Question Case

Question 1

1.1

A multinational company (MNC) can be defined as "a company that is physically active in more than one country" (Hollinshead & Leat, 1995, p78).

Multinational Strategy focuses on increasing profitability by reaping the cost reductions that come from experience curve effects and location economies. The production, marketing and research and design activities of firms pursuing a global strategy are concentrated in a few favourable locations. Global enterprises tend not to customise their product offering and marketing strategy to local conditions because customisation raises cost. Global firms prefer to make a standard product worldwide so that they can reap the maximum benefits from the economies of scale that underlie the experience curve. They also use their cost advantage to support aggressive pricing in the world market (Hill, 2003:423; Griffin and Putsay, 2002:289; Phatak, Bhagat and Kashlak, 2005:197).

The strategy makes sense where there is strong pressure for cost reductions and where demands for local responsiveness are minimal. Increasingly, these conditions prevail in many industrial goods industries. These conditions are not found in many consumer goods markets, where demands for local responsiveness remain high. The strategy is inappropriate when demands for local responsiveness is high ((Hill, 2003:423; Griffin and Putsay, 2002:289; Phatak, Bhagat and Kashlak, 2005:197).

Thus from the theory it is clear that Molex is pursuing a Global Strategy, as stated in the case study, they keep competitive by a combination of low cost and excellent service, they also mass produce standardise products that are sold globally. Molex manufacturing sites are globally placed where cost conditions are favourable and close to major customers.

1.2

Human Resource Management is becoming more and more important for multinationals as it is

believed to be an important mechanism for coordination and control of international operations.

At the same time it has been acknowledged that HRM constitutes a major constraint when MNCs

try to implement global strategies, mainly because of the different cultural and institutional

framework of each county the MNC operates. The national context affects the way people are

managed in different countries and MNCs are facing pressures to adapt HRM practices accordingly.

1.3

Geocentric/Global Staffing policy

In the global staffing approach the best managers are recruited from within or outside the company, regardless of nationality. (Deresky, 20021:392; Biscoe and Schuler, 2004:55; Scullion and linehan, 2005:156; Hill, 2003:611; Ball et al, 2006:549).

A Global staffing approach has advantages such as:

1. The policy provides a greater pool of qualified and wiling applicants from, which, in time, results in a further development of a global executive cadre. The skills and experience that those managers' use and transfer throughout the company result in a pool of shared learning that is necessary for the company to compete globally.

2. The third country nationals are used to manage subsidiaries, they usually bring more cultural flexibility and adaptability.

3. It can be more cost effective to transfer and pay managers from some countries than from others because their pay scale and benefit packages are lower.

A geocentric staffing policy enables a firm to make best use of its human resources, and perhaps most importantly, enables a firm to build a cadre of international executives who feel at home working in a number of cultures. Creating such a cadre may be a critical first step towards building a strong, unifying corporate culture and an informal managerial network (Hill, 2003:611; Ball et al, 2006:549).

Molex uses the geocentric/Global approach to staffing, because they move their employees around the world to gain experience in other countries. Their third-country nationals' move from one Molex entity to another, they provide short term transfers to other entities in Molex on specific projects.

2.1

Types of economic integration

1. Free Trade Area

2. Customs Union

3. Common Market

4. Economic Union

5. Political Union

These different forms of integration visualise different degrees of economic cooperation in the descending order.

1. An Economic Union is a case of absolute integration. It implies complete economic integration of a group of countries. There is, thus, free mobility of factor resources and commodities in such a union. The economic activities and policies (fiscal, monetary and general) of the member nations are perfectly harmonised, coordinated and collectively operated. Benelux (Belgium, the Netherlands and Luxembourg) and the European Common Market (ECM) are such economic unions.

An economic union is, therefore, commonly referred to as a common market.

2. A Customs Union involves a common external tariff against non-member countries, while within the union itself there is unrestricted free trade. From the customs union gradually, complete economic union is evolved. For instance in the case of ECM, the Rome Treaty (1958) laid the basis of a customs union of the six member countries, leading finally to an economic union by 1970.

3. A Free Trade Area involves the abolition of all trade restrictions within the group, but each individual country in the group is free to maintain any sort of relation with the non-member countries. Countries in a free trade area have, thus, no common external tariffs to maintain.

The European Free Trade Association (EFTA), 1959, and the Latin American Free Trade Association (LAFTA) serve as examples of such free trade areas.

A Sectoral of Partial Integration refers to the establishment of a common market in a given product or products. The European Coal and Steel Community (ECSC),

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