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The Multinational corporations (MNC's) are those which operate in more than two nations, are often viewed as the most important driving force for globalisation. These MNC's are transforming for the betterment of business and society. From the business point of view, this kind of venture is best explained as "global" rather than "multinational". The firms have evolved constantly during its very long history. The MNC's in the last two decades of twentieth century had little in common with the great trading enterprises of the seventeenth century. Change is a continuous process. In the current scenario, the types of organisations which are emerging are the globally integrated enterprise.
In today's world, globalisation and modern technology have transformed the way the business gets done. Today, central business processes are no longer seen as unilaterally as proprietary. Large, medium and small sized businesses are viewing both of their core and non core business functions as expendable constituents that can be controlled internally or passed on to the external partners, depending on the firms necessity and strategic objective. This open-minded mentality of the firms towards outsourcing is making the operations of the firm easier to manage and also to utilise the resources and expertise more efficiently. Furthermore, the firms are now more focused on how to provide a better service and convey value to the consumers, business partners and employees.
These global minded firms are not looking to limit and optimise their resources within traditional boundaries. They do not limit their operations because of pressure from factors like time zones, geographical borders or language. The world is their target market, it helps them to make cost cuts and capitalize on the pool of new skills and knowledge. Carrying out operations in the manner, deciding where and how the work gets done to maximise values of business, which is the fundamental nature of globally integrated enterprise.
There is debate that which type of MNC's structure is more efficient in delivering profits in co-ordination with the environment of the host country. Centralised or De-centralised? The answer to this question lies in what type of industry or the environment the company is in. However, theorist suggests that centralized operations are more efficient especially in the industries where growth lies in continuous innovation as innovation is the key to success in this highly competitive global marketplace. Decentralised subsidiary is not considered a wise option these days as a result we see a shift to centralised operations these days. De-centralised subsidiary are difficult to monitor. Also sometimes local tax laws can be ruthless to international monetary transactions. Thus local mangers which have no idea about these laws might initiate some action on their own to generate profit and end up costing money to the MNC. And finally some countries have very inflexible labour markets. In these nations it can be hard to fire a manager or an employee which does not meet the terms of the MNC.
These globally integrated firms have the capability to enter new markets and take hold of opportunities and eliminate process redundancy. The centralised operations of these globally integrated enterprises have replaced the autonomous operations with a more flawless venture offering centres of industry and technical expertise around the globe. These firms approach every country's environment in a different way. Rather than relying only on local partners and resources they position the firm to take full advantage of partners and resources around the world. They do so by various methods. First is by leveraging infrastructures, personnel, applications and other assets to where they think it's best for more economical results. Secondly facilitating platforms and systems for a more collaborative organisational environment and maximising on the opportunities for external collaboration. Thirdly, showing flexibility to adjust to different values, processes, skills in different types of geographical and cultural environment. And finally handling the risks related to carrying out business in an open system.
Conceivably these type of firms had a very visible impact in India and China, where service centres, R&D facilities and manufacturing plants have greatly increased in the last few fears. But these global firms achieve far more than growth opportunities and cost efficiencies. As these firms move out of their country to find more cost effective and quality resources for production and delivery, they also find other resources in the economically progressive nations. For example, Tokyo Electron, a chipmaker firm is looking for engineers in the U.S to improvise their manufacturing technologies. Global investment banks are transferring out their back office derivative process operations to Dublin, where there are financial companies specialized in this service. Pharmaceutical firms like Merck and Lonsa are developing research and manufacturing plants in Singapore. Cost reductions driven by technology and favourable business conditions will continue to stimulate such arrangements.
These globally integrated enterprises can produce huge economic benefits for both developing and developed nations. The incorporation of employees in developing countries into global structure of production is already elevating the living standards, developing work conditions and generating jobs in those nations. Medium and small sized businesses are gaining from this, as new services from back office management to sales support are forming infrastructure once available only to large organisations, which enables them to be a part of the global economic scenario. Let's consider the example of Bharti Enterprises, an Indian private telecommunication firm, which has become the national leader. Bharti outsources its core operations, which leads to liberation of investment capital to follow growth opportunities. Due to this, Bharti revenues have increased to more than 60% in 2005 and its subscription base have risen to 18 million from 7 million in the last two years.
