Multinational corporations: ExxonMobil

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INR321 - Issues in Int. Politics

Course Lecturer: Assoc. Prof. Dr. Ercan Gьndoрan

Assignment: Multinational Corporations

Student: Teymur Gasimzade (20100656)

Multinational corporations sit at the intersection of production, international trade, and cross-border investment. A multinational corporation is “an enterprise that engages in foreign direct investment (FDI) and owns or controls value adding activities in more than one country” (Dunning 1993, 3). MNCs thus have two characteristics. First, they coordinate economic production among a number of different enterprises and internalize this coordination problem within a single firm structure. Second, a significant portion of the economic transactions connected with this coordinated activity take place across national borders. These two attributes distinguish MNCs from other firms. While many firms control and coordinate the production of multiple enterprises, and while many other firms engage in economic transactions across borders, MNCs are the only firms that coordinate and internalize economic activity across national borders.

There are several MNCs structural models. One common model is the positioning of the executive headquarters in one nation, while production facilities are located in one or more other countries. This model often allows the company to take advantage of benefits of incorporating in a given locality, while also being able to produce goods and services in areas where the cost of production is lower.

Another structural model for a multinational organization or MNO is to base the parent company in one nation and operate subsidiaries in other countries around the world. With this model, just about all the functions of the parent are based in the country of origin. The subsidiaries more or less function independently, outside of a few basic ties to the parent.

A third approach to the setup of an MNC involves the establishment of a headquarters in one country that oversees a diverse conglomeration that stretches to many different countries and industries. With this model, the corporation includes affiliates, subsidiaries and possibly even some facilities that report directly to the headquarters.

MNG's are highly important in the contemporary world economy. In discussing MNCs it is typical to distinguish between parent firms, the corporate owner of the network of firms comprising the MNC, and the foreign affiliates, the multiple enterprises owned by parent firms. This basic terminology allows us to gain a sense of the role that MNCs play in the contemporary international economy.

According to the United Nations Conference on Trade and Development, there are approximately 63,459 parent firms that together own a total of 689,520 foreign affiliates. In 1998 these affiliates employed approximately 6 million people worldwide. Together, parent firms and their foreign affiliates produce about 25 percent of world gross domestic product (UNCTAD 2000). The importance of multinational corporations is not limited to production, as they are also significant participants in international trade. It has been estimated that trade within MNCs, called intra-firm trade, accounts for about one-third of total world trade. If we add to this figure the trade that takes place between MNCs and other unaffiliated firms, then MNCs are involved in about two-thirds of world trade. Thus, MNCs are productive enterprises that by definition engage in cross-border investment and are heavily involved in international trade.

Who are these firms, and where are they located? While it is impossible to provide an extensive catalog of more than 60,000 firms, the largest MNC's are listed below: multinational corporation marketer petroleum

-General Electric;

-Ford Motor Company;

-Royal Dutch Shell;

-General Motors;

-Exxon Corp;

-Toyota and etc…

These large MNCs are based almost exclusively in advanced industrialized countries; ninety-nine of the 100 largest firms are from the United States, Western Europe, or Japan and more than 5/6ths of all parent corporations are based in advanced industrial countries. Providing an example of parent MNC of advanced industrialized country (U.S) below:

Exxon Mobil Corporation, or ExxonMobil, is an American multinational oil and gas corporation headquartered in Irving, Texas, United States. Exxon Mobil is the world's largest publicly traded natural gas and petroleum company formed in 1999 after the merger of Exxon and Mobil. This biggest energy giant is globally working on almost every sector of energy and petroleum aspects including exploration and marketing of natural gas and oil. ExxonMobil, which interests even in electric power generation, is a major manufacturer and marketer of commodity and petroleum. Its overall business involves in exploration, production, transportation and marketing of crude oil and natural gas and petroleum products as well as coal and copper mining. The company is currently operating its 54 manufacturing plants in more than 20 countries and marketing its products in more than 15o countries (Gianpaolo Ghiani, 2004).

