Post on 16-Nov-2014
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MULTINATIONAL CORPORATIONS
Module - 6
Objectives of the module
Multinational Corporations
Organization , design and structures
Head quarters and subsidiary relations in multinational corporations
Foreign capital : Need
Sustaining a high level of investment The technological gap Exploitation of natural resources Undertaking the initial risk Development of basic economic
infrastructure The Foreign exchange gap
This foreign capital is generated by private participation of foreign players or by allowing MNCs in the country or FDIs.
MNC
A corporation that has its facilities and other assets in at least one country other than its home country. Such companies have offices and/or factories in different countries and usually have a centralized head office where they co-ordinate global management. Very large multinationals have budgets that exceed those of many small countries.
Sometimes referred to as a "transnational corporation".
Nearly all major multinationals are either American, Japanese or Western European, such as Nike, Coca-Cola, Wal-Mart, AOL, Toshiba, Honda and BMW.
Advocates of multinationals say they create jobs and wealth and improve technology in countries that are in need of such development.
On the other hand, critics say multinationals can have undue political influence over governments, can exploit developing nations as well as create job losses in their own home countries.
Multinational Corporations
Dynamics of economic liberalization
Led to expansion and growth of MNCs
Acc. To World Investment Report 1997 there were 45,000 MNCs with some 280,000 affiliates
Acc. To World Investment Report 2002 there were about 65,000 MNCs with some 8.5 lacs foreign affiliates
Developed countries account for only 12 % of these
China host to more than 3.5 lacs of affiliates
Three-fourth of them in developing countries
Indian Scenario
More than 1400 in India………………….
Organization Structure
Defining Organizational Structure
Vertical Differentiation Arguments for Centralization
Arguments for Decentralization Horizontal Differentiation International Division Worldwide Area Structure
Strategic Business UnitProduct Division StructureMatrix Structure
Network Structure.
Organizational Architecture
Totality of a firm’s organization, including firm’s formal organization structure, control systems & incentives, organizational culture, processes & people
Three conditions need to be fulfilled for successful architecture: The different elements of firm’s architecture
should be internally consistent Must fit the strategy of the firm Strategy & architecture must be fit with
competitive conditions in the market
Organization Structure
I. The formal division of the organization into subunits such as product divisions, national operations, and functions (Horizontal differentiation)
II. The location of decision making responsibilities within that structure (centralized or decentralized) – Vertical Differentiation
III. The establishment of integrating mechanisms to coordinate the activities of subunits including cross-functional teams and or pan-regional committees – integrating mechanisms
Vertical Differentiation
VD determines where in its hierarchy the decision making power is concentrated
E.g., Are production, marketing & finance decisions are centralized to the top-level managers or decentralized to low level managers
Let’s discuss on arguments for centralization and decentralization
Arguments for Centralization1. Centralization can facilitate coordination
2. Centralization can help ensure that decisions are consistent with organizational objectives
3. Centralization can give top-managers the means to bring about needed organizational changes
4. Centralization can avoid the duplication of activities that occurs when similar activities are conducted by various subunits within the organization
Arguments for decentralization1. Top mgmt. can become overburdened
when decision making authority is centralized & can result in poor decision making
2. Motivational research favors decentralization
3. Decentralization permits greater flexibility4. Decentralization can result in better
decisions5. Decentralization can increase control
Strategy & Centralization in International Business The choice between centralization &
decentralization
Centralize some decisions & decentralize others, depending upon the type of decisions & the firm’s strategy
Firms pursuing Global Strategy They must decide how to disperse the various
value creating activities around the globe so location and experience economies can be realized
The head office must make decision about where to locate R&D office, production & marketing & so on
The globally dispersed web of value creation activities that facilitates a global strategy must be coordinated. This creates pressure for centralizing some operation decisions
In contrast, the emphasis on local responsiveness in multi-domestic firms creates strong pressures for decentralizing operating decisions to foreign subsidiaries
International firms tend to centralize their core competencies and to decentralize other decisions to foreign subsidiaries
