Economic systems
can be described as structures that guide the allocation of inputs, production,
distribution of outputs, production, and the consumption of the produced goods
and services in any given economy (Gregory, 2004). Typical economic systems consist
of people and institutions with their relationship with the tools of production
being of definitive importance (Gregory, 2004). The main three types of
economic systems include the capitalist system, the socialist system and the
mixed economy system (Heilbroner and Boettke, 2007).
In capitalist
systems, the allocation of inputs and distribution of products is made through
the interaction between demand and supply (Heilbroner and Boettke, 2007). Under
this system, the principal aim of production is to maximize private profit. The
factors of production are mainly owned by private enterprises which make
production and investment decisions without undue interference from other
market players (Heilbroner and Boettke, 20070. Government control is virtually
non existent. The extreme contrast of the capitalist system is the socialist
system.
Under the socialist
system, the factors of production are owned publicly or by workers
collectively. The decisions relating to resource allocation, distribution of
outputs, consumption decisions and investment decisions are therefore made
through an inclusive process that makes such decisions collective (Gregory,
2004). Like the capitalist system, capital accumulation is the underlying basis
for the socialist system. This accumulation is however directly controlled by
the state either through ownership or cooperative control. Socialist systems
can be subdivided into planned socialist and market socialist systems based on
the controlling mechanisms (Heilbroner and Boettke, 2007). They can also be
subdivided into public ownership, common ownership, and cooperatives based on
the ownership of the factors of production (Heilbroner and Boettke, 2007).
The mixed economic
system is a hybrid of the two systems and seeks to combine the benefits of
either system to ensure better welfare of the societies (Gregory, 2004). It
seeks to cure the ills of purely capitalist systems that tend to deprive
disadvantaged members of the society from accessing resources and products due
to the tendency for such resources to be allocated to areas where they would
yield the highest profits (Heilbroner and Boettke, 2007). It also introduces
the question of policy to allocate resources to sectors that are central to the
well being of the society which may however be deemed as less profitable. Under
the mixed systems, varying degrees of free market mechanisms are allowed with
the government taking marginal measures to stimulate the economy or influence
the distribution of resources (Gregory, 2004). This is the most common economic
system in use in most countries around the world.
The economic
systems consist of people and institutions and therefore bear great
significance in the manner that business executives choose to structure their
organizations (Dallago, 2010). Under socialist systems, the publicly owned
resources are allocated through a collective decision making process that
determines production and investment decisions. The level of competition
between organizations operating in such markets therefore tends to be low and
the organizations’ motives tend to shift from profit making to the satisfaction
of its assigned roles (Heilbroner and Boettke, 2007). This often leads to an
apparent lack of focus on low cost structures and mechanisms for ensuring
higher levels of productivity. This often leads to the creation of
organizations with large structures that are often bureaucratic and highly
hierarchical (Dallago, 2010). These are often characterized by slow decision
making and poor levels of creativity when it comes to proactively solving
problems affecting the market.
Capitalist markets,
or mixed markets with a strong element of capitalism allows for the forces of
demand and supply to allocate factors of production and determine the
distribution of products (Gregory, 2004). Such economic systems encourage
intense competition between organizations which are motivated to take all
reasonable measures to position themselves strategically in the markets.
Commonly adopted measures could involve the adoption of practical
organizational structures that are aimed at ensuring that productivity,
innovation, and quick decision making is made possible within the organizations
(Dallago, 2010). The competition also encourages the adoption of technology to
enable organizations compete more effectively leading to the adoption of leaner
and dynamic organizational structures.
Culture can be
described as a people’s way of life and is often an accumulation of learned
values which distinguish one society from the rest (Hofstede, 2001). The
collective concept of ‘ a way of life’ extend to several areas of life as
explain by the 7d cultural dimensions model. The 7 dimensions are listed as:
individualism v collectivism; specificity v diffuseness; universality v
particularism; neutral v affective; achievement v ascription; time orientation;
and internal v external orientation (Hofstede and Hofstede, 2005). Universalism
and particularism refers to the approach that societies take in arising
situations. Universalist societies have a strong preference of the observance
of rules and guidelines and frown upon any form of discrimination on the basis
of friendship or any other relationship (Hofstede and Hofstede, 2005). These
societies uphold the general guidelines as the standard values and expect all
other members to conform to such values. Particularism on the other hand refers
to the preference for flexibility in dealing with issues (Hofstede and
Hofstede, 2005). Factors that influence the steps to be taken in such cases may
include the relationship between the parties involved and the circumstances
under which certain things have happened.
The dimension of
collectivism versus individualism pits the aspirations of the individuals
against those of the groups (Hofstede, 2001). Individualistic societies
emphasize personal achievement. Individuals are responsible for their own
decisions and are not expected to cater for the needs of their larger groups.
Decisions are often made with little consultation with most deadlocks resolved
through voting. Collectivist societies on the other hand emphasize the well
being of the groups and the loyalty of their members (Hofstede and Hofstede,
2005). Individuals are expected to work to contribute to the group performance.
Decisions are mainly arrived at through consensus building with little emphasis
on individual members’ positions.
Specific cultures
tend to pay close attention to detail. Situations are broken down into
distinctive elements which are then analyzed separately before being pieced
together again (Hofstede and Hofstede, 2005). Members of such societies have
high regard for hard facts. On the other hand, diffusely oriented cultures view
individual elements as components of the whole (Hofstede and Hofstede, 2005).
It emphasizes synergy where the whole is larger than the sum total of its
components. This dimension can be integrated into the work cultures where
specifically oriented societies emphasize on the separation between personal
and professional life. Their diffusely oriented counterparts on the other hand
emphasize on the scrutiny of the whole person to determine their suitability
for their work.
Neutral versus
affective dimensions have to do with how emotions are revealed. In affective
cultures, people work at releasing their emotions freely and this is done at
the earliest opportunity (Hofstede and Hofstede, 2005). Their emotionally
neutral counterparts tend to conceal their feelings with specific emphasis of
such persons being on the facts of the case (Hofstede and Hofstede, 2005).
