The Multinational Or Global Organization: MBA Report

The Geocentric Organization

 

The true multinational corporation has a uni-modal outlook. It recognizes environmental differences in different countries, but also realizes that many managerial methods and technical processes can be transmitted effectively to different countries.

 

In fact, it approaches the whole transferability question in an empirical way, utilizing centralized controls and uniform policies in strategic areas, butt only after a close examination of their true effects. It recognizes the fact that it can often learn much from host countries and is, therefore, a student as well as a teacher.

 

The genuine multinational corporation has also been called “geocentric” or cosmopolitan firm. If profitability is one of its key goals, it attempts to maximize returns in the course of time for the whole system,  Rather than overemphasizing profitability of its parent country operations. For example, if the parent country is the United States, and greater overall profitability on a global scale can be realized by cutting back U.S. operations or profits, the true multinational corporation would do so.

 

The multinational company generally provides for stock ownership in the parent company, if it clearly still has one, in the various countries in which it has operations, and other countries as well. Managers and other subsidiary employees are encouraged to obtain stock in the parent company. Each year, the annual stockholders meetings may be moved to a different country, just as many American corporations now move them from place to place in the United States.

 

Executive positions and other key jobs in the parent corporation, as well as abroad, are filled on the basis of merit and ability rather than nationality. Talent is recruited from around the globe. This helps the global success of the multinational corporations as it has managers suited to the environment.

 

The multinational corporation has a genuine global outlook, which emphasizes the need for comprehensive and integrated planning in conjunction with an effective system of strategic controls. It can be a powerful agency for regional and global economic unity, as well as a key instrument for providing progress. This organization can also help in bringing about higher living standards and peaceful coexistence. However, the structure of  most nations and the parochialism of most private citizens limit such roles.

 

Few international corporations qualify for true multinational status. Unilever, Royal Dutch Petroleum ( Shell) and Nestle headquarters in the United Kingdom, Holland and Switzerland respectively, clearly are leaders in this regard. Other companies which have operations in many parts of the world  can be described as international companies.

 

The Ethnocentric Organization

 

There are also large domestic corporations which have well structured foreign operations. They operate abroad but retain ownership and management, and usually view the world from the vantage point of their country of origin. They are bimodal in the sense that the parent company operations are not seen as elements of the multinational or global system, instead international activities are viewed as appendages  to domestic operations. They frequently insist within subsidiary operations, in the primacy of methods used at home and often even of the laws and values of the home country.

 

A basic fallacy such international companies fall for is that they assume that any methods which work at home can and will work abroad. Final decisions relating to international operations often rest with people primarily concerned with domestic matters, who cannot adequately take into account significant local environment differences. These kinds of international organizations are referred to as “ethnocentric” or “monocentric”.

 

The ethoncentric firm, although classified as a multinational and global firm is not in its purest sense a worldwide organization. There have been criticisms of the ethnocentric approach of taking the universal applicability of the home conditions and practices for granted. The management of an ethnocentric firm can therefore get away with meager inefficiencies and blunders by blaming the local conditions of the country in which they are operating in.

 

Another criticism which comes towards these companies is that they seem to have “tunnel” vision and the management in general cannot think on a scale that can justify them as managers of a global company. The managers of ethnocentric companies seem satisfied with expanding and polishing off the domestic operations of the company and only give a secondary status to worldwide activities which is very unlike a true multinational or global concern.

 

These firms can therefore be labeled as “International” organizations and not multinationals in the purest sense because they have operations in many parts of the world yet their approach to management is such that they have failed to emerge as multinational companies and contribute to economic development of the various host countries.

 

The Polycentric Organization

 

There are still other kinds of firms that combine some of the characteristics of multinationalism and internationalism. They regard domestic operations as separate and distinct from foreign activities, with coordination confined largely to areas in which domestic operations have strong interests. But they tend to by more sensitive to local conditions and traditions abroad. These organizations also respect local jurisdiction and national policies more than ethnocentric forms. They also make a greater effort to accommodate to the requirements and aspirations of host countries, and give their foreign affiliates more autonomy than do ethnocentric corporations. Local subsidiaries are also more likely to be run by local nationals. However, many do not provide solid central control key managerial areas. These organizations are commonly grouped as “polycentric”.

 

A common problem encountered by these companies, especially in their extreme form is that it tends to be sensitive to foreign environmental differences and significantly underestimates the extent to which methods which work at home can be transferred and utilized successfully abroad. It is not  as effective a change agent as is the multinational firm since it operates under the assumption that local managers usually know what is best for the subsidiary.

