Working in a Multinational Environment
All businesses encounter barriers in their operations, whether they sell only to local customers or trade in international markets. Countries such as Australia and New Zealand regulate the hours and days retailers may be open. Besides complying with a variety of laws and exchanging currencies, international companies may also have to reformulate their products to accommodate different tastes in new locations. Frito-Lay exports cheeseless Cheetos to Asia, and Domino’s Pizza offers pickled-ginger pizzas at its Indian fast-food restaurants. Hershey has teamed with a local Chinese partner to introduce green-tea flavored Hershey Kisses in China as part of an aggressive expansion plan.
Social and Cultural Differences
The social and cultural differences among nations range from language and customs to educational background and religious holidays. Understanding and respecting these differences are critical to pave the way for international business success. Businesspeople with knowledge of host countries’ cultures, languages, social values, and religious attitudes and practices are well equipped for the marketplace and the negotiating table. Sensitivity to such elements as local attitudes, forms of address, and expectations regarding dress, body language, and timeliness also helps them win customers and achieve their business objectives.
Considering the number of transactions that are sealed on the golf links, Chinese students at Xiamen University must learn golf, as well as business and law, and Peking University is building a practice green.
Language English is the second most widely spoken language in the world, followed by Hindustani, Spanish, Russian, and Arabic. Only Mandarin Chinese is more commonly used. It is not uncommon for students abroad for whom English is not their first language to spend eight years of elementary and high school in English language classes. Understanding a business colleague’s primary language may prove to be the difference between closing an international business transaction and losing the sale to someone else. Company representatives operating inforeign markets must not only choose correct and appropriate words but also translate wordscorrectly to convey the intended meanings. Firms may also need to rename products or rewriteslogans for foreign markets.Examples!
Potential communication barriers include more than mistranslation. Companies may presentmessages through inappropriate media, overlook local customs and regulations, or ignoredifferences in taste. Robert Burns, who owns CC Bloom’s Hotel in Phuket, Thailand, recallshis inadvertent early mistakes. “I quickly figured out that I was creating problems by talkingbusiness before eating lunch and by initiating the talks,” he says.
Cultural sensitivity is especiallycritical in cyberspace. Web site developers must be aware that visitors to a site may comefrom anywhere in the world. Some icons that seem friendly to U.S. Internet users may shockpeople from other countries. A person making a high-five hand gesture would be insultingpeople in Greece; the same is true of making a circle with the thumb and index finger in Brazil,a thumbs-up sign in Egypt, and a two-fingered peace sign with the back of the hand facing outin Great Britain.
Gift-giving traditions employ the language of symbolism. For example, in Latin America,knives and scissors should not be given as gifts because they represent the severing of friendship.Flowers are generally acceptable, but Mexicans use yellow flowers in their Day of the Deadfestivities, so they are associated with death.
Values and Religious Attitudes Even though today’s world is shrinking in many ways,people in different countries do not necessarily share the same values or religious attitudes.U.S. society places a higher value on business efficiency and low unemployment thanEuropean society, where employee benefits are more valued. The U.S. government does notregulate vacation time, and employees typically receive no paid vacation during their first yearof employment, then two weeks’ vacation, and eventually up to three or four weeks if theystay with the same employer for many years. In contrast, the EU mandates a minimum paidvacation of four weeks per year, and most Europeans get five or six weeks. In these countries,a U.S. company that opens a manufacturing plant would not be able to hire any local employeeswithout offering vacations in line with a nation’s business practices.
U.S. culture values national unity, with tolerance of regional differences. The United Statesis viewed as a national market with a single economy. European countries that are part of the27-member EU are trying to create a similar marketplace. However, many resist the idea ofbeing European citizens first and British, Danish, or Dutch citizens second. British consumersdiffer from Italians in important ways, and U.S. companies that fail to recognize this variationwill run into problems with brand acceptance.
Religion plays an important role in every society, so businesspeople must also cultivatesensitivity to the dominant religions in countries where they operate. Understanding religiouscycles and the timing of major holidays can help prevent embarrassing moments when schedulingmeetings, trade shows, conferences, or events such as the opening of a new manufacturing plant.
People doing business in Saudi Arabia must take into account Islam’s month-long observanceof Ramadan, when work ends at noon. Friday is the Muslim Sabbath, so the Saudi workweekruns from Saturday through Thursday. Also, Muslims abstain from alcohol and consider porkunclean, so gifts of pigskin or liquor would be offensive.
