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International Business

notes 5. Planned domestication, and
6. Political payoffs.

5.1.4 Government encouragement of Global Business

In this section, we will learn about the government encouragement of global business.
foreign Government encouragement

Governments also encourage foreign investment. The most important reason to encourage
investment is to accelerate the development of an economy. An increasing number of countries
are encouraging investments with specific guidelines toward economic goals. MNCs may be
expected to create local employment, transfer technology, generate export sales, stimulate growth
and development of the local industry.

national Government encouragement

The US government is motivated for economic as well as political reasons to encourage American
firms to seek opportunities in the countries worldwide. It seeks to create a favorable climate for
overseas business by providing the assistance by providing the assistance that helps minimize
some of the troublesome politically motivated financial risks of doing business abroad.
Majority of the MNCs have to face complex political environmental problems because they must
cope with the politics of more than one nation. That complexity forces MNCs to consider three
types of political environment: foreign, domestic and international.
The developing countries and the Least Developed Countries (LDCs) often view foreign firms
and foreign capital investment with distrust and even resentment, owing primarily to a concern
over potential foreign exploitation of local natural resources. Dependency Theory explains why
Latin American countries are reluctant to welcome foreign-based MNCs. According to this
theory, the ongoing economic, political and social transformations have made it necessary for
Latin America to rely on the capitalistic system. Similarly, the parties which are inclined to the
leftist thinking and swadeshis (indigenous usage thinking) are also reluctant to encourage MNCs
to participate in the development of Indian industries in a big way fearing that they are able to
extract surplus value from their less developed environment, thus, leaving them underdeveloped
while perpetuating the existence of class conflicts and oppressive governments. However, MNCs
should be allowed to operate in the highly technological sectors in which the countries have no
know-how and Research & Development.
Developed countries are also quite concerned about foreign direct investments. Many Americans
have expressed their concern that the increasing foreign ownership of American assets poses a
threat to their country’s national security both politically and economically. The inflow of foreign
capital adds to the domestic capital stock. This activity contributes to the country’s standard of
living and enhances the country’s ability to service its international indebtedness. As a result, the
benefits of foreign investment outweigh the costs.
In some cases, the opposition to imported goods and foreign investments is based on moral
principles. For example, the citizens of many nations pressurise the companies of their countries
not to invest in South Africa because of that country’s apartheid policy. Arabian countries, even
now, do not participate in joint ventures in Israel because of their anti-Muslim policies.
Regardless of whether the politics is foreign, domestic or international, the companies should keep
in mind that political climate does not remain stationary. For example, there had been a hostile
climate in America against China in 1980s but now the reverse has happened. After decades
as bitter enemies, both countries became very much interested in improving their political and
economic ties so as to dilute the power of the erstwhile Soviet Union. Right from the partition

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