Coordination and Control in Multinational's - Essay Example

Coordination and Control in Multinationals Summary: Multinationals are now a wide spread phenomenon. They have spread their branches worldwide andare fast replacing local enterprises. This report objectively analyses multinationals, highlights their advantages and disadvantages and assesses its role in politics as globalisation spreads itself in a competitive world. Coordination and Control are analysed in depth with a focus on their various strategies. Finally the contribution of Neimark and Tinker (1986) Baliga and Jaegar (1984) Martinez and Jarillo (1989) Hennart (1991) Eramilli (1996) Helleiner (1995) shall each be placed in perspective, explaining and justifying their work. The various perspectives and interpretations shall be used to arrive at perfect understanding of coordination and control in Multinationals. Contents Page: Introduction- Multinationals Multinationals, economics and globalization Advantages and Disadvantages of Multinationals Coordination and Control in Multinationals Approaches to studying coordination and control in Multinationals Defending the claims of Neimark and Tinker (1986) Baliga and Jaegar (1984) Martinez and Jarillo (1989) Hennart (1991) Eramilli (1996) Helleiner (1995) A Multinational corporation or enterprise’s trait characteristic is their presence in more than at least two countries. Some claim, Knights Templar, founded in 1118 was the first multinational when it started banking. Others claim Dutch East India Company, founded in 1602, was the first multinational. Multinationals are known by a variety of names such as a Multinational Corporation (MNC), Multinational Enterprise (MNE), Transnational Corporation (TNC) or simply Multinational Organization (MNO). Multinationals are further classified into three sub categories which are: Horizontally integrated multinational corporations: These manage the establishment set in different countries. They supervise production and if similar products are created. Vertically integrated multinational corporations: Vertically integrated MNC’s manage the production in certain countries to see if the desired products are created they can work as an input for the production establishment. Diversified multinational corporations: Diversified MNC’s are located in a mixture of different countries that do not fall either to the horizontal or vertically integrated sector. A corporation, once it has achieved success at a local level, slowly branches out. Next it manages to attain power and influence and become an active member in shaping globalization. Multinational corporations are known to have very large budgets that even have the ability to exceed the budgets of many counties. Multinationals can be highly influential politically as they play an active role in International relations. This is mainly due to two factors that, Multinationals have a huge economical influence upon politicians’ representative districts and that multinationals have huge economical resources available for public relations and political lobbying.1 Countries are competing with one another to win the attention of MNC’s so they could be considered by these corporations. The setting up of multinationals in a country would mean tax revenue, employment and economic activity. Many countries offer multinationals incentives to set up their enterprise within them. Some of these incentives include government support, tax breaks, improved infrastructure and labour standards. These features greatly attract foreign investment. Some prominent examples of multinationals are Apple, AOL, HSBC, Honda, LG, McDonald’s, Microsoft, Nestle, General Motors, Sony, Toshiba, Toyota, Vodafone, Wal-Mart, Nokia, Nissan, Yahoo, Google etc. Richard Barnet criticized multinationals in his ‘Global Reach: The Power of the multinational corporations’ (1974). Multinationals are also portrayed negatively in the science fiction novel ‘Mars Trilogy’ by Kim Stanley.2 Many claims have been made for and against Multinational Corporation. Whilst the governments of many countries are eager to support MNC’s critics provide a list of reasons why multinationals should not be encouraged, especially in developing countries. Those who support multinationals claim its advantages are abundant. For instance they provide: Employment to local workers Promote peace internationally Create a sense of community crossing international borders Allows entire world to improve standard of living Gives access to quality products regardless of location Promotes economic stability Raises standard of living for regions involved in production Gives local economies new economic opportunities Reflects global economy The other side of the spectrum argues against multinational corporations claiming Ruins local economies Depletes local work forces by drawing to metro centres Stifles cultural growth and expansion on local level Provides little help with problems which are local in nature Creates cultural homogenization Too big, little interest in the individual Gives political power to outside interests Creates economic instability by being subject to the whims of the global economy Replaces traditional values with materialistic values Makes local economies subject to mass layoffs3 Hence the argument is twofold and is purely a matter of personal opinion. A report compiled by the development agency ActionAid claims food