The Management of Global Multinational Organizations - Essay Example

Introduction The concept of globalisation has been emphasised on by very many countries. Globalisation is simply spreading of particular philosophies, ideas, technology and governance all over the world. The business world is also embracing the concept of globalisation. Very many companies are now becoming multinational enterprises to capture the international market that is growing day by day. The local enterprises are also struggling to catch up with the trend of globalisation for them to become more competitive. On the contrary, the global concept in business is very misleading as there are very many challenges. The globalisation concept does not reveal the challenges leaving the companies to look at the positive side of the concept. There are very many management challenges due to different cultural issues and government intervention in different nations. As it will be discussed in the paper, countries differ in their levels of technology, development, availability of labour and resources and policies targeting trade and taxation. Both local and global companies normally do not have the right information concerning such issues thus end up making the wrong decisions in location and strategies (Karsten, 2000, pp.120-134). The best example of a multinational company to use is the Coca Cola Company as it has gone through very many challenges as it was in its race to meeting the global concept. Global strategy Global strategy is defined in business as guidelines of an organisation to globalisation. For a firm to succeed in expanding globally it requires to define the extent to which it can expand its service and products provision. Local and global enterprises are facing a lot of challenges in expanding globally and this does not leave out the Coca Cola Company. The decisions Coca Cola makes on where it needs to locate its business are highly affected by the fact it usually defines how far it needs to allocate. Many multinational organisations that are failing expand unnecessarily. This occurs because of the lack of complete information on the different economic status of different nations. This limits them in attaining competitive advantage within the corporate world (Gupta, 2008, pp. 20-21). Strategic management Strategic management entails to plan and forecast, command, control, co-ordinate and organize. It is important for organizations to practice effective modes of management to ensure that at the end of the day they achieve their main objective; profit making. Though strategic management entails all this conditions, it is evident that they are not practised in all organisations globally. This is so because countries differ in their adoption of management strategies. This makes it hard for an organisation in a well established country that practises high management concepts to incorporate the concepts in another country that has not yet implemented them (Ghoshal, 1987, pp. 425-440). However, with Coca Cola being a multinational company for a very long time, it has identified that different areas need different ways of management though people are being urged to embrace global ways of management. Business courses and beliefs are very different in all nations. For instance, in developing countries, the business courses are outdated and it is only recently that they are trying to educate its people on the global strategic management principles. Many organisations that want to expand globally are misled by believing that all nations embrace the concept globalisation thus they set up their businesses in different localities only to find that they do not use the global strategies of management. This makes them to lag behind in making profits because they lack competent individuals to employ. It is evident that for a business to flourish there must be availability of labour within the area. Some multinational entities are forced to employ individuals from other countries which is a more expensive strategy because they demand a high pay for relocating from their native homes (Ghauri, 1995, pp. 230-245). In addition, mangers of companies do not have the knowledge of the global management strategies that they need to run a business in the global market. Most of them assume and use the strategies that they are used to in all entities. For this reason, they make mistakes and companies fail in some areas. It is important for a manger to fully understand how the global industry works. This means that the managers are able to have a full understanding of the global industry and how they can employ different management strategies depending on where they are expanding. With such an understanding they will also gain the knowledge of how to be competitive in the global market (Ghauri, 1995, pp. 230-245). It is evident that other up coming multinational companies needs to follow the strategy of training its managers in acquiring the current management strategies as the Coca Cola Company does. The constant training enables them to gain competitive advantage in management over other companies. Competitive advantage For both multinational and local organisations to excel in the world of business, they need to identify where they can gain competitive advantage. This simply means they need to design perfect global strategies that will lead them to gaining competitive advantage over all global firms. Many firms do not have the knowledge of how they can win to be recognised globally by customers beating their rivals. The coca cola company has won the race as it has taken its services and products to both developed and developing