Key Issues Influencing Localization Commerce Essay

The speed of which international business occurs has increased substantially and international managers need to react more quickly to economic, strategic and organizational imperatives than in the past as it is more costly to make mistakes today. The cost of reversing a decision because of the speed of international business makes making such mistakes extremely costly as while companies fix problems, competition surge ahead. Standardization of MNCs is usually defined as standardization of subsidiaries towards following consistent with HQ practices. Successful chains such as Mc Donalds have standardized products and management practices across the world and at exactly the same time allowing for a local adaptation to the practices to match local needs. Most MNCs commonly localize their marketing, promotion and distribution practices even though they have got a global advertising strategy. Integration/responsiveness debate cannot be resolved by declaring one position more important that the other (Bartlett & Goshal). For being truly successful in the globalized world, MNC must balance between your two.

Multinational companies must decide whether to manage their subsidiaries based on local culture or to make sure they are all good global standardization and decide which route is more effective and efficient on their behalf. MNC's have considerable advantages in comparison to local based companies as they have got previous experience from your home countries and managerial knowledge and spread best practices round the world (Martin & Beaumont, 1998). Host countries however pose several new factors that managers must consider to counterbalance the effect of standardization (Quintanilla and Ferner, 2003).

Changes in the strategic orientation of MNCs as reflected in increased levels of interdependencies between organizational (sub-) units will thus rely on IHRM to help accomplish that balance.

HR management is known as to be the most sensitive to local context (Gooderham et al. 1999). Pressures to adopt global strategies require more impressive range of global intergration of key HRM -processes. Many MNC's have moved towards deeper integrating these HRM practices but face resistance due to local culture, legislation and tradition (Lindohlm et al. 1999). Different approaches to HRM in MNC's are closely related to international strategies of the firm (Downling et a. 1999; Scullion 1999). For instance, companies with an ethnocentric approach grant little capacity to their foreign subsidiaries and key positions are fulfilled with PNC nationals, i. e expatriates. For example, Aeon's key staff in Malaysia are fulfilled by Japanese expatriates. On the other hand companies with polycentric approaches allow major decisions to be made by local employees and key positions are held by local staff. This contributes to more localized solutions in the HRM. Regiocentric and geocentric approaches are similar where key positions and solutions are decided by staff of the same region or location. The key issue is the extent to which MNCs should take their global integration (standardization) versus local responsiveness. International management is complicated due to the dimensions involved and the difficult issues of strategy formulation and implementation. Multinational managers however need to recognize the opportunities hidden in the complexities of such international situations. This paper will be split into two parts, the first examines the key issues that influence the amount of localization. Secondly, the paper examines global strategies towards increasing global standardization of HRM while balancing localization so as never to compromise local responsiveness. In both parts, the paper should go examine the role HRM plays towards obtaining standardization and localization. Thirdly, it'll examine situations of when best to move towards localization rather than standardization and vice versa.

2. 0 Key issues influencing localization

Distinct local culture and motivation for local employees may not be similar compared to that of the home country making it difficult to apply similar incentives and expect the same outcome. Hofstede described national culture as the 'collective mental programming' which distinguishes one nation from another. The problem is how much influence cultural dissimilarities would bring to the workplace. Different approaches towards collectivism and individualistic cultures, according to Hofstede's will generate lots of negotiation points for managers to consider. Some cultures are individualistic where working as an individual is more appreciates whereas some are collectivist. Human resource management has aspects that are legally and culturally determined by the host country but is still responsible for the strategy and implementation plan (Stone, 2008). It therefore must determine what type of strategy would work in the host country. For instance, in Hong Kong as a measure of reducing staff turnover, HRM offered a $1000 increment towards a dental plan, because of this the company's turnover reduced by 4% (Medland, 2004). While such a proposition may well not work across other countries, it indicates that managers have to be aware of the various motivations in several countries and why pay and work conditions shouldn't be standardized in MNCs. Research must be done to recognize motivations similar to the dental work scheme in Hong Kong.

There are three different perspectives for understanding diversity: the cultural perspective, the institutional perspective and the network perspective (Evans et al. 2002). Within the cultural perspective, individuals are cultured by using a socialization process where they instill values and beliefs with which he uses to interpret the entire world also known as "mental programming" (Hofstede 1985). Hence, it is inappropriate to use management practices developed in a single culture and apply them on another and expect the same results (Hofstede, 1985). Cultural variations need to be taken into account, as many of these practices may not be well received in the new subsidiary. Members of that subsidiary may view these types of practices as unusual and it might not exactly be well received and lead to unexpected consequences hindering a subsidiary's performance. From your cultural perspective comprehensive global standardization of HRM-practices, will never be a fairly easy fit between organizational practices and the neighborhood culture. However, the cultural perspective will not take into account the ability of individuals from different cultures adapting to foreign practices (Evans et al. 2002).

