Multinational Companies Subsidiaries Act - Ford Motor Company - Case Study Example

Extent to which Multinational Companies’ Subsidiaries Act as Local Firms versus the Extent to which their Practices Resemble those of the Parent Company Introduction This work examines the global standardisation of work practices of Multinational Enterprises (MNE) with a specific focus upon the Ford Motor Company. This work claims that MNEs like Ford adopt local adaptation procedures to enhance their competitive advantage and achieve success. Global Standardisation A multinational company (MNC) can be described as a parent company that first, undertakes foreign production, via its affiliates that are located in a number of nations. Second, has direct control upon the policies of its affiliates. Third, implements transnational business strategies in finance, marketing, production and staffing, in a manner that goes beyond national boundaries. As a consequence, it can be surmised that MNCs have no loyalty towards the nation, wherein they had been incorporated[Iow16]. As such, the MNCs enact a crucial role in the global economy, through their international subsidiaries. In general, these companies dominate agreements with their foreign subsidiaries in furthering their international operations. In this context, a major issue has come to the fore, namely, how to fix liability upon the MNCs for the tortious acts of their foreign subsidiaries. This is due to the fact that internal codes of the MNCs, international norms and national courts cannot effectively and legally make the MNCs liable for such acts[JiM15]. With respect to global standardisation procedures followed by MNCs, the applicable major theories of corporate governance have been described in the sequel. Agency Theory It is generally perceived that the agency theory is appropriate for situations involving a principal-agent structure. In fact, governance of the parent and subsidiary relationship in MNCs can be regarded as an instance of the principal-agent structure. This is based upon the fact that the headquarters assigns decision making power and responsibility to its foreign subsidiaries. As such, behavioural limitations and incentives dependent upon obedience, in conjunction with rewards for achieving the objectives of the principal, represent the fundamental propositions of agency theory[Hen07]. The correlation betwixt headquarters and a foreign subsidiary is similar to the agency relationship between a principal and agent. This is based upon the reality that the parent company invests resources and funds in the subsidiaries, and the latter are required to generate profits for the parent company. In general, the agency costs of MNCs could include any subsidiary decision taken with a view to further its own interests to the detriment of the interests of the headquarters[Hen07]. The agency theory recommends monitoring of results and enhancement of information exchange regarding the conduct of the agent, in order to mitigate the danger of self-serving conduct by a subsidiary. Monitoring, in the context of MNCs, can be described as the activities or systems employed by headquarters to procure information regarding the conduct and decisions of subsidiary management. In this regard, the personal supervision of managers constitutes the most direct form of supervision. All the same, the absence of proximity renders it onerous for headquarters to engage in the direct supervision of the management behaviour of the subsidiary. In this context, it has been the general experience that employing expatriates for this purpose proves to be an extremely expensive proposition[Hen07]. Consequently, direct supervision has to be discarded in favour of other systems, including rules, procedures and other forms of bureaucratic instruments. Stewardship Theory The theory of stewardship, per se, differs from that of agency, in as much as, the theory of agency is based upon the perspective of human behaviour. The stewardship theory claims that the interests of managers and equity holders are in alignment. In fact, this theory declares that pro-organisational and collectivistic conduct has greater utility value in comparison to self-serving conduct. In this situation, the governance systems founded upon social interaction and interdependence, rather than reliance upon authority or power, are significant with respect to environments that undergo rapid change[Hen07]. The lateral associations that transcend the formal demarcations of the MNC joint teams, task forces, committees, individual integrators, informal communication channels and informal relations, with respect to subsidiary managers and managers at the headquarters, are of considerable importance for addressing rapidly transforming business environments and consumer demands. Contingency Theory With respect to this theory, managerial decisions are correlated to several constraints under the contingency model of MNC organisation. These restrictions include: size of the organisation; adaptation to the business environment; operations and resources; and managerial assumptions regarding strategies, employees and technologies. This theory can be termed contingent, as it regards the functioning of organisations under diverse circumstances, with specific reference to the dynamics of the business environment[Hen07]. The external contingencies, namely the environment, can be regarded as a composite of opportunities and constraints that affect the internal structures and processes of the organisation. As such, the dynamic contingency theory regards flexibility as an organisational potential for preserving a dynamic relation between the environment and the organisation situated in it. A cardinal feature of the contingency theory is that various external conditions could necessitate diverse organisational essentials and behavioural patterns in the organisation[Hen07]. For instance, Ford, the automobile giant had been compelled to abandon its initial principle of a single product and incorporate certain methods related to the multiple range strategy initiated in the 1920s by General Motors. This transpired in the 1930s. General Motors had a multi-domestic structure, which induced continuing changes in the geographical organisation of Ford. Thus, the Y and C models of Ford were introduced in 1932 and 1934[Bél16]. These automobiles were the first to have been specifically designed for the European market. Due to these models, an international disparity in model ranges betwixt Europe and North America, was introduced. This was consistent with local manufacturing policy that had been adopted in response to the compulsions of protectionism. The World War II accentuated this state of affairs, which