MULKHOLDINGS: An Example of a Multinational Company

Write an essay on Commercial and Corporation Law.

Business among nations has become a common phenomenon and multinational companies play a very big role to enjoin the nations and people of the nations in various business transactions. The multinational companies are engaged in doing trade and business in various nations and have been successful to provide employments to people and in enhancing the economic conditions of the nations. The operation of the multinational companies in different countries has made it possible for the governments to join hands and formulate policies for a better tomorrow. Over the years, through foreign direct investments and other governmental policies, the companies have able to operate successfully outside the host country.

Multinational Company can be defined to be a company which has its assets in any country other than its home country. It carries its operations, owns businesses and manage its goods and production in more than one country. Generally one fourth of the revenue of a multinational company is derived from operation outside its home country.

Multinational Company may be of following types:

1. It may be a decentralised company having a strong home country presence
2. It may be a centralised company having a global presence but engaged in production in those countries where there are availability of cheaper sources (Johanson and Mattsson 2015).

MULKHOLDINGS is one of the topmost multinational groups of companies in United Arab Emirates. It is engaged in the business of generation of power, real estate, solar energy, interior and exterior design and fit outs, healthcare, plastic industries and manufacturing of metal composites. The head quarter of the Company is in Sharjah. The Group carries its operation in Africa, Turkey, India, USA Middle East and Europe. The flagship brand of MULKHOLDINGS, ‘Alubond U.S.A.’ is presently the largest metal composite panel brand in the world. The global turnover of MULKHOLDINGS group of companies is more than 200 million AED (Hussein and Saade 2015).

Following advantages are derived when a multinational company sets its foot in a country:

The balance of payments improves: Whenever a company invests in a country, the country’s balance of payments improves. There is a flow of capital into the country through foreign direct investment and the same results in import substitution and export promotion of the host country (Enderwick 2013).

Increase in employment: This is one of the best benefits which directly flow from foreign direct investment. The employment chances and opportunities for people in the host country increases. Operations of a foreign company in the remote areas of the host countries further increase the possibilities of giving employment to the unemployed (Javorcik 2014).

Source of tax for the government: The government of the host country will impose tax on a multinational company operating in its country. This will increase the revenue of the government (Balabanis 2013).

Transfer of technology: Multinational companies bring with them a lot of techniques and methods of production. These techniques and methods may be extremely new to the host country and thus transfer of technology helps the host country to enjoy the benefit of  newer technologies (Peltokorpi and Vaara 2014).

Advantages of Multinational Companies

The choice of the consumers increases: If the multinational companies get engaged in producing goods for the domestic market, then the consumers’ choices of buying products from different sources increase.

Reputation of the host country increases: If a multinational company becomes successful in operating business in a host country, then the reputation of the host country increases in the sense that other multinational companies may soon follow and enter the host country.

Disadvantages of multinational companies for the host country:

Following are the disadvantages of a multinational company for a host country:

Uncertainty: There is no certainty that a multinational company will always stick to the host country. Multinational companies tend to move very fast and they often change their operations from one country to another country.

Increase in competition: The entry of multinational companies in the host country imposes a challenge to the domestic companies. The multinational companies come with new technologies and they tend to produce goods at a lower rate. This a huge threat to the domestic companies and they need to find new ways to match the cost at which the multinational companies produce goods and render service.

Influence in governmental decisions and policies: For countries with weak economy, investment from multinational companies may be very much essential. The government of the host country may also sometimes come under the influence of the multinational companies and frame their policies in favour of them which may be detrimental to the growth of the nation (Bakir 2015).

Low skilled employment: The multinational companies do not generally hire local employees for the skilled roles as they are not well aquatinted with the use of new technologies (Jiang et al. 2015)

Social and cultural impact: The culture of the multinational companies is different from those of the local culture and traditions. The entry of a multinational company in a host country may have a negative impact on the culture of the locals (Bücker et al. 2014).

Non maintenance of health and safety standards: The multinational companies do not focus much on the health and safety measures in the nations where regulations are not strict.

