To What Extent Should the Need for Local Responsiveness Shape the Way MNCs Organise Themselves - Coursework Example

Globalization today is gaining prominence as borders are disappearing and countries are entering into treaties with each other which favour free trade. This has made companies expand its reach. Companies are “benefitting greatly from the global markets as it is giving them a wide market to cater to and at the same time helping to improve the bottom line”. (Ellis, 2001) This is making more companies to get acclimatized to the local conditions. Today “businesses which are global are a force for good”. (Ellis, 2001) This is because it gives them ample opportunities to grow. The most important for multinational companies is to “understand the local conditions and get it transformed so that the local people start to favour the company”. (Ellis, 2001) The reason for which companies are looking to get global is “because it can buy and sell goods in market which are profitable, distribute those in the best countries which favour them, produce at the lowest cost, get a global outlook and achieve economies of scale”. (Ellis, 2001) This motive is guiding every company to become a multinational. It is seen by the fact that foreign direct investment is increasing. This is making more companies enter new area of business. Multinationals if they want to be successful it is important that “they have the appropriate structure and support system”. (Aharoni, 1996) They along with it need “flexibility so that they can grasp the strategic options which might arise due to environmental changes”. (Aharoni, 1996) This is all possible when the company adapts to the local responsiveness. A company which want to be in a global arena has to ensure that they understand these factors clearly. To put is multinationals need “to achieve local responsiveness, global efficiency and creating more knowledge”. (Aharoni, 1996) While deciding which country to enter “multinationals ensure that they develop their strategies which match to the local conditions”. (Ellis, 2001) This will make their path easy and help them grow. This will also ensure that they take “advantage of the local conditions and mould those which can give those benefits in the long run”. (Ellis, 2001) It becomes very important that utmost care is taken to understand the local requirements and thereby developing the own company so that the profits increases. Multinational companies while entering a new country ensures that “their subsidiaries understand the typologies prevalent in the local condition by creating subsidiaries”. (Enright & Subramanian, 2008) This is very important that multinational companies understand the local condition. It helps them to “build their strategies and helps in capacity creation and proper utilization of that capacity”. (Enright & Subramanian, 2008) This ensures that companies get acclimatised to the local environment. This helps to build long term strategies. It also ensures that the efforts are directed towards the right direction. This becomes more necessary for multinational companies who render services. Since “they look to earn by satisfying customers on a regular basis an understanding of the condition such as culture, caste, religion and prevalent customs” (Kundu & Merchant, 2008) goes in a long way to build relations. This is seen by the fact that companies who were able to “delve themselves on the basis of customs were successful”. (Kundu & Merchant, 2008) This is seen in the Middle East. The region is dominated by followers of Islam. So a multinational companies coming with a service that goes along with the custom of that country helps to build relations. Those companies are favoured and they find it easy to market themselves. This is a concern for company as it can backfire. A miscalculation or interpretation might result in ruining the name. This would put a stop for the company to grow in countries which are similar as they loose reputation. Thus understanding the local typologies helps multinationals to pave a path which they can follow for their success. This fact can further be substantiated from the fact that “HRM managers of the Australian operators say that there should be a balance between centralization and localization in HRM”. (McGraw, 2004) This is very important as it helps the HRM manager to pursue its hiring spree. As the company is operating locally so HRM managers say that “balancing the local and centralization HRM helps in administrative heritage, and helps to find talent for the future”. (McGraw, 2004) It is very important that multinationals look into this because the work force will be local people. This is irrespective of the fact whether the multination is a productive or a service industry. Thus, it becomes imperative that the HRM department integrate the two functions so that the efforts can be well directed. Multinational companies need to be more active by moulding themselves to the local conditions. Multinational companies need “to look into more cultural sensitive factors to be able to win consumers”. (Slawomir, 2010) This is a very vital point for any company. This helps them to win the hearts of consumers and as a result get loyal customers. Multinational companies need to ensure that they bring about a change in the perspective so that they can enter a new market. This can be seen from the case of McDonalds in India. India being a culture sensitive country and high on religious favour companies which have this fundamentals. McDonalds when it entered the country came with beef in its products. It even used oil which contained animal fats. The religious custom didn’t allow those. McDonalds was not able to gain its market share. The company understood the culture and came again with a variant. They launched the vegetarian variety and removed beef from its menu. It even stopped using oil which contained animal fat. This resulted in the company gaining market share. Consumers started liking the product and McDonalds was able to capture a good chunk of the Indian market. Understanding the culture thus forms a vital part. This leads the company “to manage their finance properly so that they don’t fall into financial crisis”. (Slawomir, 2010) Thus multinational companies need to see that they understand the cultural factors. This leads towards saving on the cost function. Companies being able to understand this are able to get a good chunk of the market. The effects of local factors are such that even multinational companies