Successfully managing a multinational corporation requires a combination of traditional business acumen and cross-cultural understanding. Multinationals must consider multiple sets of laws, cultures, and work processes when making decisions.
Likewise, leaders in these organizations must have a deep understanding of several areas, including global human resources.
Multinational Company Structures
Most multinationals are structured in one of three configurations:
- Division- In this type of structure, the multinational is separated into two larger entities. The domestic division oversees operations at the company’s domicile. The international division functions independently to manage operations based abroad. While the divisions are united by the shared mission and vision, they can take on different strategies to achieve these outcomes.
This structure is beneficial for companies where different aspects of the supply chain or process are dispersed across multiple locations.
An international division is also useful when local markets have different challenges and needs than domestic markets.
Area- In very large corporations, global areas rather than divisions are more appropriate. Under this organizational structure, the heads of each geographic area report directly to the CEO. This type of structure is most common in companies that create products for the consumer market.
Companies divided into global areas tend to have more coordinated operations at the C-suite level. However, as lower-level departments are replicated across each division, it can be difficult to promote communication and collaboration between areas.
- Matrix- Companies with a smaller international footprint can opt to keep major decision-making power centralized at the domestic headquarters. While foreign workers and contractors follow local labor laws, the home office dictates all other guidelines.
Subdivision managers communicate closely, which creates better alignment between global locations. Some high-level managers may even be responsible for several geographic areas.
Each structure has benefits and disadvantages. Leaders must assess their product, industry, and local market needs to determine which structure will work best.
International Government Regulations
One of the risks of establishing an international presence is exposure to host government regulations. Local or geopolitical issues can impact trade, taxes, and business processes.
For example, the European Union’s General Data Protection Regulation (GDPR) tightened collection and privacy regulations for personal data. This new rule impacted any company operating in the EU or serving EU customers. In the years leading up to GDPR’s implementation, multinationals had to update their data collection practices to ensure compliance.
Local governments can also introduce obstacles to standardizing processes across divisions. Multinationals may have to comply with rigid permitting or import requirements or involve local companies in their operations.
International managers are tasked with remedying the discrepancy between home office strategic plans and local government requirements.
Align Labor and Production Practices
Laws concerning work conditions and hiring practices are also enforced at the local level. Leaders may encounter one or more of these common scenarios when working with international subdivisions:
Differences in Employment Contracts: While nearly all countries require written employment contracts, the terms of a standard contract differ widely. For example, at-will employment, which is common across the United States, is not applicable in the European Union. Countries may also differ on mandatory benefits, including paid sick and paternal leave, vacation days, and termination procedures.
Health and Safety Standards: While the International Labour Organization has put forward global standards for occupational safety, they are not enforced in all countries equally. Organizations with operations in countries with low occupational health standards must ensure that all workers are provided with safe work conditions. In addition to ongoing oversight, companies should conduct routine third-party audits to assess worker safety and workplace conditions.
For example, by following standard due diligence process steps, companies can assess how local partner organizations or subdivisions are adhering to environmental, social, and governance standards.
Environmental Regulations: Countries also implement various regulations regarding pollutants, waste disposal, and energy efficiency. As consumers increasingly prefer companies that focus on sustainability and environmental protection, it is in a multinational’s interest to uphold the highest available standard.
Human Resources, Recruitment, and Training
People management is a major component of running a multinational. These organizations will bring together people from diverse cultures and backgrounds to work towards common goals. To facilitate collaboration, companies must foster an inclusive and tolerant organizational culture.
This can be cultivated through the recruitment and onboarding process. Many organizations enroll employees in cross-cultural communication classes to familiarize workers with host and home country work and social etiquette.
Multinationals also provide wraparound support to workers sent to offices abroad. Relocation packages often include visa support for the employee and their family members, language courses, and housing stipends. Conversely, multinationals can cultivate foreign talent by training workers and sponsoring their visas to relocate to the home office.