ExxonMobil is successfully ranked the world's largest refiner and marketer of petroleum. This is the most respected organization the world in energy sector which believes in innovative technology and applied science making the things better and safer, delivering the best products to its customers worldwide(Stamatis, 1996).

Exxon has been serving as the regional marketer of kerosene since 125 years in United States and widely recognized with its brand names Exxon, Esso and Mobil.

History of ExxonMobil

ExxonMobil, an American oil and gas corporation formed after the two big oil corporations Exxon and Mobil, both founded by John D. Rockefeller, joined together. This one of the biggest collaboration established in November, 30, 1999. This corporation is the world's largest business unit from its revenue i.e. $404.5 billion in the fiscal year 2007. ExxonMobil is the largest among six energy super giants with daily production 4.18 million BOE( barrels of oil equivalent) according the company's records in 2007 (http://www.xtimeline.com/timeline/History-of-Exxon-Mobil). Before being a part of ExxonMobil company, Esso (named later in 1951 as Esso) remained as a Anglo American Oil company in 1888 that produced oil for kerosene lamps.

Importance and implementation of change

ExxonMobil has changed the concept of the world the way it looked to energy and fuel related subjects. They have developed such a technologies and services that are directly related to meet the consumers' needs. Thus, their change and innovative ideas were directly associated with easy lives. These steps were not only made ExxonMobil a strong leader among the competitors, technically and financially with profitability. People working can be a part of a big ethical organization that believes on innovations and change. They are more likely to be productive, innovative and efficient. Organizationally, they have already gone to the next level of business and brand. On the other hand, the consumer level which are its main and only source of survival, are likely to be more satisfied with what they were getting. Thus, ExxonMobil is getting name, prestige and profit with its revolutionary products and changes. Their environmental friendly projects and green products are the ultimate solutions of the many problems in terms of climate and public health and which are sure to get an quick response and acceptance.

Organizational strategy of ExxonMobil

ExxonMobil has not been in the top position with small games. Their visionary approaches, perfect management, a systematic way of working, cooperative teamwork and open forum for innovation has made them successful. To manage the change in any organization, it is necessary to build the intercultural bridges and highlight the necessity of dedicated training in the area of emotional intelligence. Probability of successes is related to the impact of the human emotions on business development.

Strategic differentiation

ExxonMobil has created the different directories, divisions, groups, units and strategic business units to manage such things within the organization. In support of managing change there should be the processes namely, performance management, where organizations comprises the regular budgeting, monthly reporting, market research, governance, risk management, unintended consequences, performance appraisal etc. thus the challenges are overcome and changes are defined. Governance, where the poorly managed changes are characterized by unclear accountabilities. Another process is risk management; this is a process of assessing risk in terms of changes outcomes and in terms of risk of disruption associated with implementation of changes. The final process is of solving the unintended consequences. This is a part of risk management while managing the changes but to those issues which need especial or separate treatment (Carnall, 2007).

Employee management is the most difficult and the most admired part of ExxonMobil. Poor team management and poor strategy leads to the disruption in changes and the expected outcomes cannot be achieved. Thus ExxonMobil has ensured the compatibility between structure and change vision. Company is aware that if the structure barrier is not dissolved, managing the change is difficult as the employee get frustrated, less motivated, narrowed leading to the impaired productivity and this undermines transformational effort and changes brought. Employees get empowered are more prone to succeed when they are equipped with right skills, knowledge, motivations and attitude to operate the intended organizational environment. Keeping these things as major issues, ExxonMobil continuously improves the quality of its employee by training them about the technical skills, social skills and attitudes. This way, they have effectively being able to manage the change and innovate their ideas.

The ultimate strategy usually involves the quality or performance of the products, cost and price, sale promotion and service, and strength of the sales channels. There are four segments where ExxonMobil's strategy is working.

