Strategy, Structure, and Control of Multinational Enterprises in International Business Environments

Term Paper, 2006
30 Pages, Grade: 74 / A (Excellent)


Table of Content

List of Figures

1 Introduction
1.1 Context
1.2 Focus
1.3 Globalisation

2 Environment
2.1 Internal Environment
2.1.1 S.W.O.T.-Analysis
2.2 External Environment
2.2.1 P.E.S.T.-Analysis
2.2.2 Porter’s Five Forces

3 Strategy
3.1 International Strategy
3.2 Global Strategy
3.3 Multidomestic Strategy
3.4 Transnational Strategy

4 Decision Making

5 Organisational Structures
5.1 Functional and Divisional Structures
5.1.1 International Division Structure
5.1.2 Area or Geographic Structure
5.1.3 Global Product Structure
5.1.4 Global Functional Organization
5.1.5 Matrix Structure

6 Coordination and Control Systems
6.1 Control Mechanisms

7 Case Study
7.1 Case: Nestlé
7.2 Case: Johnson & Johnson

8 Conclusion


List of Figures

Figure 1-1: World FDI stock 1980-2002

Figure 2-1: Strategic Planning

Figure 2-2: PEST-Analyses

Figure 2-3: Five Forces

Figure 3-1: International Strategy

Figure 3-2: Global Strategy

Figure 3-3: Multidomestic Strategy

Figure 3-4: Transnational Strategy

Figure 4-1: Centralization v. Decentralization

Figure 5-1: International Division Structure

Figure 5-2: Area or Geographic Structure

Figure 5-3: Global Product Structure

Figure 5-4: Global Functional Structure

Figure 5-5: Matrix Structure

1 Introduction

1.1 Context

In the last 25 years of the twentieth century companies faced strong competition caused by technological revolutions, changing of product designs and manufacturing processes. Figure 1 indicates that FDI stock increased dramatically over the last decades. This implicates that multinational enterprises (MNEs) increasingly engage in international operations in order to create competitive advantages. Also governments are removing international restrictions and try to establish a common market by approximating the economic policies especially in the European Union.

illustration not visible in this excerpt

Figure 1-1: World FDI stock 1980-2002

(Source :

1.2 Focus

This report focuses on the environment in which MNEs operate which determines the control strategies. After explaining these strategies this report will investigate organisational structures and control mechanisms which enables companies to coordinate and control their activities. In the last part the report will describe in a case study the strategies and structures of two “global players”: Nestle and Johnson & Johnson.

1.3 Globalisation

Nowadays the increasing “globalisation” forces companies to compete on global markets. The aim of most enterprises is to make profits. Nationally focused companies that were not able to access foreign markets quickly enough were forced to act under increasing pressure threatening loss of market share or even acquisitions. The drivers of globalisation have created for several companies competitive advantages, like economies of scale, technological improvements, transferable marketing, global distribution channels and greater networking (Wright, Burns, 1998). However, operating abroad causes coordination, integration, and control problems. To survive in a steady changing environment companies have to adopt appropriate strategies and adequate operational structures and match them to a coherent configuration (Stewart, 2006 /07).

2 Environment

Every company operates in a continuously changing environment. There are macro- environmental forces which affects a company’s business. In other words a firm which enters foreign markets is not only facing opportunities but also threatening certain risks. Therefore experienced managers are required to view all factors, particularly the determinants of control strategies and scan the surrounding environment of a firm’s business, before suggesting a suitable strategy.

illustration not visible in this excerpt

Figure 2-1: Strategic Planning

2.1 Internal Environment

2.1.1 S.W.O.T.-Analysis

In order to achieve a company’s goals managers have to formulate strategies focusing on a clear purpose. The basic steps in preparing a strategic plan are to analyse external and internal environmental forces. The SWOT-Analysis is an approach that examines the main strengths weaknesses, opportunities, and threats of an organisation and then attempts to highlight unused resources and capabilities in order to create competitive advantages against major rivals (Johnson, Scholes, Whittington, 2005).

2.2 External Environment

2.2.1 P.E.S.T.-Analysis

A very common way to scan foreign countries is to use the paradigm of the P.E.S.T. - Analysis which is the abbreviation for Political factors, Economic factors, Socio-cultural factors and Technological factors. Political risk exists in all countries and regions. It is based on various reasons such as wars, revolutions or general changes in political leaders, law or policy. MNEs deriving most of their profits outside their home country are highly dependent on the situation in different countries. Political activism like product boycotts could have an impact on the international business. The Economic factor includes growth prospects, unemployment rates, exchange rate regimes, purchasing power of potential consumers and interest rates. U.S. companies for instance, earning revenues, paying expenses, and owning assets in countries which use other fluctuating currencies than the U.S. dollar will affect the company’s net revenues. The reason for such different performances is increases or decreases in the value of the U.S. dollar against other major currencies. Managers also have to scan socio-cultural aspects like population demographics, lifestyle changes, consumerism and different consumer tastes and preferences. For instance Coca-cola tends to have a slightly different taste and packaging in developing countries. Technological factors include the level of industrialization, infrastructure, speed of technology transfer, and introduction of new discoveries. Consequently the rapid increase of fuel prices due to the unstable situation in the Middle East can also affect the technological aspect of organisations e.g. transportation cost (Johnson, Scholes, Whittington, 2005).

illustration not visible in this excerpt

Figure 2-2: PEST-Analyses


2.2.2 Porter’s Five Forces

Porter’s five forces framework enables managers to examine five forces of the company’s environment which influences its competitiveness. The five forces are potential entrants, buyers, substitutes, suppliers and the current competitors with similar goods and services. The threat of entry for instance will depend on the extent to which there are barriers to entry, like economies of scale, the capital requirement of entry and experiences in certain industries. The intensity of competitive rivalry in an industry will depend on the structure of competition and industry costs (Wright, Burns, 1998).

However, these frameworks are useful in order to identify an organisation’s external and internal environment, the sources of competition in an industry or sector, and might reduce a company’s risks. All these above mentioned factors are not to be seen as separately rather than linked and interactive to each other.


Excerpt out of 30 pages


Strategy, Structure, and Control of Multinational Enterprises in International Business Environments
Leeds Metropolitan University
International Business
74 / A (Excellent)
Catalog Number
ISBN (eBook)
File size
1127 KB
Double spaced.
Strategy, Structure, Control, Multinational, Enterprises, International, Business, Environments
Quote paper
Atilla Kibar (Author), 2006, Strategy, Structure, and Control of Multinational Enterprises in International Business Environments, Munich, GRIN Verlag,


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