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Opportunities and Threats that Globalization Create for Decision-Makers
Submitted by Name:
Opportunities and Threats that Globalization Create for Decision-Makers
For the last decades, the world has experienced increased globalization that is associated with rapid growth of international trade, increased direct foreign investment (FDI), and high level of cross-border financial flow. The rapid globalization is facilitated by factors such as enhanced technological development, effective international transportation, and easy and quicker communication. At the same time, emerging economies have attracted the world attention as a result of their rapid economic growth. These economies are characterized by large population, strong economic growth, and advanced technologies. The leading s emerging economies include Brazil, China, and India. The emerging economies have produced a number of MNCs that are now found in different parts of the world. Like many other MNCs from developed countries and even those from developing countries, international businesses from emerging markets encounter threats and opportunities that are associated with globalization. The essay, therefore, focuses on the opportunities and threats of globalization to decision-makers running MNCs from China. It specifically looks at Lenovo Group Limited, which is a Chinese MNC.
Overview of Globalization and MNC
The term globalization has become a buzzword that has changed the modern society in different ways. It generally refers to the cross-border movement of commodities, capital, information, and human population (Dulupçu and Demirel, 2005). It is, therefore, a closer integration of states and people of the globe, which is associated with cheaper cross-border transport and communication and destruction of artificial barriers to the movement of goods and services, including knowledge and capital. Consequently, globalization is also eroding the traditional national boundaries while at the same time it is uniting national economies, cultures, and technologies. Globalization has led to mutual international interdependence. However, it has come with opportunities and threats, especially to international business that operate in many countries across the globe.
MNC, on the other hand refers to the corporations that has its facilities and assets in more than other countries apart from the home country. In many cases, they have their offices, plants or outlets in different countries with one centralized head office where they coordinate and manage all their international operations (Görg and Strobl, 2002). Traditionally, almost all MNCs came from developed countries, especially the USA, European countries and Japan. For instance, the major firms that dominated international market included Coca Cola, Walmart, BMW, and Toshiba. Nevertheless, trend has changed and now some of the leading MNCs come from emerging economies such as China, Russia, and Brazil. The current globalization is defined in terms of MNCs because their operations cover many countries with different social, cultural, political, and economic environment.
Despite the Chinese rapid economic growth, many economists still believe that numerous MNCs from the country have not fully become global corporation. Chinese MNCs have not fully structures themselves to international companies that can effectively compete in any environment (Andersson and Wang, 2011). They have relieved on their domestic economic growth, which has reduced their chances of investing in the international market. Therefore, the concept of globalization is still a foreign phenomenon to many MNCs in China that have the potential of exploiting international markets (Yazdanifard and Yijie, 2011). Nevertheless, there are some Chinese MNCs that are doing well in the international market. For instance, Lenovo has become the world market leader and is now found in many countries across the globe.
Overview of Lenovo Group Limited
Lenovo Group Limited is the largest personal computer (PC) company in the whole of China and the second largest internationally after overtaking Dell. The company operates in more than 160 companies across the globe. The company was formed in 1984 and was known as New Technology Development Company and it is considered to be the pioneer firm in the Chinese science and technology sector (Chu, 2008). Lenovo has experienced massive expansion since it was founded and it is now commanding about 13.5 of the global market share after HP that control 17.7% of the international market. Therefore, it is one of the best performing MNCs from emerging economies.
Globalization Opportunities and Threats to Decision-making in MNCs
There are a number of opportunities that are associated with globalization that have facilitated the expansion of MNCs from emerging economies. Some of the opportunities that are associated with globalization include rise in technology, investment level, economies of scale, and wide market (Shangquan, 2000). Therefore, globalization creates a wide range of opportunities to MNCs that come from different parts of the world.
MNCs from emerging economies are enjoying wide range of technology from developed countries, which promotes effective decision-making. Improved telecommunication technology makes it easy for the management of MNCs to access information in all parts of the worlds, which they can use to come up with evidence-based and rational decisions. As a result of enhanced technology, managers of various company subsidiaries can easily share information and make decisions together despite the geographical barrier. In addition, managers from different countries can easily share ideas, leading to effective decision-making that can improve the performance of MNCs. Therefore, enhanced technology that is associated with globalization creates opportunity for timely and rational decision-making in MNCs from emerging economies.
