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The Foreign Subsidiary: Working Within an International Firm
 1433172631, 9781433172632

Table of contents :
Dedication
Table of Contents
List of Figures
List of Tables
Foreword
Introduction
Part A: Global Organizational and Foreign Subsidiary Strategies
1 MNC’s Strategy Paths: Conceptual Analysis for Its Foreign Subsidiary Units
2 Strategic Management for MNC Firms: A Conceptual Discussion
3 Foreign Subsidiary Unit Strategic Decision-Making Process
Part B: HQ-Foreign Subsidiary Relationship: Constructs for Strategy, Structure, Culture, and Organizational Technologies
4 MNC HQ-Foreign Subsidiary Unit Relationships: Strategies for Improving Entrepreneurship and Innovation
5 A Nurturing Headquarters Is Good for the Multinational Corporation
6 Formulating an International Growth Strategy: Considerations for MNC Decision-Making Process
7 Strategic and Operational Scope of Foreign Subsidiary Units
Part C: Entrepreneurship, Innovation, and Competitiveness
8 Global Organizational Innovation Strategy
9 Managing Foreign Subsidiary Competitiveness
10 Entrepreneurial Challenges in Reformulating Firm’s Corporate Strategy: A Framework for Analysis
11 Organizational Innovation for MNC and Foreign Subsidiaries
Part D: Training Expatriate Executives
12 The Making of the United States Foreign Subsidiary CEO
13 Training Expatriates for Emerging (Developing) MarketCountries
14 Training for the Overseas United States Managers
15 Strategic International Human Resource Management: The Key to International Competitiveness
Part E: Ethical and Social Responsibility Issues for the Foreign Subsidiary
16 Corporate Social Responsibility: Theoretical Discussions
17 Framework for Social Responsibility Strategies for Foreign Subsidiaries Operating in Diverse Cultural Environments
18 The MNC’s Global Ethics and Social Responsibility: A Strategic Diversity Management Imperative
19 Ethical Issues Analyses in International Management: A Framework for Analyses
20 Ethical Conduct Protection Board for the Global Organization: Issues in Strategic Management for Global Organization
21 Conclusions

Citation preview

The Foreign Subsidiary Working Within an International Firm

YEZDI H. GODIWALLA

Godiwalla

The Foreign Subsidiary Working Within an International Firm

The Foreign Subsidiary

The Foreign Subsidiary

Working Within an International Firm

PETER LANG

YEZDI H. GODIWALLA

 

This book is part of the Peter Lang Political Science, Economics, and Law list. Every volume is peer reviewed and meets the highest quality standards for content and production.

PETER LANG

New York • Bern • Berlin Brussels • Vienna • Oxford • Warsaw

Yezdi H. Godiwalla

Emeritus Professor of Management, University of Wisconsin-Whitewater, USA

The Foreign Subsidiary Working Within an International Firm

PETER LANG

New York • Bern • Berlin Brussels • Vienna • Oxford • Warsaw

Library of Congress Cataloging-in-Publication Data Names: Godiwalla, Yezdi H. (Yezdi Hoshang) author. Title: The foreign subsidiary: working within an international firm / Yezdi H. Godiwalla. Description: 1st Edition. | New York: Peter Lang, 2020 Includes bibliographical references. Identifiers: LCCN 2019025519 | ISBN 978-1-4331-7263-2 (hardback: alk. paper) ISBN 978-1-4331-7264-9 (ebook pdf ) ISBN 978-1-4331-7265-6 (epub) | ISBN 978-1-4331-7266-3 (mobi) Subjects: LCSH: International business enterprises—Management. | Foreign subsidiaries—Management. Classification: LCC HD62.4 .G626 | DDC 658/.049—dc23 LC record available at https://lccn.loc.gov/2019025519 DOI 10.3726/b16183

Bibliographic information published by Die Deutsche Nationalbibliothek. Die Deutsche Nationalbibliothek lists this publication in the “Deutsche Nationalbibliografie”; detailed bibliographic data are available on the Internet at http://dnb.d-nb.de/.

© 2020 Peter Lang Publishing, Inc., New York 29 Broadway, 18th floor, New York, NY 10006 www.peterlang.com All rights reserved. Reprint or reproduction, even partially, in all forms such as microfilm, xerography, microfiche, microcard, and offset strictly prohibited.

This book is dedicated to Ahura Mazda (our name for God, The Wise Lord) My wife, Shirley Our children, Yazad, Roxana and Tinaz Our parents, Hoshang and Mehroo, and, Nariman and Dhun And our dogs, Tommy, Doggie, Jack, Tinkerbelle, Toby, Paapi, Tucker and Otis

Table of Contents

List of Figures ix List of Tables xi Foreword xiii Introduction 1 Part A: Global Organizational and Foreign Subsidiary Strategies Chapter One: MNC’s Strategy Paths: Conceptual Analysis for Its Foreign Subsidiary Units 15 Chapter Two: Strategic Management for MNC Firms: A Conceptual Discussion 39 Chapter Three: Foreign Subsidiary Unit Strategic Decision-Making Process 59 Part B: HQ-Foreign Subsidiary Relationship: Constructs for Strategy, Structure, Culture, and Organizational Technologies Chapter Four: MNC HQ-Foreign Subsidiary Unit Relationships: Strategies for Improving Entrepreneurship and Innovation 81 Chapter Five: A Nurturing Headquarters Is Good for the Multinational Corporation 103