are “reorganising their production system by integrating production by producing locally and for the research tasks they work on a global scale”. (Zeller, 2000) This helps multinational companies as they can make their products according to the local requirements. The effect is such strong that “even different labour laws in different countries are looked after”. (Zeller, 2000) This is helping them to comply with the government requirements. This is more of a case with pharmaceutical companies. They work on the same business model. They develop their product locally according to the requirements but research is carried globally. This helps to track the social movements. It is very important that multinational companies look into this. This will help them mould themselves and the local factors will be looked after. This is also seen from a study conducted in this field. It shows that “multinational companies have a different understanding when it comes to labour laws as compared to the local requirements”. (Edwards & Ferner, 2008) It is seen that “US multinationals tend to be centralised in their decision making process” (Edwards & Ferner, 2008) but when they enter a new market they might have to change it. This helps to build long relations. It also ensures that the company gets an opportunity to tap the local talent. This helps the company to get new ideas from locals and this can go a big way in deciding the future of the company. A study carried out in this filed shows that “US business system is shaped by anti-unionism but the US local subsidiaries are shaped in the UK by the conditions there”. (Ferner, Almond & Colling, 2005) This study highlights the importance of adapting to the local laws. Multinationals that follow a similar path are able to understand the requirements better. They are in a better position and their policies are determined by “the sector they are prevalent in, subsidiary policy and this leads to determine their behaviour towards the union which is influenced by the complex interaction of the forces”. (Ferner, Almond & Colling, 2005) Multinationals as we have seen in the case above for US companies in the UK highlights that marketing was easy when they followed the patter changes. It gave their workforce a boost and helped them to take a path where they were able to nurture the local responsiveness towards their understanding. This helps the company to “create a synergy between institutions and multinational companies”. (Muller & Tulder, 2005) A better understanding of the local responsiveness and factors helps the multinational companies to “comply with the legal requirements of the different institutions thereby creating an environment of certainty of MNC’s”. (Muller & Tudler, 2005) This goes in a long way to develop a conducive environment. Complying with all the conditions helps to “bring a paradigm shift and makes it easy for other multinationals to enter the market”. (Muller & Tudler, 2005) Multinationals today, are thus aware of it and consider it their utmost priority. They try to match their requirements with the local ones. This brings about restructuring in their basic framework to work thereby creating anew and subtle image. This helps the company as in the future they can enter with a new product and acceptability becomes easier. It expanses the room for growth in the future as the company already understands the requirements. There has also been a study which throws light in somewhat a different direction. The study says that “MNC’s pursuing the local responsiveness has created more jobs for the local residents but the upgrading has been less as compared to the global strategies followed by MNC’s”. (Hansen & Petersen, 2008) This is attributed to the fact that those people who are hired according to the local responsiveness understand the local requirements. This limits their chances for upward growth. This is a worrying factor as it could lead to conflicts within the organisation. Management needs to ensure that even the local people are given a chance to upgrade. This will improve motivation and will bring the best out of the individual. It will also spread harmony and satisfaction as every worker will be rated and considered on the same scale. It is also seen in recent times that hired people are trained so that they understand the global factors better. This helps multinationals as the local factors when included integrated with the global ones helps to formulate sound strategies. This is an area where companies from all around the globe are working. A study of four companies in the US “General Motors, DuPont, Standard Oil and Sears Roebuck highlight the importance of local responsiveness”. (Aharoni, 1996) This considers the service industry also. It reveals that these companies were able to transform itself into multinationals because “they were quick to understand the local responsiveness and integrate those with the global factors”. (Aharoni, 1996) This helped them get a first mover advantage. They were able to mould this factors and entering into new markets became easy. Accessibility improved which helped them to used and develop the local talent which could fit in the scheme of things for the organisation. This helped these companies to understand the local responsiveness. They were able to develop the products accordingly. This helped them to increase their chain and slowly they were able to have a presence in many countries. Understanding the local responsiveness is thus important for multinationals. Still with the increased usage of technology the de-localisation has slowed down. Technology is “helping people communicate with each other and they don’t have to come in face to face contact”. (Gray, 1999) This is more of a case in banking and retailing. In this sector direct interaction is less. This helps companies in this sector to determine the action they would take in the future. Despite being the case it is seen that still the local responsiveness are taken into consideration. It is seen in banks especially in India that “local talent are hired in the different states so that they can understand the local requirements better”. (Gray, 1999) It also helps the companies as the customer feels a sense of belongingness. They feel that the management is better able to understand their feeling and as a result the services rendered are better. This has been further substantiated by the fact that “employment is mostly local according to the local condition but strategies might be prepared keeping