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Multinational Enterprises

A multinational corporation/enterprise is an organization doing business in more than one country.

The World Bank has classified the whole globe in the following pattern of countries : First World: High income countries, heavily industrialized, high quality of life, high purchasing power, high educational level. The country must have a GDP per capita of $3,600.00 or more.

Second World or Economies in Transition: Advanced industrialized with former socialist system. Centrally planned, or formally centrally planned economies,, Politically unstable, undergoing rapid changes, GDP less $3,600.00 but greater than $490.00.

There is low per-capita income, low quality of life, short life expectancy (of 40 years or less), low purchasing power, and GDP is less than $410.00. Income distribution is unfair and uneven. The middle income countries have one or two of the economic indicators. GDP is less than $3,600.00 and greater than $490.00

Third World or Developing Economies:

The newly industrialized countries are no longer mainly agricultural but also extractive. They own resources that are exported to industrialized countries, example: Oil. They have a high per capita income, better quality of life, and are moving from agricultural to industrialization.

Distinction Among IC,MNE, GC and TNC:


International Corporation: International Company (IC) conducts the operations (exporting, producing etc.)in one or more foreign countries, but with domestic orientation.

Multinational Enterprise (MNE): This company conducts business in more than one country or market area. MNEs are generally large firms whose operations and functions expand beyond the spectrum of national boundaries. They do not have to be a large corporation.

Global Corporation: Glabal Corporation produces 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. Transnational corporations ( TNCs) are corporations owned and managed by the United States in different countries. Transnational corporations also tend to view the world as one giant market for purpose of business. TNCs combine elements of function, product, and geographic designs, while relying on network arrangements to link worldwide subsidiaries.

Four main criteria to identifying a MNE:


1. Structure of Corporation 2. Behavior 3. Performance 4. Coordination

1. Structure refers to the number of countries in which the MNE operates. Also refers to the nature of corporate ownership. Examples: Suzuki owned by GM, Gillette is U.S. owned, an Mitsubishi is owned by Japan

2. Performance is the percentage of total revenues, profits, assets and employees coming from abroad. The greater the reliance of the corporation on foreign materials, production, personnel and product plants, the more global the corporation is. If they derive 40% or more from outside the home country, the MNE is considered Stateless Corporation. At Nestle, 98% of business is done abroad-Switzerland is home country.

3. Behavior is the attitude of top management toward the role of international operations within the total corporate strategy. In most of the European corporations, the majority of CEOs are from foreign countries.

4. Coordination is how the firm looks at its worldwide operations, multi-domestic or global. Multi-domestic is where each country is considered a different market (Japan uses the term multi-cultural corporation). The corporation is really a collection of subsidiaries. .

Factors Contributed for the Growth of MNCs:


1. Larger market, market power 2. Growth and expansion 3. Optimization of resources 4. Corporations need to compete 5. Corporations need to maximize profits. 6. Vertical integration 7. Oligopoly, monopoly competitor - ownership and control:

8. Economies of Scale and Economies of Scope. 9. Product Life Cycle (introduction, growth, maturity, and decline)

Organizational Characteristics of a Multinational Enterprise


1. Formalization: is define as the use of structures and systems in decision making, communicating and controlling A. Objective Formalization: refers to the number of documents, organizational charts, information booklets, operational instructions, written job schedules and descriptions, procedure manuals, written policies, schedules, and programs. B.Subjective Formalization: tends to be vague and with less specific goals and procedures, informal controls, and more cultural induced values.

2. Specialization: are the organizational characteristics that assign individuals to specific well define tasks: A. Horizontal B. Vertical Specialization

1. Centralization. : is a management system under which important decisions are made at the top of the pyramid Decentralization is moving down to the lower level personnel. All important decisions are taken by individuals or private institutions and the function of the government is simply to provide a framework and stability within which the market operates. For example, United States of America and Germany.