 

So, while these companies have broad based management and think along lines similar to those of the multinationals, their practices and practical operations tend to be influenced by the ethnocentric approach. Sometimes, these companies can sure and perform in environment where both geocentric and ethnocentric firms might face problems.

 

ENVIRONMENTAL FACTORS OR CONSTRAINTS

 

All the organizations discussed above have one common denominator, they must all face external environments that might or might not be conducive to their operations. These are uncontrollable factors or constraints which are very closely related to management productivity and efficiency.

 

These are essentially the “givens” within which forms and their management must operate in a specific country and they vary, often rarely, from county to country. While much of the management process is concerned with internal enterprise operations, managerial and firm performance depends on responding to factors outside the firm.. Firms both influence and are significantly influenced by the nature of their total environment.

 

A constraint can be defined to be a factor that circumscribes the opportunities for managerial action, sometimes very narrowly but usually fairly broadly. If the critical environmental constraints can be identified and isolated, it should be possible to alter the environment in order to improve the efficiency of firms in a particular country or industry. It may also be much easier in the national or political sense to alter broad environmental conditions rather than the internal affairs of the industry comprising numerous individual forms in order to obtain greater economic progress.

 

Environmental constraints can be divided into two broad spheres or categories,

1- National environmental constraints which involve domestic conditions in a given country.

2- International constraints which involve relationships and conditions among various countries.

NATIONAL CONSTRAINTS

Educational Constraints

 

Literacy levels in the country as well as in the industry. This also incorporates primary and secondary schooling as well as adult education. Specialized vocational and technical training and general secondary education is also an important indicator of this constraint. Next comes  the question of higher education. The percentage of the total population and those employed in the industry with post high school education, plus the types and quality of such education. The types and age groups of persons obtaining higher education.

 

Another important aspect in this regard could be special management development programs which are run on a country wide basis and not internally by productive enterprises. What is the general or dominate cultural attitude towards education and learning. What is the presumed desirability of knowledge in society. Finally, the all important question, does the education match with the requirements of industry and is the manpower thereby being produced effectively and productively channeled.

 

Sociological-Cultural Constraints

 

The general or dominant social attitude toward industrial and business manager of all sorts and the way these manager view their own jobs. How does the culture view their authority, responsibility and what are the perceptions of subordinate positions. The level to which  businesses, government agencies, labor unions, educational institutions and other relevant organization cooperate with each other in ways  conductive to industrial efficiency. The society’s views towards individual or collective achievement and productivity.

 

Also the various social classes existing in a society and the extent of opportunities for social class and individual mobility, both vertical and horizontal, in a given country, and the mean by which it can be achieved.

 

Other important social attitudes include the acquisition of wealth from different sources and how people perceive material gain and selfish interests. Also important  is the genera social and dominant individual attitude toward the use of rational, predictive techniques in solving various types of business, technical, economic and social problems.

 

Another important determinant of the business environment of a country is whether or not the taking of various types of personal, collective or rational risks is generally acceptable as well as the dominant attitude. Also the degree to which the risk taking tends to be a rational process in a particular country is very important. The general cultural responses toward a social change of any type which bear directly on industrial performance in a given country.

 

Political Legal Constraints

 

For business enterprises to function effectively, it is necessary that the executives are well aware of the relevant legal rules of the game. Quality, efficiency, and effectiveness of the legal structure in terms of general business law, labor law, tax law, and general law relevant to business. Degree of enforcement and reliability and dependability of the law enforcing agencies is also a crucial factor.

 

Impact of the country’s defense policy in industrial enterprise in terms of trading with potential enemies, purchasing policies, strategic industry development, labor resources competition and other matters which have an economic impact. These policies are also an important indicator of the country’s national priorities. The country could also be having a restrictive foreign policy which could hamper the individual enterprises ability by imposing trading restrictions, quotas, tariffs, customs, unions, foreign exchange rates, etc.

 

In third world countries particularly, political stability plays an important role in economic stability. Careful studies of the impact of political revolutions, changes in government regimes, political tensions and strongholds can help an alien company stay away from any unfavorable circumstances that might arise out of a careless blunder.

 

Economic Constraints

 

The basic economic system probably has the most direct effects on global companies in any particular region or country. The central banking system and the monetary policy are two of the most crucial factors in these context. The organization and operations of the central banking system, including the controls affecting commercial banks, the ability and willingness to control the money supply, the effectiveness of government policies regarding price stability, commercial band reserves, discounting credit controls and other external factors which the company comes across have to be considered.

