Derek F. Channon

Prediction and practice in multinational strategic planning

Abstract The author of this article argues that the models which have been put forward relating to the strategic planning process in multinational companies are inadequate. Nevertheless that the organizational structures and control systems adopted by companies have allowed them to cope to some degree, the advent of the regional headquarters having played a significant role in this process where inter-regional trading is limited. The emergence of global strategies seems to be progressing at a substantial pace.

Multinational Corporate Treasury Management

The task of financial management in the multinational corporation is of particular importance. Today it has become a key determinant for the corporate profitability of the MNC to have its financial resources in the right form in the right place at the right time. The task of ensuring that this is achieved is that of corporate treasury management. It is a relatively thankless task for if it is not done then management is accused of ireffectiveness, and bad planning. On the other hand success leads to accusations of being a corporate speculator. Nevertheless, since the introduction of floating exchange rates, short-term money management has become so important that in a number of cases earnings from good treasury management have accounted for up to 50 per cent of corporate profits.1

International Tax Planning

The planning of the international tax position in the MNC has become a vital factor in investment decisions, capital structure, working capital management and overall corporate profitability. Tax planning is an extremely complex management task since the rules are constantly changing. It is not possible therefore in this chapter to cover the subject in detail since the topic is too large and the results would be obsolescent almost as they were written. Rather the intention is to examine briefly the main mechanisms used for tax reduction and to illustrate the effects of some of these. Detailed considerations for the individual corporation must be developed on a unique basis, to meet the specific strategic needs and objectives of the enterprise concerned.

The Management of Political Risk

One distinctive feature of the multinational enterprise is the need for management to adequately balance the political risk exposure of the organisation throughout its global operations. Although managements are becoming increasingly aware of the importance of political factors in determining the outcomes of strategic decisions, systematic attempts to evaluate risk exposure are not common. Indeed there is some evidence to suggest that many multinationals are less sophisticated in their attitude to foreign investment decisions than they are to domestic opportunities.1 An earlier survey actually revealed that few major US multinationals conducted a systematic evaluation of political risks ‘involving their identification, their likely incidence and their specific consequences for company operations’.2

Multinational Strategic Planning Systems

Multinational strategic planning differs significantly from planning purely for domestic operations. There are differences in distance, culture and language which must be taken into account; markets are no longer essentially homogeneous but fragmented and diverse; the collection of market data is often difficult and the data itself suspect in accuracy; the environment in which business operates is also likely to differ from country to country, while the ability to manage political factors becomes much more important; and business is conducted in a variety of currencies which are themselves subject to varying values rather than in a single currency. Consistent planning assumptions are thus more difficult to establish as a result of differences in culture and business tradition, not only between domestic and foreign operations but also between foreign operations themselves.

Multinational Strategy and the Role of Planning

In the short time since the 1950s the rapid growth of international direct investment resulting in the emergence of the multinational corporation (MNC) has made these organisations a crucial component in the world economy. It is not that international corporate activity itself is new, for many of today’s largest corporations, both in the USA and Europe, had established themselves in overseas markets before the turn of the century. Further, new industries such as oil first developed essentially as multinational operations. Today the concern which has been voiced by the United Nations, the International Labour Office, individual nation-states and many other national and international organisations is based on the scale and methods of these enterprises, which pose dramatic potential threats to individual economies or even to economic independence. For the coming of the MNC raises the threat of a new form of economic colonialism and significantly reduces the power of individual nation states to determine their own independent economic, and hence social and other such policies.

External Affairs and the International Corporation

In the 1970s major multinational companies are being forced to reassess their relationships both with stakeholders such as employees, shareholders and suppliers, and with society at large, represented by governments, pressure groups and international institutions. Education, affluence, mass communications and many other locally significant factors have combined to make the various publics with which a corporation interacts more aware of the ways in which it influences their lives. The. increasing significance of the operations of multinational enterprises for many national economies has made such firms a natural focus for those interested in the economic social and ecological future of their country. Advocates of a New International Economic Order see international firms as key mechanisms for the redistribution of global wealth. The domination of important industries such as electronics, chemicals, oil and motor vehicles by relatively few major international companies has resulted in internationally coordinated surveillance of company operations.

Planning International Mergers and Acquisitions

In recent years acquisitions and mergers have become an increasingly important route to international expansion. In the decade 1946–57, the leading US multinationals for example made 194 acquisitions in Western Europe. In the next decade to 1967 the number rose to 1193.1 Most of these moves were, however, acquisitions rather than mergers. In Europe, a report sponsored by the EEC revealed that between 1961 and the first half of 1969 there were 1861 mergers and takeovers within the Community and only 257 between companies from countries in other communities. Non-Community companies made 820 acquisitions of EEC-based companies, while Community-based firms made 215 purchases abroad.2 While the leading firms have now mainly established themselves in major countries, fill-in acquisitions are still undertaken and newly emerging multinationals, including many of the largest firms in Western Europe and Japan, are also actively engaged in increasing their geographic coverage.

Organising for International Operations

For the management of the multinational enterprise the choice of organisation structure to adopt which is best suited to implement the firm’s chosen strategy is a key decision. This choice also largely determines the form of the planning, information and control systems to be used. In reality organisation structure tends to evolve, with events placing strain upon an existing structure, leading to the development of informal processes and communication networks to enable managers to carry out their work. These are tolerated until they become so serious that a major rationalisation of the formal structure is undertaken which tends to legitimise the trends that have emerged informally.

Multinational Marketing Management

Corporate marketing management has become an increasingly important task in the international enterprise as the era of global competition has approached. Today the maintenance of competitive advantage requires new corporate skills. Experience in a local market is no longer a guarantee of continued success, as marketing expertise tested and proven in many national settings is applied by competitors for whom market differences are a minor hindrance rather than a major obstacle. The removal of trade barriers, the growing mobility of consumers, the internationalisation of communication media and the emergence of the multinational customer have all contributed to the transferability of marketing ideas across national frontiers. In the mature multinational, marketing knowledge and skills are transferred globally to buttress existing products and exploit new market opportunities.