TABLE

OF

CONTENTS

Table of Contents................................................................................................... 1 Introduction............................................................................................................ 2 Ethics..................................................................................................................... 2 Innovation.............................................................................................................. 4 The role of women in MNCs...................................................................................5 Culture................................................................................................................... 6 Hofstedes five dimensions..................................................................................7 Criticism of Hofstedes approach.........................................................................8 Competencies in MNCs..........................................................................................9 The role of Industry, Professional and Regional Cultures.......................................10 Conclusion............................................................................................................ 11 Bibliography.........................................................................................................13

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INTRODUCTION
A multinational company (MNC) is a relatively recent phenomenon whose activities spread across many countries1. Management are faced with many issues because of its geographical dispersion. This essay will discuss the factors that management must take into account when planning and managing the activities of an organization. Having regard to these issues will ensure that management can run an organization without interference from stakeholders. It will also enable management to utilize its assets in the most effective way to gain competitive advantage in the global market.

ETHICS
Multinational companies have grown so large that in some cases their power is capable of overshadowing local governments2. Because of this there has been a surge of ethical demands by nongovernmental organisations (NGOs), customers and the law. Customers are unwilling to purchase products from MNCs with reputations of ill treating their workers or the environment. There has also been a surge in ethically orientated investment funds which will avoid investing in unethical MNCs3 . There are several important issues which should be addressed when developing strategies and managing company activities. A common way to do this

1 2 3

Gooderham & Nordhaug (2003, p. 22). Gooderham & Nordhaug (2003, p. 336). Gooderham &Nordhaug (2003, p. 337.

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is by adopting a code of conduct4 which is where a MNC sets its own ethical standards and responsibilities5. Employee relations include adequate compensation, non-discrimination, human rights and the MNCs stance towards child labour. Political relations include protection of the environment and problems with corruption. These issues should all be dealt with by a code of conduct. To ensure that management incorporate the code of conduct when making decisions, monitoring of the implementation of the code is often ongoing. This can be done the company itself, by external consultants hired by the MNC or independent monitoring by NGOs6. Another important aspect of having regard to ethical behaviour when making management decisions is voluntary initiatives such as UN Global Compact. This focuses on human rights, the environment and corruption. The initiative also brings MNCs together, sharing information and best practices7. It opens up communication channels with the possibility of potential partners in future projects. Finally, investing in ethical behavior can help MNCs reach new untapped markets. Many believe that the worlds poorest do not have the disposable income to be a profitable market to sell products. However their aggregate buying power is high. The poor know that they will not be able to afford to purchase a home and they therefore allow themselves to purchase luxurious products such as television

Gooderham & Nordhaug (2003, p. 346). Cetindamar & Husoy (2007).

6 7

Gooderham & Nordhaug (2003, p. 131). Cetindamar & Husoy (2007).

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sets. Investing in the poorest countries will satisfy ethical demands and bring enormous business benefits8. Incorporating ethics into management decision making in MNCs can improve the profitability of the organisation, ease the ability to enter new foreign markets, increases the potential of finance opportunities and opens up new networking opportunities9 .

INNOVATION
The growth in worldwide competition has made innovation the most important factor in a MNCs survival10 . A MNC needs to be able to introduce new concepts in line with customer demand ahead of its competitors. Global teams are often established to drive innovation. An issue for management when managing activities of a MNC is to ensure that the global teams that produce new ideas are able to effectively communicate and collaborate with each other. In international research and development, a major obstacle in communication is geographical distance. Global Teams should have at hand a variety of Information and Communication Technology (ICT) to effectively

Prahalad & Hammond (2002). Cetindamar & Husoy (2007). 10 Letaief, Favier & Le Coat (2007).
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communicate knowledge and ideas. Another difficulty is that the nature of innovation requires tacit knowledge and face to face interaction in order to be successful. To ensure that the corporation remains at the forefront of innovation, management should organise face to face meetings wherever possible. In global teams there can also be lack of trust and communication barriers due to language and culture. Face to face meetings can help overcome trust issues. Structures and support mechanisms should be introduced to ensure information and knowledge is transferred as quickly as possible11. Another aspect that affects management decisions when building organisation with regard to innovation is what countries to choose in which to set up subsidiaries. Management will want to set up in countries that are technologically advanced12. Local subsidiaries can be an effective way to tap into host country technology and knowledge and utilize these to ensure competitive advantage in the global market. Management should promote knowledge spillovers, for example by collaborating with local universities and entering technology transfer agreements13.

THE

ROLE OF WOMEN IN

MNC S

Currently only 12-15% of international managers are female. The reasons for this include cultural barriers and organisational policies. With shortages in international managers that may affect the effective implementation of strategies14, the decision to actively promote female participation in international management is an important strategic factor for managers in cross national contexts.
11 12

Von Zedwitz, Gassmann & Boutellier (2004). Singh (2007). 13 Singh (2007). 14 Linehan & Scullion (2008).

