mnc

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Management

Prepared By:

Hannah-Jean Dias 3374932 Insiya Lokhandwala 3531168 Papia Siddique 3540285 Emirhan Sanli 3382606 Huma Shahid 3538394

Submitted To:

Ms. Conchita FonsecaProfessor, College of Undergraduate Studies

University of Wollongong in Dubai

Date: 2nd April 2009

Table of Contents

1 .0 Executive Summary

2 .0 Introduction

3 .0 Concept of Multi-National Corporations

4 .0 Issues and Challenges

5 .0 Multi-Domestic Corporation


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7 .0 Global Company


9 .0 Transnational Company


11 .0 Born Globals


13 .0 Micro-National Corporations


15 .0 Perspectives in Multi-National Corporations

16 .0 Ethnocentric approach

17 .0 Polycentric approach

18 .0 Geocentric approach

19 .0 Regiocentric approach

20 .0 Global Strategy Viewpoint

21 .0 Real Life Examples

22 .0 Conclusion

23 .0 Reference List

1.0 Executive Summary

This report is written and compiled by Hannah-Jean Dias, Emirhan Sanli, Papia

Siddique, Insiya Lokhandwala and Huma Shahid. The report addresses the issues and

challenges encountered by Multi-National Corporations. Multi-national corporations

are operated on the basis of different perspectives. The report elucidates the various

perspectives which could be integrated by corporations. Moreover it exemplifies the

different types of Multi-national corporations. Furthermore, it provides a description



of real life issues faced by well known companies along with the managerial decisions

taken by corporations to nullify the effect of their issues and deal with their

challenges. Therefore this report has been written to alert the readers of the various

possible issues which a multi-national corporation could face and the list of

challenges with the various strategies innovative minds bring forward to control

situations and prosper.

2.0 INTRODUCTION

A Multi-national Corporation is a corporation whose assets and facilities are found

to be situated in at least one country other than the home country. These countries

have offices or factories in different countries A Multi-national Corporation is

therefore very large. The organization structure is essential for a Multi-national

Corporation which is amended slightly on account of inflexible variations found in

other countries. Additionally a Multi-national Corporation can adopt various

perspectives like ethnocentric, regiocentric, polycentric and geocentric for its

establishment. There are several types of Multi-national corporations such as

Multidomestic Corporation, Global Company, Transnational, Born Globals and

Micro-Multi Nationals. A multi-national corporation has a head office which is

usually found in home countries which is centralized and is responsible for global

management. A multi-national corporation cannot operate without a purpose.

Managerial functions provide a direction to Multinational corporations to handle

their purpose i.e. it allows accurate planning for attaining the goals, provides tips on

organizing the knowledge, employees, ideas and the wide range of work activities;

which further suggests the strategies to be involved therein. Moreover managerial

functions allocate the role of leadership amongst the leaders within the organization;

providing them the various ideas and techniques they require in order to handle their

subordinates. Furthermore managerial functions provide the idea of controlling the

entire corporation. This elucidates that Multinational corporations are very important

from the view point of Management as Management possesses a key role in its

operation.

3.0 CONCEPT OF MULTINATIONAL CORPORATIONS



When a company wants to establish an organization, they have to decide which form

of a global organization to run. This would include the Multinational Corporations

(MNC), Multidomestic Corporation, Global Company, Transnational Corporation

(TNC) and the Born Globals.

The first type is the ‘Multinational Corporations’ (MNC) which is a large corporation

which has different offices and operations in other countries and are coordinated and

managed by the head office which is usually based in the home country (Robbins,

2005). This would be achieved sometimes through Joint Ventures and Strategic

Alliances. On account of this some companies have found that it had been successful

when establishing their company as a MNC. They had found an improvement with

trade balance, decrease in unemployment and increasing demand for business service

(Lowengart, 2001).Corporations such as Honda, Nike and Coca-Cola would be

categorized as a Multinational Corporation.

4.0 ISSUES AND CHALLENGES

The issues and challenges they mainly face would be regarding their association with

the Third world countries. Even though they have had cooperation with the

government of the host company with regards to capital inflow and improves the

payment balances it would face problems with regard to price speculation, advantages

with the exchange rates and allegations of bribery and corruption (Needle, 2004).