 

The general policies concerning government expenditures, their timing, and their impact is also very important, Their might be some sectors the government might be favorably disposed towards and there might be other that it considers less important. The general level of budget deficits in the country, the balance of payments and total share of government expenditures in the GNP are important economic indicators.

 

Next comes the efficiency and effectiveness of the capital markets of that country. The size and role played by the stock and bond exchanges, investment and commercial banks, the credit availability and savings rate show whether the country is capital intense or labor intensive in its industries.

 

Other than these important issues, the total effective purchasing power within the country plus relevant export markets for different branches of industry making up the total industrial sector are also important. pieces of information. The infrastructure for economic growth such as availability and quality of power supplies, water, communications systems, transportation, public warehousing, logistics facilities, etc. are all crucial determinants of business success in an environment.

INTERNATIONAL CONSTRAINTS

 

Each country is sovereign, and each is able, within limits, to adjust its posture toward foreign countries. enterprises and individuals. It is common for a nation to  have special rules, laws and attitudes directed specifically at a particular foreign country or countries. These international constraints, often differ substantially between countries. They become especially important when we consider international companies and the transferability of managerial know-how and practices from one country and culture to another.

 

These constraints can be classified and discussed under the following major heads:-

 

Sociological Constraints

 

First of all comes the national ideology. The general collective ideology of a nation, as exemplified by their writing, speaking and other manifestations of a national point of view. Also important in this respect is the general attitude toward non-nationals and can be judged by the overt behavior of the individuals and the society.

 

For example, in Pakistan, we see that since the colonial days, people in our region have a very negative image of foreigners particularly Europeans. Our people believe that they are mostly exploiters and work only for their selfish interests. It is important for a multinational therefore to understand this common perception and take steps to dissociate themselves from this negative image.

 

Political Legal Constraints

 

A factor to keep in mind is the political viewpoints of existing governments as demonstrated by the dominant pattern of rule. The philosophies and manifestos of leading political parties and other movements in the political arena.

 

Next comes the very important issue of the relevant legal rules for foreign businesses. These are the state regulations applied only to the foreign enterprises and might sometimes include special discriminatory labor and tax legislation. Global organizations also have to look at the formal  obligations of the country to international groups and treaties. These might incorporate rules regarding copyright, postal, patent obligations, advertising ethics and other similar issues.

 

The country’s political alignment, such as socialist, capitalist or Islamic blocs. These blocs may have political , ideological or economic differences but they influence a country’s standing in the international community and its relationships with countries of the same bloc as well as those of the other blocs. These alignments demand explicit and implicit obligations from member countries.

 

Global companies operating subsidiaries in any particular country are faced with import and export restrictions on the raw materials they use as well as the finished product they produce. The formal legal rules controlling exports and imports, include tariffs, quotas, export duties, export restrictions, state taxes and subsidies to local manufacturers and producers.

 

In addition to these, there might be some other factors such as international investment restrictions in some countries where foreign investment is not looked at favorably and is discouraged. Then there might be restrictions on remittance of profits of local operations to foreign banks and finally there could be exchange control by the local government whereby conversion of local currency into foreign currencies or gold is prohibited.

 

Economic Constraints

 

The economic condition of a country with respect to the international community is indicated by the balance of payments account. The general state of the balance of payments account including deficits of surpluses on current account are a fair measure of the country’s business acumen as a whole.

 

Aside from this, the flows of capital into and out of the country show the level of investor confidence. The capital flow, both into and out of the country including long term and short term investments determine to some extent the GNP. Also tendencies for chronic budget deficits, surpluses and inflation should be monitored by the aware global organization.

 

Another important factor is the international trade pattern and the role played by the host country in it. The usual flows of exports and imports to and from the country. Patterns of commodities and services traded by countries and regions. Finally, the company should also keep track of the obligations and responsibilities of the country toward international organizations such as the World Bank and the IMF.

 

MANAGEMENT OF MULTINATIONAL CORPORATIONS

The multinational or global corporation can be divided as a three element system in which each element functions within a different set of environmental conditions as described above. There is the headquarters operations of the international firm. Then there is the subsidiary operations in the local environment of the host country. The third and final element contains the linking deices which connect the center to its tentacles.

 

Both the subsidiary and head office enrollments concern specific countries and people contained therein. The special environment surrounding the multinational, however, relates to the interaction between the subsidiaries and the center. We refer to this as the “multinational environment” or the “corporate culture” for that company.

