Advancements in Information Technology and Communication - Essay Example

Liberal trade policies, incentives, growing foreign direct investment (FDI), advancement in information technology and communication have all stimulated the process of globalization (Lee & Tai, 2006). Globalization has led to firms producing goods in one country, assembling in another and selling in a third country. Managing international business thus requires a balanced approach in the right strategy for entering the market, taking into consideration various factors like the macro environment, which include government regulations and policies and demographics. Understanding consumer behavior, the right marketing mix, managing cultural diversity, sourcing and investment decisions have to be considered as well. While new technologies and liberalizations have helped big companies to increase their efficiency and reach, these very forces pose a challenge from the smaller firms. The smaller firms are a threat to the big corporations as they too capture the market and are in the race for the same products and services. This report highlights the issues that arise in managing international business. Improvements in transport and telecommunications sector have reduced the impact of distance allowing firms to enter foreign markets. At the same time, new technologies and deregulation of capital markets allow small firms to compete with multinational corporations. As competition increases, the interest of share holders and the customers become important in corporate decision-making. This new form of corporate governance has to be accepted otherwise they run the risk of losing finance and customers to competitors (Savitsky & Burky, 2004). Governments must support this transition to a more accountable, transparent, and efficient form of corporate governance within their economies. Economies of all shapes and sizes – including China, Germany, France and the Asian Tigers – are confronting this challenge. The clash of traditional business practices is most acute in Japan, resulting in opening up of the economy to mergers and acquisitions, including those by foreign investors. Recent studies indicate that it is now the microeconomic factors like management of the firm which determine success rather than the macroeconomic reasons. This is because of the increasing role of international trade, improved managerial techniques, and supply chain management. When firms adopt the strategy of mergers and acquisitions in developing countries, they face resistance. Acquisition of existing facilities is accompanied by payroll cuts. While M&A helps salvage the exiting facilities which otherwise would not have survived liberalization or other competitive pressures, local resistance is stiff. Multinationals can enter new markets in a number of ways. Each strategy has its own risks, advantages and disadvantages. While exports is the simplest form of entering an international market, other strategies that companies can consider are licensing, joint ventures and off-shore operations. Joint ventures have to be applied in countries where foreign ownership is restricted. In the service sector brand extension strategy is frequently followed by companies (Aaker & Keller, 1990 cited by Pina et al., 2006). This helps to keep the marketing costs low while the chances of success are high. The frequent use of a monolithic branding strategy helps build goodwill behind the widely employed corporate brand (Free, 1996 cited by Pina et al.,). DHL, the global market leader of the international express and logistics industry, specializing in providing innovative and customized solutions from a single source, was the first to enter the Chinese market in 1980 (Business Wire, 2006). As an MNC, it decided to enter into a joint venture and became the first express company active in China. DHLs strategy all through has been long-term commitment in China. DHL recognized the boom in Chinas express and logistics market and their strategy assures further expansion and investment in China. Brands are one of the greatest assets of a multinational firm and China being a transition economy, DHL had a made a strategic move to penetrate the market at the right time and gained competitive edge. Thus, DHL had the right strategy to first study the market on its own before going in for joint venture with SINOTRANS. Sinotrans had unrivalled local knowledge in the China foreign trade transport market while DHL was the leader in global air express industry. Setting up joint ventures in China has several advantages. Joint ventures help the MNC gain access to the domestic market while still maintaining control over its activities. Under joint ventures, foreign investors gain from the reasonably well educated low cost labor available in emerging economies. The host country government extends support in all matters like foreign exchange and tax exemption, which is one of the reasons DHL, launched its investment plans. General Motors (GM) too wanted to act aggressively and start a joint venture in Japan, but they did not succeed. Hence, they changed their strategy and brought R&D functions into China at the request of the government. When other automobile companies were reluctant to drain technology and quality control, and confined themselves to assembly of finished cars, GM took the bold initiative to tie up with the government for R&D functions. GM’s PATAC, a joint venture R&D centre is an independent automotive research development company (Hara & Nakanishi, 2004). Today GM has local production, has established an R&D function, as well as developed its own sales channels to create a local sales function. Hence, the move by GM can be said to be strategic to have taken an initiative when others were hesitant against government policies in China. Reconciling with the local government is an important factor for any company that plans to start international business. In response to liberalization and reforms in the emerging economy in China, Motorola of US had clearly defined investment and insiderization policies (Hara & Nakanishi, 2004). It established joint committee with the government Electronics Department. It set targets for local content, carried out philanthropic activities including construction of elementary schools. It concentrated on high-end users in mobile phones sector to handle local competition. It could capture the sophisticated, wealthy, and young users due to its innovative design. Managing diversity is a relatively new concept but essential in today’s scenario. With immigration on the rise, it now involves managing people from different nations and cultures. It helps recruitment and employee retention, leads to cost reduction in turnover and absence costs, customer service is enhanced and there is greater flexibility and creativity within the organization (Maxwell, 2004). Managing diversity means celebrating differences leading to competitive advantage. To manage cultural diversity of its workforce globally, Motorola undertook a firm-wide training and corporate training investment through its corporate university, ‘Motorola University’. This requires employees to complete 40 hours of training each year. Its operation extends to over 100 sites in 24 countries in six continents (Shaw, 2005). Motorola University provides training and development to all its employees, which includes manufacturing and operator training apart from studies and training in leadership and trans- cultural studies, technology and emerging market. This enables each employee to be a part of the value chain, an agent of chain within the corporation and protector of ethics, values and history of Motorola. Culture has a significant impact on perception, problem-solving and cognition and often leads to differences in satisfaction levels on the same product between global customers. Expectations differ. Levels of literacy differ and so do performance evaluation standard. The establishment of the Motorola University was central to the strategy of combating these problems as it expanded its business in China. It could inculcate training and learning through mandatory programs such as Motorola culture and ethics training and Digital Six Sigma Performance Improvement and through customized development initiatives. It could change the business culture and business outlook and prepare managers to work globally. This demonstrates that corporate universities of global corporations can transcend national boundaries. Motorola University could foster a learning culture and in doing so also was able to manager diversity. According to Hofstede (1984), different cultures imply different mental programming, which governs activities, motivation and values (cited by Gilbert & Tsao, 2000). As such, the Ritz Carlton Hotel in the USA received the Malcolm Baldridge award for quality in 1992 but encountered problems in Hong Kong. Culture was identified as the main cause. The ‘best practice’ approach of USA was not feasible in this setting. The Hong King culture did not permit them to work too closely with each or to share information as ‘knowledge is power’ (cited by Hope & Mühlemann, 2001). In the fast-food outlet sector, the management is faced with the dual challenge of providing high standards of service to the satisfaction of customers both at home and across borders with their own cultural differences. McDonald’s serves as the role model for extending the process of rationalization and encroaches on individual identity and McDonaldization is the process by which the principles of the fast-food restaurant are coming to dominate more and more sectors of American society as well as of the rest of the world (Keel, 2006). McDonald has been charged with undermining cultural diversity and destroying the viability of local communities (Rifkin, 2001) for example, in India, consumers recently trashed McDonalds restaurants for violating Hindu dietary laws. McDonald did make some adaptation to the German societal framework over time but it was essentially to protect the brand image (Royle, 1999). This does not really alter the fundamental character of the firm’s mode of operation. Locke’s analysis of cross-national changes in employment relations suggest that these variations are driven by the competitive strategies of the firms. Another MNC, Nestle of Switzerland, faced a unique problem and used its brand image to infiltrate into China. Nestle was unable to introduce coffee culture in China, so they adopted a diversification strategy (Hara & Nakanishi). They bought Chinese brands offering products like water, seasonings, and milk. They have not yet succeeded in China but they perceive China as a lucrative market for food business. While Vodafone, the British mobile phone operator has been successful all over the world, it has been unstable in Japan. Mobile users in Japan have developed a taste for sophisticated technology and they require hi-tech features in the handset. Vodafone has a control-oriented strategy worldwide