The Cultural Difference Issue of Multinational Companies - Assignment Example

Introduction Multinational companies are gradually growing. This is because of the existence of new opportunities in the business world. These companies can be seen as instruments meant to increase organizational performance. This perspective is fundamental in every theory relating to globalization. A firm’s purpose is generally based on access to foreign markets and essential resources in addition to spreading of risks that come hand in hand with the increased performance of the business. When dealing with the global environment, it is important to have awareness on the impact of cultural differences which is one primary factor for success. Developing cultural knowledge enables companies to build global competitive advantage as well as enabling people to be more sensitive on globalization. However, global markets face various challenges that are crucial and may affect the performance of the business. One major challenge is culture and as it can affect the entire company. Culture is divided into three main types which include data based culture, relationship based and finally group based. Data based culture is controlled by a time table where an individuals do their responsibilities at a time. Relationship based culture enhances teamwork and interlink social life since individuals are not punctual in their work but do their duties at a time. Group based type is very patient and people mostly consider working in groups such as family or corporations. People always avoid conflicts since wisdom and respect are the major virtues needed (Cateora and Graham 2005). Culture affects business operation in various ways such as language barriers, culture collisions and difficulties in pricing. The above are not exceptional and particularly in the start of the business. These problems should therefore be minimized at all levels of operations. It is therefore important for the company to inform its members about the customs and ways of conduct in the new culture. According to Cavusgil et al. (2007) cultural differences can yield both positive and negative outcomes. The most helpful thing to consider in foreign market is to respect and understand the new culture. This builds up trust, respect and thus competitive advantage. Cultural aspects found in various countries are for example in Denmark, red color means positive but considered as a sign of death and witchcraft in most African countries and in Korea and Taiwan rectangular shapes are considered to show a negative effect. Some of the major differences include language issues, tastes and preferences, government policies as well as beliefs and values. Cultural problems faced by multinationals This study analyses the issues that may arise in multinational companies in an effort of solving the cultural differences. The solutions of these problems are also discussed in the study. Tastes and preferences determine the demand in the market (Freeman & Beale 2002). This is a major problem faced since every country has a different demand structure. In some countries for example people may tend to prefer cheap products while others are concentrated on the quality of a product and do not mind about the price. Government interventions may also be a major problem that multinational companies face in the cause of solving cultural problems. Governments in different countries have set standards that are to be adhered by every business operating in that area for example companied dealing with food production are required to provide their formula of production to the authorities for them do determine if the products are fit for human consumption. One such company is the coca-cola company in India where it declined providing the substances used in making drinks and its competitor Pepsi provided but later the Pepsi product was announced to be having harmful substances. The government may also set policies of not allowing the importation of workforce but instead employ workers from the host country. This may bring about the issue of inefficiencies due to existing labor laws and movements. Complexity and bureaucracy is another government problem especially in countries found in South America. Language is another issue faced where a country uses a language that differs with the native language. This poses more costs to the company as the management will be forced to hire an interpreter. The color used in branding products may also bring an issue if it signifies bad feelings about the product (Fisher 2006). Individualism is considered as the weak links connecting a person and other members of the community. Collectivism on the other hand is the strong feeling that binds members in a society. Multinational companies face this problem as if a society is characterized with collectivism members then the changes in tastes and differences do not change much as those societies that are characterized by individualist members (Zou & Ozsomer1999). The other problem refers to feminism and masculinity. In a feminist society all the roles are equally distributed to all members of the society whereas in masculinity society the men get more favors than women and therefore will be a major problem in appointing women to lead men for example in India where men are more valued in the society that women (Saunders & Thornhill 2006). This brings about cultural conflicts among the employees in such situations. There is also the difference in thinking and in decision making processes in complex situations. In developing countries for example U.S, tasks are divided into smaller one so as to make ease on delivery, prices and warranty. However, in Asia issues are discussed at once and acknowledgments made as the meeting ends. Solving cultural differences In order for multinational companies to succeed in their businesses they have to set strategies meant for reducing cultural differences. These strategies may involve getting into joint ventures with a local firm. This method is considered as one of the best as it helps the new country to learn more information about the requirements needed in venturing the new market. This learning process is also made easier and cost effective as there are no costs of for instance interpretation of the language. Companies that opt for this marketing strategy are able to perform well in the host country where they later split or buy the other company (Archibugi & Iammarino 2002). Appropriate research and development skills are also important in venturing a new country. Markey research is necessary so as to understand the culture used in the host country not just on the return on investment but also on the tastes and differences in market demand. This strategy is significant as it gives the business the direction to be followed and an overview of what is expected. This therefore enables the inventors to set objectives meant to improve the problem and also set their goals. It is also important to improve intercultural communications. This is by way of exchanging ideas among communities since communication is seen as the basis of any business so the entrepreneurs should be aware of the economic influence of the host country before opening their business. They should have some knowledge on the exchange rates, interest rates of the host country in addition to the inflation rate. Marketing issues faced by MNCs The global market is one that the strategic position of competitors is affected by the global