ENVIRONMENTAL FACTORS AFFECTING
MULTINATIONAL COMPANIES
By Dabbyson Al. Zimba
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ABSTRACT
It is an undeniable fact that the successes of every business’ endeavors are all dependent upon
the ‘Environment’ in which the company is standing. It is said that “there is nothing like foreign
environment in conducting business. It is just as good as conducting business in the home
environment.” To our surprise, that statement has contradictions on its own. Be it a small, or
complex, immature or mature or rather a professional-level business_ differences exist when it
comes to comparing business conducted in foreign environment from that of a home
environment. This research seeks to extend our thorough understanding of congruence of
Multinational Companies which are usually abbreviated as (MNCs). The team will bring out
valid and thorough traits of multinational companies. Furthermore, it seeks to repudiate the
prescribed phrase, “there is nothing like foreign environment in conducting business. It’s just the
same as conducting business in the home environment.” In simpler terms, we disagree to the
statement.
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1.0
INTRODUCTION
To succeed in every business, you ought to have a persuasive and strategic plan
encompassing all the opportunities and threats and other forces that might affect operations
of the business. These forces that affect the business can be wholly termed as business
environment. By definition, others have defined business environment as different forces or
surrounding that affect the business operations.
It can be argued that companies and organizations operate by focusing on both the internal
and external environment the former is mainly associated with workers or employee
relations and the latter is associated with the economy, political, social/cultural and
technological factors in the area that the company operates. On the same token, the forces
that affect the operations of the business in the home country is what is referred to as the
‘home environment’ as the company grows and expands it might as well expand its
operations to other countries. According to Drucker (1974) he asserts that multinational
companies grow as a result of emergence of a genuine world’s market demand
transcending national cultural and ideological boundaries due to the information explosion.
When this happens and the business begins to operate in another country, it ought to abide
by the legal, political policies and all other forces that will affect the business in the country
and these new forces are what we refer to as the ‘foreign environment’ as every country
provides different regulations and/or policies that the business has to comply with. Thus,
this research will seek to outline some difference in environmental forces which exist, and
it should be noted that depending on the nature of the forces, the impact inflicted on the
business can either be positive or negative.
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2.0
MULTINATIONAL COMPANIES
Many authorities, scholars and authors have vividly defined Multinational Companies from
different perspectives. Some of these vivid definitions are meticulously outlined below.
Research Machines (2004) asserts that there are four (4) definitions to MNCs. Firstly; it
defines a MNC as a corporation that has its facilities and assets in at least one country other
than its home country. It further defines it as that which has offices and/or factories in
various countries and usually has a centralized head office where they coordinate business
enterprise with manufacturing, sales or service subsidiaries in one or more foreign
countries, also known as Transitional or International Corporation (TN or INC). Moreover,
the third definition as postulated by Research Machines as it sees MNC as outlined by
Research Machines (2004) identify that Multinational companies operate outside its own
home country.
The Encyclopedia of Management (2005) refines these definitions by stating that
Multinational Companies are businesses concerned with operations in more than one
country. These operations outside the company’s home country may be linked to the parent
by merger, operated as subsidiaries or considerate autonomy.
Among the multinational companies, this research will use the Zambia based First
Quantum Minerals ltd as the model example to explain and differentiate environmental
factors affecting multinational companies. It will serve as a skeleton to support our
arguments to refute the idea that “conducting business in a home environment is the same
as conducting business in a foreign environment.”
2.1 FIRST QUANTUM
First Quantum Minerals founded in 1996 is a Vancouver, Canada parented mining minerals
and metals company whose principal activities include mineral exploration, development
and mining. Firsts Quantum’s common sales are listed for trading on the Toronto Stock
Exchange in Canada (symbol: FQ) and on the London Stock Exchange (symbol: FQM) in
the United Kingdom. It is a well-established, fast-growing mining business with mining
and exploration activities in Australia, Zambia, Mauritania, Finland, Spain, Turkey and
Peru. Thus, First Quantum is an excellent model example when looking at how both home
environment and foreign environment imposes different effects on multinational
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companies. Needless to say, seeing that First Quantum operates in the prescribed various
parts of the world, it is unarguable that it is faced with different environment factors. These
include; political, economic, social, legal, environment (ecology) and technology. The next
chapter will explore these in details.
