Strategies Of Multinational Organizations In This World Of Globalization - Research Paper Example

? Falling trade barriers, free flow of money across borders, growth in world trade among countries represent the trend known as globalization which has allowed the large organizations to expand overseas. The process of globalization has enabled countries to source raw materials from anywhere, produce anywhere and market their finished products anywhere in the world. However, globalization is not a uniform evolutionary process as various political, economical, cultural and technical factors can have an adverse impact on the process of globalization and expansion (Wadsworth, 2010). Thus the strategies of the MNCs in this world of globalization have to take into account various factors before venturing overseas. This is all the more important when venturing expansion into the emerging economies such as India, China and Brazil. The emerging markets are those nations that are between the developed and the developing nations. Emerging markets present tremendous opportunities for all multinationals as the purchasing power in these nations has been steadily growing. The emerging economies now account for 30% of exports compared to only 20% in 1970 (Wadsworth, 2010). However, their strategies are shaped by forces beyond their control but they must evaluate the business environment before moving ahead. To gain competitive advantage several theoretical perspectives are taken into account. The most commonly used analysis is Porter’s generic strategies (cost leadership, differentiation and focus). Porter’s generic strategies emphasize that only one strategy should be used at a time but others argue that a hybrid or a middle approach can be used (Baack & Boggs, 2008). Mintzberg et al (1998) suggest that the strategy should act as a mediation force between the organization and the environment. This implies that in a changing business environment the strategy too should be flexible enough and adapt to change. Organizations adopt a strategy suitable to its internal and external environment. A global strategy treats the world as a single unified and homogenized world but a localized approach becomes essential when formulating the strategy. While McDonald's has achieved success through failures in localizing its product offerings, McDonald's has failed to respect the sentiments of the people. In Israel McDonald's has been accused of ‘Americanization’ and of disregarding long-established traditions and conventions. The Golani Brigade in Israel is a part of the Israeli military history. Moreover, this intersection in Lower Galilee has been named as Golani Junction as a mark of respect (Azaryahu, 1999). McDonald's intentionally ignoring and overlooking the local sentiments opened its restaurant next to the memorial. This became a controversial issue as the restaurant seemed to overpower the memorial. This suggests that local factors in overseas expansion cannot be ignored. Competitive advantage among nations can be ascertained based on Porter’s Diamond Model or the theory of competitive advantages which places innovation in the centre of the process of development and competition (O’Connell, Clancy & Egeraat, 1999). However, the national competitiveness does not depend upon the economy as a whole but can be industry-specific. Nations that possess such strengths gain prominence in the world market. India demonstrated definite advantages over other nations in the field of IT and hence gained immensely when foreign firms entered India. India made tremendous progress in the field of telecommunications and in development of IT parks. The Indian government had opened up the economy and brought about a lot of reforms that have made India conducive to investments. Low labor rates, low labor turnover, high quality of human resources and support from the government have all contributed towards the success of the IT sector in India (Gonsalez, Gasco & Llopis, 2006). Lack of environmental analysis (PESTLE) can lead to errors and omissions. The Uppsala Model of internationalization suggests that firms should start expanding in countries and cultures closet to it and then as they gain experience they can probe into distance cultures (Forsgren, 2002). Wal-mart was rich in resources and took long leaps into the international markets instead of penetrating slowly through countries close to it. They did not gain relevant market knowledge before entering emerging economies such as Brazil. Based on their experience in the US, they offered products as golf equipments, vacuum cleaners for those who loved gardening and food grinders before evaluating the demand for such products in Brazil. They suffered huge losses and had to change their strategy. International market research is a prerequisite to develop consumer insights. Porter’s Five Forces analysis helps an organization evaluate how to achieve competitive advantage in emerging economies. It provides the organization knowledge of its own strengths and weaknesses as well as the competition strategy. Based on such evaluation, Unilever attained immense success in Brazil. PEST analysis revealed that the income levels in Brazil had gone up and hence they stepped up promotional activities (Bonifacio, 2010). In the personal care segment they achieved 11% growth. Likewise, when they found that in India consumers cannot afford large bottles, they introduced shampoos in single-use sachets but the same strategy was considered a waste of resources in China (Strategic Direction, 2009). Many firms expand into overseas countries without any market research and then learn through trial and error. Tesco however, entered China only in 2004 much later than other retailers such as Wal-mart or Carrefour. However, Tesco conducted its ground work thoroughly. It entered into joint venture