performance in the geographical market. In U.S global competition is restricted through legislation and the best preferred way of competition is by gradually improving products in addition to considering marketing abroad. More and more businesses are attracted to the global market due to various factors which include companies that offer quality products at lower prices thus threatening the domestic market (Lambert 1993). This makes more companies venture into the global market in order to increase their market share. The other factor that makes domestic companies go global is when the companies realize that the global market offers more opportunities and thus high profits. The need for more market share and customers also persuades companies to market their products in the global market (Alden 1998, p. 7). International companies are also given more credit than domestic ones and therefore more buyers will want to buy from a company that is known all over that world this makes it another reason of venturing into the global market. However, before these companies decide to go to the global market, they have to consider several risks that they might face. Chiesa (2000, p. 7) shows one of the problems is where a company fails to analyze the foreign market in terms of preferences thus it may fail to present a competitive attractive product to the customers. One example is when Coca-Cola Company in Spain abolished the two liter bottle in the market when they realized that few people owned refrigerators that could fit the size of the two liter bottle (Wu 2005, p. 570). The other risk faced is that of social culture. This is one major problem that makes most countries fail in their businesses since it is difficult to adequately understand the culture of that other country. Knight and Cavusgil (1996) argue that this problem leads to ineffective business dealing which deteriorate sales. An example of this case is where Asian cultures see it as rude to touch another persons head while in Arabic it is also unacceptable to point at some one using one’s feet while in Latin America it is considered wrong to do business with some with whom you do not have a personal relationship with. As a result of these cultural differences, many businesses prefer to market their products to the neighboring countries or home country since they understand their cultures well (Kotler 2000). It is therefore to no surprise that the US biggest market is in Canada and companies found in Sweden choose to market their products within Scandinavia. Therefore the decision of expanding the market is influenced by various factors such as product, income and population, geographical area, political stability and other determining factors. It is also sensible to utilize some few countries with an assurance of penetration in each. Bartlett and Ghoshal (2004) show operations in few countries are best when the entry to the market and the control of costs is high. It is also effective when the size of the population is high as well as the income per capita and if the host country can set up high entry barriers to the market (Xuan and Liu 2005, p. 120). It is important to introduce entry barriers to the market in order to generate a strong strategic position. This helps to thwart competitive forces present with in the geographical area. According to Westerveld (2003) companies wishing to market their product to the global market should therefore carry out a successive market research which helps to know the market well with all the factors being examined. This should be the first step before starting the business. The second step is to analyze the marketing techniques available and after choosing the one that mostly fits the business (Kerzner 2001). These marketing techniques are also influenced by several issues such as promotion and price. In reference to price, multinational companies undergo price increase, transfer prices, gray markets and dumping charges (Taylor and John 2006). Acceleration of price is experienced when costs are added to the factory price. These costs include tariffs, transportation cost, and wholesaler and retailer margin. Transfer price is one that a company charges others for the goods shipped to subsidiaries. The dumping charges come about when the firm charges are too low to avoid higher duties while gray markets happen when products with same characteristics are sold at different prices due to the geographical area (Andersen et al. 2006, p. 12). This happens when distributors buy more than they can sell in order to take advantage of the differences in price. It is therefore necessary to understand these pricing and legal issues that take place in marketing internationally. According to De Meyer and Mizushim (1999, p. 10) the main problem faced with this marketing is the use of advertising and promotional technique (Yilmaz, C & Sezen, B 2005). This problem is known as communication adaptation. The best option in this technique is to use the same promotion in all countries but the color, name and language should be altered according to the cultures of those countries (Porter 1980: Darnell 1997). However, when it comes to translation, the message should be understood in the right manner for instance the words turn it loose can be interpreted into Spanish as suffering from diarrhea. Ayal, and Zif (1999, p.90) describe that the other technique that is effective globally is to alter every promotion according to the country for example the marketing procedure used by Coca Cola Company. Marketing techniques determine whether the company will be a success or a failure, it is therefore necessary to ensure that the correct language is used and the culture of the host country is considered in the course of planning for the best marketing technique to use (Bardhan 2006). Conclusion Multinational companies have many advantages over the local ones. This is because of their size which gives them the best opportunities to enjoy the economies of scale in both manufacturing and production. They are exposed to new and better ideas and in addition companies involved in global business can also be in a better position to obtain favors from the government that may be apprehensive in preserving local investment and workforce. However, the companies also face certain liabilities of bureaucracy, slowness and cultural issues. Among these cultures problems are difficult in solving since it takes time and needs much understanding. When embarking on a global marketing promotion, a company should be in a position of defining the marketing objectives as well as policies to be used. The company has to decide whether to venture into few or many countries so as to know the best method to use in product promotion. In the end, many businesses have to enter the international marker with an expectation of maintaining their market share and productivity. In spite of the many problems that these companies face, they can effectively internationalize their functions if they concentrate on pursuing a controlled marketing technique. References Alden, J 1998, What in the world drives UPS? International Business, pp. 6-7. Andersen, E, Birchall, D, Jessen, S & Money, A 2006, Exploring project success, Baltic Journal of Management, vol. 1, no.2, p. 12. Archibugi, D & Iammarino, S 2002, The globalization of technological innovation: definition and evidence, Review of international political economy, vol. 9, no.1, p. 98. 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