Multinational Corporation and Value Chain

Topics: Multinational corporation, Corporation, Globalization Pages: 12 (3407 words) Published: April 21, 2007
multinational corporation (MNC) is a corporation or enterprise that manages production establishments or delivers services in at least two countries. Very large multinationals have budgets that exceed those of many countries. Multinational corporations can have a powerful influence in international relations and local economies. Multinational corporations play an important role in globalization; some argue that a new form of MC is evolving in response to globalization (Wikipedia) 1

"Corporation that has production facilities or other fixed assets in at least one foreign country and makes its major management decisions in a global context; sometimes called transnational corporation".2 however the Harvard multinational enterprise project required subsidiaries in six or more nations (Vernon, 1971, p. 11).

According to Ferdows (1997), the reasons behind formation of MNCs include:

• reduce direct and indirect costs;
• reduce capital costs;
• reduce taxes;
• reduce logistics costs;
• overcome tariff barriers;
• provide better customer service;
• spread foreign exchange risks;
• build alternative supply sources;
• preempt potential competitors;
• learn from local suppliers, foreign customers, foreign competitors, and foreign research centers; and • attract talent globally.

The earliest studies of MNCs were strongly influenced by the economics paradigm with the focus on offshore manufacturing. In the first major research project on multinational corporations at Harvard in the late 1960s, a multinational was defined as a firm that had production facilities in several countries, a definition which became standard in the early international management literature (Ghoshal and Westney,1993).As the world starts to globalize, it is accompanied by criticism of the current forms of globalization, which are feared to be overly corporate-led. As corporations become larger and multinational, their influence and interests go further accordingly. MNCs account for a very large share of economic activities in industrialized countries. Between 15 to 20% of the employees of most European countries work in subsidiaries of foreign companies. More than 30% of the trade of many European countries is undertaken by MNCs.3

1 visited on 24/03/07 22.20 2 24/03/07 22.20 3Navaretti, Haaland, Venables, "Multinational Corporations and Global Production Networks: The Implications for Trade Policy", at visited 24/03/07 22.20

According to Bartlett and Ghoshal (1989), these large MNCs are forming themselves in a new shape of high integration of specialized units of network with the same strategic objectives of efficiency, responsiveness, and innovation. While going down to SMEs in matrix, units are coordinated and controlled particularly through informal mechanisms, such as organizational culture, interlocking board of directors and personal relationships (Hedlund and Rolander, 1990; Marschan, 1997).

Global MNCs Structure and Strategy
In order to become more efficient and survive in global competition of modern era MNCs have steadily raised the integration level and their interdependence across subsidiaries and national borders. Several factors have contributed this shift as described •Global Customers

•Global Competition
•Global Integration
•Global Co-operation
•Regional Trading Blocks

Now MNCs are trying to achieve a stable competitive cost advantage by more integrating the value chain activities of their subsidiaries allover the world. This integration raises the level of interdependence across subsidiaries and encourages the design of lean product lines that can be sold worldwide; the concentration of production in a few plants in order to capture economies of scale; and the consolidation of suppliers with the help of worldwide procurement managers...

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