with a local partner and gained knowledge of the local business environment. Local knowledge is essential to start in another country and particularly China (Samiee, Yip & Luk, 2004). This is because the government regulations in China are stringent. Even to start retail joint ventures requires approval. Moreover, certain formats are not legal in China. Entering into joint venture also enables the MNC to obtain information about local culture and the consumer characteristics, buying habits all of which help plan the strategy accordingly. Localization is thus essential to achieve success in international markets. Through a standardized marketing approach a similar product range with similar prices can be distributed through identical distribution system while having similar promotional programs (Zou, Andrus & Norvell, 1997). This is based on the assumption that markets and consumer behavior is homogenous but this approach ignores that local culture and values impact the needs and wants of the consumer. Standardization definitely results in reduced costs and better quality, improved distribution and planning but this approach cannot be applicable in all markets. Thus to achieve competitive advantage localized approach becomes essential. Standardization implies a product-centred approach and not a customer-focused approach. Standardization can also cause local resistance. McDonald's adopted the glocalization approach – they adopted the standard menu but altered specific items to suit local taste and culture. They offer a uniform menu at all locations but in India they serve the vegetable McNuggets and a mutton-based Maharaja Mac (Vignali, 2001). This becomes necessary as Hindus do not eat beef, Muslims do not eat pork and Jains do not eat meat at all. While McDonald's pursues the strategy of think global, act local, Coca-Cola pursues the strategy of ‘think local, act local’ (Rugman & Hodgetts, 2001). This implies that the strategy has to differ not only across cultures but is also dependent on the product offered. Differences in culture also impact the human resources strategy when venturing overseas. Culture is the collective programming of the mind, according to Hofstede (1997) which distinguishes one group of members from another (cited by Hope & Muhlemann, 2001). Hofstede distinguishes between individualism (people take care of themselves) and collectivism (people need to be taken care of) which impacts relationship between people (Shore & Cross, 2005). China and India are collectivist societies while they also have the culture of uncertainty avoidance. Thus, they seek instructions and directions rather than take the initiative. However, such cultures can stifle innovation and creativity as there is a tendency to avoid the unknown. Usually such cultures also exhibit high power distance (power is shared unequally) between the employer and the employee. Human behavior is governed by the set of beliefs that have been established in the society. These are handed down from one generation to another and these beliefs and values allow them to live harmoniously together in the society (Hope & Muhlemann, 2001). Moreover, the culture in which an individual is immersed since childhood is likely to have a much stronger impact than the organizational culture. The Chinese hotels are collectivist organizations (one of the cultural dimensions of Hofstede) where the managers have to motivate and instruct the employees (high power distance) and the employees simply follow instructions. Moreover, the managers must know that they have to motivate the whole group and not individuals. Thus, it is best to employ a local manager than an expatriate or the MNC must first train the expat and then send them overseas so as to avoid disharmony among the personnel (Gilbert & Tsao, 2000). The Chinese customer too has different wants and needs. They are price sensitive whereas the western customer would evaluate the quality against the price (Pizam & Ellis, 1999). Thus the Chinese managers need to be trained to different customer expectations. Thus having a local partner can help understand or overcome such issues in operations. Cultural diversity can lead to differences in goals and expectations, in the proposed course of action which can lead to conflicts with an organization. Cultural differences also impact the belongingness, love and esteem needs of individuals (Friday & Friday, 2003). Korac-Kakabadse and Kouzmin (1999) confirm that even subtle cultural differences can impact decision, outcomes and organizational effectiveness. Across cultures there are differences in communication style which can lead to conflicts due to language barriers and affect human relationships. MNCs face the issue of managing a diverse workforce but appropriate training can help overcome such obstacles in overseas expansion. Managers need to recognize and value the differences across individuals; they have to recognize that people are not homogenous (Baum, 2007). This requires a change in the attitude and behavior of the organization’s leadership. National cultures impact how leaders interact with the subordinates and how the subordinates respond (Testa, 2004). Hence, leaders should be from low power distance cultures because they are more effective in communicating with subordinates. Those from high uncertainty avoidance cultures are low on delegation while demonstrating high level of control. Thus, MNCs from the western nations should train managers from their headquarters in local culture for better results. International trade, globalization and free economy suggest that nations can derive economic benefits from a free global market. At the same time, the standard economic model suggests that no one’s welfare can be improved without reducing the benefits of at least one another person (Singer, 2004). Unconstrained