Multinational companies are a major part of the global success of economies. In today’s time, more than 50,000 multinational companies exist in the world and possess more than 500,000 production units across the globe. With rapid advancements being made every day, even multinational corporations have to find new methods to manage their businesses so that they can continue to compete with their business rivals across the globe.
The birth of multinational firms occurs due to the easy mobility of capital. Capital is one of the production resources that can easily be transferred from one location to another. Labour, however, is not quite so easily transferred. If a country has a cheap labour force; businesses from other countries open up their franchises and units there, to lessen the labour costs for their production. This act of opening up a branch office in another country makes a corporation multinational.
However, some experts argue that a company can only be considered multinational if the headquarter or the main branch of the company is owned by individuals having different nationalities. According to this criterion, there are very few multinationals in the world, except Shell and Unilever, etc. Thus, the ownership criterion is not followed when considering multinational firms.
Importance of Good Management within a Multinational Company.
Most successful multinational firms have to maximise their profit within the global market, regardless of the fact that they are located within the home or host country. Multinational companies produce their goods of foreign soil and accordingly, their business strategies and policies need to be developed in such a manner that they can transcend international borders.
The proper management of a multinational firm becomes very necessary for the development of such business strategies and policies that will be applicable globally. The economic, social, political, strategic and organisational principles that are involved in multinational management need to be devised with extreme care and attention.
As the business becomes globalised, even the smallest of errors can be quite costly for a multinational firm and can tarnish its reputation. The principle of managing a multinational company will have impact on a variety of factors including, the possibility of further international expansion, the relationship that the parent company has with its subsidiaries, as well as, the relationship that the headquarters has with the various interest groups located in the foreign country, such as labor unions, government offices, raw material suppliers, etc.
Considering the impacts that poor management can have on the growth of a multinational company makes the importance of a proper management system quite clear. In order to tackle the various challenges that a multinational company faces during its development, it needs to have a good management system.
Challenges Faced by Multinational Firms.
As mentioned above, multinational companies are faced with a number of challenges as they expand their businesses across international borders. They need to deal with the rules and regulations of foreign governments, maintain a market for their product in the international market, navigate through the barriers that restrict them from entering foreign markets and find the required labour force with the help of Human Renouncement management.
The global operation also requires consideration of the different market variables and the development of business strategies that will be acceptable by all. Some of the major challenges faced by multinationals include:
Managing the regulations of foreign governments.
Multinational companies have to deal with the laws set by a number of companies and each new country that they add into their list; brings its own set of rules to follow. Ultimately, managing additional legal clauses can incur expenses for the firm as it stabilises its business in the new location.
The major issue with foreign regulations is that they are not stable. When the government changes, it can bring a change to the regulations and standards needed to operate a business within the country and multinationals managers have to deal with all such sudden and unexpected circumstances to continue with the growth of the business. Sometimes, companies even need to hire locals for the management of their foreign branches because they are better at dealing individually with local government officials.
Developing a product market.
When any firm decides to introduce its product into a foreign market, it has to conduct thorough research of the existing market trends in the area. According to the local demand; the product, as well as its name, image and prices have to be set, so that it will attract new customers and earn a profit for the company.
Multinational companies also have to overcome language barriers as they translate their advertisements and slogans into the local languages of foreign markets. With regard to the culture and preferences of the people, the products also need to be modified accordingly. For instance, a snack food company may decide to rename its potato chip product or might decide to develop newer flavours that are more in accordance with the local taste preference.
Maintaining a smooth connection between headquarters and foreign production units.
Coordinating the operations that take place within all the branches of a multinational firm is no easy task. Developing a good local image and working with the local experts to create a physical presence in the foreign market, is quite essential to the success of the new branch.
The key factor of the production line of a multinational enterprise is the quality and standard it currently maintains. Standardising the product globally to ensure top quality products is important for the success of a multinational company.
Finding the required labour force.
Every country has different laws with regard to the hiring of a labour force. Multinationals need to adjust their employment policies according to each new market that they are trying to establish themselves into. Maintaining good relations with local labour unions is also vital if a company wishes to make its mark in foreign markets.
The costs of labour also vary in every country and it is often quite challenging for multinational managers to create a balance between revenues and expenses as they enter new markets.
Hence, management of a multinational company is a very crucial job and should be handled with care and responsibility if the company wants to master the challenges of entering new markets and achieve greater growth and success.