Emotional expressions in such cultures are viewed as a sign of weakness and
immaturity.
Business
organizations operate in cultural contexts of the societies in which they
operate (Brisco and Schuler, 1995). Most countries have unique cultural
attributes that set them apart from other countries. This means that
multinational organizations have operations that span across different distinct
cultures. This brings in the concept of multicultural management where
organizations must make certain modifications to their processes in order to
accommodate the cultural practices of the societies in which they operate
(Brisco and Schuler, 1995). Failure to realign company practices with the
cultures is potentially disastrous and is known to lead to poor performance
occasioned by consumer apathy or poor morale among the employees of the
organization (Brisco and Schuler, 1995). Such low motivation levels are bound
to adversely affect the performance of the organization both in the long term
and the short term. International companies therefore need to strike a balance
between maintaining a sharp focus on the organization’s generic strategies and
getting their international subsidiaries to fit into the cultural contexts of
their locality. For instance, an organization based in Japan where the culture
is largely collectivist may record low productivity levels if it fails to make
structural adjustments that recognize and rewards individual achievement in its
American subsidiaries.
A value chain can be described as a set of activities designed to
transform a set of inputs into a finished product (Porter, 1996). Value chains
can be both at the firm level and at the industry level. At the firm level,
value chains refer to the set of activities within the firm that are involved
in the production process (Dagmar Recklies Ltd,
2001). These activities
are organized in a given order and add value to the product upon the passage of
each of them. This arrangement of activities creates a synergy such that the
resultant product is of a higher value than it would have been if it passed
through the described activities independently (Dagmar
Recklies Ltd, 2001). For a value
chain to yield the desired results, the organization must provide the following
enabling factors: investment in information technology, a supportive
organizational culture, committed leadership, coordination and collaboration,
and changes in organizational processes. The value chain activities of an
organization can be categorized into primary and the support activities
(Martin, 1995). The primary activities are central to the value chain and
include operations (production), inbound logistics, outbound logistics,
marketing and sales, and maintenance. The support activities are not directly
involved in the addition of value to the products even though they are crucial
to ensuring the primary activities are executed smoothly and up to expectation.
These activities include procurement, human resource management, research and
development, and administrative infrastructure management (Martin, 1995). The
value chain concept can also be applied at the industry level. At this level,
the focus is on the transformation of raw materials into the products that are
eventually delivered to the markets.
Generic strategies are involved with giving an organization a strategic
advantage over their competitors in the market (Porter, 1996). For such
strategies to be effective, it is imperative that the executives have a clear
understanding of their internal capabilities as well as their position relative
to other market players. The value chain enables organizations to focus on the
product and take the approach that all other activities in the organization
either directly or indirectly contribute to the value-addition of the subject
products (Porter, 1996). The value chain approach underscores the importance of
each of the activities thereby enabling a mechanism through which the
organizational generic strategies can be transformed into actionable and
achievable objectives. For instance, the concept of fit which emphasizes the
proper realignment of organizational functions with the generic strategies
becomes easier to implement when the value chain approach is assumed (Martin,
1995). The value chain underscores the importance of streamlining all processes
in the organization. It does this by defining the level of importance that each
process has in the value chain underscoring the fact that a failure in any
individual function is likely to compromise the desired value of the product
(Porter, 1996). The importance of indirect activities such as human resource
management which has traditionally been regarded as insignificant gets the
attention it deserves.
Analysts believe that human resources have the capacity to provide the
organization with the competitive edge they need in the market (Martin, 1995).
For this to be achieved, it is crucial that human resource management be
aligned with the generic strategies of the organization where recruitments.
Promotions, reward schemes and empowerment programs not only have the right
content but are also organized in a sequence that rhymes and reinforces the
generic strategies of the organization (Martin, 1995). The value chain
therefore helps highlight these areas of potential strength in the firms. The
same example is expected to apply to functions such as research and development
and information technology. The extension of the value chain to include
distribution networks and supply chains also enables the firms to acknowledge
the fact that successful performance in the market can also be influenced by
their interactions with other market players (Martin, 1995). This thinking may
form the basis for the formation of strategic alliances and collaborative
models that may not only save on the supply chain costs, but also add immense
value to the products in terms of more effective marketing campaigns.
4. The Global-Local Dilemma
The Global-local dilemma refers to the puzzle that exists between
multinational corporations and their regional subsidiaries where the
organizations have to choose whether to enforce global practices or fine tune
their processes to suit the cultural practices surrounding the subsidiaries (Sumantra,
1989). The adoption of global practices saves the multinationals the costs
associated with restructuring the subsidiaries. Such costs may include the additional
supervision costs, the cost of hiring senior personnel with a good
understanding of the locals, and sometimes the cost of installation of systems
usable at the subsidiaries which come with the conversion costs where the
generated information must be transmitted to the parent organization during
their periodic reporting (Sumantra, 1989). Both approaches are viable and can
contribute to the success of the business. However, accurate analysis is
necessary to ensure that the right approach is adopted for the different
markets that the multinational may be operating in (Gregory, 2004).
Globalization which has been characterized by increased movement of people and
factors of production across national and regional boundaries has been able to
create metropolitan centers which adopt a culture of their own (Sumantra, 1989).
For instance, in developed countries where most of the human resources tend to
meet, cultural practices have given way to the global convention ways of doing
business. In such countries, little emphasis is laid on the traditional
cultures and the organizations are able to adopt their global approaches.
The main determinant on whether a subsidiary embraces the global or the
local approach in its practices is dependent on the local or national culture. Culture
dictates how members of a society relate to one another. It also comprises the
values that such societies hold dear (Gregory, 2004). Where a society is
strongly attached to its traditional culture, it is important that the
international managers adopt a local strategy which would entail customizing
their products and business processes to conform to the prevailing cultural
practices. These changes are necessary not only to ensure higher levels of
motivation among the employees, but also to foster a wider acceptance of the
organization in the local nations (Birkinshaw, 2000). This acceptance in most
cases translates to rising demand the organization’s products. The influence
may also come from the government which may have restrictions on how certain
business activities are to be conducted (Birkinshaw, 2000). Where such
regulations require modification of the global practices, the subsidiary is
compelled to embrace the local approach.
