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GLOBALIZATION
1.INTRO:
Today’s business is mostly market driven; wherever the demands exist irrespective of
distance, locations, climatic conditions, the business operations are expanded to gain their
market share and to remain in the top rank etc. Business operations are no longer
restricted to a particular locality or region. Company’s products or services are spreading
across the nations using mass communication, internet, faster transportation etc. An
Australian wine producer now sells more wine through the Internet than through outlets
across the country. More than 95% of Nokia hand phones are being sold outside of their
home country Finland. Japanese cars are being sold in different parts of globe. Sri Lankan
tea is exported to many cities across the globe. Executives of Multinational Corporation are
very mobile and move from one subsidiary to another more frequently.

2.Different Approaches To Do Business Globally :

i) PCN:- employees born and live in parent (home) country (headquarter)

ii) HCD:- employees born and raised in the host country (where the subsidiary operate, and

iii) TCN:- employees born in a country other than the host and parent country, were introduced into

the company human resource system.

1.Ethnocentric

2.Polycentric
3.Geocentric
1 . Ethnocentric:

 Company’s Business is there in India but decision is taken from another

country say America.
 Is a staffing approach where subsidiaries are managed by staffs from PCN. In
ethnocentric approach, PCNs are dispatched to fill in key position of a
subsidiary in host-country. The mind set of management is ‘what work at
home, will work here’ [Guergana K.S. & Mujtaba, 2009].
 Some of the reasons to pursue ethnocentric management system are lack of
qualified personal, competency or special technical knowledge in HCNs.
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 The need for centralized control, risk management, needs for parent-
subsidiary to maintain good communication and coordination are another
reasons to practice ethnocentric management.
 However, there are several limitations associated with ethnocentric system
where HCNs has limited opportunity for career promotion and leads to high
turnover. Adaptation of expatriates to host country takes much longer time
and often leads to poor decision and cross-cultural conflict may occur [Zeira,
1976].
 High operating cost to sustain expatriates expenses being viewed as
unjustified by HCNs.
 Typical example of ethnocentric approach company are Japanese firms such as
Panasonic, Sony and Hitachi. In Mastec organization, the staffing approach for
subsidiaries in Thailand, Vietnam and India adopted ethnocentric system due
to lack of competency of HCNs and the needs for corporate communication.
Most of the customers in India and Thailand are Japanese manufacturers,
therefore an expatriate with Japanese language ability to communicate with
customer’s parent company in Japan is still vital.
2.Polycentric:

 According to the demand of an area the decision is taken from that place.
 In polycentric staffing approach, multinational firms rely on the HCN to run the
business operation and rarely PCN are transferred to foreign subsidiary.
 Each subsidiary is treated as an independent business entity with decision
making autonomy.
 In some cases, PCN belief that foreign markets are too difficult to understand
and therefore a join venture alliance was formed.
 The benefits of polycentric are local subsidiary has more leverage to run
business operation and achieve fastest local response to market demand.
 Polycentric system allows continuity of management by HCNs in foreign
subsidiary. Language barrier, cross-cultural adaptation problems and high
relocation cost to sustain expatriate expenses were eliminated.
 The disadvantage of polycentric is bridging gap between HCNs and PCNs at
headquarter due to language barrier, conflicting of national loyalties and
compliance to headquarter HRM policies.
 There are potential risks of subsidiary become federation, isolated from
headquarter and not pursuing corporate business goals [Dowling P.J 2008]. In
 Mastec’s organization, the establishment of subsidiaries in Indonesia and
Malaysia was under joint venture alliance and operate under polycentric system.
In order to maintain a reasonable level of control and to provide managerial and
engineering support, virtual assignments system was implemented with
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frequent business trips to visit the subsidiary company by the respective

manager.

