Multinational management is the formulation of strategies and the design of management systems that successfully take advantage of international opportunities and respond to international threats. Successful multinational managers are executives with the ability and motivation to meet and beat the challenges of multinational management.
Growing Opportunities
The growing middle class in countries such as China, India, Russia, and Brazil will largely exceed the combined population of the United States, Western Europe, and Japan, and they aspires to live a more comfortable life by owning U.S. and Western branded products. This suggests tremendous opportunities for multinationals.
The Multinational Options
The multinational company is broadly defined as any company that engages in business functions beyond its domestic borders. What kinds of business activities might make a company multinational? The most apparent activity is international sales. When a company produces in its own country and sells in another country, it engages in the simplest level of multinational activity. However, crossing national borders opens up more multinational options than simply selling internationally. Suppose a domestic-only company, it can buy the dye, make the fabric, design, produce its products, and sell the shirt, all in the United States. However, the U.S. market may be stagnant, with competitive pricing and lower profit margins. The competitors might find higher-quality fabric or dye from overseas suppliers, or lower production costs in low-wage countries, allowing them to offer lower prices.
The Worldwide Trend
Globalization is the worldwide trend of the economies of the world becoming borderless and interlinked. Companies are no longer limited by their domestic boundaries and more likely to compete anywhere, source their raw material, and produce their products anywhere. Some of the most important trends are falling borders, growing cross-border trade and investment, the rise of global products and global customers, the growing use of the Internet and sophisticated information technology, privatizations of companies formerly owned by governments, the emergence of new competitors in the world market, and the rise of global standards of quality and production.
Not All Economies of The World Are Benefiting Equally
Terrorism, wars, and a worldwide economic stagnation have limited some the aspects of globalization and even producing some worrisome effects such as scarcity of natural resources, environmental pollution, negative social impacts, increased interdependence of the world’s economies, and widening the gap between rich and poor countries.
Beneficial to The World’s Economies
Globalization is resulting in lower prices in many countries as multinationals are becoming more efficient. Many emerging markets such as India and China to enjoy greater availability of jobs and better access to technology.
The Classifications
The classifications roughly indicate a country’s gross domestic product (GDP) and the growth in GDP, but they are not exact, they just simplify discussions.
Less developed countries are the poorest nations and often plagued with unstable political regimes, high unemployment, and unskilled workers. But, they are experiencing significant growth in their share of world trade with sharp increases in the past
The World Trade Organization and Free Trade Areas
In 1947, several nations began negotiating to limit worldwide tariffs and encourage free trade. At that time, worldwide tariffs averaged 45%. These negotiations were known as GATT, the General Agreement on Tariffs and Trade. In addition, the WTO provides a formal structure for continued negotiations and for settling trade disputes among nations.
Is free trade working? The data seems to support its conclusion
Since the early GATT agreements, world trade has grown at more than four times the output of the world’s gross domestic product. However, some argue that the WTO favors the developed nations because it is more difficult for poorer nations to compete in a non-regulated world and they also move environmentally damaging production to poorer and often environmentally sensitive countries.
Regional trade agreements or free trade areas are also agreements among groups of nations to reduce tariffs and develop similar technical and economic standards such as the EU, NAFTA, and APEC.
The NAFTA
The North American Free Trade Agreement (NAFTA) links the United States, Canada, and Mexico in an economic bloc that allows freer exchange of goods and services. After the agreement went into effect in the early 1990s, all three countries saw immediate increases in trade.
The Global Networks
Multinational companies not only trade across borders with exports and imports but also build global networks that link supply, production, and sales units across the globe. The cross-border ownership, called foreign direct investment, is on the rise.
The Internet and Information Technology Are Making It All Easier
The explosive growth in the Internet as well as in the capabilities of information technology increases the multinational company’s ability to deal with a global economy. The Internet makes it easy for companies to go global since any web site can be accessed by anyone in the world. Electronic communication such as e-mail and the World Wide Web allows multinational companies to communicate with company locations throughout the world.
The Privatizations
The developing nations use privatizations to jump-start their economies or to speed the transition from a communist system to a capitalist system. Multinational firms often acquire the best companies in the developing world.
New Competitors Are Emerging
The free-market reforms in emerging countries are creating a potential group of new competitors in the world market. In many cases, these new competitors had to survive brutal competition in their domestic markets to become successful.
New Opportunities
When the large multinationals use developing countries as low-wage platforms for high-tech assembly, they facilitate the transfer of technology. Workers and companies in developing countries often learn new skills. In countries where the workers are well educated and motivated, the former assemblers often become the creators rather than the builders of advanced technologies.
The Rise of Global Standards
Especially in technical industries, global product standards are common such as the AA batteries anywhere in the world, and it will fit in your flashlight. Many electronic devices are now smart enough to overcome these differences. Power sources for computers often can adjust automatically for differences in voltage.
The International Organization for Standardization (ISO) in Geneva, Switzerland has developed a set of technical standards known originally as ISO 9000, now called the ISO 9001:2000 series. There also are environmental protection standards known as ISO 14000. Many large European multinationals such as Germany’s Siemens now require suppliers to be ISO-certified.
The next generation of successful multinational managers must have the following characteristics:
i. A global mindset, it requires managers to think globally, but act locally.
ii. The ability to work with people from diverse backgrounds.
iii. Emotionally intelligent.
iv. A long-range perspective
v. The ability to manage change and transition
vi. The ability to create systems for learning and changing organizations
vii. The talent to motivate all employees to achieve excellence and Accomplished negotiating skills
The Strategic Approach
Strategy is defined here as the activities that managers use to sustain and increase organizational performance. Strategy formulation is the process of choosing or crafting a strategy. Strategy implementation includes all the activities that managers and an organization must perform to achieve strategic objectives.
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