The choice of approach may also be influenced by the market
characteristics (Birkinshaw, 2000). For instance, where the clientele being
targeted bear similar characteristics across national borders, the global
strategy can be used. This is often possible where the customer needs are
similar across board giving the organization the chance to pursue a global
strategy. The ability to transfer marketing across national borders can also
influence whether a global or local approach is taken (Birkinshaw, 2000). Some
countries may be unfavorable to marketing practices that are in place in other
countries making it difficult to take the global approach. The cost
implications also come into play. Where a multinational is likely to make
significant savings by using global economies of scale, the corporation may opt
to embrace the global approach (Birkinshaw, 2000). The cost associated with
product modification to suit the local market is also a key determinant. This
is due to the fact that modification comes at a cost which would eventually be
passed on to the consumer. This necessitates the monitoring of the level of
competition in the market (Birkinshaw, 2000). Where such competition is rife,
the corporation may find it difficult to recoup the investment made into
product modification.
The analysis of the multinational in the market is also crucial as its
strategic position in the market may largely influence the approach to be
embraced. Where it bears upstream advantages, the global approach becomes
preferable (Fatehi, 1996). These advantages include high quality design, and
low cost or cost leadership. Where the advantages are downstream, the local
approach would be preferable (Fatehi, 1996). Such advantages include services,
marketing and sales.
The small business stage model describes the path that businesses take
from their inception to maturity. The model also outlines the business
challenges that the entrepreneurs face at each of the stages. The five stages
in the life of a business include: inception (existence), survival, success
(disengagement), takeoff, and resource maturity (Churchill and Lewis, 1983). The
existence stage is the first stage that businesses enter into immediately after
taking the decision to start a business. The main dilemma for the entrepreneurs
is whether or not they will be able to attract customers to consume their goods
and services and whether the business is likely to be liquid enough to
facilitate smooth operations (Churchill and Lewis, 1983). At this stage, formal
structures are virtually non existence and the owner runs the show.
At stage 2 (the survival stage), the viability of the business entity is
established. It has a sizeable number of customers which they effectively
satisfy. The main business challenge at this stage is whether the business can or
cannot break even (Dobbs and Hamilton, 2007). At this stage, the organization
structure is still simple and the owners preside over a limited number of
employees where supervisors help in running the operations even though their
participation in major decisions is limited (Churchill and Lewis, 1983). The
major goal is survival and the little formal approaches only deal with cash
forecasting and handling.
Having advanced past the second stage, the success stage is characterized
by the need to choose between keeping the organization stable and profitable;
or to exploit the successes of the business to expand its operations (Goldberg,
Cohen, Fiegenbaum, 2003). Pursuing the growth option is known as the sub-stage
III-G stage (Goldberg, Cohen, Fiegenbaum, 2003). Another sub-stage is the II-D
stage which refers to disengagement (Goldberg, Cohen, Fiegenbaum, 2003). At
this point, the organization is stabilized and is making above average profits.
It can stay in the stage for prolonged periods of time. The business owners
continuously disengage from the business with continued growth as managers
slowly take over their roles.
Stage 4 is the take-off stage. Here, the challenge is to ensure rapid
growth and how such growth can be financed. The decisions to be taken involve
the determination of whether it is appropriate to allow higher professionalism
by delegating full authority to managers and whether the level of liquidity can
sustain such plans (Churchill and Lewis, 1983). The last stage (Resource
maturity) is characterized by a business with sufficient financial and human
resources to engage in strategic planning. At this stage, the goals are
twofold: to consolidate and control the gains experienced in the previous
stages; and to retain the operational benefits of their small size (Dobbs and
Hamilton, 2007). Such benefits include the entrepreneurial spirit and
flexibility. Continued innovation sustains high performance while the lack of
it leads to ossification which is characterized by lack of innovative decision making.
5b. The challenges of
internationalization
The main barrier to internationalization of small businesses is lack of sufficient
resources. This limits their ability to exploit global economies of scale
through mass production making it difficult to compete internationally due to
unsustainable prices (Dobbs and Hamilton, 2007). The businesses also lack the
requisite expertise since their managers tend to be largely inexperienced as
far as international expansion if concerned (Dobbs and Hamilton, 2007). This
often leads to a level of an attitude problem where the managers view
internationalization as too risky and unviable. They view competition as local
in most cases. The major step towards overcoming these barriers is the
cultivation of a global culture in organizations where managers are encouraged
to view strategic opportunities from a global perspective, and not just from a
local perspective (Dobbs and Hamilton, 2007). The lack of sufficient resources
can be countered by embracing expansion models that require fewer resources to
implement. Such approaches may include the use of foreign sales agencies, and
direct exporting instead of maintaining fully operational subsidiaries (Dobbs
and Hamilton, 2007). Besides, the firms can also take advantage of their small
sizes to come up with timely innovations before their larger counterparts
(Dobbs and Hamilton, 2007). This would allow a level of differentiation that would
allow the small firms to price their products highly allowing them to recoup
their investments.
Minireplicas are wholly owned subsidiaries of the parent multinationals
that are designed to reflect the operations and product ranges of the parent
companies (Amussen, Pedersen and Petersen, 2005). Miniature replicas are formed
to enable the parent companies to operate efficiently in the foreign markets.
