Globalization of Trade and Commerce - Essay Example

 Globalization of Trade and Commerce 1 Introduction With trade barriers coming down the political boundaries are getting blurred. Movements and communications are becoming easier and faster. The world has become a Global Village. People and goods are moving across the countries more freely and more frequently than ever before. Restrictions are being largely removed, free trade is being encouraged and services too are being outsourced. 1.1 Globalization This has promoted a new breed of businesses called Multinational Companies (MNC’s) who operate worldwide offering their products and services to diversified cultures and consumers. This is the Globalization of trades and manufacturing. Companies are now expanding their operations by either opening branches or setting up manufacturing units in other countries. As this is happening across all countries it is now common to see almost all known brands available in every region of the world. The marketplace is getting bigger and both the consumer and the companies profit out of this proliferation of goods and services across the globe. These expansions have brought in better profits and higher performances. MNC’s have also diversified and added to their product and service portfolios. There are several reasons why diversification has resulted in better performance. But markets are not entirely integrated, therefore there are regional imbalances. These are the results of some protection that the local governments exercise in the name of protection of their local industries. By operating in more than one international market the MNC’s are able to balance out the regional imbalances caused by local macro-economic factors. As a result, MNC’s experience greater market performance since investors recognizes and reward stable performance (Shaked 1986). The shareholders are favourable to those companies that are able to reap the profits by expanding their operations to more market. As a result a greater spread across international markets reduces their overall risk and in turn this has a beneficial effect on corporate performance (Caves 1982). Moreover international diversification offers cost advantages as well as added production competence in its own field with increase in economies of scale (Buhner 1987) Expansion of business is both natural progression as well as the desire of corporates to reach larger audiences. But expansion means starting new ventures afresh or building new factories and attending to various initial hazards. In order to expand, an easy and quick route now adopted is Consolidations. This is either through takeovers, amalgamations or mergers. This offers all the participants the means to grow without the initial problems that a new venture faces. It also saves time required to be spent on nurturing a new venture and avoids initiation problems. 1.2 Consolidations In any consolidation there is bound to be a congregation of dissimilar parties. Each will belong to a different culture and will comprise of people with different perceptions. Their corporate objectives will be common, and this is the min reason for the consolidation, but the commonality ends here. Their corporate cultures, which are largely dependant on the cultural upbringing of the employees and influenced by local environments, are likely to be different. As a result Consolidations have their own peculiarities mainly related to cultural diversities. It requires great managerial ability to blend disparate corporate cultures into a new single entity. The task assumes even greater significance in view of the various cultural, ethnic and language barriers that have to be overcome to retain the star performers among the employees. These cultural differences do not occour with just the employees but with suppliers and consumers as well. The new consolidation has to undertake a separate programme to eliminate all conflicts that arise from such consolidations in order to improve performance which was the objective of this move. The corporates recognize that true benefits of expansions in new cultures are blessed with enhanced performance and harmonious relationships across the cultural divides. They therefore try to familiarize themselves with the problems in order to solve them quickly to synergize the different bring about synergy in operations across the whole organization. Several drawbacks result when a consolidation takes place. They are enumerated below. A Cultural Diversity and Production Synergy In different cultures production synergies are possible when there is language or religious affinity. To find this out a study of 1,226 intra-firm and market technology transfers were carried out at thirty-two American MNC’s. It was established that similarity of language and religion between countries is positively associated with internal technology transfer. (Davidson and McFetridge 1985). It is difficult to take advantage of management and technical know-how in different cultural contexts and these results in lower efficiency and performance. (Bartlett 1986; Bartlett and Ghoshal 1992; Jain 1989) B Cultural Diversity and Innovation Innovations are difficult and slow in MNC’s who are diversified as in the case of new consolidations or expansions into new geographies. Innovations happen when there are outstanding performers but the cultural barriers make it difficult for them to modify the existing hierarchy. The innovative efforts are obstructed by rules, routines, and standard operation procedures that cannot be overcome in presence of cultural barriers. Sometimes product innovations are misunderstood because of language and other barriers. General Motors had launched a new model of Chevy called the Nova. It was a great success in the States. However it failed miserably in Mexico. The reason was that in Spanish Nova means “no-go”. Had there been an understanding or knowledge of the language such an elementary mistake and a huge loss could have been averted. A new element in consolidations is asset building by Finance Companies, Banks, Insurance Companies and Brokerage Houses. There has been a spate of mergers & acquisitions and leveraged buyouts, both friendly and fought over between then in the Global markets. Goldman Sachs, Royal Bank of Scotland and others are constantly in and out of such deals to consolidate their financial clout and to cover wider markets for themselves and their clients. This is also made easy with plenty of cash and credit available these days. However, here too the cultural diversities have to be overcome to reap the benefits of these moves. C Cultural Diversity and Implementation of Technology Cultural factors also influence Technological Implementations. Heiko [1989] observes that the Just-In-Time (JIT) method of