companies are becoming to powerful and are an obstacle in the fight against poverty. The report states six reasons to regulate global food corporations and makes apparent the fact that companies such as Nestle, Unilever, Monsanto etc are a source of threat for thousands of farmers. These companies are a hindrance to earning a livelihood for the said party. ActionAid justify this claim by stating that in Brazil nearly 50,000 farmers have been left jobless after takeovers by Nestle and Parmalat. Another strong example they provide is of Indian children who are cruelly exposed to harmful pesticides, in the attempt to supply a subsidy of Bayer. About the report, says Julian Oram a policy officer from ActionAid “Our research shows that the world’s poorest farmers are in effect subsidising the world’s largest food companies, and in many cases are paying with their health, livelihoods and basic rights."4 Besides this, Amnesty International came out with factors companies/corporations tend to overlook when making profit and thus came harm to society. These highlight human abuse (wages), Irresponsible marketing (tobacco products), manufacturing of weapons etc, environmental destruction, animal suffering (testing), abused land rights of locals etc. 5 In multinationals, coordination and control play a vital role. Both coordination and control are the two processes of integration. Coordination can be defined as more of an enabling that provides the appropriate linkage between different task units in an organization. Whilst Control, is the process that brings adherence to a goal or target through the exercise of power or authority. On Coordination and Control, no empirical investigation exists. Generally all studies carried out on organizational control and coordination focus on the behaviour of individuals in organisations. Coordination is divided as coordination by plan, by mutual adjustment and coordination by standardisation. In 1976 Van de Ven and his colleagues, projected three types of coordinations; an impersonal one- planned and two personal ones- personal and groups. For MNC’s the type of coordination used is not as important as the amount/degree of coordination. The main concern should be that the subunits are well integrated into the larger system. However there’s no certain strategy of coordination in MNC’s that consist of demands, meetings, pressure, information to workers, etc that can be described as coordination to homogenise collective bargaining.6 In the attempt to control foreign subsidies, the issue of availability is not the main concern. The functions a subsidiary should perform in concert with the parent that they serve as avenues of control. The entire purpose of Control is to make behaviour predictable and hold individuals or groups to enunciated policy. However there is some problem with this. The first is of flexibility which needs to be exercised in flexible environments. The second problem that serves as a hindrance to predictability is the cost of control. When one compares control to coordination, it is more direct, expensive and episodic. Martinez and Jarillo (1989) survey research conducted on coordination mechanisms that are used by multinational corporations defines a coordination mechanism as "any administrative tool for achieving integration among different units within an organization" and further lists eight mechanisms identified by previous researchers, these are: departmentalization, centralization or decentralization, formalization or standardization, planning, output and behaviour control, lateral ties, informal communications and socialization. Martinez and Jarillo see the selection of coordination mechanisms as a method of implementing a particular organizational pattern. They also claim that companies choose a structural configuration that resembles their strategy and then choose the mechanisms to implement it. 7 Baliga and Jaegar 1984 quote Child 1973 that “Control is essentially concerned with regulating the activities within an organization so that they are in accord with the expectations established in policies, pans, and targets”. This is a universally accepted definition of control and an effective one. Control is then further described as a process that encompasses any process in which a person/group/organisations sets or influences what another shall do. Ouchi is quoted by stating that there are only 2 phenomena that can be monitored and assessed and they are behaviour and output. Contingency factors are subbed into bureaucratic control, cultural control and centralization. It is further stated that the age of the organisation (this includes its assets and employees) and the age of industry have had a significant impact on bureaucratisation and centralization. Neimark and Tinker (1996) reveal that researchers have generally approached the subject of control by examining the relationship between, an organizations control system, its environment and its performance. The pains of nation states to maintain their autonomy and reproductive abilities and to protect the interests of native elites are observed. A dialectical interplay is brought into light. Generally the study suggests that as long as the existence of structural inequality is clouded by accounting theorizing, individuals will be estranged from their capabilities, and emancipation will be threatened. Martinez and Jarillo (1989) carry out an extensive