Influence of MNE’s Strategy, Industry and Home-host Country Cultural/Institutional Variables

Abstract

Globalization is bringing into the table many challenges to companies over the last decades. Overtime managers began to realize that the cross-cultural differences ware one of the most important challenges they had to face, moreover, how to turn disadvantages into advantages in a competitive market. 

In this paper, we will discuss issues from multicultural teams to strategies MNEs choose to adapt, from an internal and an external point of view. In addition, we will understand how the cross-cultural differences can contribute to improving performance.

The main goal is to analyze how the diversity of background, values, and beliefs will influence stakeholders and affect a company’s wealth applying theories such as Hofstede cultural dimensions and EPG model approach.

Introduction and background

With the advent of technology, the world today is moving toward a single market. Distances are getting shorter and shorter and the market is showing clear signs of convergence. However, it is crucial for MNEs to choose the strategy that better fits the company in order to be able to compete in this scenario where your multinational could be competing (and losing) to a local business just because a lack of understanding of who are your market.

Furthermore, companies have to choose also the best strategies to deal with its employees, being locals, expatriates or a mix of both. Recent studies show positive implications related to multiculturalism in teams such as adaptability, leadership, problem-solving, enhanced network and creativity.

Key areas

Culture inside the company

The EPRG Framework defines and classifies the ways companies behaves your 

Ethnocentric: Do not adapt their products to the needs and wants of other countries where they have operations.

Geocentric: The main idea is to target “global consumers” who have similar tastes. To borrow from every country what is best.

Regiocentric: Economic, cultural or political similarities among regions

Polycentric: Equal importance to every country’s domestic market. Believe in the uniqueness of every market

Cross-cultural teams

Re / Expatriates: The psychological adaptation of migrants is a phenomenon widely explored, especially by the international scientific community.

Increase creativity / productivity:

Richier brainstorming: Different backgrounds give and individuals different perspectives, which open to the company new possibilities. 

Increase adaptability: Learn how to be more resilient, tolerant and sensitive when dealing with differences in culture is a “must” in today’s business world, especially, in Canada.

Some of the disadvantages of multicultural teams include, stereotyping, communication issues, integration issues, increase competition and increasing the cost of training.

Strategies in managing cross-cultural teams

Clarity: Avoid assuming people already possess information.

Neutral language and subjects: Less is more, especially, when you are not familiar with other’s culture.

Make an effort to understand: Show courtesy, and respect which will come around as trust and inspiration.

Acknowledge and embrace differences: Diverse people will bring a diverse range of perspectives into the team, which make it more efficient and effective.

Communicate, communicate and communicate.

Hofstede dimensions

Low power distance vs high power distance: Extreme respect to hierarchy and seniority.

Individualism vs Collectivism: The difference between the individuals who value more their own interest and the individuals who put the interest of the community/team/ first.

Masculinity vs femininity: The difference between the individuals who has more masculinity traits such as competition, assertiveness, and the individuals who have more femininity features such as patience, kindness, sensitiveness.

Low uncertainty avoidance vs high uncertainty avoidance: If you are more likely or less likely to take risks.

Short-term orientation vs long-term orientation: The difference in value and in loyalty between tradition and the spontaneity. 

With MNE functioning around the world, the technology and hierarchical practices are in need to improve constantly. While the locals know-how can be well received and acceptable, it is true that the “best practices” are expected expand faster. Currently, people are recognizing the difficulty of managing an MNE. Each subsidiary has a component within the organization and are differentiated by a variety of local and cultural conditions but most importantly, management (Mueller 1994).

Our focus in this investigation primarily will be the influence of culture and the type of management of the home country.

Figure 1. Perspectives, issues, actions and consequences in MNE performance

Source: Adapted from A. Engle and P. Dowling, ‘State of Origin: Research in Global Performance Management: Progress or a Lost Horizon?’, Conference Proceeding of the VIIIth World Congress of the International Federation of Scholarly Associations of Management, Berlin, September 2006.

