FACTORS AFFECTING THE WESTERN MULTINATIONAL ENTERPRISES IN DOING

FACTORS AFFECTING THE WESTERN MULTINATIONAL ENTERPRISES IN DOING BUSINESS IN MIDDLE EAST STATES AND NORTH AFRICAN STATES

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nIntroduction and Background

nAfter the industrial revolution, changes in institutional framework and development of technology facilitated development of business. These process have greatly increased since 1950 and have been identified as the core drivers of globalization and increased significant of multinational corporations in the global economy. Economic reforms have led to many multinational enterprises (MNEs) to enter where there are opportunities of doing business across the world (Gallhofer, Haslam, & Kamla, 2011). Over the past two decades there have been a significant change in the nature of global business environment hence affect most of western MNEs that developed their strategies as well as organizational structures in order to fit in many diverse complex environment across the world especially the Arab states (Karam, & Jamali, 2012). Economic liberalization in some countries in Middle East has encouraged the growth of businesses in this region. For example, Turkey has reformed it trade and investment regimes to allow more foreign direct investment (Rowley, & Warner, 2006). Before 1980s, most middle east states restricted market entry by the foreign markets in order to protect the domestic markets. In Turkey foreign capital only invested in import substituting industries that included manufacturing companies.

nMiddle East and northern Africa states is the territory from Morocco to Turkey an along the southern and eastern shores of Mediterranean as far as Iran on the east and Sudan and Yemen to the south. The Middle East and north African states have provided corporate opportunities for western MNEs in the field of manufacturing, technological and electronics. They have also opened up oil industries in many oil-producing countries (Mellahi, Demirbag, & Riddle, 2011). The development of multinational enterprises across the globe has been affected by the differences in religion, culture, political and corruption factors within the host economies. International business have evolved towards global integration as a key factor to multinational enterprises activities in order to increase peoples, nations and culture integration that poses challenges to their local success in business (Karam, & Jamali, 2012). Globalization impinges on multinational corporations and their dependence within the multiple host countries as well as on their internal hierarchies. MNE firms have therefore integrated and interacted more frequently with the people in the host countries in order to understand their cultures, beliefs and practices, in order to devise strategies that exploit the differences without being overcome by management challenges created by different diversity in the countries (Gallhofer, Haslam, & Kamla, 2011). Secondly they have developed multiple plans derives from balancing the local communities demands and the international standards. Foreign direct investments have been affected by political influences and risk in major parts of the world. This normally occurs during political coups, elections and political policies instituted by the host government (Windsor, 2004). These events would cause managers to cautious of the political risks especially will doing business overseas. Political risks come about through political instability and policy uncertainty in different countries.

nLiterature review

nPolitical risks

nDuring the 1990s and 1980s there were occurrences of host governments interference in business activities of foreign multinational companies in their countries. This was particularly evident in Africa, Middle East and eastern-bloc counties. For example, the Algerian government nationalized British Petroleum Company that was operating in that country. Political risks leads to closure of business operations as managers become concerned on their securities while doing business overseas (Gallhofer, Haslam, & Kamla, 2011). Political risks occur due to policy uncertainty and political instabilities in the country. Political instability is associated with the risk of major changes in political regimes that leads to revolution, war, social unrest, death of political leaders or other influential events (Rowley, & Warner, 2006). War, revolutions and political unrest, disruptive social movement as well as threatens a companys foreign operations in the country. Policy uncertainty on the other hand is associated with risk related to laws and national policies that affects the way multinational companies operate business in that particular country (Karam, & Jamali, 2012). In addition, political risks happen during major political changes e.g. civil unrest, coups or moment of political changes. In most recent times, political terrorism has also threatened the operations of MNC.