· Product differentiation: ExxonMobil is spending billions of dollars and investing the great deal of time in researching and branding their products to position it uniquely in the market place e.g. biofuels from algae

· Market segmentation: management level of ExxonMobil has cleverly segmented and advertised its products, changes and innovations differently in deferent regions. They have mergers and acquisitions e.g. in India and China.

· Price and cost leadership: ExxonMobil is leader in the market because of quality products and affordable prices, however, the prices have been a subject of concern from last few years.

· Construction of entry and mobility barriers: this is where ExxonMobil leaves every another company far behind. Its vision till year 2030, hi-tech products e.g. biofuel from algae etc makes competitor difficult to enter the market in same specialty.

These are the strategies that ExxonMobil is applying in managing producing and managing changes within the organization. (Stewart Clegg, 2005)

There is no question that ExxonMobil is a perfect structure of a successful and admirable corporation in the world in terms of business and profit but there are certain things that the company needs to be aware about in the days to come. They had the very bad experiences in the past because of some of the oil spill, human rights and racial related issues and thus should work not to repeat such accidents and involvements as such accidents and involvements not only damages the organization's economy badly but also ruins the image and prestige among the consumer's level. ExxonMobil products need to be equally advertised and marketed in the Asian countries like Nepal, where their presence is almost zero. A company that is talking about the global issues like climate and environmental protection should invest in the developing or underdeveloped countries as well so that the consumers will benefit from its products in affordable prices. Their interest in environment is exciting but there has been inappropriate handling of environmental interest groups and this weakness must be repaired otherwise, it can be detrimental to the organization in the future. The organization has been known for its unethical profits in last few years because of the hike in the energy prices and they are getting negative publicity as the organization did not handle it very well eventually costing the goodwill of the customers. Hence, a reasonable and affordable, yet stable price plan is necessary.

ExxonMobil has been operating in the energy sector for over hundreds years and is the world's largest publicly traded company that operates in integrated petroleum and natural gas industry. Te energy giant operates and facilitates around the world and explores for oil and natural gas in six continents across the globe. This is a leading industry in every aspect of energy and petrochemicals. In the past few years, the company has been actively working in the exploration of the new source of energy to help meet the increased demand of energy. ExxonMobil is a leader in researching and developing the new source of energy and technology and has been working in the major global concerns like climate change and environmental concerns.

There are many reasons behind the huge success of the organization in the operation of around a decade. First thing is that the organization has been able to increase its operations over the globe thus increasing the customer base as wells. Moreover, it has spent much on researching and development. It has an icon of innovations, technology and the development among the other companies and this will continuously help the organization to remain at the top level in the future as well. The diversification of the operations into many different sectors of energy supply, a massive investment in technology, research and development to invent the new methods of energy exploration, efficiency and refinement give the great contributions in the ever growing success of the company.

There is no doubt that the company is growing enormously in terms of profitability, market share or potential and consumer base but there are some threats which are looming in the immediate future of the organization. The increasing public interest in the conservation of the environment has resulted in the reduction of the use of energy and energy savings and ultimately, this will reduce the profitability of the organization. Company is a perfect example in innovating and managing the changes within. Sense of responsibility of the company to the employees and the vision as well as planning of the company has made it easy to manage the changes brought.

