Four Main Debates in the Field of Global Strategy by Peng and Pleggenkuhle-Miles - Essay Example

Main Debates in the Field of Global Strategy Introduction The recent past has seen a rise in interest on the importance of global strategy especially with the increased influence of globalization. With heightened globalization, the dreams of international business and having a globalized economy has been made possible (Christiansen, and Faganel, 2015). Bamberger, (2008) attributes this to the desires to not only achieve economies of scale and improve profit margins, but also the desires to cut costs, build supplier relationships in a bid to improve access to raw material supplies while also cutting costs and lastly the need to expand strategic managers perspectives of management through the use of varied models in a bid to generate different strategies that suit different organizations goals and objectives. Consequently, global strategy has been popularly understood to refer to the strategic guide of any organization as the organization seeks to pursue different geographic markets (Mikler, 2013). However, the fact that the definition is not clear as regards to what extent a global strategy should address has generated a heated debate. This study seeks to identify Peng and Pleggenkuhle-Miles’ (2009) debates on global strategy. From the approach employed by the authors, we will then critically evaluate whether the complexity of the influences of globalization on global strategy have been fully captured. The paper, Current Debates in Global Strategy provides a unique review of the four current debates as regards global strategy. The four debates are cultural vs. institutional distance, global vs. regional geographic diversification, convergence vs. divergence in corporate governance and lastly domestic vs. overseas corporate social responsibility which are all widely believed to be connected to the institution-based view of global strategy. Peng and Pleggenkuhle-Miles (2009) tracks down the history of each debate while also highlighting the emerging tension of each debate. On the other hand, globalization has transformed and currently is mainly characterized with its growing interdependency between countries and continues to be multi-faceted with various different business aspects (Flores, and Aguilera 2007). Peng and Pleggenkuhle-Miles (2009) gives focus on the four debates informed by the belief that in order to properly analyze literature on global strategy, we have to first pick debates that are fairly distinct from one another. Additionally, a historical aspect was taken into consideration through identification of debates with varying timelines. In understanding the four debates, it is important that we understand the authors perceive global strategy as the strategy employed by firms, both international and domestic around the globe in a bid to compete successfully which in other words imply that their view is based on their belief that global strategy is to a large extent closely lies between strategic management and international business (Peng and Pleggenkuhle-Miles, 2009). Before critically evaluating the presented debates and critically assessing their ability to present the complexity associated with the influence of globalization on global strategy, we will first seek to ascertain whether the four debates are theoretically underpinned on the institution based view. Knudsen (1995) postulates that institution based view of global strategy incorporates the institutional dimension when seeking to provide relevant answers as regards strategy. Hitt, Ireland, & Hoskisson, (2011) postulates that the study of strategic management and global strategy has been predominantly dominated by two paradigms, the industry-based view and resource-based view. However, the recent past has seen the emergence and growth in popularity of analyzing global strategy based on the views of institutions. Cuervo-Cazurra (2012) attributes the growth in popularity of the model to its ability to root in both the economic and institutional economics while also considering the sociological and institutional theory hence incorporating the role of institutions in a bid to understand the reasons why firms differ when it comes to competitive advantage. Different studies on the view postulate that it makes research in the intersection between strategic management and institution-based view look promising as it provides researchers with enough arguments that makes it become a source for strategic management as the view directly tackles the questions that define it domain (De Kluyver 2010; Hoskisson et al., 1999; Ghemawat 2007). Consequently, others researches by Hitt, Ireland, & Hoskisson (2011) have postulated about the prospects of multimarket theory being a possible aspect where the intersection between existing theories and the considering the view of institutions as having the ability to provide a more nuanced picture of the phenomena. Additionally, a review of numerous literatures on global strategy has made it evident that it is feasible to measure the different dimensions defining the institutional environment especially due to the easy and public availability of information (Mikler 2013; Peng 2014). Therefore, the fact that it is important to both empirically and theoretically justify the choice of one alternative makes it important to understand the relationship between the theory employed and the informal dimension analysis (Peng 2014). In this regard, it is evident that the four debates are theoretically underpinned in the institution based view hence it is true as outlined in the paper that each of the four debates highlighted features that are closely related to the institution-based view hence the draw their theoretical underpinning from the institution-based views of global strategy. Cultural vs. Institutional Distance The debate mainly rotates around a number of questions regarding both cultural and institutional distance. These includes what role culture plays in an institution-based view of global strategy is, which is a more comprehensive construct between culture and institution and the difference between culture and institution (Peng and Pleggenkuhle-Miles 2009). Hutzschenreuter et al., (2011) states that the fact that international business involves having to interact within the contexts of a diverse societal value systems which makes