These third world countries would be conquered by companies whose main aim was

to maximize profit rather than help and assist with the countries economy and the

social needs of the citizens (Leisinger, 2008).

5.0 Multidomestic Corporation

Another form of a global organization which falls under the MNC is the

‘Multidomestic Corporation’ which is a corporation that is permitted to operate

independently according to the local conditions of that country where it is based

(O’Connell, 2009). This would mean that companies may choose which products will



be sold within the country that best suits their needs like companies that chooses

which cars should be available at the market for that country. Companies such as

Nestle and Philips have been using this strategy. This differs with every country as

they have to develop different strategies for the products. The Multidomestic

companies does not intend to exploit its relationships with is subsidiaries (Martinez,

1996). They take control of the research and development, marketing activities and

production. They have a decentralized management as the delegate authority for

expatriate managers to customize their products. These expatriate managers develop a

relationship with the host country nationals to learn more about their needs and

preferences (Hitt, 2007).


The main problems of this approach would be that there is very limited variation of

products that would suit the needs of majority of the people and not the minority. The

challenge they face is their goal of flourishing with a decentralised structure.

7.0 Global Company

The next type of MNC is the ‘Global Company’ which is where centralized

management takes place from the home office that is responsible for combining inter-

reliant strategic business units worldwide and this achieving global efficiency. This

strategy is most appropriate in situations where there is immense pressure from the

society demanding for a cost reduction and a low responsiveness from the people

(Hitt, 2007). The Global strategy focuses on the differentiation of products according

to the cost differences (Asmussen, 2007).


The problem they face is related to the cost reduction related strategies and the

challenge they encounter is their competition with other multinational corporations.

9.0 Transnational organization

Another model of globalized corporation is the transnational or borderless

organization. Transnational companies comprises of networks of specialized units,



focusing on linking the local firms with the center (Crainer, 2003). There are no

restrictions on which entity is given manufacturing and technology development

authority, and it focuses on how local system can utilize worldwide opportunities.

Some of the borderless organizations are successful companies like Microsoft, Sun

Microsystems and Qualcomm. Transnational companies are regarded as being a vital

resource of a country, and commonly display negative effects of globalization such as

exploitative wages, pollution, and cultural imperialism. Transnational companies

mainly focus on improving product quality because of the intense competition.


One of the crucial challenges faces by transnational companies is that consumers

expect them to be socially responsible in terms of public health, worker’s rights and

the environment ‘To succeed, transnational companies must manage brands with both

hands’ (Halt et al, 2004), i.e. to refine their products, prices and performances, and to

fit the company into global characteristics. Borderless organizations’ success is

unpredictable due to which, the leader has to have necessary financial and technical

skills as well as the intuition. However, the absence of a particular culture is

advantageous as very few conditions exist. There are three techniques to manage

effectively. Firstly, the company’s goals should be shared. Secondly, senior managers

have a crucial influence. Thirdly, there should be a set of policies for workers to gain

flexibility (Bartlett and Ghoshal, cited in Crainer, 2003).

11.0 Born Globals

Companies that start as a global company are called ‘Born-globals or global start-up

(Cullen and Parboteeh, 2008). Companies can start as a multinational company if

certain favourable conditions exist. They include situations where skills are varied

across different places, sources are pooled from other countries, there is a global

demand for the service or product, when competitors go global, there is a need for

increased sales and when there is an opportunity to internationalize.




According to Mr. Mikitani , CEO of Rakuten Group, Inc. ‘the decision on whether or

not to go global should not be based on the type of business that you are in, but in

how you execute your global strategy’ (2008). The company will have to hand over

the decision making rights to local partners or local managers to be successful as they

are best suited to that specific environment. Managing growth of a born-global firm is

challenging as they have to hire the best people, but also need to be tolerant. To be

successful, the company as well as its products has to be unique and innovative, and

has to have strong contacts with large organizations.

13.0 Micro-national Corporation

One of the results of the Internet Revolution has been the creation of the new form of

multi-national company, the micro-multinational; small entities that use the web to

operate (Cullen and Parboteeh, 2008). Although new, it is likely to become popular

in the future with the advances in Information Technology. Micro-multinational is

similar to the transnational structure but operate as born-globals as they start through

the internet.