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In some cultures such as Saudi Arabia women are seen as subordinate to men15. They do not receive the same education and are often expected to discontinue working after getting married. Even in Western countries where gender equality is set out in the law, there still exists a glass ceiling and inequality based on gender16. Managers in MNCs should try wherever possible to address this issue by providing equal pay and education opportunities for women. There can also be organisational barriers preventing the opportunity for promotion of women. These include lack of networking opportunities and access to mentors17. Mentors are senior level employees that support lower level employees and provide opportunities for career progression. They are important at international level because they provide a point of contact from home when international managers are abroad. Networking is the development of alliances and exchange of tacit knowledge. This is also important when international managers are working abroad without family and friends. Networking provides contacts that can help in promotions to international management positions. Females are just as capable of succeeding in international management positions as men. To address shortages of international managers, it is important for managers to manage organisations in such a way as to promote the participation of females in these positions.

CULTURE
Culture refers to the values and expectations of a group of people18. It is important for managers to ascertain the culture of the host country and adapt the organization. One way to manage the organisation in one country may not be
15 16

Gooderham & Nordhaug (2003, p. 345). Gooderham & Nordhaug (2003, p. 345). 17 Linehan & Scullion (2008). 18 Gooderham & Nordhaug (2003, p. 131).

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appropriate in another. When managing the operations in a particular subsidiary an approach needs to be developed in line with cultural values to ensure greater cooperation and participation of employees as well as ease of dealings with local firms and national institutions.

HOFSTEDES

FIVE DIMENSIONS

Researchers such as Hofstede have attempted to classify culture using five dimensions. The first dimension is power distance. This indicates the extent to which a culture accepts inequality in a group. If there is a small power distance, for example in Ireland, employees will expect a democratic system where they are consulted regarding decisions affecting the management of operations or the building of strategies. In countries such as China there is a large power distance. Managers in power act like autocrats and are not expected to consult employees in decision making. The second dimension is individualism-collectivism. This refers to the extent to which individuals prefer to take care of themselves or else prefer to be part of a group. In countries with high individualism, employees like to be rewarded based on their own performance19. Countries that are highly collective expect that everybody receives the same reward20. The third dimension of Hofstedes research is uncertainty avoidance. This is the extent to which society avoids uncertainty and risk. Management need to address their management decisions in countries with high uncertainty avoidance by ensuring career stability and having formal rules and systems. The fourth dimension is defined as masculinity-femininity. A masculine culture finds money and success as important factors. A feminine culture is more
19 20

Kirkman, Lowe & Gibson (2006). Kirkman, Lowe & Gibson ( 2006) at 295.

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concerned with quality of life. When building and managing organisations regard needs to be had to the factors that employees find most important. The fifth dimension is defined as long versus short term orientation. This refers to the extent to which people will sacrifice their current welfare for long term benefits. This can affect management decisions when setting long term strategies. If these strategies negatively affect employees that will not forego their current welfare, then the strategies will meet resistance on implementation.

CRITICISM

OF

HOFSTEDES

APPROACH

There has been criticism of Hofstedes approach. One criticism is that Hofstedes research is based on a narrow range of the population. The research was founded on the responses from questionnaires of IBM employees. These employees are mainly recruited from middle class and do not take account of the values of the unemployed, retired or students21. It has also been criticised because it is not possible to place the values of a culture into five simple categories22. In addition there can be many cultural variations within a country23. There is a belief that One cannot derive the normative ideals of a culture from the average of individual responses24. Regardless of these criticisms it has been widely accepted because of the clarity it brings to managers when devising strategies and managing operations in cross national contexts25. The average of individual responses does give managers a general tendency on what values a particular country has. It would be beneficial for managers to carry out their own questionnaires in each subsidiary to

21 22
23 24

Mc Sweeney (2002). Kirkman, Lowe & Gibson (2006, p. 286). Sivakumar & Nakata (2001).
Schwartz (1992, p. 51).

25

Kirkman, Lowe &Gibson (2006, p. 286)

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find out the general culture and shape strategies and activities around these ideals.

COMPETENCIES

IN

MNC S

With competition increased globally MNCs need to ensure that they retain a competitive advantage at all times. It is difficult to be able to do this with technology with the constant pace of development26. The focus therefore turns to the development of human capital to ensure organisational success. In particular, the promotion of knowledge creation should be borne in mind in the decision making of international managers. Employee competencies can be split into four categories. The first category consists of meta-competencies. These are broad skills that can be applied to any task, such as literary skills, ability to work on a team and analytical skills27. The second category is Intra-Organisational MNC Competencies. Competencies are specific to the MNC including knowledge about the history of the organisation and its products, and also of the strategy and goals of the organisation and its networks28. The third category refers to intra organisational subsidiary competencies. These are similar to the second category but differ in that they are limited to one subsidiary. Examples include knowledge of that subsidiaries history and culture29 . The final category refers to standard technical competencies. Examples include the general ability to use a computer that can be applied in many industries. A sub category is technical MNC competencies, which comprises of

26 27 28 29

Gooderham & Gooderham & Gooderham & Gooderham &

Nordhaug (2003, p. Nordhaug (2003, p. Nordhaug (2003, p. Nordhaug (2003, p.

