Global Expansion and Local Collaboration - Essay Example

Global Expansion and Local Collaboration Using examples taken from at least two emerging markets critically analyse the view that the only successful entry strategy into emerging markets for European and American companies is through a local collaboration. Introduction As a company expands into the international markets, the management of the company can come across cultures which are significantly different as compared to the home culture and they can find locations where their management methods might not be as readily accepted (Cavusgil et. al., 2002). However, by understanding other cultures and using local collaborators, the company can create good relationships with different organisations which are located in other parts of the world or even within the same geographic region. In the age of globalisation, a Company can have a head office in London while the production work is carried out in a factory near Beijing and the research and development of the product itself is conducted in Oslo. Companies have moved out of the nationalist image which was the mainstay of their identity of the past (Martin, 1999). Of course, it is still possible to say that BMW is a German company and Toyota is a Japanese company or GE is an American firm, but the nature of the multinational enterprise means that companies may be based in one country while the problems and issues they face could be of a global nature. To counter these problems, companies simply need to have relationships with local collaborators if they wish to enter emerging markets. These relationships will bring an easy understanding and efficient information transfer as well as create an open exchange for ideas between various cultures followed in other countries (Levy and Powell, 1998). Expansion itself is a useful pursuit for a company and there are several reasons why a company may wish to expand its business to global levels. However, the evidence provided in research materials as well as the practical examples of expanding companies show us that expansion without local collaboration might be a futile effort. To fully understand and critically appraise the question we must first understand why a policy of expansion is necessary and why collaborators are important for an expanding company. The first part of the question is rather easy to answer but the second part comes with two primary markets that are analysed for entry. The two markets selected for this are Hungary and China. These were selected because they both represent very different cases for analysis and are quite representative of the surrounding region. The Case of Hungary Even though Hungary is a new member of the EU, the country has not demonstrated its full strength as a member state in terms of economic development. It has yet to meet the criteria for entry into the Euro zone even though it is certainly on its way to getting there. When it comes to foreign investment, the country gets nearly a third of all foreign investment capital that comes to Central Europe and foreign owned firms in Hungary are a major presence. GE is an American company which saw Hungary as a good investment location to capture the electric appliance and light bulb market for central and Eastern Europe and went into the country by taking over a local manufacturer and expanding their operations. GE is the parent company of eleven technology, services and finance businesses with more than 300,000 employees spread across 160 countries. Even though the company is large, their values and actions, recruitment process and even the methods of rewarding employees remain more or less the same across the board. GE deals with computers, jet engines, power plants, capital services, plastics, illumination equipment, and medical tools. Regardless of the business, GE is dedicated to turn imaginative ideas into profitable products and services for the benefit of all stakeholders (GE, 2006). Welch (2005) does not mention if they took on local collaborators for GE in Hungary, but their absence is certainly noted by the company when there are cultural conflicts between the management which came from Western Europe and the local employees. GE’s culture is based on individuals and intrinsic motivation which helps its employees seek benefits for the company while they seek benefits for themselves. As outlined by Jack Welch in his management related book Winning (2005), GE rewards those employees who are instrumental in helping GE grow and achieve the corporate vision and punishes those who are not performing to the highest level. In fact, layoffs and quarterly removal of lowest performing employees is an essential part of the management style employed at GE. The policies and methods used by GE in Hungary were established by their long standing CEO, Jack Welch. These policies have remained popular with the company and little has changed despite his exit (Colvin, 2006). In fact, the systems created by Welch were so good that they are continued in place with minor modifications made only when necessary. It is clearly no wonder than he has been hailed as America’s Best Manager since his management methods and those in turn of GE were completely American (Byrne, 1998). Cultural Issues However, when the same methods were applied to East European business to control the culture of GE operations the initial response was not very promising. Success was thought to be dependent upon the acceptance of GE’s 95 page manual on corporate culture titled Integrity: The Sprit and Letter of Our Commitment. The initial results were disastrous since bad press, negative sentiments and resentment amongst the employees was created once GE’s creed was being established in the company (Welch, 2005). The problem came from the clash of local culture and corporate culture as discussed by Laurent (1986) since the local culture remained dominant over the corporate culture which GE was trying to create. While it is possible to say that the culture of the organisation will be more important within the walls and managers at GE certainly thought so, the reality was quite the opposite. The change in culture was nothing more than an illusion and was eventually detrimental to the enforcement of company policies (Welch, 2005). The problem in implementation was tracked to local managers who were taking a confrontational position instead of acting as collaborators with the company. They were seen to be using the new company policies as a means towards improving and solidifying their personal positions within the company (Welch, 2005). As reported by Edwards & Kuruvilla (2005), in such a toxic environment, the policies which are supposed to align cultures for a common purpose become weapons which are used as and when needed. Company Politics and Policies