To What Extent is the World Still not Homogeneous - Case Study Example

To what extent is the world still not homogenous, and what does this mean for multinational companies? Discuss Name Professor Date Table of Contents 1.0 Introduction 3 2.0 Discussion 4 2.1 Economic conditions 4 2.1.2 Political conditions 6 2.1.3 Cultural factors 8 3.0 Conclusion 10 4.0 References 10 1.0 Introduction In response to the extent in which the world is homogenous, the business environment looks at it in terms of globalization. Many critics have argued that globalization has mainly been influenced by culture and business ethics of a nation and that of an organization (Kavali et al. 1999). A good example is Hofstede’s Typology of National Culture, where he uses five theory to provide a brief explanation on the effects culture may have on a business (Hofstede, 1983). It is therefore clear that, globalization does not only refer to the trade activities between nations across the world but also the exchange of ideas, beliefs and values among people. According to Aguillar (1967) the term homogenous in a business environment refers to the idea of acquiring the same form of business as well as having organizations that deal in products and services that are similar. From this definition, and in a world where competition is high when it comes to innovations and creativity, the world still has a long way until it is completely homogenous. Globalisation has greatly contributed to the unity of several countries and at the same time to the conflict of ideas, beliefs and values in others. When there is a conflict due to the differences in cultural beliefs and values, cultural imperialism prevails. Therefore empowering other countries and demeaning others (Harvey at al. 2009). Harvey et al (2009) argue that the current economy has pushed many companies to take part in the internalization of their business activities. Managers of multinational companies encounter numerous challenges when they are faced with the task of identifying the opportunities that are present in a fast moving and competitive world. As a result most managers tend to pay attention to the short term components of globalization as opposed to the long term benefits associated with the internalization of a company (Adler, 1997). Moreover, the industrial and cultural aspects of globalization, will affect the human resource and companies in a direct and indirect manner. Thus making decisions that will profit a company may have a negative impact on the target market in a foreign nation. This essay will aim at critically evaluating the impacts of globalization on the process of decision making in multinational companies. The discussion on this paper will focus on elements of globalization as factors that influence decision making at multinational companies. These factors include; the economic, political and cultural conditions. The information presented will be discussed in an argumentative manner while integrating views from several sources and authors. As part of the concluding remarks this paper will summarize the main points from the essay. 2.0 Discussion 2.1 Economic conditions The economic situation of a given country has extensive impacts on the direction in which a company wishes to take. According to Porter (1990) economic factors dictate the kind of investments that a company is going to participate in, in a foreign market. In most instances multinational companies opt to invest in nations whose GDP is promising and have a substantial advantage. According to Aguillar (1967) multinational organization improvise strategies which can be integrated into their business practices in order to meet the constant economic changes and expectations. However, nations in different parts of the world enjoy varying economic interaction. As a result multinational companies are not expected to benefit in the same way in one country in east as another in the west. Economic inequities have contributed to the growth of corporate responsibilities depending on a countries economic state. As part of an integrated strategy between companies and foreign nations, multinational companies have been tasked with the responsibilities of addressing the rising concerns of the economic differences around the globe (Baron, 1997). As a result, globalization has led to the formation of the Corporate Social Responsibility program (CSR). With this kind of responsibility, multinational companies are required to participate in the equal distribution of the world’s economic wealth and resources. According to Doh and Guay (2006) due to the differences in the infrastructure development, trade and labour policies, stakeholders in multinational companies find it had to settle for a specific social responsibilities that will profit their company. Corporate Social Responsibilities makes it rather hard for companies to equate their efforts in terms of maximizing their profits or solely focusing on economic balance in terms of legal, ethical and philanthropic perspectives (Matten et al. 2003). According to Evan & Freeman (1993) economic inequities, have altered stakeholder’s responsibility to the corporation and to a given country. This is because, the decisions that will profit a given country in a foreign nation may not be beneficial to the consumers of another nation or may not go hand in hand with their economic status. As presented by the Porter’s (1990) ‘Diamond Model’, multinational companies can equally enjoy profits from its business activities while at the same time benefit its host country. Companies can learn from the four clusters presented in this model, whereby they can partner up with governments to ensure that these companies are able to benefit from the resources in a foreign country. Through this type of initiative, governments can also outline some of the expectations of its citizens to the company which allows the company to prepare beforehand (Porter, 1990). Multinational companies have continued to face greater challenges since they incorporate an increased number of stakeholders in their activities. For instance, these companies are expected to meet the different financial needs and trade regulations of its consumers and that of the world economy. Therefore they have to account for all the issues raised by different stakeholders with diverse expectations and believes. Moreover, multinational companies are believed to have a large pool of resources and finance thus multiplying the expectations of the society when it comes to corporate participation by these companies (Prahalad, 2006). 2.1.2 Political conditions Political factors in a given country are mainly influenced by the current government in any given nation. Therefore, government officials are the main proprietors that dictate the rules and regulation that govern the business activities in their state (Porter, 1990). Companies are normally affected by the kind of leadership in any given nation and this will subsequently impact their business practices. According to Kotler et al (2009) government bodies have the upper hand in dictating the environment of a given business, rules for employment and other trade policies. Notably the influence by governments on the decisions made by multinational companies cannot be overlooked. According to Porter (1990) through the establishment of the tax and fiscal policies government take part in the decision making by companies by acting as the managing bodies in maintaining cross-border relationships between countries. Therefore when a given company aims at thriving in a foreign country it has to adhere by the set trade rules of the ruling government as the government acts as an indirect managing partner to the organization. Mathews & Zander (2007) argue that with this kind of participation by government bodies, most business entities by multinational organizations have been