Multinational Strategy for Greenway Hotel - Case Study Example

Multinational strategy report Name Institution affiliation Date Section 1: Introduction In this report, we are going to highlight the route that Greenway a Multinational Corporations (MNC) take in order for them to set and operate businesses in new markets overseas (Pangarkar and Yuan, 2009). This process also has its own challenges that the organizations do face but there are the assumptions that the managements have to make in planning for the new investment and use them as a stepping stone to invest in the new economy. The assumptions are a tool of budgeting for the prospected investment and bring in the picture of the future outlook of the corporation after expanding the business to the other country. This report has the objectives of opening informing the potential investors that have goals of expanding challenges that companies face when trying to reach international markets. The possible solutions are given to enable companies operate beyond their counties’ borders comfortably. The report will elaborate the causes of the problems which MNCs face when approaching a new market (Dymsza, 1971). This problems are both internal and external then the possible solutions will be sought to enable the MNC expands its market to the other country. The Data that make this report complete is sourced from the Greenway Hotel financial reports supported with the interviewing of the Hotel’s top management concerning the matter. Section 2: Assumptions Acquisition or Merging For an MNC to be successful in setting business in a new country, it is assumed that it has to merge with the local companies in the same industry in the foreign country to enhance what is termed as the Direct Foreign Investment (DFI) especially if the Greenway Hotel was to carry out full acquisition of the other hotels in the cities of Germany. Basing on the differences and similarities in the previous and the new management, some workers will have to leave the company to look for the new jobs in the other locally owned and managed companies (McDougall, 1989). When the Hotels in Germany cities were acquired by the UK-based Greenway Hotel, over 70% of the staffs chose to leave the companies and the few who remained were those who had the capacity to hold the top position and their role was primarily to orient the new management to the new market. They are also a useful link between the local prospected customers and the business enterprise. It is also against the labor laws in Germany have 100% foreign employees in a foreign corporation. Status of the acquired Hotels The Germany hotels that were acquired by the Greenway hotel had lower business status and performance. This is why the Greenway had to carry out rebranding a month after the acquisition so that they have a new image in the market by using the Greenway brand name that is popular among the targeted customers; the travelers and the tourists (Park, 2016). Management Approach It is as well assumed that the management from the hosting country Germany cannot be fully trusted in pushing the Greenway’s agenda of owning 300 hotels within 10 years and for the company to remain focused on its strategy, the Ethnocentric approach of management was used. This is normally made to ensure that there is no destructive change in regime. The Greenway could also not acquire a number of hotels bigger that the hotels in the home country at the entrance in to the new market because the process has to be gradual. As some managers from UK go to manage the newly acquired Hotels in Germany, others have to remain and manage the home country Hotels. More can be acquired after the brand name is well absorbed among the consumers. The 30% of the workers of the German origin, who remain after the acquisition, help the UK managers in communication because they will have not mastered Germany language in the beginning (Mullins, n.d.). Risk Management Greenway invested in a social project in a country that has very different social life compared to that of UK where the parent company is based. This is more so when it comes to verbal communication because Germany citizens who make the majority of the targeted customers do not know how to speak fluent English and the management on the other hand also from UK is not fluent in Germany. The assumption that the challenge will be accommodated in the short run but with time by the time the strategy matures (10 years) the trainings would have helped to feel the gap and business will run smoothly (Contractor, 2012). Location Greenway chose to locate its subsidiary hotels in in downtown. This is a strategic place that is assumed to be a place easily accessed by the targeted customers. This is because these areas are reachable by the Germany public means of transport in all cities. The business people come to the downtown to sell commodities that they bring from other areas as they buy other commodities to go and sell in areas outside the cities. There are plenty of service providers