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Chapter Six: Formulating an International Growth Strategy: Considerations for MNC Decision-Making Process 127 Chapter Seven: Strategic and Operational Scope of Foreign Subsidiary Units 143 Part C: Entrepreneurship, Innovation, and Competitiveness Chapter Eight: Global Organizational Innovation Strategy 161 Chapter Nine: Managing Foreign Subsidiary Competitiveness 179 Chapter Ten: Entrepreneurial Challenges in Reformulating Firm’s Corporate Strategy: A Framework for Analysis 195 Chapter Eleven: Organizational Innovation for MNC and Foreign Subsidiaries 213 Part D: Training Expatriate Executives Chapter Twelve: The Making of the United States Foreign Subsidiary CEO 239 Chapter Thirteen: Training Expatriates for Emerging (Developing) Market Countries 269 Chapter Fourteen: Training for the Overseas United States Managers 291 Chapter Fifteen: Strategic International Human Resource Management: The Key to International Competitiveness 317 Part E: Ethical and Social Responsibility Issues for the Foreign Subsidiary Chapter Sixteen: Corporate Social Responsibility: Theoretical Discussions Chapter Seventeen: Framework for Social Responsibility Strategies for Foreign Subsidiaries Operating in Diverse Cultural Environments Chapter Eighteen: The MNC’s Global Ethics and Social Responsibility: A Strategic Diversity Management Imperative Chapter Nineteen: Ethical Issues Analyses in International Management: A Framework for Analyses Chapter Twenty: Ethical Conduct Protection Board for the Global Organization: Issues in Strategic Management for Global Organization Chapter Twenty-One: Conclusions

337 355 367 383 395 417

Figures

Figure 1.1: Figure 1.2: Figure 2.1: Figure 2.2: Figure 2.3:

Figure 6.1: Figure 6.2: Figure 6.3: Figure 8.1: Figure 8.2: Figure 8.3:

Multinational Corporation Strategy Paths: An Overview Foreign Subsidiary Unit Strategy Development Process A Model of Decision-Making for the Growth Process of a Foreign Subsidiary MNC Firm’s Strategic Focus: A Framework for Evaluating a Country’s Infrastructures and Economic Systems Organizational Strategies for Foreign Subsidiaries, Depending on Each Host Country’s Characteristics: A Case for Slow and Fast Developing Countries A Model of Centralization and Decentralization for Strategic and Operational Decision-Making A Decision-Making Model for a Multinational Corporation Changing the MNC Organizational Culture The Formulation Process for Global Organizational Innovation Strategy The Global Organizational Goals, Innovation Needs Analyses, and Comprehensive Innovation Goals and Plans A Model for the Process of Institutionalizing Innovation at All Levels of an MNC: Global HQ, Regional HQ, and Foreign Subsidiaries

17 20 46 48

49 133 136 137 168 169

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Figure 11.1: A Model for a Foreign Subsidiary Unit’s Effective Innovation Process 222 Figure 11.2: The Phases in Foreign Subsidiary’s Innovation Strategy Formulation 223 Figure 11.3: A Model for Evaluating and Formulating New Foreign Business Venture Proposals 224 Figure 11.4: A Model for Formulating a New Country Entry or Expansion Strategy 225 Figure 12.1: Expatriate Training Objectives and Goals 255 Figure 12.2: The Expatriate Training Process: Its Dimensions and Goals 256 Figure 13.1: The Foreign Subsidiary’s Strategic Analysis for Determining the Expatriate’s Training Needs 278 Figure 13.2: Overall MNC and Foreign Subsidiary Strategic Analysis and the Expatriate Training Strategies 279 Figure 13.3: The Foreign Subsidiary’s Operating Systems and Culture: Foreign Subsidiary-Specific Training of the MNC Expatriate 280 Figure 15.1: A United States MNC’s Global Approach and Expatriate Strategies 320 Figure 15.2: Role Analysis of an Expatriate 323 Figure 17.1: Country Culture and Social Responsibility of a Foreign Subsidiary Unit 360 Figure 17.2: Stakeholder Approach and Social Responsibility 361 Figure 17.3: Major Factors Determining the Details of a Foreign Unit’s Social Responsibility Programs 362 Figure 20.1: Framework of Relationship between: (1) Ethical Conduct Protection Board, and (2) Strategic Management Process 406 Figure 20.2: Development of Ethical Conduct Guidelines and the Responsibilities for Their Implementation 408

Tables

Table 1.1: Table 1.2: Table 3.1: Table 4.1: Table 4.2: Table 4.3: Table 4.4: Table 5.1: Table 6.1: Table 7.1: Table 7.2:

Multinational Corporation’s Headquarters’ Centricity and Functional Management Strategy-Mix 18 Host Country Culture and Product Analyses for Multinational Strategic Analyses 19 Organization Life Cycles of a Foreign Subsidiary Unit and Its Performance Expectations 67 A Process Model for MNC Strategic Analysis for Improved Entrepreneurial and Innovative Performance 87 A Generalized Framework for MNC Global Strategic Analyses Based On Organizational Typology 88 A Decision-Making and Structural Framework for Improved Global MNC Performance 89 Organization for Formulating and Implementing Entrepreneurial Strategies: The Three-Phase, Nine-Step Approach 90 Strategic and Operational Decision-Making Process in an MNC: A Nurturing, Cooperative, and Collaborative Model 118 The Dimensions of an Organization’s Multi-nationality 129 MNC Strategic Decision-Making: Two Styles of Relationships between MNC HQ and Its Foreign Units 147 MNC HQ-Foreign Units Relationship 149

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Table 7.3: Table 8.1: Table 9.1: Table 9.2: Table 10.1: Table 10.1:

Table 11.1: Table 11.2: Table 11.3:

Table 12.1: Table 15.1: Table 16.1: Table 16.2: Table 16.3: Table 18.1: Table 18.2: Table 18.3:

Table 19.2: Table 20.1:

Successful MNC Focus on Relationship Issues 151 A Model for a Systematic Process of Global Organizational Innovations: Three Phases with Nine Steps 170 The Host Country’s Influences on a Foreign Unit’s Managerial Leadership 185 Matching the Foreign Unit’s Leadership Style and Culture to the Host Country’s National Culture 187 (Page 1) Reformulation of Foreign Subsidiary Unit’s Corporate Strategy: The Current Strategic and Operating Analysis- Page 1 203 (Page 2) Reformulation of Foreign Subsidiary Unit’s Corporate Strategy: The Major Projected Future Trends and the Projected Future Strategy—Page 2 203 A Model for the Overall MNC Organization’s Innovation Process (3 Cycles, 9 Steps) 227 An Analysis of Market Information of a Foreign Subsidiary’s Host Country 228 A Model for the Process of Institutionalizing Innovation at Each Level of an MNC: MNC’s HQ, Regional HQ, and Foreign Subsidiary Unit  229 A Summary of the Current Research Findings and Suggestions 253 An Expatriate’s Challenges in a Host Country 325 Business Ethics and Social Responsibility as Integral Parts of the Strategic Management Process 346 Formulating and Implementing Ethical Behavior Guidelines 347 Guidelines for Implementing Ethical Social Responsibility Activities 349 MNC’S Global Strategic Management and Foreign Subsidiaries’ Ethical and Social Responsibility Strategies 372 A Foreign Subsidiary’s Strategic and Ethical and Social Responsibility Management Process 374 MNC’s: (1) Core Global Values and Priorities and (2) Customized Foreign Subsidiary’s Detailed Ethical and Social Responsibility Strategies 375 The Dimensions of the Foreign Subsidiary’s Ethical and Social Responsibility Strategies Regarding Its Host Country 387 Development and Implementation of Proactive Strategies and Policies for Ethical Conduct 410

Foreword

It is interesting to write a book like this. It is fun and enjoyable to play with ideas and conceptualize major combinations of related ideas. The effective manager first analyzes and conceptualizes, he then makes a plan, and, finally he acts out his plan. Thinking should precede actions. A  very experienced or veteran manager does not have to consciously do much of the step-by-step, detailed thinking and analysis. His experience gives him quick and ready-made solutions. From among many possible, alternative solutions, he knows which one he would prefer and why. He has reliable reflexes. They are proven practices. There is no need for him to re-invent the wheel. His repertoire is vast and rich. It is for him to explain to the manager-in-training and it is for the veteran manager to gather many related issues and make a composite picture and explain to the learner manager the dominant logic of how to manage such scenarios and situations. That is the essence of his experiences which he is transferring to the learner manager. The veteran manager has in his mind many of these experiences on clusters of specific topics, which if asked to do so; he can present to the listener a compressed conceptualization of his views and prescriptions for actions. I follow a similar approach in writing my chapters. For each chapter, I first conceive of abstract ideas and seek explanations which may apply to the ideas. If the explanations fit then the next stage is to compile the issues and review them and visualize a tentative picture. I let creativity and imagination lead me. I try not

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to apply judgment at this stage, but reserve it for a later stage; for, doing so would trammel my creative flow of ideas. The abstract ideas reflect my views, biases and assumptions. My past learning, work experiences and personal exposures are melded in these composite ideas. These are forged into my composite, tentative views on major topics. I have to keep an open mind for newer thinking and findings. The next stage is to review the trends and strands of thoughts on the topics and re-shape my tentative, abstract views and ideas. Some shake-ups in my views and ideas are inevitable. This process in many instances would lead to some personal reflections and review in order to sort out any major contradictions and inconsistencies. I make a significant and conscious endeavor for thinking through the applications of the ideas for the practicing manager and the implications for practice. The abstract ideas are then expressed in the configuration of related ideas and issues. The figures and tables are born. In writing each chapter, I explain the purpose of the chapter, review the literature and discuss it, and present the ideas of the chapter, and the conceptual figures and tables, together with their explanations. Then comes the part of the proof of the pudding is in the eating, and: (1) the recommendations for actions for the practicing manager, (2) the justifications for the recommendations for actions, and (3) the guidelines for effective implementations of the recommendations for actions. Although these are generalized recommendations, they address several of the likely decision-making situations. Life is a continuum of thought and action. We could move from one end of the continuum to the other. Both are vital and they serve us best when we properly combine them. Actions without thought seldom solve new, difficult and unfamiliar problems. While past solutions may give us proven approaches to similar problems, it is the creative and imaginative thought that gives us innovative approaches for solving newer problems. This book pursues the approach that good thought usually helps good practice, and practice helps refine good thinking. For a busy practitioner, there is little time for deeper reflection for ascertaining the root of the matter and seek lasting solutions for complex problems. It is the conceptualist who comes to his aid.

