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The article titled "The Tortuous Evolution of the Multinational Corporation" is aimed at deciphering how different corporations use varying criteria to validate their claim of being Multinational. According to the author, the executives from four different corporations claim they are the multinational company and have backed up their claims with evidence. Perhaps what is most striking about the conversation is that fact all four executives all have different yardsticks. The only thing that they seem to have had in common was that each company has affiliation in other foreign countries. Multinational corporations go beyond simply having affiliation in other countries and although it is most difficult to define what exactly an MVC is, it may be easier to fit the description using more specific criteria.
There is a lack of consensus among researchers concerning the theory of MNCs and it is important to note that there is no singular definition of an MNC however; some basic concepts like ownership and control of the corporation, home-country and subsidiary relationships are good determinant factors.
The history of Multinational Corporations dates back to the 17th century with the establishment of 'The Dutch East India Company' which traded in spices in many parts of Europe, the Far East, Asia and the Pacific (Vergne, 2008). Since then many more multinational companies have come to existence.
Background of Multinational Corporations
"Multinational corporations consist of a group of geographically dispersed and goal-disparate organisations that include its headquarters and the different national subsidiaries (Ghoshal & Bartlett, 1990). Examples of MNCs are Toyota, ExxonMobil and more recently, Tesco etc. Toyota for example is a Japanese company with fully operative subsidiaries in the United States, Malaysia, Poland, Egypt, Viet Nam etc. The offices of MNCs are usually located in major international cities of the world e.g. New York, Tokyo, Paris etc.
In the article "The Tortuous Evolution of the Multinational Corporation" the four different companies in question have varying descriptions of the MNC nevertheless; all four companies have elements that qualify them as multinational. It is important not to confuse MNCs with Joint Ventures. JVs are collaborations between two foreign companies operating in a third country.
Company A is basing their claim to MNC on the number and extent of their distribution channels. Company B is doing the same based on the percentage of non-nationals that are in key positions in the subsidiaries. Yet again Company C's claim to multinationality hinges on its product division executives and their profit responsibility. Lastly, Company D maintains that they are an MNC as its headquarters is represented by 18 different nationalities.
The EPG Profile
The entire claims on the theory of multinationality by the companies above may be valid however; they do not usually operate in isolation. There are three broad profiles which companies fit into; the EPG Profile i.e. Ethnocentric, Polycentric and Geocentric.
In ethnocentric organisations, maximum control is exercised by the home country over the subsidiary/host country (Caligiuri and Stroh, 1995). In organisations where ethnocentrism is practiced, standards for performance of the home-country are applied. There is no sensitivity based on the circumstances in the subsidiaries which may reduce or completely hinder performance. Decisions-making is also from the headquarters in a 'top-down' fashion. More importantly however, is the identification of the company with the home-country and key positions in the host-countries are occupied by the parent country nationals (Banai, 1992).
Polycentrism on the other hand is the opposite of ethnocentrism. In this type of organisations it is more likely to find host-country nationals filling up key management positions with opportunities for development in the subsidiaries (Reiche, 2007). The downside to this is that upward mobility carrier-wise may be restricted.
In polycentric organisations, the standards of operation and performance are determined locally by the respective subsidiaries. The decision-making in the organisation is done at the subsidiary level and each subsidiary is independent operating more or less like a confederation.
Geocentric organisations operate the most comprehensive approach in MNCs as worldwide business philosophies as applied both in home and host countries (Reiche, 2007). In such organisations, there is a collaborative approach between headquarters and subsidiaries when decisions are being made and there is a flow of communication between home and host countries as well as between subsidiaries. Very few companies have a truly geocentric system of operation. Some critiques will argue that it has not been completely achieved by any corporation.
The Three Stages of Evolution
There are three main stages of evolution for MNCs; the Export Stage, the Foreign Production Stage and the Multinational Stage.
- The Export Stage
- The Foreign Production Stage
- The Multinational Stage
At this stage, the company relies firstly on distribution agents as a channel for their products. Later on, sales and after-sales branches are established in the host-country. Some manufacturing companies may launch assembly branches in the subsidiary as in the case of Peugeot Automobile in Nigeria.
The transportation of products or their component parts usually adds to over-head cost therefore some companies decide to start establish production plants or they may opt for 'Licensing' as in the case of KFC in the UK. Some organisations acquire production facilities in the host-countries this is known as Foreign Direct Investment (Blonigen, 2005). When FDI begins, it is usual for companies to revoke licensing of independent producers and continue with subsidiary production.
When companies begin to organise production, marketing, financing, research and development etc from its subsidiaries, they are said to have reached the multinational stage. At this stage key operational activities are co-ordinated from the subsidiaries as well as the headquarters. Careful consideration is taken before key business units are established in host countries e.g. raw materials, research and development facilities, cheap labour, low tax rate, low market saturation etc.
It is apparent that the difficulty in specifically determining what characteristics a multinational corporation should possess comes from the various yardsticks by which companies determine multinationality. Although perception may be universal, there is no clear-cut definition of what a multinational corporation is. The case of the four companies in the article "The Tortuous Evolution of the Multinational Corporation" is obvious evidence; all four companies backing up their claims of being an MNC using completely different criteria.
However, it is important to mention that perhaps the basic perception of MNCs comes from establishing presence in more than one foreign country. This is not usually completely accurate as some companies masquerade as multinationals whereas in reality they are either ethnocentric or polycentric. There are certain qualities ascribed to MNCs therefore it is no surprise that large corporations with foreign affiliations all want to be tagged as MNCs despite what the organisational structure may prove.
- Banai, M., (1992), "The Ethnocentric Staffing Policy in Multinational Corporations: A Self-Fulfilling Prophecy", the International Journal of Human Resource Management, Vol.3 (3)
- Blonigen, B. A., (2005), "Foreign Direct Investment Behaviour of Multinational Corporation", National Bureau of Economic Research Reporter ISSN: 0276-119X (pp: 11-14)
- Caligiuri, P. M. and Stroh, L. K., (1995), "Multinational Corporation Management Strategies and International Human Resource Practices: Bringing IHRM to the Bottom Line", the International Journal of Human Resource Management, Vol. 6(3)
- Ghoshal, S., (1990), "The Multinational Corporation as an Interorganizational Network", Academy of Management Review, Vol. 5(4)
- Reiche, B. S., (2007), "The Effect of International Staffing Practices on Subsidiary Staff Retention in Multinational Corporations", the International Journal of Human Resource Management, Vol. 18 (4)
- Vergne, J. P., (2008), "The Social Construction of Competitive Advantage and the Origin of Global Capitalism: The Case of the Dutch East India Company", Academy of Management Proceedings, Accession Number: 42749128 (pp1-6)