Owing to successful elimination of trade barriers and increasing permeability of national boundaries brought about by globalization of competition (Lucas 258), it can be conceivably argued that multinational corporations (MNCs) have already assumed a position as the engine of the world’s economy (Olusoji & Oluwakemi 3).
We will write a custom Research Paper on A Discussion of Key Challenges Faced by MNCs in Developing a Cohesive & Inclusive Culture specifically for you
301 certified writers online
This position has been granted by the very many advantages that MNCs are able to achieve by working in diverse countries, namely: (1) minimal dependence on the economic or political outlook of one single country, (2) differentiated market position, (3) capability to create international affiliates, (4) economy of scale through the size and nature of the business, (5) global visions and strategies, and (6) employment of synergies to establish and maintain competitive advantage (Chuang et al 444; Scheffknecht 73).
However, as demonstrated in extant management literature, the capacity to work in multiple countries and across geographical locations presents several challenges for MNCs, especially the challenge of bringing together employees from diverse national cultures to form a cohesive and inclusive corporate culture that can effectively operate under one roof (Fredriksson et al 408; Lucas 258; Scheffknecht 73).
Indeed, extant literature demonstrates that cultural diversity is one of the foremost challenges facing MNCs in contemporary times, in large part due to the fact that culture influences the attitudes, values, approaches and perceptions of employees (Donmez 1).
The purpose of the present paper, therefore, is to identify the key challenges faced by MNCs in developing a cohesive and inclusive corporate culture, and also to provide some recommendations on how these challenges should be addressed.
A Brief Overview of Multinational Corporations
There are numerous definitions of MNCs depending on context and scope of application. The present paper adopts the definition that an MNC is basically an entity “…which undertakes direct foreign investment, own or control income-earning assets in at least more than one country, and also produces goods or services outside its country of origin” (Olusoji & Oluwakemi 2).
Not only must a multinational enterprise be engaged in the production of goods and/or services, but the production must be undertaken in other geographical locations outside the area of origin, hence the omnipresent challenge of cultural barriers.
In an increasingly competitive business environment, MNCs always strive to have competitive advantages over one another by employing strategies such as: (1) exporting home country management practices to foreign subsidiaries to achieve standardization and economies of scale and scope, (2) adjusting to varied host country environment, including making arrangements to be sensitive to diverse national cultures of host countries, and (3) arbitraging through selective specialization of activities in diverse geographical settings (Olusoji & Oluwakemi 3).
A Brief Description of Culture
As demonstrated in the literature, culture is an important component in the study of multinational enterprises.
The concept has been defined differentially by scholars and practitioners, with a large number of them showing that culture is the way of life of a group of people (Vance et al 590), and that it explicates how individuals act in concert when they do share understanding in knowledge, belief, art, technology, material artifacts, moral, law, custom and other capabilities, habits and value systems acquired by man as a member of the society (Almond 260; Olusoji & Oluwakemi 3).
Hofstede, one of the most celebrated scholars of culture, defines culture as “…the collective programming of the mind that distinguishes the members of one group or category or people from another” (Olusoji & Oluwakemi 3).
The original four dimensions of cultural difference as demonstrated by Hofstede, namely “Power Distance, Uncertainty Avoidance, Individualism and Masculinity”, have in the recent past been complimented by two additional dimensions – Team Orientation as well as Indulgence vs. Restraint (Scheffknecht 73).
It is worthwhile to note that these dimensions exemplify the challenges faced by MNCs in developing a cohesive and inclusive corporate culture because of the fact that national culture is embedded deeply in everyday life of individuals, and may therefore be enduring and impervious to change (Scheffknecht 73).
Consequently, it is plausible to assume that the cross-cultural challenges faced by MNCs as they attempt to operate in host countries, including such challenges as understanding the variations in communication patterns and styles, diverse principles and notations of hierarchy and organizational structures, and diverse systems of making business, are primarily influenced by national cultures of the employees in a particular destination (Donmez 1).
