Contemporary Issues in International Management - Research Paper Example

Contemporary issues in International Management Name Course Tutor Date of submission Abstract In the current global economy, the issue of multinational corporations has gained increased interest and debate among different countries due to the need to expand their market share in competitive business environment. The purpose of this study is to examine how different mindset of companies as explained by Perlmutter, (1969) in his ethnocentric, polycentric and geocentric states of mind led to multinational corporations. The purpose for the research has been addressed by intensively looking at publications by different authors on multinational corporations, where staffing behavior by companies affects the level of multinational corporations. The findings of the study indicate that: (a) The manner in which organizations carried out staffing process defined the extent to which corporation between nations existed, (b) that companies insisted on nationality to an extent that they did not want to share complex business operations to other nations, but instead kept it as a secrete to themselves, (c) Companies with geocentric mindset are believed to have led to full realization of multinational corporations across the world, (d) geocentric mindset of companies brought about standardized procedures of carrying out trade between nations, (e)Immigration rules were established in order to regulate movement of people across nations. Table of Contents 1.0 Introduction.......................................................................................................................4 2.0 Methodology.....................................................................................................................4 3.0 Research Findings.............................................................................................................4 3.1 Staffing decisions and multinational corporations............................................................5 4.0 Organizations mindset.......................................................................................................5 4.1 Ethnocentric mindset.........................................................................................................5 4.2 Polycentric mindset...........................................................................................................7 4.3 Geocentric mindset............................................................................................................8 5.0 Discussion of Findings......................................................................................................9 6.0 Conclusion.......................................................................................................................11 7.0 Recommendations............................................................................................................11 References…………………………………………………………………………….…12 1.0 Introduction Theories of multinational corporations have been classified into theories related to general corporate behavior and theories related to corporate globalization (Wild, J Wild, L and Han, C (2008). According to Johnson, G Scholes, K and Whittington, R (2005), competition and profit making which explains corporate behavior theory to modern corporations is considered not convincing since corporations have adopted bureaucratic structures and most of them are in oligopoly position. The theories of multinational corporations are important since they emphasize the contributions of these corporations to the political economy of the world. As search for cheaper labor continues especially among labor-intensive industries, multinational corporations have been emphasized as a major concern (Harris, H 2001). During the past centuries, about thirty percent of multinational corporation business establishments were located in low-waged countries. Phatak, V Bhagat, S and Kashlak, J (2005) indicate that the sales of multinational corporations in 1998 were about 40% of the total production in the world and the employees were close to 100 million. Therefore, in order to understand global investment and its contributions to the world trade through multinational corporations, it is prudent to examine the theories that explain multinational corporations. 2.0 Methodology In order to discuss the theories explaining multinational corporations, the researcher used relevant information from secondary sources. The researcher read academic materials and publications by different authors including journals. 3.0 Research findings 3.1 Staffing decisions and Multinational corporations When making staffing decisions depending on the strategy adopted, a lot of views are seen to come from the top level management from the host-nation. According to Scullion, H and Collings, G (2006), this means that the decisions made will depend on the mindsets of the managers involved. A model related to multinational staffing strategies done by Perlmutter, (1969) showed that the degree of multinational corporations depends on how the organization orients itself towards foreigners and available resources. This study is relevant to this discussion in trying to explain how multinational corporations came into existence. 4.0 Organization’s mindset Perlmutter, (1969) established three states of mind that exists among international executives. These mindsets can be distinguished from each other, and they actually contributed to formation of multinational corporations. The first set of mind is ethnocentric which is home-country oriented, the second is polycentric which is host-country oriented and the last one is geocentric which is world-oriented. According to Phatak, V Bhagat, S and Kashlak, J (2005), the mindset of an organization defined its relationship with other companies across the world, which contributed a lot to Multinational corporations. 