221). 223). 224). 224).

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skills to operate MNC specific IT. A further sub category is subsidiary unique technical competencies which can be used for subsidiary specific tasks30 . It is essential for the success of a MNC to ensure that these competencies are created and maintained by employees. Nonaka and Takeuchi developed a model of knowledge creation that managers should incorporate into their decision making. The most important feature is that knowledge is transferred through the interactions of employees31. To enhance and develop employee competencies, managers should incorporate job rotation, mentor programmes and other methods of ensuring the values and goals of the MNC are known to all employees.

THE

ROLE OF

INDUSTRY, PROFESSIONAL

AND

REGIONAL CULTURES

The type of industry the MNC is operating in should be taken into account when making management decisions in cross national situations. For example in the IT industry there is a focus on technology rather than marketing, whereas the opposite would apply in the retailing industry. Also in retailing the risk of any decision is low, whereas in the science industry risk assessments would have to be undertaken before any decision is made. Professional cultures must also be borne in mind when making management decisions. There may be rules to be adhered to when advertising products and services. There may also be codes of conduct to follow. Regional cultures are important to take into account when managing a corporations activities. Socio-economic factors such as the education system of a country have to be addressed. Qualification standards differ from country to country and managers must be able to translate the standards required to the
30 31

Gooderham & Nordhaug (2003, p. 224). Gooderham & Nordhaug (2003, p. 230).

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host country when establishing subsidiaries there32. Another issue is that countries require certain mandatory qualifications in order to obtain a management position. For example in the USA an MBA is required, whereas in the UK there are no requirements33. Having managers without the necessary qualifications may cause difficulty when dealing with the institutions and other firms of the host state. Another factor to be taken into account with regard to regional cultures is the institutional framework of the host country. Managers must ensure compliance with legal requirements such as the minimum wage and other employee rights when managing the organisation.

CONCLUSION
It is clear that there are a number of issues that must be addressed when managing the operations of a cross national organisation. Due to its size, MNCs are subject to ethical demands by its stakeholders. Profits will be affected if certain ethical standards are not met. Given the lack of international managers currently available to implement the strategies of MNCs, managers need to ensure that the MNCs policies and practices promote the participation of women in international positions. With the global increase in competition, managers must ensure the development of its main source of competitive advantage, human capital, is at the forefront of all management decisions. Managers must also have regard to innovation in its decision making, ensuring the proper systems and communication channels are available from global teams. Culture is another very important factor in the decision making in cross national contexts. To effectively manage employees and operate without difficulty
32 33

Gooderham & Nordhaug (2003, p. 94). Gooderham & Nordhaug (2003, p. 95).

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in a host country, it is important to manage activities in accordance with what values are most important to the culture of the host country.

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BIBLIOGRAPHY
Gooderham, P.N. and Nordhaug, O. (2003) International Management: cross cultural challenges, Oxford, Blackwell. Prahalad, C.K. & Hammond, A. (2002) Serving the Worlds Poor, Profitably Harvard Business Review, September.

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Cetindamar, D. & Husoy, K. (2007) Corporate Social Responsibility Practices and Environmentally Responsible Behaviour: The Case of the United Nations Global Compact, Journal of Business Ethics, p 163-176. Von Zedwitz, M., Gassmann, O., & Boutellier, R. (2004) Organising global R&D: challenges and dilemmas, Journal of International Management, 10, 21-49. Singh, J. (2007) Asymmetry of knowledge spillovers between MNCs and host country firms, Journal of International Business Studies, 38(5), 764-786. Linehan, M and Scullion, H ( 2008) The Development of Female Global Managers : The Role of Mentoring and Networking, Journal of Business Ethics, 18 : 29-40. Kirkman, B.L , Lowe, K.B and Gibson, C.B. ( 2006) A quarter century of cultures consequences : a review of empirical research incorporating Hofstedes cultural values framework, Journal of International Business Studies, 37 (3 ) : 285 320. Mc Sweeney, B ( 2002) Hofstedes model of national cultural differences and their consequences : a triumph of faith a failure of analysis, Human Relations, 55 (1) : 89-118. Letaief R., Favier, M., and Le Coat, F., (2007) Creativity and the creation process in global virtual teams: Case study of the intercultural virtual project, Management and Avenir p 182-200.

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