MANAGING THE MULTINATIONAL CORPORATION

Professor Stephen Young Strathclyde International Business Unit Strathclyde Business School 7th May 2004

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)

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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.

Whats 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.

Whats 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

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
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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 Need for global integration International exporter Low Low

Transnational

Multidomestic

High Need for localization

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Integration-Responsiveness Grid
NEED FOR GLOBAL INTEGRATION

High

Telecommunications

Low

Corrugated cardboard Low NEED FOR NATIONAL RESPONSIVENESS

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High

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.

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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

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Multinational Matrix Structure

Business 1 Business Managers Business 2 Business 3 Business 4

Function cost centres

Business 5 Business 6 Business 7 Business 8 Business 9

Cost centres

Asia Australia Inter America Europe United States

Cost centres
Mktg. Mfg. Res. IS&D Eval/ Cont.

Functional professionalism Resource Managers

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Multinational Hierarchy

HQ

S1

S2

S3

S4

Multinational Heterarchy H1 H5 H2

H4

H3
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Hedlund; Bartlett & Ghoshal

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

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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.

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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 Subsidiarys 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
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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