As the figure shows, every individual has a set of elements that shape the input of their performance, the base of these elements is the self idea of how the subject perceives the environment around and this will influence the output dramatically; at this point the conception of the local and global strategies is leading to the employee to be part of the different appraisal, local and remote or global.  The critical issues consist of the whole process of develop a task(s) to reach the purpose, base on the criteria that has been given (explicit) and has been conceived (implicit). The result of the employee’s performance can determine if he is a subject of training or recognition on the individual outcome and the grade of control or level of reputation as organizational outcome.

Global strategy of MNE

The strategy local statements vs strategy global statements are not always the same, due to a variety of circumstances that the company has to prevent in order to give the first step to a internationalization, and these situations are closely related with social, cultural and political matters (Noorderhaven, 2003). For a better understanding of how management and organization will work on these environments, is important to take into consideration Hofstede’s dimensions. In the field of management and organization, the power distance dimension and uncertainty avoidance are extremely important. Management from a large power-distance culture will concentrate the process of the decision making; on the other hand, management with high uncertainty avoidance will control processes and activities through strict rules (Hofstede 2001).

There is an variety of studies showing that issues, for example, initiative and the board, centralization of power, hierarchical job vagueness, and specialist relations associate altogether with at least one of Hofstede’s social records (Hofstede 2001).

The cross-national administration issues is concentrated in two approaches: cultural and institutional, both represent an examination of strictly local firms accordingly restricting their importance for cross-national administration issues. The relevant inquiry with regards to this paper is the manner by which nearby culture and organizations of the nation of birthplace affect on MNE approaches, specifically internationalization and universal control procedures. Through what instruments could these wellsprings of primary characteristic apply impact on the MNE? The answer can be breaking down as it follows.

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All MNE are possibly related with a specific nation cause that affected them in the middle of the lapse when they were not considered as internationalized. At this specific time, the MNE might be accepted to have been impacted in a route and to a degree equivalent to a local firm. However, for this impact to be substantial, it must last longer, all together for a nation of-starting point impact to be available, we must expect this influence is enduring. One methodology is expected ‘hysteresis’, or ‘a lagging effect after a causal power has been expelled’ (Pauly/Reich 1997).

We agree Ghoshal/Nohria (1989) when they stated that the subjective introductions of senior managers are vital to understanding the hierarchical procedures through which MNE’s create their own conditions to adapt themselves. All things considered, social and institutional elements enter associations through the general population working in them (Kostova/Roth 2002).

The roots of the values on the MNE are clearly related with the set of behaviors, beliefs, attitudes, culture and the conditions of the home country. Although it is important to take into consideration some interesting works about cross-culture like the one from Hofstede, it is also true that the hiring process is from home-country influence the behavior of the MNE, and the print of these home-country in the know how is apparent in the organizational structures, procedures and processes of the MNE, however, the management needs to be aware that this particular behavior would be not well received by the rest of the members of the company, due to the differences of cultural and institutional behavior of the host country (Noorderhaven, 2003).

References

Mueller, F. (1994). Societal effect, organizational effect and globalization. Organization Studies, 15(3), 407-428.

Hofstede, G. (2001). Culture’s consequences: Comparing values, behaviors, institutions and organizations across nations. Sage publications.

Noorderhaven, Niels & Harzing, Anne-Wil. (2003). The “Country-of-origin Effect” in Multinational Corporations: Sources, Mechanisms and Moderating Conditions. Management International Review. 43. 10.1007/978-3-322-90995-4_4.

Ghoshal, S./Nohria, N., Internal Differentiation within Multinational Corporations, Strategic Management Journal, vol. 10, 1989, pp. 323-337.

Kostova, T./Roth, K., Adoption of an Organizational Practice by Subsidiaries of Multinational Corporations: Institutional and Relational Effects, Academy of Management Journal, 45, 2002, pp. 215-233.

Pauly, L.W./Reich, S., National structures and multinational corporate behavior: enduring differences in the age of globalization, International Organization, 51, 1997, pp. 1-30.