Multinational corporations enjoy a range of opportunities to leverage their global structure to maximize profit margins. Maximizing profit in a multinational centers around taking advantage of the cost savings of doing business in multiple countries, which allow multinationals to achieve cost-leadership positions in multiple markets while keeping prices the same as competitors with higher costs. Understanding the nuances of cost control and profit maximization on a multinational scale can help you to achieve global competitive advantages.
1. Structure your operations to take advantage of the most beneficial labor markets. Before you decide where to locate each area of your operations, research the average salary ranges for the specific types of employees required, and balance cost metrics against education statistics to find the ideal countries to locate different departments. As a simple example, consider the decision of where to locate a research and development department. If Country A has a college graduation rate of 60 percent and an average salary for college graduates of $40,000, and Country B has a graduation rate of 30 percent and an average salary of $60,000, Country A would likely provide a larger pool of qualified applicants than Country B while incurring lower labor costs.
2. Consider the legal and tax structure of each country you operate in. Build facilities in countries with favorable income-tax rates, value-added tax structures, import tariffs, import quotas and other financial considerations. Locate your facilities in countries with low restrictions on foreign businesses and favorable treatment of expatriates to minimize the hassle of complying with local regulations.
3. Use your sourcing policies to cut materials costs by leveraging regional natural advantages. This is where multinationals can gain tremendous cost advantages over competitors. Buy materials in countries with lower costs, taking quality standards into account, and develop long-term relationships with suppliers in countries with the best cost advantages. Spreading your operations out around the globe can allow you to bypass tariffs and other trade restrictions by using local branches or subsidiaries to order materials from different parts of the world, shipping them between your own business units to transfer assets between countries.
4. Fill regional management positions with locals to maximize efficiency in operations. Local managers will almost always have the best insight into how to manage local employees, structure local branches, reach local customers with marketing messages, work with local authorities and develop partnerships with local suppliers and business customers.
5. Focus on your core competencies in different countries and outsource non-vital functions that you cannot perform competitively. Spreading out your operations around the world affords access to a wider range of outsourcing options, including local legal advice, recruiting assistance and marketing consultation.
6. Custom-tailor your pricing policies to each national market you serve. Price is the other side of the profit equation. Set your prices differently in each country you serve, based on competitors' prices, local income averages, poverty statistics and currency exchange rates to ensure you are maximizing marginal income in wealthier markets and maximizing volume in less developed markets.
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