Some devout Muslims have raised concerns about interest-bearing loans in their nations,such as car loans or home mortgages, which they fear should be considered usury by thestandards of the Koran. However, such reservations are slowly being overcome with the helpof arguments by Muslim scholars showing that ordinary loans donot take unfair advantage ofthe borrower and can help increase the value of the borrowers’ assets or property as well asdistribute wealth more widely. A rapidly growing tool of international finance is the sukuk, atype of bond that meets Islamic guidelines. As much as $500 billion worldwide is now investedin these and similarly acceptable forms of Islamic finance.
Economic Differences
Business opportunities are flourishing in densely populated countries such as China andIndia, as local consumers eagerly buy Western products. Although such prospects might temptAmerican firms, managers must first consider the economic factors involved in doing businessin these markets. A country’s size, per-capita income, and stage of economic development areamong the economic factors to consider when evaluating it as a candidate for an internationalbusiness venture.
Infrastructure Along with other economic measures, businesses should consider a country’sinfrastructure.Infrastructure refers to basic systems of communication (telecommunications,television, radio, and print media), transportation (roads and highways, railroads, and airports),and energy facilities (power plants and gas and electric utilities). The Internet and technologyuse can also be considered part of infrastructure.The widespread availability of telecommunications technology creates fertile soil forInternet and other businesses that use wireless communication. The cell phone market in Africahas doubled every year for several years and now exceeds 200 million users. But there is plentyof room for more growth.
Financial systems also provide a type of infrastructure for businesses. In the United States,buyers have widespread access to checks, credit cards, and debit cards, as well as electronicsystems for processing these forms of payment. In many African countries, such as Ethiopia,local businesses do not accept credit cards, so travelers to the capital city, Addis Ababa, arewarned to bring plenty of cash and traveler’s checks.
Currency Conversion and Shifts Despite growing similarities in infrastructure,businesses crossing national borders encounter basic economic differences: national currencies.Foreign currency fluctuations may present added problems for global businesses. The values of the world’s major currencies fluctuate—sometimesdrastically—in relation to each other. Rapid and unexpected currency shifts can make pricingin local currencies difficult. Shifts in exchange rates can also influence the attractivenessof various business decisions. A devalued currency may make a nation less desirable as anexport destination because of reduced demand in that market. However, devaluation can makethe nation desirable as an investment opportunity because investments there will be a bargainin terms of the investor’s currency.
Political and Legal Differences
Like social, cultural, and economic differences, legal and political differences in host countriescan pose barriers to international trade. Government oversight of Internet use in China is sostrict that the Central Propaganda Department employs 30,000 people to monitor electroniccommunications.Such actions pose threats to those considering doing business there.To compete in today’s world marketplace, managers involved in international businessmust be well versed in legislation that affects their industries. Some countries impose generaltrade restrictions. Others have established detailed rules that regulate how foreign companiescan operate. A common thread among all countries is the striking lack of consistent laws andregulations governing the conduct of business. One recent issue that has surfaced is the lackof control or guidelines to ensure consumer safety for products manufactured overseas.
Political Climate An important factor in any international business investment is thestability of the political climate. The political structures of many nations promote stabilitysimilar to that in the United States. Other nations, such as Indonesia, Congo, and Bosnia, featurequite different—and frequently changing—structures. Host nations often pass laws designed toprotect their own interests, sometimes at the expense of foreign businesses.In recent years, the political structures of Russia, Turkey, the former Yugoslavia, HongKong, and several central European countries, including the Czech Republic and Poland,have seen dramatic changes. Such political changes almost always bring changes in the legalenvironment. Hong Kong’s status as part of China makes it an economy where politicaldevelopments produced changes in the legal and cultural environments. Since the collapseof the Soviet Union, Russia has struggled to develop a new market structure and politicalprocesses.
Legal Environment When conducting business internationally, managers must be familiarwith three dimensions of the legal environment: U.S. law, international regulations, and the lawsof the countries in which they plan to trade. The Foreign Corrupt Practices Act forbids U.S. companies from bribing foreign officials,political candidates, or government representatives. This act prescribes fines and jailtime for U.S. managers who are aware of illegal payoffs. Until recently, many countries,including France and Germany, not only accepted the practice of bribing foreign officialsin countries where such practices were customary but allowed tax deductions for theseexpenses. The United States, United Kingdom, France, Germany, and 37 other countrieshave signed the Organization for Economic Cooperation and Development Anti-BriberyConvention. This agreement makes offering or paying bribes a criminal offense and ends thedeductibility of bribes.19
From Multinational Corporation to Global
Business
A multinational corporation (MNC) is an organization with significantforeign operations.Firms headquartered in the UnitedStates make up half the list of the world’s largest multinationals. TheNetherlands and the United Kingdom each have two companies on the list, andJapan rounds out the top ten, with one company on the list.