Introduction

The book is about international management with a focus on the foreign subsidiary. It follows the theme that the future holds the multinational corporation (MNC) and foreign subsidiary true to their purpose of enlarging the scope of business around the world and transferring from one country to another country: people, values, ideas and views and perspectives, knowledge, arts and know-how and skills, lifestyles and standards of living, goods and services, equipment, finance, and (engineering and organizational) technologies. The foreign subsidiary is an important entity within an MNC. Much of the future revenue and profit growth of the MNC will be from its foreign operations. Together with other subsidiaries, the foreign subsidiary represents the future growth and survival of the MNC. The expatriate who manages the foreign subsidiary is vital for managing the foreign performance of the MNCs. The expatriate will face a lot of challenges in his (or her) foreign subsidiary assignments. The MNC should train and mentor him, collaborate with him, and reward him better because he is the key to improved foreign subsidiary’s performance. In Samuel Taylor Coleridge’s poem, “The Rime of the Ancient Mariner,” the old sailor found that his ship was destroyed and its crew was killed while on a difficult Antarctic expedition. He alone made it home in a boat. He found that he was more effective when he saw the positive side of his grim situation after he had reconciled with it, and he happily realized that the sea life around him were also

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God’s creatures. Inspired, he had a spiritual realization and he prayed. He became happier with his environment, and he found his way back to the safety of his home. Just like the ancient mariner, an expatriate in a foreign country must acknowledge to himself that all the people in the foreign country are also God’s people with whom he can and should happily interact in their own cultural ways and life’s settings. It is only when he accepts others that they can accept him. He should be happy with his environment in order to be effective. He would get better results working through the host country people in the foreign subsidiary, and celebrating their different cultures. We can do so only if we are capable, confident, and happy with our environment. In Glarus, Switzerland in the early 1840s, after years of bad harvest and no crops, and with more people than available jobs, the government of the town and canton (state) of Glarus asked for volunteers to go and find new life in the New World. They were even willing to support the effort and had even arranged for financing and loans for the exploration of finding suitable agricultural land for the settlement in the United States. The government of Glarus sent ahead two scouts with money for travel, exploring, and for buying suitable, arable land. After much time, difficulty, and explorations in Ohio, Indiana, and Illinois, they found and liked a settlement site in the southwestern part of Wisconsin. The hills reminded them of Switzerland. The two scouts bought 1,800 acres of land at $1.25 per acre. They called it New Glarus, naming it after their old town in their old country. Given the desperate economic situation in Glarus, Switzerland, 193 people volunteered, later left their homeland, and set sail for United States. They too arrived, joined the two scouts and settled in New Glarus, Wisconsin. They made it their cheese country. In similar ways, an organization would go to foreign countries for growth and expansion, seeking newer markets and suppliers, and set up factories for the lower costs of operations. Similarly, the executives and specialists from their MNC’s HQ and home country operations may see better prospects and venture out to a foreign subsidiary and start a new career and life in a new, foreign country. They may be motivated to seek newer, foreign opportunities which would further their career. In her mystery novels, Agatha Christie’s famous character, Miss Jane Marple, had solved many crimes that had baffled the police. Miss Marple saw the world through her unique “lens.” She had lived her life in the small village of St. Mary Mead, England. It gave her a lifetime of many insights and examples of people with their negative side of human behavior. In her crime-solving days, she saw and solved the crimes through her “lens” which had viewed the behavior of the people of St. Mary Mead. When she solved the actual crimes, she used the “parallel” incidents of St. Mary Mead. Through these analogies and characters from St. Mary

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Mead, she saw human nature in the crime situations. Her use of analogies was very efficient because they helped her solving crimes. Also, a casual and seemingly innocuous remark by one of the characters in the crime-solving situation would trigger in her a flashback and she would retrieve a “parallel” incident from St. Mary Mead, and in doing so, it would help her solve the crime. As we live our lives, we see the world through our unique perspectives or “lenses” and we connect with our past “parallels” and analogies. It is important to know our “lenses” because it will reveal to us our own assumptions and views. We use our life’s experiences and view the current situation in relation to our past, “parallel” incidents as we lead our lives. This would be so even if we lived our entire lives in our home country. As expatriates in foreign assignments, we might tend to use the “parallel” incidents from our past, home country experiences as we solve problems in the foreign subsidiary and the foreign country. When we use our storied, past experiences from our home country to solve our current problems in the foreign country, we might do so because we might be attracted to the familiar, past scenarios from our home country. As expatriates, we should be aware of the “lenses” or our perspectives and what led to their composition. We should know our unique personal methods of perceiving, feeling, and thinking as we relate to our past when we solve our current problems, and how and why we relate our current situations to our past “parallels” and “analogies,” because doing so would give us better insights into ourselves. We can minimize or even eliminate our excessive fallacies, idiosyncrasies, and anomalies in our feeling and thinking, and our other inefficiencies if they are dysfunctional in dealing with our current situations. We can also heighten and enhance our positive and functional attributes which would serve us better in our current situation in foreign assignments. The book has five parts and 21 chapters. They are briefly reviewed here.

