Managing the Multinational Firm - Research Paper Example

Managing the Multinational Firm Introduction Managing a multinational means running a company that is presentin more than one country. Multinationals vary in size from a few hundred employees with a regional presence to thousands of employees and operations on several continents. Daniels, Sullivan & Radebaugh (2006). Multi nationals also have de facto control of the world's national resources because the governments in whose countries the resources are found haven't the capacity to extract them. Management of multinational is an important issue because of the enormous power wielded by these companies. They are able to influence and sometimes formulate legislation the countries where they operate using in various turns the 'carrot and stick' approach. A good example of this is bankrolling a retreat for legislators while threatening to relocate. Daniels, Sullivan & Radebaugh (2006). Multinational corporations are able to affect the lives of the ordinary citizens through, among other things their products and employment policies. Daniels, Sullivan & Radebaugh (2006). Their preference for employing workers under contract rather than permanent terms, for instance, has led to the emergence of 'permanent casuals', individuals employed under contract terms for their entire productive lives. Also multinationals are no longer the preserve of the industrialized west. They are emerging from the less developed nations and spreading their reach worldwide. The bulk of material in this paper has been sourced from written references and covers companies in different countries and operating environments. The paper will look at the obstacles and consequences of a company having a presence in several countries. It will also study the people factor as reflected in cultural differences and work ethic. The question of administering operations both local and overseas and competitive advantage is also considered. Daniels, Sullivan & Radebaugh (2006). The multinational as the ideal business enterprise As a manager of a multinational company I one has access to huge sums of money due to economies of sale and access to a very large market. The manager can also raise capital on international equity market. This enables the company to invest heavily in research development capital goods and employee development. Daniels, Sullivan & Radebaugh (2006). These will in turn lead to further increase in revenue. Innovations will lead to an improvement in living standard in countries where the multinational has a presence. The multinational will also create employment through growth of support industries to supply the multinational with raw materials. The multinational will also boost foreign exchange reserves in the home country generated by exports. With its presence alone the multinational will raise the bar for national producers and force them to raise he standards of their goods. Daniels, Sullivan & Radebaugh (2006). Multinational corporation also purchase local firms by way of investment exposing their goods to a wilder market and profiting the original entrepreneur e.g. Google's purchase of you tube multinational companies also boost trade as most world trade is between companies in the process they facilitate spread of technology and also act as a conduct for local firms to get their goods onto the international market. Daniels, Sullivan & Radebaugh (2006). Multinational firms also provide technological know how, same of which requires large capital investment. The sums involved may be out reach a government but quite reasonable for a multinational company. They may also have the technology and simple pass it on. By investing in other countries they are able to capitalize on the knowledge gained and test it more thoroughly in different scenarios other than those already a encounter. Daniels, Sullivan & Radebaugh (2006). Reputable multinationals can also allow private individuals or small business to benefit from their size reputation and accumulated expenses agreements. Multinationals that do business ethically are also cultural ambassadors of their home country and culture and help in building these between two different people ego Coca-Cola. Daniels, Sullivan & Radebaugh (2006). Using their money multinationals has the ability to make changes in their countries of operation through corporate social responsibility (CSR) programs. They can also provide unique services to the citizens of their countries of operation. In managing a multinational the prestige is a big plus. It helps in negotiations due to the respect an international company is given. Daniels, Sullivan & Radebaugh (2006) Or is it As with all business models multinationals have their demerits. Multinationals repatriate all their profits to their home countries. Daniels, Sullivan & Radebaugh (2006). This is unless the host country's government has a law that dictates a partition must be retained in the home country. Multinationals have been known to foment war in their host countries for gain. They may also destabilize the government if they feel it to be hostile. The profits made by multinationals in war zones are well documented. In case of an economic down turn in the home country the head office may the overseas branches to buy by force from them in order to boost business. Supplies multinationals are also known to exploit their host countries in various ways. Daniels, Sullivan & Radebaugh (2006).They pay very low wages to workers using the threat of relocation to prevent government intervention. They can also export scarce natural resources of a country sometimes without the government's knowledge or consent. The companies could destroy the environment in extracting resources but fail to repair the damage when pulling out of the site. Multinational also cause unemployment in their home countries by relocating plants to other nations. Daniels, Sullivan & Radebaugh (2006) Controlling foreign subsidiaries and employee related concerns A company that is planning to open a subsidiary overseas will encounter a number of problems. The country may not have any person who possesses the necessary skill set to run the subsidiary or the subsidiary may be in a far-flung location such as the middle of the desert. The company that is relocating may require that its employees learn certain skills that will enable the company run smoothly on a day-to-day basis with minimum learning curve. Daniels, Sullivan & Radebaugh (2006). A good example is language especially where business