Get your first paper with 15% OFF
It therefore follows that one of the most fundamental features of MNCs as employers in host countries is their capacity “…to diffuse practices across boarders and that this process not only has the potential to drive change in national employment systems but can also influence, both positively and negatively, the competitive positions of the firms themselves” (Olusoji & Oluwakemi 4). An explicit and detailed discussion of the challenges faced by MNCs as they attempt to diffuse national cultures and develop a cohesive and inclusive corporate culture is, therefore, necessary.
Key Challenges Faced by MNCs in Developing a Cohesive & Inclusive Culture
It is indeed true that MNCs operate in diverse socio-cultural areas which present unique intercultural challenges (Olusoji & Oluwakemi 4), and it is always beneficial for the enterprises to appreciate and account these challenges as they seek ways to address them as ignoring them only lead to embarrassing strategic and operational blunders, strain relationships, as well as drag down business performance (Chuang et al 444).
This view is reinforced by other scholars, who suggest that multinational enterprises should find effective ways to deal with the ever-present and often confounding cultural issues that are ignited by employees who offer prominence to national cultures rather than reinforce and abide by the corporate culture (Almond 259; Fredriksson 408).
One of the most rampant challenge facing MNCs today in their attempt to develop a cohesive and inclusive organizational culture is that of dealing with multiple identities and prejudices emanating from diverse national cultures.
It has been explained in the literature that intercultural encounters reminiscent of MNCs do not habitually result in mutual understanding, in large part because of the fact that each group of employees still hold on to their identities as well as their internalized prejudices against others (Olusoji & Oluwakemi 5).
This particular author provides a real-life example that “…the notion [that] all British are diplomatic and all Dutch are stringy while all Chinese look alike still prevail in the minds of people who are now forced to work together in a multinational company” (5).
The bottom-line, however, resonates around the fact that these multiple identities and prejudicial judgments against others make it difficult to rally employees behind the vision and mission statement of the MNC (Chuang et al 446), and also complicate the realization of competitive efficiencies and performance because employees increasingly view themselves as uniquely different (Vance et al 591).
The second challenge faced by MNCs as they attempt to create a cohesive and inclusive culture is that they are forced to localize their operations and become embedded in the market of the host country, not mentioning that the enterprises are forced to rapidly comprehend the nuances of the local/national culture to an extent not required for centralized production operations (Chuang et al 445).
Many multinationals, for example, have flooded the Chinese consumer market ever since the country relaxed operational rules in the 1990s, and also to benefit from low operating costs. However, upon entry into the Chinese market, these MNCs soon face the cultural challenge due to a strong national culture (Lucas 259), and are forced to shoulder immense costs associated with the implementation of localization practices (Chuang 445).
Upon entry into this particular market, world-renowned MNCs Wal-Mart and Carrefour were not only forced to identify critical areas where the local Chinese culture was to be accommodated and to adapt their operations to meet the beliefs and value systems of local employees, but had to scale down their corporate identity to shed the bulk of their Western links in an attempt to become acceptable to the local population (Chuang et al 445).
Consequently, it can be argued that the localization strategy has always presented challenges to the MNCs in that it undermines their institutionalized corporate identity and hence, their competitive advantage. This particular challenge is absent in domestic companies.
The third challenge deals with the potential tension brought about by the national culture-corporate culture matrix in MNCs. Extant literature demonstrates that culture may, either positively or negatively, affect an organization because it intrinsically influences values, attitudes, perceptions, beliefs and expectations of people who provide their labor to the organization (Donmez 17), and that core values and beliefs are shaped by the national culture rather than the corporate culture (Chuang et al 447).
It therefore follows that most employees bring their values and belief systems into the corporate culture of MNCs, facilitating tension and unproductive experiences that are absent in domestic companies with a homogenous workforce.
Indeed, it has been noted in the literature that multinational enterprises “…employ the most diverse workforce and hence strive to promote organizational values that enable employees from different cultures to identify with the company and to share similar role perceptions” (Berson et al 1).
Flowing from this assertion, it is most probable that employees who work for MNCs are unable to be fully productive in their work engagements due to the tension they face between their local/national cultures and the corporate culture of the enterprises.
A recent study conducted on Cadbury Worldwide reveals that most African employees working for the company in Nigeria fear to raise important issues with their White managers as they feel uneasy talking to them and also confiding their thoughts and worries in them (Olusoji & Oluwakemi 8).