Part A: Global Organizational and Foreign Subsidiary Strategies Part A reviews the important concepts and their applications for practice on the strategic management of an MNC, with an emphasis on how the headquarters (HQ) and the foreign subsidiaries should function in partnership in the strategic decision-making and implementation. Chapter One is on the MNC’s strategy paths. It provides a scheme for strategic analyses for an MNC for choosing and developing the effective strategic paths for it and its foreign subsidiary units. It provides analytical frameworks for: (1) a foreign subsidiary unit’s capability to meet its performance expectations,

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(2) evaluating the quality of strategic multinational-ness of its products and services, and (3)  an effective strategy-mix. Each foreign subsidiary seeks to exceed the expectations that are set by its HQ, host country’s stakeholders, and its own internal organization. Chapter Two is on the strategic management for MNCs. It reviews how MNCs should proceed with a global and strategic perspective in order to be effective. This is in contrast to domestically or regionally focused organizations. MNC organizations would benefit from simultaneously pursuing: (1) an HQ-led, organization-wide, integrative, global, and strategic decision-making, and (2)  a decentralized foreign subsidiaries’ tactical and operational decision-making. The simultaneous pursuits of the two different approaches require capable management teams at both levels: (1) the MNC HQ as well as (2) the foreign subsidiaries. The unique task environments of each foreign subsidiary make it compelling for the HQ to delegate the operational and tactical decision-making to the foreign subsidiary. For the combined and well-coordinated MNC global vision, mission, strategic choices, goals, and overall MNC corporate strategy, the HQ must take the strategic leadership role. Chapter Three is on the foreign subsidiary unit’s decision-making process. It reviews how a foreign subsidiary unit of an MNC goes through its evolutionary stages as it grows in its host country environment. For each stage of its evolutionary growth process, there are specific challenges and expectations for which its top management must be fully aware in order to succeed in its decision-making and action. The foreign subsidiary unit’s top management must analyze its performance expectations and performance criteria, as set by the MNC’s HQ and the home and host countries’ stakeholders, in order to be effective in managing the foreign subsidiary unit. The issues covered in the chapter include foreign subsidiary strategic management and international strategic management.

Part B: HQ-Foreign Subsidiary Relationship Constructs for Strategy, Structure, Culture, and Organizational Technologies This part reviews the decision-making process that can improve the effectiveness of performance of the foreign subsidiaries in a healthy, cooperative organizational culture. HQ and foreign subsidiaries’ employees must feel a sense of oneness and togetherness in the overall MNC organizational activities and performance. Chapter Four is on the MNC HQ-foreign subsidiaries relationship. Global competition has placed increased burdens upon MNC, inducing it to be more

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responsive and consequently less bureaucratic, through improved HQ-foreign subsidiaries relationships, and foster better entrepreneurial and innovative activities. MNC HQ strategy and structure can influence the effectiveness of its foreign subsidiaries’ performance. The participation of the foreign subsidiaries in future MNC overall corporate strategy formulations and structural modifications significantly facilitate the effectiveness of the foreign subsidiaries’ performance. The chapter suggests frameworks to improve the effectiveness of MNCs’ overall corporate strategy and structure for more effective foreign subsidiaries’ innovativeness and entrepreneurship. The use of innovation and entrepreneurial initiatives should extend to MNC subsidiaries, and not just be restricted to the MNC home country operations. The issues of the chapter include global HQ and foreign subsidiary relationship, HQ-foreign subsidiary management process, and HQ-foreign subsidiary communication and coordination. Chapter Five is on the HQ nurturing the foreign subsidiaries. Good parenting, nurturing, training, and close networking within the organization by the HQ are very vital for the MNC. An MNC’s HQ must pursue better nurturing and foster developmental and networking approaches in its relationships with its foreign subsidiary units. A well supported and nurtured constellation of foreign subsidiaries will perform more cooperatively and harmoniously within the framework of the overall MNC organization. In turn, these approaches will generate more effective strategies for competitive performance because of the improved cross-fertilization of ideas. This is for the more mature organizations because of the inherent hierarchical difference between the HQ and the foreign subsidiaries and the inherent “superior-subordinate” relationship. The HQ must pursue a spirit of collaboration and partnership that would generate a feeling of near equality among the partners. HQ may give the final assent even so, only after good deliberations and factual and rational analyses. Good nurturing and close communications would likely align the values and views of the many disparate foreign units, given the diverse environments of operations. Learning in an MNC organization, which has these collaborative, closer internal and stakeholder networking, communicative attributes, is multidirectional: HQ learns as much from the foreign subsidiary units as the foreign units learn from the HQ. Closer internal and external stakeholder networking in an MNC and good parenting and nurturing involve good, continuous expatriate training. These activities result in better organizational effectiveness and competitiveness. Chapter Six is on formulating the MNC’s growth strategy. Sustained growth is a generic goal of organizations. It is meaningful to review the issues that are relevant to the formulation of an MNC’s international growth strategy in the context of MNC HQ-foreign subsidiary relationship and environment. These include