The opportunities for such growth are huge. But change to the model of globally integrated firm is also a big challenge for the leaders in different sections of the society. The ultimate truth that many people have access to resources, production processes and marketplace all over the world will create large amount of transactions and competition. This will bring prosperity and wealth to the nation but it will also be accompanied with fear of disruption and threat to global integrity which can lead to political disruption and government don't prefer to be unstable which can force them to take steps which are against the interest of global firms.
A constructive and realistic approach is needed to address such challenges. Also one of the major challenges to such firms will be to secure high value skills. Nations and global firms should work together in educational and training programmes. There is also a need of new managerial skills because today chain of command or hierarchical approaches don't work, they obstruct flow of information inside firms, slowing down the collaborative nature of work between the employees.
Also there is need for intellectual property protection which can be applied worldwide rather than on a national basis. Piracy denies individuals of their incentives and rights. Thereafter, there is also a need to encourage the integration of technology and business models. A right balance between these two factors must be struck for consistency in performance of the globally integrated firms worldwide.
Another important challenge to find out a way to sustain trust in enterprises based on largely allocated business models. An organisations standards of governance, privacy, security, transparency and quality needed to be preserved even if its operations are carried out by dozen organisations in different countries. A trust in hierarchies contained within nation and enterprise in addition with new ways of forming trust, based on shared values between organisations and other nations involved. And finally global integration between organisations will include major changes in the culture of organisation, forms of collaboration between enterprises and sections of society, and new as well as more complex ways to manage the marketplace. These changes in the global business activities, which are historic as the move from mass production and vertical integration a century ago to today's tightly integrated supply chains will take time. The globally integrated enterprise is a better and much more efficient way to manage business activities, but capital markets are flooded with cash invested for short-term returns. Moving in the direction of globally integrated enterprise requires extensive vision and continuous investment from various business leaders as well as not focus on potential growth but on real earning which generates sufficient wealth for innovation and growth.
All of the above mentioned fear is valid and have undoubtedly occurred, but incredible forces are at work to stop these global firms from yielding unlimited power from their own operations. Social issues, increased consumer awareness and impact of business actions on environment and society have raised concerns and influenced actions of all corporations in recent years and it shows sign of continuing. Also the sensitivity of modern consumers to the dilemma of individuals in nations with oppressive government mitigates the elimination of multinational business operations where legal protection of member of staff is minimal. Example of customer reaction to unacceptable action by these multinational firms are many, which include protest against the use of sweatshop labour by Nike, activism actions by PepsiCo and Shell due to very oppressive nature of the government in those nations.
The current scenario of international marketplace is in favour of maintaining development of multinational corporations. Many countries in the world are privatizing government run industries, and the formation of trade partnerships such as the agreement between Canada, United States and Mexico called North American free trade agreement and European Union have created favourable environment for the multinational to enter new market and removal of trade barriers. Possibly the greatest threat the MNC's pose would be the continued success in underdeveloped market. As the MNC's capacity to generate more elevates, the buying power of the consumers around the world is unchanged, which can ultimately direct to global glut of goods and services. These gluts have occurred on a periodic basis which can lead to compression of corporate activities, wage and price deflation and speedy slowdown in all stages of economic life. Such likelihood is purely theoretical, and the foreseeable future of MNC's to likely to continue to expand.
The alternative solution to global integration is not very appealing. If not addressed properly, dissatisfaction with globalisation will only enlarge. Then people will favour selection of governments which emphasizes on strict regulations for trade and regulations or to something which is highly protected sort. These are worse situations as they might lead to extreme forms of antimoderism, nationalism and xenophobia. The current trend of MNC's shifting to globally integrated enterprise opens a whole new array of possibilities for both business and society but it also comes with bigger concerns which are too much interconnected for government or businesses to handle alone. The globally integrated enterprise is whole new chapter in the world stage. Now leaders from different sections of education, business, government and civil society are needed to be aware of emerging dynamics and support it that will contribute to economical, social and human prosperity on the planet.