Their reflection of the parent companies in terms of organizational cultures
and operational practices enable ease of control and reporting and eliminates
the intrigues that often come with the adoption of culture-sensitive structures
at the foreign subsidiaries (Amussen, Pedersen and Petersen, 2005). The
decision making processes are centralized at the parent company with the
replicas adopting the multinationals’ global strategies. The replicas therefore
serve to enable their parent organizations to realize the benefits of global
economies of scale without the need to engage in major modifications of
processes such as branding and marketing campaigns (Birkinshaw and Morrison,
1995). They are ideal for organizations that cater for needs that cut across
national border and preferably those with an established global clientele. Such
models are mostly suitable for cosmopolitan regions that have largely embraced
a global business culture and emphasize the same over their national cultural
practices. The replicas also contain functions that are identical to the parent
companies with processes such as production being almost entirely carried out
by them (Birkinshaw and Morrison, 1995). The products offered by the replicas
are largely similar to the products offered by the parent company. However,
these products may be slightly modified to reflect the unique characteristics
of the market. The popularity of minireplicas is however on a steady decline
globally. This is due to the fact that increased innovation has rendered the
business environment more competitive and therefore requiring that
organizations proactively modify their products and services in a manner that
reflects the preferences of their consumers (Amussen, Pedersen and Petersen,
2005). These preferences vary from place to place in most countries. For
products that that attract a global clientele, the practicing of maximizing on
global marketing campaigns and use of technology to enhance access to these
markets is on a steady rise (Sumantra and Nohria, 1989). The replicas are also
only able to operate in countries where governments do not impose restrictions
on product specifications and business processes that may need substantial
alteration of the same (Amussen, Pedersen and Petersen, 2005).
Transnational subsidiaries on the other hand are either fully or partially
owned branches of the multinationals that are established to cater for the
market needs of the market in a country or a selected region (Amussen, Pedersen
and Petersen, 2005). These subsidiaries are fully equipped with top managerial
talent whose responsibility is to pursue the strategies they deem necessary for
ensuring the growth of their market share in such markets. The level of
autonomy is considerably higher than experienced by minireplicas with the
subsidiaries having the leeway to modify their practices as they deem fit
(Birkinshaw and Morrison, 1995). Unlike the minireplicas, the transnational
subsidiaries are at liberty to produce new products and are not bound to stick
to the product range offered by the parent organizations. The subsidiaries
therefore embrace the art of competing locally while keeping in sight the
global strategies of their parent companies. The development of well positioned
research and development departments that aid in capturing market preferences
and subsequent development of relevant product features is a key function of
transnational subsidiaries (Amussen, Pedersen and Petersen, 2005). This makes
such subsidiaries more costly to establish albeit with higher prospects for
gaining the desired returns.
Unlike minireplicas, transnational subsidiaries are necessary in foreign
markets whose cultural values are significantly different from those of the
parent corporations (Amussen, Pedersen and Petersen, 2005). Relatively
homogenous cultures reduce the necessity to make any major alterations to the
product lines or business practices. The rising popularity of transnational
subsidiaries is based on their perceived ability to compete successfully in the
foreign markets. With a local focus, the subsidiaries are able to achieve some
level of differentiation and a unique brand image as a result of accurate
realignment of their practices to reflect on the prevailing needs (Amussen,
Pedersen and Petersen, 2005). The choice on whether to establish minireplicas
or transnational subsidiaries is therefore dependent on the multinational’s
generic strategies is well as the characteristics of the target markets.
Ethical universalism is a philosophical position that emphasizes that
moral values and principles are commonly applicable across different cultural
orientations (Browning, 2006). These philosophy presumes that the source of
such moral codes is a supernatural being or simply by some natural moral law in
the universe. Ethical relativism on the other hand dispels this notion and
holds the view that morality is relative (Browning, 2006). This philosophy
holds that people should act according to their consciences. The infamous quote
of ‘live and let live’ forms the basis for ethical relativism also referred to
as moral relativism (Tangwa, 2004). The concept of moral relativism draws its
roots from the Greek historian Herodotus as early as 450BC (Tangwa, 2004). He
held the view that every society has a developed moral code which they hold in
higher regard than those developed by other societies. Advocates of moral
relativism hold the view that different persons cannot hold the same belief on
all issues. Several areas of uncertainty exist which are rarely agreed upon by
even those that embrace the philosophy of ethical universalism. These
uncertainties are however described by Universalists as imperfections based on
the partiality of knowledge on some selected moral areas. Jean Sartre, a
leading 20th century philosopher held that no morality exists apart
from that created by humans themselves (Tangwa, 2004). Moral relativism is
popular among persons who seek to fight against the apparent ethnocentric
mannerisms of members of dominant cultures around the world. For instance, in a
UN conference on human rights in 1993, Iran, China and Syria were recorded to
have disputed the rationale for branding some moral codes as universal when
they were mainly a reflection of the dominant cultural values of the Western
countries (United Nations, 2010). The three countries used this argument to
demand that the UN recognizes the cultural values of non Western populations
whose beliefs in some aspects of life tended to be in sharp contrast with the
so called universal values. Such examples included the practices regarding the
status of women in the society; the mode of punishment meted out on offenders
and other issues (Tangwa, 2004).
The moral Universalists tend to hold the view that cultural values are
likely to move towards the acceptance of the dominant cultures over the smaller
insignificant cultures (Browning, 2006). In their considered opinion, values
held by smaller cultural values will eventually give way to the values held by
the dominant cultures. In contemporary times, this dominant culture is believed
to be the Western cultures. Relativists on the other hand hold the view that
cultural values are deeply entrenched into the societies and are to remain
unchangeable over the long term. Universalists hold individuals as the social
unit who possess certain irrevocable rights (Browning, 2006). These individuals
are believed to be mainly driven by self interest. Relativists on the other
hand view the community as the basic social unit. Under relativism, community
comes first and individualism, equality and freedom of choice are frowned upon
(Browning, 2006).
Relativism poses grave danger to the welfare of the society. Concentration
on people’s subjective opinions poses the danger of societies losing their
identity through the emphasis on the fact that moral values depend on the
consciences of individuals (Tangwa, 2004). This perception might lead to a situation
where governance would make no sense and may result in chaotic societies. For
instance, persons who believe that murder, theft and debauchery were perfectly
within their rights to hold their views on the right and wrong moral values
would question the basis on which other members of the society would want to
stop them. Universalism on the other hand gives the justification to members of
the society to impose their values on other members of the society (Browning,
2006). This phenomenon can be observed with the push by the United Nations to
push for the embracement certain values which are widely seen as the embodiment
of Western cultural values; an effort that has been greeted with immense
opposition from countries from Asia and Africa who have named the efforts as an
advancement of their Western imperialism (United Nations, 2010).