 

The multinational or global company, I am going to look at now is based on the geocentric model and includes all the characteristics of a truly international firm which idealizes to maximize output and efficiency not regarding any geographical boundaries. That also means that such companies do not restrict aggressive and create ideas to the country of origin only but they believe that the world is their playground.

 

Diversity in Cultures

 

The most critical aspects of the environment surrounding multinational linkages derive from the diversity of the warring cultures in which the international corporation operate. They are generally the most difficult to deal with because they introduce complex sets of environmental conditions which limit the ability of the corporation to apply uniform policies, practices, methods and controls, or  to establish uniform approaches  and operating patterns must be developed to deal with the diverse nature of the multinational corporation.

 

The diversity of cultures also plays a role in shaping the environment surrounding multinational linkages. Because the international executive may have to deal with many different cultures, most or all of which may have a different moral system, he may find it difficult to establish the rapport he needs for building satisfactory personal relationships with subsidiary and affiliate personnel.

 

Language barriers enhance this gap. Managerial styles often come into conflict in international corporations, much more frequently than is usual in domestic operations. Another major question relating to cultural diversity is that of mobility of individuals. There are cultural barriers to such mobility. The peoples of many countries have developed strong animosities towards other nationalities. These tensions may be racial, ethnic or religious.

The Management Approach

 

For the management of a true multinational, the company headquarters should follow the decentralized approach. They should make sure that policy guidelines are as broad as possible, This allows local management the greatest flexibility in dealing with the prevailing market conditions and social norms in that country. Since timeliness is important, local managers must have the authority to make most of the important day to day decisions.

 

Planning, Goal Setting and Policy Formulation

 

Perhaps the most important aspects that multinationals pay attention to are planning and goal setting. The key thing to keep in mind while making these decisions is flexibility. Plans which are not versatile enough to deal with the complexity of diverse environmental conditions give rise to enormous pressures for the local managers.

 

The parent company must formulate a master plan for global operations and make strategic policy decisions with regard to basic product lines, types of business activities to pursue, diffusion of international markets, areas of production specialization, major capital expenditures, the staffing of key positions, and perhaps a limited number of other areas deemed truly critical. The broad objectifies and policies of the corporation as a whole should deal with such things as protection of the company’s reputation, the global image it wishes to have, and the minimum levels of profitability and growth and related maximum risks that the firm is willing to accept in any of its operations during a period of time, typically at least fife to ten years.

 

Once headquarters has made known the risks it is willing to assume on a given project, and has determined the minimum level of profitability acceptable during a certain period of time, subsidiary management should be given considerable freedom to pursue its own courses of action.

 

Integrated global planning cannot be done on a short term basis. Many worthwhile international projects take years to develop and mature. Plans should include projections of expected performance in key areas, as well as the basic role of each foreign subsidiary during the ensuing fife to ten years, taking into account existing and anticipated critical environmental conditions. Contingency plans can be formulated in order to alleviate this difficulty. Such plans can outline alternative courses of action and reduce lead times and costs as unanticipated conditions arise.

 

A common problem which arises in the marketing area in the multinational environment is the use of uniform methods of distribution. In some countries, for example, distribution channels are weak and company owned and operated channels may prove the best. In other countries, the connections of an established distributor may be utilized by the company.

Organization and Control

 

Financial controls placed on a foreign subsidiary by the parent company are usually the most extensive. They often hinder the subsidiary’s operating flexibility. In general, many of the policies of international corporations are formulated not really as policies to guide foreign operations but rather as controls. Controls themselves become the end and not the means in these cases.

 

Effective controls can also have considerable positive results in that they compel people to give more serious attention to their plans, proposals, and actions. Yet, although rigid in some areas, many parent companies are lax in key sectors which are necessary for effective control and decision making. Also, controls should focus on the causes of major deviations and should not be cumbersome with respect to minor differences and aberrations.

 

Domestic companies which have multiple product lines and operations in many parts of the country have difficulty in devising optimum organization structures. The best managed firms continually seek improvement by experimenting with and modifying their organizations in response to changing conditions.

 

The organizational problem for a multinational corporation is more complex. It must effectively balance and integrate geographical operations with  functional expertise and product line considerations on a global basis. Line and functional authority and related control must still be exerted by the parent company, and possibly domestic staff and service units. This whole problem is complicated by distance, diversity, and degree considerations.

 

In well managed multinational corporations, some centralized control, both line and functional, and staff support at the parent level itself, is still provided in some critical areas such as research and development, financial objectives etc. Specific product lines are often associated with product managers or liaison persons who serve as key information centers with regard to all significant aspects of the products for which they are responsible.

