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MANAGING THE MULTINATIONAL CORPORATION. Professor Stephen Young Strathclyde International Business Unit Strathclyde Business School 7 th May 2004. Foreign Direct Investment Worldwide, 2002. World FDI Stock: $ 7.1 trillion 10-fold increase since 1980

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managing the multinational corporation
MANAGING THE MULTINATIONAL CORPORATION

Professor Stephen Young

Strathclyde International Business Unit

Strathclyde Business School

7th May 2004

foreign direct investment worldwide 2002
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)

definitions
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.
what s different about multinational management
What’s 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.
what s different continued
What’s 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.
transition from
Transition from

International

Multinational

Global

Transnational

  • Can involve major shifts in:
  • Marketing, manufacturing, distribution, R&D
    • strategies and location
  • Financing
  • Human resource policies and practices
  • Management structures
  • Management information systems
  • Management compensation
evolving mentality international to transnational
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.
international corporate strategy model

Transnational

Global

High

International

exporter

Multidomestic

Low

High

Low

Need for localization

International Corporate Strategy Model

Need for global integration

integration responsiveness grid

Telecommunications

High

Razor

blades

Batteries

Consumer electronics

NEED FOR GLOBAL INTEGRATION

Insurance

Drink

Food

Detergent

Corrugated cardboard

Low

Low

High

NEED FOR NATIONAL RESPONSIVENESS

Integration-Responsiveness Grid
slide10
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.
a final word risk of globalization glaucoma
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

evolution of multinational organization structures
Evolution of Multinational Organization Structures
  • Hierarchical Structures
      • Export Department
      • International Division
      • Global structures

(Product / Geography / Function / Customer)

      • Matrix structures
  • Heterarchical Structures
multinational matrix structure

Function cost centres

Area profit centres

Business profit centres

Business 1

Business 2

Business 3

Business 4

Business Managers

Business 5

Business 6

Asia

Australia

Business 7

Cost centres

Inter America

Business 8

Europe

United States

Business 9

Cost centres

Mktg.

Mfg.

Res.

IS&D

Eval/

Cont.

Functional professionalism

Resource Managers

MultinationalMatrix Structure
slide14

HQ

S2

S1

S4

S3

H1

H2

H5

H4

H3

Multinational Hierarchy

Multinational Heterarchy

Hedlund; Bartlett & Ghoshal

multinational expansion strategies
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

the determinants of subsidiary roles and mandates
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?
early model of subsidiary roles mandates white poynter 1984
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.
organizing framework for subsidiary development

Head Office Assignment

Decision made by head office managers regarding the allocation of roles/activities to the subsidiary

Subsidiary’s Role

Measured in terms of the specific business, or elements of the business, which the subsidiary undertakes and for which it has responsibility

Subsidiary Choice

Decisions by subsidiary managers regarding the roles/activities undertaken by the subsidiary

Local Environment Determination

Influence of environmental factors on decisions taken by head office and/or subsidiary managers regarding the roles/activities undertaken by subsidiary

Organizing Framework for Subsidiary Development

Parent Company Devt

Internal Devt

Host Country Devt

unleash innovation in foreign subsidiaries
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