The legal structure of a multinational company is basically designed as such so as to maximise its profit earning capacity and minimise its burden on tax. The legal structure of a multinational corporation is specified in its memorandum of association. Based on geographical locations and economic conditions under which it operates a multinational company   designs its legal structure. It may be a limited liability company or a joint venture company or a joint stock company or a sole proprietorship company etc. The legal structure of a multinational company denotes it as a legal entity, which is separate from its shareholders and managers. A multinational company may have any number of subsidiary companies. Each such subsidiary company shall have a separate legal existence. Every such subsidiary companies and the parent company will have its own management structure, capital structure, accounting standards etc. A multinational company also needs to comply with the regulations and policies of State and it is legally structured as such so as to meet the goals and aims of the organisation. Moreover, a multinational company operates in a number of nations and it requires a flexible legal structuring to cope up with the regulations of different nations (Harper 2015). The multinational companies face a lot of challenges and issues in pursuing business operations in UAE. There are some regulations which seeks to discourage big multinationals from entering into the UAE market.Under Article 10 of the Commercial Companies Law (2015) of UAE, a foreign national cannot own more than 49 % of a business in UAE. It means for a business to operate in UAE, an UAE national must be the owner of 51% of the business. This rule helps the citizens of UAE to hold control over all the companies which operated in UAE. At the same time the locals are able to maintain their traditions and values through 51% ownership of the business. The multinational companies which enter UAE has to adopt either of the two approaches to cope up with this regulation, which are as follows:

The first approach for a multinational company would be to look for a sponsor and hand over 51% of the revenues to the sponsor. Another approach would be to look for citizen of UAE who is willing to be a sponsor for the business. The multinational company makes a one-time paymentto such citizen and in return the Company takes all the revenues of the business. The UAE nationals make a lot of money by just becoming sponsors of business and there is no limit in the number of companies to which an UAE national may become a sponsor. However, being an UAE national is extremely difficult. A child of an expatriate, who had lived in Dubai for several years, is also not considered for UAE citizenship (Truby et al. 2015).

Disadvantages of Multinational Companies

There was a law which used to prevail that prevented expatriate to own lands in UAE. However the law has been changed and now an expatriate isallowed to own land for a period of 99 years. Thislaw has been beneficial to the multinational companies who require a lot of land and other resources for operating their business in UAE.

A lawsuit was filed by a local company against a foreign company praying before the Court to pass a judgment obligating the foreign company to pay QAR 1000000 and a ratio of 5% of the contracted project. A request was also submitted in the Court by the local company for imposing a travel ban on the managers of the foreign company so that they are prevented from taking the assets of the company outside Qatar.

A travel ban was indeed imposed on the managers and representatives of the defendant company.  The defendant company then appealed against the decision before the Court of first instance pleading that the imposition of ban was against Article 36 of the Constitution of Qatar. Article 36 of the Qatari Constitution guarantees personal freedom and it clearly lays down that such freedom cannot be curtailed except according to the provisions of law.  The petitioner (foreign company) further said that they have started huge projects and assets in Qatar and it was unreasonable and unobvious for them to smuggle the assets outside Qatar. Further the petitioner argued that since the foreign company was a limited liability company therefore the managers and representatives of the company should not have any liability (Beydoun 2012). 

The Court of the first instance ruled accepted the Petitioner’s contention and uplifted the ban on the managers and representatives of the Company.