Many U.S. multinationals, including Nike and Wal-Mart, have expandedtheir overseas operations because they believe that domestic markets are peakingand foreign markets offer greater sales and profit potential. Other MNCs
are making substantial investments in developing countries in part becausethese countries provide low-cost labor compared with the United States andwestern Europe. In addition, many MNCs are locating high-tech facilities in
countries with large numbers of technical school graduates, such as India.
In developing a framework in which to conduct international business, managers must firstevaluate their corporate objectives, organizational strengths and weaknesses, and strategiesfor product development and marketing. They can choose to combine these elements in eithera global strategy or a multidomestic strategy.
Global Business Strategies
In a global business (or standardization) strategy, a firm sells the same product in essentiallythe same manner throughout the world. Many companies simply modify their domestic businessstrategies by translating promotional
brochures and product-use instructionsinto the languages of the host nations.A global marketing perspective can be
appropriate for some goods and services andcertain market segments that are commonto many nations. The approach works forproducts with nearly universal appeal andfor luxury items such as jewelry. But foodretailers such as McDonald’s, PepsiCo, andKFC have discovered how much they mustadapt their products to consumer tastesin China, for instance. Spinach, egg, andtomato soup is on KFC’s menu in China, asare red-bean sundaes at McDonald’s. PizzaHut and Domino’s compete in India, wherebread, tomatoes, and sauces are alreadypopular, by serving the same food productsas in the United States, but the condimentson the table are likely to be chili flakes
and ketchup instead of salt and pepper.Scientific equipment, on the other hand, isnot bound by geographical differences.
Multidomestic Business Strategies
Under a multidomestic business (or adaptation) strategy, the firm treatseach national market in a different way. It develops products and marketingstrategies that appeal to the customs, tastes, and buying habits of particularnational markets. Companies that neglect the global nature of the Internet canunwittingly cause problems for potential customers by failing to adapt theirstrategy. European consumers, for instance, were at first hesitant to adopt online
ordering of products ranging from books to railroad tickets. But in recent years,Internet use in western Europe has grown dramatically. Companies as diverse asthe European divisions of Amazon.com; Egg PLC of London, an online financialservices company; and the French national railroad have seen the numbersof visitors to their Web sites climbing, along with Internet revenues.
Case Study: Lego Builds Creatively for Half a Century
Fifty years old and still going strong, Lego is the Danishmaker of those unforgettable plastic building blocksbeloved around the world. More than 400 million people ofall ages play each year with what Fortune magazine called“toy of the century,” and enough blocks are producedeach year to circle the Earth five times. One of the characteristicsthat account for Lego’s enduring attraction is theblocks’ ability to foster the imagination. Because of theirunique stud-and-hole design, a set as small as six blocksoffers 915 million different combinations. “The Lego brickdoesn’t age with time and continues to fascinate becauseit allows children, and others, to develop their creativity,imagination and curiosity and let it wander free,” said aLego spokesperson at its headquarters in Billund.The family-owned company has been through somedifficult times, however, and barely escaped disasterbetween 1998 and 2004, when it lost millions of dollars ineach of several years. In the 1960s it introduced Duplos,larger blocks designed for younger children, and openedtheme parks in Denmark, England, the United States, andGermany. Duplos were a hit, and the parks drew millionsof visitors and launched Lego-brand clothing, watches,books, and multimedia games. But competition from electronictoys and computer games was devastating. As onetoy researcher said, “Lego bricks belong to the industrialera when children liked to build things, playing wannabeengineers. Nowadays, the most popular toys are inspiredby the virtual world.”
How to Build and Manage an Effective Global Workforce
Language barriers, cultural differences, time zones, and sheer distance can all contribute to the difficulty of managinga global workforce. Here are some guidelines managers should keep in mind for getting the most from far-flung employees.
• Know the worldwide labor market for your industry. Hire the right people in the right areas, or transfer the right peopleto the places where they’re needed and can be effective in their jobs. Be alert to your upcoming labor needs and cultivatea network of potential future hires in the country where you will be operating; local knowledge can be priceless.
• Be aware of work–life issues in different countries and cultures. For instance, parents abroad may want to align vacationswith local school schedules and avoid having conference calls on local holidays. Some religions have daily observances,so be sure to accommodate foreign employees’ needs.
• Know the skills people need to perform in your industry, such as the ability to communicate and ask the right questions,to listen well, to network, to make presentations, or to maintain a high level of technical expertise. Provide regular trainingto keep employees’ skills sharp.