These companies have no restrictions in terms of hiring workers from around the

world. According to the United Nations, in 1990 there were about 30,000

multinational companies. Today there are more than 60,000. (Copeland.M, 2006).One

of the challenges faced by Micro-multiationals is to increase the efficiency of

operations to match the cost of implementing high-technology. Another challenge is

to hire an expatriate who could translate the language and knows the culture of people

from the different locations in order to pool skilled people from around the globe, and

to be able to train them.

15.0 Perspectives in Multi-National Corporations

There are four different kinds of perspectives which could be followed by a Multi-

National Corporation; ethnocentric, polycentric, geocentric and regiocentric. These



approaches influence the selection of management policies and procedures and the

recruitment of employees, especially at managerial level.

16.0 Ethnocentric Approach

According to Vaghefi, et al, ethnocentric approach is also called the “home country”

orientation (1991). Companies that follow ethnocentric orientation believe that the

home country’s managers and their practices are superior to those of other countries

(Vance and Paik, 2006). The direction of transfer for employees is from home country

to foreign country.

17.0 Polycentric Approach

The polycentric, or “host country” orientation is based on a completely opposite

assumption, it considers the local policies to be preferable to foreign policies

(Vaghefi, 1991). It is established on the hypothesis that local managers can make

better decisions because of their familiarity with the local culture. Employees have

few, if any, opportunities to work in other countries.

18.0 Geocentric Approach

A geocentric management orientation approach seeks to eliminate all the problems

that may arise from an ethnocentric or polycentric perspective. The idea behind

geocentric management is to identify and adopt the most favourable management

practices regardless of its geographical origin (Ifp, 2007). Employees have the

prospect to relocate worldwide.

19.0 Regiocentric Approach

Regiocentric management is, as the term implies, concerned with policies and staffing

being selected on a regional basis (Scullion, 2006). Staff has the opportunity to



transfer but generally, only within their regional division. A regiocentric orientation

may act like a middle ground for organizations as they make a move from a

polycentric or ethnocentric approach towards geocentric management.

20.0 Global Strategy Viewpoint

From a global strategy viewpoint, both ethnocentric and polycentric approaches are

restrictive and have their share of problems. Regiocentric management is a more

favourable alternative but still not the key to a global approach. A geocentric

management is the best solution for a Multinational corporation but it is also the most

complex and by far the most expensive to put into action.

21.0 REAL LIFE EXAMPLES

Thomas Stewart quotes in the Harvard Business Review 2003 “If the world is a

political elite set the stage for globalization, it is the world’s businesses that have

written the script and have played the lead roles.” (Stewart, 2003: 8). Analyzing two

such global giants, Coca-Cola Company and Proctor and Gamble we research the

issues and challenges they had to overcome to survive in the global market.

Coca-Cola: The Coca-Cola Company was incorporated in 1886 with its headquarters

in Atlanta, Georgia. Ever since, it is one of the largest beverage manufactures and

distributors across the globe. The company has well known brands such as Coke,

Fanta, Sprite, Barq's, Minute Maid orange juice, PowerAde, and Dasani water.

(Hoovers, 2009)

Issue: While expanding the Coca-Cola Empire in India, the company was subjected

to rebels from the local environment activists. According to the Indian Resource

Center, In 2004 Coca-Cola used 283 billion liters of water worldwide, enough to meet

the world’s drinking need for 10 days. In India, communities living around the Coke

manufacturing plant are experiencing acute water shortages. The desert state of

Rajasthan found that ground water levels had dropped 10 meters in 5 years, since

coca-cola started its operations. The above facts generated a massive public uproar



and led to a boycott campaign called “Coca-cola Unthinkable! Undrinkable!” The

campaign also had other accusations such as pesticide presence in the drink, rationale

of Obesity and environmental pollution. (Srivastava, 2008)

Elucidation: The first step the coca-cola company took was to re-ensure the

understanding of water sheds. The company’s dependence on local water supplies

makes understanding watersheds and how they work is extremely important to their

business. Coca-Cola has developed plant-level training and management tools to help

local employees and bottling partners understand watershed issues and engage with

communities, governments and conservation organizations to manage them.