inventory management has been well received in Japan, and had lead to substantial savings, but it has produced disappointing results in other countries as this is culture-specific to Japan and is not understood in other cultures. The cultural background in Japan is unique to Japan just as much as the western openness is unique to USA or Canada. So when the Japanese car makers tried to introduce their methods and systems in USA, they failed to take off as they were not understood or appreciated by the American workers. D Cultural Diversity and Organizational Transformation Processes. One of the main purposes of consolidation is reduction in labour costs and to have a more efficient organization. This is made difficult due to cultural differences. Where there is affinity in cultures, like in language and religion, this is easily achieved, while it becomes a daunting task in culturally diversified situations. It becomes even more acute if the products are numerous requiring elaborate explanations and training. The western companies that set up factories in the South Asian countries to take advantage of cheaper labour costs face enormous difficulties in training these workers. The costs are lower but the output is nowhere near that of their counterparts in the west. This is a result of the different cultural background. E Cultural Diversity and Market Response. It has been said that cultural differences can throw up unique customer preferences that require customization of the marketing mix to promote demand (e.g., Bartlett 1986; Beamish, Killing, Lecraw, and Morrison 1994). Culturally related regions like the US and Canada can be more successful in sharing market activities and know-how in comparison to say US and Indonesia. The greater ability to cross-sell products in culturally related markets reduces marketing expenses as well as market research expenses compared to markets that are diverse in cultures (Takeuchi and Porter 1986). It is more difficult and more expensive to share this in a cross cultural consolidation or expansion. USA now has a large population of people who have migrated there during the last few decades. Many of them set up businesses but they face difficulties in getting customers as they are unable to grapple with the cultural makeup of the local American population and their diverse needs. F Cultural Diversity and Interpersonal Dynamics. Conflicts, frictions, lack of cohesion and misunderstanding occour in greater magnitude in a culturally diversified organization and leads to communication breakdowns. This hampers decision making and causes grievances among employees. It also acts as a barrier in new recruitments as prejudice comes into play due to ignorance. This results in loss of talent that could have been harnessed for the benefit of the organization. Even existed talented staff could become disillusioned on not being given proper due place in the hierarchy. G Cultural Distance and Organizational Control Systems. There is a distance in physical terms between the headquarters and the subsidiary or affiliate and often it creates barriers that are also termed as the cultural distance. This is the difference of the corporate cultures which is the byproduct of the local environment of their respective locations. This affects the control system between them. Communication often becomes difficult or misunderstood. Usually decisions of policy lie with the Headquarters and cannot be delegated and this causes friction. The challenges for the organizational control system increase proportionately with increase in distances. It becomes more difficult and expensive to obtain complete and accurate information about performances, both on organization and personal levels. H Cultural Diversity and Human Resource Programs. Finally the most important aspect is employee appointment and retention. Managers and Supervisors have the responsibility to be fair at the workplace in offering opportunities to all. In order to have a more productive and satisfied workforce equal opportunities must be offered and appropriate communication has become a necessity in diversified cultures. The effectiveness of the human resource development programmes largely depends on the understandings developed by the HR division to understand diverse cultures and to pick and promote best talents from this vast pool available to the organization. Compensation and rewards, performance appraisal, staffing, and labour relations all assume importance in decision making. The rationale behind this expectation is that human resource programs must be attuned to their cultural contexts if these are to be successful. 1.3 The need for Diversity Management The need for diversity management thus becomes very obvious. To have a successful consolidation or expansion this has to be professionally handled. The diversity initiatives are more widespread in industries that are highly competitive, where firms seek to hire and retain the best-performing employees regardless of race, sex, religion, etc., as their margins are always under pressure. They cannot afford to loose out on performances especially when they are dependant on employees belonging to different cultures. Firms that effectively manage their workforce through diversity management practices experience positive outcomes. For example, research indicates that firms with higher percentages of women managers report relatively higher financial performance (Shrader et al., 1997). But this requires diversity management that offers scope to the organization to actively pursue the retention or appointment of qualified women manages and to make the other employees accept this to be in the best interest of the organization. 2 Diversity Management What then is this diversity management that helps the organization to overcome its diversity issues that originate out of culture differences both in employees as well as locations? It is the role of the diversity managers to educate and train managers and employees to overcome their cultural differences and to appreciate each other for harmonising their efforts for better individual and company performances. It is to be understood that globalization has thrown up several new challenges. One is to become more competitive against foreign goods. Second is to be more productive than others. Third is to be more competitive both in the home and new markets. Fourth is to hire the best talent to meet all the above challenges successfully and this means hiring people from different cultural backgrounds. As we move into the 21st century evidence shows that there is more diversity at the workplace than ever before. Old techniques of communication fail to produce the desired results in performance. Successful managers of this diverse workforce must meet two goals to become more effective. First, they must become sensitive of the communication problems commonly experienced by those who are perceived as "different” within the organizations. Secondly, they need to study and put into practice appropriate alternatives to replace old strategies for communicating with employees, alternatives that lead to awareness of communicative even-handedness by all employees. 