in the downtown that are also targeted to eat in these hotels. Due to the convenient access by the public transport, the tourists also visit these areas to have meals as they purchase different commodities from the business people (Rugman and Mucchielli, 1998). Budget Accommodation The affordability of the food, drinks and the other services is an important factor. To cater for this, Greenway had to offer a variety of services in their hotels like Room Service, Dry Cleaning, and shoe shining among others among others that are at various prices depending on the location of the hotel. The price tags are set on the products in line with the law of demand and supply. Those that are near or within the CBD are relatively expensive than those that are in the outskirts (Contractor, 2012). With the targeted people in mind, the business people, the prices are pocket friendly to attract them in to the premises. Number of Employees With the aim of rebranding the acquired Hotels in Germany, the Greenway made them look similar to those in UK. Assuming that the consumption of the output in Germany is similar to that in UK, the hotel will employ the same number of workers for an equal number of hotels. One Greenway hotel in UK having 21 rooms with 8 employees except the manager has to be replicated in Germany for the beginning then other adjustments could be made in the future depending on the changes that take place in the business (Enz, 2005). Section 2: Problems Language Barrier The managers from UK were not capable of speaking Germany. Communication is the backbone of leadership in any given organization. This is one of the greatest setbacks in extending the business to the new market where there are social differences. The 30% of the employees of the acquired hotels who did not leave might not be as helpful as when the managers could have been trained to speak fluent Germany. There are higher chances of inefficiency in the management due to the language barrier (Mol and Brewster, 2014). With the majority of the local employees having left, the few who remained could not be effectively present to help the managers from UK in interpreting the message since they knew both Germany and English. Difference in Management Styles in UK and in Germany The management style in UK varies from that in Germany. In the UK set up where Greenway is based, the management style is guided by being humorous, being a high level risk-taker and being flexible in thinking and changing options depending on the odds of the risk. The higher the risk leads to the higher the potential income. This fact depended on in the business management in UK and that is why they are said to be risk lovers. On the other hand, the Germany business management is based on being cautious. This means management in Germany one has to be risk averse. The management in Germany also required that one has to be structured and hardworking. The two look contradictory and for that matter the managers from UK to German had a difficult moment to adapt the way of management since they had no experience of doing management job beyond the borders of UK. Shortage of Manpower After acquisition of the Germany hotels by the Greenway, majority of the employees left to search for employment elsewhere. This left behind very few workers who could not run the hotels. According to the time line of the strategy, the acquired hotels were to open and start operating after one month. This time period is too short for a company to advertise the vacancies, determining the favorable candidates and shortlisting them (Davé, 1984). Some of the shortlisted candidates could not turn up for the interview. The recruitment process had a lot of pressure piled on it because of time frame stated in the strategy. This did not provide ample time to carry out a thorough scrutiny to get the man power of the highest quality (Park, 2016). High Operational Expenses The managers that were allocated duties in Germany, already were in managerial positions in the home-based hotels and for this reason, they have to frequently travel to and fro Germany to handle their managerial responsibilities. This is a challenge that really requires funds and is time consuming. Apart from being expensive, it lowers the efficiency of the respective managers in performing their duties because the issues had to be given divergent attention in times when managerial decisions had to be made coincidentally in both countries at the same time (Dymsza, 1971). The Legal Obligations The labor laws in Germany provide that “The employees are protected from dismissal if the employer has more than ten permanently employed workers” (16 Federal Labour Court of Germany: 1 AZR 754/13, 25 August 2015, 2016). Considering that the recruitment was done under pressure, the company having made wrong choices of some workers, it has to accommodate them and work with them and train them to acquire the skills and the desired competence because there is no room for dismissing them. Section 4: Cause of Problems The Ethnocentric