The company has set a goal to return to communities and nature an amount of water

equivalent to that used in the beverages and their production. This would be ensured

by careful scrutiny of their activities by the government agencies in India. (The Coca-

Cola Company, 2004).

Coca-Cola invested more than $60 million to build the world's largest plastic

bottle-to-bottle recycling plant and to support recycling. Fostering

commitment to the environment they adopted a ‘Green Policy’ which ensured

an innovative energy management system for the cold drink equipment that

would save 35% on the current energy consumption.

Addressing Obesity, Coca-Cola launched a new sugar free drink titled ‘Coca-

Cola Zero’ in Australia and ‘Diet Coke’ in the United States claiming them to

have near zero calories. (The Coca-Cola Company, 2004).

Sanjiv Gupta, India Division president, Coca-Cola is reported to have said:

"Worldwide our company is known for its adherence to practices in various fields of

corporate citizenship, future growth and corporate governance. Nothing is more

important to our success than integrity and a strong sense of accountability in

everything we do.'' (The Hindu, 2003).

creates

regains


Training and Understanding

watersheds

Consumer Trust

A Sustainable Environment

http://www.thecoca-colacompany.com/ourcompany/innovation_packaging.html

http://www.thecoca-colacompany.com/citizenship/water_pledge.html


Besides coca-cola, Proctor and Gamble is another multinational that faced

controversies against community engagement and environmental ethics.

Procter and Gamble: Established in 1837, the multinational ‘Procter and Gamble’ is

headquartered in Ohio and is one of the leading manufacturers of consumer goods.

(P&G Corporate Archives, 2006).

Issue: The Company was accused for carrying out harsh painful archaic tests on

animals for their laboratory experiments. James Lee an ophthalmologist from

Massachusetts said “P&G "scientists" do not sedate the animals or give them pain

killers. The victims include rabbits, guinea pigs, hamsters and fish. As an

ophthalmologist, I find the Draize eye-irritancy test particularly outdated. It is cruel

and wasteful of animal lives. Less expensive alternatives are already available." (P&G

Kills, 2004)

Animal rights organizations, namely the People for the Ethical Treatment of Animals,

the British Union for the Abolition of Vivisection, and In Defense of Animals were of

the opinion that Proctor and Gamble refuses to stop testing its products on animals,

despite the fact that these tests are not required by law and more reliable and humane

alternatives do exist. (P&G Kills, 2004)

Elucidation: The company was a victim of tumult from animal protectionists and

could not deny the harsh statistics. In view of the above the management adopted a

strategy where Proctor and Gamble emphasised on the importance of their operations

rather than adopt a defence mechanism. Proctor and Gamble in their Fall 2008 e-

newsletter titled ‘Forward Focus’ addressed the accusation. The company described

the tests and as a safety precaution in the best interests of the consumers and a strive

towards quality assurance.

To regain consumer trust and pacify the environmentalists Procter and Gamble

redefined their core values and a campaign

called ‘A P&G Update on Innovation in

Alternative Testing and Care’ was launched. Page 11 of 14This document was downloaded from Coursework.Info - The UK's

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The subcommittee held a workshop in March 2008 to discuss policy issues and

emerging best practices that focused on fish alternatives and animal model

development sciences. These alternatives would be scrutinised by the existing hazard

assessment, effluent assessment, risk assessment, classification and labelling, and

regulatory needs. (Devolder T, et al: 2008)

A discussion paper P&G drafted in collaboration with fish developmental biology

experts helped the international community reach a recent agreement to update the

2006 Organization for the Economic Co-operation and Development (OECD)

Working Group on the Fish Embryo Test Guideline. The environmental labs of P&G,

L’Oreal, and the University of Heidelberg are currently leading the effort to meet the

threshold approach. Alternative Methods in 2006 in which P&G played a peer-review

role, has been formally adopted expected to reduce the numbers of fish tested by 50

percent. (Forward Focus, 2008).