forced to recognize the presence of the political stands in foreign nations. For example some of these multinational companies are responsible in supporting some political actions through the use of their brands to sponsor campaigns. According to Baron (1997) global managers’ decisions are shaped by the political environments. Therefore global managers are in constant pressure to overcome political risks as they have a direct link in influencing the success of a business. Baron (1995) affirms that most multinational companies are forced to make their decisions through an integrated strategy that will see it profit in different varying political conditions. This means that companies have to come up with potential frameworks to enable them effectively interact with the existing governing bodies as beneficiaries and collaborators during a political process. A good example of countries with uncertain political stands are those in the Middle East. For example during Moammar Gaddafi’s reign most companies operating in Libya as oil companies thrived really well despite the president’s dictatorship and unfair ruling acts. However once Gaddafi was overthrown and the governing body changed, most of the oil companies suffered. This was due to the change in the political stand as well as the change in trade policies. Nonetheless, economic development also has a direct impact on a political regime. According to Zahra and George (2002) globalization has greatly contributed to the economic growth of most countries by creating cross-national relationships between trading nations. As a result, countries that enjoy stable economy are assumed to have a stable political regime as well. For instance most countries in the Middle East have a multitude of resources that will enrich their nations, however due to political instability and lack of democracy these countries are poor as they cannot enjoy their economy. With that said, it is noted that for multinational companies to thrive in such an environment, they are required to tailor their business strategies in such a way that it profits them as well as their host government. 2.1.3 Cultural factors The social dynamics of a given country is a direct reflection of how consumers in a given country perceive the world around them which in turn defines their culture. In managing a business, global managers are required to address the culture of its host country by identifying ways in which they conduct themselves. According to Porter (1990) culture impacts the decision making process of a company in terms of employment contracts, management skills and social responsibility of the organization to the community. Notably a multinational company will therefore be required to make decisions that go hand in hand with the cultural and social beliefs of the consumers in the country they are occupying. The varying nature of culture in different societies makes it impossible for multinational companies to run their business in East the same way they are doing it in the West. According to Hall (1976) culture can be divided into two distinct groups, which enables a company to familiarise themselves with how business is conducted in a specific state. According to Hall (1976) culture can be subdivided into the high and low context cultures. Hall’s high-low culture approach is observed in a top- down approach, which is mainly aimed at dividing people in groups depending on their way of conducting business. These people are categorised depending with their, race, country of origin, nationalities, citizenship or behaviours. For instance high context cultures, are associated with polite gestures and mainly concentrate on first establishing a harmonious relationship between business counterparts before embarking on business activities. People from East Asia, such as; Japan, China, Korean and those from Arabic nations are categorised in this group as they believe in building a good relationship with their partners before signing contracts (Hall, 1976). While dealing with people from such nations employees behaviours or the manager’s behaviour towards his or her employees plays a significant role in ensuring the success of a company’s business activities. In establishing a company in any of the above nations, global managers are expected to come up with ethical codes for the management of their corporate activities. These ethical codes need to be tailored in such a manner that the employees from the host nation do not feel offended in any way whatsoever. In the low context cultures, people from these nations closely believe in creating relationships between people that share common values and goals. As a result, business dealings may be formed due to common interests, political or religious factors. However, once a partnership is narrowed down to a business contract, such cultures give first priority to the success of the business contract as opposed to the relationship formed. Examples of people that fall under this category include those from the West and Europe. This group of people value expertise, performance and legal contracts in managing the success of a business (Hall, 1976). According to Hofstede’s (1983) model ‘Dimension of Culture’ it is critical for global managers to use this criteria in learning the cultures of their host countries. The four dimensions from this model clearly argue that cultural and social practices in any given nation influences the moral and ethical codes that will govern the human resource of their company in a foreign nation. These dimensions assist managers to have a better understanding of cultures as well as have a clear perspective of how to lead their workforce by creating a framework which acts as a guide in running a multinational company. Identifying the varying characteristics of people from different societies empowers global managers in appreciating the different beliefs among people. As a result global managers are forced to implement tools that assist in enabling them employ sufficient management skills and ethical policies which suit the cultural needs of a country as well as benefit the company. 3.0 Conclusion This report has succeed in discussing to what extent the world is not yet homogenous by using three main components of globalization that have direct impact in managing multinational businesses. Economic, political and cultural factors have been highlighted as some of the three factors that will influence decision making within a company in any foreign country. Through the discussion in this essay it is evident that different national and individuals take part in international businesses and their participation affect the running of a business activity through the three tenets discussed. This is attributed to the fact that every day different countries and people participate in the internationalization of companies in different ways. Thus the evolving business conditions, introduce new challenges to multinational companies as well as constant changes in the global business markets. 4.0 References Adler, N.J. (1997) International Dimensions of Organizational Behavior, 3rd edition. Cincinnati: South-Western College Publishing. Aguillar, F.J. (1967). Scanning the Business Environment. Macmillan. Baron, D.P. (1997). Integrated strategy, trade policy, and global competition. California Management Review, 39 (2): 145-169. Doh, J.P. & Guay, T.R. (2006). Corporate social responsibility, public policy, and NGO activism in Europe and the United States: an institutional-stakeholder perspective. Journal of Management Studies 43: 47-73. Evan, W.M. & Freeman, R.E. (1993). Stakeholder Theory of the Modern Corporation: Kantian Capitalism. Prentice-Hall: Englewood Cliffs, NJ. Hall, E. (1976). Beyond Culture. Anchor Booka. Harvey, M., Fisher, R., McPhail, R., & Moeller, M. (2009). 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