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

Submitted To: Ms. Conchita Fonseca Professor, College of Undergraduate Studies University of Wollongong in Dubai

Date: 2 April 2009


Table of Contents 1.0 2.0 3.0 4.0 5.0 6.0 Executive Summary Introduction Concept of Multi-National Corporations Issues and Challenges Multi-Domestic Corporation Issues and Challenges

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This document was downloaded from Coursework.Info - The UK's Coursework Database - 7.0 8.0 9.0 10.0 11.0 12.0 13.0 14.0 15.0 16.0 17.0 18.0 19.0 20.0 21.0 22.0 23.0 Global Company Issues and Challenges Transnational Company Issues and Challenges Born Globals Issues and Challenges Micro-National Corporations Issues and Challenges Perspectives in Multi-National Corporations Ethnocentric approach Polycentric approach Geocentric approach Regiocentric approach Global Strategy Viewpoint Real Life Examples Conclusion 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 Page 2 of 14This document was downloaded from Coursework.Info - The UK's Coursework Database -

This document was downloaded from Coursework.Info - The UK's Coursework Database - 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 Page 3 of 14This document was downloaded from Coursework.Info - The UK's Coursework Database -

This document was downloaded from Coursework.Info - The UK's Coursework Database - 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 (OConnell, 2009). This would mean that companies may choose which products will Page 4 of 14This document was downloaded from Coursework.Info - The UK's Coursework Database -

This document was downloaded from Coursework.Info - The UK's Coursework Database - 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). 6.0 ISSUES AND CHALLENGES 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 interreliant 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). 8.0 ISSUES AND CHALLENGES 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, Page 5 of 14This document was downloaded from Coursework.Info - The UK's Coursework Database -

This document was downloaded from Coursework.Info - The UK's Coursework Database - 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.

10.0 ISSUES AND CHALLENGES One of the crucial challenges faces by transnational companies is that consumers expect them to be socially responsible in terms of public health, workers 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 companys 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. 12.0 ISSUES AND CHALLENGES Page 6 of 14This document was downloaded from Coursework.Info - The UK's Coursework Database -

This document was downloaded from Coursework.Info - The UK's Coursework Database - 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. 14.0 ISSUES AND CHALLENGES 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 MultiNational Corporation; ethnocentric, polycentric, geocentric and regiocentric. These Page 7 of 14This document was downloaded from Coursework.Info - The UK's Coursework Database -

This document was downloaded from Coursework.Info - The UK's Coursework Database - 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 countrys 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 Page 8 of 14This document was downloaded from Coursework.Info - The UK's Coursework Database -

This document was downloaded from Coursework.Info - The UK's Coursework Database - 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 worlds 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 worlds 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 Page 9 of 14This document was downloaded from Coursework.Info - The UK's Coursework Database -

This document was downloaded from Coursework.Info - The UK's Coursework Database - 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 companys 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 CocaCola 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 CocaCola 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). Training and Understanding watersheds

creates A Sustainable Environment regains

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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 enewsletter 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 called A P&G values and a campaign Update on Innovation in

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This document was downloaded from Coursework.Info - The UK's Coursework Database - Alternative Testing and Care was launched. 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, LOreal, 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 companys 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. Page 12 of 14This document was downloaded from Coursework.Info - The UK's Coursework Database -

This document was downloaded from Coursework.Info - The UK's Coursework Database - 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-Colas Latest Scam Water Neutrality Available: [Accessed 20 March 2009]. B.N. Kirpal to head Coca Cola environment council, The Hindu, 19th Dec 2003, Available: [Accessed 20 March 2009]. Page 13 of 14This document was downloaded from Coursework.Info - The UK's Coursework Database -

This document was downloaded from Coursework.Info - The UK's Coursework Database - Hoovers, 2009, Company Research: Coca-Cola Corporate Information Available:,target__company_research--/free-cosamples-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: [Accessed 21 March 2009]. P&G Corporate Archieves, 2006 P&G A Company History 1837-Today Available: [Accessed 17 March 2009]. Forward Focus, 2008, A P&G Update on Innovation in Alternative Testing and Care, Available: [Accessed 18 March 2009]. In Defence of Animals, 2004, P&G Kills [Online] [Accessed 21 March 2009]. Available:

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