Management Challenges in Going Global
As noted in previous articles, the world offers significant business opportunities for every company. However, opportunities are accompanied by significant challenges for managers. The greatest challenges associated with doing business in a foreign country stem from attempting to deal with the distinctive, and often quite different, nature of the business environment. For example, a company looking to set up manufacturing facilities in a foreign country may encounter government controls, difficulties in making an effective transfer of core technologies, poorly trained local workers, financial restrictions, and a lack of inputs and supplies meeting the necessary quality standards.
Consider the following scenario that almost ruined one company’s efforts to set up an overseas facility. Due to government controls on foreign investment, the company was required to set up a new joint venture with a local partner. Problems began immediately as the company discovered that the local partner’s employees lacked the technical background to absorb effectively the technology licensed to the joint venture. Moreover, local employees assigned to the joint venture felt they were being cast adrift from their main company and were reluctant to accept training in new techniques.
An inadequate industrial infrastructure also caused problems for the company. As a condition to formation of the joint venture, the government required supplies to be purchased from local companies; however, the local inputs fell far short of the quality required to export finished goods back to the company’s home market. In some cases, required inputs were unavailable in the foreign country and had to be imported. But, the importing process was delayed due to the absence of import financing and the need to satisfy local bureaucratic requirements. As a result, production cycles were delayed and costs increased significantly.
Changes in demand also played a big part in the company’s problems. At the time the decision to form the joint venture was made, the government was following a national development strategy that encouraged demand for the goods that were to be produced by the joint venture. Thus, the joint venture had a reasonable expectation of strong sales in the local market before export plans could be formalized. However, as is often the case in developing countries, government strategies can shift quickly, and a sudden movement toward agricultural production created havoc with the joint venture’s business plan. In addition, rising inflationary pressures led to credit controls that reduced the financial resources of potential buyers, including several government-owned businesses. Finally, the cost advantages of entering the foreign market were further reduced by the entry of low-priced imports from other countries.
The risks of going global are further increased by the increased exposure to macroeconomic and political risks in other countries. For example, inflation in a foreign country can lead to radical changes in monetary policies, including devaluation of the local currency. Macroeconomic problems can also adversely impact the availability of capital for local firms from external sources, such as multilateral agencies like the World Bank and the International Monetary Fund. A change in the political landscape in the foreign market can lead to different governmental attitudes toward core issues such as the protection of private property and the duties and obligations of companies toward their workers. These changes can lead to the adoption of new laws and regulations that increase the costs associated with using local resources.
Other important elements of the business environment in a foreign country are the socioeconomic conditions that define the marketplace and the unique cultural norms that exist within the country. Foreign companies must carefully consider how their products and marketing activities will be perceived in the local market. For example, a company marketing birth control products or food supplements for infants must consider how those items might clash with social values in the foreign country. Moreover, the potential for abuse, and misuse, of health-related products due to lack of knowledge and poor living conditions must also be measured. Differences in social classes and language in foreign countries must also dictate adjustments in the marketing messages and personnel management practices of the entering company.
Finally, U.S. managers must understand that their management techniques while largely effective in the U.S. and in other countries with a long history of industrialization, have often not been successful when transferred in a wholesale fashion to developing countries. There is a school of thought that argues that they are universally applicable across all cultures and organizations, regardless of the economic, political and social context, and this belief has been followed in management development and training programs in developing countries. Unfortunately, the idea that “one size fits all” has not prospered in the face of drastically different local customs and environmental conditions. In fact, there appears to be a growing acknowledgement that the better course may be to recognize the search for an optimal theory of management practiced in a particular country requires a mix of science and art. This is particularly true, given the relatively recent successes of Japanese management styles and the radical transformation of popular American management dogma to include such quick fix theories as “reengineering,” “reinventing,” and “downsizing.”
