1
A multinational corporation (MNC) controls assets in at least one facility other than its home country. These organizations typically have a centralized head office where they coordinate global management and derive a percentage of total revenue from outside operations.
The ‘order penetration point’ decision is analogous to the choice made by a multinational corporation on the macrostructure best suited to coping with the institutional and cultural diversity of the environments in which the MNC is operating (Noorderhaven et al. 359). The manufacturing phase of mass production is often planned in advance, but the distribution of the finished product is subject to changes in demand. Headquarters and regional divisions serve as the primary interaction between the cultural and institutional variety of a MNC’s different locations and the core of the MNC itself. The regional departments modify their strategies in response to the different circumstances in their respective regions. The headquarters of a multinational corporation protects the corporation’s shared qualities and broad capabilities. However, in the transnational, the product-based element of the organization interfaces with the subsidiaries in several countries.
Multinational corporations have their own brand of institutional complexity, and their local subsidiaries must deal with “institutional duality,” or the challenge of maintaining legitimacy in two distinct contexts at once (Noorderhaven et al. 361). The need to navigate cultural and institutional variations has increased in importance with the prevalence of relationships between subsidiaries and their parent corporations. The effect of local institutions will vary from circumstance to scenario, adding another layer of complexity. Multinational corporations may opt to establish operations in regions of a country with less strict restrictions. If a multinational corporation introduces a new organizational practice into a country, it may challenge the stability of the country’s institutions and the legitimacy of the preexisting practices.
As stated in the article Why Brazil Still Is a No-Go for IKEA, “in developed markets, IKEA is positioned as a low-priced mass-market brand, but in emerging markets where low prices are the norm, it targets a growing middle class that aspires to international lifestyle products.” Brazil is the only BRIC country that does not have an IKEA store. The reasons are many, and one of them is that Brazil has very high taxes for imported goods, around 75% or greater over FOB cost. The imported goods taxes are high with the reason to protect the local companies.
References:
Noorderhaven, Niels, et al. “Comparative International Management.” Taylor & Francis Group (2015).
Picasso, Ana Paula. “Why Brazil Still Is a No-Go for IKEA.” Emerging Markets Today (2016).
2
How do MNCs respond to cultural and institutional diversity? What are the strategies unique to MNCs?
MNCs respond to cultural and institutional diversity by adapting business practices to the local culture. By adapting to the culture, businesses perform better because cultural differences coincide with the local legislation, labor unions, and stakeholders’ organizations that influence the market. The relationship between the parent company and the subsidiary also plays a big part because subsidiaries with stronger ties to local institutions are more successful, which helps expand the brand’s reach.
One unique strategy that MNCs have is performing an external analysis of the desired market and identifying strategies for cost leadership. For example, a company can perform external analysis to understand the local market, such as product knowledge transfer and the production of products in proximity to customers.
Walmart entered the Chinese market in 1996 and had to adapt to the local culture and economy. Walmart did this by partnering in a joint venture with a company run by the son of a former Chinese vice president. The corporate website states, “Walmart China focuses on nurturing local talent and diversity. As a result, Chinese associates make up 99.9% of the total workforce.” Also, the company has brought innovation to the market by being the first to roll out a program that allows customers to use smartphones to scan scan-and-go in-store as well as for online shopping and delivery tracking. Lastly, Walmart China also launched Cloud Depots to provide a one-hour delivery service in areas beyond the reach of a physical Sam’s Club. These examples outline how Walmart has researched the local market and used cost leadership research to reduce costs. A smartphone shopping experience means the company can have fewer workers during specific shifts.
Walmart. (2019). China. Corporate – US. https://corporate.walmart.com/our-story/our-business/international/walmart-china
Arndt Sorge, Koen, C. I., & Noorderhaven, N. G. (2015). Comparative international management. Routledge.
3
A multinational corporation by definition means a business with one or more branches in other countries. For example, many American companies have offices in the UK, China, Japan, etc. Apple is one of the most popular multinational companies in the U.S. According to Apple.com, “The App Store, now in 175 countries and regions (Apple)”. Countries such as Algeria, Iceland, Jamaica, Yemen, etc.
Cultural diversity plays an important role when it comes to business in a foreign country. Each country has its way of managing a business. In other words, the way Apple runs in the U.S.Will not be the same way how Apple runs in other countries. The product may stay the same. However the service, sales, and work ethic vary depending on the country. According to a source “ For managers of multinational companies, failure to understand cultural differences can contribute to poor personnel decisions, ineffective marketing, and safety issues (Randi)”.Understanding Cultural differences is a crucial component. Businesses always have to fully understand different cultures. Failure do to so will break the trust between the organization and the people. Every country and each individual is different. Learning to respect and understand each other is very important
According to the textbook, there are four unique strategies. Multi-domestic, Transitional, International, and Global strategy. Multi domestic strategy means the business is responsible for advertising and meeting all the requirements within each of its markets. A transitional Strategy is a plan of action where the business decides to conduct its activities and to try to reach other countries. International strategies by definition mean to export and import products/goods and services to maintain its business. Finally, a Global strategy is a strategy that a corporation develops to expand into the global market. For example to increase sales etc. These strategies are very crucial because these strategies help grow and achieve a business goal internationally.
SOURCES.
Apple, “Apple Services now available in more countries around the world” (2020)
https://www.apple.com/newsroom/2020/04/apple-services-now-available-in-more-countries-around-the-world/
Randi Hicks Rowe, “Cultural Differences Between Multinational and Single-Country Companies”
https://smallbusiness.chron.com/cultural-differences-between-multinational-singlecountry-companies-73601.html
Gordon Joly, “Types of International Strategies”
https://opentextbc.ca/strategicmanagement/chapter/types-of-international-strategies/