How Far Is the World Still Not Homogeneous - Coursework Example

How far is the world still not homogeneous? How does this influence the nature of strategy for multinational companies? International Business 10 June, 2009 Contents How far is the world still not homogeneous? 1 How does this influence the nature of strategy for multinational companies? 1 International Business 1 10 June, 2009 1 Contents 2 Introduction 3 Cultural, Political, Economic and Legal Diversity 3 Limitations in Globalization 6 International Business Strategies in a Diverse Environment 7 Introduction International businesses sell products and services outside their home countries in other countries. The primary motive for businesses to go international is market growth and profit. Legal environments are also playing an important role, with trade agreements and reduced tariffs playing a role in encouraging international business (Iyer &Thruman, 2009). Companies are able to expand their sales by entering international markets. Companies also decide to compete internationally due to the increase in international competition and technological advancements (Hadjidakis & Katsioloudes &, 2007). Special problems in international business make international business strategies different than domestic ones. These include legal, political, cultural, economics and difference in trade practices (Cherunilam, 2007). According to Anderson and Taylor (2005) race, class and gender age, nationality, sexual orientation, religion, residence regions, and various social factors are fundamental to understanding diversity and the management of diversity refers to the understanding of the international connections across borders. This section discusses the differences in the diverse environments in the world. Cultural, Political, Economic and Legal Diversity Prener states that knowledge, belief, art, morals customs and other habits which a person acquires from his surroundings constitute culture. These components of culture vary from place to place and differ in terms what is acceptable or unacceptable behavior. He also highlights that the differences in culture vary from how individuals perceive responsibility, separation in terms of rank, gender roles and differences, high or low context cultures and biases such as ethnocentrism. Other factors include space, etiquettes and symbols. Variances in social, religious and material culture influence perceptions and buying behaviors (Doole & Lowe, 2007). People from different cultures display different behaviors. Culture directs the consumption patterns, lifestyles and priority of needs (Onkvisit & Shaw, 2004). Jason and Turner (2003) give the example of McDonald’s, which attempts to deliver the same products to customers everywhere, but even they need to modify their offering for some countries such and India , where for religious reasons beef is not a suitable ingredient. In another example of the impact of cultural diversity on marketing they give the example of Wal-Mart in Japan. Despite its acquisition of two-thirds share in the fourth largest supermarket chain in Japan, the company was unable to implement its low-cost, high-bulk operations which were a success in the United States. This was primarily due to the complex distribution networks and the distinct Japanese tastes and shopping culture. Language is another element of diverse cultures. Language includes the use of figures of speech, slang, dialects and translation among others. Language differences play a significant role in how a product is taken by the market, its brand name and how it is marketed (Doole & Lowe, 2007). An example presented by Doole and Lowe (2007) is the case of Coca-Cola in China where the company had to counter the problem with the pronunciation of the name. The original pronunciation resembled ‘Kooke Koula’ which translated into ‘A thirsty mouthful of candle wax’. The company then had to introduce a new pronunciation of the brand name. Similarly, Ronald McDonalds the famous McDonald’s character was not received well in the Japanese market where his white face was interpreted as a death mask (Doole & Lowe, 2007). People from different cultures have different sets of priorities and mode of working. A commonly cited example is that of the Daimler/Chrysler merger in 1998. Daimler’s German approach was more focused on engineering solutions whereas Chrysler was more inclined towards marketing promotions and price discounts. Due to this cultural conflict the company suffered due to the large scale departures of senior management (Johnson & Turner, 2003). Every country has its own laws and a legal system (Iyer &Thruman, 2009). Doole and Lowe (2007) state that businesses are bound by regulations of both their home countries as well as the host countries in which they operate. Countries have regulations regarding the kinds of products and services which can be brought into the market. There are four main approaches to law around the world, namely common law, code law, Islamic law and socialist law (Perner n.d.). He also states that the legal environment of a country presents different threats and opportunities for businesses. For example in the US contact agreements rely on lawsuits, where as in other parts of the world personal relations have more valuable than the legal processes. Other examples include the MG sports car, which was withdrawn from the US market when it failed to comply with the safety requirements (Doole & Lowe, 2007). Club Med cannot implement its six month international staff rotation policy due to the immigration laws in the US (Onkvisit & Shaw, 2004). Countries also differ in their laws regarding marketing communications. Some forms of promotion may accept whereas others may be banned (Perner n.d.). Different countries have different sets of regulations depending on the type of advertising as well as the products being sold. For example advertising products such as alcohol is not permitted in Arab countries, where as in most western countries it is acceptable. Political environment plays a major role in how the companies invest and how they develop markets (Doole & Lowe, 2007). Political stability varies from country to country. The political atmosphere also varies, for example in China, despite their willingness to modernize the economy; the country does not allow an open economy (Onkvisit & Shaw, 2004). A country’s economic system also plays an important role in the type of businesses which run in a country. There are three economic systems namely communism, socialism and capitalism (Onkvisit & Shaw, 2004). Individuals from countries with developing economies will have purchase patterns which differ from those in developed countries. Different economies present different opportunities for investments and business marketing. The general environment of the country also varies from region to region. In the 1980s Nissan opted to locate their manufacturing plants in the UK, which at the time was notorious for poor industrial relations. This gave rise to skepticism about how well Nissan would be able to transfer its Japanese working methods into the culture persistent in the UK (Johnson & Turner, 2003). Limitations in Globalization Globalization faces many limitations, those highlighted by Needle (2004) include; a countries’ limitations of the flow of goods and services in order to protect their domestic markets, the existence of regulations and banking policies which limit the flow of capital within the country, the restriction of labor mobility due to the strict immigration laws and the countries tendencies towards concerns with preserving their sovereignty by the use of power as they strive to maintain