study on organisational abilities of MNC managers to coordinate even loose operations that tend to be far apart, geographically and technologically. As a result, while Managers in those multi national firms easily realise that what they have to do is integrate all the activities of their national subsidiaries under a common strategy, the understanding of how to implement such a global strategy has proven to be considerably more difficult. This report suggests that the study of coordination devices is necessary to the study of international management. The link is made clearly apparent. The evolution in the studying of coordination is discussed as examples are drawn to the change in focus from the more formal tools to an appreciation of the subtler forms of coordination such as acculturation and the creation of networks. Hence it can be claimed that an evolution in research may follow an evolution in practice. In this study the terms ‘mechanisms or coordination’ and ‘mechanisms of integration’ are used to describe the same thing. This report highlights those extensive firms that are in competition with one another need coordination among different dimensions. The different strategies interrelated need a joint coordinating effort, and are therefore implemented through both types of mechanisms: structural and formal, plus informal and subtle. Next the study provides a list of ‘an inventory of empirical studies about mechanisms of coordination used by MNCs’. Multiple views are reflected. After that we are shown reasons for the evolution. Finally the evolution is divided into the following categories of period-0 through period-3. Each 3 periods are analysed individually and carefully. In the summary an evolution from all three streams of research discussed in the paper, an evolution from undimensional to multidimensional perspectives on coordination can be observed. Eramilli (1996) cites a variety of reasons and evidence from their own 1993 study to argue that full-control modes are the preferred alternative, at least among U.S service firms, that go on to develop a modified transaction-cost framework to analyse entry-mode choice. Next the U.S economy is referred to as it is claimed that due to its size, resources, incomes, scientific infrastructure and government policies, the rest of the world has followed it because it has innovation, advertising, retailing, management and organisation. On the basis of received theory, we can expect its Multinationals to have powerful and broadly-based advantages than those of other countries. Also, small / large American MNCs are more regular in pursuing majority ownership than European. This difference in behaviour arises from the large and domestic market that gives American firms huge monopolistic advantages. Smaller European multinationals seem content in dealing with minority ventures. This also brings into play the questions that are these results applicable to other industrial populations. Henmart’s study (1991) is unique as it creates a distinction between methods of organisation and economic institutions. Corporations price factor are analysed. The hierchal method of organisation channels works like: the information possessed by individuals (employees) to a central party (the boss) who assimilates all this information, draws up consistent plans and retransmits information to employees in the form of directives. When prices fail to act as competent guides to behaviour, a decentralised system may become replaced by a centralised one. Problems with hierchal solution are also discussed in as the study attempts to explain hierchy with its wide connotations. Helleiner (1995) points to the policies of many developing countries that have of recent played a major role in social and industrial development. The advantages of natural resources have been replaced by acquired advantages. Skill is traced as factor that influences the export behaviour of firms. Helleiner discovers that firms which employ skilled workforce are likely to export more. And a model of citizenship based on political association or functional performance could surpass the national model. States have been major sponsors and supporters of both financial and production globalization by liberalizing stock exchanges and money markets, opening up world trade by negotiating multilateral reductions in tariffs, using international organizations to limit financial crises, and choosing not to rigidly regulate emergent forms of global finance such as credit swaps and derivatives. Hence, these claims are validated more by the passing days. Bibliography: Multinational Corporation, (2006) Wikipedia the free encyclopaedia, Website: http://en.wikipedia.org/wiki/Multinational_corporation Mars Trilogy, (2006) Wikipedia the free encyclopaedia, Website: http://en.wikipedia.org/wiki/Red_Mars Conversation lesson Multinationals help or hindrance? (2006) About, Website: http://esl.about.com/library/lessons/bldebate1.htm Food multinational threatens fight against poverty, Action Aid, Website: http://www.actionaid.org.uk/1489/press_release.html What’s wrong with multinationals? Beyond McDonalds, Website: http://www.mcspotlight.org/beyond/www.html Website: http://copenhagen.jibs.net/Archive/1984/15_2_84_85.pdf Kevin Crowston, A taxonomy of organisational dependencies and coordination mechanisms, Website: http://ccs.mit.edu/papers/CCSWP174.html Word Count: 2,276 Read More