BAC G1-G2 2010

Oral Test

Management in Multinationals

If asked to define a multinational, most people would say that it is a company doing business in more than one country. Many experts however, would not be satisfied with this definition. They believe that it does not indicate the size and scale of the multinational's activities. To be a true multinational, they say, an organization should operate in at least six countries and have no less than 20% of its sales or assets in those countries. In addition, it should "think internationally" that is to say the management should have a global perspective". It should see the world as inner-related and interdependent. An example of this global approach is provided by the Massey Ferguson Company. Its tractors are assembled and made in several countries. As one of their executive says "we combine French-made transmissions, British-made engines, Mexican-made axles and United States-made sheet metal parts to produce in Detroit a tractor for sale in Canada". The size and international organization of some multinationals are impressive. The larger enterprises, like IBM, British Petroleum and Mobil Oil have subsidiaries in sixty to eighty countries.

Because of their global approach, multinationals often make decisions which are against the interests of their host countries. They may decide for example to close down their plant in country A because they wish to concentrate production in country B. The government of that country will probably put pressure on the multinational to change its minds. Multinationals are criticized by foreign governments for other reasons. Sometimes, a subsidiary in one country will supply another subsidiary with cheap-or below-cost-products. This happens when a subsidiary has just started up in a country.

The other subsidiary will help it to get on its feet. Difficulties often arise when a multinational wishes to transfer its earnings back to its Head Office. The host country may feel that the transfer will have a bad effect on the exchange rate of its currency. The interest of multinationals and foreign governments frequently clash. As a result, many countries have tried to restrict the operations of multinationals.