseas markets don't matter as much too local businesses. Transport expenses and
other tariff and non-tariff obstacles, which may push businesses into competition and
lower their profitability, can also isolate them from competition in their own market. By
merging or acquiring another company, the businesses may increase their combined
profits while reducing competition in the same industry. This could also be true if there
are few alternatives or few licenses available in a foreign market.

Beth Loy (2021) indicated that International marketplaces without perfect

competition give birth to the trade theory known as "market defects hypothesis." In other
words, at least one of the premises underlying perfect competition is broken, leading to
what economists refer to as an imperfect market. We are aware that a perfect market is
unachievable. We have flawed markets here, too, in the United States. It's important to
keep in mind that a perfect market is one in which there are no entry or exit barriers,
almost identical items are sold by firms, buyers and sellers have perfect knowledge, and
buyers and sellers are price takers.

Thus, market institutions like monopolies, monopolistic competition, and

oligopolies sometimes violate the ideal of perfect competition. Because they only make
up a tiny portion of a foreign market, businesses are seen as price takers in
international commerce. They are unable to control the pricing, must contend with trade-
related government meddling, and work with incomplete information. This is the reason
why certain operations of international automakers have shifted to the US. The fact that
market imperfections theory is a theory of global commerce is intriguing. It informs us
that certain safeguards are required in global marketplaces in order to defend our
interests. Free trade depends on ideal competition, which doesn't exist, thus we must
seek for other means to get more desired results. Here is when governmental meddling
comes in.
 2. Tax Competitions 

The installation of MNC facilities, which generates ensuing tax income, job
opportunities, and economic activity, puts countries and sometimes subnational areas in
competition with one another. Countries and regional political jurisdictions must provide
MNCs with incentives, such as tax exemptions, promises of governmental support, or
better infrastructure, in order to compete. When these incentives don't work, they could
run into problems that reduce their chances of becoming more appealing to foreign
investment. However, other academics contend that international corporations are
competing for the top spot. There is no proof that multinational corporations intentionally
take advantage of tax laws, environmental regulations, or low labor standards, even
though they undoubtedly view these factors as components of comparative advantage.

Although the idea of tax competitiveness is not new, political and scholarly
interest in it is. Taxes were just too low for a very long period, and cross-national tax
differences were too tiny to cause substantial cross-border transfers of taxpayers and
bases. In the 20th century, tax burdens dramatically increased, but so did cross-border
mobility restrictions: high tariffs, stringent capital controls, constrained currency
convertibility, and strict immigration and visa policies significantly reduced the
opportunity for international tax avoidance and evasion. With the start of strong
economic integration in the 1980s, this altered. Barriers to mobility were eroding. The
costs of transferring goods, services, capital, and jobs across national borders have
significantly decreased as a result of trade liberalization, capital decontrol, and currency
convertibility on a global scale, regional integration programs like the EU's Single
Market or NAFTA, as well as new communications and transportation technologies.
Many observers worried that this tendency would undermine the welfare state's finances
(Sinn, 1990; Scharpf, 1991; Steinmo, 1994; Tanzi, 1995; Rodrik, 1997), while others
hoped (Edwards and Keen, 1996). Exit, they said, would force national tax authorities to
compete for, rather than impose on, taxable assets and activities, making it a feasible
strategy and a serious implied threat for tax payers. International tax competition
seemed to have at last found its footing and began to gain popularity as a subject of
political and scholarly discussion.
 3. Political Instability

Political instability is a problem that many multinational corporations encounter

while doing business in other countries. This type of issue often arises when there is no
trustworthy governing authority. When this occurs, corporate expenses go up, operating
risks go up, and sometimes managers' ability to predict business trends is affected.
Corruption and lax legal systems that deter foreign investment are also linked to political
instability.

In their 1996 article "Income Distribution, Political Instability, and Investment,"

Alesina and Perotti investigated how income inequality affected investment by
concentrating on political instability as the relationship between these two factors. Social
unrest and increased social dissatisfaction are caused by income disparity. The latter
has a negative impact on investment and, as a result, slows down development
because it increases the likelihood of coups, revolutions, massive acts of violence, or,
more generally, because it increases policy uncertainty and threatens property rights.
The following issues were addressed by Alesin and Roberto: (a) Does income disparity
contribute to political instability? (a) Does political unrest affect investment decisions?
Yes is the answer to both inquiries. First of all, more unequal societies are more
politically unstable; in particular, their findings imply that the existence of an affluent
middle class promotes political stability. Second, political unrest has a negative impact
on investment and, therefore, GDP. These two impacts (from inequality to instability and
from instability to investment) are also important economically as well as statistically.