Cross-cultural management is one of the main opportunities that are associated with globalization that help in effective-decision making. Many MNCs from China still depend on their still depend on their domestic management methods that may not work in some international markets. Many of Chinese MNCs practice decentralized decision-making style, which may hinder internal creativity and innovation. However, with cross-cultural management, the MNCs have been able to perform well in the international market. The corporations are now able to employ expertise from different countries and different management backgrounds. Cross-cultural management, therefore, helps MNCs from emerging countries to make rational decisions based on the local market and business environment. Lenovo, for instance, has been able to penetrate the international market by adopting style that is not familiar in China. The company is now using decentralized decision-making strategy to motivate local management team when it moves to foreign markets. Therefore, cross-cultural management style has made Lenovo more successful in the foreign market.
Globalization has also made international managers to be more independent, leading to quick and effective decision-making. In some cases, the objective of managers may be different to those of shareholders or investors, which may create a conflict of interest in a company. However, globalization makes it difficult for investors to closely monitor management actions because the company operates in many countries with different business environments. Consequently, managers have more freedom to act independently without the influence of shareholders, which may improve decision-making and effective management of MNCs. The management conflict between the management and investors may end up reducing the value of MNCs. However, the independence of decision-making by managers of MNCs should be checked because they can end up serving their own interest instead of that of shareholders.
Diversification of risk is another opportunity that is associated with globalization, which is also enjoyed by MNCs from emerging economies. Increased globalization has helped MNCs from emerging companies to invest in various countries in order to spread out their risks. Unlike emerging economies that are prone to political and economic risks, developed economies are relatively stable and suitable for business. As a result, Lenovo has expanded to developed countries like USA and other western countries in order to reduce risks that they hinder its operations.
Cultural difference is the biggest globalization threat that is facing the decision-makers of MNCs from emerging economies. Decision makers in such corporations find it hard to manage people speaking different languages, and those with different traditions, cultures and religion (Wu, 2009). The cultural diversity in human resource in various MNCs is posing a major challenge to decision-making in many international firms that come from emerging economies. In addition, the diversity in customers that MNCs serve also makes it hard to make universal decisions that meet consumer desires and needs (Deari, Kimmel and Lopez, 2008). Language barrier is believed to be the main challenge for Chinese MNCs, as many Chinese managers do not speak English, which is a common international language. Consequently, Chinese MNCs find it hard to retain international experts and people who speak different languages. Therefore, cultural difference is a major threat to survival of Chinese MNCs, because their decisions must be multicultural.
The cultural difference clearly emerged when Lenovo wanted to merge with IBM, which is a US-based company. Despite the fact that the two companies have had a long time fruitful relationship, they encountered cross-border differences when they wanted to merge. The two companies were not able to create a unified global management due to language barrier, which led to poor communication between the two parties. The two companies found it hard to make conference calls.
Apart from language barrier, the two companies experienced general communication barrier due to different cultures. The Chinese culture is silent in conversation and many people from China first think of what they should say before speaking it out. Consequently, IMB dominated the conversation during the merger discussions as western people could speak faster than Chinese (Peng, 2008). Communication barrier also led to lengthy meetings and a lot of misunderstanding that almost jeopardizes the merger. The problem became worse when Lenovo insisted that English would be its corporate language. Therefore, different communication was not only a threat to Lenovo, but it also affected the quality of its decision-making and problem solving. In order to solve the problem, IMB and Lenovo were forced to form culture integration committee to overcome language barrier. They came up with the “East Meet West” program that was aimed at reducing the cultural differences between Chinese and Americans working in the two companies.