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the ideas pertaining to the nature and extent of  multinationality of the MNC, the degree of decentralization, and the strategic and operating decision-making process.  An effective international growth strategy of an MNC  would provide it the focus that aims to maximize the organizational capabilities and the scope of the environmental opportunities. International growth strategies also leverage the differences in resources of the countries of an MNC. There is a need for a systematic step-by-step approach to developing an international growth strategy. The quality of: (1) vision and goal clarity; (2) data gathering, sorting or collating, and reporting; and (3) analyses of data and (4) subsequent decision-making regarding growth directions would determine the outcome of the quality of the international growth strategy. International growth, competitiveness, flexibility, and long-term investments in human and capital resources are the keys to sustained international growth. Organizational development should be perceived as an important ingredient for an MNC as it strives towards strategic progress. An effective international growth strategy of an MNC is the key to the continuous long-term vitality and success of an MNC. Chapter Seven is on the strategic and operational scope of foreign subsidiaries. A foreign subsidiary unit formulates the scope of its strategic and operating activities based upon the following factors: (1) its HQ, (2) its host country and regional countries’ environments, (3) the global influences of its industry, (4) its own internal organizational environments, and (5) its own strategic leadership at the HQ and foreign subsidiaries. The simultaneous review and reformulation of the strategic and operational scopes are vital for the successful foreign subsidiary unit’s goal accomplishments. Ideally, an enlightened, effective MNC should be less of an HQ-dominated (or “empire”) model, but more of a coordinated community of competent subsidiaries (or, “commonwealth”) model. This would result in a foreign subsidiary being more of a capable, independent thinker and decision maker. Being more increasingly self-reliant is a necessary ingredient in being correctly responsive to local, host country challenges and changes.

Part C: Entrepreneurship, Innovation, and Competitiveness This part reviews the concepts and practical ways to keep an MNC more innovative, competitive, entrepreneurial, and prospecting for newer strategic opportunities in the foreign subsidiaries’ host countries and other countries in their regions. Chapter Eight is on an MNC’s innovation strategy. Global innovation strategy makes an MNC more competitive and contributes to long-term profitability

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and growth. A  focus on newer trends and approaches in the engineering technology and internal and external organizational innovation processes would help the innovative and entrepreneurial spirit and endeavor. The proper organizational entrepreneurial goals, strategy, and culture would generate greater connectedness with the relevant task environments for the global organization to explore and subsequently pursue newer profitable market opportunities, products, and services. Altogether, the integrated global sharing, joint experimentation among its subsidiaries and combined innovation effort, the well-interfaced global supply chain’s innovative endeavors, and the well-planned and systematic innovation strategy, would spur greater global competitiveness and growth. It is the combined global approach that would effectively generate better innovation. Chapter Nine is on managing a foreign subsidiary’s competitiveness. Managing foreign subsidiary innovation and competitiveness are vital for overall, long-term, MNC’s global growth. Strategic, global leadership, vision, mission, goal focus, and strong high performance culture among the executives and supervisors of MNC’s HQ and foreign subsidiaries, together with flexible leadership in foreign subsidiaries, are vital for enabling the MNC to pursue the vision of improved innovation, competitiveness, and growth. Sustained innovation and competitiveness in an MNC’s foreign subsidiaries’ multiple country environments then becomes the means for overall MNC’s strategic enhancement. Chapter Ten is on the entrepreneurial challenges in reformulating corporate strategy. Innovativeness and growth are wonderful words. Innovativeness and growth, once established as important goals, become integral parts of a foreign subsidiary unit’s corporate strategy. Growth is among the challenges a small firm or a foreign subsidiary that is in an entrepreneurial mode will face. Strategic analysis and decision-making are among the most important activities a foreign subsidiary has to undertake in order to survive, grow, be continuous profitable, competitive, adaptable, and self-correcting through organizational development, and, thus, be responsive to unpredictable future challenges in its host country setting. It involves the manager’s risk-taking and requires his strong romance with the business model and the business idea (its technology, products, and markets). Risk-taking is a prerequisite for the entrepreneur or manager in order to progress as he overcomes challenges that defy any guaranteed confidence level in the choices he may make or the alternatives for which he opts. Chapter Eleven is on organizational innovation. Organizational innovations include and even go beyond technical or engineering innovations. They also review such topics as strategic issues of innovating the scope and mixes of businesses and products, mixes of products, and scope and mixes of the geographical regions that the MNC would enact. The organizational innovation improvements could result

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in many possible benefits, such as cost savings, improved competitiveness, widening product offerings, and organizational effectiveness as it strives to achieve its organizational goals and generally its long-term performance. Often, the corporate strategy and innovation strategy are fused. An MNC should innovate, both:  technologically and organizationally. An MNC should nurture the organizational culture for better employee development and positive engagement, as it seeks to improve its competitiveness, growth, market shares, and profitability. It should pursue the practices of organizational development and change. These practices would facilitate organizational innovation and renewal. It should develop comprehensive organizational innovation strategies. Innovation should be a way of life; and the spirit of innovation, like the spirit of entrepreneurship, must be nurtured.