approach to the business management is the major cause of the problems faced by Greenway while in struggle to acquire a market share in Germany. If it was compulsory for this approach to be used, the company would have taken time to train the managers and the potential managers all about Germany especially the language as far as business are concerned (Dahms, n.d.). This would help the managers who were sent there be in position to communicate well and interact well for the business to pick quickly. The ethnocentric strategy is relatively a conservative move and it looks like a partial penetration in to the foreign market. They could also be equipped with the knowhow about the Germany social and cultural lie including foods because they are to work in the food industry (Mullins, n.d.). The managers had a heavier workload due to working in two countries and these heavy workloads led to lower quality in performance among the managers especially in the foreign country because they were ignorant about what the business environment deserved. However, this strategy also is good at enabling the company acquire stability in the beginning before injecting new employees in the management. The Polycentric or the geocentric approach of management would have enhanced efficiency and prevented the company from incurring higher expenses of operation due to the traveling of the managers from UK to Germany and back. There is no tangible reason for the company to rigidly use the ethnocentric approach that eats in to the profits made in the foreign market (Birnik and Moat, 2009). The Polycentric strategy gives the position of management of the subsidiaries to the qualified locals with guidelines from the Head Quarters. These locals have the better knowledge of the hosting country’s business environment. The Geocentric strategy is the complex recruitment of management. It would have been the best if the company gave the subsidiaries to the qualified persons regardless of the country of origin. This is based on skills. If the strategy would have been applied in the earlier stages, the problem of language barrier would have been avoided. Greenway did not assign sufficient time to its strategy of penetrating in to the new market. For weeks is not enough for a company to make a great difference in its operation especially moving in to unfamiliar environment (Verbeke and Kano, 2012). The shortage of labor was caused by the acquisition without considering the importance of the workers who could have just been retained and continue working under the new management. This would have saved the new management from the recruitment pressure. This is caused by the lack of time for a serious negotiation and inclusivity of the junior employees. The Germany local employees left the company massively because they feared working under foreign management due to language barrier and were worried of poor communication at the work place (Li Sun, 2009). This therefore means to attain the 70% of the missing workers required that the desired had to be in position to speak fluent English as an added advantage. The Greenway top management did not study the German labor laws. Lack of knowledge about the hosts’ laws has negative impacts on the investor in case there is violation of any of the obligations because the ignorance of law does not proof innocence. Greenway could not dismiss any of its workers due to underperformance because they had more than ten workers and this prevents all of them from dismissal as provided by the law (Litteljohn, 1985). There is lack of open mindedness in the Greenway top management because the penetration in to the new market is equivalent to the expansion of the business and there should be employment of new mangers to take charge of the subsidiaries basing on merit especially the major qualification being the knowledge about Germany in terms of the business environment in the food industry and the labor laws (Birnik and Moat, 2009). The managerial institutions in both countries do offer training that is based on the local management. The managers lack the knowledge about the managerial requirements in the other countries and this made hard for the UK managers who are risk lovers have a hard time in managing the Greenway subsidiaries in Germany where the business environment dictates people to be risk averse. The UK managers are humorous while working in Germany they were supposed to be industrious. There is serious lack of diversity in Greenway because they would have created opportunities for foreign managers in Hotels in UK so that when the time for investing in another country, they simply pick from those that they had already employed to then go and work in their homeland and then get replaced with in UK by another manager to avoid the heavy workload and the expenses incurred in travelling from one country to another (Enz, 2005). Recommendations Despite the challenges that the hotel has faced in penetrating the new market, there is a realistic plan that is tied to time