Professional Tie-Up: Dr. Daniel Marsman, a P&G veterinarian and product safety

section head in the Baby, Feminine and Family Care division, was recently elected

chairman-elect of the Animal Welfare Committee of the American Veterinary

Medical Association (AVMA), the US primary veterinary association. This

association with a welfare regulatory body would help to combat the public rhetoric

and re-assert the company’s concern for eco-friendly operations. The multinationals

Coca-Cola and Proctor and Gamble both faced challenges while establishing their

models of commerce across the globe. The management de rigueur policy was to

tailor their operations to suit the unique conditions of the emerging markets. In both

cases the business operations were successful because the management assumed an

aggressive role as an innovative force capable of exercising social justice.



22.0 Conclusion

Our research and studies depict the fact that the very existence and successful running

of Multinational corporations plays an essential role in increasing the investments and

export income of a country, it also provides prospect for technology transfer which

promotes the establishment of domestic industries forming an excellent and reliable

source of tax revenue for host government. Moreover it interestingly offers

employment opportunities to deserving individuals in different countries. The concept

of Multi-national Corporation is also responsible for improving the ties between

countries and establishing healthy relations. Furthermore it is observed that it is a very

creative technique to promote sales and creating a boom for products and services in

the respective countries. From management point of view, it well illustrates the

concept and advantage of centralization in structure; however, drawbacks are also

prevalent. In the case of Procter and Gamble miserable testing method of products

was observed, which actually aimed at the promotion of those products. P&G was

found guilty of negligence with regard to animals exploited during the process. Apart

from that Coco-Cola factories in India had a severe impact on the water supplies in

the areas nearby. Coco-Cola being a multi-national corporation aimed primarily at

flourishing in India, while overlooking the local natural resources. This manifests the

fact that multinational corporations have a tendency to adopt inappropriate products,

technology, and consumption patterns to boost its performance which could further

affect labour, nature and employment factors. Through this report, we were

acknowledged of the various possible management perspectives a Multinational

corporation could adopt along with the different types of MNCs.

23.0 Reference List

Stewart, T. 2003, ‘Mending Walls?’, Harvard Business Review, Vol. 81, No. 8, pg 8.

Srivastava, A. 2008, ‘Coca-Cola’s Latest Scam – Water Neutrality’ Available: http://www.indiaresource.org/campaigns/coke/2008/neutrality.html [Accessed 20 March 2009].

‘B.N. Kirpal to head Coca Cola environment council’, The Hindu, 19th Dec 2003, Available: http://www.hindu.com/2003/12/19/stories/2003121905381200.htm [Accessed 20 March 2009].


http://www.hindu.com/2003/12/19/stories/2003121905381200.htm

http://www.indiaresource.org/campaigns/coke/2008/neutrality.html


Hoovers, 2009, ‘Company Research: Coca-Cola Corporate Information’ Available:http://www.hoovers.com/coca-cola/ID__10359,target__company_research--/free-co-samples-index.xhtml [Accessed 18 March 2009]

Devolder, T., Reid, K., Rogiers. V., Webb S and Wilkins D., 2008. ‘A review of national public funding programmes in European countries’ ALTEX – Alternatives to Animal Experimentation [Online] Vol. 3, pp233-242 Available: http://www.pg.com/science/pdfs/PG_Fall2008.pdf [Accessed 21 March 2009].

P&G Corporate Archieves, 2006 ‘P&G A Company History 1837-Today’ Available: http://www.pg.com/translations/history_pdf/english_history.pdf [Accessed 17 March 2009].

Forward Focus, 2008, ‘A P&G Update on Innovation in Alternative Testing and Care’, Available: http://www.pg.com/science/pdfs/PG_Fall2008.pdf [Accessed 18 March 2009].

‘In Defence of Animals’, 2004, P&G Kills [Online] Available: http://www.pandgkills.com/main.html [Accessed 21 March 2009].


http://www.pandgkills.com/main.html

http://www.pg.com/science/pdfs/PG_Fall2008.pdf

http://www.pg.com/translations/history_pdf/english_history.pdf

http://www.pg.com/science/pdfs/PG_Fall2008.pdf

http://www.hoovers.com/coca-cola/ID__10359,target__company_research--/free-co-samples-index.xhtml

http://www.hoovers.com/coca-cola/ID__10359,target__company_research--/free-co-samples-index.xhtml

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