The Hungarian operatives valued seniority and time spent with the company more than the innovation and performance given by an individual to the company. This meant that the financial rewards given to employees were more dependent on their seniority and their relationships with superiors than the performance they were giving (Welch, 2005). This cultural difference between the Hungarian approach and the GE creed meant that organisational politics became a part of the game being played with the company which was leading to inefficiencies and mismanagement (Welch, 2005). Local managers were not following the orders from the executives in America which meant that the culture of the company was broken into two different sets. This was certainly an unexpected move from local managers given their place in the overall hierarchy of an international multicultural company such as GE, but their strength came from their belief that executive managers in the home office are dependant on managers in branch offices. This idea is supported by Edwards & Kuruvilla (2005) who further report that the capacity of local managers to confront orders from the home office will be better where corporate level managers have major communication hurdles between them and the local managers. For all practical purposes, seems that local managers can and might defy those policies which are not devised with their culture in mind. GE did not recognise that local policies would be useless without good collaboration from local managers. Local collaborators within the company are supposed to serve as the international manager’s best friend by being crucial mediators between the firm and the local employees since they have a high level of familiarity about the local systems in ways an outsider can never have (Edwards & Kuruvilla, 2005). However, if they choose to resist the HR policies, they can create a lot of problems even in economic terms with questions about working hours and differences in pay scales (Whitehill, 1991). These and other problems were also present in the case of Japanese automobile companies working in the UK where British managers showed extreme resistance to the company’s global policies (Broad, 1994). The Solution The problem was solved by GE using two significant means. First and most important of all, GE started removing those individuals from service which were thought to be a cultural mismatch for the company. At the same time, the company began giving recruiting and rewarding those who were thought to be good cultural matches for the business. Welch (2005) reports that, “We publicly rewarded people who drove the mission and let go of people who couldn’t deal with it for whatever reason (Welch, 2005, Pg. 16)”. The idea of publicly rewarding top performers rationally ensures that those who see it happen know why those individuals are being rewarded. Additionally, the individuals who were rewarded would have a harder time in leaving the company and their relationship with the management would only be strengthened in terms of collaborating with the company to further its agenda. By removing individuals who could not perform up to the mark expected of them, Jack Welch himself reports that he has often been criticized for taking a stand which seems to be cruel, impractical, political, and Darwinian (Welch, 2005). He insists however, that this is a critical part of the overall improvement process for any company and even in his final letter to the company’s stock holders (before his retirement) he wrote, "A company that bets its future on its people must remove that lower 10 percent, and keep removing it every year, always raising the bar of performance. (Grote, 2002, Pg. 41)”. Secondly, GE worked with those individuals who could come to terms with their cultural requirements and set up expanding the operations to a more regional level to put it alongside the global competition. The most important advantage of changing GE’s European operations from the domestic to regional and global levels was the change in culture which came about when the employees realized they were competing in such markets (Welch, 2005). However, had GE not recruited local collaborators or if they had not rewarded those who were willing to fully cooperate with the company, the venture itself might have failed. What GE faced at the end of the day were cultural issues in terms of how the American management wished the business to be conducted and how the local management thought it should be done. GE could not export their own culture to Hungary and until they had local collaborators, they could not make the company profitable in Hungary. Despite the presence of these issues it can not be denied that many multinational enterprises have been very successful in expanding their businesses around the world especially when it comes to countries such as China where the culture is changing rapidly primarily due to the large investments being made by foreign investors. The Case of China China is another nation which has a tremendous trade relationship with American and European organisations but companies that wish to do business in China are required to take many careful steps. The primary barrier for western companies is the barrier of language. Therefore, the central cultural difference that exists between China and the west comes from the very basis of the culture i.e. language. While the predominant language of the labour in the americais English, it is also the preferred language of the EU. However, it is not used as the lingua franca in China and is only learnt by some as a second language. Translations of contracts as well as our translators in negotiations have to be carefully used since the right message might not be there even if the right words are present. Bradhan (2006) suggests that the language barrier is particularly strong for production and industrial setups that wish to set up the production house in China where the labour may not be fluent in English as compared to the individuals holding management positions. Therefore, entry into the Chinese market would require bilingual mangers that can explain foreign requirements to the labour forces of the expanded company as well as communicate with the home office efficiently. Differences in Living Standards A difference in the standard of living to which people in developed nations are used to as compared to those living in developing nations certainly exists as a part of the culture (Bean, 1994). Workers in America as well as many other western countries tend to place great value on their leisure time and have enjoyed a relatively high standard of life in the past while the majority of Chinese workers have lived in comparative poverty (Clark, 1996). Being sensitive to this difference is important because it can certainly affect the