their local uniqueness (Chong, 2008). Other factors include the considerable cultural diversity among the people in the world and the uneven impact globalization has offering some more advantages than others (Needle, 2004). According to Chong (2008) globalization has also promoted the involuntary development of resistance groups which want differences among the increasing similitude being promoted by globalization. International Business Strategies in a Diverse Environment In order to meet customer needs businesses need to modify their strategies so that they can be effective in different markets. This portion discusses the strategies which multinationals have to use in order to meet the challenges presented by the diverse international business environments. Businesses have several reasons to go international since the foreign market presents many opportunities. Many products have now become global; this globalization of brands however, should not be confused with the homogenization of cultures (Doole & Lowe, 2007). Companies need to understand the differences in international business environments and devise business strategies accordingly. Globalization and internationalization increase chances of both cross-cultural contact and misunderstandings. Reaching across borders requires more awareness and sensitivity to the differences in cultures, languages, values and behavioral norms (Johnson & Turner, 2003). According to Doole and Lowe (2007) Managers around the world are beginning to recognize the importance of developing skills and knowledge to compete effectively in the international market. International markets are multi dimensional and complex making knowledge and awareness of these complexities essential for managers (Doole & Lowe, 2007). When businesses enter an international market, international segmenting has to be done at country level in contrast to the regular market segmenting which is done at customer level (Perner n.d.). Generally countries are viewed as segments. International segmenting strategies are both at macro-level, focusing on the collective characteristics of the region; as well as at a smaller level since there may be differences in segments within countries. Marketers need to localize products. Even businesses which have a standardized product offering need to take this into considerations. (Johnson & Turner, 2003). Companies face the challenge of trading-off between low cost standardization and tailoring products to the unique needs of different markets. Positioning the product differently may affect the global brand image which a company wishes to maintain. The positioning strategy has to include accommodation for changes depending on the nature and needs of the market (Perner n.d.). Firms looking to enter new markets need to adapt to consumer tastes. This is applicable to both the product and marketing communications. The use of inappropriate language and images can undermine attempts to enter into newer markets (Johnson & Turner, 2003). Marketing efforts need to be relevant to the culture. There is need for extensive research in order to understand the culture and perceptions. Perner suggests that marketers should avoid stereotyping and focus on how people interpret certain things. He also states that when marketing internationally it is important to take into consideration factors such as language, perceptions of symbols and other dimensions of cultural differences such as individualism vs. collectivism, masculinity vs. femininity, uncertainty avoidance and power distance. Knowing these differences help marketers develop more effective marketing communications with a reduced risk of offending anyone. Firms operating internationally face challenges in ethics, while deciding how to deal with different cultural perceptions and legal requirements (Doole & Lowe, 2007). The product, distribution and communication strategies have to be designed the regulations in the region. In some cases productions strategies may also vary with the law. The import of certain products may be illegal but its production in the same area may be legal. Bretta, an Italian gun maker, was able to overcome the US law prohibiting the import of guns by setting up a manufacturing plant within the US (Onkvisit & Shaw, 2004). According to Doole and Lowe (2007) the political arena is volatile and governments’ tendencies to change regulations have profound effects on businesses. Before entering a market companies need to be educated about the political risks in the region. They should assess the environment and should understand the characteristics of the market. Strategies for managing political risks include avoidance and insurance. The companies may choose to avoid areas with risks altogether or through insurance to shift the risk to other parties. They may also need to devise strategies to come to terms with the forgiven governments about their rights and responsibilities (Onkvisit & Shaw, 2004). Ethics are a common issue faced by international businesses. Business practices are products of the organizations own culture. Some practices are clearly known to be wrong but there are others which fall into a gray area. Those which may be considered ethical in one community may be unethical in others (Johnson&Turner, 2003). Understanding what is right and wrong with respect to the foreign society and culture helps businesses avoid ethical problems. Companies need to understand the economic situation and polices of the areas in which they operate at a world level, regional level and economic level (Doole & Lowe, 2007). This gives helps them in developing their marketing strategies, since this understanding clarifies the ability of the market to purchase. Strategies for developed countries differ from those for developing economies in terms products and pricing. The diverse international environment also has implication for human resource management. Mergers, acquisitions and joint ventures result in the coming together of workers from various distinct corporate cultures. The way in which these cultures integrate has a significant impact on the company and its success (Johnson & Turner, 2003). Human resource management in international businesses needs to take into consideration decision regarding the degree to which operations will be managed by home or host countries (Johnson & Turner, 2003). HRM also requires managing diversity within the organizations where there is likely to be a clash of cultures, priorities and practices. References Andersen, M & Taylor, H 2005, Sociology: understanding a diverse society. Published by Cengage Learning Cherunilam, F 2007, International Business: Text and Cases. Published by PHI Learning Pvt. Ltd. Chong, T 2008, Globalization and its counter-forces in Southeast Asia. Published by Institute of Southeast Asian Studies Doole,I & Lowe, R 2007, International Marketing Strategy: Analysis, Development and Implementation. Published by Cengage Learning EMEA Hadjidakis, S & Katsioloudes, M 2007, International Business: A Global Perspective. Published by Butterworth-Heinemann Iyer, R & Thurman, P 2009, MBA Fundamentals International Business. Published by Kaplan Publishing Johnson, D & Turner, C 2003, International business: themes and issues in the modern global economy. Published by Routledge Needle, D 2004, Business in context: an introduction to business and its environment. Published by Cengage Learning EMEA Onkvisit, S & Shaw, J 2004, International marketing: analysis and strategy. Published by Routledge Perner, L n.d., International Marketing. University of Southern California. Retrieved 9 June, 2009 from http://www.consumerpsychologist.com/international.htm Read More