Part D: Training Expatriate Executives This part explains the processes of training and mentoring of executives and supervisors of the MNC headquarters and the foreign subsidiaries and shows how these can improve the effectiveness of an international organization, including its foreign subsidiaries. Chapter Twelve is on the making of the United States foreign subsidiary CEO. A domestically oriented organization’s manager who is considering a foreign subsidiary assignment would have to pursue self-improvements so that he would be an effective foreign subsidiary manager. The skills applicable to a (domestically oriented) manager would have to be enlarged, with newer perspectives for him to be an effective foreign subsidiary manager or CEO. A plan to prepare a foreign subsidiary manager or CEO would require the development of skills development on many issues, particularly with those which have cross-cultural implications. The challenges are due to unfamiliarity of the foreign situation, including challenges of coping with: greater uncertainty, anxiety and stress, reduced coping capability, reduced adaptation, problem-solving and management, and challenges in cross-cultural communication and relationships. Chapter Thirteen is on training expatriates for emerging market countries. Successful expatriate experience is borne out by effective selection of the expatriate and the correct choice of his location and the correct foreign subsidiary match, predeparture training, and post-arrival mentoring of the expatriate and his family. With the increasing importance of emerging market (or developing) countries, MNCs from advanced countries experience the greater need for training of their executives and specialists and their families for other cultures and for the

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very different economies compared to those of their home countries, particularly if the expatriates are from advanced countries like the United States. The chapter focuses upon effective training for United States MNC expatriates for the emerging market (or developing) countries. The same ideas can be applied to expatriates of MNCs which are headquartered in other advanced countries. The issues covered in the chapter include expatriate training, foreign executive training, managing foreign subsidiary, and cultural and communication skills for a foreign country. Chapter Fourteen is on training United States managers of foreign assignments. MNCs would be more competitive if their expatriate managers, professionals, and technical specialists are better prepared for the challenges that they would face in their foreign subsidiary and their foreign subsidiary’s host country operating conditions, task environments, and sociocultural settings. The challenges that they would face in the foreign subsidiary and host country would require them to deal with the new operating systems, unfamiliar, different, and unusual environments of: commerce and financial, operating and logistical, governmental and political, social and cultural, economic and market systems, supply chain and infrastructural systems, industrial and labor markets, and educational and skilled training facilities. As an expatriate, he has to manage his whole self, his own capabilities, his overall personality, and feelings so that he can manage more effectively and cope with the uncertainty and the unknown. In this context, the personality aspects include: coping with his own personal reservations and doubts about venturing out on the foreign assignment, and managing his perceived managerial environmental uncertainty, his self-confidence for personal adaptation, his ability to communicate with people in the host country culture, his leading and supervising his foreign subsidiary’s employees with empathy in host country cultures, and his self-motivation for accomplishing his foreign subsidiary’s performance goals. Chapter Fifteen is on strategic international human resource management (SIHRM). The quality of an MNC’s SIHRM should be enhanced for greater effectiveness of an expatriate. It should be well-integrated, worldwide, and organization-wide. Growth and competitiveness of an MNC depends on it. Good SIHRM requires the MNC’s expatriate executives and supervisors to be continually trained so that it would improve an MNC’s competitiveness. Doing so would realign capital, informational, and other resources for an MNC to become increasingly competitive; and it would effectively function as a team to accomplish proper objectives. Performing the SIHRM function for an MNC is a greater challenge than managing the human resource management function for a predominantly domestic firm. Yet the key to MNC’s greater organizational performance is to effectively manage the needs of the international executives, technical specialists, supervisors, and employees. The Executive Vice President of SIHRM of an MNC

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must have equal status and involvement as the other Executive Vice Presidents in the strategy formulation and implementation process. An MNC’s expatriates and their families have special relocation-related needs that must be addressed if it is to take care of its expatriate needs so that they can effectively contribute to the foreign subsidiary’s competition. Foreign subsidiaries have to compete on the quality of internationally delivering products and services.

Part E: Ethical and Social Responsibility Issues for the Foreign Subsidiary This part explains and discusses the importance of ethical and socially responsible performance expectation for all parts of a multinational corporation, including the foreign subsidiaries which operate in diverse cultural and political environments, and which can often have different expectations of ethics and social responsibility. Chapter Sixteen is on corporate social responsibility. Organizations, as integral parts of a society, must conduct themselves with the higher standards of legality, ethics, decency, honor, and corporate citizenship. They should exceed the higher expectations of a given society. The modern day rapidity of social media and journalism, together with widespread global scope, make it necessary for organizations to be ever so vigilant and careful in their conduct. It calls for increasing standards of internal sensitivity, communication, and training so that their employees meet and exceed the rising societal and stakeholder expectations. In the case of an MNC, over and above high ethical behavior, the social responsibility goals and strategies would depend upon a foreign subsidiary’s host country needs and expectations and, overall MNC’s and foreign subsidiary unit’s resource capabilities. This issue is important in determining the sustainability and scope of social responsibility goals and strategies. The stakeholder approach is important. Stakeholders of the MNC as a whole and those of each foreign subsidiary unit are together important in this regard. Chapter Seventeen is on social responsibility strategies for foreign subsidiaries. An MNC is in a unique social responsibility situation. It has to comply with social responsibility expectations and norms in varying economic, social, and ethical scenarios of its multiple foreign country environments. Different countries have different expectations of business organization’s social responsibility activities. This is particularly true for a geographically diverse MNC. Managing in many diverse, varying cultural environments is a certain challenge for an MNC. Ethical and social responsibility expectations, which reflect a country’s culture, vary from country to country. An MNC operating in diverse cultural environments would