nThere are also other political challenges that are often overlooked by the host government such as intra-party power game, policy inconsistences and intermittent realignment as well as society-induced shifts that often limit the operation of multinational corporations (Gallhofer, Haslam, & Kamla, 2011). These issues influence the bottom line of corporation and its general well –being. In addition, political risk connotes the blowing up of oil pipelines, rape of foreign businesspersons, kidnapping, piracy and any other form of riot that affects the activities of MNEs. However not all political risks are given enough coverage by the media hence many of them may not be identified by public. Political risks cut across all business including the local businesses and sometimes may spread to different regions hence changing the normal working of the MNCs at that political region (Gallhofer, Haslam, & Kamla, 2011). Political risk spread across countries boundaries hence disturbances of one countrys business influences the neighboring countries. For example, refugee situation in Niger republic spread to Algeria and Nigeria hence influencing business operations in these countries. Several reasons may be the drivers of political risks and according to studies may be as a result of insurrections, takeover of properties or change in rules governing the country. Other scholars cite government interventions as a major cause of political risks (Sauvant, et al, 2010). On micro level, which includes war, political turmoil and social risks are political risks. This is where most multinational enterprises encounter the greatest risk in business. They can be because of external, internal, governmental sources, and social factors in a particular company (Karam, & Jamali, 2012). On the other hand macro political risk are external and internal that are associated with government, societal or/and economic factors. The nature of political risk is such that it occurs randomly and its causes are many and varied where each of the causes are also depending on one another. For instance, the removal of oil subsidy may cause increase in price of all petroleum products with may cause political unrest in the country that may affect the operations of multinational companies (Windsor, 2004). These unrest may force the host government to issues a directive that satisfy the population but which at the long run will affect the oil industry negatively. In addition, election influences multinational organizations in the country all over the world (Gallhofer, Haslam, & Kamla, 2011). Elections or/and outcomes of elections cause political instabilities in the countries. In most democratic countries, after elections political turmoil result which is a cause of political risk. There are a number of case especially in north Africa, and middle east where announcement of elections triggers political turmoil in the countries that affects the operations of multinational corporations, for example, Iran in 2009 led to even death of investors.

nThe competition among political groups, over resources and power through political process is a common situations in all democratic states especially Middle East and northern Africa (Karam, & Jamali, 2012). Political ideology plays a major role in the success of multinational corporations in the country. Major western powers such as the US, Britain and France are split between liberalism and conservatism. However, in other parts of the world especially in emerging democracies such as North Africa, Middle East and Latin America political parties are normally formed depending on the marriage of convenience between key political leaders. These political parties are not formed on ideologies or democratic agenda (Rowley, & Warner, 2006). They are formed on the basis of likeminded people whose main aim is to retain powers of the countries and machinery of government. This often cause foreign business people to become worried over, their security as they witness leaders competitions which leads to political turmoil (Gallhofer, Haslam, & Kamla, 2011). Changes in political ideology changes in significant business environment since the policy instituted of the government in power will be the same as that of government political ideology. Political risk matters because it influences investors willingness to invest in developing economies because of politics plays a major role in thriving of business.

nCultural factors

nGlobalization has triggered international research that study international cultures differences in business practices and management of philosophies. Middle east economies systems are based on families-oriented family relationships and Islamic cultural values. Gender issues Middle East is often a major role in multinational business operations in the countries and women role in business as contributed to tension between the east-and western countries (Karam, & Jamali, 2012). Most Middle Eastern countries have remained behind in terms of foreign direct investment and globalizations. In the recent past, the government of Middle Eastern states has given women a chance and equal opportunities to facilitate in economic growth in order to encourage multinational investors in their countries e.g. Jordan. Issues such as gender and development of business, growth of religiosity and politicization of religion are major challenges facing MNC in middle east (Sauvant, et al, 2010). This is because, MNCs operations are affected in terms of recruitment, staff development, and career designing systems. These developments may not be in line with the requirement of transnational organization to advance global management capabilities in these countries (Karam, & Jamali, 2012). According to world values survey, Arabs nations strongly advocate for gender equality in educations but not equality in terms of employment. The Arabic culture supports the advancement of human skills of women but not for their utilization (Rowley, & Warner, 2006). In most of Arabic countries, the labor laws are interpreted by urf (custom) that creates a requirement to protect women and develop a moral work environment. In addition the sharia dictates that women must obey their husbands. Furthermore the right of a women to move outside and this is linked to a man role to provide to his wife (qiwama) and should preserve women modesty.in addition emphasis is required to women to hide their sexuality (Gallhofer, Haslam, & Kamla, 2011). These regulations relating to inheritance and marriage laws and Islam in Arab states construct roles for men and women that limit the labor market for women and men (Mellahi, Demirbag, & Riddle, 2011). Therefore, multinational organizational may be limited to carry out businesses due to lack of cultural goodwill that limit women (Tlaiss, 2010). In some Arab countries women are restricted to drive with may hamper the operations of the business because staffs of a particular organization may be prosecuted in those countries.

