Free «Impact of Multinational Firm Network on Performance and Market Value» Essay Sample

Networking forms an essential entity of multinational companies as it plays a major role in the direction that the firm takes in structuring its policies and market strategy. Multinational firms are classified as possessing varying levels of networking based on the extent of their operations abroad. Firms are thus categorized as having low, medium, or high multinational network degrees. Low multinational network levels comprise few foreign subsidiaries, while high multinational networks possess several foreign subsidiaries. Medium level firms lie in between the two terms. A firm having greater multinational networks has increased ability to mitigate and hedge risks, and deploy experiences from other foreign investments to its advantage. A firm having low multinational networks possesses less ability to manage risk occasioned by less learning experience from foreign investments (Berry, 2002). A well networked firm has higher ability to penetrate into new markets and invest due to their past experience about the same activities. Increased network improves a firm’s market image increasing its preference in the market industry.

The level of economic development plays a vital role in making decisions regarding network configurations. Advanced level economies expose firms to high income earning consumers, higher academic levels, reduced risk location, political stability, and institutional protection for investment. Developing economies on the other hand provide higher returns at higher risks, reduced cost, and greater input sources like land, labour, and capital. As a result, a firm enjoys higher market valuation in developing economies than advanced economies. High costs of transaction in developing economies cause organizations to enter the market with greater control (Berry, 2002). A firm having extensive network has relative ease to leverage its size and influence in a given region to negotiate with these countries to reduce political risk, so as to operate with more flexibility and ease. However, shareholders rarely value their direct investment in developing economies and instead prefer advanced economies due to these risks. Shareholders require the firm to attain a certain level of networking to be able to counter the risks of investing in developing countries. This forces the firms to form decisions that increase network configurations in that region.

Structural and Infrastructural Decisions

Virtually all structural decisions possess notable strategic implications, contain great effects on physical assets, and usually call for substantial financial input. They are long-term and hard to reverse once adopted. These decisions affect the structural practices of an organization. Infrastructural decisions on the other hand lead to operational effects and have short-term effects on an organization’s performance, since they involve little capital outlay. These decisions only comprise of operational practices linked to operations managers only (Garcia, 2006).

Considering the manufacturing process, for instance, pertaining structural decisions variables, a firm may choose to produce increased volumes of homogeneous products or low volumes specific to the customers’ requirements. In this case, managers need to decide the type of machines and raw materials to produce the products. In addition, it is necessary to establish the components to be produced from within and those requiring outsourcing. The size, location and capacity of the plant also need careful consideration (Garcia, 2006). Once decided, the property sets to be used for longer period without changing their orientation. Infrastructural decisions, on the other hand, are tactic and strategic in nature since they dwell on systems, procedures, practices, policies and organization supporting the manufacturing process. Such infrastructural decisions influence, production, inventory planning and control systems. These decisions are short term and subject to revision depending on how effective they prove to be. Infrastructural decisions are similarly costly to develop.


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