4.1 Ethnocentric mindset A company having ethnocentric set of mind believes that PCN employees are the best compared to other nationals in the headquarters and other subsidiaries (Dowling, J and Welch, E (2004). In such a situation, other nationals especially foreigners are not considered for top positions in these areas. A manager with ethnocentric mindset manufactures simple products across the border while maintains complex operations within the boarders in order to keep it as secrete among the trusted PCNs. The ethnocentric company according to the view of Scullion, H and Collings, G (2006) will always insist on its nationality. Ethnocentric companies are supposed to formulate policies and business strategies that are applicable to all markets including those in other countries in which the company operates in. The flow of information in ethnocentric organization is one way from its head office with the belief that what works home can as well be applied in other countries. These, according to Johnson, G Scholes, K and Whittington, R (2005) hindered corporation among different nations. Ethnocentric staffing strategy is often used by companies after they are convinced that there are no HCN managers with required qualifications (Harris, H 2001). Another reason for pursuing this strategy is when communication and control comes from the headquarters of the company, a common practice at the first stages of multinational corporations. This approach according to Harris, H (2001) is used by companies whose aim is to deny foreign subsidiaries the right to actively participate in decision making process. Ethnocentric staffing approach is also used by managers who have spent most of their time working in organization within the home country, and therefore they apply the same corporate culture to foreign market. Dowling, J and Welch, E (2004) confirms that the disadvantages of ethnocentric staffing strategy is that it can lead to reduction in production and an increase in the level of turnover of HCN employees because of lack of opportunities for growth and development. There is income gap between PCN and HCN employees which is viewed by HCNs as unjust and unfair (Scullion, H and Collings, G 2006). Ethnocentric staffing is considered expensive, since there are costs incurred in the process of relocating managers and family members. Employees may have a feeling that their needs are not well represented by management because of cultural diversity. However, where there is corporation among nations, Collings, G Scullion, H and Dowling, J (2009) states that issues of cultural diversity will not occur since there is harmonization of processes and procedures. 4.2 Polycentric Mindset A polycentric mindset prevails when a company appreciates the fact that differences do exist between countries and that cultures in host-country are hard to understand (Perlmutter, 1969). An organization with a polycentric set of mind prefers HCN mangers since they are better placed to understand the existing local market. This strategy according to Phatak, V Bhagat, S and Kashlak, J (2005) is relevant for a company that is willing to give its foreign subsidiaries autonomy in making decisions. Executive managers in the head office don’t interfere with other managers from the foreign subsidiaries as long as they deliver profits. However, in a polycentric organization, foreign managers are not given senior positions at the headquarters since HCNs are considered the best suited for such positions (Harris, H 2001). However, the element of autonomy that exists in this kind of arrangement promotes corporation among national employees and non-nationals, and thus multinational corporations. It is a common practice for polycentric organizations to carry out training of HCN managers at the head office so as to prepare them for top job profiles, and also for them to learn corporate culture (Hurn, J 2006). The advantage of this approach is that there is no language barrier, and wastage of time adjusting to the environment. Harzing, W (2001) believes that Cultural awareness through training is eliminated when a polycentric approach is used in staffing. HCN managers have extensive knowledge of the local market, and this is seen as a benefit the entire organization. Also employing HCN managers is less costly as compared to PCN managers since costs associated to relocation of the managers and their family does not exist. According to Collings, G Scullion, H and Dowling, J (2009), an organization that employs HCN managers reduces high turnover rates of top managers as it is in ethnocentric approach. Under this approach, the foreign subsidiaries will have less linkage to the head office. It therefore implies that the headquarters will have no control of its business operations in the host country. Another disadvantage of polycentric approach is that the problem of resource allocation will increase because managers from the headquarters are less exposed to foreign duties. However, Johnson, G Scholes, K and Whittington, R (2005) assert that this will not happen if the company adopts an approach that requires them to behave local in every market. It will be a problem to deal with if the company employs a global strategy, since performance will be compromised because knowledge is not shared. 4.3 Geocentric Mindset In a company that is world oriented, top managerial positions are filled irrespective of nationality (Phatak, V Bhagat, S and Kashlak, J 2005). The main objective under geocentric approach to staffing is for the organization to have a worldwide approach at its headquarters and the subsidiaries. The approach requires a good reward system to motivate managers at the subsidiaries to work hard in order to attain global objectives. Under this approach according to Scullion, H and Collings, G (2006), managers are appointed to key positions throughout the organization, and selection of such managers depends on ability to operate specific functions. When a company uses this approach, it will be able to establish a competitive executive team which has a global understanding of the operations of the company. Corporation and resource sharing shall be in play (Wild, J Wild, L and Han, C 2008). The disadvantages of this strategy are that the host government through immigration regulations may order the HCN managers to be increased. The geocentric strategy is costly to implement because the international base pay is standardized, which is often higher in several foreign countries (Phatak, V Bhagat, S and Kashlak, J 2005). Another problem is that managers and their respective families may be relocated almost every year, a situation that leads to inconsistency. In order for the geocentric approach to be successful, the company must develop a staffing policy that has centralized control in order to employ the right people both at the headquarters and the subsidiaries. 