In the continuation of discussion of MNC's in the world economy, parent corporations are not exclusively a developed country phenomenon, however Hong Kong, China, South Korea, Venezuela, Mexico, and Brazil are also home to MNC parent firms, but these firms are considerably smaller than developed country firms. Only one MNC parent based in a developing country, Petroleos de Venezuela, ranks among the world's 100 largest. The fifty largest MNCs from developing countries control only $105 billion of foreign assets, less than ten percent of the assets controlled by the 50 largest developed country MNCs. The distribution is reversed when we consider the affiliates. Developing countries host more than 355,324 MNC affiliates, while advanced industrialized countries host only 94,269 (UNCTAD 2000, 11-13). Within the developing world, MNC affiliates are highly concentrated in a relatively small set of countries. Thirteen countries in East Asia and Latin America host 331,748 MNC affiliates, about half of the total affiliates worldwide. China alone hosts 235,681 affiliates. MNCs have also invested heavily in Eastern and Central Europe during the 1990s, creating a total of 239,927 affiliates in this region. Here too affiliates are concentrated in a few countries; the Czech Republic,Hungary, and Poland host 135,997 of the affiliates active in this region. While these figures on the location of affiliates are interesting, they are misleading to some extent. The vast majority of foreign direct investment flows into advanced industrialized countries rather than the developing world. Thus, even though there are more affiliates based in developing countries than in advanced industrialized countries, the affiliates created in advanced industrialized countries tend to be larger and more capital intensive than the affiliates created in developing countries.

Multinational corporations' activities in the postwar international economy have evolved over time. It is common to divide this evolution into two distinct periods, the immediate postwar period spanning the years 1945 to 1960 and a second period since 1960. Two features characterized the immediate postwar period. First, American firms dominated foreign direct investment. Concerned with postwar reconstruction and unwilling to risk the balance of payments consequences of capital outflows, European and Japanese governments had little interest in encouraging outward direct investment. As a consequence, American firms dominated MNC activity, accounting for about two-thirds of the new affiliates created in this period. Second, the bulk of MNC investment during this period was oriented toward Europe for the purpose of manufacturing. The push to invest in Europe was given additional impetus at the end of the 1950s by the creation of the European Economic Community, and thus the early 1960s saw a rapid increase in the amount of market-oriented investment by American firms in the Common Market countries. Other direct investments flowed to developing countries, Canada, and Australia for natural resource extraction. In short, American MNCs engaged primarily in market- and natural resource-oriented foreign direct investment dominated the immediate postwar period. Both of these characteristics of MNC activity have changed dramatically since 1960. The early dominance of American firms has been increasingly diminished as European and Japanese firms began to engage in foreign direct investment. The increased role of other industrialized nations has more recently been accompanied by the emergence of foreign direct investment by MNCs based in the Asian NICs and in Latin America. Thus, while American firms continue to play a large role, they are not nearly as dominant today as they were in the early postwar years. At the same time, the relative importance of market- and natural resource-oriented direct investment has fallen and that of efficiency-oriented investment has risen. As Dunning (1996) notes, MNCs increasingly view “each of their foreign affiliates and, frequently, their associated suppliers and industrial customers, not as self-contained entities, but as part of a regional or global network of activities. New investments are increasingly undertaken as part of an integrated international production system.” The shift to efficiency-oriented investments and integrated international production systems has been made possible in large part by developments in communications technology by the reduction in trade barriers achieved through the GATT process.

In summary, during the last fifty years multinational corporations have grown to play a centrally important role in the international economy, therefore our world is not able to develop itself without multinational corporations' support. MNCs are, in many respects, the driving force behind the deepening integration of the global economy. Multinational corporations have the most important trade transactions and sells. They become an important pole of power for economic world.

References

1. Caves, R.E. (1996), Multinational Enterprise and Economic Analysis, Cambridge

2. University Press, Cambridge, p.1.

3. Dunning, J.N. (2003), Re-evaluating the Benefits of Foreign Direct Investment,

4. International Thomson Business Press, London, p.77.

5. Grimwade, N. (2000), International Trade: New Patterns of Trade, Production and

6. Investment, Rouledge, London, p134.

7. Caves, Richard E. 1996. Multinational Enterprise and Economic Analysis. Cambridge:

8. Cambridge University Press.

9. Dunning, John H. 1996. “Re-evaluating the Benefits of Foreign Direct Investment,” in

10. Companies without Borders: Transnational Corporations in the 1990s, edited by

11. UNCTAD. (London: International Thomson Business Press), pp. 73-101.

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