Cultural Challenges Faced By Multinational Corporations in People Management - Essay Example

Cultural Challenges Faced By Multinational Corporations in People Management By 06 March Cultural Challenges Faced By Multinational Corporations in People Management Multinational corporations are large companies that can command a global presence. They do not sell their products on the local level only but the international market. Going to the international level has largely been brought up by globalisation and the need for companies to make profits by wider margins. Francesco and Gold (2005) argued that while the international market presents huge opportunities for multinational corporations, they tend to face many challenges in the process of trying to adapt to that environment. This paper seeks to discuss the cultural challenges often faced by multinational corporations with regards to people management. In particular, the paper will focus on the human resource challenges, challenges as a result of the new environment, organisational culture and cultural ways of conducting business among others. Cultural theory Different countries present different conditions that favour business to thrive. For instance, some prepare policies that act as a guide for companies willing to enter the country and conduct business (Hofstede, 2001). A cultural business analysis dictates that differences in cultures have a huge impact on the success of a foreign company. The culture of a country influences how the people perceive foreign business. In particular, the cultural aspects of the business environment to the business create awareness about the ways to deal with intercultural communication in business relation (Hofstede, 2001). Cultural Challenges for Multinationals Human Resources It is always the case that many countries require that their local nationals are given a quota of certain positions by corporations establishing in their territories. Kogut and Singh (1998) argued that in many instances, the management professionals have challenges in getting the people with the required expertise following inadequate training or lack of advanced degrees. While education is held in high regard across different nations, there is some stereotype type that getting an education from certain areas is more superior to others. As a consequent, finding employees at home who are qualified or even ready to fill high profile positions in a context outside of their home country may prove quite an overwhelming task (Lewis, 2011). It is also the case that some employees have preferences to serving some areas of the world compared to others based on cultural differences (Lakomski, 2001). This presents challenges for the human resources of the large multinationals in trying to hire its workforce in their overseas offices. Retaining and Engaging a Changing Workforce Retaining and engaging workers in foreign locations is one of the most common challenges faced by multinational corporations. This usually happens because of the difference in culture, in particular, how they are handled in their home country. It is often the case that multinational corporations want to standardise operations, but that becomes difficult when operating in many countries (Toyne, 1976). It is simply not just enough to have qualified staff, commitment to work, and alignment to local working conditions is important for success. Adapting to a new environment One of the challenges that have been singled out is where the organisations have to adapt to the new cultures in the new areas of their operation. According to Taggart (1999), ‘the inability of multinational corporations’ teams in foreign missions to adapt quickly to the different cultures has led to poor sales and in other cases moving out of a particular geographical area. An example of this case is Coca-Cola’s introduction of Dasani Water in the UK. Coca-Cola introduced Dasani water in the UK market without regard to the local culture where people have a preference for mineral and natural water (Garrett, 2004). Instead, the organisation went on to sell Dasani water that was largely tap water. While Dasani remained largely successful in the US, it was a flop in the UK due to conflict with the culture of the people of the UK; something that made the company quit the market. This example is one of the many highlighting just how culture can affect multinational corporations to an extent of even quitting the market (Garrett, 2004). Coca-cola, in this instance, presented a team to the UK, who did not conduct proper research on the market segmentation before bringing Dasani to the market. Lack of communication could have led to the flop of the water product. Challenge of Creating a Unified Organisational Culture One of the most obvious challenges that these corporations face on the global scene is the difficulty to form a unified organisational culture. It is the case that any organisation has its fundamental ways in which it does its things. Some multinational corporations such as Google and Apple are built on an innovative culture platform. However, the different geographical locations where they set in may provide conditions not conducive enough to foster their culture. For example, Google, the internet giant has had considerable cultural challenges in trying to establish itself in China (Sulekha, 2011). For one, the ways of operations in China are different to that of Google’s, as such; the corporation despite being a global technology giant has not fared well in the Chinese market. The problem has largely been the inability to create unified organisational cultures from within i.e. sending people with similar beliefs across the different countries where it operates. The people in the different geographical areas it operates have different beliefs; for example, the workers may have a different perception with regards to unity and teamwork across different national boundaries. This presents challenges in trying to these corporations in trying to develop a unified company perspective (Sulekha, 2011). Managing the Risks of Global Operations Although the significance of establishing businesses in different countries cannot be overemphasised, the coordination of cross-border teams remains a huge challenge for multinational corporations. For instance, it is quite difficult to run a virtual team as some may not be comfortable with technology. There is also a problem with differences in time which often make organization and coordination a challenge. Although a face to face communication may be