Business Issues of Managing Multinational Companies - Literature review Example

? Literature review Contents Contents 2 Introduction 3 Issues for Multi-national Organisations 3 Strategies of the organization 3 Marketing issues 4 Accounting issues 5 Financial issues 5 HRM issues 6 Corporate governance and social responsibility 7 Conclusion 8 References 9 Bibliography 11 Introduction The multinational corporation is a company that is registered in more than one country and operates their business oversees apart from the domestic market. The multinational corporation expand their business or invests in foreign markets in order to tap the potential opportunities for which they may require to set up production facilities to cater to the local markets. In course of expansion and carrying out business operations in several countries, the multinational corporations face several issues related to the organizational strategies in the different market of operation, the marketing issues, the accounting and financial issues, the human resource management issues and the issues related to corporate governance and social responsibilities (Carbaugh, 2010, p.47). A study of empirical literature has been carried out with the example of retail industry and considering Wal-Mart as the multinational organization with its operation in several countries being examined under the review. Issues for Multi-national Organisations The various issues for the multinational organization with the example of Wal-Mart as a major player in the retail industry have been discussed below. Strategies of the organization The multinational companies operate in various countries either by establishing its own facilities or with the help of joint ventures. These multinational organizations are thus exposed to country risk of various countries (Butler, 1993, p.58). Wal-Mart, for example Wal-Mart operates around 8500 stores in around 15 countries all over the world and function under 55 different names in several countries. For example, Wal-Mart which is headquartered in US operates under its own brand name in US, as Walmex in Mexico, as Asda in UK. Wal-Mart’s multinational ventures in UK, Latin America, China has been successful while the ventures in South Korea and Germany have proved to be failures. These issues are faced by all multinational companies with a mix of success and failure in different ventures (Krayenbuehl, 2001, p.67). Thus the organizational strategies and decision making with respect to these issues are important as the multinational entity would need to take decision of selling the ventures that are not deemed to be profitable in future times. The multinational organization also needs to strategically invest in ventures that would prove to be profitable in future (Jolly, 2003, p.62). These strategic decisions need to consider the issues related to country risk which entails an examination of the political, economic, social, technological and legal environment in the region of investment. Marketing issues The marketing issues, the developments of the various local markets are important areas of consideration for the multinational corporations. The age of globalization has witnessed several new entrants in the local markets and the threat posed by the competitors raise concerns for the multinational companies for retaining their market share. Thus the multinational companies should continuously update their marketing strategies in order to counter the steps of the competitors for holding their market share in various countries (Solberg, 2002, p.50). Wal-Mart for example being the largest grocery retailer and having presence in around 15 countries are required to anticipate the changing market conditions and demands of the consumers in order to retain their leadership position in the retail industry. Although, the market share of Wal-Mart is three times that of its nearest competitor, Carrefour, the multinational company needs to continuously adopt innovating strategies and respond to the changing lifestyle of the consumers which are market specific for different countries. The multinational companies also face differences in bargaining power of the consumers and suppliers, threat of substitute products which are required to considered while framing marketing strategies specific to the local markets of different countries (Wagner, 2012, p.48). Accounting issues The business operations of the multinational companies like Wal-Mart are spread across various countries all over the world. The business transactions of the multinational organization are recorded according to the accounting standards of the respective countries in which the business is being operated. Thus Wal-Mart being a multinational organization would face accounting issues as there are difference in the accounting standards and treatment of business transaction in different countries while preparing book of accounts in India, China, Germany, USA, etc (Sofat and Hiro, 2008, p.52). Thus the multinational organization would face difficulties in preparing the consolidated books of accounts for the entire group when the same is required to be published in the annual reports of the group. The multinational organizations could, therefore, keep these accounting issues into consideration while taking investment decisions in the various countries through examination of the cost-benefit analysis (Jackson, Sawyers and Jenkins, 2008, p.62). The costs involved in standardising the accounting differences as per the international accounting standards are very high as it requires lot of time, energy and expenses in carrying out a repetitive work of accounting. The accounting issues are also an area of concern for Wal-Mart which has worldwide business operations in the retail grocery markets. Financial issues There are several financial issues that are considered by the multinational organizations like Wal-Mart in the scope of multinational business. In order to tap the potential opportunities in the developing countries, Wal-Mart has decided to expand its operation