MANAGING THE MULTINATIONAL
CORPORATION
Professor Stephen Young
Strathclyde International Business Unit
Strathclyde Business School
7th May 2004
1
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)
2
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.
3
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.
4
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.
5
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
6
Evolving Mentality: International to
Transnational
• International Perspective: Domestic company
with foreign appendages; opportunistic FDI.
• Multinational perspective: Overseas markets
important; managed as a federation of quasiautonomous subsidiaries.
• Global Perspective: World viewed as a single unit
of analysis.
• Transnational Perspective: Respond to global and
host country pressures simultaneously.
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International Corporate Strategy Model
High
Global
Transnational
International
exporter
Multidomestic
Need for
global
integration
Low
High
Low
Need for localization
8
NEED FOR GLOBAL INTEGRATION
Integration-Responsiveness Grid
Telecommunications
High
Low
Corrugated cardboard
Low
High
NEED FOR NATIONAL RESPONSIVENESS
9
Wal-Mart: Key to Global Success
Presentation 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.
10
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
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Evolution of Multinational Organization
Structures
• Hierarchical Structures
– Export Department
– International Division
– Global structures
(Product / Geography / Function / Customer)
– Matrix structures
• Heterarchical Structures
12
Multinational
Matrix
Structure
Function cost centres
Business Managers
Business 1
Business 2
Business 3
Business 4
Business 5
Business 6
Business 7
Business 8
Asia
Australia
Inter America
Europe
United States
Cost centres
Business 9
Cost centres
Mktg.
Mfg.
Res.
IS&D
Eval/
Cont.
Functional professionalism
Resource Managers
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Multinational Hierarchy
HQ
S1
S2
S4
S3
Multinational Heterarchy
H1
H2
H4
H3
H5
Hedlund; Bartlett & Ghoshal
14
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
15
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?
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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.
17
Organizing Framework for Subsidiary
Development
Parent Company Devt
Head Office Assignment
Decision made by head office
managers regarding the
allocation of roles/activities to
the subsidiary
Internal Devt
Subsidiary Choice
Decisions by subsidiary
managers regarding the
roles/activities undertaken by
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
Host Country Devt
Local Environment
Determination
Influence of environmental
factors on decisions taken by
head office and/or subsidiary
managers regarding the
roles/activities undertaken by
subsidiary
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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
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