culture a very important aspect of international business. Cultural effects plays a huge role on establishing strategic alliance and joint ventures especially as regards to determining factors like credibility between partners, cultural differences and control levels and also the ownership structure of foreign subsidiaries (Hofstede 1980). Institutional distance has on the other hand been used to explain variations in international strategies and operations across countries or the differences in the environment of institutions of home and host countries (Xu, and Shenkar 2002). Chakrabarti et al., (2009) postulates that success of strategic alliance has been for any multinational organization that wishes to move operations to another country revolves around maintaining reliable partnership and minimizing the risks from opportunistic behaviors as it determines the level of trustworthiness in joint business ventures. In this regard, Hofstede developed a four cultural dimensional model for measuring cultural differences. On the other hand, numerous studies in institutional distance like the study by (Estrin et al., 2009; Xu, and Shenkar, 2002) have proved important in explaining the variations in international business strategies and operations across different countries. Consequently, numerous studies believe that with an increase in the distance between the organizational center of MNE and the host country, there is an increase in the bridge difference in different aspects including culture, law and regulations and the different practices and routines characterized to a particular organization (Quer et al., 2012). It has consequently become importantly necessary to adopt to changes in the entry strategies employed, the different forms the organization takes and the laid down procedures established by the organization to manage the expected differences. In this regard, Rugman, and Verbeke, (2007) concluded that institutional difference encompasses not only cultural differences, but also other additional factors like the regulatory differences, cognitive identification and also normative pressures. As rightly stated by Peng and Pleggenkuhle-Miles (2009), the most popular argument arising from the debate on culture vs. institution regards which aspect provides a better measure between cultural distance and institutional distance. However, it must be understood that the cultural influence can be explained using other important aspects like institutional development at each stage. As regards to the argument of whether the explanations provided by either institutional or cultural present comprehensive explanations of both the actual and potential variances in both performance and characteristics of any firm. Barkema, Bell, And Pennings, (1996) argues that it would be important that more empirical studies be constructed while also a fruitful avenue being provided for the implementation of the outlined measures in the numerous contrasting situations that may occur in different contexts. Global vs. Regional Geographic Diversification While it is widely believed and accepted that multinational enterprises (MNEs) have proved to be the key drivers of globalization which can be measured through the level of actual penetration of markets all over the globe. Consequently, the various studies on the underlying relationship existing between internationalization and performance whose findings have produced mixed results which has been attributed to failure to determine the distinction between country and regional diversification (Kogut, Walker, & Anand, 2002). In this regard, it is without doubt that an organization’s geographic scope plays an important role in global strategy. Most of the recent debates centers on the findings of Rugman and Verbeke (2004) which postulates most of the Fortune Global 500 MNEs, only a few were satisfy the conditions of being truly global with the others being only bi-regional as they are home region oriented which signals the mislabeling of global. In this regard, they postulate that the evidence for regionalization gives suggestions of two implications which are that MNEs should have most of their international activities being conducted at the intra-regional level and not at the global level and that there should be regional level organizational as opposed to the global level. Aggarwal and Fogarty (2004) identifies the numerous trends that all lead towards forming interregionalism which include bilateralism, regional agreement, interregionalism and sectorial accords taking place globally. However, other aspects come into play which include the definition of a region which could be defined in either economic, political or cultural driven terms. It is actually true that the emerging issues in world politics makes it acceptable to offer support to the postulated argument of MNEs competing within the context of different regions which have all do not show indications of integration (Peng, and Pleggenkuhle-Miles 2009). As a matter of fact, having proper understanding of the trends of geographical diversification makes the understanding of the meaning globalization clearer and paves way for the debate on whether the current corporate governance is convergent or divergent. Convergence vs. Divergence in corporate governance We cannot dispute the fact that the recent past has seen an increase in the importance of corporate governance. Of interest has been the question whether international corporate governance practices should converge. However, there have also been postulations about the main challenge facing corporate governance globally as being the convergence of corporate governance (Chey 2007). Corporate governance involves a set of relationships that exist between the different stakeholders of a company which include not only the management of the organization, but also the organization’s board, the shareholders and all the other stakeholders (Andrews, 1971). Consequently, it has been clear that not only does corporate governance provide the structures that can be employed to achieve the objectives of the organization, but also spells out the different ways of reaching the set objectives and performance measuring strategies. Peng and Pleggenkuhle-Miles (2009) postulates of the existence of a fierce debate within the corporate governance literature questioning whether there is global convergence or divergence in