Bargaining power can be defined as the ability to define parameters in a negotiation, gain accommodations from other negotiating side, and tip the result of mediation to the preferred alternative (Dong, Zou & Taylor 101). Multinational firms and governments use their bargaining power to determine the degree of control of operations and desired outcomes that would be beneficial to either of them. A low bargaining power on either side would result in a low level of control regardless of whether each team preferred high control.
Multinational companies derive their bargaining power from the ability to create more employment opportunities for the local people to better their living standards, and the significant role they play in the development of local economy (Dong, Zou & Taylor 102). They are more likely to have an upper hand in negotiations especially when the host country has high unemployment rate, unskilled labor, limited or outdated technology. Host government will be made to accommodate this given the long-term benefits that can be realized from the transfer of technology, skills and uplifting of citizen’s living standards. In spite of this, once the company sets up in a country, the bargaining power may shift and will only last as long as the state continues to rip the benefits (Eden and Molot 360).
However, the government can still counter the offers based on its power to control the local market access; it’s ownership of scarce resources and the incentives it can create. Host governments can water down the bargaining power of the multinationals through the creation of Export Processing Zones (EPZ). EPZ are adopted by developing countries to promote industrialization and commercialization of exports by attracting foreign investments. The zones are characterized by incentives such as tax exemptions and fair business regulations that eliminate barriers for establishing businesses. In some instances, companies are assured of tax holidays at certain times of the year. These are periods when governments remove taxes, for example, sales tax, on certain products to promote consumption of those products; translating to higher profits to firms for a short period. Apart from that, tax subsidies to help businesses reduce their production cost and lower prices for services and products is one source of the bargaining power which the government can table during negotiations to attract investors.
Works Cited
Dong, Zou, Beibei, Shaoming, and Taylor, Charles R. “Factors That Influence Multinational Corporations’ Control of Their Operations in Foreign Markets: An Empirical Investigation.” Journal of International Marketing, 16.1 (2008), 98-119.
Eden, Lorraine, and Molot, Maureen A. “Insiders, outsiders and host country bargains.” Journal of International Management, 8 (2002): 359–388.