in mind the global and local condition on a global level”. (Castells, 2001) This helps the multinationals as the local resident hired understand the global requirements and can pass that on to the consumers. This helps to create a ripple effect which helps the multinationals to sell their products and services by making the consumer aware about it. This helps multinationals as “they are able to respond to the changes quickly i.e. bring about changes both in the market and production”. (Castells, 2001) The wages paid to employees get hampered due to multinational companies. This is especially the case with unskilled workers. Adapting to the local conditions and understanding the local responsiveness take a toll on the wage rate. It is seen that “multinational companies prefer countries where the wage rate is low so that they can produce at the cheap rate thereby generating more employment” (Klein, 2001) It was seen in 1998 that “Chinese manufacturers who were producing goods for companies like Ralph Lauren, Nike and Adidas paid wages at 13 cents per hour where as the same labour in the US was paid $10 per hour”. (Klein, 2001) thus multinationals companies who are able to understand the local responsiveness better are able to take advantage of it. This was the case due to the fact that China has a huge population. This makes the multinational company tap those. They can get labour at a cheap rate thereby reducing the cost of producing the goods and increasing their profits. Adapting to the local environment thus helps to take advantage of the local factors. Multinational companies when respond to the local requirements are able to “create demand for a product among different target groups”. (Kenway & Bullen, 2001) This makes it easy for multinational companies to push their products. It was seen that “in southern countries multinational companies created demand for tobacco products which was not prevalent there”. (Kenway & Bullen, 2001) This helps companies to decide their future course of actions. Countries “whose population is young acts as a better opportunity for multinationals to sell their products because they are the group of consumer who prefer to spend on new products”. (Kenway & Bullen, 2001) Thus understanding the local responsiveness here gives multinationals a wide market. They can develop new product ir mould their existing products thereby ensuring increased sales. Multinational companies by understanding the local responsiveness are able to “develop facilities which help the local residents and at the same time add to their coffers”. (Monibot, 2001) This was a case which was seen in Britain. Multinational companies there “developed roads, hospitals and prisons which helped both the local resident and the company”. (Monibot, 2001) This was done by multinationals after identifying the requirements. Developing this helped as people started to feel that this companies were caring foe their well being. They started favouring them. Slowly, with the passage of time this multinationals were able to grasp a good market and were able to sell their goods and services. While multinationals look into the local responsiveness the most important and guiding is culture. Every factor seems to surround it. It is also seen that ‘local customs remains strong and a driving force for multinationals to succeed”. (Brahm, 2005) These changes in culture have been strong. It has been constantly changing but the roots have remained the same. Understanding those is of prime importance as it will help to make strategies. This gets further intensified “by migration which has taken place and caused different culture to integrate and mix thereby making it more difficult for multinationals to understand the local responsiveness’. (Brahm, 2005) Companies need to develop tactics to cope with it. Understanding it helps as a guiding force towards success. Thus, we see that multinationals that have been able to understand the local responsiveness have been more successful. This takes into consideration the cultural differences. This is because they are better able to understand the local conditions and utilize those towards transforming themselves. This also ensures that they are better able to market. Multinationals like McDonalds, Adidas, Nike, Volkswagens, General Motors and many others have been successful because they gave utmost importance to the local responsiveness. They made strategies which were in line with those there by ensuring that they were able to grow and market well. References Aharoni Y, “The organisation of global service of MNC”, International Studies of Management & Organisation, Volume 26, 1996 Brahm E, “Globalization”, 2005, retrieved from on March 7, 2010 Castells M, “Information Technology and global capitalization”, on the edge, London, 2001 Edwards T & Ferner A, “The renewed American Challenge”, Industrial Relations Journal, Volume 33, Issue 2, page 94-111, 2008 Ellis V, “Enterprise or exploitation: Can global business be a force for good”, The New Statesman, 2001, retrieved from on March 6, 2010 Enright M & Subramanian V, “An organising framework for MNC typologies”, Business & Economics, Volume 47, Issue 6, 2008 Ferner A, Almond P & Colling T, “Policies on Union Representation in US multinationals in the UK”, British Journal of Industrial Relations, Volume 43, Number 4, page 703-728, 2005 Gray J, “False Dawn: The delusion of Global capitalism”, 1999 Hansen M & Petersen B, “MNC strategies and linkage effect in developing countries”, Journal of World Business, Volume 44, Issue 2, page 121-130, 2008 Kenway & Bullen, “Globalization and post modern world”, UCLA, 2001 Kundu S & Merchant H, “Service Multinationals: The past, present and future”, Business & Economics, Volume 48, Number 4, 2008 Klein N, “An exposure of the rise of brand and consumer capitalism”, A Modern Classic, London, 2001 Manibot G, “Captive state: A Critical Introduction”, London, 2001 McGraw P, “Influences of HRM practices in MNC’s”, International Journal of Manpower, Volume 25, Issue 6, page 535-546, Emerald Group Publishing Limited, 2004 Muller A & Tudler R, “The search of synergy between institutions and multinationals”, ERIM Report Series, Reference No ERS-2005-ORG, 2005 Slawomir, “Multinational sins pave the way to the expansion of domestic companies”, Emerald Group Publishing limited, Volume 11, number 1, page 13-19, 2010 Zeller C, “Rescaling power relation in a globalising industry”, Environment and Planning, Volume 32, Issue 9, page 1545-1567, 2000 Read More