Multinational corporations operate in environments where they deal with different cultures. Multinationals serve customers from various cultures and their workforce is also culturally diverse. The management has to deal with the diverse culture of the organizations to succeed in the global scene. The challenges that managers encounter when managing diversity will be assessed in chapter two of this article.
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Multinationals are firms that are spread out in other countries other than the mother country. A multinational organization has its headquarters in one country, which is known as the home country, and then other branches in different countries known as the host countries. Multinationals are classified into four categories. The first category is the decentralized corporations.
These are multinationals that give the branches at the host countries the power to make decisions and conduct their own operations independently. The multinational branches in the host countries should have a strong local presence for them to be given the mandate to make their own decisions.
The second category is the global centralized corporations. These are corporations whose control is given to one group, usually the headquarters in the home country. All operations of the organizational groups are centralized. All the costs and decisions are made at the central group. The group can be located in an area where there are cheap resources to minimize costs.
The third category is the international company that builds on the parent corporation’s technology. The parent corporation in this case is usually the source of technology. The other group organizations source technology from the parent and build on it.
Finally, there is the transnational enterprise that combines the previous three approaches. Such organizations have some duties that are centralized, while others build on the parent corporation’s technology.
There have been changes in the workplace of multinationals over the last couple of years. According to Early and Gibson (2002:15), the most noteworthy changes are two. The first is the scope and concentration with which the market has been internationalized, while the second is that there has been reformation of companies.
In the setting up of firms internationally, “open borders, bringing together of business regulations, pan-European strategic management, and the single currency have speeded up European economic amalgamation” (Mercado et al. 2001: 476). These have facilitated the mobility of people across Europe and in the world.
Multinationals ought to be as flexible and dynamic as possible in their operations. Teamwork is also paramount.
Flexibility is felt to be particularly important in this globalised business world since parts of a company may be “formed, disbanded and reformed to respond rapidly to changing business needs comprising members from different countries, different company locations and different teams” (Earley and Gibson 2002: 19). Technology enhances communication among the various organizational teams spread out in different countries.
Communication, among other concerns, is pertinent when dealing with teams that comprise members from different cultures. A collapse in cross-cultural knowledge transmission is seen as a danger, risk and hazard to a corporation’s competitiveness, feasibility and existence. Divides as a result of culture or any other cause hampers team efforts since conflicts are bound to occur when dealing with a culturally-diverse group.
Culture and Diversity
Cultural diversity in multinationals is where employees working in the company are from different cultural backgrounds. The multinational corporations recruit employees depending in their skills, expertise and knowledge. They do not consider the race, ethnicity or the nationality of the individual as long as they have the right qualifications.
There have been disputes regarding cultural diversity in that it is likely to have some negative impacts on the organization (Early & Gibson, 2001). The major challenge to cultural diversity is failure in the communication system in the organization.
People from different cultures have difficulties communicating with one another. This is likely to affect the performance of the organization since it is difficult to have a productive performance when people cannot communicate effectively.
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However, diversity is generally beneficial to organizations since it has the ability to bring together top talents and in the process enhance innovation. It is important to note that innovation is important for any business organization, especially in the global market. Innovation has the ability to give the organization a competitive advantage (Yanow 2003; Holden 2002; Mercado, et al., 2001; Winston, et al., 2001 Carnevale, 1999).
It is, therefore, important for managers to find a way of managing diversity effectively. Managers should eliminate the communication barriers that may result from diversity, which may in turn lead to poor performance of the organization. Instead of the barriers, managers need to maximize the benefits of diversity for a competitive organization.
The world is trending towards a global village since people from different cultural backgrounds can interact effectively on different platforms. All cultures need to be treated equally without any form of discrimination. The practice of treating the different cultures equally and giving each culture equal importance is what is referred to as multiculturalism. Multiculturalism can be divided into various types as follows:
This is the type of multiculturalism where a multinational organization has a diverse workforce working in the home country. The home country has people from different nationalities or from different ethnicities working together.
The managers can pick employees from each of the countries in which the organization has operations or from any other part of the world as long as they are competent and have the required skills and qualifications to move the organization forward.
This is where there are different groups of people working in the same organization. The group composition is diverse in terms of culture of the various members. Among the groups that might be found in organizations include homogenous groups, token groups, bicultural groups, and multicultural groups.
Potential Problems Associated with Diversity
Despite the benefits that diversity is likely to bring to the organization, there are some problems associated with it. First, there may be attitude problems among the employees. Employees may not understand each other or each other’s cultures.
There are some people who perceive other cultures negatively. Such people have a negative attitude towards people of the said culture. As a result, such people cannot work effectively in a team, making the unit unproductive.
Secondly, there are perceptual problems among employees. There are stereotypes that exist among members of diverse groups. These stereotypes can be erroneous and affect the performance of the organization.
Thirdly, inaccurate biases could also result from cultural diversity. Employees from different cultural backgrounds may have the tendency to prefer some activities over others, and usually their basis is unfair. Such employees make wrong judgments in the duties they carry out or against their colleagues.
Finally, there is a communication problem within the organization as a result of cultural diversity. People from different cultural backgrounds may not understand each other’s languages. In addition, they may use sign or symbols that have different meanings leading to communication failure. Poor communication has an effect on the performance of the organization.