in the destination country is conducted in the national language. The company may also need to transfer certain technologies, for example, its accounting system may be based on different accounting principles and would be foreign to even qualified local accountants. The staff that is relocating may have families. This means uprooting several individuals not directly employed to the company and relocating them to new environment. The smoothness (or lack thereof) of this transition may affect the job performance of the employee being reassigned and reflect in his work. The multinational also has to prepare the person for the shock of having lost touch with his or her home country. This will reflect in the difficulty that returning expatriates will have in finding employment with similar terms. Daniels, Sullivan & Radebaugh (2006). This could be for a number of reasons. The individual loses touch with friends and associates. On his return he may find that those who were his subordinates have been promoted in his absence. The corporation may have downsized its home country operations and in the process done away with his position. Being posted overseas also results in culture shock as the individual adjusts to the various norms and cultures of the country for instance the laws prohibiting alcohol consumption in some Islamic states e.g. Saudi Arabia. Daniels, Sullivan & Radebaugh (2006). The multinationals have formulated various solutions to this. For example proctor and gamble ties promotions to the position of vice president to stints at overseas stations. Those with overseas experience get preferential treatment for the promotions. This is the company's way of highlighting the value in which it holds its overseas operations and those who man them. General electric has also started to send its most celebrated executives to overseas stations, rather than the uninspired characters that were penalized with such assignments. Daniels, Sullivan & Radebaugh (2006). The company can also arrange bonding where individuals are taken for training where they meet interact and bond with other international staff. The meshing of these two groups will enable the company to form a strong working group, which can act as a fire-fighting unit for any major international problems. Employees can also be recruited when fresh and trained together for international assignments. Eventually camaraderie will allow them to support each other on their assignments. Daniels, Sullivan & Radebaugh (2006). The multi national corporation will also need individuals to provide oversight. If left on their own overseas subsidiaries may pursue their own agendas. These may not be in tandem with those of the parent company. There is need; therefore, for an individual to be ever present to remind the subsidiary whose interests it is primarily serving in being there. This individual is tasked with scrutinizing the operations of the subsidiary and ensuring they are up to par. It should be noted that this individual should be rotated out after a year or two lest they 'go native'. Daniels, Sullivan & Radebaugh (2006) Organizational Structures Multinational companies can be structured in one of three main ways:; they can be horizontally integrated producing a homogenous item in different countries from standardized raw materials sourced in the host country e.g. KFC, they can be vertically integrated where different facilities in different countries produce the components that are the inputs for the item. it is in turn assembled in an entirely different country (or the home country) at a facility owned by the same company . the finished product may or may not be subsequently sold in the countries of assembly e.g. nike and there are companies that have a presence overseas but do not adhere strictly to either model. The choice of structure is dictated by the reasons motivating the company to set up operations elsewhere e.g. cheap labor, proximity to raw material and so on. Subcontracting however can access the same benefits. This, though, is not necessarily always the case especially where the supply of raw material or labor is erratic or heavy capital investment is necessary to get production off the ground. In the event of either of these the multinational may deem it necessary to get involved. Other factors that would result in this are unique demands in the foreign market necessitating proximity of production. Competition also contributes to a lesser extent whereby companies will follow one another to investment destinations, primarily out of fear of losing their competitive edge than for any other reason. Expansion into foreign markets is ripple like starting with markets most resembling the home market (usually nearby) then further out into non-homogenous markets. Strategies Multinational firms distinguish themselves because they are able to choose from a number of operational paradigms not available to their local counterparts. Using a financial lens multinational is able to select where best to position its assets. If properly executed the firm winds up having a worldwide presence. After this the company ascertains the level of administrative harmonization it would like to characterize its overseas operations. Varying bias in either of these two directions will orient the entity toward one of four strategies. The firm could position itself as a global exporter centering production of a specialized nature in the home country while at the same time liaising with marketing and sales personnel to coordinate the respective activities in those countries. Where markets are not similar the entity may opt to devolve marketing to foreign subsidiaries and give its employees their free rein. This will allow them to customize the product (pricing and branding) to reflect prevailing conditions in their own markets. Devolution of service departments (such as sales) or product divisions (each product acts as an entity within the larger entity) suits the export strategy well. Multinationals must establish a median between client demands (on the product) and operational and cost efficiency. The cost of customer satisfaction is counterbalanced by cross border operational integration allowing them to out performs their competition at the national level. If a company is able to enjoy similar advantages from the domestic market as it would from the global market then it can institute product differentiation. This is naming branding and packaging the same product for different national markets. Cars are a good example