Expanding global environment

Multinational Corporations (MNCs): Companies that maintain significant operations in two or more countries simultaneously but are based in one home country.

Transnational Corporation (TNC): A company that maintains significant operations in more than one country simultaneously and decentralizes decision making in each operation to the local country.

Borderless organization: A management structure in which internal arrangements that impose artificial geographical barriers are broken down.

The expanding global environment has extended the teach and goals of MNCs to create an even more generic global organization called the transnational corporation (TNC). This type of organization does not seek to replicate its domestic successes by managing foreign operations from home. Instead decisions in TNCs are made at the local level. Nationals (individuals born and raised in a specific country) are typically hired to run operations in each country. The products and marketing strategies for each country are tailored to that country’s culture. Nestle, for example, is a transnational corporation. With operations in almost match their products to their consumers. In part of Europe, Nestle sells products that are not available in the United States or Latin America. Another example is McDonald’s in India. Largely a beef based food chain in its parent country McDonald offers a menu that has no beef or pork products in India in response to local sensitivities. With Aloo Tikki Burgers and Navratra special offerings, about 75 percent of the McDonald’s menu is Indianized. Many large, well known companies are moving to more effectively globalize their management structures by braking done internal arrangements that impose artificial geographic barriers. This type of organizations is called a borderless organization. For instance, IBM dropped its organizational structure based on country and reorganized into 14 industry groups. Ford merged its culturally distinct European and North American auto operations and plans to add a Latin American and an Asian Pacific division in the future. Sundaram Fasteners has set up a manufacturing plant China with an initial investment of Rs 25 crores in order to increase access to global automobile manufacturers who considers both India and China as outsourcing hubs. The move to borderless management is an attempt by organization to increase efficiency and effectiveness in a competitive global marketplace.

How does Globalization affect organization?

An organization is mostly affected by globalization when its management decides to enter into the global marketplace. An organization going typically proceeds through three stages. In Stage 1, managers make the first push toward going international merely by exporting the organization’s products to foreign countries. This passive step toward international involvement requires minimal risk because managers make no serious effort to tap foreign markets. Rather the organization fills foreign orders only when it gets them. It may be the first and only international involvement many firms in the mail order business have.

In stage II, managers make an overt commitment to sell products in foreign countries or to have them made in foreign factories. Yet, they still do not maintain a physical presence of company employees outside the company’s home country. On the sales side, Stage II typically is done either by sending domestic employees on regular business trips to meet foreign customers or by hiring foreign agents or brokers to represent the organization’s product line. On the manufacturing side, managers contract with foreign firm to produce the organization’s products.

Strategic alliances: a domestic and a foreign firm share the cost of developing new products or building production facilities in a foreign country.

Stage III represents a strong commitment by managers to pursue international markets aggressively. Managers can proceed in different ways. They can license or franchise to another firm the right to use the organization’s brand name, technology, or product specifications. This approach is used widely by pharmaceutical companies and fast food chains such as Pizza Hut. Joint ventures involve larger commitments; a domestic and a foreign firm share the cost of developing new products or building production facilities in a foreign country. These partnerships or strategic alliances provide a faster and less expensive way for companies to compete globally tan if they did it on their own. Recent cross border alliances include British Airways and American Airlines, Polaroid and Minolta, ONGC Videsh and National Iranian Oil Company, and IBN and CNN in India. Managers make the greatest commitment, and assume the greatest risk, when the organization sets up a foreign subsidiary. Tata Daewoo Commercial Vehicles, after Tata Motors completed its acquisition of Daewoo Commercial vehicle Company in Korea, is an example of a wholly- owned foreign subsidiary. Such subsidiaries can be managed as an MNC (with domestic control), a TNC (with foreign control) or a borderless organization (with global control).