Multinational corporations and their global operations

MNCs

Multinational Corporation Structures

The intent of this analysis is to evaluate five different multinational corporation (MNC) structures, citing examples of corporations using them and the strengths and weaknesses of each. The five structures include corporations with a domestic structure plus export department, domestic structure plus foreign subsidiary, global structure, global functional structure and global product structure.

Domestic Structure plus Export Department

This form of MNC structure is common in nations who rely on exports for the majority of their revenues and Gross Domestic Product (GDP). Japanese companies often have deep expertise in this area, with Panasonic, Toyota, and Toshiba having extensive export departments that deal with such critical process and strategy areas as compliance, pricing and warranty claims by nation (Voisey, 2010). The advantages of this approach are that deep expertise on individual nation's requirements are captured as tacit knowledge within an organization, there is often greater control over pricing and compliance costs, and the ability to coordinate multinational product introductions is enhanced. The weaknesses of this structure include the time to respond to rapidly changing market requirements, the lack of cultural awareness in export offices where employees may have not spent time in the countries being sold to, and lack of trust between the export offices and local governments due to infrequent contact. This structure has been very effective for Japanese companies in the last fifty years.

Domestic Structure plus Foreign Subsidiary

IBM has successfully pursued this strategy first throughout Europe and later through Asian nations where each subsidiary has profit & loss responsibility and the decision of which products to sell (Bramante, Frank, Dolan, 2010). The advantages of this approach include having a centralized base of support and service globally, the ability to tailor products and services to individual market requirements by hiring experts in each subsidiary location, and lower costs over time of tailoring products to individual market needs. The disadvantages of this approach include lengthy time to launch new products, lack of global coordination across subsidiaries, and the potential for partnerships at a regional or national level to be uncoordinated to global product and marketing strategies.

Global Structure

Retailers often rely on a single global structure to provide for economies of scale, greater coordination of supply chain costs and timing, and greater development of global distribution channel selling relationships (Wang, Chan, 2010). High-end clothing retailers with short product lifecycles on fashions, including the top clothing designers rely on this approach to organizing their operations as it provides control of the shopping and customer experience globally. The disadvantages of this approach is that can be exceptionally expensive to keep coordinated and synchronized over time, lacks per-country visibility of performance in certain instances, and takes away the potential for companies to negotiate effectively with in-country suppliers on specific programs.

Global Functional Structure

WalMart has one of the most efficient and pervasive supply chains globally mainly due to the decision to have a global functional structure around the processes in this area. WalMart centralizes supply chain management, planning and optimization to ensure the highest levels of efficiency and cost reduction are attained, which is one of the major advantages of this organizational structure (Egelhoff, 2010). Additional advantages are the ease of synchronizing product and service strategies across multiple geographies, and the ability to analyze sales and product trends literally overnight, as WalMart does through its analytics and data mining applications. The disadvantages include the lag time to react to opportunities in key markets, the lack of visibility into niche markets that may grow in time to be very large, and a lack of localization that is often compensated for in years of investment in new countries.