Chapter 5: International Agreements,
Organizations, and Policies
5.2 CORPORATE GLOBALIZATION
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 to create a superpower
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,
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.
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 - 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, their 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 structures that
will suit their needs, size, and markets.