globalization has led to economic inefficiencies. The removal of trade barriers have not led to the growth in income and wealth for all. In fact the trade barriers have been removed so hastily that it has negatively impacted the developing economies. For instance, child labor in the emerging economies has increased as 5% of the child laborers are involved in producing goods and services that are exported to the US (IOWA, n.d.). Inequality has increased as a result of liberalization of markets. The rich have become richer and the poor poorer. One of the reasons for disparity in comparisons could be because all calculations are made in the local currency (Singer, 2004). Inequality affects economic growth and the self-esteem of an individual. Liberalization was expected to result in sustained economic growth, reduction of poverty, and increase in productivity. However liberalization comes with costs – political and economic costs. Increased foreign competition from MNCS leads to closure of domestic industries in certain regions (Ahearn 2005). This leads to wage disparities and income inequality. However, it is also argued that emerging nations gain competitive advantage when MNCs enter the emerging nations. The domestic manufacturers enhance their production and quality, while reducing the prices, leading to benefits for the customer. It also results in efficient allocation of resources and overall output (Tapalova, 2004). Trade liberalization enhanced efficiency in India but MNCs do face threat from small, domestic firms. They must be innovative and change to local market conditions. Free trade has also ignored environmental concern while taking advantage of the underprivileged. Competitive pressures and the search for higher profits forced the US apparel companies to look for manufacturing beyond their border. While they started offshoring jobs to Latin America initially, India and China soon became the outsourcing destinations. However, the MNC may not know the location of the sub-contractors (Miller, 2004) but this does not absolve them of the offence created. Child labor is extensively employed in the apparel sector and firms are able to exploit children because protection for child workers is either non-existent or weak (Rogers & Swinnerton, 2008). Child labor practices are often linked with apparel retailers and MNCs. Iwanow, McEachern and Jeffrey (2005) cite ILO 2003 which states that one in every six child aged between 5 and 17 years is being exploited by child labor round the world. Levi Strauss, Nike and The Gap have often been accused of engaging in sweat shops. The MNCs have to consider the local labor laws when venturing overseas or sourcing from overseas contractors because child-labor laws do exist in all emerging nations. Gap sources most of its production from factories in India and China and they have also been accused of the highest number of violations on the vendor code of conduct. A large number of factories in China have been found to violate the child labor laws. The hasty removal of trade barriers has had a negative impact on the economies of the developing nations. WTO does not have any measures on child labor and labor standards. WTO also places economic considerations ahead of environmental protection. WTO contends that under its rules environmental protection measures are prohibited only in case of discrimination between the foreign and domestic producers. However, trade restrictions were applied unilaterally in case of fur, cosmetic and beef (Singer, 2004). MNCs freely pollute rivers in which they discharge their waste but they are not forced to clean it up or compensate those who have been harmed. It is possible to enforce such measures if there is a global authority to regulate pollution, thereby maximizing welfare. However, WTO claims that they are not responsible for setting international rules for environmental protection. Thus, liberalization without such regulations has allowed the MNCs to expand while ignoring factors such as the environment, human rights and child labor exploitation. It thus becomes evident that management decision making has to rely on clear understanding of various aspects management. The MNCs need to conduct PEST analysis to ascertain the right product, the time and the competitive environment in which it proposes to venture. The external business environment can be ascertained through the application of various theoretical frameworks such as PEST analysis, Porter’s Diamond Model, Porter’s Five Forces analysis and the Uppsala Model. However, once the basic decision of the right timing and promotion has been made, operations depend upon other factors such as an understanding of the local culture and work practices. Differences in culture can impact the outcome because it affects human relationships. Thus, for effective human resource practices, work force diversity management is essential. However globalization and trade liberalization have opened up economies but also led to exploitation of labor and environmental degradation. MNCs venturing overseas must be cognizant of the local labor laws to protect human rights. The business environments keep changing but multinationals have to evaluate the environment from time to time depending upon various factors. References Ahearn R.J. (2005) Trade Liberalization Challenges Post-CAFTA, online 07 August 2011 from fpc.state.gov/documents/organization/57798.pdf Azaryahu, M. (1999) McDonald's or Golani Junction? A case of contested place in Israel. Professional Geographer, 51 (4), pp. 481-492 Baack, D.W. & Boggs, D.J. (2008) The difficulties in using a cost leadership strategy in emerging markets. International Journal of Emerging Markets, 3 (2), pp. 125-139. Bonifacio, F. (2010) Unilever Brands Among Most Recognized in Brazil. 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