Managing International Corporations

Considerations when Managing a Global Corporation

Strong global management skills, intercultural competence, and a sensitivity to cultural issues are necessities for global managers.

Learning Objectives

Recognize the considerations global managers are faced with as they integrate into a broader and more globalized business environment

Key Takeaways

Key Points

  • As multinational corporations grow in both size and quantity, the inherent managerial implications of a fully globalized economy demonstrate higher levels of relevance and importance within global corporations.
  • Global management skills are largely based in developing cultural intelligence, or a high cultural quotient (CQ), which delineates an individual’s general understanding and adaptability of foreign cultures.
  • Once managers attain the appropriate levels of cultural intelligence, it becomes necessary to apply this to the corporate framework.
  • Geographic and demographic expansions underline the critical importance of managers to understanding the illusive concept of localization.
  • It is also critical in cross-cultural endeavors to maintain one’s own sense of values and ethics.
  • To summarize these concepts, managers of global corporations are faced with substantial opportunities for growth alongside significant threats in cultural differences.

Key Terms

  • cross-cultural knowledge: Expertise in varying cultures across the globe.
  • globality: The end result of globalization, an economy entirely without geographic borders.
  • localization: Act or process of making a product suitable for use in a particular country or region.

Considerations of Global Managers

As multinational corporations grow in both size and quantity, the inherent managerial implications of a fully globalized economy demonstrate higher levels of relevance and importance within global corporations. The development of global management skills, as well as the intercultural competence to identify and develop sensitivity to cultural issues, becomes a larger factor in the overall success of these business models. Through identifying the necessary global skill set and effectively implementing these global managers within the business structure, multinational corporations can attain competitive advantage through cross-cultural knowledge.

Cultural Intelligence

Global management skills are largely based in developing cultural intelligence, or a high cultural quotient (CQ), which delineates an individual’s general understanding and adaptability of foreign cultures. This is best achieved through understanding what constitutes a high level of intercultural competence and leveraging this confidence to achieve the desire results in global management (see Boundless’s “Cultural Intelligence” section). To summarize the concept of intercultural competence, the basics necessary for effectively developing this is a linguistic understanding, a cultural understanding (religion, ethics, values, etc.), and regional expertise (ethnicity/geography).

Localization

Once managers attain the appropriate levels of cultural intelligence, it becomes necessary to apply this to the corporate framework. Global management requires a high level of corporate strategy to effectively implement, as not only is the workforce developing in diversity but so is the customer base. Geographic and demographic expansions underline the critical importance of managers to understanding the illusive concept of localization, which in short defines the way in which a company’s product or service should be adapted to fill the specific needs of a particular culture, demography, or geographic region. Researching the failure of companies, such as Best Buy and Home Depot in China, and bench-marking this against the success of Pizza Hut or BMW, provides substantial insights as to the importance of localization to global managers.

What localization truly highlights is the need to hold a highly developed sensitivity to cultural issues, norms, and values. It is also critical in cross-cultural endeavors to maintain one’s own sense of values and ethics, particularly as differences in standards of living, GDP per capita, economic growth rates, and political environments come into play. The figure (see ) highlights the remarkable growth rates in developing economies such as China, but fails to note the human rights and legal complications for multinationals in approaching these markets in an ethical manner. With lower standards of livings in certain regions, as well as differences in capitalistic philosophies and legalities, sensitivity to cultural differences is absolutely crucial in sidestepping the pitfalls of merging cultures that contradict one another.

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Change in GDP: This graph shows growth in gross domestic product in various advanced economies, accumulated over the periods 1990–1999 and 1990-2006. China shows the most notable change in GDP, from 125% growth over 1990–1999 to 325% growth over 1990–2006. India, Ireland, Korea, and Singapore show substantial respective increases from around 50% growth to around 150% growth.

To summarize these concepts, managers of global corporations are faced with substantial opportunities for growth alongside significant threats in cultural differences. Sensitivity to important cultural considerations and the development of a highly perceptive intercultural competency is a prerequisite for any global corporations considering geographic expansion into a new market. With theories, such as globality underlining the trajectory of global inter-dependency, this opportunity is a necessary consideration to any multinational corporation hoping to remain a competitor in a fully globalized economy.

Example

Researching the failure of companies, such as Best Buy and Home Depot in China, and bench-marking this against the success of Pizza Hut or BMW, provides substantial insights as to the importance of localization to global managers.