2.1 Definition Kaleidoscope is a diversity management consulting company of international repute. They have taken this concept and refined it further. According to them the definition of diversity can now be expanded from just educating and training to Creating Diversity Awareness, Developing Diversity Skills, Advanced Development, Commitment and Sustainability.  At every stage, participants leave with new lessons learned, as well as models and well-established tools for use back on the job. 2.2 Concepts of Diversity The role of the consultants is to offer advice and programmes on the following issues. They cover cultural team building, executive team building, affinity group guidelines and development, cultural coaching, and fair and equitable people processes. These are the concepts on which the whole diversity initiative is built and delivered. 2.3 Diversity Strategy The long term strategy in diversity lies in mentoring. Organizations are now introducing Mentoring programmes as the means for creating new opportunities for open communications between employees. This is also beneficial in introducing newcomers joining the company and integrating with the corporate culture. These organizations range from professional associations to educational institutions, and their initiatives range from the formation of ad hoc committees on mentoring and the adoption of resolutions on mentoring programs (Gaudino, 1996) to the inclusion of mentoring as a strategy for achieving institutional objectives in university's six-year plan (Six-Year Plan, 1995) 2.4 Diversity Education & Development Kaleidoscope believes that the most effective mode is learning is based on experiences. A variety of experiences such as style and the media of communication are leveraged in diversity education and development programmes with interactive participations. This offers knowledge in depth and a better understanding of the issues involved. (The Kaleidoscope Brochure) 2.5 Measurement & Accountability An important factor in diversity initiatives and programmes is the constant measurement of the effectiveness. Each department and personnel concerned are made accountable and targets are set and performances are to be measured against them to gauge the implementation progress. Corrective measures are possible when such measures are incorporated in the diversity programme. 2.6 Diversity Communications An international and multicultural approach to issues in communication is necessary. In fact a multicultural approach is essential in current environments when people have to work with others from different cultures. Companies buy or set up plants and offices in other countries and often they include cross-cultural training. For example when groups of foreign workers come to the U.S., or American workers travel to other countries they undergo training in social and business norms in order to be able to work together or socialize. The objective is clearly to be able to understand each other’s cultural practices aids in effective communications, break down barriers, open doors to mutual understanding and leas to better performances. 2.7 Multicultural Marketing When a company enters a new market it not only has to deal with the cultural differences with its own employees but also with a huge new group of culturally different customers as well. The same issues of communication apply here but in a different way. In place of working closely with each other to produce results, in this case the company is projecting its products or services while understanding the cultural environment of the customer. The case of the Nova car cited elsewhere in this essay proves the point in case. The failure of the Nova was precisely the result of not knowing or understanding the cultural background of the market and the consumer. Had the company invested in better learning of the language, they could have avoided a financial disaster. 2.8 Diversity in Human Resources The description of an "effective" or "good" supervisors is being (a) "communication minded," (b) approachable, open, willing, and empathic listeners, (c) oriented toward asking or persuading in contrast to demanding or telling, (d) sensitive to the needs and feelings of subordinates, and (e) open in communicating information to subordinates, in favour of giving advance notice of impending changes, and willing to explain "why" policies and regulations are being enacted (Dansereau & Markham, 1987; Redding, 1972). There is no doubt that these qualities pave the way for excellent diversity planning. 2.9 Supplier Diversity Just as the diversity initiative is applied to the employee and the customer, the same is required to be applied to the company’s suppliers located in the new geography. The cultural environment of the supplier community is to be studied and understood for effective communications to ensure quality parity and other supplier related issues that are essential to the production performance of the unit. The Kaleidoscope group believes that most companies have integrated their multicultural marketing efforts into their marketing strategies, and many others are now realizing that infusing their new diversity knowledge into those strategies increases customer knowledge in all segments and increases profitability. (The Kaleidoscope Group Brochure) 3 Conclusions Globalization of trade and commerce leads to expansions. The contemporary routs to expansions are through mergers, acquisitions and consolidations. The results of these are creation of multi-cultural MNC’s that find little cohesion among its units due to vast cultural diversities. The diversity management initiative has been understood to be the solution of making these culturally diverse consolidation performance oriented. Diversity management has become a professional exercise due to its importance in the working environment of a company. It takes several months, even years, to infuse diversity initiatives and their ignorance will defeat the very purposes of the consolidations which are better performance and higher profitability. 4 Bibliography Bartlett, Christopher A. & Sumantra Ghoshal. 1990. Matrix management: Not a structure, a frame of mind. Harvard Business Review, July-August: 138-45 Beamer, L. (1995). A schemata model for intercultural encounters and case study: The emperor and the envoy. 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