The institutional perspective requires a broader view of the national context where it identifies that the key to understanding business in a foreign country lies in the correlations between financial, education, legal, economic, and political systems (Evans et al. 2002). The extents to which MNCs have the ability to implement their global standards are closely linked with the nature of these institutions. For example, the relative strength or weakness of these institutions in exerting influence on the power of your MNC to import its own methods to HRM. This is the case when MNCs try to put expatriates in key positions leaving local staff in the greater menial positions. Often these institutions will exert influence and move towards forcing MNCs to train or employ staff to fill such positions.

The network perspective indicates that MNCs aren't only influenced by the social norms and cultures of their home country but also by industry standards (Evans et al. 2002). This influences the amount of standardization able to be implemented by MNCs or forces these to provide such standardization.

The cultural and institutional perspective help identify the localization needs within the HRM-function; the network perspective identifies the role of interorganizational networks in defining the type of industries and organizational practices. Key known reasons for a localization approach within HRM include issues such to be responsive to the local authorities and institutions. Keeping up with public opinion by giving benefits to the neighborhood populace such as job opportunities and providing a higher level of organizational commitment among locals are also prime reasons for localization of HRM practices (Evans et al 2002). However, there are often issues with this as finding suitable candidates with the required skills may prove difficult. For instance in China, a problem is having less suitable individuals given a shortage of finding mid-level and top-level leadership.

http://www. bizresearchpapers. com/17[1]. Plessis. pdf

3. 0 Global strategies toward increasing global standardization

A major issue that international managers face is forces that require both local responsiveness and global integration of subsidiaries with the overall structure of the MNE. MNEs must find ways to combine their firm-specific capabilities with local knowledge to set-up the best value proposition to suit the local culture and its needs. Some subsidiaries have created a layer where they have been isolated from the overall structure of the MNE that it's unlikely to cooperate and share knowledge with other units of the MNE. This is specially the case where subsidiaries have competed with the other person for resources from headquarters which promote inter-unit rivalry (Fairclough and Boussebaa, 2010). MNes need to make use of the strengths of its internal network setup across its subsidiaries. Managers have to incentivize compatibility among internal agents and incentivize coordination between its internal agents. The challenge for international managers is to foster a feeling of coopetition between these subsidiaries and designing control structure to implement to foster this relationship. If designed incorrectly, these structures have the potential to create a conflict of interest in the subsidiary, leading to it to target its resources to its own benefit rather than that of its parent company (Clark and Geppert, 2010). To generate value, parties or units cannot act in isolation. They need to recognize their interdependence (LAdo, Boyd & Hanlon, 1997). In just a multinational enterprise, inter unit coopetition occurs where cooperation and competition occur simultaneously as subsidiaries are enticed or enforced to collaborate but encounter conflicts arising from competing for the limited resources provided by the parent. Even within the same parent umbrella, subsidiaries rarely share similar interest in all respects therefore of rivalrous pressures from heightened local responsiveness and national adaptation particularly for MNEs emphasizing on multidomestic strategies. Therefore, managers need to create a flow of the sharing of knowledge and cooperation so that subsidiaries can leverage on the distinct core competencies of other subsidiaries.

Interest in a standardization approach has been increasing because of the globalization. Global integration has become more popular and is becoming a necessity in several markets to remain competitive where decentralized strategies were popular previously (Evans et al. 2002). Using a global strategy approach has several drawbacks; the main weakness is the weakness in the firm's ability to respond to the changes in the market (Evans et al. 2002). Creating harmony between global strategy and national response is inevitable (Hammerly, 1992). There has to be balance between standardization versus the localization as fully localizing a subsidiary will not make full use of the core competencies and skills an MNC should leverage to separate itself from the neighborhood competition. A critical method of doing this is to know what belongs to the core of the business and what will not. This will enable businesses to integrate global activities appropriately and also adapt local activities efficiently. This core should be replicated throughout the firm's subsidiaries worldwide. Global standardization will not mean the synchronizing all areas of a organizations business, but may be limited by a certain product, function or value chain segment. Therefore, while adopting a worldwide strategy, MNCs still have the choice of changing particular areas within the businesses in order that they do not disrupt the culture of the business while still having the ability to keep their core competencies. Giving power to the subsidiary also helps the MNC keep the standardization of the main element sectors of the business enterprise while allowing subsidiaries to make decisions that require local adaptation. For example, considering KFC in China, it can be observed that the power to make changes by the subsidiary has allowed those to have a considerable lead in comparison to its competitors. They allowed an adaptation to the marketplace because of its menu to better suit the neighborhood tastes, however they maintained the core components of the business enterprise which is the supply chain and the business enterprise model.