4. Market Withdrawal

Government policy may be significantly impacted by the scale of multinational

corporations, especially via the fear of market withdrawal. For instance, some nations
have attempted to compel pharmaceutical corporations to license their patented
products to local rivals for a very cheap price, artificially decreasing the price. This is
done in an effort to save health care expenses. Multinational pharmaceutical companies
just withdrew from the market in response to that danger, which often results in a
restricted supply of cutting-edge medications. Large nations like the United States and
Brazil, who have viable domestic market rivals, have been most effective in this sort of
conflict with international firms.

Currently, there are new issues being raised by network structure and
administration. According to Pereira (2011), business network collaboration can be seen
as a series of decision-making processes involving interactions between companies.
The stability of the cooperative process and, in certain situations, the continuation of the
network may all be affected by a lack of commitment or inadequate understanding of
the stakeholders in this situation. It seems that members' interests in obtaining a
favorable relationship of benefits against expenses from the collaborative method are
tied to the construction and growth of business networks. However, as that connection
deteriorates, network participants start to wonder why the group (network) was formed
and if they should continue to be a part of it. Additionally, a sizable proportion of
businesses terminate these collaborative arrangements, such as interorganizational
networks (Klein, 2012).

5. Lobbying

Lobbying by multinational corporations targets a variety of commercial issues,

from tariff systems to environmental laws. Companies that have made significant
investments in pollution control technologies may advocate for very stringent
environmental regulations in an attempt to disadvantage non-compliant rivals.
Corporations advocate for tariffs to limit foreign industries' ability to compete. Another
multinational wants the tariff increased for every tariff category that one multinational
wants dropped. Some businesses want stricter import limits, while others support looser
ones, since even within the U.S. car industry, the percentage of a company's imported
components will vary. This is quite severe, difficult, and labor-intensive for the owner.

Song & Milner (2019) indicated that recent political events have put a striking
contrast between international lobbying operations. The Trump Administration's
escalation of trade hostilities, tightening of immigration regulations, and disruption of
global value chains have been strongly resisted by multinational corporations. However,
active lobbying does not necessarily translate into political influence. While MNC's
attempts to maintain current trade deals have mostly been rejected by the Trump
Administration, several companies have successfully campaigned to gain tariff
exemptions. Multinationals pushed on both sides of the debate in other policy areas,
such as corporation taxes and the proposed Destination-Based Cash Flow Tax.
Importantly, in the age of globalization, their transnational operations have changed the
character of international commerce, investments, and technology transfers. The broad
global value chains (GVCs) that are common in the modern global economy are a result
of the way MNCs organize their international operations via offshore and outsourcing
activities. Across actuality, their choices have significant effects on a variety of policy
matters, including taxes, investment protection, and immigration, in several nations with
various political and economic structures. MNCs may also have significant domestic
political influence. In fact, their hegemonic status in the global economy and home
politics may be related.
References

Djalu, I., Dyatmika, E., & Putra, I., (2017). Political Instability and its Effects on

International Companies: A Case Study on Sierra Rutile Limited (Sierra Leone).

International Journal of Academic Research in Business and Social Sciences,
https://hrmars.com/papers_submitted/2991/Political_Instability_and_its_Effects_o
n_International_Companies_A_Case_Study_on_Sierra_Rutile_Limited_(Sierra_L
eone).pdf

Genchel, P., & Swatch, P., (2011). Tax Competition: A Literature Review. Research

Gate,https://www.researchgate.net/publication/
275321884_Tax_Competition_A_Literature_Review

Klein, L., & Pereira, B., (2016) Reasons that lead companies to withdraw from

interorganizational networks. Elsevier, https://www.elsevier.es/en-revista-global-

economics-management-review-386-articulo-reasons-that-lead-companies-
withdraw

Loy, B. (2021) Business Courses / Business 308: Globalization & International

Management / Global Business, Government & Society Market Imperfections

Theory & Foreign Direct Investment. Study.com,
https://study.com/academy/lesson/market-imperfections-theory-foreign-direct-
investment.html

Milner, H., & Song, I., (2019) Multinational Corporations and their Influence through

Lobbying On Foreign Policy. Brookings, https://www.brookings.edu/wp-

content/uploads/2019/12/Kim_Milner_manuscript.pdf