and this is how it gradually gained 98% stake in Vodafone Japan after an initial stake of 66.7% in Japan telecom (Computerwire, 2004). The parent company’s holding being so large, investors and shareholders are apprehensive and keep away when the company is losing customers. They wanted to bring about a revolutionary change in J-Phone but the global strategy did not work in Japan, which is far ahead of the west. With total control in the hands of the parent company, Vodafone Japan too was following the global strategy which failed to give it the impetus that was predicted. Had it been a joint venture with the local bodies, the vision could have been to cater to the demands of the local market. It may have worked in other countries but Japan is way ahead and people have high tastes. Vodafone was not even successful in USA which requires licensing. To avoid these hassles, Vodafone opted for joint venture. It lacked visibility and influence and was unable to acquire local telecommunication companies because of security laws and other regulatory barriers. It was unable to attract mutual fund managers and institutional investors from North America. Through acquisition of AirTouch it expected to gain access to a wireless market in the US with low penetration levels and thought it would have huge potential for growth. Even though Vodafone has a control-oriented strategy worldwide, it had a minority stake in US. Managing international business is a challenge even in the human resources sector. Like Toyota and Matsushita, Hitachi too believes in sending Japanese expatriates to foreign locations. This practice of human resource management affects policies like job transfers, seniority based pay, and lays emphasis on control through specialization (Belberdos & Heijltjes, 2002). It is effective to the extent that it can practice total quality control systems and JIT procedures. Consequently there is a low failure rate of Japanese expatriates but on the negative side, this practice creates a ceiling on promotion for the host country managers and there is increased turnover among the host country employees. The management of overseas affiliates would be more effective through the appointment of host country nationals in managerial positions but the Japanese managers have a negative perception of foreign nationals. It is now changing its stand and the management is being strengthened by deployment of outside personnel. The Hitachi global leadership program will select and train personnel for about 180 important management positions overseas. Thus managing international business differs extensively from managing domestic business. The challenges lie in every field like managing human resources, cultural diversity, government rules and regulations and investment decision. Entry decisions involve not just the mode of entry but also the right time which has to be strategically considered. Understanding the consumer tastes is important where rigidity does not pay. Vodafone refused to comply initially with the handset requirements as per the consumers in Japan. GM succeeded by changing its plans of entering the China market. It is not possible to enforce the same principles of management as in home market as in the case of Ritz Carlton Hotel in USA which did not succeed in Hong Kong. McDonalds could not afford to amend Hindu dietary laws and also had to adapt to German culture. Motorola provides firm-wise training to manage the cultural diversity of the workforce. Managing international business requires visibility, confidence, resources, adapting to the regional culture and needs. It is no doubt a challenge but technology has made things simpler and data more easily accessible. References: Belberdos, R. A. & Heijltjes, M. G. (2002), THE DETERMINANTS OF EXPATRIATION IN JAPANESE MULTINATIONALS: Vertical Business Groups and executive staffing policies in Asia, 12 July 2007 Business Wire (2006), DHL Unveils First in China Strategy, 12 July 2007 Computerwire 2004, Market Dynamics, http://computerwire-butlergroup-reports.com/HTML/WirelessMW_Sample.pdf 12 July 2007 Gilbert, D. & Tsao, J. (2000), Exploring Chinese cultural influences and hospitality marketing relationships, International Journal of Contemporary Hospitality Management 12/1 [2000] 45-53 Hara S & Nakanishi K (2004), AT10 Research Conference, The Asia Strategies of Japanese Corporations, 12 July 2007. Hope, C. A. & Mühlemann, A. O. (2001), The impact of culture on best practice production/operations maangement, International Journal of management Reviews, Vol. 3 No. 3 pp. 199-217 Keel, R. (2006), The McDonaldization of Society, 12 July 2007 Lee J-W & Tai S (2006), International Journal of Emerging Markets, Volume 1 Number 3 2006 pp. 212-224 Maxwell, G. A., (2004), Taking the initiative in managing diversity at BBC Scotland, Employee Relations Vol. 26 No. 2, 2004 pp. 182-202 Pina et al., (2006), The effect of service brand extensions on corporate image, European Journal of Marketing, Volume 40 Number 1/2 2006 pp. 174-197 Rifkin, J. (2001), World Culture Resists Bowing to Commerce, 02 Dec 2006 Royle, T. (1999), Recruiting the acquiescent workforce, Employee Relations, Vol. 21 No. 6, 1999, pp. 540-555. Savitsky J J & Burki S J (2004), Globalization and the Multinational Corporation, www.iadb.org/int/jpn/English/support_files/GLB%203%20Glob.and%20Multinational% 20Corporation.p> 12 July 2007 Shaw, S., (2005), The corporate university, Journal of European Industrial Training Vol. 29 No. 1, 2005 pp. 21-39 Read More