way individual salaries, increments and time based bonuses are handled by a company while they are being negotiated with employees (Kidger, 1991). In such situations more than one collaborator who can give qualified opinions may be necessary. At the same time, it must be noted that such situations may not remain true in the long term. Even in China, the trends of living with less could be on a downward slope as the population gets used to having more than their predecessors. A twenty year differential study for the economy of china shows that between 1981 and 2001 the percentage of working class individuals living on less than one US dollar per day decreased from almost eighty percent to less than thirty percent (Bardhan, 2006). Therefore, without local collaboration a company would find it very difficult to evaluate the cultural basis of salary structures in China. A collaborator can be most helpful when contracts are being negotiated within the country. Business negotiations in China might take a lot of time since the cultural basis of the concept of time is different from that which is held in America or Europe. The pace of negotiations and talks between the two sides may not be useful with preset exact deadlines for reaching an agreement. The pace of negotiations can also be fast when it is to the advantage of the Chinese side but this must be recognized so that a deal can be struck which is beneficial for all parties rather than just one (LACLC, 2007). The Need for Collaborators Local collaborators can help in understanding the Chinese thinking which is often dominated with some philosophical paradoxes. Instead of using linier logic which the western mind is used to, a Chinese negotiator may look to combine several options while undertaking a negotiation between them. This is not evasion or even an attempt to deceive the other party since the negotiator is simply using his/her own culture to come up with a viable solution to a problem (LACLC, 2007). Therefore the combination of several options may be a part of the result in a negotiation process. Doing business in china also depends heavily on the idea of personal connections and relationships which have been established over time. A local collaborator would certainly have such connection and can make the overall entry process much easier for the western country. In some cases, the relationship itself can be more important than the idea of doing business therefore it must be cultivated deeply before commercial transactions can be successful (LACLC, 2007). However, a company must also be careful in terms of establishing relationships which become too close, because then the idea of a contract between two companies takes a back seat to the relationship between two individuals who represent different companies. In such cases, the contract between the companies is seen as little more than an agenda while the western negotiator may have considered them to be binding agreements. Signing a contract could even be considered a starting point of negotiations on the contract if it is a draft document since a final agreement could only be signed once a relationship between the parties has developed to a significant level (LACLC, 2007). Therefore, while doing business in china, it would be good if local managers and collaborators saw the draft contract as a starting point rather than a document that only needs minor changes. Perhaps the most important aspect of doing business in China is the idea of keeping face. Face is kept by the Chinese if they are shown respect by their peers and is taken as a mark for personal honour. If our negotiators or business partners lose face during the process it is unlikely that the negotiations can be a success or even continue from that point. No jokes can be cracked about a person in front of others even in humorous nature. However, subtle praise now and then can improve the face of an individual but overdoing it would be seen as nothing more than insincerity (LACLC, 2007). These nuances of culture may seem trivial to the untrained eye but for the Chinese these are essential components of protocol which the westerners may find difficult to understand. Conclusion Local collaborators are not only important for a business that seeks to venture into the Eastern European or Asian markets, they are essential requirements for a company. Without local collaborators a company would be unable to find a cultural understanding of the locality and face several different barriers. These include, language barriers, understanding local salary structures, management systems, negotiation practices and the working environment. Therefore, critically speaking, the view that a successful entry strategy into emerging markets requires local collaboration is essentially true. Word Count: 3,293 Works Cited Bardhan, P. 2006, ‘Does Globalization Help OR Hurt the Worlds Poor?’ Scientific American, vol. 294, no. 4, pp. 84-91. Bean, R. 1994, Comparative Industrial Relations: an introduction to cross-national perspectives, Thomson Business Press. Broad, G. 1994. ‘The Managerial Limits to Japanization: A Manufacturing Case Study’, Human Resource Management Journal, vol. 4, no. 3, pp 52–69. Byrne, J. 1998, ‘How Jack Welch Runs GE: A Close-up Look at How Americas #1 Manager Runs GE’, BusinessWeek.com, [Online] Available at: http://www.businessweek.com/1998/23/b3581001.htm Cavusgil, S. et. al. 2002, ‘Doing Business in Emerging Markets’, Sage Clark, T. 1996, European Human Resource Management, Blackwell Publishing. Colvin, G. 2006, ‘What Makes GE Great?’, Fortune, vol. 153, no. 4, pp. 90-96. Edwards, T. and Kuruvilla, S. 2005. ‘International HRM: national business systems, organizational politics and the international division of labour in MNCs’, International Journal of Human Resource Management, vol. 16, no. 1, pp1-21. GE, 2006. ‘General Electric’. ge.com [Online] Available at: http://www.ge.com/en/ge/morefaqs.htm Grote, D. 2002, ‘Forced Ranking: Behind the Scenes’, Across the Board, vol. 39, no. 6, pp, 40-46. Kidger, P. 1991, ‘The emergence of international human resource management’, International Journal of Human Resource Management, vol. 2, no. 2, pp149-163. LACLC (Los Angeles Chinese Learning Center). 2007, ‘Chinese Business Culture’, [Online] Available at: http://chinese-school.netfirms.com/goldenhints.html Laurent, A. 1986, The Cross-Cultural Puzzle of International Human Resource Management, Human Resource Management, vol. 25, no. 1, pp 91-102. Levy, M and Powell, P. 1998, ‘SME flexibility and the role of information systems’, Small Business Economics, vol. 11, no. 2), pp. 183-197. Martin. R. 1999, ‘Transforming Management in Central and Eastern Europe’, Oxford University Press. Welch, J. 2005, Winning, Harper. Whitehill, A. 1991, ‘Japanese Management: Tradition and transition’. Read More