Multinational Relationships Review of Subject. Multiple Chapters

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One recent change that has characterized the nature of the relationship between MNCs and the host government is that the MNCs have begun to view the relationship as more cooperative in nature. Central to this shift is economic development outside of the West -- emerging economies today have their own knowledge and experience to contribute to the MNC. The shift towards a two-flow flow of benefits increases the bargaining power of the host nation because it makes its market more attractive. As emerging economies begin to take on more characteristics of fully-developed Western economies, the bargaining power between the MNC and the host government becomes more balanced. Such improvements typically come as the result of economic liberalization, so the propensity of the host government to use its increased bargaining power to extract higher transaction costs is reduced.

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Conclusions. The relationship between the MNC and the host government is a key determinant of profitability in foreign countries. The host government, by way of internal and external trade barriers, has a direct influence on the transaction costs faced by the MNC, which in turn impact profitability. Bargaining power is central to this relationship. At the outset of the relationship, the MNC may have higher bargaining power due to its resources, in particular its information and technology. However, as the host economy modernizes, the host government gains in bargaining power as it has more resources to offer the MNC. The relationship remains based on bargaining power and relative resources and capabilities, but is subject to change over time in particular as the host government improves its resource base.

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