2. Geocentric:

 In this approach region in which the business of the company is there does not
matter , but according to the need of business decision is taken.
 The management style in geocentric staffing system focuses on global
operation to draw best talents and resources.
 Each subsidiary and headquarter are interdependent of each other to make
unique contribution based on their comparative advantages.
 An example of this company is Mercedes Benz, where the company sources
raw materials around the world from the lowest-cost perspective and
assembles their cars in Germany where the best technology is located.
 The strengths of geocentric approach are multinational firms able to develop a
pool of global executive for deployment throughout the global organization. It
encourages career development and promotion of high-potential executive
regardless of nationality.
 However, in the process of collecting wisdoms and deploying expertise
globally, host government may intervenes recruitment using immigration
control to encourage employment of HCNs.
 Extensive international socializing between PCN, HCN and TCN to support
geocentric staffing system needs centralized control which reduced
independency of subsidiaries and the staffing decision is time consuming. High
cost associated with cross-cultural training, relocation expenses and the need
to have compensation package with international standard gives substantial
financial burden to the firms.

3.Different types of MNC’S:

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1. Transnational corporations

 A transnational corporation differs from a traditional multinational

corporation in that it does not identify itself with one national home.
While traditional multinational corporations are national companies with
foreign subsidiaries,[38] transnational corporations spread out their
operations in many countries to sustain high levels of local
responsiveness.[39]
 An example of a transnational corporation is Nestlé, who employ senior
executives from many countries and tries to make decisions from a global
perspective rather than from one centralized headquarters.
 Another example is Royal Dutch Shell, whose headquarters are in The
Hague, Netherlands, but whose registered office and main executive body
are headquartered in London, United Kingdom.

2. Multidomestic corporations
 A company that follows a multi-domestic strategy fits its products to each
country in which it does business. Your product features are tailored to the
local domestic environment, taking into account different food preferences,
religious customs and other characteristics that define the locality. If you feel
the goods produced by your business would be better received by local
customers, opt for this strategy to avoid being branded solely as a foreign
company.

 One of the nation's most popular hamburger chains is an example of a multi-

domestic strategy. The company researches each country’s local customs and
foods before creating its menu items and opening up a store. For example, the
restaurant's stores in India do not sell any sandwiches made with beef, since
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the Indian culture sees cows as sacred. American theme parks provide another
example of multi-domestic companies.
 One well-known park has successfully expanded its operations into France. The
theme park caters to local customs and tailors the rides and attractions to the
tastes of the European public. When the park initially opened, business
suffered because the culture was too unfamiliar. The company did more
research, tailored the park to local preferences, and saw business increase.

3. Global corporations
 A global company has a foothold in multiple countries but the offerings and
processes are consistent in each country.
 For example, a major soda brand can set up shop in different countries, but the
recipe does not change in the global model. The company uses the same
ingredients and manufacturing processes, regardless of local culture. In a global
model, the business does not adapt to local norms, but rather, it imposes its
existing business model on the country.
 The only exception within the global model is the marketing approach to drive
sales in individual countries. The product is consistent but messaging must adapt
to work within the cultural norms. Marketing is where the two models are
difficult to distinguish.
 Consider the same global soda company example from the section Global
Company Distinctions in the first section. The company is global, because the
soda does not change. The recipe, product and process for delivering the
product to market is the same in each country.

4.What are the different Forms of Multinational Corporations?

1 . Franchising

In this form, multinational corporation grants firms in foreign countries the right to use
its trade marks, patents, brand names etc. The firms get the right or licence to operate
their business as per the terms and conditions of franchise agreement. They pay
royalty or licence fee to multinational corporations. In case the firm holding franchise
violate the terms and conditions of the agreement, the licence may be cancelled. This
system is popular for products which enjoy good demand in host countries.

2. Branches
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In this system multinational corporation opens branches in different countries. These

branches work under the direction and control of head office. The headquarters
frames policies to be followed by the branches. Every branch follows laws and
regulations of the head office and host countries. In this way multinational companies
operate through branches.

3. Subsidiaries

A multinational corporation may establish wholly owned subsidiaries m foreign

countries. In case of partly owned subsidiaries people in the host countries also own
shares. The subsidiaries in foreign countries follow the polices laid down by holding
company (Parent company). A multinational company can expand its business
operations though subsidiaries all over the world.