Both IBM and Lenovo also had different corporate cultures, which was also a major threat to decision-makers. The difference in corporate culture was due to different norms and valued that Chinese and Americans hold. Lenovo had a hierarchical culture where the decision was centralized and junior staff was no allowed to challenge the authority. Chinese also play a lot of attention to details. Contrary, IBM was a flat company with decentralized communication system (Peng, 2008). Apart from individual relationship between IMB and Lenovo top managers, different corporate cultures also affected customer relationships. Different corporate culture also affected the decision-making of the merged companies, as they could hardly agree on certain issues. Therefore, cultural difference that is associated with globalization is a threat to MNCs from emerging economies, especially because they are new in the international market.
Another globalization threat facing MNCs from emerging economies is the disconnect in the human resource management. Human resource departments face a challenge of coming up with universal company policies and uniting culturally different employees to for a single employee community. Different countries have different procedures and policies of selecting and recruiting workers. However, in order to create one employee community, HR managers must formulate recruitment procedure that is uniform and consistent across countries. The cultural divide also makes it hard for MNCs from emerging countries to create a corporate culture that is in line with the parent company’s values and identity (Ferraro and Brody, 2015). Therefore, diverse language, cultures, and customs prevent MNC HR managers from coming up with similar policies that cut across different countries. As a result, many MNCs from emerging economies have disjointed employee community, which may end up interfering with productivity and performance of workers.
Therefore, Lenovo HR managers from China found it hard to make effective decisions that affect employees across different cultures. For instance, when it ventured into the US market, the corporation initially had conflicts with the local employees. Unlike the Chinese society that is characterized by high-power distance, the US society is low-power country (Peng, 2008). Therefore, local employees from the US expected the salary ranges between management and junior employees to be small, which Chinese top management found abnormal. In addition, the subordinates expected to be consulted when Lenovo was making key company decisions, which is different from the Chinese corporate culture (Peng, 2008). Besides, since US is an individualistic society, the local employees expected to make decisions based on their interest because they expect workers interest and that of the employers to coincide. As a result, HR from China could not easily work with local employees in the US due to different cultures that ended up affecting their management decisions.
In addition, MNCs from emerging countries are also facing globalization threat such as the need to conserve the environment and terrorism threats. As a sign of social responsibility, the company expected to embrace green manufacturing. Even though the company has take a lot of initiatives such reduction in greenhouse gas emission, the top management of the company still find difficult to come up with appropriate climate change strategy that does not affect its operations. At the same time, the corporation must take care of safety of its facilities and employees due to increased terrorism (Mazzarella, 2001).
Lessons that can be Learned by International Managers
MNCs from developed economies have a lot of competitive advantages in the international compared to their counterparts in the emerging economies. Apart from having well-known brand names in the global market, they also have effective and efficient management systems. In addition, MNCs from developed countries have efficient innovation processes and sophisticated technologies that they use to produce quality goods and services. Unlike MNCs from emerging economies, those from developed nations have reservoir of diverse talent and expertise from different countries and cultures, which they use to penetrate international market.
Therefore, international managers running MNCs from emerging economies must cultivate corporate cultures and organizational climate that encourage innovation and creativity among employees. International managers from China, for example, are used to hierarchical management system, which limits the interaction between management and junior employees. It is high time for such managers to adopt transformational leadership style that is common in developed economies to encourage creativity and innovation in their MNCs. Therefore, MNCs from emerging economies such as China can only be successful if their managers embrace effective management styles, technology, and innovations.
Cultural difference is believed to be the main challenge facing international managers from emerging economies. Many managers from emerging economies such as China are conservatives and they take time to embrace other cultures. Contrary, their counterparts from developed countries are flexible and have a reservoir of diverse talents. As a result, international managers from emerging economies should encourage multiculturalism in their MNCs even when they are operating in their home countries. Consequently, they will not have cultural problems when they explore other international markets.
Globalization is inevitable in the modern world and MNCs from emerging economies must be ready to take advantage of its opportunities and to mitigate the possible risks that it might come with. Despite the fact that the majority of MNCs from developed countries dominate international market, there are also those from emerging economies that are challenging their dominance such as Lenovo Group Limited from China. Decision-makers emerging economies who are running MNCs enjoys a lot of globalization opportunities that help them in decision-making. At the same time, there are also a number of globalization threats that they should take care off to successfully run their MNCs.
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