in order to lead the trend of global expansion. The various financial issues that are faced by the multinational organization range from selecting the source of funds, deciding the optimal value of cost of capital, analysis of the cash flows to justify the multinational investments, fluctuation of foreign currency, interest rates of the local market, other financial risks and returns (Baker and Powell, 2009, p.38). The multinational organization would need to consider the benefits and cost savings opportunities of setting up multinational financial system or centralized treasury functions in order to track the combined cash flows of the organization (Pratt, 2003, p.82). While being able to track the combined cash flows through a centralised treasury to decide on repayment of liabilities or deployment of idle funds for attracting investment option, Wal-Mart as a multinational organization should also consider the benefits of a multinational financial system where the business could work independently and take well informed decisions of tapping the opportunities of the local market (Megginson and Smart, 2008, p.51). HRM issues The issues related to the human resource management for multinational organizations are highly significant. Wal-Mart for example is the largest private employers of over two million employees who work in the business units of the company in several countries. The retail operation of Wal-Mart is highly dependent on its workforce and hence the human resource of the multinational company is considered to be a valuable asset. The multinational companies, however, face diverse issues related to human resources as the people who work in various countries vary in their ideologies and beliefs, culture and lifestyle, aspirations and goals (Coade, 1997, p.86). There are several occasions where the employees of the multinational companies in one corner of the world are connected to the some other business units in another country through the virtual reporting mechanism. The employees who interact with each other sometimes do not get to see each other face to face in the globalised operational scenario. Thus the multinational organizations are required to train their employees according to the organizational code of conduct to standardise their behaviour in dealing with the customers and also for interacting between each other (Marr and Gray, 2012, p.91). The multinational organization need to ensure that the employees align themselves with the organizational culture and the goals for the broader interest of their worldwide operations. Corporate governance and social responsibility The aspects of corporate governance and social responsibility of the multinational companies are extremely important for consideration of the sustainability of the organizational performance on a global scale (Idowu, 2011, p.75). The organizations like Wal-Mart need to have a stronghold on the code of conduct of their employees in order to manage their international operations. This could be done with the implementation of corporate governance which requires the top management to enforce policies and guidelines for code of conduct of the employees that adhere to the organizational culture and policies (Ruud, Frederikslust and Ang, 2008, p.68). Wal-Mart advises their employees all over the world to engage into dignified, fair and transparent practices with the customers and the stakeholders of the company in order to maintain the integrity of the organization. The multinational organizations which have considerable business operations in the overseas market also need to consider the importance of being a corporate citizen of the community and engage into socially responsible activities (Hawkins, 2006, p.40). The corporate social responsibilities performed by the multinational companies like Wal-Mart have supported the cause of sustainable development of their world wide operations. Conclusion The multinational organizations operate in more than one country in order to tap the potential opportunities of the overseas market. In their plight to take advantage of the opportunities in the various markets due to local economic reforms or favourable policies of foreign investors, the multinational companies, for example, Wal-Mart has to consider various issues that also come hand in hand with the opportunities. These issues range from the potential risks of the local markets and the various strategies to be adopted in order to counter these threats. The issues may be related to strategic decision making for investing on loss-making ventures, selection of the best possible source of funds, marketing strategies, strategies for human resource management, etc. All these issues require the multinational organization to consider, the various financial factors related to foreign exchange fluctuation, interest rate fluctuation, anticipation of competitor strategies, changes in demand of the local market, importance of performing socially responsible activities, etc. References Baker, H. K. and Powell, G. 2009. Understanding Financial Management: A Practical Guide. Australia: John Wiley & Sons. Butler, R. 1993. Strategic Investment Decisions: Theory, Practice, and Process. USA: Taylor & Francis. Carbaugh, R. J. 2010. International Economics. USA: Cengage Learning. Jackson, S. R., Sawyers, R. B. and Jenkins, J. G. 2008. Managerial Accounting: A Focus on Ethical Decision Making. USA: Cengage Learning. Jolly, A. 2003. Managing Business Risk. USA: Kogan Page Publishers. Krayenbuehl, T. E. 2001. Cross-Border Exposures and Country Risk: Assessment and Monitoring. England: Woodhead Publishing. Megginson, W. L. and Smart, S. B. 2008. Introduction to Corporate Finance. USA: Cengage Learning. Ruud, Frederikslust, A. V. and Ang, J. S. 2008. Corporate Governance and Corporate Finance: A European Perspective. USA: Routledge. Marr, B. and Gray, D. 2012. Strategic Performance Management. USA: Routledge. Idowu, S. 2011. Theory and Practices of Corporate Social Responsibility. 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