countries. It had the concept that the global entity is very competitive as there are many organisations offering the same products and services. Thus all other local and multinational companies need to identify the different sources that can lead to them being competitive like the Coca Cola Company. The main different sources that will enable a company to be globally effective are: 1) Efficiency A company can be efficient if it practises the following concepts: Economies of scale Efficiency comes in when a firm will realise the efforts of economies of scale by being able to access an increased number in markets and customers. Economies of scale generally refer to the fact that companies are able to produce more which they will distribute a large number of customers making their costs reduce. To experience the economies of scales, a company needs to research on the availability of the customers in the different parts of the nations. This means that it needs to identify if people in the different parts of the world really require the product or service. If not, they either need to convince them or identify if they can produce what is needed in that country (Buckley, 2004, pp.81-98). The Coca Cola Company uses the concept of economies of scale by identifying the number of customers in each area and producing the maximum amount of soft drinks needed in that area. They export the soft drinks in bulk to avoid high transport cost due to exporting small amounts of drinks. Exploitation of resources In achieving efficiency, a company needs to be able to exploit the resources of another country. This means that it needs to identify the availability of raw materials and labour (Buckley, 2004, pp.81-98). This concept can mislead an organisation as there are regulations that are found in different countries. Though globalisation emphasises on countries to open up their markets, there are regulations in different countries that are meant to prevent exploitation of their resources. Each country has labour laws that all multinational countries need to practise to prevent them from exploiting its nationals. Such organisations have to sign some form of agreement to ensure that they do not breach the contract. It is very easy for a company to be stopped from offering its services or products within a nation if it breaches the contract. For this reason, organisations always find themselves not being able to expand as they expected as they have to work under the regulations of that particular country. Some countries regulate the access of some raw materials. Over the years, the Coca Cola Company has avoided such problems as it runs its services and production according to each country's policies and labour laws. A company can not simply be allowed to access some raw materials because it might perform better than the local organisations which are normally considered as a threat by most governments (Buckley, 2004, pp.81-98). This can lead to the death of local organisations and countries are competing in ensuring that there local organisations flourish within the local and global market. Such hindrances are normally not mentioned when companies are urged to embrace the concept of globalisation. Extension of the product life cycle In terms of efficiency, a company should have the ability to extend the products' lifecycle. This means that most multinational and local organisations that are in the verge of expanding always tend to think that they can sell their old products to the less developed countries. This concept is very misleading as very many countries including the developing countries have strict rules on importation of old products. This is so as very many governments want to avoid the problem of dumping. The developing countries are also in the verge of embracing the new technology and in no way can they take up old products that are not in use. This is so because globalisation has led to the fast spread of technology within the global entity. For this reason, people can not accept to have old products (Buckley, 2004, pp.81-98). The concept of dumping products is now being avoided because of the change in technology. Thus for companies to succeed in becoming globally competitive, they need to aim at giving the same quality of services and products world wide. Flexible operations Most local and multinational organisations do not embrace the notion of flexibility in their operations (Kogut, 1985, pp. 27-38). This means that they are usually not ready to change their production as the different factors that influence it change. It is evident that different countries experience different economic changes. For instance the exchange rates keep changing and they need to adjust to such conditions. Making a company to be in the global market highly depends on the exchange rates as they do affect the exportation and importation of particular materials to the different countries it situates its branches (Kogut, 1985, pp. 27-38). For such reasons, companies need to set up strategies that can allow for such fluctuations to avoid them making poor choices thus losing market by making losses. More so, the cost of living is very different in all nations (Kogut, 1985, pp. 27-38). Like the Coca Cola Company, all organisations need to ensure that they are able to cover for the different costs of living through paying its employees according to the economic status of the country. Companies can not pay the same amount to everyone in different countries as salaries and wages also depend on the cost of living. 