International Structure & Strategy in

MNCs
Internationalization of organizations - 2

Daminda Geeganage
DipM(UK), MCIM(UK), MSLIM(SL), PgdEcon(Col), MEcon(Col), MIOD(SL), MCPM(SL

Introduction
As discussed in Internationalizations of
Organization 1 there are many factors
that motivates organizations to go
international
Some key influences to the strategy of
MNCs can be identifies as cultural
diversities, pressure to achieve economies
of scale as industries are very competitive
and need to respond to the high volatility
of international and local market conditions

Types of firms

Multinational
Global Firms
International Firms
Transnational Firms

Multinational Firms
Multinationalcompanies has locations or facilities in
multiple countries, but each location functions in its own
way, essentially as its own entity
Multinationalcompanies cross the FDI threshold. They
invest directly in foreign assets, whether it's a lease
contract on a building to house service operations, a
plant on foreign soil, or a foreign marketing campaign.
Generally, though. Multinational companies, however,
have FDI only in a limited number of countries, and they
do not attempt to homogenize their product offering
throughout the countries they operate in
They focus much more on being responsive to local
preferences than a global company would.

 MNC invest capital in many countries

and gets the dividends
Less operational controls
Strategic direction is centralized
HC 1

HQ

HC3

HC 2

 Little influence on HRM policy &

practices by HQ
Decision making on issue to do with
employment practices are highly
decentralized. Unlikely expatriate
mangers take decisions and left for
local managers

Global Firms
Globalcompanies have investments in many
countries but maintain a strong headquarters in
one, usually their home country.
Global firms evolve after 1950s due to rapid
expansion on transport and technology
Their specialty is economies of scale, and they'll
homogenize products as much as the market will
allow in order to keep costs low.
Their marketing campaigns often span the globe
with one message (albeit in different languages)
in an attempt to smooth out differences in local
tastes and preferences.

 Tight financial controls and invest

capital in many countries and gets
the dividends
Tight operational controls and
strategic
decision
making
is
HC
HC
centralized
HQ

HC

 Parent company influence in HRM

practices
This can be in form of expatriate
enforce policies of HQ to HC
Deploy number of people in different
assignments in the world over
subsidiaries

International Firms
Internationalcompanies have less or no
foreign direct investments (FDI) and make
their product or service only in their home
country. In other words, they're exporters
and importers
Local management can vary the product
and services according to the market
requirement
New technology and practices can be
transferred across boarders faster

 Financial knowledge flows

Medium operational controls
Strategic direction guided by center
HC

HC

HQ

HC

 Centrally developed innovations has

implication in HR in foreign
subsidiaries
Managers are expected to transfer
expertise knowledge to all
employees
Unlike in global firm, mangers are
less likely to be enforcers of
corporate policy and key contact
point between HQ and subsidiary

Transnational Firms
Transnationalcompanies are often very
complex and extremely difficult to manage.
They invest directly in many countries and
experience strong pressures both for cost
reduction and local responsiveness.
These companies may have a global
headquarters
But they also distribute decision-making power
to various national headquarters, and they have
dedicated R&D activities for different national
markets.

 Large flows of people, resources and

knowledge across interdependent
units
Coordinated through
shared decision
HC
making
HC
HC
HQ
HC

HC
HC

 Transnational organization plays major role in

international HRM
Delegation of decision making for appropriate
units and authorities
Geographical dispersion of key functions
across units in different countries
De bureaucratization of forma procedures
De- layering of organizational
Differentiation of work, responsibilities, and
authorities across network subsidiaries

Importance of Organizational
Politics in MNCs
In developing strategy for MNCs micro politics
are important to consider
Firms comprise with groups that they are with
own goals and priorities
Moreover this groups possesses some resources
of value to others in organization
In this way, strategies emerge as a result of
bargaining and compromise between the groups
of organizational actors and consequently,
strategies and trends evolved slowly

 Scholars like Ghoshal and Bartlett explain the

role of organizational politics, explain internal
workings of multinational organizations,
development of strategies in IHRM and its
importance for all MNCs
One such political tension experience between
the managers of the corporate HQ and those
who in different subsidiaries
The former group may seek to advance their
own position by developing own policies, while
latter may strive maximize their autonomy.

 Example of political tension between

HQ and subsidiary
French subsidiary of British
multinational and
Japanese multinational in British refer pp 87-88
It is important to consider integrated
network which appear to be formed
by many multinationals

The Embeddedness of
Strategy
Ghoshal and Bartlett express that the firms
strategy firmly embedded in its economic and
social context in identifying firms
administrative heritage ; which they further
define as a companys existing organizational
capabilities that are shaped by various
historical and structural factors.
Administrative heritage; organizational
captive of past stems from some factors
internal to the organization, such as role of
founders and leader played in the past

 The country of origin plays major

role and important in shaping the
ways it operates at the international
levels; national influence.
The distinctiveness of National
Business System, despite the current
globalization, matters because most
multinational organizations are
rooted firmly in their original country

Comparison of this types of

firms
Students are required to do this

 Further Reading
Almond,P. and Ferner,A.(eds) (2006)
American Multinational in Europe
Dicken, P (2007) Global Shift

Thank you !!!