Several factors need to be considered before the establishment of a global
e-business. One of the first factors to be considered before setting such a
business is the consideration of the products or services to be offered (Mike,
2000). Pre-existence of products or services or its lack thereof greatly
determines the approach that a business would take in establishing such
products. The entrepreneurs should also take due consideration of the level of
infrastructural capacity in place in its target markets. The most common means
of conducting e-transactions is the internet (Mike, 2000). The penetration
level of the internet and the tools to access it (computers and internet
enabled phones) is therefore crucial to upcoming e-businesses. The enabling
infrastructure may also be in form of enabling legislations and an established
support system (Bayles, 2001). The main driver for e-transactions is the
ability of customers to make online payments for the products being bought. The
ability of financial institutions to facilitate such transactions is therefore
crucial to upcoming businesses. The reliability of such infrastructures and the
regulatory frameworks are equally important. In the absence of such
infrastructure, the risk of having unregulated and criminal practices is bound
to be realized (FCCA, 2010). Supporting legislations are therefore crucial to
the setting up and the success of any e-business. The ability of existing
legislations to detect cybercrime is crucial in ensuring the integrity of
online transactions and therefore a key determinant on how the market views the
viability of e-business.
The internal capabilities of the business intending to go online should
also be considered. The possession of skills and experience relating to
e-business would be advantageous to firms in relation to helping such
organizations to set up effective infrastructure to facilitate the smooth
functioning of such businesses (Mike, 2000). An inexperienced and untalented
workforce places the organization at the risk of not only failing to attract
clients but also at the risk of losing resources to unscrupulous cybercrime
operators heightening higher chances of failure of the business. Market trends
must also be taken into consideration when setting up the businesses. The
technological developments associated with developed markets make it possible
to institute e-business facilities without unnecessary strain. Technological
advancements have a tangible effect on the level of acceptance that consumers
have for e-business (Mello, 2001). Market trends determine the level of demand
that the organization could expect to have for its products and services and
therefore determines the likely level of success of such endeavors. A business
launching into growing markets tend to have higher chances of success than
those launched into constant or declining markets. Market trends may also have
an impact on the designing of the online facilities as well as the processes
involved in making a transaction (Mello, 2001). Where consumers prefer easy to
follow and simplified procedures, the processes should be designed as such.
However, the need for simplicity must be weighed against the need to ensure
that the transactions are secure and that the personal information of their
clients is not under any threat.
For businesses that are already in existence, the level of brand awareness
is important to determine the ease with which consumers would embrace their
e-business services. Brand awareness comes with increased levels of trust among
consumers (Mike, 2000). This makes them more receptive to virtual transactions
which in many cases require the existence of confidence on the part of both
transacting parties. For businesses that are newly launching, or are virtually
unknown, the executives must consider launching massive marketing campaigns
aimed at ensuring the requisite brand awareness is maintained (Bayles, 2001).
For instance, a brick and mortar company with an international presence is
likely to launch with more ease than one which is small and unknown. Such an
organization would have the advantage of having valuable information about the
target markets making it easy to strategize on how the services introduced can
be embraced by such consumers. Their physical presence is also expected to be
helpful. The presence of a largely visible distribution network also provides
such the consumers with the physical evidence which is needed to ensure that
the consumers engage in virtual business with increased confidence.
The IHRM stands for International Human Resources Management and mainly
deals with the management of human resources across national and regional
boundaries. The IHRM orientations are therefore the philosophies and the
tactical approaches that the multinationals in managing their human resources
(Thomson Learning, 2007). The four IHRM orientations include the Ethnocentric,
Regiocentric, Polycentric, and Global orientations (Thomson Learning, 2007).
Under the ethnocentric orientation, the HRM practices tend to be in line with
the practices of the parent organization’s home country (Thomson Learning,
2007). The key decisions are centralized on the parent company with the home
country nationals occupying the highest positions in the organization. The
employment of host country’s nationals is not largely emphasized. This approach
denies the host country nationals the opportunity to identify with the company
and this may spread to the general public hence potentially hurting
performance. The use of home nationals as expatriates in foreign subsidiaries
limits the career development of such expatriates. Moreover, such expatriates
may not be well equipped to function well in their new environments hence
making many costly mistakes that may hurt their organizations. The Regiocentric
approach emphasizes the adoption of the policies and practices embraced by
organizations in the regions in which they operate (Rowley and Bae, 2001). The
adoption of this orientation tends to make the company practices more
acceptable to the host countries since much of the regional practices are
widely acceptable to the countries in question.
Polycentric orientation on the other hand refers to the adoption of HRM
practices suitable for the specific host countries (Bamber and Lansbury, 1998).
This approach involves the empowerment of host nationals making them gain wider
acceptance in by the average consumers. The hiring of hosts as managers also
saves costs as the companies avoid the need to train expatriates from the home
country (Thomson Learning, 2007). Moreover, the managers employed tend to be
conversant with their own cultures hence limiting chances of miscommunication.
The ease with which such local managers transform business practices to suit
the cultural practices of the host countries is remarkable. This leads to
higher motivation levels among employees which lead to enhanced productivity. It
also facilitates the acceptance of the organization into the society enabling
them to attract and retain a loyal customer base. However, this approach has a
number of demerits. The involvement of
host nationals in management leads to potential communication problems with the
parent companies when it comes to progress reporting and general communication
(Rowley and Bae, 2011). These differences are occasioned by cultural
differences that may affect the approach to issues as well as the complexities
associated with language barriers. Moreover, such managers tend to have little
international experience and are therefore unable to guide their organizations
into international expansion. Such managers largely tend to be confined to
their countries hence limiting their chances for career development.
