MANAGING THE MULTINATIONAL CORPORATION

1
MANAGING THE MULTINATIONAL CORPORATION

• Professor Stephen Young
• Strathclyde International Business Unit
• Strathclyde Business School
• 7th May 2004

2
Foreign Direct Investment Worldwide, 2002

• World FDI Stock 7.1 trillion
• 10-fold increase since 1980
• 64,000 MNEs controlled 870,000 foreign affiliates
• Numbers employed by foreign affiliates 53
  million
• Value added of foreign affiliates 3.4 trillion,
  about 10 of world GDP.
• One third of world exports are intra-MNE.
• Source UNCTAD (2003)

3
Definitions

• Multinational Enterprise
• Owns (in whole or in part), controls and manages
  value-adding activities in more than one country.
  
• An orchestrator of a set of geographically
  dispersed but interdependent assets.
• Micromultinational (mMNE)
• SME that controls and manages value added
  activities through constellations and investment
  modes in more than one country.

4
Whats Different about Multinational Management?

• Multiple operating environments
• Diverse pattern of consumer preferences,
  channels, legal frameworks, etc.
• Political demands and risks
• Need to mesh corporate strategy with host country
  policies.

5
Whats Different (Continued)?

• Global competitive game
• Multiple markets, new strategic options
• Currency fluctuation and exchange risk
• Economic performance measured in multiple
  currencies
• Organizational complexity and diversity
• Need to manage complex demands across barriers of
  distance, time, language and culture.

6
Transition from
International
Multinational
Global
Transnational

• Can involve major shifts in
• Marketing, manufacturing, distribution, RD
• strategies and location
• Financing
• Human resource policies and practices
• Management structures
• Management information systems
• Management compensation

7
Evolving Mentality International to Transnational

• International Perspective Domestic company with
  foreign appendages opportunistic FDI.
• Multinational perspective Overseas markets
  important managed as a federation of
  quasi-autonomous subsidiaries.
• Global Perspective World viewed as a single unit
  of analysis.
• Transnational Perspective Respond to global and
  host country pressures simultaneously.

8
International Corporate Strategy Model
Need for global integration
9
Integration-Responsiveness Grid
10
Wal-Mart Key to Global SuccessPresentation by
Vice-President, International Division, 16th
February 2000

• Benefits from globalization
• Global sourcing
• Knowledge transfer e.g. glazed donuts
• Global branding
• Strategy
• Learn globally, act locally.

11
A Final Word Risk of Globalization Glaucoma

• Blindness to everything but global forces
• Short-sightedness to localizing forces

As the 1990s were drawing to a close, the
world had changed course, and Coca-Cola had not.
We were operating as a big, slow, insulated,
sometimes even insensitive global company and
we were doing it in an era when nimbleness,
speed, transparency and local sensitivity had
become absolutely essential. Douglas Daft, CEO,
Coca-Cola, March 2000
12
Evolution of Multinational Organization Structures

• Hierarchical Structures
• Export Department
• International Division
• Global structures
• (Product / Geography / Function / Customer)
• Matrix structures
• Heterarchical Structures

13
MultinationalMatrix Structure
14
Multinational Hierarchy
Multinational Heterarchy
Hedlund Bartlett Ghoshal
15
Multinational Expansion Strategies
(a) Host-market production
(b) Product-specialisation for a global or
regional market
(c) Production / process-specialisation for a
global or regional market
16
The Determinants of Subsidiary Roles and Mandates

• What is a mandate?
• Full-scope and limited scope mandates
• Key success factors associated with attaining
  mandates
• Existence of champions
• Subsidiary competence
• Stage in product life cycle, etc.
• Are mandates allocated or earned?

17
Early Model of Subsidiary Roles / Mandates(White
Poynter, 1984)

• Miniature Replica Subsidiaries produce and
  market some of the parent product lines in the
  host country.
• Rationalized Manufacturer Subsidiaries produce
  component parts or products for regional or
  global markets (usually within the MNE).
• Product Specialist Subsidiary develops,
  produces and markets a limited product line for
  regional / global markets World product
  Mandate.
• Strategic Independent Autonomous subsidiary.

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Organizing Framework for Subsidiary Development
Parent Company Devt
Internal Devt
Host Country Devt
19
Unleash Innovation in Foreign Subsidiaries

• Four possible approaches
• Give seed money to subsidiaries
• Use formal requests for proposals
• Encourage subsidiaries to be incubators
• Build international networks
• Source Birkinshaw Hood, Harvard Business
  Review, March 2001