Chapter 5: International Agreements, Organizations, and Policies
5.2 CORPORATE GLOBALIZATION
Pg 150-156
Over the past few decades, there has been a growing trend toward families of
interrelated and cooperating companies operating throughout the world. As a company
becomes more international borders and nationality becomes less important.
An example of a multinational collaboration is the Airbus. The production of airbus
commercial airliners spans several countries in Europe and draws upon a global
network of suppliers.
Some countries hold more economic power than some countries whose borders they
operate. An indicator of the economic power a country holds is the amount of wealth
that each type of economy generates. This wealth is measured by comparing a
corporation’s sales and a country’s gross domestic product.
Multinational Companies
MNC’s operate worldwide on a borderless basis while still observing national
regulations and policies in the countries where they operate.
The global influence of these economies is illustrated by their dominance in the
following areas: oil and gasoline, hydroelectric and nuclear plants, minerals,
construction of transportation crafts, lumber and agriculture.
The MNC’s account for more than 70 percent of the world’s trade. They are mainly
based in the northern hemisphere and operate on multinational agreements established
among countries to regulate international trade.
Multinational companies operate globally in one of three ways:
Type of MNC
Ethnocentric
Polycentric
Geocentric
(uncommon)
Description
-Treats international business is
the same way as national.
-Main control of foreign
operations is done from a head
office
-Foreign operations ran from
hubs in different countries
- Takes into consideration
cultural differences in business
-Strives for total integration of
global operations
-Takes the multinational
approach
Example
Coca- Cola’s headquarters in
Atlanta, Georgia control most of
the company’s foreign affairs
3M Corporation- 35, 00 of its
employees are positioned in
countries around the world
Colgate- Palmolive
Past trade only in a small region
Today Huge success in international trade
Different regions play specific roles in creating/ selling a product. It is common for
multiple countries to be involved in making a single end- product.
Triad- The unity between the USA, EU, and Japan. These three economies joined
together create a huge power in the business world. Because their economies are so
strong, it is hard for other countries to compete against them. To stay relevant, other
countries must create freer trade agreements and lower their standards to give them an
advantage against the Triad.
Challenges to a Multinational Organization
As these huge multinational organizations spread their influence around the world, they
bring with them money, technology, know-how and skills. When a corporation invests in
another country, there benefits are usually evident in jobs, the transfer of technology
and training. The three regions in the Triad trend to work to the advantage of countries
within their region, says Rugman, rather than encouraging true globalization by
integrating other nations. The challenge to Canadian companies may now be to develop
global customers beyond the Triad. At the moment, the great majority of our exports
travel only as far as the United States.
According to Rugman, it is also important for multinationals to be accountable and
responsible for their actions. This means the jobs they create, as well as the technology,
profits, and skills that they access in a host country, should stay in that country.
Rugman points out another drawback to the way multinationals sometimes do business.
Multinationals are creating global production systems, with parts, component, and
assembly located in different countries. However, by deciding which jobs will be located
in which parts of the world, they are creating new international divisions of labor.
Global Organizational Structure
The international marketplace is very unpredictable. It is different from the familiar
comfort for domestic markets and customers. The stakes are high. International
business experts agree that the question to ask is not “if” something will go wrong, but
“when.” Caution along with good planning and organization, can help to minimize global
problems.
Large companies tend to be like large ships – it takes a long time to maneuver or
change course. Therefore, it takes longer for them to analyze information and
alternatives, and to maneuver around barriers and obstacles. This gives smaller, more
responsive companies an actual advantage in the international marketplace. When this
advantage is combined with benefits of technology, smaller companies can be very
competitive with the bigger ones.
Companies that are expanding internationally require an organizational structure that
will accommodate their wider vision.
Separate International Divisions
International staff is isolated and function separately from the company. The
international department has its own systems for sales, marketing, customer support,
and logistics. This department handles all products going to all foreign markets. This
structure can be quite efficient but has the potential disadvantage of requiring special
plans for communication with the main operations of the company, which can cause
delays.
Functional Divisions
The company maintains separate departments in sales, accounting, logistics, and
research and development, with one or more individuals in each department
responsible for handling international activities. This structure assures that employees
work in their assigned professional or technical specialty and capacity.
Product Division
International and domestic activities are separated by product grouping. In this model,
the division usually shares support or staff functions, such as accounting, with other
divisions.
Matrix Organization
Though international staff may be separated according to function, product, or market
responsibility, they are reporting flows across all departments. Matrix management
allows more meaningful, more frequent, and more informal communication among staff
and departments, but it is difficult to implement. Companies can choose among several
possible structure that will suit their needs, size, and markets.