2) Strategic For any company to succeed it needs to define its strategy by knowing the following: Advantage of being a fast mover in the market It is important for companies to have a strategy so that they can ensure that they are competitive enough. The Coca Cola Company did this by capturing the target market. For this reason, it made the best research to get the idea of where the business can catch up very quickly avoiding delays that would make its competitors defeat it. In many developing countries the Company has been the only one providing soft drinks for the locals. Today though, it is facing a lot of competition as there are many local companies that are trying to produce soft drinks. This has brought about monopolistic competition within the firm. Other companies are facing the same problem of monopolistic competition and most of them are failing because of ignoring this fact as they tend to move through the global market. This shows that it is important for companies to know their competitors both in the global and local market. This will definitely enable them to choose the best locations for their businesses within the global market (Frost, 2002, pp.997-1018). Subsidisation within countries There are different levels of subsidisations in different countries. It is important for organisations to put this in mind as it will enable them to put up businesses in areas where the cost of production is low. Though the cost of production can be subsidised, this does not mean that a company will be much advantaged in locating to such area. The global concept urges countries to subsidise the costs of raw materials to enable industries to produce more. This makes very many companies to expand their businesses in such areas thinking that they will make high profits. The fact is that competition increases as the area attracts very many companies. More so, it leads to low quality production of goods making people to lose confidence in firms thus making losses. Therefore, companies need not to be misled by the subsidies that are made nations as they bring in too much competition (Frost, 2002, pp.997-1018). Transferring prices It is not easy to transfer prices as different governments put in laws that regulate prices of specific goods. The global concept tends to ensure corporations that it is easy to transfer prices from on entity to another. Thus a product can be very cheap in one country and very expensive in another. The fact is that governments are likely to state terms for organisations to prevent them from transferring costs to their particular nations in trying to deal with high cost of production from other countries. Companies need to know that in becoming global, it does not mean that they can simply exploit other nations by transferring costs (Frost, 2002, pp.997-1018). 3) Diversification of risks The global concept has led to the diversification of risks like: Macroeconomic risks Globalisation misleads many organisations not leaving out the Coca Cola Company as it tends to hind the macroeconomic risks that come about due different economic status of nations. For instance, countries have different business cycles due to differences in technological levels, cultures, economic status and demographic levels. Developing countries are characterised by having the majority living under the poverty level. Most of the people live under a dollar a day. For this reason, businesses that deal with certain products are slow in picking up. But globalisation gives the notion that all countries are at the same level, misleading companies as they expand their services. It is good to note that some products will sell well in some countries but not in others because of the preferences of the people. For instance, food and clothing will do well in developing countries than televisions and luxurious cars. This is so because people in developing countries prefer basic necessities to luxurious goods. Thus companies need to ensure that they are able to identify the macroeconomic issues that will definitely affect their business (Slvell, 1995, pp.17-38). Operational risks Operational risks can be due to either natural or economic causes. The Coca Cola Company faces these problems all the time especially when it was allocating in the developing countries. It met the challenge of skilled labour. This shows that a company can face labour problems as it tries to expand its services to other nations. This is so because al nations have different educational entities and levels. More so, they practise different ways of training. This is mainly due to the differences in technological know how in different countries. A company can face a problem of accessing labour in its area of expansion. Labour availability is very important as it is one of the major resources a company needs in carrying out its services (Slvell, 1995, pp.17-38). There are natural causes such as earthquakes that a company needs to put in to consideration. The Coca Cola Company has not been spared as it forced to close down its offices whenever there are such risks especially war. Some countries are prone to facing some calamities like earthquakes and floods. It will be very expensive for an organisation to expand its services in a country that experiences floods every year. This will make it to keep on restructuring in case it is affected by such calamities. Moreover, such natural calamities affect the economic status negatively which trickles down to business entities. In addition, politics really affect businesses. An organisation will do well in areas that are political stable whereby there are no wars. Wars are a set back in economic development and organisations rely on the economic status conditions. Wars will