The case involved the interpretation of the Constitution. The Constitution of a country is the parent law and all the laws and procedures have to be followed in accordance with the spirit of the Company. The Court which imposed a travel ban on the foreign company has overlooked the important provision of the Constitution. Moreover, right to personal freedom is the most important right for any human being and should be respected by all. Right to personal freedom has been recognised as an important human right under international law {such as UDHR (1947), ICCPR (1966)} and all the States have been recommended to respect personal freedom of human rights. When the interpretation of the Constitution is directly involved in a case there is no necessary to invoke any other provisions of law (Kronfol, Z et

Lawsuit against a Foreign Company in Qatar

The decision is important in the light of the rights and personal freedom of the managers and representatives of a Company. A company is a separate entity and no shareholder or manager of a Company can be made liable for the debts of a Company. The Court has actually applied the provisions of the constitution to reach the conclusion. The new Qatar Commercial Companies’ Law of 2015 recognises a limited liability company as a company where the shareholders have a limited liability. Thus all the provisions have been clearly laid down under the provisions of law in force in Qatar. The Court which had imposed a travel ban on the foreign Company had failed to consider the relevant provisions of the law which should have been applied. Had been the relevant provisions applied in the case, the Court would have come to a different conclusion. Under these circumstances there is actually no need of any reform of the legislation. The only thing which is required is proper application of the relevant provisions of law in appropriate circumstances (Kronfol, Z et al. 2013).

Conclusion

There are still many areas which have to be looked into and which needs a reform for letting the multinational companies to successfully operate. Certain laws and regulations of various are hindering the entry of multinational companies. A multinational company comes with various advantages and policies should be framed as such so as to encourage and invite the investments from foreign countries (Cullen and Parboteeah 2013).Appropriate policies and framework in favour of multinational companies would definitely help the countries to combat challenges such as unemployment, economic breakdown and the like. A strong step towards fostering the growth of multinational companies has to be taken by all the nations at the international level to ensure the sustainability of the multinational companies (Fuest et al. 2013).

Reference list

Bakir, C., 2015. Bargaining with multinationals: Why state capacity matters.New Political Economy, 20(1), pp.63-84.

Balabanis, G., 2013. Surrogate boycotts against multinational corporations: consumers’ choice of boycott targets. British Journal of Management, 24(4), pp.515-531.

Beydoun, N.M., 2012. The Glass Palace: Illusions of Freedom and Democracy in Qatar. Algora Publishing.

Bücker, J.J., Furrer, O., Poutsma, E. and Buyens, D., 2014. The impact of cultural intelligence on communication effectiveness, job satisfaction and anxiety for Chinese host country managers working for foreign multinationals. The International Journal of Human Resource Management,25(14), pp.2068-2087.

Cullen, J. and Parboteeah, K.P., 2013. Multinational management. Cengage Learning.

Cullen, J. and Parboteeah, K.P., 2013. Multinational management. Cengage Learning.

Enderwick, P. ed., 2013. Multinational Service Firms (RLE International Business). Routledge.

Fuest, C., Spengel, C., Finke, K., Heckemeyer, J. and Nusser, H., 2013. Profit shifting and’aggressive’tax planning by multinational firms: Issues and options for reform. ZEW-Centre for European Economic Research Discussion Paper, (13-044).

Harper, C., 2015. Organizations: Structures, processes and outcomes. Routledge.

Hussein, H. and Saade, R., 2015. Employee voice in Business Management with a special reference to the Oil and Gas sector in UAE.

Javorcik, B.S., 2014. Does FDI bring good jobs to host countries?. The World Bank Research Observer, p.lku010.

Jiang, Y., Peng, M.W., Yang, X. and Mutlu, C.C., 2015. Privatization, governance, and survival: MNE investments in private participation projects in emerging economies. Journal of World Business, 50(2), pp.294-301.

Johanson, J. and Mattsson, L.G., 2015. Internationalisation in industrial systems—a network approach (pp. 111-132). Palgrave Macmillan UK.

Kronfol, Z., Ghuloum, S. and Weber, A., 2013. Country in focus: Qatar.Asian journal of psychiatry, 6(3), pp.275-277.

Peltokorpi, V. and Vaara, E., 2014. Knowledge transfer in multinational corporations: Productive and counterproductive effects of language-sensitive recruitment. Journal of International Business Studies, 45(5), pp.600-622.

Truby, Jon Mark, and Arnaud Cywie. “Free Zones in the United Arab Emirates: Domestic and International Tax Issues.” Intertax 43, no. 6 (2015): 474-476.