 

Although some multinational corporations do an impressive job of designing relatively effective and efficient organizational structures, new organizational concepts are clearly needed in international business. This will demand both creativity and experimentation. The best way in many cases to organize is not by geography, which tends to lump together diverse countries, but to organize on the basis of similar levels of economic development, environmental conditions, and possibly the size of the market.

 

Staffing and Managerial Motivation

 

Although it has become less common for multinational firms to assign their lesser executives to overseas operations, a number of serious problems still exist tin the assignment of foreign nationals to key foreign subsidiaries. Too often, managers with limited functional backgrounds and experience are sent to other countries to broaden their horizons.

 

Not only do these managers lack experience but they frequently lack the skills  and abilities to train subordinates. They are also usually not encouraged because they don’t get the staff support that they are accustomed to back home.

 

The best managers went abroad have broad experience and proven training ability. Most have also spent considerable time familiarizing themselves and their families with the local environment before they take over operations there. A number of deices can be used by the firm to achieve such familiarization in addition to  informal chats at the home office or special courses and training programs in the home country. This may include temporarily assigning the person to a staff job at headquarters which relates to the operations of  the country to which he is to be assigned, sending him on familiarization trips abroad before he takes over, and hawing him work for some time with the manager or specialist whose job he is going to take over.

 

Another reason for the lack of management motivation in some of the companies arises from the lack of continuity in top management at the subsidiary level. Frequent changes in top management also ten to be unnerving for local personnel. A succession of key executives may make it difficult for local nationals to adjust to the different types of personalities and leadership styles that they might possess.

 

International firms frequently gibe inadequate attention to the numerous role conflicts which confront the top managers of their foreign companies. They must somehow blend parent company interests with those of the subsidiary, as well as the national interests of the parent company nation to that of the host nation.

 

Few international companies have come up with reward systems for key executives operating in foreign subsidiaries which are effectively tied with the long ranging corporate goals of the parent company. The potential benefits that can be derived from such a system in the international sphere of business will greatly outweigh its costs.

Managerial Change  and Adaptation

 

It can be seen that multinationals would be much better off today if they had focused much earlier on improving the managerial process rather than waiting for strong environmental pressures to force them to do so. Many companies feel they have accomplished a  great deal if they succeed in introducing relatively minor changes in the management process.

 

The successful transference of managerial skill and practice from a more developed to a less developed country requires considerable adjustment in basic operating patterns. An accommodation must be made to the local environment, not only to deal with now physical factors, but also because the accomplishment of objects requires motivating and selling ideas to people whose moral and ethical standards differ from those of the parent company.

 

Conversely, the nature of business operations within a developing country like Pakistan changes with the entry and performance of Western companies. As a result of the competition these firms offer and the examples they set, the local business environment is altered, and indigenous firms are pressured to change, although they often do so slowly.

 

Consequently, economic growth, as well as the operation of successful enterprises and corporations in a developing country like Pakistan requires on the one hand, a break from the old patterns, yet preserving our heritage and tradition and on the other hand adapting modern and suitable management practices favorable to our conditions.

 

EXECUTIVE SUMMARY

 

Looking into the future, it becomes increasingly apparent that the growth of international business and the thrust for accelerated economic development among the developing nations are two  of the major factors which will link the corporate world of the future.

 

As companies continue to expand, and as countries press for continued economic development, the pressures for maximum utilization of resources will continue to mount. This will cause the future organizations to expand their activities globally and combat the different cultures, societies and races they encounter in different parts of the world in search of maximum output and therefore maximum efficiency.

 

The changing face of the corporate world entails a change in management attitudes worldwide. Managers need to think broadly now more than ever before. We can learn from the mistakes of others as well as there experiments but in the long run it is the country itself which determines the best means, resources and methods of production. It is the local people who will rise to be the managers and they are better equipped to handle, lead and motivate their fellow men in the field of enterprise and economics.

 

Thus we are facing an era of change and flexibility. The manager of tomorrow will need more comparative analysis skills than his predecessors because he will have a multitude of options available to him. It will be the dominant social norms and the ego-political conditions that will influence his decision making more than anything else.

 

The role of the multinational or the global corporation will be to bring together the finest talent regardless of region, race and religion, to indulge in productive enterprise. The benefits that will arise from this will be manifold, the company itself will profit, there will be greater opportunities and exposure for the executives and the countries can benefit from one anther’s management practices which cannot become globalized until societies and people with distinct norms, moral and tastes exist.