Multinational Companies Analysis Essay
Over the years, many typologies of multinational companies (MNCs) have been developed. As such, Bartlett and Ghoshal (1989) provided the most extensive typologies regarding MNCs. Besides, Harzing (2000) uses a different division of the multinational companies and separates them in relation to organizational design and subsidiary role, local responsiveness and interdependence. The identified types are: Multidomestic, Global and Transnational (Harzing, 2000).
Multidomestic typology combines high national responsiveness and domestic competition, implying that the company responds to national differences and has a decentralized structure, although scores low on global competition and economies of scale. In contrast, Global typology characterizes high global competition, economies of scale, and low national responsiveness, as companies tend to build cost advantages through economies of scale. Finally, the Transnational cluster combines both typologies focusing on economies of scale as well as national responsiveness.
Verbeke (2009) describes four archetypes of administrative heritage, namely the ‘centralized exporter, ‘international projector’, ‘international coordinator’, and ‘multi-centred MNE’ which regard to a specific routine of internationally transferring FSAs. In comparison to Harzing’s (2000) typology, these four archetypes of administrative heritage describe how a company’s FSAs are internationally transferred and its location advantages, while Harzing’s typology discusses the types of MNCs and its measurement to various elements.
In 1986, Bartlett and Ghoshal developed another model describing how MNCs should manage its subsidiary network. Firstly, the ‘United Nations model’ where the MNC management treats each subsidiary equally thus there is either complete subsidiary independence or complete dependence. Second is the ‘Headquarters hierarchy model’ where the organization consists of two levels, a dominant level, which decides on the strategy, and a subordinate level adapts accordingly.
The strategies consist of homogenization and centralization, which characterizes Harzing’s (2000) Global MNC type. As mentioned before, Global MNCs have low national responsiveness as it follows a centralized rationale. Furthermore, it focuses on economies of scale, which can be associated with homogenization. The four different types of subsidiaries according to Bartlett and Ghoshal (1989) can be distinguished through two characteristics: the strategic importance of the local market and the resource base of the subsidiary (Verbeke, 2009).
The Black Hole and the Implementer represent weak resource bases; however the first one is related to a key market while the latter suggests a less strategically important market (Verbeke, 2009). On the other hand, The Strategic Leader and the Contributor entail high resource bases in a key market and a strategically less important market, respectively (Verbeke, 2009). The role of Strategic Leaders as discussed by Barlett and Choshal (1989) is ‘to assist corporate headquarters in identifying industry trends and developing new FSAs in response to emerging opportunities and threats’ (Verbeke, 2009).
Therefore it could be characterized as Multidomestic in Harzing’s (2000) typology, where a decentralized network is present and the company adapts its products and marketing to the local environment as well as it engages in innovation and high-performance activities with low level of dependency on the headquarters. In addition, The Contributor subsidiary usually generates new FSAs, which are facilitated by ‘the entrepreneurial host country management team’ (Verbeke, 2009), where the resources that are distinct to the subsidiary can contribute to ‘potential economic value to the entire MNE’ (Verbeke, 2009).
For that reason, this subsidiary type can also be aligned to the Multidomestic companies. There is also low lever of dependency on the headquarters and subsidiaries perform local R&D than engaging in cost-efficiency as it is in the case of Global companies. Nestle is considered the world’s largest food company, acquiring facilities in almost every country in the world. However, its initial organizational approach as an MNE leaded to efficiency losses. In 1997, Nestle’s emphasized two unique features that needed to remain. Firstly, the commitment to decentralization to cater to local tastes.
The second feature consisted of the minor role of IT in daily operations. This decentralized approach exemplifies the ‘multi-centred MNE’ where the firm consists of a set of entrepreneurial subsidiaries abroad, which are key to knowledge-based FSA development (Verbeke, 2009). This can be related to Nestle as the company operates in a decentralized structure. With this being said, subsidiary managers can make strategic decisions regarding local production and satisfying local needs. Besides, Nestle’s operational efficiency comes from its strategic umbrella brands, where each business is basically a local business.
Nestle’s altered towards the incorporation of a product-oriented structure in order to improve its efficiency. This led to the transformation of Nestle into a less homogenous, more multidimensional model. First, the level of autonomy among Nestle subsidiaries managers increases, which possibly results in an increase in these managers’ motivation. Nestle makes a clear distinction between upstream and downstream competences. For many downstream activities, the regional market head is responsible for the SBUs, whereas the country market head is accountable for the market/country performance.
However, the company’s focus on streamlining the upstream activities is accomplished through factories’ management integration into regional and global units. Resulting in a reduction in the number of plants, an establishment of Regionally Shared Service Centers and the implementation of regional ICT systems and common standards between geographic units. Second, all Nestle subsidiaries are treated differently depending on the importance of their markets. In key markets, more resources are devoted to Nestle, which results in a more optimal exploitation of opportunities in such markets.
For example, local brands like Rolo in the UK are maintained. Furthermore, autonomy is given to some distinctive markets (many African countries). In these markets, local features remain particularly idiosyncratic; while Nestle still remains completely decentralized. Third, the subsidiaries’ FSAs are not kept locally and are transferable to other units in the Nestle organization. By integrating its business at the regional level and global level, Nestle goes beyond than a holder of a portfolio of national units.
In Nestles case, these locally, regionally and globally managed businesses are able to co-exist. Moreover, inside each SBU market clusters are established. Within these clusters managers can develop strategies together, share best practices and innovations, and achieve synergies in manufacturing and marketing services. In addition, Nestles subsidiaries have specific roles. For instance, Nestle subsidiaries in the USA (market leader in 2004), can be characterized as ‘strategic leaders’. This is a (highly) competent local subsidiary with strong FSAs in a strategically important market.
Moreover, the German subsidiaries can be classified as “Implementers”. Germany is placed third on the most important (EU) market when it comes to output. For instance, just a few resources have been assigned to Nestle PetCare (Germany) due to the reason that Nestle does not strategically aim at proving itself as a dominant player on the German market. Only a specialist strategy was employed which places an emphasis on premium, high-end products. This lack of managerial will to achieve a market leadership in Germany can be considered as a missed opportunity for Nestle.