Structural design of MNE’s

Definitions
• The concept of multinationality has several
dimensions
• Definition by size
• Definition by structure
• Definition by Performance
• Definition by behaviour
• Internationalisation is not a one dimensional
concept.
• Prof. Sullivan has proposed an aggregate index of
the degree of internationalisation. This includes
5 variables:
• The ratio of foreign sales to total sales
• The ratio of foreign assets to total assets
• Proportion of overseas subsidiaries to total
subsidiaries
• Top managers international experience
• Psychic dispersion of international operation
(dispersion of subsidiaries around psychic cultural zones)
• “ An MNC is one with significant investment
and operations in a number of countries,
generating significant share of total revenue
from foreign markets”
How it works?
• MNCs control 1/3rd of the world’s export
 10 largest multinational corporations ( Fortune
Global 500 List 2018)
• Walmart ($500.34 billion)
• State Grid ($348.90 billion)
• Sinopec Group ($326.95 billion)
• China National Petroleum ($326.01 billion)
• Royal Dutch Shell ($311.87 billion)
• Toyota Motor ($265.17 billion)
• Volkswagen ($260.03 billion)
• BP ($244.58 billion)
• ExxonMobil ($244.36 billion)
• Berkshire Hathaway ($242.14 billion).
 Arguments for
• MNCs can
- Provide investments to other countries
- Create jobs
- Increase development of infrastructure
- Bring technology to other countries
- Create access to world market
 Arguments against
• MNCs
- De capitalize other countries, they take
profit/money/resources.
- Can create any quality of people and
resources, some MNCs pays well leads to
income inequality
- Exploit poor country
- Creates dependency of poor country
- Creates challenges to the domestic companies
 Benchmarks
• A multi national company must:
1. Produce abroad as well as in the headquarters
country
2. Operate in a certain minimum number of nations
(6 or more)
3. Derive some minimum percentage of its income
from foreign operations
4. Have certain minimum ratio of foreign to total
number of employees or of foreign total value of
assets.
5. Directly control foreign investment
Approaches of International
Business
 Ethnocentric Approach
• The domestic companies formulates their
strategies, pdt designs and operation towards the
national mkt.

• Excessive pdn push the company to export to

foreign countries.

• Export the same pdt designed for domestic market

to foreign countries.
• P&G
Organizational structure of Ethnocentric company

Managing
Director

Manager
Manager Manager Manager Manager
Human
R&D Finance Production Marketing
Resources

Assistant Assistant Assistant

Manager Manager Manager
North South Export
 Polycentric Approach
• Ethnocentric companies on a latter stage finds foreign
markets needs a different approach

• Establishes foreign subsidiary company and decentralizes

all operations

• Appoints the key personnels from home country and all

other vacancies are filled by people of the host country.

• Formulates strategies, policies, pdt designs etc based on

the host ctry’s envt
Organizational structure of Polycentric company

Managing
Director

CEO of Foreign
Subsidiary

Manager
Manager Manager Manager Manager
Human
R&D Finance Production Marketing
Resources
 Regiocentric Approach

• The company after operating successfully in a

foreign country, thinks about exporting to the
neighbouring countries of the host country.

• Considers the regional environment for

formulating policies and strategies
Organizational structure of Regiocentric company

Managing
Director

CEO of Foreign
Subsidiary

Marketing Marketing
Country A Country B

Manager
Manager Manager Manager Manager
Human
R&D Finance Production Marketing
Resources
 Geocentric Approach
• Entire world is like a single country

• Selects employees from entire world

• Operates with no. of subsidiaries
• Headquarters co-ordinate the activities
• Each subsidiary functions like an independent and
autonomous country.
• They formulates policies, strategies, HR etc
Organizational structure of Geocentric company
Managing
Director
At the Headquarters

Subsidiary Subsidiary Subsidiary

Subsidiary Subsidiary
Con C Con D Con E
Con A Con B
Stages of Internationalisation
 Factors contributed
• Globalisation of various economies
• Establishment of WTO
• IT revolution and its application in business
• Higher growth rate of transportation
technology consequent reduction in cost
increase in speed and efficiency
• Enlargement of European union
• Higher growth rate countrie like India, China,
Korea etc
• Spread of MNC’s in newly globalised countries
 Different stages
 Stage I
Domestic company
• Limited operations
• Focus on domestic market, suppliers,
financial companies, customers etc
• Never thinks growing globally
• Diversification of strategies only for
domestic markets
 Stage – 2
International Company
• Some of the domestic companies will think of
internationalizing their operation
• These companies remain ethnocentric or
domestic country oriented, but extend its
operations to the foreign countries
• Extend the domestic pdt, domestic price,
promotion and other business to the foreign
markets
 Stage – 3
Multinational company
• These companies are also referred to as
multidomestic companies.
• Formulates different strategies for different
markets
• Orientation shifts from ethnocentric to polycentric,
ie; MNC’s work like domestic companies in each
country where they operate with distinct policies
and strategies suitable to the country concerned
 Stage – 4
Global company
• These companies follows either global
marketing strategy or global strategy.
• Produces either in home country or in a single
country and focuses on marketing these
products globally
or
• Produces the products globally and focuses on
marketing these products domestically
 Stage – 5
Transnational company
• Companies produces, markets, invest and
operates across the world
• They links global resources with global markets
at profit.
Characteristics of a Transnational company

1. Geocentric orientation: thinks globally and acts

locally.
Adopts global strategy but allows value addition
to the customer of a domestic country.
2. Scanning or Information acquisition: collects and
scan the data and information world-wide
3. Vision and aspirations: vision and aspirations are
global
4. Geographic scope
5. Operating style
6. Adaptation
7. Extension
8. HRM policy: selects the best human resources and
is not restricted by national, political or legal
constraints.
9. Purchasing: Procures world-class material from
the best source across the globe
 Domestic International MNC Global Transnational

Strategy Domestic International Multidomestic Global Global

Model NA Co-ordinated Decentralised Centralised Integrated
federation federation Hub network

View of Home Extension National Global Global

World country Markets Or resources Markets markets
Markets and
resources

orientation Ethnocentric Ethnocentric Polycentric Mixed Geocentric

Key Located in Core centralised Decentralised All in home Dispersed

Assets Home ctry Others And self- ctry accept independent
dispersed sufficient mkting or
sourcing