less smooth at times, Glenn (2008) argued that natural social bonds are significantly difficult to create on a virtual platform. In some cases, misunderstandings may arise, and these could be difficult to resolve. Communication and Cultural norms This remains the greatest concern for multinational corporations that conduct their business on the international scene. According to Hofstede (2001), the differences in communications remain largely essential in the deciphering of the cultural norms in the nations where the multinational corporations operate. Research has shown that some form of communications only makes sense within the precincts of the cultural context of a given country’s traditions. The challenge this has to multinational corporations is that it makes it difficult to adapt quickly to the new environment (Lewis, 2011). It is often not surprising to see the local companies excelling despite their poor financial status compared to their multinational counterpart. There is also the tendency for the local population to want to associate themselves with their local brands. Such a tendency often makes it hard for international brands to gain a footing in an area that is dominated by local brands perceived as superior to foreign brands. In addition, the cultural and linguistic misunderstanding that may occur between potential clients and the internal organisation is often costly especially in a new business environment. According to Bond and Smith (1996), such misunderstandings may impede a cross-border transaction and thereby leading to multinational corporate making losses. Etiquette and Customs This is another area where multinationals face challenges in their quest to manage people in some overseas locations. As said earlier, different countries have their norms from which they build their perception of the world. Multinationals must, therefore, have representatives and leaders who are conversant with ways to avoid pay no attention to cultural ways in business meetings (Lewis, 2011). In countries such as Middle East, it might be regarded as offensive to send a woman for business trips as some men find it offensive to engage in public with women. In some other cultures such as the Asian, bowing is a more accepted form of greeting as opposed to shaking hands. Other commonly observed etiquette concerns regards eating customs in the course of having business dinners, giving gifts and even the dress code. The impact of this is that a multinational organisation may be perceived negatively if it acts in breach of a country’s held customs and beliefs. According to Sulekha (2011), a multinational can end up losing customers and even tainting its brand name that could potentially impact on the organisation’s product offering in that region. Individualism versus Collectivism Different countries have different sets of cultures that they embrace. For instance, it is the case that the American culture tends to be based on individualism in which case an individual’s self-interest usually supersedes group affiliations. In some other cultures, they tend to embrace a collectivist culture in which case a group effort is regarded more than individual efforts; consequently, the group cares for each other. Various studies on individualism and collectivism have shown that about two-thirds of the world’s population tend to be collectivist (Hofstede, 2001). In countries such as Japan, China and Mexico whose cultures are built on a collectivist basis, it will become significantly difficult for a multinational corporation to motivate its employees through giving them individual incentives and competition. The multinational corporations based in those locations need to operate with the group dynamic mind (Hofstede, 2001). Similarly, it could be important for multinational corporations to use the individualistic approach in areas considered to have a highly individualist mentality. Time Relationships Time relationships are also viewed differently among different cultures, and this may present challenges on multinational corporations. In particular, some cultures’ view of time may have a tremendous effect on matters to do with punctuality and schedules. Bond and Smith (1996), observed that Americans have a tendency to liken tardiness to disrespect. This is a contrast to people in some parts of the Latin America who believe arriving late is a sign of respect. It is also the case that the Americans have a firm belief that getting right down to business soon after meeting is the way things should work. On the other hand, cultures such as the Japan’s believe that conversations do not just come spontaneously but rather as a building process. The challenge of multinationals in this, therefore, is the ability to send out well-trained teams with the ability to handle the different cultures properly while still upholding their cultural beliefs and customs. Sending people to such overseas locations or setting businesses may require a deep understanding of the cultures to avoid conflicts by exercising unnecessary demands (Hofstede, 2001). Compensation and Benefits Countries handle the cases of compensation and benefits differently and often this reflects on their culture. In China, for instance, the qualified staff’s quitting their current company to the next is dominantly driven by the need for a better-paid job. Following the country’s rapid growth as posited by the World Trade Organization, the annual salary is also projected to have risen significantly over the past few years. This increase has led to high expectations in salary awards by companies is projected to continue rising in the next years. Many multinational corporations, however, base their salary offering on the performance of individuals, which could insinuate low compensation and benefits for the Chinese staff. The culture of salary increments that has been developed in China, therefore, presents challenges to multinationals as they may find it difficult to conform to local standards (Graham & Lam, 2003). Cultural Ways of Conducting Business Different countries have firms of beliefs attached to their ways of conducting business. In China, for instance, it is considered a tradition that for a foreigner to succeed in transacting business, they must understand Chinese and embrace Confucianism, Taoism and Buddhism. According to Graham and Lam (2003), these philosophies form the bedrock of the Chinese business culture and, therefore, play a significant role in business behaviour and making of key business decisions. While the philosophies