brought about the bifurcation of Ford and General Motors in Europe. Subsequent to the cessation of hostilities, Ford established this trend by implementing a European structure that was distinguished by separate domestic bases in the UK and Germany[Bél16]. Ford Motor Company and Local Adaptations The Ford Motor Company had traditionally been a keen competitor to General Motors the leader of the automobile industry. In this endeavour Ford had embarked upon the daunting task of increasing its presence in foreign markets. Thus, the International Automotive Operations of Ford had been coordinating activities in 26 nations that had been segregated into the primary regions of Asia Pacific, Europe, and Latin America. By the late 1970s, Ford had been manufacturing 50% of its automobiles outside the US. On the other hand, General Motors had been manufacturing just a fourth of its vehicles outside the US[Stu03]. In addition to its keen sense of competition, Ford had pioneered the introduction of swift adoption of technology in the automobile industry. In fact, the founder of this company, Henry Ford, had introduced mass production in the industrial sector. The 1980s had posed several major challenges to the automobile sector. At that juncture, Ford demonstrated its flexibility by expeditiously adopting the Japanese system of production[Stu03]. In addition, it proved to be the quickest among the automobile makers, with regard to promoting the integration of its operations on a global basis. Furthermore, Ford emerged a pioneer with regard to the internationalisation of production. Thus, it had the distinction of being the first automobile company to open an assembly plant in 1904 in Canada. This was followed by an assembly plant in Mexico in the year 1925. As such, Ford enacted a cardinal role in developing automotive capability in Canada and Mexico[Stu03]. Ford commenced to integrate its manufacturing in the 1960s, and the initial exercise, in this context, was the integration of the Canadian and US manufacturing units in the year 1965. Subsequently, in the year 1967, Ford of Europe was formed and this entity brought about the integration of the erstwhile autonomous national affiliates. Prior to that period, the major subsidiaries of Ford in Germany and Britain had been operating in a more or less autonomous manner, and had produced unrelated passenger car models[Jon05]. The Capri, which was the initial Europe-wide model, had been introduced in the year 1969. At that juncture, the European-based multinationals had been much slower at engendering regional integration. For instance, Unilever had struggled to a considerable extent, due to integration of its European affiliates, and this situation had continued till the 1990s. Moreover, cosmopolitan capitalism, in the 20th century, was supplanted by more clearly demarcated national identities. As a consequence, the nationality of firms gained considerable clarity. World War II resulted in the dissolution of the international economy. However, by the 1950s, a semblance of reintegration was achieved, thereby providing the national subsidiaries of MNCs with strong local identities[Jon05]. Significantly, the products and production processes of Ford were distinct and considerably similar to that of General Motors, which had emerged as the benchmark for comparison. Moreover, the North American and European operations had become nearly independent of each other. As such, the multinationalisation of Ford, which commenced during a world-wide internationalisation, culminated in a multi-domestic organisation, which in addition to being more hierarchical than General Motors, was considerably fragmented[Bél16]. During the 1980s, the competitive pressure from Japanese manufacturers was on the increase, and Ford placed greater emphasis upon spatial reorganisation of operations at the international level. Thereafter, Ford transformed its regional and intra-regional specialisations, whilst strengthening coordination within regional spaces. This transition to a trans-regional setup from a multi-regional setup transpired with the formation of an alliance with Mazda, the Japanese producer. Thus, Mazda and Ford cooperated with each other to a tremendous extent. This cooperation included shared product lines, designs and joint manufacturing. These shared activities occurred in the North American and Asia Pacific regions. In 1987, Ford implemented its centres of responsibility policy and Mazda was made a participant in this initiative, which demonstrated the commitment of Ford to a trans-regional strategy. This policy entailed the segregation of product development activities to first, the smallest cars for Mazda, the Japanese partner. Second, compact vehicles for Ford of Europe. Third, large vehicles for Ford of America[Bél16]. In addition, the monitoring undertaken by the headquarters of Ford has the features of culture monitoring, as well as bureaucratic monitoring[LuW14]. Unlike other automobile manufacturers, Ford prefers local marketing adaptations. For instance, the subsidiary of Ford in China implements a joint venture model. Thus, it has comparatively sound market knowledge and specific local resources to undertake adaptation, thereby ensuring adequate local performance. Consequently, the subsidiary could continuously search for approaches based upon adaptations. On the other hand, the headquarters would exercise strong monitoring, with a view to assess the initiative of the subsidiary and to align the latter’s strategy with the corporate strategy. Conclusion This work examines the global standardisation procedures followed by the multinational enterprises with regard to their governance, with special focus on the Ford Motor Company. It has been observed that Ford adopts the theory of contingency to implement procedures that accommodate local cultures and demands of the consumers of different countries. In this regard, Ford undertakes partnerships with local companies to make it more responsive to local demands. As such, the multinationalisation of Ford, which commenced during a world-wide internationalisation, culminated in a multi-domestic organisation, which in addition to being more hierarchical than General Motors, proved to be more fragmented. It can be surmised that the Ford Motor Company implements local adaptation procedures, in accordance with the contingency theory, in order to achieve success in the globalised world. References Iow16: , (Iowa State University, 2016), JiM15: , (Ji, 2015, p. 401), Hen07: , (Hendriks-Guść, 2007, p. 19), Hen07: , (Hendriks-Guść, 2007, p. 20), Bél16: , (Bélis-Bergouignan, et al., n.d.), Stu03: , (Studer-Noguez, 2003, p. 10), Jon05: , (Jones, 2005), LuW14: , (Lu & Xu, 2014), Read More