definitely reduce the performance of the company as it takes away some employees through killings. More so, the company will be forced to close down as there will be no business for it (Frost, 2002, pp.997-1018). Conclusion and Recommendations The global concept can be misleading to so many organisations thus there are various ways to ensure that they avoid its trap. This can be done by researching fully before expanding business in different areas. By conducting concrete research, an organisation is able to realise certain difficulties it is able to encounter as it ventures in globalisation. This will release the macroeconomic and management challenges the organisation is going to meet once it puts up its business in a certain location (Rugman, 2003, pp.125-137). There are some concepts that the organisations need to look at to avoid making the wrong expansion decisions. They are: 1) Resource allocation As discussed earlier in the paper, a company can not excel without the right resources. It needs to know the availability of different resources for it to smoothly conduct its services. Resources entail both raw materials and labour. If the resources are easily available then it means that the organisation is able to produce at a faster and cheaper cost making it gain a competitive advantage against its rivals (Rugman, 2003, pp.125-137). If it realises that the resources are limited it needs to come up with new strategies of acquiring the resources and they have to be cheap and applicable. An organisation is able to flourish in the global business if it finds its way to adhere to the resource allocation status of different nations. For instance, if the organisation uses a high-tech mode of production that can not be found in the country, it needs to take up some people who have knowledge of the similar technology and train them. This will increase the labour rates as the people of that area will seek such courses to be competent in that industry. 2) Costs in countries Though the global concept embraces the equal spread of technology and economic chances, it is important to note that nations experience different costs of production. This is mainly due to the different levels of technology and resource availability. For this reason, a company needs to have different budgets for its different allocated companies. This will enable them to know where they can emphasise on to make profits. For example, in developing countries, labour is readily available and cheap thus a company should avoid bringing in capital intensive production methods because they will be too expensive. On the contrary, capital intensive production methods need to be used in developed countries as capital is cheap and readily available as compared to labour. This will make a company to use the best factor of production thus increasing its profit margin in the respective country of allocation (Hubert, 2004, pp.27-34). 3) Economies of scale When an organisation is expanding, it needs to do so in areas whereby it will experience the economies of scale. It is evident that globalisation does not favour all industries. This is so because some have a flatter curve of economies of scale as they expand their services (Robert, 2004, pp.252-330). For example, the service and furniture industry experience a flatter curve in economies of scale as compared to other machine industries such as the fax industry. Though it continues to increase its volume of service provision globally, it losses about 30% to 40% of sales yearly. An organisation can fit best in globalisation if its cost of production decrease by 20% as it doubles it production volume. It is notable that industries that deal with aircrafts and transportation also experience high levels of economies of scale than those which are bound to rely on rent and labour. Even though the global concept reveals that there are equal opportunities in expanding for all countries, it is wise for the management to know if its company can survive in the global market to prevent it from failing once it expand to meet the global demand. 4) Transportation costs Transport costs differ around the world. This is due to the differences in fuel availability and development. The transport costs in developing countries are very expensive. This is so because they have poor transport networks for example, poor roads, lack of high quality vehicles and aeroplanes (Zander, 2002, pp.327-353). For such reasons, transporting goods to such areas is very expensive. They take a longer time to arrive to the targeted destination. Some also arrive when they are damaged. For such reasons, a company is prone to encounter losses that it could avoid if it carried the right research thus would employ better methods to avoid delays and damages. For such reasons globalisation favours specific companies for instance a company that deals with diamonds will have prevalence in surviving within the global market because diamonds do not damage easily. Organisations that are dependent on perishable goods or easily damaged goods are likely not to survive because they damage quickly. Thus it is important for a company to know how much transport will cost as it tries to expand in different countries. The distance really matters too. Thus this will reveal the best transportation method it can use. 5) customer relations An industry needs to identify what it customers need. An organisation needs to identify if it can find a common customer globally. Globalisation generally favours common customers. Common customer basically entails people who have the same needs of a product. It is important to know that although there are