The fourth orientation is the Global orientation. Under this orientation,
no preference is given to the home, or host country or region. A global
approach is taken in recruitment processes where global outlook is maintained
(Thomson Learning, 2007). The assignment of responsibilities is done on the
basis of skill, diligence and experience with a total disregard of the
nationality of such managers. The global orientation presents the organizations
with a greater talent pool from which they can enlist the most resourceful
persons. The approach also enables organizations to develop international
expertise (Bamber and Lansbury, 1998). This approach also enables the
organizations to develop transnational cultures as a result of the movement of
various nationals into the organization. The approach is however
disadvantageous due to the high cost of recruitment especially where technical
and middle level managers are sourced globally.
The main multinational strategies include multilocal, regional,
international and transnational strategies (Thomson Learning, 2007). Multilocal
strategies mainly focus on serving the unique needs of a given country. The
best orientation for it is the polycentric orientation with selected elements
of regiocentric orientation (Thomson Learning, 2007). For regional strategies,
the regiocentric orientation is the preferred orientation. However, elements of
the polycentric orientation may be suitable. An international orientation is
best enhanced by the ethnocentric orientation although elements of the other
orientations may be applicable (Thomson Learning, 2007). The Transnational
strategy is best enhanced by the global orientation.
Compensation schemes are adopted by organizations to ensure high
motivation among employees (Bloom, Milkovich and
Mitra, 2000). This is done by
aligning the compensation schemes to the cultures of the host countries. The
main distinguishing cultural aspects affecting compensation schemes is the
individualistic and the collectivist cultural orientations (Bloom,
Milkovich and Mitra, 2000).
In order to understand the differences in compensation schemes, it is important
to understand the manner in which these two cultural orientations differ from
each other. The individualistic cultures focus on the individuals who are
viewed as independent entities. These individuals focus on their skills and
competence and work to enhance their personal excellence. The values relevant
to this orientation include self responsibility, self reliance, self
determination, and self sufficiency (Hofstede, 1980). The collectivist
orientations are group oriented and the manner in which individuals fit into
the groups. Similar differences are seen in the decision making models in the
two cultures. Individualistic cultures emphasize individual brilliance in the
decision making processes while the collectivist approach emphasizes the
contribution to the group decisions in a consultative forum that are often
characterized by consensus building. The collectivist cultures tend to be
hierarchical with age, gender or even birth order forming the basis for such
structures (Taylor, Beecher and Napier, 1997). The individualistic values also
emphasize on the progress of the individual in terms of education, career and
job positions. The collectivist values on the other hand emphasize on group
progress with little emphasis on individual advancement. Cultural values also
determine the level of competitiveness among individuals. American employees
are generally viewed as highly competitive and mainly reliant on material
rewards. This is unlike the traditional Japanese employee who expresses
contentment with being a member of a functioning and progressive group (Bloom,
Milkovich and Mitra, 2000).
The compensation systems therefore reflect these values and are tailored
to encourage productivity in the given contexts. The American compensation
schemes are therefore mainly tailored on encouraging individual excellence (Bloom,
Milkovich and Mitra, 2000).
Personal achievement is highly emphasized. Clear job descriptions are provided
to employees who are then evaluated annually based on the achievement of the
targeted objectives. The reward schemes are tailored on individual performance
with monetary compensation and other material benefits. Promotions are also
granted on individual basis to reward individual achievement. For instance, a
study of the salary structures of Chrysler in 1997 revealed that the top
managers were offered packages that were aimed at stimulating achievement (Bloom,
Milkovich and Mitra, 2000).
Only 25% of the packages comprised of a basic salary. The rest would be in form
of benefits aimed at rewarding the attainment of objectives of the business. The
compensation structures also bear the same characteristics on most employees in
the American labor system. This system recognizes brilliance and achievement
over experience with cases being common of younger employees earning higher
amounts than their more experienced counterparts. A sharp contrast of the
system is observed in Japan. The Japanese pay structures are mainly composed of
a fixed salary (Bloom, Milkovich and Mitra, 2000). The employees are mainly bundled into work groups or
teams that are principally responsible for ensuring that their members perform
to expectation. The need to deliver good results for the team becomes the
motivating factor behind the hard work by individual members whose principal
goal is to deliver on the group’s objectives. Appraisal is therefore largely
informal and is done by the group members at the initiative of the team leader
who identifies the areas for improvement and makes recommendations in regard of
the same (Bloom, Milkovich and Mitra, 2000). The pay structures are largely a reflection of the
level of experience where the older members of the organization tend to earn
more than their younger counterparts.
The use of either system on the contrasting societies is likely to
generate poor levels of productivity. For instance, using the Japanese system
in Europe would leave the employees who believe in a display of individual
brilliance and achievement disillusioned. Similarly, applying the American
system in Japan would shake the Japanese firm belief in collective
responsibility and breed unhealthy animosity which may lead to lower levels of
productivity.
Strategic alliances comprise of business entities coming together for a
given purpose with the aim or tapping into each other core competencies for the
mutual benefit of both partnering firms (Dyer, Kale and Singh, 2001). The
nature of commitments in strategic alliances helps to determine the nature of
relationship that exists between the partner firms as well as between the
partnering firms and the alliance itself. These commitments include the
formation of joint ventures; outsourcing; affiliate marketing; technology
licensing; product licensing; franchising; Research and Development; and
Distribution relationships (Dyer, Kale and Singh, 2001). Properly strategic
alliances enable organizations to benefit the parent organizations through
enhanced capabilities and increased economies of scale.
Several factors are necessary to ensure that strategic alliances
successfully deliver the intended benefits to the parent firms. These include
senior management commitment, alignment of management philosophies, effective
and strong management teams, frequent reporting, careful planning, shared and
commonly understood goals. Strategic alliances are central to organizations’
generic strategies. They therefore require the full attention of top management
in order to allow the realignment of all the organization’s resources towards
the attainment of such strategic alliances. The senior management commitment is
necessary in rallying all the members of the organizations behind the strategic
alliance. This deliberate effort is necessary to ensure all employees are
committed to it. This is because organizations generally perceive strategic
alliances as activities outside the scope of their organizations and are
therefore likely to allocate it a lower priority. Moreover, top level
management commitment ensures that top talent is assigned to the alliance
making chances of success much higher. This commitment is also necessary in
undoing the effects of fear of loss of control normally associated with such
alliances.