Identifying the Key Challenges Faced by MNCs & How to Address these Challenges
Multinational organizations face numerous problems in executing their business activities. The challenges have the ability to affect smooth running of the business. In addition, the performance and competitiveness of the organizations may be negatively impacted.
It is important to note that the international business environment is highly competitive; therefore, any issue that is likely to affect the organization’s competitiveness should be dealt with effectively and with urgency. It is the obligation of the managers to come up with ways and methods to overcome these challenges. This section evaluates the problems faced by multinationals and the ways through which those problems can be addressed.
Multinational companies have benefits, which can contribute to the governments, the economy, people, and for the corporation itself. According to Cole (1996) “the size of multinational organizations is enormous; many of them have total sales well in excess of the GND of many of the world’s nations”.
In addition, World Bank statistics comparing the income of multinational companies and national GNPs indicates that large oil firms such as Exxon and Shell are large in economic terms than nations such as South Africa, Australia and Argentina that are substantially greater than nations such as Greece, Bulgaria and Egypt.
MNCs vs. Locals Firms
Multinationals organizations are very important in the world’s economy. They play a vital role in the international trade. In addition, they facilitate the development of nations, both developed and the developing nations.
For instance, multinationals provide employment opportunities to the developing nations. People get disposal income to spend on from multinationals setting base in their countries, consequently facilitating the economic growth of these nations. In addition, multinational organizations facilitate provision of high quality goods, as well as services.
On the other hand, despite the fact that local organizations in the developing countries have an impact on the economies of those countries, they may not be as effective as the MNCs. Multinationals have the ability to rise above the challenges faced by local firms. They offer services of better quality than those of local organizations.
Among the challenges faced by local firms and which the multinationals can rise above include deficiency in managerial experience, insufficient education, lack of credit, poor infrastructure, national policies and regulatory environment, as well as insufficient market information.
Local firms are also affected by changes in technology since they do not have the ability to cope. They, therefore, lose their competitive advantage to multinationals.
Sustaining the culture in MNCs
Multinational organizations have their own cultures, goals and objectives that they should fulfill. The organizations, therefore, need to be governed so that they can direct their operations towards achievement of those cultural values and objectives.
Codes of conduct are used to govern the organizations’ business to ensure that they comply with the laws and regulations in the destination countries. It is not easy to sustain the MNCs’ culture, especially when the environment is changing too rapidly. The following are some of the ways in which the culture can be maintained.
- Define and distinguish the organizational culture clearly
- Develop an implementation plan
- Senior management should support implementation in their activities
- Employees (both new and existing) should be made aware of the culture
- Continuous evaluation
- Transparency on changes that are happening within the organization
Advantages of Sustaining a Culture
Sustaining a culture has the ability to improve the company’s brand image, thus giving it a competitive advantage. The organization can be able to improve on employee satisfaction and boost their morale and productivity, which is reflected in the overall performance of the company.
Innovation can be enhanced, as well as stakeholders’ relations. Finally, the organization can effectively manage risk and can become a business model.
Shortcomings of ‘sustaining a culture’
- It takes a lot of time
- The organization can miss its goal of maximizing revenue
- Cultural conflicts may lead to employee turnover
Challenges and strategies to resolve
Shortage of manpower
It is not easy to find talented people who have the ability to effectively manage cultural diversity. Managers who have that technical ability are usually few and are difficult to maintain since they are usually on high demand.
For an organization to acquire the manpower and retain them, it should come up with a strategy where employees can learn to acquire technical skills. In addition, the organization should appoint leaders who are highly competent and offer competitive salaries to discourage them from moving on to competitor organizations.
Unfriendly business environment
The business environment is not very friendly. At the same time, there are laws that are challenging to organizations. Competition is very high, making it difficult for organizations to succeed. However, firms can come up with business strategies that can give them a competitive advantage. For instance, they can adopt the Porter’s generic strategies.
Conflict of interest among the government, MNCs and the public
Organizations’ major interest is to maximize profits. The government might require the organizations to follow certain policies, which may be perceived to reduce their profitability. On the other hand, customers (public) want the best services in spite of the costs incurred by the organization.
The organization may make decisions that are against the will of both the government and the public, resulting in conflict of interest. To avoid these conflicts, the MNCs should come up with strategies that would enable them adopt global integration.
Huge costs of labor in the host country
Huge labor cost is a problem to MNCs since they incur high operating expenses that reduce their profitability. MNCs are said to take advantage of the poor labor standards and weak environmental regulations to maximize their income. They avoid employing expatriates from their home countries to avoid high expenses.
Real Life Examples
An event for honoring the top MNCs was conducted in New York Stock Exchange on October 2011. From the research conducted, it emerged that Microsoft was at the pole position, followed closely by Google at number 4. The two companies are said to have a unique culture that embraces diversity in their workplaces.
For instance, employees are highly motivated at Microsoft; they are given workplace benefits and the freedom to manage their schedules. This enables them to adopt a good work-life balance. Microsoft has adopted the same strategy in all its branches worldwide.
Google is also known to have an effective strategy that offers a good work environment for employees. Employees are given the freedom to work individually and come up with their own projects. This motivates employees. The company also gives employees an environment that enhances work-life balance.