nCorruption in these countries

nCorruption has been major challenges since the mid-1990 across the globe. In most international organizations such as organization for economic cooperation and development (OECD) and the UN have developed measures to deal with corruption among the multinational corporations. Most corrupt countries are found in Middle East, Africa and Latin America (Wright, et al 2005). Corruption have huge negative impacts such as it distorts market and competition, undermines rule of law, breeds cynicism among citizens, destroys government legitimacy and corrodes the integrity of private sector. In addition, corruption is a big barrier to international development especially through the multinational corporations sectors (Gallhofer, Haslam, & Kamla, 2011). According to World Bank, in 2004 public servants received more than $ 1 trillion from multinational organizations in their respective countries. According to Volcker reports, more than 2000 MNC in the major parts of the world such as North Africa and Middle East participating in oil-food programs may have involved in corrupt schemes (Karam, & Jamali, 2012). In developing countries, the political, economic and legal system vary greatly and in most cases they are fragile, failing or raising which makes it difficult to initiate anticorruption initiatives (Tlaiss, 2010). There are different types of corruption in the countries. These include, private bribers, (on supply side) and public bribers (on demand side). Grand corruption also involves senior government official and multinational official who have a lot of power over government or organizational policies (Mellahi, Demirbag, & Riddle, 2011). On the other hand, petty corruption includes members of lower –level officials who have authority over basic services such as implementation and enforcement of policies.

nThe multinational corporations are the main source of funds because they want to acquire licenses, tenders and procurement processes and to conduct business in the countries over their competitors in developing countries (Gallhofer, Haslam, & Kamla, 2011). Handling this multifaceted challenge and understanding near-term priorities adapt into long-term approaches requires caring out major tasks, which include enforcement in order to affect future misbehaviors and prosecuting involved parties. Others include prevention, institutional reforms and cultural dimensions corruptions (Tlaiss, 2010). The multinational organizations have instituted approaches that help them deal with corrupt deals in the countries of operations. Corruption is widely spread across all major parts of the world including Africa, Middle East and Asia. For example according to The Fate of Africa, Meredith notes that it most north African states are involved in corrupt deals despite several multinational companies investing billions of dollars in these countries (Rowley, & Warner, 2006). Massive embezzlement of funds, weak financial administration, and extortion of corrupt officials in the host countries and lack of oversight over funds are among the contributors of corruption in north Africa and middle east.

nResearch questions and research objectives

nResearch questions

nHow does the political factors influence in middle east and north Africa influence business operations of western MNEs in these countries

nHow does cultural aspects among people in middle east and north Africa countries influence the business operations of western MNEs

nHow does corruption in government in middle east and north Africa countries affect business operations of western MNEs

nResearch objectives

nTo determine how political factors in middle east and north Africa countries influence business operations of western MNEs

nTo determine how cultural aspects among the people in middle east and north Africa states influence the business activities of western MHEs

nTo determine how corruption in government in middle east and north Africa countries affect business operations of western MNEs in these countries

nMethodology

nThe intentions of this research were to determine the challenges facing the western multinational corporations in their business operations in the Middle East and north Africa. The study identified good quality relevant studies that were analyzed to gain understanding on challenges affecting the business activities of MNCs. An initial scoping exercise was carried for preliminary literature which identified that there challenges affecting the western counties firms in doing business in Arabic states and north Africa. However, many of these studies did not provide challenges that influenced operations of business in these countries (Gallhofer, Haslam, & Kamla, 2011). A range of different study designs were identified and a descriptive research rather meta-analysis was conducted (Rowley, & Warner, 2006). Meta-analysis was useful because the intention of the study as challenges by synthesizing the statistical analysis of case studies such as randomized controlled trials.

nDue to effects of globalization, MNC especially from the western countries face significant challenges in Middle East and north Africa therefore primary research need to be carried out to identify these challenges (Gallhofer, Haslam, & Kamla, 2011). The previous studies have carried out research involving small groups of people in different parts of middle east hence these studies may have overlooked some of other relevant issues around the research question such as ethical issues. The research focused on different areas such as cultural factors, corruption and political instabilities in these countries.

nSampling of data

nUsing a systematic approach, literature will be identified using keyword searches from the bibliography databases such as American business journals, business management journals and ebscohost. Hand searching references lists from the recent editions of peer-reviewed journals may identify studies missed by key words searching and eliminate bias. Accessing the unpublished studies may avoid publication bias (Rowley, & Warner, 2006). Other forms of literature such as conference presentations service reports and articles in journals that are not peer reviewed will also provide insights into application in practice so they will be accessed and appraised. In addition, repeating searches in different databases increases the chance of accessing relevant chances of getting relevant information for the study.

nRationale for inclusion and exclusion criteria

nThe studies will include all studies that were carried out covering challenges MNEs faced in middle east countries. The research will also include studies identifying challenges that multinational businesses faced in countries in north Africa (Tlaiss, 2010). However, the research will not include studies from countries in far east and/or sub-Saharan countries because they pose different challenges to MNEs from western countries. Articles which are not peer reviewed will not be included in the studies.