Similarity of management philosophies goes a long way in ensuring harmony
in the operations of the strategic alliance (Rigby and Robin, 1994). When
choosing alliances, it is important to consider the question of management
philosophies. Where this is not possible, it is important that deliberate
efforts are made in resolving the management disparities that may exist. Agreements
on management practices need to be carefully negotiated to ensure that the
partners are committed to the same. This would help avoid unnecessary
disruptions that would possibly paralyze the operations of the alliance. Strategic
alliances are also in need of a strong management team in order to be
effective. The common practice of assigning the ‘less than excellent’ managers
to strategic alliances can be very damaging to the effectiveness of such
alliances (Elmuti and Kathawala, 2001). Frequent performance feedbacks are also
necessary to ensure the success of alliances. Accurate and frequent reporting
enables quick resolution of arising challenges leading an overall higher
performance. The level of agreement between the management team should also be
captured. This would enable the parent companies to anticipated interruptions
and therefore proactively resolve the issues before they paralyze the alliance.
The alliances are also strong when their objectives are clearly defined.
The goals also need to be shared among the participating members with the
objectives properly internalized (Dyer, Kale and Singh, 2001). Objectives
provide measurable steps that need to be achieved in order to advance the
vision of the alliance. These objectives form the basis on which the operations
of the alliance are based (Rigby and Robin, 1994). The proper determination of
the objectives therefore goes a long way in ensuring the success of the
venture. The internalization of the objectives helps rally the alliance
managers and indeed all employees involved to consciously contribute towards
the achievement of these objectives. The clarity of roles and benefits accruing
to each of the partners is also very important. Negotiations preceding the
formation of the alliance need to be candid and devoid of any pretense (Dyer,
Kale and Singh, 2001). All the expected benefits of the alliance need to be
highlighted and agreed upon by both parties. This ensures that unequal
distribution of benefits is avoided. Where one of the partners discovers that
the other partner seems to benefit more, it is natural to feel somewhat
exploited. Such feelings soon breed resentments which soon translate into low
commitment towards the alliance and the eventual collapse of the same.
Negotiation is a discourse between two or more parties intended to create
understanding. Negotiations mostly happen in areas characterized by competing
interests where the negotiators endeavor to gain as much benefits as they can
from such a process (Raiffa, 1982). Negotiation is therefore a highly strategic
process that requires proper input for it to be successful. Various analysts
break down the negotiation process into a number of distinct steps. These steps
include the preparation stage; the establishment of negotiator identities; the information
exchange stage; the distributive stage; the closing deal stage; and the
cooperation stage (Raiffa, 1982). At the preparation stage, information is
gathered about the subject matter and about the other parties. This stage often
takes time as negotiators are keen to ensure that the information gathered is
to be of value to the negotiation process (Shapiro, 2001). A clear
understanding of the intended objective of the negotiation process is also
determined. The bottom lines are also established at this stage. The
preparation stage also involves the psychological preparation of the negotiator
whose aspirations should be to come up with the desired deals. Understanding of
the cultural barriers and how these barriers could be overcome is also done at
this point (Shapiro, 2001). The negotiators must therefore be prepared to seek
relevant assistance as may be required from time to time.
The next stage involves the initial interactions with the other
negotiating parties where the tone for interactions is set (Ury, 1991). This is
referred to as the stage of establishing negotiator identities. This stage is
characterized by small talk where the negotiators try to know about each other.
This process helps dissolve the anxieties with the negotiating processes. The
creation of a positive environment conducive to the negotiating process is of
utmost importance. These discussions generally range from general issues to
light personal issues. The choice of topic or the length of such engagements is
mostly determined by the cultural orientations of the negotiators (Ury, 1991).
For instance, American negotiators tend to prefer to lessen the small talk
while the Chinese negotiators tend to pay closer attention to this stage so as
to gain a deeper knowledge of the negotiating parties.
The next stage is the information exchange stage. In this stage, substantive
issues relevant to the negotiation are discussed (Ury, 1991). The negotiators
seek to gain as much information about the other parties as possible. This is
done by asking questions and getting the other parties to talk. It is in this
stage that the negotiator is able to determine what preferred outcome the other
parties would prefer to have (Shapiro, 2001). This informs their negotiation
process as they begin to shape opinions and manage expectations.
The distributive stage is the heart of the negotiation
process. At this stage,
the negotiator lays their offer on the table by stating their demands as well
as the concessions that they may be willing to make (Raiffa, 1982). This is the
part that makes or breaks the negotiation process as the competition between
the two parties becomes apparent. The negotiators at this point are keen to
advance their interests and seek to get as much of it as can be obtained
(Raiffa, 1982). It is in this stage that the less competitive negotiators are
outmaneuvered through manipulation by the sterner negotiators (Raiffa, 1982).
Good negotiators plan in advance their goals and their bottom lines before
entering into this stage. The system to be used for concessions is also planned
before hand with the hope that a deal can be reached with as few concessions as
possible. It is in this stage that the real value of the negotiating process is
realized. The negotiations move back and forth until an agreement becomes
apparent.
The closing deal stage is basically meant to solidify the deal. This
process can also be used to inspire a last minute concession from the opposing
team. The next stage is the cooperative stage. This stage is a friendly stage
where commitment is reinforced (Ury, 1991). The negotiators at this point also
seek to find ways of improving their gains without affecting the other party’s
side negatively.
The aim of any motivation programs is to improve the productivity of the
workers in the organization (Barett, et al, 2004). Various motivation
strategies are applicable for different categories of employees depending on
their cultural orientations. The guiding principle for such programs is the
employees. Various persons view work differently. The meanings that are
attached to work are largely a reflection of the wider cultural values in which
organizations operate (Gannon, 2007). For instance, cultures that emphasize
individual achievement view work as the means to an end and not the end in
itself. This view can be illustrated as follow: the main aspiration of an
individual in such cultures is to attain self responsibility, self reliance,
self determination, self sufficiency and self actualization (Kagitcibasi, 1994).