are cherished and have helped Chinese succeed in their business endeavours, the same presents challenges to multinationals whose business values and beliefs are different from those of Chinese. The strong attachment and influence by Confusion has inevitably made them trust people more than they do to any contracts signed in business deals. This presents a challenge for multinational corporations wanting to conduct their businesses in China. They need to take a people focused perspective on developing a high-level mutual trust with the Chinese partners (Graham & Lam, 2003). Homesick Managers It is often the case that multinational corporations send managers from countries of origin to manage business in foreign assistance with the assistance of the local employees. Being new to such environment means they have to learn and get used to the ways in which the local people operate (Toyne, 1976). In many cases, the foreign managers have the responsibility of stabilising the business before they go back home, something that creates a ‘homesick’ feelings among such managers. The impact of cultural diversity, while many studies perceive it as positive in the workplace, may turn negative to foreign managers. Although some of the managers sent abroad may have been dynamic and focused in their home country, cultural pressures may render them unable to perform and cost the multinational dearly (Toyne, 1976). Cultural Ethical Issues Multicultural corporations have challenges with regards to cultural, ethical dilemmas. While setting up in some countries, some local custom and officials my demand for bribery and other forms of non-authorised payments. This may create a standoff considering the countries of origin may not tolerate the culture of bribery (Taggart, 1999). For instance, Kickbacks are common in many parts of the world, countries such as UK have established strong laws against the vice. However, one cannot substantiate that they do not happen. Multinational corporations from such countries may, therefore, have a conflict of the moral dilemma of the foreign country that may demand the same. The challenge the multinational corporations face is ensuring sincerity among the team members sent out to represent their interests. Working Practices Countries have different cultures on how they go about their work practices. There are also laws that are meant to protect the people against exploitation from foreign companies and also protect the local industries. The laws have been indoctrinated into their systems that they have become part of their culture (Toyne, 1976). Foreign companies, which may come from areas with different cultures on the same, may have challenges adapting to the new culture. For example, when an American company took over a British car factory, it sparked a long strike. It was not possible to apply the American working practices as that could not tally with the British working practices. This challenge is often experienced by multinationals as they move to establish their branches in new territories with a significantly different working place culture. Team members who are usually sent have different beliefs from the locals, and this could be a potential cause for conflict. It becomes difficult for the multicultural corporation to change the beliefs of its members largely due to the cultural distance created (Toyne, 1976). Conclusion It is clear that the global market presents many opportunities that should be exploited by organizations, both medium and large scale organisations. The financial power of multinational corporations, however, has ensured that they can exploit these opportunities and thus to result in the generation of huge amounts of revenue. The revenues notwithstanding, these corporations face many challenges in trying to co-ordinate their activities with the teams sent to foreign locations. Some of the factors attributed to this include challenges in establishing a unified organisational culture, retaining a dedicated workforce, communication and cultural norms, etiquette and customs, individualism versus collectivism just to mention a few. In order to limit these cultural challenges in people management, it is important for organisations to set clear regulations on the conduct of its team members in accordance with the foreign country they visit. A collaboration of the foreign government can also be essential in limiting the challenges. In as much as possible, the multinational organisations should invest in R&D and training of team members to ensure that the people sent out on foreign missions have a proper grasp of management. It is also important to have performance metrics in place and proper remunerations to act as a motivation for improved performance. References Glenn, J.A.., 2008. The Globe Encompassed: The Age of European Discovery, 1500-1700. pp. 102–103 Barkema, H.G., Bell J.H., and J. M. Pennings., 1996. Foreign entry, cultural barriers, and learning, Strategic Management Journal, 17, 151-166 Bond M & Peter S., 1996. Cross-cultural social and organizational psychology,” Annual Review of Psychology, 47, pp. 205–235. Francesco, A.M. & Gold, B.A., 2005. International Organizational Behaviour. Hamilton: Pearson Prentice Hall. Garrett B., 2004. Coke’s Water Bomb [Online] Available at [Accessed 06 March 2015]. Graham, J. L. & Lam, N.M., 2003. ‘The Chinese Negotiation’, Harvard Business Review, October, 82-91 Hofstede, G., 2001. Culture’s Consequences: Comparing Values, Behaviors, Institutions, and Organizations across Nations, Thousand Oaks, California: Sage Kogut, B., and Singh, H., 1998. The Effect of National Culture on the Choice of Entry Mode, Journal of International Business Studies, 19, 411–432. Lewis, J, 2011. What Are the Cultural Problems Encountered by Multinational Companies? [Online] Available at: http://www.ehow.com/info_12199203_cultural-problems-encountered-multinational-companies.html [Accessed 06 March 2015]. Lakomski., 2001. Organizational change, leadership and learning: culture as cognitive process, The International Journal of Educational Management 15(2), 68-77. Sulekha G., 2011. The basis of market segmentation: a critical review of literature” European Journal of Business and Management 3(9): 46-52 Taggart, J.H., 1999. MNC Subsidiary Performance, Risk, and Corporate Expectations, International Business Review, 8, 233–255. Toyne, B., 1976. Host country managers of multinational firms: an evaluation of variables affecting their managerial thinking patterns, Journal of International Business Studies, 7, 39–56. Read More