3.0
ENVIRONMENTAL FACTORS
3.1 POLITICAL-LEGAL FACTORS
Political factors are elements within the government that have an effect on other nonpolitical areas of the society while the legal environment deals with all legal policies set up
by the society to regulate and govern operations of the business. These political factors and
legal policies vary from country to country as countries with different political structure
have different ways and methods they use to ensure they get maximum gains from use of
their resources and protect the rights of their citizens.
From our society it is noticed that First Quantum like any other business seeks to maximize
profits and will not operate in countries with unfavorable political structure. This is evident
in The Democratic Republic of Congo where First Quantum has shut down all operations.
Though the Ore deposits in Congo are rich, it is unlikely that First Quantum can operate
there well seeing that the area has been subjected to a series of unequivocal hostile political
climatic civil wars that are prone to lead to unforeseen stoppages in production which
would in turn reduce revenue. Nevertheless, in the case of Zambia where First Quantum
(FQM) is showered with thrilling peace and stable working environment in its mining and
other supportive endeavors, it saves millions which could have otherwise been used to
create alternative courses of action as a result of many uncertainties.
Moreover, another valid difference FQM faces is that it carries out operations in different
countries outside its home country as the rigidity and weight of laws .Such laws include
labour laws, tax policies, trade restrictions and more direct involvement such as subsidizing
of products and determining price ceilings. Looking at laws regulating minimum wage that
is witnessed in Zambia, the minimum wage is K1,200.00 for all age groups, meanwhile,
other countries in which ‘FQM’ is operating have a different approach, for instance when
we look at Mauritania’s minimum wage, it is unarguable that it is awarded according to
age groups were young employees’ wages differ from that of older staffs. This element
disadvantages the business operations as the firm may spend more money on wages which
in turn reduces profit incomes. The amount of freedom a company has to operate also
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differs from country to country and a classic example is explained between Zambia and
Mauritania where freedom is at 60% and 43% respectively.
3.2
ECONOMIC ENVIRONMENT
The economy of a country greatly contributes to acting as a ‘magnet’ to attracting of new
companies and investors. First Quantum Minerals ltd has therefore recorded remarkable
performance pertaining Peru’s free market economy and its economic policies helps to:

Promote private investment

Reduces inflation

Gets rid of corruption and terrorism.
Peru’s economy has proved to be a great place for business operations with inflation rates
falling below 4% each year. Moreover, Zambia has proved to be a great business place with
inflation rates declined to an annual average of 6.5% from 8.7% in 2011.In the next two
years growth is expected to remain strong and inflation low. Growth in GDP accelerated to
7.3% in 2012 from 6.8% recorded in 2011. Economic prospect for the future appears bright
if growth can be sustained and broadened to accelerate job creation and reduce poverty as
contributed by first Quantum. Unlike Congo DR, the economic environment of Zambia is
calm and stable. There has been alarming rates of illegal mining in Congo DR due to
corrupt officials. Apart from that, tax evasion is not an exception but one contributor to the
country’s present unstable environment for mining and other business operations. Having
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well researched and talked about the prescribed facts, we stand firm to refute the idea that
“operating business in a home environment is as good or rather the same as operating
business in a foreign environment.” In contrast, despite having recorded a few couple of
trivial cases of illegal mining acts (theft) of minerals by the group well-known as
“Jerabos”, the issue was quickly handled and quenched. So far, we have not received or
experienced any sort of tax invasion from Kansanshi mine and this is proof enough for our
claims.
3.3
SOCIAL-CULTURAL FACTORS
Social environment refers to immediate physical and social settings in which people live.
FQM Zambia has been carrying out operations for a long time now, thus there is no doubt
that the society is well-equipped to perform well at that job. But what is Mauritania’s
social-cultural environment in line with Guelb Moghrein mine? Despite it being the second
major privately owned operations to be developed in the country, the people around seem
to know less about mining activities. The local people who were not exposed to any such
activities before find it very difficult to cope with undergoing operations, therefore,
cultures also differ and so we do not expect the business operations to be the same among
countries.