This means that their work is simply the means through which this goal can be
attained. Their focus on personal achievement enables them to sharpen their
skills and develop their careers. However, these career objectives are not
centered on their employers. The career is basically tailored to serve the
individual who is at liberty to seek other opportunities at will (Kagitcibasi,
1994). Members of such societies therefore tend to be more loyal to their
careers than they are to their employers. Such employees are therefore on a
constant move and only stay with organizations that offer incentives that are
beyond what is available in other recruiting organizations. The focus on
personal achievement also prompts such employees to seek the establishment of
measurable goals against which the can be evaluated. Such evaluations are
expected to be characterized with a measure of transparency and fairness.
Collectivist societies on the other
hand emphasize the importance of belonging to a given group. This belonging is
often translated to mean the belonging to a given organization or group of
organizations where individual’s identities are closely associated with such
organizations (Kagitcibasi, 1994). Work in the context of such cultures is
therefore a reflection of a way of life. With the emphasis of belonging,
employees embrace their places of work as an integral part of their lives from
which they expect treatment bordering on ‘the family status’. It is common to
find employees working with one organization or a group of related
organizations for their entire lives with sufficient encouragement for their
children to take after them (Kagitcibasi, 1994). Immediate gains are therefore
not the most attractive attribute for their jobs. Instead, the sense of
belonging and the provision of safe working conditions tend to be the dominant
expectations of such members.
These two examples illustrate how the perception of work as influenced by
the cultural influence of individuals shape their expectations. Any attempt to
generate incentive or motivational programs in disregard of these factors is
likely to prove futile. Good managers are supposed to be in a position to
accurately discern the aspirations of their employees and take measures to
ensure that such aspirations are met (Gannon, 2007). One of the main sources of
employee satisfaction is the realignment of employee goals with the HRM
practices in the same organizations. Where such alignments are achieved, the
motivation levels are soaring high and productivity also goes up (Gannon, 2007).
The converse is true where such alignments are not achieved. It is therefore
important for the human resource managers to engage employees in trying to
determine how best to meet their demands. For instance, the individuals that
emphasize personal achievement and equally quick rewards should be allowed to
meet their financial objectives accordingly. This can of course be done by
offering certain financial incentives for the attainment of a certain goal (Barett,
et al, 2004). Provision of
opportunities to advance employee careers is also suitable for motivating such
employees. Even though financial compensation is crucial in ensuring that
motivation levels are high, it is important to come up with strategies that
provide employees with non financial incentives where such incentives are
desired. The general treatment of employees while at work as well as the
provision of some amenities as part of their work packages help encourage a
sense of belonging for such employees (Barett,
et al, 2004). This would
encourage such employees to remain loyal to the company over the long term as
they had initially desired.
For effective leadership, managers must be able to understand and meet the
expectations of their subordinates (Jacobs and Jaques, 1987). Leadership
involves influencing people to take certain desired actions. In the case of
multinationals, leadership would involve the inspiration to get the employees
to work towards the fulfillment of the organizational goals in their various
capacities. The expectations that subordinates have on the managers in relation
to the requirement of the leadership styles to embrace are more often than not
influenced by the cultural experiences of such subordinates (Jacobs and Jaques,
1987). The overall organizational culture and the organizational values as
outlined in the company policy documents may also significantly shape these
expectations.
The managers may opt to embrace one or more of the following leadership
styles in the execution of their work: the authoritarian or autocratic
leadership style; the democratic or participative style; the free rein or the
laissez faire style; narcissistic leadership style; and the toxic leadership
style (Yuki, 2006). The choice of the leadership styles must be compatible with
the expectations of the subordinates for a manager to provide effective
leadership in the organization. The authoritarian style centralizes decision
making on the manager who is at liberty to make decisions solely without any
consultation. The decisions are made with speed due to lack of a consultative
process even though employees may not quickly internalize such decisions (Yuki,
2006). The democratic style involves the participation of subordinates in
making decisions. Consultative forums are held before any major decisions are
made. This style motivates employees to own the decisions made resulting in
higher motivation levels. The laissez faire approach is where the leader leaves
the entire leadership role to the subordinates who then have a free hand in
deciding what to do at any particular point (Yuki, 2006). This approach can
provide high motivation levels since the employees feel entrusted with the
leadership role. However, the lack of control may lead to abuse of the freedom
and therefore lead to low productivity levels.
The style of leadership model to be used is dependent on the prevailing
cultural contexts. For instance, high power distance cultures are characterized
by a wide acceptance by subordinates that their seniors have more power than
they have (Jacobs and Jaques, 1987). High distance refers to a situation where
the less powerful members of a society accept and expect that power is
distributed unequally (Jacobs and Jaques, 1987). Decisions made are seen as
right and unquestionable the higher a person rises in hierarchy. In such
societies, employees refrain from questioning decisions made by their seniors
due to fear of possible consequences. In high power distance societies, the
seniors rule with strictness and their subordinates are dependent on their
decisions. High power distant organizations are largely centralized with the
senior management taking decisions which are then implemented by the
subordinates. Inequalities are rife under such systems (Jacobs and Jaques,
1987). The available privileges are reserved for the seniors who take them as
tokens for their prestigious positions. The salaries payable to the seniors are
also much higher than those paid to the subordinates.
Given that the expectations of the people are mostly a function of their
cultural backgrounds, it is expected that employees from a high power distance
society would tend to expect that such practices be embraced by their seniors.
To remain effective as leaders, the managers in such organizations would
therefore need to adopt an appropriate leadership style which is the
authoritative leadership style (Patrick and Charnov, 2008). This style comes
with a heavy responsibility in that the managers are expected to generate all
the policies to be implemented in the organization. This would be expected to
take place without consultations with the subordinates. Failure to take prompt
and decisive decisions or prolonged consultation with subordinates on the
decisions that need to be taken may easily be interpreted by the subordinates
as a level of uncertainty unworthy of a holder of such a prestigious position
in the organization. The manager would therefore be forced to embrace the said
style and enjoy the advantages such as prompt decision making and a responsive
pool of subordinates who would be happy to execute the orders given.
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