5.0 Discussion of the findings The study indicates that multinational corporation was achieved through a process of interactions between nations when carrying out their business operations. The manner in which organizations carried out staffing process defined the extent to which corporation between nations existed. This is well represented in Perlmutter, (1969) model of multinational staffing strategies which illustrates various mind sets that brought about multinational corporations. Initially according to Perlmutter, (1969), it is clear that ethnocentric mindset that existed among companies led to discrimination of nationals from other countries. Top positions were preserved for nationals only, and this hindered corporation among different countries. At this level the researcher also observed that companies insisted on nationality to an extent that they did not want to share complex business operations to other nations, but instead kept it as a secrete to themselves. This affected the process of multinational corporations between countries. During the first stages of multinational corporations, the researcher found out that the headquarters controlled the entire activities of the company by not allowing foreign subsidiaries to participate in decision making process. There was no good relationship between nationals and non-nationals especially in the distribution positions, and this affected national corporation. The research indicates that HCN employees felt segregated by management due to diversity in culture. The second stage on multinational corporations shows how companies start to realize the differences that exist between nations. The researcher observed than at this level, managers at foreign subsidiaries are given obligations to make decisions without interference from managers from the headquarters. Even though preference is given to HCN managers, the relationship between countries is maintained (Hurn, J 2006). It is at this stage that companies used global strategies in order to be able to operate in other international markets and to strengthen corporation among different nations. Companies with geocentric mindset are believed to have led to full realization of multinational corporations across the world as research indicates (Johnson, G Scholes, K and Whittington, R 2005). The researcher found out that at this stage, managerial positions were shared equally both in at the headquarters and subsidiaries creating a sense of international corporations. Also selection was competitive and based on individual potential to perform specific duties without looking at the nationality of managers. The researcher also found out that it is geocentric mindset of companies that brought about standardized procedures of carrying out trade between nations. Immigration rules were established in order to regulate movement of people across nations in search of greener pastures. 6.0 Conclusion In conclusion, the process of multinational corporations as explained by Perlmutter, (1969), is seen to have taken considerably long time. Initially, some companies did not appreciate working with other companies from different countries. Right from the way they carried out their business practices like staffing demonstrated their fear to corporate with other nations, and this slowed down the process of multinational corporations. Important though is that as time went on, companies realized that there was need to bring resources from different parts of the world together. They therefore began to absorb foreign managers to top positions throughout the organization, a practice that was very much welcomed by foreign nationals. Such managers developed global strategies that were applicable across all nations, and thus the realization of multinational corporations. Therefore, it is right to argue that Perlmutter’s model of ethnocentric, polycentric and geocentric is clearly related to the multinational corporations. 7.0 Recommendations The Perlmutter's theory that explains multinational corporations have been verified and its applicability proved. This research was conducted within limited time and therefore further research needs to be done in order to find out how other models explain multinational corporations. In addition, the findings of this research show a relationship between organization mindset and Multinational Corporation. Further research may be of important so as to confirm or dispute the relationship. Also during the research, some areas of research that didn't reflect the purpose of were seen, and these require further research. References Collings, D. G., Scullion, H., & Dowling, P. J 2009, “Global staffing: a review and thematic research agenda”, The International Journal of Human Resource Management, 20(6), 1253-1272. Dowling, P. J., & Welch, D. E 2004, “International Human Resource Management: Managing people in a multinational context”, (4 ed.). London: Thomson Learning. Harris, H 2001,“Researching discrimination in selection for international management assignments: the role of repertory grind technique”, 16(3), pp. 118-125. Harzing, A.-W, 2001, “Who's in Charge: an Emperical Study of Executive Staffing practices”, Human Resource Management, Summer, 139-158 Hurn, B. J 2006, “The selection of international business managers”, part 1.Industrial and Commercial training, 38(6), 279-286. Johnson, G., Scholes, K., & Whittington, R 2005, “Exploring Corporate Strategy”,(7 ed.). Harlow: Financial Times Prentice Hall. Perlmutter, H. V 1969, “The tortuous evolution of the multinational corporation”, Columbia Journal of World Business, Jan/Feb, 9-18 Phatak, A. V., Bhagat, R. S., & Kashlak, R. J 2005, “International Management”, New York: McGraw-Hill. Scullion, H., & Collings, D.G. 2006, “International Staffing”, in G. K. Stahl and I. Björkman (eds.) Handbook of Research in International Human Resource Management, Cheltenham, Edward Elgar. Wild, J. J., Wild, K. L., & Han, J. C 2008, “International Business: The challenges of globalization”,(4 ed.). Upper saddle river, NJ: Prentice Hall. Read More