Multi National Enterprises Essay

Multi National Enterprises: Organisational Strategies and Structures

Introduction

This report is borne of the need for Multi-National Enterprises (MNEs) to gain a competitive advantage in the changing global environment. Top level management generates strategies with the aim that the enterprise may develop internationally and thrive. Different kinds of strategies are adopted by different enterprises depending on their key objectives and opportunities for growth and this in turn has an effect on the organisational structure and culture.

Report Objectives

This report aims to examine both competitive strategies and the different control strategies employed by MNEs, from those that advocate standardisation and formal reporting lines versus those that encourage more autonomous, self-governing business units (in the context of this report, foreign subsidiaries). From this, the aim is to describe the need for and the use of some of the control mechanisms employed by MNEs and to illustrate this with real life examples.

Methodology

A review of recent literature was carried out to examine the management theory behind strategy formation with a view to: 1) gain a competitive advantage on an international scale and 2) manage business units or divisions dispersed throughout the globe by the implementation of control strategies and mechanisms. Moreover journal articles and books were sought that studied the specific challenges faced by MNEs concerning how best to control or influence diversity and empirical evidence was gathered (mainly involving Microsoft and Marks & Spencer) to provide examples of how well they deal with these issues.

Globalisation and Competition

International trade gives individuals and businesses access to world markets for goods and services, which generates consumption gains due to lower prices and increased quality and variety of goods. This is good news for the consumer but poses a challenge for MNEs who must compete not only with neighbouring industries but those based in many different countries.

Competition can be thought of as exploiting an opportunity for growth. In the global market where supply is perhaps more plentiful than domestically MNEs should seek potential growth areas carefully in choosing the most fruitful environment in which to deploy their strengths to gain a competitive advantage. To do this, companies should be flexible enough to enter a new market sector, for example, Tesco has broadened its customer base by providing loan and credit cards services as well as consumables.

An MNE conducting business on a global scale is subject to the uncertainty around ever changing and developing internal business processes and external factors such as the labour market and local economy. And perhaps due to this increasing uncertainty there seems to be a greater need for companies, particularly those that trade internationally, to gain a competitive edge.

Multi National Enterprises (MNEs)

MNEs can be defined as companies that do business in several different countries, examples being IBM, Shell or Ford. They are characterised by their huge size where one subunit or division may be larger than several whole companies and where they would have many thousands of employees.

In a fiercely competitive environment businesses may form closer alliances in a bid to strengthen their standing in the market place. However, international trade undermines tendencies towards collusion due in part perhaps to a lack of mutual trust. Therefore there is an argument for intra-company alliances - i.e. between subsidiaries - to be strengthened as much as possible in order to maximise corporate potential.

Microsoft

The name of Microsoft is tantamount to that of a global empire, since its inception in early 1975 it now generates revenue of billions of dollars each year and has footholds in over 60 countries in Europe, the Americas, Middle East, South Pacific and Africa.

It has three core business divisions, those being the Platform Products and Services Division (including Windows and MSN), the Business Division (including Microsoft Business Solutions) and the Entertainment and Devices Division.

Microsoft’s mission is to work to help people and businesses throughout the world realise their full potential and their core values include integrity, honesty, openness, respectfulness and taking on big challenges. This open, unguarded philosophy is demonstrated in the way this MNE often talks of global citizenship. Jean-Philippe Courtois, CEO of Microsoft Europe, Middle East and Asia, said that the watchword at Microsoft was people, planet, profits and that business was part of society, not divorced from it. Microsoft’s success as evidenced by the existence of worldwide brand names such as ‘Windows’ and ‘Hotmail’ could be said to have been realised through Microsoft’s organisational structure.

Marks and Spencer

Marks and Spencer (M&S) is a global retailer generating revenues of over 13 billion US dollars per year. It has over 300 stores and over 500 million customers annually. It is renowned for its friendly and efficient customer service.

M&S faced intense competition within the global marketplace recently and has implemented some strategic changes in order to re-establish itself as a market leader and to respond more quickly to consumer demand.

By signing up to the OECD Guidelines for Multinational Enterprises, M&S demonstrated the will to operate in harmony with the countries where it operates. These guidelines promote the right of every worker to good working conditions and fair pay.

Strategies for Competitive Advantage

When formulating competitive strategy the enterprise could consider how it operates relative to other similar companies with which it competes. For this to happen, a significant amount of resources should be put into planning and marketing strategy.

The overarching strategy behind the MNE should combine basic action strategies (e.g. to diversify) and the marketing strategy and, in the case of very large firms, portfolio techniques that define the driving force of the organisation - that central character attribute to which all else should adhere.

Microsoft’s ubiquity, as well as being due to its great success, could also be due in part to its advanced technological capabilities. Dominant firms sometimes locate away from clusters of industries in the same sector - for example, Microsoft is situated in Seattle rather than Silicon Valley - in order to protect their knowledge and expertise from other firms.

Control Strategies

Competitive strategies prepare businesses for entry and success in the global environment. During the accompanying changes the business will have to undertake in order to maximise its competitive ability and in the climate of uncertainty that these changes invoke control strategies are a way of alleviating any negative impact whilst the transformations are taking place. Succinctly, they are a way of tying together planning, marketing and performance enhancing processes that will balance the global needs with those at a domestic level.

The determinants of control strategies are many and varied but they can be summarised as involving those of distance, diversity, certainty and uncontrollable factors.

