Operating a multinational business entails many challenges because such an organization is usually of considerable size and has to have a lot of assets, both financial and physical. Multinational companies usually maintain manufacturing and marketing operations in several countries and in each of them, an organization oversees multiple offices through a varied chain of subsidiaries and branches. Leading and managing such a company is challenging because of the need to maintain control over the multiple offices, with the chain of command being found in the home country. Thus, it is important to explore the strategic challenges of leadership that come with the operation of a multinational business using the example of a known organization. In this instance, the example of Magna International Inc. will be used.
Magna International Inc. is a multinational business with headquarters in Canada specializing in mobility technologies for automakers. It is the largest manufacturer of automobile parts in North America and sells original equipment, such as automotive systems, components, modules, and other products. In 2019, Magna employed 158,000 workers in 342 manufacturing and 91 product development locations in 27 countries (Magna, 2021). The US operations are being handled from the office in Troy, Michigan, while the European head office is in Vienna, Austria. The management and leadership of Magna are carried out under the corporate constitution that entails profit distribution among workers and shareholders. As mentioned by Magna’s founder Frank Stronach, the company strives to create a fair enterprise system, which means that the organization works on the principles of transparency and accountability (“All’s fair (and all’s well) at Magna,” 1998). The corporate constitution under which the organization is governed requires reaching a consensus among managers, employees, and shareholders in order for any changes to be made.
However strong an organizational structure of a multinational business may be, there are always challenges that may hinder the progress and performance of the organization. The first crucial strategic challenge impacting leadership is the severe pressure from shareholders to attain greater profits (Owusu-Boadi, 2019). As a result, the organization’s leaders are tasked with redefining their strategies more often. This means that shareholders have a significant capacity to impact company operations and decisions because of their focus on meeting profit objectives. Dealing with this is challenging because shareholders directly impact the business due to their voting rights on major decisions. For instance, they have the power to vote on the elections of company board members and provide immediate feedback regarding their concerns. Strategic planning suffers from the persistence of stakeholders to engage in the decision-making aiming for increasing profits. Shareholders will inevitably impact the approach that multinational organizations take when dealing with stakeholders such as workers, business partners, and clients. For instance, despite the focus of some companies on philanthropic pursuits and Corporate Social Responsibility, the pressure to gain profit exhibited by stakeholders may emphasize cost control for their minimization and the abandonment of charitable activities.
The increased complexity of a multinational organization represents the second challenge. Multinational companies such as Magna have representatives in different parts of the globe, which entails dealing with a diverse range of perspectives and ideas for conducting business. The leadership of such an enterprise established in the context of diverse cultural affiliation has to consider the varieties inherent to different ethnicities and cultures as they impact behavioral patterns, including the demand for certain products or the use of specific services. Therefore, for the management to attain the desired results in terms of financial performance in a specific country, the most beneficial environment for the individual employees must be created. In addition, it has also been good practice for the leaders of the organizations to facilitate additional training for addressing the real challenges that limit effectiveness. The best leadership practices that align with strategic initiatives are concerned with offering extra training for managers. It has been suggested that diversity management serves as an essential trait of leadership in multinational firms and should be adopted and implemented on a regular basis. Significant education and sensitization should be implemented in all company departments to ensure that both leaders and their followers understand the value of diversity. They should understand that it is the responsibility of every individual in an organization to make sure that the vision and goals of a multinational company are addressed in the best manner possible. Therefore, the leadership of the company must be willing to approach the topic of diversity seriously to make sure that the organizational goals align with the methods of their accomplishment regardless of the specific cultural setting.
The third challenge that leaders of multinational organizations face is concerned with the need to challenge the need of implementing complicated change programs with effective business performance. Specifically, in instances when the management of the company’s international locations is tied to rewards based on their performance, it can be complicated to achieve buy-in into creating effective strategic plans for the future. According to Bartram et al. (2015), many multinational corporations use different performance management and reward practices, predominantly for the largest occupational groups and managers, suggesting a significant level of global integration surrounding human resource activities. In addition, multinationals are more likely to implement performance-related pay when there is low union recognition for the aim of collective bargaining that covers the largest occupational groups. However, implementing such policies is problematic for multinational companies because employees and managers are likely to have varied views on just and fair pay and the subsequent rewards for good performance (Davidescu et al., 2020). Besides, cultural differences can come into play when assessing the performance of workers and the rewards that come with them. Because the cultural differences range from one country to another, they make it harder for leaders and managers to establish standardized methods of performance management policies.
The fourth strategic challenge that impacts the leadership at a multinational company entails the extent to control. Multinationals combine different mechanisms for controlling their activities and meeting coordination requirements. However, the tightness of control relies on the degree of internationalization of a company and the need for local adaptation (Sageeder & Feldbauer-Durstmüller, 2019). Generally, a multinational company implements tighter control when the importance of a subsidiary in terms of size or investment is high, then subsidiary performance is seen as unsatisfying. In addition, the competition in the local markets is threatening to the degree of control that leaders can exhibit. Therefore, multinational corporations apply tighter levels of control when the stakes are high. This is supported by the argument that at early internationalization stages, detailed procedures and standards work for establishing systems of control from the home country (Sageeder & Feldbauer-Durstmüller, 2019). Moreover, the corporate culture of multinationals will have an influence on the extent of control and the role of managers and workers in the processes involved.
Because of the difficulties associated with applying the necessary level of control, multinationals such as Magna may struggle with securing the desired resources for strategy implementation. Thus, the final strategic challenge in leadership is concerned with getting access to such resources. As a result of the existing change programs, many of the resources that are available to companies are already allocated for specific purposes, and even if they are available, managers tend to exhibit aggressive competition for them. Besides, companies may also be challenged by limited expert resources that are necessary for successful project implementation. Because of this, the main emphasis of companies’ leaders should be on providing adequate support for expatriates working in foreign countries or training for the employees of a multinational organization that are used to a different cultural environment of their home country (Molinsky & Hahn, 2016). Thus, multicultural resources are needed because of the varied location of global projects and different global staffing needs to engage people with the right skill sets.
To conclude, multinational organizations such as Magna International Inc. will inevitably experience challenges associated with their complexity of structure as well as the need to operate in a multicultural environment. Besides, stakeholders will instill severe pressure on companies to meet the goals of good performance and financial accomplishments, which will have an impact on the strategic orientation of the organization. Therefore, it is imperative for an organization of such a large scale to consider implementing training of personnel and adjusting the strategy to the multicultural environments.
All’s fair (and all’s well) at Magna. (1998). Automotive News.
Bartram, T., Boyle, B., Stanton, P., Sablok, G., & Burgess, J. (2015). Performance and reward practices of multinational corporations operating in Australia. Journal of Industrial Relations, 57(2), 210-231.
Davidescu, A. A., Apostu, S-A., Paul, A., & Casuneanu, I. (2020). Work flexibility, job satisfaction, and job performance among Romanian employees – implications for sustainable human resource management. Sustainability, 12, 6086.
Molinsky, A., & Hahn, M. (2016). 5 tips for managing successful overseas assignments. Harvard Business Review.
Owusu-Boadi, B. Y. (2019). The Role of Strategic Leadership in the Profitability of Large Organizations. Walden University.
Sageder, M., & Feldbauer-Durstmüller. (2019). Management control in multinational companies: a systematic literature review. Review of Managerial Science, 13, 875-918.