According to these authors, the Black employees, particularly those in the lower cadres of employment, feel that it is “un-African” for them to share their thoughts with foreigners. Such a predisposition, which is definitely absent in domestic companies operating in Nigeria, not only leads to an unproductive workforce but also occasions intense difficulties in attempts to develop a cohesive and inclusive corporate culture.
Another challenge facing MNCs, which is intrinsically related to the challenge above, is that of developing a global culture and managerial role perceptions without necessarily upsetting local cultural values and beliefs (Berson et al 5).
This challenge has been reinforced by other scholars, who argue that many expatriate managers fail to make any headway in leading MNCs due to lack of cultural sensitivity and perceived inadequate understanding that management practices are deeply rooted in culture (Firoz et al 40), but also as a consequence of lack of a clear understanding that some management practices or processes developed in one particular culture may not be easily transferrable to another culture without facing resistance (Fredriksson et al 408).
China has been highlighted as a leading example where Western expatriates are consistently unable to develop a global culture and managerial role perceptions without having to upset the local/national culture that has been internalized by employees.
A study conducted on the expatriate failure rates shows that about 76% of U.S. and European-based multinational enterprises doing business in China record a 10% to 40% failure rate, and that the leading cause of the noted failure is culture shock experienced by expatriate managers (Wu 171).
The culture shock arises as many of these expatriates become lost in their attempts to popularize their organizations corporate culture in the midst of unfamiliar situations and diverse cultural norms and values.
As observed by this particular author, this orientation brings a further challenge for MNCs in that most are unable to attract and maintain qualified workforce in the Chinese market.
Overall, these challenges are known to affect the productivity and efficiency of expatriates, making them to become increasingly unenthusiastic and absentminded to a point of abandoning the working responsibility in their current positions (Wu 172).
The last challenge, and perhaps the most widely discussed in the literature, is that of breakdown in communication. Extant literature demonstrate that “…to be clearly understood by persons who do not share our values, assumptions, or acquired methods of behaving, requires new competencies to lessen cultural differences” (Firoz et al 40).
Most employees working for MNCs use different variables of communication due to their diverse cultural acquisition, implying that their thought systems, attitudes, and societal roles may somehow be different from the mainstream corporate culture set by the MNC.
Arguably, these differences will definitely alter the way messages are received by employees as well as the impact of non-verbal communications, hand gestures and body positions, among other variables (Firoz et al 40; Fredriksson 408), leading to difficulties in communication between local staff and expatriate managers (Wu 171) and incapacity to develop a cohesive and inclusive organizational culture (Almond 268).
Communication barriers are also thought to adversely affect the level and rate of knowledge transfer from the parent company to the subsidiaries (Lucas 258).
Recommendations to the Challenges
To successfully deal with the challenge of multiple identities and prejudices emanating from diverse national cultures, MNCs need to take concerted efforts aimed at developing a corporate culture of their own, which are uniquely different from the cultures of the workers employed or contracted by the enterprises (Olusoji & Oluwakemi 5). Indeed, as explained by these authors, MNCs must strive to develop a culture that is not only holistic and historically determined in nature and context, but also socially constructed, soft and difficult to change owing to its internalized rituals, belief system as well as symbols.
Extant literature demonstrates that “…there can be conflict within an MNC when new localized strategies are viewed as undermining institutionalized corporate identity” (Chuang et al 445).
To remedy this scenario, therefore, MNCs operating in foreign soil not only need to standardize business practices to avoid the immense costs associated with localization, but also attempt to engage in partnership alliances with local firms to ensure the needs and expectations of local workers are taken into consideration (Vance et al 591).
In making partnership alliances, the main drive for managers, in my view, should be to create an enabling environment for the institutionalization of a corporate culture and identity even as they continue to recognize the fact that it is inevitable for national cultures to exist alongside the corporate culture.
Managers must therefore aim to realize competitive efficiencies of these multinational enterprises by coming up with ways to reinforce the corporate culture while increasingly diluting the national cultures.
MNCs must also develop frameworks to deal with the ever-present conflict between the pressures for global integration (standardization of processes) and local responsiveness (localization of processes).