of this. Producing the same product avails large cost savings, which can in turn be allocated to more crucial research and development for new products. Both strategies can be combined to achieve competitive advantage. To do this customer satisfaction and cost savings must be in equilibrium. If this is not possible the firm should acclimatize to prevailing national market conditions. The management of a multinational corporation requires a multi dimensional perspective on the strengths weaknesses opportunities and threats facing the entity both at home and abroad. The efficiency and profit making abilities of multinationals due to the advantages occasioned by their size makes them natural targets for all local players (labor, government etc) in whatever market they choose to operate. Additionally the multinational companies tend to favor developing countries for their abundance of labor and natural resources. Naturally, they use their own capital to develop these resources and therefore feel entitled to a substantial portion of the returns. It is at this point that the disagreements start. Governments also compound the situation with their bipartisan protection of the multinational's interests. They are more than willing to ignore the demands of their labor force in order to appease these companies. In exchange they receive financial support and the validation that is accompanies the presence of these companies in that country. The man on the street also perceives the multinationals as latter day Trojan horses for imperialism and neo colonialism. Multinational companies are participants in the developments of the countries where they operate. This involvement comes in various forms. In countries where export led growth is pursued by the government, as an economic strategy products are competitive in the world market. Costs of production are commensurate to incentives. This acts as an incentive to the producer and ensures the products are up to par in terms of standard and also pricing. Import substitution, on the other hand, has as its objective self-reliance for the nation. This is to be achieved by totally eliminating imports. The government can also match these by instituting a permissive or restrictive policy. A restrictive policy for example will set a minimum of equity that the multinational must float for purchase by the public in the host country. The latter regulates multinational activity. Regulations on profit repatriation and technological transfers are among the measures to be found under this. By combining import substitution with permissive policies, government can save jobs and money. It does this by allowing the multinational to operate in a cocoon in which it (and its market) is protected by law. Unfortunately, when put in this position multinationals reap the rewards and attempt propagate the system for longer whether through legitimate or illegitimate means and, if unable to, they leave. They will simply introduce their entry-level merchandise, ignoring innovation, refuse to pass along their technology or improve workers through any sort of education. In extreme cases countries will deny multinationals entry and nationalize their assets. Export oriented strategies combine with a restriction on foreign direct investments to form another alternative. Export processing zones and joint ventures are examples of this. Where there is no law the multinational may find allies in other individuals out for personal gain willing to participate Daniels, Sullivan & Radebaugh (2006). In the case of import substitution the inclination toward economic nationalism is very high. This will manifest in nationalization of all assets, including those owned the multinational. The firm is thought of as leeching off the people's hard work without providing anything in return to them. After the acquisition of these by the state they are able to employ many people and increase salaries, which are why such measures are, in the initial stages at least, popular with the masses Daniels, Sullivan & Radebaugh (2006). In managing a multinational the manager must have a grasp of the prevailing conditions that are responsible for the advantages that the firm enjoys. He must also be able to foresee any challenges to the position of the entity and exploit any openings he may see. With the rise of globalization the operating environment for multinationals has changed but not greatly (Amanda, 1993). Companies still find it important to plant their flags on soil far away from their home countries. Technology has improved allowing multinationals to expand outside their borders at speed. The same technology allows them to alert potential customers of their presence in the country. Technology also allows them to set up quickly and begin operations with a minimum of delay. Regardless of this managers must still learn the select the ideal mix of strategies that will fully utilize the unique advantages of having overseas operations e.g. raw material prices, labor costs without necessarily compromising client satisfaction with the company's products. The manager should also be a prudent decision maker because any mistakes in the international arena will cost precious time in catching up with the competition. Daniels, Sullivan & Radebaugh (2006) In conclusion, the manager also needs to have finesse in dealing with the various people he will encounter along the way. The various stakeholders who are part of every country where the company has presence should be in the manager's field of vision. The manager should incorporate new technologies into the functioning of the organization evaluating them based on their strengths and weaknesses and the opportunities and challenges they will bring. Finally the manager should take advantage of the company's global presence to develop a global perspective in his decision making. The company's position allows the manager to have a bird's eye view of any situation and to pick out the best solution for all the parts of the company involved. Daniels, Sullivan & Radebaugh (2006) Works Cited Page Daniels, Sullivan & Radebaugh (2006) International Business: Environments and Operations: Prentice Hall: Pg, 130-158 Richard E. Caves, Multinational Enterprise and Economic Analysis. New York: Cambridge University Press, 1996; pg, 48-61 Parter, M.E. "Changing Patterns of International Competition" California Management Review Jan 1986: pg 320-342 Amanda Bennet, "GE Redesigns Rung of Career Ladder," Wall Street Journal, March 15, 1993 Pg 101-117 Read More