The purpose of this essay is to analyse the contemporary challenges facing the management of a Multi-National Corporation. A multinational corporation (MNC) is a company engaged in producing and selling goods or services in more than one country. (Shapiro, A; 2010) Besides that, multinational corporation can be defined as a company or group that derives a quarter of its revenue from operations outside of its home country. (Business dictionary, 2013) It generally consists of a parent company situated in the home country and approximately five or six foreign subsidiaries, usually with a high degree of strategic interaction amongst the units. The largest MNCs are oil companies such as BP and Exxon (Esso) and car companies such as Ford, Toyota and Volkswagen. Other famous companies such as Sony, IBM and Coca-Cola are also defined as being multinational. Lots of MNCs have about 100 foreign subsidiaries strewn around the world, and all of them face a number of challenges, which they need to deal with. This essay will discuss these issues providing different writers’ opinions and giving examples.
There is no company without problems it is facing. Whether a corporation is big or small, there will certainly be some kind of issues preventing against its continuity. Despite the fact that multi-national corporations effectively organise the production and marketing around the world and also increase global output and improve well-being, they can also cause some serious problems for its own and other countries. For instance, problems with human resources operations. Human resource managers might have to overcome some cultural barriers to find well qualified specialist for the needed positions in a foreign country. Besides, management professionals may face a lack of skilled abilities to fill the main positions that also require a higher degree and experience. Finding workers at home country who are skilled or enthusiastic to get involved and fill such positions outside of their home may also be challenging. Some employees probably might not want to work and live in certain parts of the world due to the different personal reasons.
Another problem that multinational companies may face is communication and culture differences. It is especially essential that managers understand the traditions and ethical norms of other countries so that they can avoid any misunderstandings or conflicts between them. In some Asian countries, bowing, rather than shaking hands, is a more suitable form of greeting. Also, sending a woman to business negotiations may be considered as disrespect or even facetiousness. A Bata Shoe Company executive tells the story of a subsidiary in which women workers who came to talk to their male supervisors would sit on the floor, facing the wall, with their backs to supervisor. (Punnet, B.J. et al 1997) It was obvious that the question of how to communicate successfully can no longer be answered in traditional Western terms. Besides, language seems to be important in people’s socialisation. Language teaching courses can be rather expensive and time consuming; and some people find it difficult to learn a new language. A corporation might employ translators to go from one language to another but very often managers face problems with misleading and wrong meaning in the foreign language. For example, the Coca-Cola Company planned to set up in China in the 1920s and wanted to introduce its product with English pronunciation. Naturally, it was complicated and had a completely different meaning.
MNCs always face with a range of financial problems. The set of risks is larger for multinational corporations rather than for home country companies. Multinational managers face extra risks, for instance, currency value changes in the market (cost for traders can suddenly raise far more than expected and the company may have no earnings; also, foreign debt obligations can become more high-priced), additional licenses and other documents are frequently required because of the discrimination between foreign and local firms, besides, the risk of expropriation also exists. A foreign exchange rate risk is one of the most difficult. It is a rate at which firm might exchange one currency for another. (Punnet, B.J. et al 1997) There is always an amount of risk when it comes to selling the product will it be a success and how much money customer will pay for that. A planning process of selling goods the price is important. For example, the prices for Apple Company’s products are always varying depending on where they are selling. Foreign currency fluctuation is one of the key sources of risk in multinational operations. (Shapiro, A; 2010). Many of the transactions are so large that even the banks require professional. For example, 10 million Belarusian rubles are 760 British pounds. “One of the largest British banks HSBC agreed to a record $1.92 billion settlement with authorities. The bank faced prosecution that it transferred billions of dollars for nations like Iran and enabled Mexican drug cartels to move money illegally through its American subsidiaries.” (NY times, 2012) This incident could put at risk one of the world’s largest banks and ultimately destabilised the worldwide financial structure.
Foreign investment has both benefits and a negative side. Firstly, the most significant disadvantage is that foreign investment can cause a high dependence on the world. E.g. the provision of needed resources like technology, capital, etc. Secondly, inappropriate technology provided by MNCs to the host sometimes is out of date or too advanced. In many cases, the host does not have enough knowledge about how to use it properly. This can make them believe that many multinational corporations do not pay plenty attention to the real requirements of the country. (Punnet, B.J. et al 1997) Thirdly, the exploitation can increase. Sometimes multinational corporations are using non-renewable resources. Surely, MNCs might take new services and products existing locally. By doing this, consumption can increase, as well as local funds and investment can decrease.
Joint ventures or partnership have become reasonably common in multinational business. It has both advantages and disadvantages. Joint ventures provide a means to spread large capital needs over a number of parties; most important projects are possible only if a partnership exists. This spreading of the initial investment spreads the risk between the business colleagues. It takes time and effort to build the trustworthy relationship and partnership with another business can be challenging. Problems are likely to arise if there is instability in a level of knowledge or resources brought into the project by the different partners. Also, different cultures and management methods lead to low co-operation and integration. It is highly important to re-evaluate the business strategy before committing to a joint venture.
The last but not the least important issue in managing MNC is environmental damage. It is worth pointing out that the transportation of almost all goods in the world depends on the use of fossil fuels. Multinational corporations often produce goods in countries such as Thailand, China and Japan where earnings are quite low, and import them to Europe countries or America by means of large cargo ships. This extensive use of transport leads to sizable environmental damage. The damage becomes even worse due to the lack of strict environmental rules which obviously can lead to pollution, waste and release of toxic substances. The Guardian Newspaper article states that the United Kingdom air pollution causes 50,000 deaths a year and short people’s lives by as much as nine years. (Guardian, 2010) It is argued that people would not survive long if they ignored their impact on the environment.
All in all, this essay discussed the importance of management and what role it plays in multinational business. MNCs face a number of different challenges such as cultural differences between the partners and co-workers, financial problems, double taxation, negative aspects of foreign investment and joint ventures as well as global environmental contamination because of the use of fossil fuels. There are many things that could go seriously wrong. (Sauvant, P ;2008) The introduction of various nations into the business process means introducing different methods to run the business. To be effective in a multinational business, corporations need to understand these management challenges and be able to use this knowledge to their advantage.
References & Bibliography
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Lewis, J. (-). What Are the Cultural Problems Encountered by Multinational Companies? Read more: What Are the Cultural Problems Encountered by Multinational Companies?. Available: http://www.ehow.com/info_12199203_cultural-problems-encountered-multinational-companies.html. [Last accessed 21st April.]
Protess, B;Silver-Greenberg,J.. (2012). HSBC to Pay $1.92 Billion to Settle Charges of Money Laundering. Available: http://dealbook.nytimes.com/2012/12/10/hsbc-said-to-near-1-9-billion-settlement-over-money-laundering/. [Last accessed 23rd April 2013.]
Punnet, B.J.; Ricks, D.A (1997). International business. 2nd ed. Cambridge: Blackwell Publishers Ltd. p380.
Sauvant, P (2008). The rise of transnational corporations from emerging markets. Cheltenham: Edward Elgar Publishing Ltd. P.18.
Shapiro, A (2010). Multinational Financial Management. 9th ed. Danvers: John Wiley & Sons Pte Ltd.p. 4.
Vidal, J. (2010). UK air pollution causes 50,000 early deaths a year, say MPs. Available: http://www.guardian.co.uk/environment/2010/mar/22/air-pollution-deaths.%5BLast accessed 25th April 2013.]