3.4
ECOLOGY
Drawing our attention to ecology, it is an undeniable fact that inputs vary from country to
country. Pertaining mines, mineral ore deposits vary from one country to the other. It is
evident in the table below that portrays First Quantum’s financial report among the seven
countries. This is another standing ground for our support.
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Mine
Location
Ownership
Annual Prod.
Mine Life
NPV: Dollars ($)
Kansanshi
Zambia
80%
261 kt Cu
2037
2,468,060,738
Las Cruces
Spain
100%
68 kt Cu
2020
903,631,517
Gulb Moghrein
Mauritania
100%
38 kt Cu
2019
297,709,699
Cayeli
Turkey
100%
31 kt Cu
2019+
543,167,515
Pyhsalmi
Finland
100%
13 kt Cu
2018
342,160,572
Ravensthorpe
Australia
100%
33 kt Cu
2049
123,986,697
Kevitsa
Finland
100%
15 kt Cu
2033
228,200,745
`TOTAL:
$ 4,903,935,483
Key: Cu =Copper
Examinations of this environment include a look at the “global common” of air, water, and
space. Raw materials of every type also are important parts of what can be thought of as the
earth’s “natural” environment. The environment is the condition, circumstances and
influences under which an organization. It may be affected or described
by
physical,
chemical and biological features both natural and man-made. In this assignment, Zambia is
serving as a model example to illustrate a home environment. It is noted that Zambia has
been operating favorably in this natural environment due to the abundance of mineral
resources. It boasts one of the most important and complex metal octets hosting enormous
reserved copper-cobalt ore, together with gold, Uranium, Nickel, Lead and Zinc. Unlike
Mauritania which its mineral sector dominated only by copper ore mining, FQM operations
in Zambia are not affected by any natural and human disasters unlike Mauritania which is
hot, dry dusty/sandy with periodic droughts.
Diseases also have an impact on a business and the economy, for instance, in Congo DR,
Health and Safety standards are largely specified in the Congolese law, making it yet
another cost incurred by businesses operating there.
3.5
TECHNOLOGICAL FACTORS
So far we have considered some typical arguments put forward concerning various
business environments. Finally we will look at the technological environment. By
definition, technological environment encompasses influences that have an impact on how
an organization operates that are related to the equipment and methods used in production
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within the organization’s environment. Regarding technology, it is incontestable that FQM
business in Australia is financially advantageous. This is because Australia’s technological
environment has improved such that operational cost regarding technology are minimal in a
blink of an eye production is carried effectively and efficiently. The same applies in
Turkey; however, the same cannot be said for Zambia, were FQM had to invest millions on
technological improvements. It can be argued then that technological levels in countries
vary.
Moreover, pertaining to the social environment, in Turkey, First Quantum has reduced
poverty levels by getting goods from local suppliers. Meanwhile, Australia has made an
ally or rather agreement with Turkey to provide employment and innovative Training.
Depending on the gravity of the social requirements expected a business either be attracted
to working in a country or not.
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CONCLUSION
In conclusion we must say that from all the information gathered in this research, it is
definite that the statement ‘there is nothing like foreign environment in conducting
business. It is just the same as conducting business in a home environment’ is incorrect.
Though there may be some similarities in different environments it is an undisputed fact
there are differences in operations nonetheless.
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REFERENCES
Aghion, p., J. Tirole, (1997). Formal and Real Authority in Org, Journal of Political
Economy vol. 105, 1-29
Benson, Michael (2005). Inside Secret Societies. Kensington publishing Corp. p.p. 90
Case Study: The Relationship between the Structure/Strategy of Multinational
Corporations and Patterns of Knowledge Sharing with them. Oxford University Press, 2009.
Drucker (1974) Management: Tasks, responsibilities, and Pracices. New York:
HarperCollins. Pp. 84-5.
Drucker, Peter, F., (1997). The Global Economy and the Nation State
http://yaleglobal.yale.edu/about/globalinic.jsp (16/11/13)
Zambia Development Agency Act No. 11 of 2006 of the Laws of Zambia.
www.miningweekly.com/topic/zambia (19/11/13)
www.firstquantum.com (19/11/13)
www.businessenvironment.com.au (19/11/13
www.Zambiamining.com (19/11/13)
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