Distance is perhaps the most striking factor for MNEs’ consideration; communication takes place across different time zones and there is a cost implication for the design and implementation of effective and reliable electronic communication systems such as teleconferencing and email. MNEs are diverse in terms of, usually, product or service delivery and, almost always, in terms of culture. These cultural differences have a marked impact on communication and the ability to streamline or standardise business processes. As mentioned above, planning is an essential part of strategy formation; planning relies upon good quality information in order to form insightful long-term control strategies, however due to the diverse nature of foreign subsidiaries it follows that the certainty of the quality of information will differ. Finally, there are some factors that no amount of strategic planning will be able to control: these involve external environmental factors such as local economies and different cultures with different agendas and objectives. The parent company should strategically manoeuvre itself into a position to minimise the effect of these factors and thereby take action to protect and promote the key corporate objectives.

Decision Making

Decision making is an integral part of what determines any company’s success and is arguably the most important management process. Top level management processes could be summarised as taking company policy and information about the company (both internal and external) in order to identify the company mission; the mission statement then informs the company’s objectives which are then translated into reality via the implementation of action plans. Rational decision making forms a vital part of the process of transforming the mission and objectives into plans of action and thus reality.

Decision making is subject to certain constraints, for example, the structure, policies and objectives of the organisation. It is also dependent upon psychological factors such as the individual decision maker’s cognitive ability and perception of the problem, their values and information and time available.

Competition could be said to exist within the MNE itself: in the same way that accounts and marking departments may each press for their own contrasting ideas to be implemented, subsidiaries of the parent company can be thought of as vying for their share of the budget or for their mark on the corporate strategy.

Subsidiaries may have differing levels of autonomy relative to each other. How much autonomy they have could be determined by how important each is in achieving division or corporate objectives.

M&S provides a good example to illustrate the disadvantage of dissimilarities within the enterprise. Subsidiaries were given too great a deal of autonomy in deciding how to tackle everyday problems. This proved to be a problem for the enterprise as a whole in that the location specific information that was held at each subunit meant that time and effort was wasted in duplicating and attempting to correct the same types of mistakes. The solution was to implement an enterprise-wide system to improve each subunit’s performance thereby enhancing customer service and increasing profits.

However it could be argued that restricting decision making too much could stifle innovation and development: a mainstay of corporate success in a competitive world.

Control Mechanisms

There is a need for control mechanisms within multi-national enterprises due to their complex and diverse nature. Control mechanisms allow the parent company to evaluate how each foreign subsidiary is performing and to establish common values and management practices and in so doing can strengthen the parent company’s ‘hold’ over its subsidiaries.

Control mechanisms implemented by Marks & Spencer include formal reporting lines from divisions up to the top management and Chief Executive.

There is an argument for allowing subsidiaries a greater degree of autonomy than might seem advisable at first glance given the uncertainties facing MNEs. It has been said that to increase power one must disperse it and encourage creative dissent by building autonomous teams, an attitude which has been adopted by Microsoft.

Where there are marked cultural and language barriers, a good idea might be to condense and simplify corporate strategy into a readily understood form. P Ranganeth Nayak (1988) introduces the idea of the company leader as the ‘composer’ of the theme and advocates Toyota’s eliminate waste theme as a cross-cultural strategy to which every employee can respond. This simple, two word theme or strategy is instantly understandable and therefore much more useful than a more traditional phrase such as our strategy is to increase market share which has no real meaning on a practical level.

Organisational Structure

The very process of formulating strategies should inform the MNE’s key objectives which in turn will sculpt its organisational structure.

Large, diversified companies, like MNEs, use a product / market division form of organisational structure to permit decentralised decision making involving many managers. Subsequently, due to the sheer size of these enterprises and the large number of personnel to whom the decision and its outcomes are relevant, coordinated action is required to manage the decision making process.

Microsoft’s organisational structure could be thought of as an international division structure where top management directs and protects the interests of the organisation, but in doing so allows the internal units, or subsidiaries, the freedom and flexibility to self-manage and to take on the culture of their immediate environment.

Conclusion

The theory behind the formulation of strategy for Multi-National Enterprises was presented in the context of a fiercely competitive global market. Decision making as a key tool to providing that global success through diligent planning was also discussed. The concept of control strategies was introduced along with the accompanying idea of control mechanisms and how they help contribute to helping MNEs develop and optimise their key strengths and achieve economic success and notoriety.

Two different kinds of ’strategic style’ were discussed: that of an open, flexible modus operandi as exemplified by Microsoft whereby foreign subsidiaries are given the power to determine their own objectives and implementation plans and that of the more formal and traditional style of management in the case of Marks & Spencer where top management regularly monitors and therefore more strictly controls the workings of its subsidiaries.

Bibliography

  • 1. International Cooperation on Domestic Policies: Lessons from the WTO Competition Policy Debate (October 2004), B Hoekman and K Saggi, Centre for Economic Policy Research
  • 2. The International Handbook of Competition (2004), edited by M Neumann and J Weigand, Edward Elgar Publishing Limited
  • 3. Microsoft website: International Cooperation on Domestic Policies: Lessons from the WTO Competition Policy Debate (October 2004), B Hoekman and K Saggi, Centre for Economic Policy Research

Source: ChinaStones - http://china-stones.info/free-essays/business/multi-national-enterprises-essay.php



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