Summary Sample on International Business in the New World Environment

Posted on February 28, 2008

There was a time when travelling around the world in 80 days symbolized a great feat in travel and exploration. Today, travelling the world in a day is becoming as common as buying a loaf of bread. As our world become smaller, businesses find that they must adapt to the new world economy and environment. For Multi-national enterprises (MNE)s this poses a challenge to be ahead of the game when it comes to being competitive. More specifically, MNEs must decide how to progress their agendas for the future world of business through their Human Resources Management (HRM) policies, which plays a critical role in a businesses success.

Businesses face a new age of understanding global dynamics. Knowing how to develop strategies that align with all corporate strategies to be able to compete with an ever increasing and complex process of securing value resources. HRM is key to a business’ success. Companies who strategically link their human value tend to be more successful than companies who do not. This is due to the fact that companies managing international careers can face obstacles that include cultural, economic, political and economic differences which are to be considered in operational decision making.

HRMs ultimate goal is to recruit, develop and retain the best managers. If this is to happen various factors must be thought out that are interlinked with success. Companies who understand this important fact display evidence of this in areas of their business like in shareholder value. That being said, developing a good HRM strategy and implementing one is a different matter.

The reality is that companies don’t always implement the HRM strategies as communicated. Studies show that managers tend to leave companies after resettling and companies themselves report HRM is their weakest point in their business. To bridge the gap of HRM and the reality of it, companies need to make it an agenda or action plan. The alignment of HRM strategies with all operations is key. MNEs need to consider whether they use local, citizen, non-citizen or expatriates employees.

A company’s values and ideas translate into assumptions or generalizations called frameworks. MNEs apply these frameworks to their staffing policies via in three different types of frameworks. The ethnocentric approach is based on the belief in the supremacy of the home HRM. Being based in the core competencies of the managers, it can blind HRM policies to country difference and dulls competitiveness.

The polycentric approach is a HRN policy that is country specific. This approach usually provides good use of local managers although the responsibility transfers to new company and disengagement of local staff with international offices can occur. Thirdly, the geocentric approach looks for best candidates globally. Though a hard and costly endeavour to develop it is also an approach where the gap between reality and theory is big and it is thought to be impossible to manage.

Normally when companies decide to send expatriates to set a new branch or subsidiary they would have a team that has a finance person, a person with good entrepreneurial skills and a line manager with excellent soft skills. These skills seem to cover the range of knowledge and expertise needed to overcome cultural, economic and legal issues. However, a major decision lies in the choice of expatriate candidate.

A good expatriate candidate possesses the qualities of technical expertise, adaptive skills and leadership abilities. Nonetheless, studies show that 70% of the best managers sent abroad still failed. The biggest problem to success is how the spouse of the expatriate handles the move. To solve the problem companies develop a preparation and development program, which includes general country understanding, cultural sensitivity, and practical skills, training gaps and skills (i.e. salary differences).

For the expatriate themselves, they too have a range of compensation plans on potentially available to them. These include home-based plans, headquarters based plans, host- based plans. Included in these are the salary plans for expatriates, which are comprised of a combination of base salary, allowances (which can include tax benefit and fringe benefit such as medical coverage) and Foreign Service premiums.

Similarly, building an organization to implement a strategy is difficult. Consideration has to be made with various different ways to address issues such as information systems, human resources, etc. Traditionally companies build systems using formal structures. Nowadays, there are two trends emerging. Environmental refers to the diffusing of international business and globalization. Then there is the organizational trend that refers the growing knowledge competition businesses are confronted with.

How a company chooses to structure itself is also essential. A company’s structure can take the form of a centralized or decentralized. Determining where the hierarchy begins is what determines the formal structure. Decentralized are usually multidomestic strategies while centralized is more international strategy and is designed in a horizontal differentiation. Horizontal differentiation is how a company to specific tasks and divide those tasks and assign authority to accomplish company strategy.

Within a decentralized or centralized structure a company can choose from various structures, which include functional, divisional, international division, product division, geographic division structure. A matrix structure incorporates a system of reporting to several groups to accomplish a company’s structure. Challenges of matrix structure include competing division, dual hierarchy. The previous structures are difficult to recreate in reality that leaves company in a sort of mixed structure that deals with functional, area and product dimensions. Nonetheless, all these are considered to be traditional structures.

Contemporary structures are evolving. They exist due to the decrease of the boundaries of business and examples can be a virtual organization, modular structure or learning organization. Also, a network structure is now emerging were managers outsource value activities. This strategy allows companies to do what they do best and get the expertise of other companies who specialise in their fields to compliment their activities.

An interesting development is virtual organizations is that these organisations rely heavily on technology to share resources. Similarly, the project structure of business operates based solely on projects and disband after projects are complete. Although highly innovative this structure has been difficult to sustain.

Value chains require coordination systems to mange performance. This can be done through coordination by standardization, which are not flexible,
coordination by plan, which gives interdependent units the flexibility to adapt to variations and the coordination by mutual adjustment, which allows managers to adjust decision-making.

Supporting these coordination systems are control systems that deal with how employees implement elements planned by a company. Affecting these systems are types of controls. There are market controls that establish benchmarks based on markets. Next you have bureaucratic controls that are a set of rules set up be centralized authorities. Then you can have
clan controls, which is the realization of employees about shared ideas of the company.

To complete a company’s system of control they can implement various types of control mechanisms. These mechanisms direct a company’s activities. They include the use of reports and information technology (such as ERP enterprise resource planning) can be major factor to consider especially with geographic distance. Similarly, companies can opt to visits to subsidiaries to collect information and offer advice directly. Or a company can use management performance evaluations, cost and accounting comparability mechanism, evaluative measures and/or varying information systems. All of these components can drive the strategies of a company based on it structure.

Finally, not only must a company address culturally issue outwardly but they must focus on their own internal cultural structures. A business’ organizational culture is vital. The organizational culture is basically the fundamental assumptions members of a company share. This is an ever-increasing topic to be concerned with as companies relate to global competitiveness. In addition, the challenge of managing culture changes should not be reactive if they are to triumph in this theme. Some companies try to have closer contact with managers in different countries or rotate managers from country to country in an attempt keep managers abreast of cultural issues. Companies must pull out all the stops for victory.

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