The Definition of Culture
Discuss about the Multinationals Intellectual Property Businesses.
According to Diller (2015) culture is a term that can be defined in so many ways depending on the behavior, religion, social habits, language, and believes in a group of people. Culture is a behavior, practices, and values that are associated with a specific group of people. These behaviors and values tend to change from one community to another in which case they are more pronounced among countries. Diller defines culture as the way of life acquired by members of the society which is passed from one generation. It is worth noting that culture is not a universal practice and it varies from across communities. Therefore, it is crucial for international managers thinking of expanding their business operations to take the issue of cultural differences with caution to avoid mistakes. Understanding the concept of national culture assists managers to cultivate relationships across borders that surpass cultural differences.
Understanding national cultures helps companies develop products that fit the target market. The concept of international businesses has been there for a long time. Barton (2014) defines international business as the performance of trading activities across national boundaries. Barton argues that the globalization has been the force behind the development of international business whereby companies are now doing business in more than one country. Technology has made it easier to access global markets within a short of time due to developed transport and communication systems. Companies regardless of their size or scope are forced to cross boundaries and extend to other countries in search of new markets (Nederveen 2012, p.102). Factors such as reduced barriers in trade, currency exchange, and international economic relationships have also favored international business.
Every day, international managers have to deal with conflicts that arise from cross-cultural differences (Khan &Khan 2014, p. 93). When hiring employees for international operations, managers must understand the competitiveness of the approach that they are planning to use in the host countries. In many occasions, a company that is extending its operations to a foreign country is faced with the challenge of choosing the best approach of managing the employee who works for the company. The dilemma is between wanting to work with local people from the host country, working with people from the mother country, or working with qualified people regardless of their nationality. The concepts of ethnocentric, polycentric, and geocentric answer all these questions for international managers.
The Concept of International Business
According to Machida (2012), an ethnocentric company employs local people from the host country at low-level positions assuming that they will be able to provide skilled labor. Usually, managerial and skilled positions are preserved for professionals from the home country (Hagelthorn& Nold 2016, p. 161). The general reason for the ethnocentric approach is that the employees from the mother country will represent the interests of the company in the host country while trying to establish relationships and create connections with the locals. The recruitment process in this approach involves four stages which are selection, evaluation, skills assessment and decision making. The company seeks to hire employees from the host country who meet the qualification needed for a particular job (Barton 2014, p. 49). However, the challenge with this approach when it comes to selection and recruitment of local people is that the company may risk imposing the cultural practices from its mother country. Different countries have their different ways of doing their things. For instance, people have different languages that they use to communicate with each other. Political systems, education systems and job training vary from one place to another (Rugraff & Hansen, 2011, p. 112). For instance, the education system in the western countries like the US is very different from the systems used in African countries such as South Africa and Kenya. As an international manager, the knowledge of national culture assists in knowing what exactly they will require from local people whom they wish to recruit to work for them. It is illogical to ask for qualifications that are not offered in the host country when hiring employees because it is evident that they will not meet them (Harris & Carr 2008, p. 42).
Expanding to a foreign country is a venture that is perceived to be so risky by companies that are planning to internationalize their business operations. Operating an international business means managing various activities such as manufacturing, marketing, selling and even sourcing. All these activities require a lot of capital and to ensure that all these activities are managed effectively; companies are tempted to adopt the ethnocentric approach. Barton (2014) states that ethnocentric approach may not be the best model for small businesses in the global market because filling senior positions with employees from home country undermines the local employees because they are denied a chance to climb the career ladder. Lack of opportunities and growth by local employees may frustrate them and eventually leave to seek promoted posts with other companies. As a result, this can have long-term and destabilizing effects on the company (Harris & Carr 2008, p. 211).
Dealing with Cross-Cultural Differences
The polycentric approach is a strategy that aims to use local expertise from the host country. International managers who adopt this approach have full understanding that people from different countries have different cultures (Hugh 2006, p.127). They know that it is difficult to understand foreigners and as far as international business is concerned, they should be left alone to practice what they know as long as their work is profitable. A polycentric company prefers to work with local techniques and businesses practice because they are seen as most appropriate in dealing with the market conditions in the host country. The overall aim of using this model is to gradually reduce the cost of foreign operations through running all the business operations locally (Kirschling &Akers 2011, p.54). The business setting in this approach involves setting up offices in the host country where processes such as marketing, processing, selling and recruiting are done locally as opposed to an ethnocentric setting where everything is run from the headquarter. Handling management to the local people is beneficial to the people in the host country because it gives them an opportunity to grow their careers through promotions. The polycentric model allows smooth running of company operations because the locals are well related to their geographical location. (Rugraff & Hansen 2011, p. 91) They know what customers want, they know political settings and the laws of their country, and besides, they use their local languages to communicate with the customers. It becomes easier for an international company to do business collaboratively with these locals because they feel that they are part of the company (Pechtelidis 2010, p. 120).
Although there is a great benefit of taking into consideration the polycentric approach for reduction of foreign operations cost, there are obstacles associated with this approach once it is implemented. Once a company hands over management to the managers in the host countries, they lose control and coordination completely (Pechtelidis 2010, p. 87). Operations are decentralized and international subsidiaries operate independently of one another depending on culture of the host country. Managers in the subsidiary companies come up with their own plans and objectives that will work best in the new environment. Since it is seen that local people have a better understanding of the market conditions, the management is unable to have full control over the company operations in the host country. The other drawback of polycentric approach that restricts international companies to realize the full benefits of entering the foreign market is lack of economies of scale (Yang 2008, p. 68). Companies are forced to manufacture their products with the preference of the locals in the host country being the priority (Khan & Khan 2014, p. 17). This means that an international company using this approach cannot deliver products in high quantities because each state requires different products. In other word, polycentric businesses are limited to produce universal products.