nData collection and analysis

nThis study will use three steps required to necessary for data collection and analysis. These include, assembling, synthesizing and analyzing. In the initial stage of assembling, abstracts from the potential studies will be read to check that they appear relevant (Karam, & Jamali, 2012). If they appear to contain relevant information, the study will then be skimmed through looking for pertinent information that gives further indication of quality and relevance of the study and then the case study will be selected for further appraisal. Selected case studies will then be critically analyzed to identify their strengths, limitations, relevance, and methodological quality. The appraisal process is crucial to identify whether case studies provide sufficient evidence to provide a convincing conclusion (Gallhofer, Haslam, & Kamla, 2011). Through the appraisal process it is expected that crucial argument will emerge which need to be analyzed and synthesize to develop the research. The synthesis and analysis will be conducted and the study details recorded including the main arguments and data quality as well as the author and year of publication. Once all the case studies have recorded, the information will be developed to integrate and synthesize the themes that have emerged. The arguments and main ideas that have been identified in each case study will be grouped into the categories and the evidence that will be produced to support the claims will then be assessed regarding whether it appears valid or questionable

nEthical issues

nThis study will use secondary data hence it will be important to seek ethical approval. However each study will be assessed to ensure that ethical approval has been obtained and adhered to and that study sample and authors interest are considered. A crucial consideration when reviewing studies is to avoid plagiarism (Rowley, & Warner, 2006). Missing relevant information or misrepresentation of information due to publication or selection bias will also be considered as ethically that may lead to inappropriate conclusions being drawn.

nLimitations

nThe main limitation of the study is little number of journals, which are going to be reviewed during data collection. More tasks will be carried out before accumulating more than twenty case studies which addresses the same topic. The researcher will also rely on findings of the articles though some of them may have errors resulting from biases in their studies. Generalizing information from the articles might not e easy because of the small and diverse sample size that was carried out in their research. Other key sources of weakness arise from individual studies. Different measures may be utilized to determine similar predictor variables while many authors are likely to employ measures that have not been validation. In addition, the problem of data collection using secondary data instead of consulting the actual human beings may not provide the actual results of the study (Tlaiss, 2010). Furthermore, the sources of materials are not easy to obtain from the internet because several sites require prior subscriptions before accessing any information from them. These conditions might be expensive and time consuming for the researcher

nConclusion

nSince 1980s, many nations have carried out economic reforms in their systems to ensure that there are liberalization of markets. In Arab world, most nations have reformed their economic nations in order to attract foreign direct investment in their economies. Many western MNEs have invested in Middle East and North Africa but these companies have not gone without challenges. They have encountered political risk, cultural barriers and corruption that have hampered their business. This study will use case studies in different parts of Middle East and north Africa to determine and analyses the challenges facing western MNEs in these countries. The data will be obtained from peer-reviewed literature in order to come up with conclusive information on the challenges facing corporations in Arab world.

nTime frame

nActivity/Month May ‘14 Jun ‘14 Jul ‘14 Aug ‘14 Sep ‘14 Oct ‘14 Nov ‘14 Dec ‘14 Jan ‘14 Feb ‘14 Mar ‘14 Apr ‘14

nScoping search                        

ndevelop question                        

nWrite background                        

nprelim review                        

nSearch and select                        

nappraise                        

nReferences

nGallhofer, S., Haslam, J., & Kamla, R. (2011). The accountancy profession and the ambiguities of globalisation in a post-colonial, Middle Eastern and Islamic context: Perceptions of accountants in Syria. Critical Perspectives on Accounting, 22(4), 376-395.

nKaram, C. M., & Jamali, D. (2012). Gendering CSR in the Arab Middle East.Business Ethics Quarterly, 23(1), 31-68.

nMellahi, K., Demirbag, M., & Riddle, L. (2011). Multinationals in the Middle East: Challenges and opportunities. Journal of World Business, 46(4), 406-410.

nRowley, C., & Warner, M. (2006). Business and Management in South East Asia: Studies in Diversity and Dynamism: Introduction: Setting the Scene. Asia pacific business review, 12(4), 389-401.

nSauvant, K. P., Maschek, W. A., & McAllister, G. (2010). Foreign direct investment by emerging market multinational enterprises, the impact of the financial crisis and recession and challenges ahead. Foreign Direct Investment from Emerging Markets: The Challenges Ahead, 3-30.

nTlaiss, H. A. (2010). How Islamic Business Ethics Impact Women Entrepreneurs: Insights from Four Arab Middle Eastern Countries. Journal of Business Ethics, 1-19.

nWindsor, D. (2004). The development of international business norms. Business Ethics Quarterly, 729-754.

nWright, M., Filatotchev, I., Hoskisson, R. E., & Peng, M. W. (2005). Strategy Research in Emerging Economies: Challenging the Conventional Wisdom*.Journal of management studies, 42(1), 1-33.

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