Managing Differences in Multinational Companies - Assignment Example

?Critical Analysis Introduction: The article of Pankaj Ghemawat, “Managing Differences” mainly focuses on how business organizations or in particularMultinational Companies (MNC) can come up optimal strategies, when they decide to enter foreign countries or newer markets, particularly in the current globalized world. Globalized world in the sense, with globalization having an effect in all the countries of the world, the businesses facilitated by globalization is also on the upswing, necessitating the need to come up with business strategies in line with the globalization process. Ghemawat discusses three main strategies that can be implemented by the organizations during their foreign operations and also in response to globalization. The three strategies are categorized as adaptation, aggregation, and arbitrage. The article in a way aims to differentiate how business strategies are formulated based on the origin and nature of a business or an organization, and importantly based on their operations, particularly international operations. The basic premise of this article is how the organizations have to focus on the different business factors that needed to be considered in the foreign country of choice, and how strategies continuously needs development over the years as the business or organization grows in the country of choice. It also gives us a view of how these strategic factors change over the years and its significance in putting an international business strategy in action. An international business strategy is formulated based on different factors you can gather in the target market. This is also one big reason why a strategy formulated for a particular country or market would most probably fail in other countries. Summary Author Ghemawat focuses on the international strategies through the three A’s strategy categories of adaptation, aggregation, and arbitrage. The three A’s are strategies that may serve various purposes from political, economical, cultural, etc, etc., in an international business strategy. The strategy of Adaptation can be used by the organizations, when they give more importance to the specific issues of the entering country, and want to tap them optimally. “Adaptation seeks to boost revenues and market share by maximizing a firm’s local relevance” (Ghemawat 2007, p.60). In that direction, the entering firms will set up local units, as the unit and its employees will maximally know about the local market and can function accordingly and effectively. These country specific strategies could work in certain countries and for organizations in certain sector. “According to the article, companies that utilize an adaptation strategy most likely have a country-centered organizational model.” (mendeley.com). Aggregation strategy provides the organization the option of running their regional operations as part of their global operations itself. “Aggregation attempt to deliver economies of scale by creating regional, or sometimes global, operations, it involves standardizing the product or service offering and grouping together the development and production process.” (Ghemawat 2007, p.60). Thus, according to the author, this strategy can be applicable in this current globalized world, as many organizations are operating across borders. “Operations that are designed to function across borders are more likely to be employed if aggregation is the strategy.” (mendeley.com). The strategy of Arbitrage can also be practiced by MNC, if they have a widespread reach and network. That is, organizations following this strategy can set up operations in different parts of a country or even in different countries, where there is apt resources including human resources. “Arbitrage is the exploitation of the differences between national or regional markets, often by locating different parts of the supply chain in different places.” Examples include call centers in India, factories in China, and retail shops in Western Europe. (Ghemawat 2007, p.60). All these three strategies are discussed in detail by Ghemawat and will be greatly helpful for the entering firms. It can help the organizations to determine and realize the best way to tap and enter the market of the chosen country. It will also help the organizations to develop strategies to properly market and position the brand and product based on the information gathered about the market’s culture and behavior Key themes/ points Number of factors in the international economic scenario as well as the industry of the business may affect production, distribution, manpower and more, thus leading to loss of revenue or even liabilities to a company, which is entering the foreign market. The company or organization going global or internationalizing their brand or product should give the most needed amount of consideration to the political and economic status of the country they plan to do business on, and also to factors like the culture, language, business practices and the do’s and don’ts culture wise and business wise. That is why international business strategies must accommodate diverse models and local hybrids or other businesses in the country of choice. The main goal of any international business strategy is to manage problems and large differences that may arise in borders (Ghemawat 2007). Compared to all the risk of internationalization or globalization in the past and recent past, the international business industry today may have more competition than it had way back then. According to the author, the challenge that managers