How do MNEs try to develop and maintain commitment of the individual managers?

The behaviour of individual managers within the organisation is an important concern of top management of MNEs. How do MNEs try to develop and maintain commitment of the individual managers? Give examples.

PATTERN OF EVOLUTION
There are two related processes involved in the growth of a domestic firm to an international one. These are: geographic dispersion of corporate resources and corresponding changes in organizational development. One can classify the evolutionary pattern of MNEs from purely domestic company to a transnational corporation into five types. The organization structure and characteristics of these types are given in table.





A company gets into foreign markets by starting export sales to other countries. The growth in international business evolves from the export department to the international division, world wide product, or mixed matrix structures. Chandler’s thesis of “structure follows strategy” can be explained in terms of the pattern of evolution of multinational business organization. It is the strategy of an MNE, which determines the structural design of the organization by enabling it to achieve its objectives. We shall now discuss different types of organizational structures as shown in Fig.








Type-A domestic oriented firm can either be organized on functional basis or product group basis. The former is more prevalent when the firm has a narrow product range. Most of the overseas sales occur due to unsolicited orders. As, the orders are small in relation to domestic market, the marketing department/division will look after both domestic sales and exports. All sales, whether domestic and export, are looked after by marketing manager. However, separate supervisors may be appointed to take care of domestic or export sales.

In cases where the firm has a wider product line, it might have organized on the basis of product groups. Each product group division will have all the functional departments. In such a situation, the exports from each product group may be small compared to the domestic market. In such a situation, each group handles exports separately. As exports are small, the firm does not need to move corporate resources to fully exploit the foreign markets (Figure).

As exports start increasing in proportion to its total sales, the company may think of having a separate export department with the necessary specialists to facilitate the exploitation of foreign markets. The export effort gets centralised in the corporation and a separate is set up. This is shown in Figure. The firm may be organized on functional or on product group basis. As the export profit may be more than the domestic, the corporation tries to shift from the staff function of the export department to the line functions in its overseas activities.




Type-B organization creates tension when the product division is unable to meet the export orders. The firm may also realize that the exports are not necessarily the only means of entry into the foreign markets. The optimum entry may be found in some other alternatives, lime licensing or direct investments. Such decisions may require a kind of search, which is free from functional or geographic bias. At that time, the firm moves to establish a full-fledged international division as against just an export department (see Figure)




Subsidiaries in several companies my be set up. The international division coordinates all overseas operations (subsidiaries businesses, franchises, govt. ventures, etc.) of the company. The subsidiaries in foreign countries are often organized by regions which report to the international division. The importance of international division lies in the fact that it provides a base or “umbrella” for the international operations of the company. The working of the subsidiaries abroad is balanced in a manner so that optimum yields are achieved. This form may help an MNE to allocate resources or make investment worldwide.

The international division type of structure may sometimes create frictions between domestic and international divisions, such as divided loyalties, completion in attracting competent operating personnel, etc. The international division, in course of time, may get isolated from other segments of the corporate headquarters. It may become an organization in itself. Decisions may be taken which are unwholesome from the total point of view. As long as it does not depend on the corporate resources, it may tend to operate independently. The international division may enter into various contractual arrangements, including joint ventures in overseas markets.

Such an organization is suitable under the following conditions:

- When foreign sales are relatively small to the domestic sales.
- When activities are spread over a limited number of countries,
- When product lines are few, and
- When the demand pattern is homogeneous.

Type-D structure emerges when the international operations continue to grow. The critical psychological level is reached when the international activities become equal or greater than any one of the activities of the demestic division. At this stage, strains may develop due to the size of operations and heavy flow of communications. The international division gives way to product groups which are given, concurrently, the worldwide responsibility in case of wide product line companies. A worldwide product based organization is responsible for production, marketing and profitability of products throughout the world. A comparatively narrow product line company will organize itself into and have a region-wide integration e.g., North American, Latin American, Western Europe, Asia and so on. (see Figures)






The units in the countries within a region are likely to be fairly interdependent. A firm at the stage of its evolution is a multinational firm. The ownership and management of the parent corporation is essentially with the materials of one (i.e., parent) country. The firm has units/ subsidiaries in different countries but its production system is integrated internationally (i.e., centralised control of production). The centralised control is leased primarily on ownership, i.e., equity based control. Most top corporate managers are novice-country materials. Initially all decision making in relation to subsidiaries may be centralised at the headquarters. However, as the firm grows overseas, political pressures develop to compel greater local control and newer subsidiary autonomy. It is also quite possible that as the firm gathers more environmental expertise in headquarters and perceives more clearly the advantages of greater integration, it will attempt to reestablish central control over its foreign operations.

Type-E transnational firm attempts to integrate worldwide operations, and seeks to serve the stakeholders in each nation. A transnational firm is owned and managed multinationally, i.e., ownership and management of the parent corporation resides in the hands of the nations of more than one country. The decisions making may be centralised, but is free of national bias, except as legally imposed. The firm loses loyalty to a single nation. The members of a transnational firm develop loyalty to the firm of a sort that transcends national identity. The national outcome is that, convert of psychologically based national bias indecision making is eliminated and this may result in better allocation of corporate resources. When a multinational firm acquires the character of transnational firm and in the process loses its hither to national loyalty, it may bring the latter to some kind of friction with its (establish) parent government. Thus, the evolution of a multinational to a transnational firm may bring with its significant changes in its behaviour. A transnational firm may generally have a matrix structure which tries to integrate three dimensions: functional areas, product lines and regions. This provides sufficient decentralization to national managers to meet regional needs and the needs of product lines. However, there is a centralised coordination system (Figure).

It has been observed that the traditional organizational structure (independent international division) is now changing fast into global product divisions because of the inherent competitive advantages of the latter. The benefits such as cost effectiveness, improved communication and resource transmission, and above all, a global strategic focus are the main reasons for a more worldwide organization. Thus, an MNE goes through a series of structural changes in search of more suitable design fitting its strategy. The organizational structure keep on changing in response to the strategies adopted by an MNE.