Specifically, multinational enterprises need to become aware of both environments and operate regarding the requirements of the origin and host environments for them to achieve competitive advantage and success (Donmez 18).
Such frameworks, in my view, will definitely achieve success in enlightening employees on how to reduce the tension orchestrated by the national culture-corporate culture matrix.
These frameworks should provide employees of MNCs with the capacity to evaluate their roles based on their organizational identity and to some extent allow for the evaluation of roles and behavior based on their national culture.
To successfully deal with the challenge of culture shock facing managers who lack the skills and experience to develop a global culture and managerial role perceptions without necessarily upsetting local values and belief, it is imperative for the MNCs to adequately prepare the expatriates and expose them culture-related training before dispatching them to the ground (Wu 172).
Specifically, managers must be trained on building cultural synergies by identifying and building upon the very differences between the corporate culture and the national cultures for mutual growth and achievement by cooperation.
Available literature demonstrates that “…cultural synergy through collaboration emphasizes similarities and common concerns, and integrates differences to enrich human activities and systems” (Firoz et al 40).
In terms of communication barriers, it is recommended that global managers be exposed to training to acquire skills in cross-cultural communications. Employees also need to be trained to be tolerant to other viewpoints and to accommodate the values and belief systems of other people, including their managers.
The present paper has discussed in detail some of the challenges that continue to affect MNCs in their quest to develop a cohesive and inclusive culture.
In particular, this paper has discussed challenges of multiple identities and prejudices, localizing operations, tension, incapacity to develop a global culture and management roles without necessarily upsetting local cultural values and beliefs, poor knowledge transfer and communication barriers, and how these challenges disadvantage the realization of a cohesive and inclusive corporate culture for MNCs.
Various viable alternatives for the mentioned challenges have also been provided. The immediate task, therefore, is for global leaders to initiate programs and policies that will actualize the recommendations in their respective MNCs.
Almond, Phil. “Re-visiting Country of Origin Effects on HRM in Multinational Corporations.” Human Resource Management Journal. 21.3 (2011): 258-271. Business Source Premier. Web.
Berson, Y air, Miriam Erez and Seymour Adler n.d., Reflections of Organizational Identity and National Culture on Managerial Roles in a Multinational Corporation. Web.
Chuang, Ming-Ling, James J. Donegan, Michele W. Gannon and Kan Wei. “Wal-Mart and Carrefour experiences in China: Resolving the Structural Paradox.” Cross Cultural Management: An International Journal. 18.4 (2011): 443-463. Emerald. Web.
Donmez, Ozlem 2007, The Transfer of Organizational Culture in a Multinational Corporation. PDF file. Web.
Firoz, Nadeem M., Ahmed S. Maghrabi and Ki Hee Kim. “Thinking Globally manage Culturally.” International Journal of Commerce & Management. 12.3/4 (2002): 39-58. ProQuest. Web.
Fredriksson, Riikka, Wilhelm Barner-Rasmusses and Rebecca Piekkari. “The Multinational Corporation as a Multilingual Organization: The Notion of a Common Corporate Language.” Corporate Communications: An International Journal. 11.4 (2006): 406-423. Emerald. Web.
Lucas, Leyland M. “The Role of Culture on Knowledge Transfer: The Case of the Multinational Corporation.” The Learning Organization. 13.3 (2006): 257-275. Emerald. Web.
Olusoji, George and Owoyemi Oluwakemi. “Impact of National Culture on the Management of Multinational Businesses: The Case of Cadbury Worldwide.” International Journal of Business & Management Tomorrow. 2.7 (2012): 1-9. Academic Search Premier. Web.
Scheffknecht, Sabine. “Multinational Enterprises — Organizational Culture vs. National Culture.” International Journal of Management Cases. 13.4 (2011): 73-78. Business Source Premier. Web.
Vance, Charles M. and Yongsun Paik. “Forms of Host-Country National Learning for enhanced MNC Absorptive Capacity.” Journal of Managerial Psychology. 20.7 (2005): 590-606. Emerald. Web.
Wu, Jianlian. “An Analysis of Business Challenges faced by Foreign Multinationals operating in the Chinese Market.” International Journal of Business & Management. 3.12 (2008): 169-174. Emerald. Web.