4. Joint Venture

In this system a multinational corporation establishes a company in foreign country in

partnership with local firms. The multinational and foreign firm share the ownership
and control of the business. Generally, the multinational provides technology and
managerial skill and the day to day management is left to the local partner. For
example, in Maruti Udyog the Government of India and Suzuki of Japan have jointly
supplied capital. Suzuki supplies technology and the day to day management lies with
the Government of India.

5. Turn Key Projects

In this method, the multinational corporation undertakes a project in foreign country.

The multinational constructs and operates the industrial plant by itself. It provides
training to the staff in the operation of plant.

It may also guarantee the quality and quantity of production over a long period of time.

5.Licencing and Franchises :

For manufacturing we need LICENCING.

For service we need only Franchise.
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Franchising Licensing
Governed by Securities law Contract law

Registration Required Not required

Territorial Offered to franchisee Not offered; licensee can sell

rights similar licenses and products in
same area

Support and Provided by franchiser Not provided

training

Royalty Yes Yes

payments

Use of Logo and trademark retained by Can be licensed

trademark/logo franchiser and used by franchisee

Examples McDonalds, Subway, 7-11, Dunkin Microsoft Office

Donuts

control Franchiser exercise control over licensor does not have control
franchisee. over licensee

3. Three Type of challenges in Global Business :

1.ECONOMICAL CHALLENGE :

 Your international marketing of goods may be successful in western economies

that have a similar economic structure to the United States, but it will fail in
developing markets unless you make adjustments. You have to adapt your
products to the local economies. A product you market as environmentally-
friendly may not be relevant in a subsistence economy. A product that saves
energy will not sell if energy is subsidized and inexpensive in the foreign
market. You may offer the same products internationally as you do in the
United States, but your global marketing has to change for your products to
make economic sense in foreign economies.
 Whether an international market is accessible to your company depends on
whether you can offer your products at a competitive local price. International
economic factors such as currency exchange rates, tariffs and shipping impact
your costs and the prices of your goods. If the cost of offering your products in
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international markets is higher than that of locally-produced products, you

may have to target luxury goods market segments. Sometimes mass-produced
goods cost less than locally-made custom products, and your marketing
strategy can price your products to achieve wide acceptance.
 SOLUTION
 Carrying out production locally is one way to reduce costs and limit the
influence of international economic factors on your operations. Instead of
incurring costs through duties and transportation, you may be able to take
advantage of lower production costs in the local economy with lower labor and
facility expenses. Local production can impact your marketing by affecting both
price and local acceptance. Marketing your products as locally-produced
competitively-priced options can be an effective marketing strategy.
2.POLITICAL CHALLENGE :
 As you might expect, there is also political risk inherent in global marketing,
the possibility of a country’s political instability reaching a breaking point or
a government’s new policies negatively impacting foreign companies doing
business inside its borders. To minimize these risks, it is critical that you
carefully assess the political environment of a potential host country and
understand its laws and leadership. The relative stability of the government
will largely define the political risk. While researching potential trade areas,
it is critical to understand the overall sociopolitical environment, as well as
specific laws and regulations as they pertain to your business field. Aspects
to evaluate include:

 The attitude of the government toward foreign companies/foreign

investment, including direct investment. Is it welcome or unwelcome?
 The political structure of the host nation and its stability. Is the current
leadership solidly entrenched or might a regime change be imminent?
 Anticipated reactions from the host government. How, if at all, will it
support, challenge, or prevent your operations?
 Any potential points of conflict, or friction between the planned venture
and the national interests of the host country. What are the potential
problems?
Examples of political challenges would be for a country to ban all exchange of
goods with the United States, the prohibition of direct foreign investment, or a
government seizure of foreign assets. More subtle, but equally disastrous,
would be regulations requiring a full disclosure of product information that
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stripped away the intellectual property protection enjoyed in the United

States, thus revealing trade secrets.