and marketers have to face and overcome in international business today is competition itself, not only from local competitors in the industry but a lot of competitors from the same industry from all over the world in the country of choice. Outsourcing is one of the biggest and most intelligent strategies for international businesses. It allows companies and organizations to freely operate with standard quality and minimal management. Outsourcing is actually an adaptation strategy, the aim of it, is to achieve local relevance through national focus while exploiting some economies of scale which will lead or open more opportunities for the company to grow and profit in the country of choice. Author Ghemawat provides many real life examples of organizations, implementing the three categories of the international strategy. “In-depth examples reveal how companies such as Cemex, Toyota, Procter & Gamble, Tata Consultancy Services, Cognizant, IBM, and GE Healthcare have adroitly managed cross-border differences-as well as how other well-known companies have failed at this challenge.” (ghemawat.com). Among these companies, the article focuses in detail Cognizant’s experiment in the factors of staffing, delivery and marketing. Cognizant’s strategies regarding the above issues are aimed to generate more profit and consistent results on adaptation and revenue vs. expenses (Ghemawat 2007). If a company or an organization decides to internationalize their business they would have to be more cautious in these additional factors. A experiment of Cognizant in the article will show us how integration of systems and strategies can be of an advantage or disadvantage for a company or an organization. Table 3. Cognizant’s experiment staffing delivery marketing Extensive recruitment process More business related professionals More homeland start-up personnel Extensive training process Coordination between two base heads one from USA and the other from the country chosen Simultaneous execution of proposals between two bases More proximity to customers Extensive travel, research and development for the use of the company’s technology Joint organizational headquarters and satellite overseas base brand and product positioning Use of home based people for key positions in marketing. Focus on multi level marketing disregarding age bracket, classification and industry (Ghemawat 2007). The article also suggested to focus on one or two A’s which was also suggested by Cognizant’s experiment. This is because focusing on two A’s can actually make the organization’s strategy ‘wide ranged’. With the proper management, a single A can pretty much cover up important factors in the business, while the second A in the combination could turn out to become a plan B or an option for change in cases that the economical or political situation requires the company or organization to work on another strategy. Integration of strategies or system can in fact be very helpful to companies or organizations meet their goals. But there are some instances or situations that marketers and managers of a company or organization should know when not to integrate. Plus and Minus of the article Ghemawat’s article has a very strong emphasis on how to formulate international business strategies. It discusses all aspects of entering, establishing or positioning the brand or the product in the country of choice. The bearing of the triple A’s is highly stressed in many ways and can truly be very useful for companies or organizations to use it as a framework in internationalization. However, manufacturing and production companies would also have to consider the availability of raw materials which was not emphasized in a sizable manner as part of the triple A’s strategy. Availability of raw materials used for production of a product should be considered in selecting a location or country the company or organization plans to invest on especially when they go international (Longenecker, Loeza p.240). Availability of raw materials would mean continuous production, and at the same time it will also save up money for the company, if they can avoid importing raw materials for production. It would be impossible for a company or organization to start production without the raw materials needed. There would also be instability in prices if they import raw materials from homeland to the production base of the country of choice. Conclusion Based on Ghemawat’s article on international business strategies, it is important to consider various aspects of the country and its business environment. Knowing the capabilities of the organization and its resource can help an international marketer or manager determine which of the three strategies is most appropriate to use. In addition, they can also think about which of the strategies to integrate depending on all information gathered about the county in which the organization chooses to do business on. The article also explains how important it is to have a system for every unit of international businesses or organizations. These systems can be incorporated with other systems making it flexible to change. References Ghemawat, P 2007, Managing Differences, Harvard Business Review. ghemawat.com, Redefining Global Strategy, viewed on August 5, 2011 http://ghemawat.com/books/redefining-global-strategy.aspx mendeley.com, Managing Differences. (cover story) , viewed on August 5, 2011 http://www.mendeley.com/research/managing-differences-cover-story-10/ Longenecker, JG etal. 2008, Small Business Management: Launching and Growing Entrepreneurial Ventures, Southwestern, OH: Thomson. Read More