customers who have common needs it only occurs in specific industries like the facsimile industry. In some, the customers portray different needs and it is important for organisations that are planning to be in the global market to know that different customers prefer different products. For example for the furniture industry to survive in the global market it needs to be very diverse. This means that it needs to identify with the different tastes and cultures of the people of different countries (Dan, 2006, pp.120-135). Even though the global concept seems to show that everyone globally should access the same products, it is quite difficult for some industries to survive if they embrace such ideas. This is so because of the different beliefs that people all over the world (Buckley, 1998, pp.21-44). For instance, in Japan, people rarely use wooden furniture in their houses, it will be of a great loss if a company that deals with furniture to put their concentration on house furniture only not considering the Japanese culture of sitting on pillows in their houses. In addition, it is important for an organisation to have diversified products to capture all customers in different parts of the world. For instance, a Japanese individual should access the well designed traditional attires while living in the United Kingdom. Firms are likely to succeed in the global market if they use the best marketing strategies. It is quite important to know the importance of branding. Multinational companies are characterised by the fact that they have one brand name globally. This makes it easy for customers to identify the product once they travel to a different part of the world. Such companies excel because they are able to meet the wants of their customers all over the world (Birkinshaw, 1997, pp.27-29). For example, someone who will travel from the United Kingdom to America will be very comfortable as he or she can access the products of coca cola (Peng, 2006, chp.8). 6) Government Though the business world is embracing the concept of globalisation, the government is still playing a major role in ensuring that it thrives or at the same time prevent its continuations. The government plays a major role in setting up policies. For instance it is responsible in setting up the trade policies. The main aim of trade policies is to prevent the death of local industries. This is so because most countries want to protect their pride within the global entity and they know if they give multinational corporation freedom in production, they will definitely take it away. This is part of setting up competition too as governments need to favour their own industries (Jan-Erik, 2006, pp.54-67). Though globalisation was urging different countries to open up and allow free trade, very many countries have not embraced this concept. This is mostly seen in the Middle East countries whereby they still have harsh regulations for entry of multinational companies in their economy. They highly tax companies that seem to be very competitive if they want to allocate in their entities (Brian, 2001, pp.9-15). 7) Human resources strategies. Strategic human resource management aims at helping leaders' to use their human capital effectively as they make decisions daily and plan for employment programs. Many companies have sought cheap labour from different countries but the strategy seems to fail in achieving the goals of the organization thus has called for the need to come up with the global ways of practicing the human resource strategies (Hedlund, 1986, pp.9-25). The management of global multinational organisations is yet to meet more challenges in the current century. It is important for it to be flexible, easily adapt to changes and appreciate team work with its employees. Today, very many people are looking for working environments where they can exercise their skills and knowledge but not where they can only follow instructions and not grow in their careers. For this purpose the global human resource planning has been brought forward in many multinational organisations to help the management to know how they can adopt to changes to avoid the future challenges it is yet to face (Goodman, 2007, chapter 4&9). References Bartlett, C.A. and Ghoshal, S. and Beamish, 2008. Transnational Management. Text, Cases and Readings in Cross-Border Management, fifth edition, McGraw-Hill chapters 3 and 4. Birkinshaw, J., 1997. 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Karsten R., 2000. International politics: Privet organisations in global governance by Greenwood publishers . Pp. 120-134. Kogut, B., 1985. 'Designing Global Strategies: Profiting from Operational Flexibility', Sloan Management Review, Vol.27 (1), pp. 27-38. Peng, M., 2006. Global Strategy, Thomson South Western. chapter 8. Robert S., 2004. Microeconomics- Business & Economics: Market structures. Pp. 252-330. Rugman A.M. and Verbeke A., 2003. 'Extending the theory of the multinational enterprise: internalization and strategic management perspectives', Journal of International Business Studies, vol. 34, pp. 125-137. Slvell, . and Zander, I., 1995. 'Organization of the dynamic multinational enterprise - the home-based and the heterarchical MNE', International Studies of Management and Organization, vol.25, pp.17-38. Zander, I., 2002. 'The formation of international innovation networks in the multinational corporation: an evolutionary perspective', Industrial and Corporate Change, vol. 11, no. 2, pp.327-353. Hi, The recommendations are mine though they are supported by scholars and I meant them to be part of the conclusion. Sorry for that confusion. Read More