corporate governance. In this regard, Witt (2004) postulates that those researchers who advocates for convergence believe that globalization in the long run results to a survival-of-the-fittest process which forces organizations to adopt to globally accepted practices which basically implies that there is increased willingness amongst investors to pay a higher prices for stock in companies following Anglo-America-style procedure of governance. Numerous corporate governance models currently exist and they include western models which is made up of the Anglo-Saxon Model (Outsider Model) and Continental Model (Insider Model) while the Islamic model which provides that an organization’s directors’ management and the organization’s auditors should perform their duties in a manner that not only satisfied the shareholders, but also Allah. Convergence vs. Divergence in corporate governance debate is mainly driven by the argument that the demand and supply forces of the market enhances international standards convergence across different companies with other studies like Chey (2007) giving suggestions on the enactment of the different pressures enacted that includes the market, national-state and foreign state which can be attributed to the increase in an organizations voluntary adoption of international standards. Various deductions have been consequently drawn which include the fact that pressures inherent in the market were found to be driven mainly by the regulatory authorities of a given nation or state’s concern as regards the potential risk associated with the closure of foreign markets to non-compliant firms hence the conclusion that inherent pressures resulting from market compliance is the main reason for the voluntary adoption of key international standards (Goergen, Marc, Marina Martynova and Luc Renneboog 2005). Consequently, suggestions have been made about firms listed in different countries being viewed as carriers of both the norms and values of the Anglo-American corporate governance around the world which is in accordance with the provisions of globalization. Despite some of the critics of the debate being contented about the prospects of governance practices continuing to diverged throughout the world, most firms especially in the United States and the United Kingdom continue to support a more concentrated ownership and control which is believed to the most viable solution in combating the agency problems between the shareholders and the shareholders (Braendle Udo.C and Noll, Juergen 2005). Domestic vs. Overseas Corporate Social Responsibility Numerous questions have raised as regards to the correlation between global and local corporate social responsibilities (CSR) on one hand and international organizational strategy on the other hand. It has been postulated that in a bid to respond to the pressures for integration and responsiveness from salient stakeholders through the application of the strategic logic of the Barlett and Ghoshal typology to the realm of corporate social responsibility. Aguilera et al. (2007) postulate that CSR has continued to be an issue of intense debate among not only scholars, but also other stakeholders like the policy makers. Consequently Peng and Pleggenkuhle-Miles (2009) postulates that the debate arises from the different views held as regards the responsibility of the firm with the first one proposed by Friedman (1962) that the decisions made by the managers should be aimed at maximizing the shareholder wealth of the organization. The second view point is based on the premise that corporations draw resources from the society hence apart from wealth maximization of the wealth of equity holders, they also have a duty to the society from where they operate. The main argument on the debate has been on whether the organization has an obligation to engage in corporate social responsibility. Studies like that of Margolis and Walsh 2003; Orlitzky et al. 2003) have made postulations about the argument remaining forever a debate despite the many attempts to gain understanding of the underlying correlation between how an organization performs on the social and financial front for over 30 years. From the context of global strategy, the debate gives focus to the debate of corporate social responsibility which enlightens on how firms can balance the demands between domestic CSR and overseas CSR. It is important that organizations understand whichever is important between domestic employees and communities.However, other different studies agree that while it might be easy to argue about the importance and the need of multinationals to be socially responsible to all their constituencies, certain issues like how resources should be divided and the extent of responsibility or liability of multinational companies in their overseas operations should be taken into consideration (Aguilera, Rupp, Williams, and Ganapathi, 2007). Therefore, the fact that there is increases activity with more MNEs involving themselves in overseas CSR practices hence the need to reformulate strategies which has led to development in literature not only within the strategy, but also within international business domain and the creation of new opportunities for future development (Gonzalez-Perez, & Leonard, 2013). Conclusion From the critical literature review of numerous studies regarding the different issues that majorly fall under the debate in the field of global strategy, what comes out is clear. This is that globalization has different facets which can be widely categorized as either political, economic and culture (De Kluyver, 2010). However, a review of these makes it clear of the existence of stark differences amongst regions and countries which is one of the sources of the debates in the fields of global strategy (Gonzalez-Perez, & Leonard, 2013). The paper Current Debates in Global Strategy has indeed carried out a review of the four current debates that is not only unique, but one that portrays through research and review of a diverse literature on the topic. In this regard, we are justified to draw a conclusion that the approach employed by the authors of the paper fully captures the complexity of the influence of globalization on global strategy. 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Institutional distance and the multinational enterprise. Academy of Management Review, vol. 27 pp. 608–618. Read More