SOLUTION:

 Identification is the first step to successfully managing consequences of

any political climatic change.
 There is no universal solution to situations when political risks start
interfering with your business plans. Risk management in general is a
very sensitive and complex concept that requires a unique approach in
every single case. However, there exist principle rules of action for those
involved in international business.
 1. Get your business insured. Political risk insurance protects investors,
financial institutions and international companies in case of events
promoting financial loss, such as acts of expropriation, domestic or
international political unrest and violence (including war and terrorism),
capital repatriation, and sovereign debt default. Insurance as a tool of
political risk mitigation is particularly important for those businesses that
operate within developing economies. Although these areas offer a lot
of opportunities for business growth, they are more susceptible to
political turbulence.
 2. Have a plan B for your supply chain. Any business operating in foreign
markets should protect their supply chain and logistics operations from
political risk. Political events often affect operations performed by your
business suppliers. Such interruptions include increased tariffs, trade
bans, and delays in delivery. In order to protect your business from these
types of unforeseen disruptions always have a plan B – have a list of
backup suppliers located in other regions. By building relationships with
multiple vendors of the same product, you ensure your companies
stability in terms of production schedule and budget.
 3. Practice politically savvy banking. An important method of mitigating
political risk and avoiding financial loss is politically savvy banking. In the
recent years, the world has been nervously observing how the U.S.
dollar is becoming more and more reactive to international political
events. As the global reserve currency is becoming slightly more
unstable, it could be time for international businesses to update their
strategies in moving funds around the globe.
 Get advice from locals: Never limit your perspective by avoiding
consultation with those players that have experience and knowledge
within the region.
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3.CULTURAL CHALLENGE :

 “Culture is the integrated sum total of learned behavioural traits that are
shared by members of a society”.
 Culture is part and parcel of everyone’s day -to-day live activities and, one’s decision is
basically influenced by the culture that he or she is brought up in .Gary (1994) states,
culture is made up of beliefs, values, knowledge, art, morals, laws, customs and traditions,
and habits acquired by people as members of society. Culture is part of the human
environment and it is everything around us as people; the way we think and behave as
members of the society
 A marketer is always in constant interaction with the culture of the people (the market)-
promotional message is crafted within local setting with recognizable symbols which is
meaningful to the market-the culture (Ghauri and Cateora, 2010).
 Hence product design, package, functions and other related marketing activities must be
made culturally acceptable. In essence, culture is visible in all activities of marketing; from
promotion through pricing to channels of distribution, product, and packaging- the
marketer’s job actually become a part of the cultural fabric. The foreign marketer’s efforts
are evaluated in a cultural context for acceptance, resistance or rejection. The extent of
success or failures of the marketing effort depends on how such efforts interact with a
culture (Guillaumin, 1979).
 But, Matthews and Thakkar (2012) believe leadership is the key in modern global market.
The international business environment is continually changing and global leaders must
always develop, map out and diversify marketing strategies to meet global challenges

SOLUTION:
1. Learn a few key phrases
 Because clear communication is essential for effective functioning, it is
necessary that each of your employees understand what your clients and
customers need. Depending upon the number of clients or customers with
whom you work and the amount of diversity, it may not be possible for you
to learn all the languages, but learning a few greetings and key phrases can
go a long way.
2. Learn your client’s culture
 Taking the time to research or inquire about another’s culture can go a long
way to make them feel comfortable. Learn about the things your clients and
customers like and value: their food, their customs and protocol, business
practices and what they do for fun. Since there is a host of information
available online, you can easily discover the basic tenets of their culture.
Because of your extra effort, the people with whom you work will feel
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appreciated and will be more apt to recommend you and do business with
you in the future.
3. Promote appreciation of cultural differences
 Set aside a special day where you ask a few employees or co-workers to
share aspects of his or her culture or a client’s culture with everyone. Make it
fun. Ask the employees to give a “Lunch-and Learn” presentation featuring
the foods, ceremonies and other aspects of that culture. This will not only
promote socialization, it will give each person the opportunity to learn about
and appreciate one another’s culture. Also, you can invite your employees to
write a feature article in your newsletter or internal communications about a
particular culture.