Ethnocentric Approach
Geocentric is the third and the last management approach that is used by international managers when dealing with diverse cultures in the global market. Geocentric is the process of recruiting most suitable employees to work in any country regardless of where they come from. This strategy does not pay much attention to the nationality of the person filing a particular position as long as they are qualified (Knight 2011, p. 78). Companies which choose to implement this strategy are regarded to be global in nature since it integrates the global business strategies. The geocentric arrangement does not limit anyone to hold a position in a company and as a result, a company benefits by hiring people who are qualified to do a job (Pechtelidis 2010, p. 231). It is a pool of skilled professionals working together towards achieving the company’s goals and missions. Many international countries doing well in the global markets such as Toyota Motor Company and Coca-Cola Limited are using this arrangement to run their businesses in different countries. The apparent difference between geocentric model and the other two discussed above is that it does not favor the preferences of the home country or the host country (Jean, Chiou & Zou 2013, p. 108). Instead, it focuses on doing anything possible to serve the interests of the organization. This is clearly seen in the sense that a person is not hired because they represent the host or the home country. For instance, an international company which has its headquarter in the United States and has a subsidiary company in Australia can hire a person from South Africa to go and work there because he/she fit to work in a particular position. The management hires someone who is best suited to foster the company’s goals and objectives and their skills to perform exemplary in their field. The sole purpose of geocentric is to link headquarters and other company subsidiaries. The subsidiaries in the foreign countries do not operate independently as each one is supposed to contribute new ideas learnt for the success of the whole company (Evans, Pucik & Bjo?rkman 2011, p.34). The advantage of this approach is that it promotes the production of universal goods since goods do not have to be differentiated according to the preference of the host country. Secondly, geocentric approach encourages collaboration between the home companies and their subsidiaries in the foreign countries. Through international standards that govern decision making in a global company and its subsidiaries, it becomes easy to solve problems and achieve success quickly (Kirschling & Akers 2011, p.39).
Polycentric Approach
Toyota Company is the leading automobile manufactures in the world as of the report of 2016. The company commands the largest market share in the global automobile industry closely followed by General Motors. Toyota Company traces its history back to 1937 where Kiichiro Toyoda founded it as a family business (Fileru 2015, p. 292). The company produces vehicles under five brands namely Lexus Toyota, Daihatsu, Hino, and Ranz while it owns a stake of 5.9 in Isuzu and 16.69 in Subaru. Since 2012, the company has been leading automobile producer manufacturing approximately 10 million vehicles yearly. It has since then been able to remain at the top despite the competition in the industry since then. The company operates on a clear and well defined strategic plan which is enlisted in the mission, vision, and the core values of the organizations. Toyota has managed to do well in the competitive automobile industry for so many years due to the management strategies that they practice.
Toyota management approaches have been evolving since the company was formed. Factors such as globalization and technology advancement have seen the company expanding to different countries worldwide. Today, Toyota is widely known for its management strategy of ‘The Toyota Way 2001’. Toyota hires its employees in all the subsidiary companies worldwide using the geocentric approach (Fileru 2015, p. 337). Employees are recruited by the company according to their skills regardless of where they come from. All the workers in the company are guided by the company’s vision of making Toyota a company which value customers for life, people love to visit, and people like to work. All the employees work through the application of kaizen which means continuous improvement. All employees are valued at Toyota and no bias when it comes to recruiting because the management insists that people must be given equal opportunities. These practices have enabled Toyota to grow from its origin in Japan and become a global multinational company. The company has embraced the new technology to produce hybrid cars which are environmental- friendly. The company has car factories and distributors in almost all parts of the world manufacturing and assembling vehicle parts for local markets (Yusoof Zuber& Zamziba 2016, p. 117).
Conclusion
As international companies continue to internationalize their business operations, cultural differences remain to be experienced in the workforce. Global managers who operate in the markets where globalization is changing everything are forced to deal with complex issues arising from these cultural differences. Understanding different cultures enable managers to make informed decisions which do not hurt other people. The bottom line in this issue of cultural diversity is respecting what other people do and believe in.
Geocentric Approach
List of References
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MACHIDA, S. 2012. Does Globalization Render People More Ethnocentric? Globalization and People’s Views on Cultures. American Journal of Economics and Sociology, 71(2), pp.436-469.
Nederveen Pieterse, J. 2012. Periodizing Globalization: Histories of Globalization. New Global Studies, 6(2).
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Rugraff, E. and Hansen, M. 2011. Multinational Corporations and Local Firms in Emerging Economies. Amsterdam: Amsterdam University Press.
Rugraff, E. and Hansen, M. 2011. Multinational Corporations and Local Firms in Emerging Economies. Amsterdam: Amsterdam University Press.
Yang, D. 2008. Culture matters to multinationals’ intellectual property businesses. Journal of World Business, 40(3), pp.281-301.
Yusoof, S., Iylia, F., Zuber, F., MNSR, H., Zamziba, N. and Toriry, S. 2016. Relationship Between Economic, Political and Technology Factors: Case Study on Toyota Company. International Journal of Academic Research in Public Policy and Governance, 3(1).
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