1.25 business management
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Lecture9_HRMG3203_MNCsStructuresandStrategies.pptxMultinational Corporations:
Structure and strategy
Godspower Onah
Lecturer in International HRM
Leicester Business School, DMU
HRMG 3203
Outline of lecture
To understand MNC structure and strategy: how multinationals are structured in response to pressures to be
› globally integrated
› locally responsive
› worldwide innovation (to compete in the global economy)
To explore the implication for HRM
Over the weeks we established that
globalisation was largely
driven by multinational companies (MNCs)…
What is a Multinational Corporation?
more than one country
“MNCs are enterprises which in
own or
service
control production or facilities and activities
that add
value” (Leat, 1999)
Leat, M. 1999. Multi-nationals and employee relations In Hollinshead, G., Nicholls, P., & Tailby, S. (eds), Employee Relations , London: Finanial Times Pitman Publishing.
MNCs and the Logic of Capitalist Expansion
MNCs seek higher profits by locating operations overseas. As a
result they benefit from:
❑Economies of scale: MNCs are able to supply a global market from a single location
❑Transferring labour-intensive operations from high-wage to low-wage countries: see Burberry case study
❑Relocating to countries with less regulation: over health & safety, environmental and employment standards
❑Distinctive Competences: where local competitors lack expertise in particular skills. For example, McDonald’s established fast-food operations in Russia following the collapse of Communism
The expansion of MNCs
Over the past 25 years, the number of MNCs has
increased eight-fold
Foreign investment has increased twelve-fold
These statistics reflect “a reshuffling of total business investment away from domestic to foreign operations,
largely through cross-border acquisitions and mergers” (Cook, 2005)
The ‘top ten’ multinationals 2011 & 2018
1.
Exxon Mobil Corporation (US)
Chevron Corporation (US)
Conoco Phillips (US)
Fannie Mae (US)
General Electric Company (US)
Berkshire Hathaway Inc. (US)
General Motors Corporation (US)
Bank of America (US)
Ford Motor Company (US)
Wal-Mart Stores, Inc.(US) 1. Wal-Mart Stores, Inc.(US)
State Grid (China)
Sinopec Group (China)
China National Petroleum (China)
Royal Dutch Shell (Netherlands)
Toyota Motor (Japan)
Volkswagon (Germany)
British Petroleum (UK)
Exxon Mobil Corporation (US)
Berkshire Hathaway (US)
Global Fortune 500, 2011 & 2018
The ‘top ten’ multinationals 2018 & 2021
Wal-Mart Stores, Inc.(US)
State Grid (China)
Sinopec Group (China)
China National Petroleum (China)
Royal Dutch Shell (Netherlands)
Toyota Motor (Japan)
Volkswagon (Germany)
British Petroleum (UK)
Exxon Mobil Corporation (US)
Berkshire Hathaway (US)
ICBC. (China)
JPMorgan Chase (US)
Berkshire Hathaway Inc. (US)
China Construction Bank (China)
Saudi Arabian Oil Company (Saudi Arabia
Apple (US)
Bank of America (US)
Ping An Insurance Group (China)
Agricultural Bank of China (China)
Amazon (US)
Global Fortune 500, 2018 & 2021
The implications of National Culture for MNCs
Globalisation brings different Cultures together
Culture encompasses history, values, beliefs, customs
custom and practices including how business is
conducted and people are managed in the workplace
Some say globalisation is a movement in the direction of greater integration (convergence)
Some say National Culture is so deep-seated, differences remain (divergence)
The attitude and approach adopted by individual MNCs are important here: standardise or localise?
Parent Company
(Home nation)
Local Centres
(Host nation)
How much influence will the parent company have over what goes on in local centres?
MNC Typologies
Two prominent authors have devised typologies in terms of how MNCs approach cross-border activity:
Perlmutter, H. (1969), ‘The tortuous evolution of the multinational corporation,’ Columbus Journal of World Business, 4(1): 9-18.
Bartlett, C.A. and Ghoshal, S. (1989), Managing Across Borders: The Transnational Solution, Cambridge, MA: Harvard Business School Press.