period. The company is not over ambitious in its strategies because the challenges are considered. For this matter, there are clearly set short, medium and long term goals. In the short-run, the company had a strategy of having acquired up to 120 hotels in Germany within the first 3 years. In its medium term strategy, from the 4th year to the 5th, Greenway targeted to have extended to France having a total of 150 hotels. In the long term as the climax of the strategy gets approached, from the 6th year to the 10th year, the hotel aims to have acquired 25 to 300 hotels beyond France and Germany in to Finland, Switzerland, Denmark, Belgium and Italy. Section 5: Conclusions The companies have to clearly define their short term and long term goals as early as when the idea of starting the company gets conceived. This helps the company to be systematic. As the short term goals get implemented, they pave way for the implementation of the long term goals. If the Greenway planned earlier that it will have to grow and in the long run penetrate the Germany Market or any other Country, they would have prepared for the foreign management by hiring staffs from those countries at an earlier stage then promote them to managerial positions when the time for going to the new market in their countries comes (Zuehl and Sherwyn, 2001). Alternatively, the Greenway would have avoided the ethnocentric approach of management which focuses on the citizenship of the company’s home country as the qualification for the subsidiaries’ managerial positions without considering the how the person will deliver in the foreign land (Quek, 2012). The polycentric method would have been helpful though it is equally biased because it also focuses on the citizenship of the hosting country of which the person might as well face the challenge of reporting to the parent hotel due to language barrier (Chkir and Cosset, 2001). The geocentric approach stands out to be the best approach of penetrating in to the new market since it is purely based on merit regardless of the citizenship of the candidate for the managerial position. The knowledge about Germany in terms of the business environment, social and cultural life and both verbal and non-verbal communication in addition to the managerial skills would be a solution to all the problems. References 16 Federal Labour Court of Germany: 1 AZR 754/13, 25 August 2015. (2016). International Labor Rights Case Law, 2(2), pp.195-203. Birnik, A. and Moat, R. (2009). Mapping multinational operations. Business Strategy Review, 20(1), pp.30-33. Chkir, I. and Cosset, J. (2001). Diversification strategy and capital structure of multinational corporations. Journal of Multinational Financial Management, 11(1), pp.17-37. Contractor, F. (2012). Why Do Multinational Firms Exist? A Theory Note About The Effect of Multinational Expansion on Performance and Recent Methodological Critiques. Global Strategy Journal, 2(4), pp.318-331. Dahms, S. (n.d.). International Hotel Strategy and Institutional Distance: A Conceptual Framework. SSRN Electronic Journal. Davé, U. (1984). US Multinational Involvement in the International Hotel Sector An Analysis. The Service Industries Journal, 4(1), pp.48-63. Dymsza, W. (1971). Multinational business strategy. New York: McGraw-Hill. Enz, C. (2005). Multibranding Strategy: The Case of Yum! Brands. Cornell Hotel and Restaurant Administration Quarterly, 46(1), pp.85-91. Li Sun, S. (2009). Internationalization Strategy of MNEs from Emerging Economies: The Case of Huawei. Multinational Business Review, 17(2), pp.129-156. Litteljohn, D. (1985). Towards an economic analysis of trans-/multinational hotel companies. International Journal of Hospitality Management, 4(4), pp.157-165. McDougall, G. (1989). Barossa Winery: Penetrating the International Market. International Marketing Review, 6(2). Mol, M. and Brewster, C. (2014). The Outsourcing Strategy of Local and Multinational Firms: A Supply Base Perspective. Global Strategy Journal, 4(1), pp.20-34. Mullins, L. (n.d.). Management and organisational behaviour. Harlow, England ; New York : Prentice Hall : Financial Times, 2005, pp.3-8. Park, B. (2016). The future journey of International Journal of Multinational Corporation Strategy. IJMCS, 1(1), p.1. Pangarkar, N. and Yuan, L. (2009). Location in Internationalization Strategy: Determinants and Consequences. Multinational Business Review, 17(2), pp.37-68. Verbeke, A. and Kano, L. (2012). An internalization theory rationale for MNE regional strategy. Multinational Business Review, 20(2), pp.135-152. Quek, M. (2012). Globalizing the hotel industry 1946–68: A multinational case study of the Intercontinental Hotel Corporation. Business History, 54(2), pp.201-226. Rugman, A. and Mucchielli, J. (1998). Multinational Location Strategy. Bingley: Emerald Group Publishing Limited. Zuehl, J. and Sherwyn, D. (2001). Identifying Uniform Employmenttermination Practices for Multinational Employers. The Cornell Hotel and Restaurant Administration Quarterly, 42(5), pp.72-85. Read More