Horizontal Differentiation
How the firm decides to divide itself into subunits
May be based upon function, type of business, or geographical area
The structure of Domestic firm
Owner / ManagerOwner / Manager
Owner/Manager makes all major Owner/Manager makes all major decisions directly and monitors all decisions directly and monitors all activitiesactivities
Difficult to maintain this structure as Difficult to maintain this structure as the firm grows in size and the firm grows in size and complexitycomplexity
As firm grows, the demand of management become too great for one individual or a small team to handle
At this point the organization is split into functions reflecting the firm’s value creation activities – production, marketing, R & D, sales
Branch Branch unit 2unit 2
Branch Branch unit 1unit 1
Branch Branch unit 3unit 3
Branch Branch Unit 4Unit 4
Branch Branch Unit 5Unit 5
Branch Branch Unit 5Unit 5
Functional StructureFunctional Structure
Top Management Top Management LevelLevel
ManufacturingManufacturingPurchasingPurchasing FinanceFinance AdvertisingAdvertisingMarketingMarketing
Further, horizontal differentiation may be required if the firm significantly diversifies its product offerings
Problems of coordination & control arise when different business areas are to be managed within the framework of a functional structure
At this stage most firms switch to a product divisional structure
With a product division structure is division is responsible for a distinct product line
Dept. Dept. ManufacManufacturingturing
Dept. Dept. PurchaPurchasingsing
Dept. Dept. MarketinMarketingg
Dept. Dept. FinanceFinance
Dept. Dept. ProductProduct
ionion
Dept. Dept. advertiadverti
singsing
Product Divisional Structure Product Divisional Structure StructureStructureHeadquartersHeadquarters
Division Division Product Line BProduct Line B
Division-Product Division-Product Line ALine A
Division Product Division Product Line CLine C
International Divisional International Divisional Structure Structure
HeadquartersHeadquarters
Domestic Domestic Division –GM Division –GM Product Line Product Line
BB
Domestic Domestic Division- GMDivision- GM
Product Line AProduct Line A
Domestic Domestic Division GM Division GM
Product Line CcProduct Line Cc
International International DivisionDivision
GMGM
Country 1Country 1GMGM
Product A,B,CProduct A,B,C
Country 2Country 2GMGM
Product A,B , CProduct A,B , C
Worldwide Area Structure Worldwide Area Structure
MultinationalMultinationalHeadquartersHeadquartersMultinationalMultinationalHeadquartersHeadquarters
North AmericanNorth American AreaArea
North AmericanNorth American AreaArea
Latin American Latin American AreaArea
Latin American Latin American AreaArea
Middle EastMiddle East areaarea
Middle EastMiddle East areaarea Far East AreaFar East AreaFar East AreaFar East Area
European AreaEuropean AreaEuropean AreaEuropean Area Middle EasternMiddle EasternAfrican AreaAfrican Area
Middle EasternMiddle EasternAfrican AreaAfrican Area
Worldwide Product Division Worldwide Product Division Structure Structure
MultinationalMultinationalHeadquartersHeadquartersMultinationalMultinationalHeadquartersHeadquarters
WorldwideWorldwideProductsProductsDivision ADivision A
WorldwideWorldwideProductsProductsDivision ADivision A
WorldwideWorldwideProductsProductsDivision BDivision B
WorldwideWorldwideProductsProductsDivision BDivision B
WorldwideWorldwideProductsProductsDivision EDivision E
WorldwideWorldwideProductsProductsDivision EDivision E
WorldwideWorldwideProductsProducts
Division DDivision D
WorldwideWorldwideProductsProducts
Division DDivision D
WorldwideWorldwideProductsProductsDivision FDivision F
WorldwideWorldwideProductsProductsDivision FDivision F
WorldwideWorldwideProductsProductsDivision CDivision C
WorldwideWorldwideProductsProductsDivision CDivision C
Area 1Area 1 DomesticDomestic
Area 1Area 1 DomesticDomestic
Area 2Area 2InternationalInternational
Area 2Area 2InternationalInternational
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Global Matrix Structure
CanadianDivision
Individual business division
Automobile product group
Chemicals product group
Consumer goodsproduct group
North American Area
United StatesDivision
Mexican Division
European Area
British Division
French Division
Pacific Area
JapaneseDivision
TaiwanDivision
Area Specialists
Martha Stewart
6 - 6 - 2929
Magazines
Books
Internet
Radio/ Newspaper
Network/ Cable TV
K-mart Line
Sears Paint
Catalog Line
Specialty/ Retailing
Cooking
Entertainment
Weddings
Crafts
Gardening
Home
Holidays
Children
Media Group Merchandising Group
Matrix Organization at
Relationships between headquarters & subsidiaries
Few subsidiaries can be directly managed by an MNC If the number is more, it has to make a permanent
structural relationship between itself & its subsidiaries
Since, MNC supplies various resources & inputs to its subsidiaries and receives inputs from the subsidiaries
This activity needs to be controlled & coordinated IT provide on line facility to co-ordinate & control the
activities
Different aspects of relationship
Information Sharing Resource Sharing Decisions flow Co-ordination of activities Control of operations Strategy Formulations