MNC Typologies
Each typology is based on how MNCs meet the dual pressures of central control (country of origin effect) and local responsiveness (host nation effect)
These models are used to identify the operational behaviour and activities of MNCs
The adoption of one particular approach to operations does not necessarily mean that approach is also adopted to local employee relations
Bartlett and Ghoshal’s Model (1989)
Global integration
National responsiveness
Low High
Global Transnational
High
International Multi-domestic
Low
Global Approach
•High demand for integration - managed from the corporate centre.
•Low demand for local responsiveness - tendency not to customise products to local tastes
•The focus is on cost efficiencies from economies of scale / standardisation.
Example: Texas Instruments. Once dominated the market in pocket calculators and digital watches by focusing persistently on standardisation and price at the expense of understanding consumer’s needs. (Hill & Jones, 2004)
Multi-domestic approach
Low
demand for
a collection of
decentralised
integration -
and reasonably
autonomous
units.
Control exercised from the Centre may well be
confined to financial targets and results.
High demand for local responsiveness - tendency to adapt to different local customer preferences.
Example: ITT. Developed a “strategic posture and
very
sensitive and responsive to differences
organisational ability that enables it to be
in national
environments. (Bartlett and Ghoshal, op.cit.,p14)
International approach
▪Low demand for integration; Low demand for local responsiveness.
▪An intermediate type where there is a perceived need to be more responsive to local markets but without losing global integration. So there is local autonomy on some matters but central control in key areas e.g. finance; product development.
▪Typically creates competitive advantage through the use of distinctive competencies (expert knowledge). May centralise R&D function but also establish operations in each major national economy they engage with.
▪Example: the US MNC Procter and Gamble, “set up miniature replicas of the domestic organisation to adapt P&G products without deviating from the ‘Procter way’.” (Bartlett and Ghoshal, op.cit.,p15)
Transnational approach
High demand for integration; High demand for local responsiveness, being sensitive to, and capability of responding to, local needs.
Typically seeks competitive advantage through low- cost strategy AND product differentiation, made possible by integrated networks - sharing knowledge and expertise.
Some argue that this is an ideal towards which MNCs need to develop for long term competitive advantage
Example: Unilever is an MNC that pursued this approach with 17 different and largely decentralised plants in Europe alone.
ERPG Model (Perlmutter, 1969)
4 possible approaches to the management
of overseas subsidiaries:
Ethnocentric
Polycentric
Regiocentric
Geocentric
The parent company sees the world from the standpoint of its own culture, which it regards as superior to any other.
Organisational values and strategic decisions are determined by the home nation. Senior positions occupied by home nation nationals (expatriates)
Little power/ autonomy is afforded locally.
High demand for
Ethnocentric approach integration
Low demand for
local responsiveness
Polycentric approach
Recognises the validity, for business reasons, of each overseas operation’s national culture.
Rejects a centralised ‘one-size-fits- all’ approach.
Considerable autonomy is afforded to local managers, although strategic decisions may be made at the centre.
Low demand for integration - High demand for local responsiveness ow demand for integration
High demand for local responsiveness
Regiocentric approach
Low demand for integration; Low demand for local responsiveness.
Falls between polycentric and geocentric approaches.
Functional rationalisation on a more-than-one country basis i.e. subsidiaries are grouped into larger regional entities which may be consistent with natural boundaries e.g. Europe; Asia-Pacific.
Decisions are made at the regional level but presided over by top managers at the centre.
Geocentric approach
A supranational view in which a preoccupation with national cultures is regarded as a hindrance
MNCs try to seek the best people, regardless of nationality, to solve the company’s problems
Values the diversity of skills and insights which national cultures can bring so Multicultural teams are a strong feature.
High demand for integration; High demand for local responsiveness.
Suggested Reading
Sparrow, P., Brewster, C., & Harris, H (2005). Globalizing Human Resource Management. New York: Routledge. Chapter 2 Globalization and HRM.
Harzing, A-W., & Pinnington, A. H. (2011). International Human Resource Management. London: Sage. Chapter 3: Transfer of Employment Practices across Borders
Leat, M. (2001) Exploring Employee Relations. Oxford: Butterworth – Heinemenn. Chapter 3: Globalisation, multinational corporations and employee relations
Tarique, I., Briscoe, D., & Schuler, R. (2016). International Human Resource Management. Abingdon: Routledge. Chapter 3: Design and Structure of the Multinational Enterprise. [2012 edition]
