The task of managing a firm with multinational operations presents challenges related to foreign government regulations, product standardization, product adaptation, barriers to market entry and human resources management. When a firm decides to expand its operations globally, it must consider market variables, including the country's natural resources, market type and potential differences in standard business procedures. A firm must also consider its entry strategy and whether forming a joint venture with a local company might best suit its objectives.
Foreign Government Regulations
A multinational firm faces the challenge of dealing with different sets of government regulations that may cause it to incur additional costs. According to an Ernst & Young guide written in 2010, foreign governments are increasing value-added taxes in goods and services, in addition to tightening compliance regulations. A change in compliance regulations often means that a firm has to adapt its operational strategies and the way in which it delivers its goods and services. This may require increased costs to hire local specialists who are able to keep abreast of changes and deal directly with local government officials.
When introducing a product to a foreign country, a firm needs to conduct market research to determine whether adaptations need to be made. Brand names, logos and product attributes might all need to be modified to ensure market success. This is a challenge for firms that are entering unfamiliar markets and cultures. Language translations of names and advertising slogans might also prove to be a challenge as wording and sentence structure might skew the intended meaning. For example, a snack foods manufacturer might need to market a potato chip line under a different brand name than in its home country due to a potentially unfavorable interpretation. The manufacturer might also need to produce a different line of flavors to appeal to local taste preferences.
A multinational firm faces the challenge of deciding how to coordinate and streamline operations between its home country and its foreign operations. Decisions have to be made regarding when and how to establish a local physical presence and how to gain the support of local organizations, such as labor unions and parts suppliers. A certain number of local experts need to be brought on board to ensure that the firm is able to effectively network and communicate in a foreign environment. Operations may need to be standardized as much as possible between countries, which could lead to increased overhead and duplication.
The administration of benefits and salaries often proves to be a challenge for a multinational firm. Different labor market conditions might result in the firm offering a set of benefits that it otherwise wouldn't. To attract and retain the talent it needs, a multinational firm could find it challenging to maintain a balance between its administrative costs and recruiting the necessary human capital to effectively perform in a foreign country.