The development of international HRM can be split into a four-phase organizational life cycle (Adler and Ghadar, XXXX). The central idea is that firms should find the best fit between their environment, strategy and human resource policies. The following summarizes a few of the suggested links between your phases of internationalization and HRM.

Phase

Description

Domestic

Foreign markets served by exporting unchanged products. No real international HRM

International

Products developed to match local needs. Expatriates fill general management and important posts in subsidiaries. Locals occupy roles which need understanding of local conditions.

Multinational

Worldwide coordination used to accomplish economies of scale. Selection targets best person for international management roles. Aim is to build up a management corps who shares organizational values to help achieve integration. Management development is the spearhead of

International HRM.

Global

High quality at minimal cost through global integration and local responsiveness

This analysis shows the flow of how an MNE develops its understanding of international HRM, the focus of HRM shifts from the management of expatriates to the development of international management. This highlights the role where HRM plays in developing individuals within the company so they build-up a bank of knowledge from exposing these individuals to trips to overseas subsidiaries (Kamoche, 1997). This means that the role of HRM in developing individuals in order that they have the ability to experience different work cultures and be able to adapt. Having experienced these work cultures of different subsidiaries prepares the expatriates for culture shock and having the ability to work in several work cultures. This allows them to raised facilitate standardization as they would understand the practices that would be best accepted for the reason that particular culture after being exposed to it.

4. 0 Degrees of standardization vs localization

In order to be globally competitive, MNCs must decide of when to best make changes to the subsidiaries in conditions of the amount of standardization and localization. The next points will discuss the issue. Companies must be sure that they concentrate on the core competencies and replicate these core competencies across its subsidiaries as they are key to separating themselves from their competitors. Without this unique trait, there will be little to differentiate themselves using their company competitors and may be detrimental to the success of the company. In such a highly competitive market, it allows rivals the opportunity to gain market share. Therefore, when core competencies are being considered, MNCs need to utilize standardization. This makes full use of the very core strengths that identify a company as a leader within an industry. However, the word core competencies should be used selectively and consider that not everything within the company should not be considered a core competencies. Whenever core competencies aren't involved and when subsidiaries have a need to adjust to specific local cultures or institutional circumstances in order to be successful in this field, then MNCs should consider allowing businesses to conduct localization.

There are several schools of thought that propose several strategies towards the amount to which MNCs should standardize or localize. Some alternatives are given to balance between your extremes of fully localizing the company or standardizing it. (1) The adaptation strategy where a basic strategy is is adapted to meet market forces and needs but never to the degree of an localized strategy. This means that the marketing mix is only changed to a certain degree and adjusted to the local situation when needed (Hovell & Walters, 1972) (2) Sub global strategy where clustering foreign markets into groups that happen to be pretty much similar and standardizing them according to region (Hovell & Walters). (3) Worldwide segmentation strategy where customer segments exist worldwide and can be offered a standardized product (Fatt, 1967) An example of this would be Coca Cola and Apple's worldwide segment. (4) Combination and mixed strategies where global companies can offer both worldwide strategies and local strategies to benefit from both (Hovell & Walters, 1972). Another judgment posed by Quelch & Hoff is the fact that firms are able to standardize global strategy up to certain degree and upon which they adapt marketing ways of suit local differences (Quelch & Hoff, 1986). This is more visible when viewed from a marketing strategies basic the different parts of the 6p's: product, price, place, promotion, power and folks (Kotler, 1986). Each marketing component can have its standardization and at the same time be tailored to match local needs. For example, in terms of price, using a standardized product across all subsidiaries but altering price to match the neighborhood markets price points is a common practice within MNCs such as P&G. Companies like Unilever, Nestle, Proctor and Gamble follow a mixed approach. They have standardized offerings in terms of their brands, however they blend and adapt their 4Ps to suit the needs of the neighborhood culture. Their offerings are generally standardized but the implementation strategy "local" (http://nptel. iitm. ac. in/courses/110105029/pdf%20sahany/module%207l-36. pdf).

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