Multinational Corporations are complex in their operation (Jones, 2004, p.45). This arises from the fact that they involve a number of business units that are autonomous in their operation (Bohlander & Snell, 2009, p. 659). In their operation, MNCs are required to respond to diverse foreign issues such as political pressure, for example, policing issues and diverse economic trends (Palmeri, 2007, p.1). In addition, MNCs are required to respond to local customer preferences (Gooderham & Nordhaug, 2003, p. 130). According to Schuler and Jackson(2007,p.169), the need for attaining local responsiveness is a clear indication that MNCs operate as geographically dispersed firms and have different organizational goals. This underscores the need to ensure effective coordination. Schuler and Jackson (2007, p.169) are of the opinion that coordination is aimed at improving global competitiveness.
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On the other hand, responsiveness enables a firm to address be flexible and meet the local needs. However, MNCs are faced with a number of challenges with regard to coordination (Daft, 2010, p.34). In addition to coordination challenges, MNCs are also faced with challenges with regard to responsiveness to the foreign market. In light of this, the researcher intends to assess the challenges of coordination and responsiveness faced by MNC’s in a global environment.
The conflict between the need for localization and globalization
According to Vance, Charles, and Paik (2010, p.105), one of the fundamental challenges faced by MNCs in the global environment relates to the existence of conflict between the need to be localized and to be a globalized firm. The management teams of MNCs are required to develop a system that is well centralized to ensure effective global coordination and integration. MNCs have to compete effectively and at the same time attain coherence in all the units. In addition, the system has to be effectively decentralized so as to attain local responsiveness. Gooderham and Nordhaug (2003, p.2) are opinions that MNCs are faced with a challenge with regard to formulating valuable organizational capabilities. This arises from the fact that the management team cannot implement effective internal structures that are appropriate for the firm to attain the strategic needs necessary to provide efficient control and coordination. Due to changes in the global business environment, MNCs have to deal with complex structures that are continuously evolving.
According to Deresky (2011, p. 35), customer needs vary from one country to another. To succeed in the foreign market, MNCs are required to deliver products and services which culminate into a high level of satisfaction amongst the local customer. This means that the firm is required to localize its products and services so as to be aligned with the local customer tastes and preferences.
Negative effect on corporate governance
Considering the increment in the rate of globalization with regard to the competitive environment, it is vital for MNCs to establish a balance between the firm’s foreign adaptation and global coordination. However, due to the existence of diversity in the global market with regard to various aspects such as strategies, objectives, and business environment, MNCs are faced with unique requirements so as to attain local responsiveness.
According to Luo (2007, p.745), the need for MNCs to implement the required adaptations in order to respond to unique foreign market demands may hinder a firm’s effectiveness in ensuring optimal corporate governance. One of the ways through which this can be attained is by hindering accountability.
Luo further asserts that if an MNC is required to integrate a high level of customization, high costs with regard to information processing are incurred. On the other hand, if the firm is required to adapt to the foreign market, the firm becomes vulnerable to foreign market volatilities. This limits the firm’s effectiveness in setting standards aimed at attaining organizational objectives.
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MNCs are faced with diverse leadership challenges. This arises from the fact the firm will be required to design multinational organizational structures. In addition, the firm will also be required to identify and select organizational leaders who will ensure effective management of a firm which have culturally diverse employees (Feldman & Santangelo, 2008, p. 32). According to Meier, Perez, and Woetzel (1995, para. 3), MNCs are faced with a challenge in the process of coordinating various business units. The resultant effect is that firm’s efficiency of attaining the intended synergy is compromised.
From the above assessment, it is evident that MNCs are faced with a number of challenges with regard to coordination and responsiveness in the global environment. MNCs are faced with a challenge with regard to the need to operate as a global firm and also an increment in pressure to localize its operations so as to meet the foreign market demand. MNCs are also faced with a challenge with regard to implementing effective corporate governance in their operation. One of the ways through which this occurs is by compromising accountability in the firm. Due to the existence of cultural differences, MNCs are faced with leadership challenges. In order to deal with these challenges, it is paramount for the firm’s management team to formulate and implement effective strategies.
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Jones, G., 2004. Multinationals and global capitalism. Oxford: Oxford University Press.
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