Decisions Made By Multinational Companies in the Diverse Cultural Setting

Introduction

The competitive advantage of every multinational company is determined with their ability to coordinate information and critical resources that spread across numerous geographical locations. However, the world population is diverse and it is increasingly getting hard to find a homogenous society (Matsumoto 1995). A homogenous society is the one most of its individuals share same religious systems, ethnicity, cultural values and language. The reality is that even within the same ethnic society, there are different religions and values.

Moreover, the previously homogenous societies are increasingly becoming diverse due to infiltration of other cultural values within their systems. Therefore, the concept of management of cultural diversity has become an important issue for multinational companies, who wish to carry successful businesses in different cultural settings.

Decisions Made By Multinational Companies in the Diverse Global Market Place

The world is increasingly becoming globalized and many multinational corporations are being formed (Meyer 2008). The multinational companies (MNCs) are becoming more dispersed and many more keep expanding into the developing world. The increasing competition for new market places and the increasingly diverse market place has placed huge pressure on the MNCs. The success or failure of a multinational company is dependent in some part on how it handles the issues facing their businesses in the diverse cultural environment. Most of the MNCs emanate from the developed countries and most of their investments target the diverse cultural societies in the developing nations, whose societies continue to change. These MNCs must undertake a number of strategic decisions in order to ensure their success in the multicultural societies.

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The managers in the global companies make a broad range of decisions in the plant and firm levels, encompassing traditional functions such as marketing, finance, human resources and production. Most of these decisions centre into three broad categories of the extent to which the specific actions should be differentiated or standardized, hiring across the global market and the decisions on the extent of decentralization of specific actions.

Decisions Concerning Differentiation and Standardization

The definition of the concept of standardization in business is hugely dependent on the nature of business activity under consideration (Roach 2007). Although the concept is easily defined in the marketing context, since it is defined in terms of the 4Ps (product, price, place and promotion), the concept is more complex when used in the context of the product choices. A multinational corporation would be forced to make a decision on whether to adopt complete standardization, which involves creation of completely new product for each geographical market or complete product differentiation in order to suit the benefits of the unique market segments.

However, complete standardization is not a viable marketing strategy, whereas complete product differentiation is not viable due to huge costs of differentiation (Roach 2007). Therefore, the major decisions those multinational companies must make revolve around where and how the specific changes in the features of the products will generate profits. The major factors that may need to be factored in include the brand name, product descriptions, pricing and compositions. Although a product name may mean something good in the host destination, the same product name may have a completely different meaning in another cultural destination. Therefore, a multinational company may have to change some of the descriptions in its product in order to ensure it conveys the same intended purpose to the consumers in the other geographical areas.

Human Resource Management Decisions

The management of global companies involves management of human labour, which includes such activities as recruitment, training, development and compensation of the employees and managers (Cooke 2008). Most of the MNCs have to makes decisions regarding the selection, development and training of the employees at all levels of businesses. However, the selection, development and training of the managers, often attract a lot of attention. The managers are often given the responsibilities of initiating and managing business entities in the chosen geographical destination.

The international companies have four major sources of recruiting for the managerial positions (Marler 2012). The manager can come from the country from which the company originate, or from the host country. In addition, the manager can come from a third country, which is neither a host nor parent company. The fourth category is called the “aspatial”, who does not have a specific cultural home, but possess a comprehensive understanding of the culture of the country in which investment is carried out. Excellent examples of the “aspatial” managers are the children of the diplomats, who often have good knowledge of some countries, which their parents have worked before.

According to (Cooke 2008) the selection of managers for an international business requires a number of decisions to be made by the multinational companies. The decision to select a manager for a foreign position involves some form of standardization. The first form of standardization involves the selection of a manager from the home country for the managerial positions. However, the three sources of manager selection (home country, host country or aspatial) may not provide real opportunities for the MNCs to exploit the available differences in market opportunities in the destination country. Furthermore, it limits the ability of the organization to respond to any change in the position of lifecycle of products, which renders some of the managers irrelevant.

Moreover, a multinational company may decide to adopt a complete differentiation, where the selection process is taken as a completely new decision. However, this decision model does make little sense since it offers total disregard of the learning economies that might have been gained from the previous selection experience. The numerous empirical evidence shows that the standardization of the personal qualities, lead to successful selection of managers by the multinational companies.

Leveraging the Expatriates

According to (Chew 2004), apart from the trade-offs between complete differentiation and standardization, the MNCs must undertake recruitment decisions, which may require them to undertake leveraging of the expatriates. Many multinational companies are forced to use expatriates in order to successfully undertake critical strategic tasks in foreign destinations. In addition to the use of expatriates to facilitate corporate control for parent company’s expertise, they facilitate entry into new markets and always initiate international management competencies.

The work of (Williams 2011), assert that most MNCs often have to make a decision regarding the choice of manager in charge of foreign destination. The study points that most multinational companies prefer to appoint a manager from their parent companies. Most of the multinational companies prefer expatriates since they provide a source of internal continuity and company consistency. Similarly, the expatriate have a better chance of sharing the company secrets with the host companies, as they possess a comprehensive understanding of the parent company culture and values.

Moreover, the decision to use expatriates enables the parent company to ensure the execution of its orders. Most of the multinational companies do not have trust, and are skeptical of the ability of the host managers to execute the orders of the parent companies, while close relationships are maintained. The presence of inadequate mechanisms for conducting the hiring process for a host manager, further gives more reasons why multinational companies choose to use expatriate managers.

Surprisingly (Chew 2004) assert that most of the expatriates return back home before they complete their assignments. According to (Vilet 2012), the inability of the multinational companies to offer comprehensive communication is responsible for the early withdrawal of the expatriates, leaving their assignment prematurely. However, there are more to poor communication to failure of expatriates to complete their foreign assignments. The other factors that are attributed to the inability of the expatriates to succeed in the management of new business ventures in other geographical locations. The success or failure of the expatriates is determined by the nature of decisions undertaken by the parent company with regard to the influence of culture, on the expatriate relocation and the overall success of the business ventures.

Cultural Decisions in the Global Market

The impact of culture does not only affect product differentiation, marketing and standardization strategies (Trompenaars & Hampden-Turner 1998). Culture affects the success of the expatriates in when settling in foreign countries. The impact of culture is huge if the culture of host country and that of parent country differ largely. The multinational companies from a country that is English speaking, which invests in a commonwealth country is likely to experience less challenges in terms of cultural differences. According to (Galarza 2005), culture shocks are caused by the anxiety of forfeiting the familiar ways of doing things.

In the perspectives of the managers, many of the challenges that the expatriates face are related to the management of the employees (Trompenaars & Hampden-Turner 1998). The cultural differences that define communication, for example giving of orders, shaking hands, facial expressions, giving tips, when to accept or reject invitations, how to make purchases and protocols negotiations, pose great challenges to the expatriate managers. Therefore, adopting proper decisions, for example offering expatriate training, ensures success in international business for multinational companies, who wish to go global.

Compensation Decisions

The compensation strategies and labour laws vary from country to country (Vilet 2012). The ability of a company to provide competitive salary packages, for the expatriate managers and host country employees, provides them with motivation in executing their responsibilities. Although the determination of the remuneration package for the expatriate managers may not be complex, determining the salary packages for the host employees offers a challenging task to the multinational companies.

In addition, determining the appropriate compensation package for the managers can be hard due to the changing exchange rates, the differences in the standards of living and differences in the taxation policies (Vilet 2012). Moreover, the choice of the compensation strategy of the host employees must take into consideration, the local labour laws, the taxation policies and the standards of living. A multinational organization that understands the compensation policies stand a higher chance to determine the most competitive package, for its expatriates and the host employees. This goes a long way in helping the company in attracting highly qualified labour force, and acting as a source of motivation amongst the employees.

There is also the need to take into consideration the labour relations when multinational companies are investing in foreign destinations. The diversity in the culture and values in different countries determine the collective bargaining power in the chose geographical destination. Labour relations for a multinational company cover a host of issues, as the ability of employees to organize and bargain collectively differ from one country to another. Similar, the practical legal powers that any units enjoy differ from one country to another.

Conclusion

The increased use of technology has reduced the world into a global market place, where nations engage in trade, and individuals move from one destination to another. However, the diversity of human population poses great challenges to the multinational companies. These challenges are related to the cultural diversity, where the inhomogeneity of the societies within even same country requires the development of appropriate production, marketing and human resources decisions. The adoption of the appropriate decisions by the multinational companies is pertinent to the success of these firms in the global market. The concept of cultural diversity arises from differences in the languages, religion and values, which impact on the product perception, marketing strategies, production strategies, and employment and employee remuneration.

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