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encounter diverse ethical and social responsibility expectations from among the countries of its operations. The task of managing its social responsibility strategies across the countries of its operations is as interesting as it is complicated. It can be torn between the following: (1) a standardized, common, monolith global policy and (2) customizing to each country’s culture and social responsibility expectations. Chapter Eighteen is on global ethics and social responsibility in the diversity context. An MNC’s ethical and social responsibility issues should be important and integral parts of its strategic management process. The MNC’s HQ must decide on its core ethical and social responsibility values and priorities, and it should empower its foreign units to formulate their specific programs and strategies to respond to changing host countries’ environments. Expectations of both ethical conduct and socially responsible conduct can vary in different cultures and political and social systems of different countries. Despite pressures of customizing for each country’s culture because of the cultural relativism of ethics and social responsibility, there is a growing need of improved global approach (or universalism approach) by MNCs on these two dimensions. Chapter Nineteen is on the analyses of ethical issues in international management. Ethical issues are very important components in strategic management of any business organization. For an MNC, ethical issues are more complex because: (1) ethics are culture-bound, and (2) an MNC operates in diverse cultural settings. Because of the cultural differences among an MNC’s multiple cultural and ethical environments, the management of cultural issues is challenging. Teaching ethical issues in international business courses is made more complex than teaching business ethics that keeps in mind one country’s culture and ethics at its focus. Most situations in international business do have specific problem areas as their functional area focus, e.g., supply chain, operations, marketing, etc. Even so, many of them could have the situations of potential ethical implications. This chapter is intended to help glean such potentially ethically implicated situations and issues and meaningfully analyze them for effective strategic management process. The strategic management process (vision, mission, goals, strategic analyses, corporate strategy formulation, and implementation) must start with an ethical and socially responsible core, and, not just have the ethics and social responsibility filters added on later in the process as an afterthought. The aim is to have an ethical corporate strategy. Chapter Twenty is on the development of an Ethical Conduct Protection Board. The chapter proposes the creation of and presents the role of an Ethical Conduct Protection Board in a global organization or an MNC, so that it guards against intended and unintended lapses in ethical conduct. An MNC, operating in multiple countries to achieve its global business goals, operates in the context

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of its many countries’ social environments. It must conduct itself in the multiple social environments in an acceptable manner. The Ethical Conduct Protection Board should be located at the MNC’s HQ; and it should report, not to the CEO, but directly to the Board of Directors of the organization in order to preserve its independence, objectivity, and effectiveness. The purpose of the Conduct Ethical Protection Board is to create and modify the values, standards, and general guidelines of ethical conduct, and to oversee the MNC’s business activities so that it conforms to these ethical values and standards. The issues covered in the chapter include ethical conduct protection board, ethical issues in MNCs, overseeing ethical conduct, and preventing unethical conduct. Chapter Twenty-One is on the conclusion of the book. For future growth, MNCs have to increasingly rely on faster growth in the emerging market or the faster developing countries. Global competition spurs increasing attention to international business, leading MNCs to become increasingly competitive. MNC’s strategic management process is important because it enables the organization to formulate viable and flexible strategic vision, goals, choices, and corporate strategy. An MNC’s (and, similarly, a foreign subsidiary’s) activities for formulating its overall organizational strategic vision, mission, goals, and corporate strategy must precede all other domestic and international activities. In its strategic management process, its corporate strategy should lead the process for reshaping the other related organizational components: (1) organizational culture, (2) organizational structure, (3) organizational technologies, and (4) engineering technologies. The process must identify the needs and the probable actions at each decision point and at each level of the MNC organization for: (1) enhancing its sustained survival, growth, competitiveness, profitability, and human resource development and (2) exceeding the expectations of its stakeholders.

part a

Global Organizational and Foreign Subsidiary Strategies

Synopsis: This part reviews the important concepts and their applications for practice on the strategic management of a multinational corporation (MNC), with an emphasis on how the headquarters (HQ) and the foreign subsidiaries should function in partnership in the strategic decision-making and implementation.

chapter one

MNC’s Strategy Paths Conceptual Analysis for Its Foreign Subsidiary Units

The chapter provides a scheme for strategic analyses for an MNC to choose and develop the effective strategic paths (directions) for it as a whole and its foreign subsidiary units. It provides analytical frameworks for:  (1) a foreign subsidiary unit’s capability to meet its performance expectations, (2) evaluating the quality of strategic multinational-ness of its products and services, and (3)  an effective strategy-mix. Each foreign subsidiary seeks to exceed the expectations that are set by its: (1) HQ, (2) host country’s stakeholders, and (3) its own internal foreign subsidiary organization and its own host country stakeholders. The issues that are reviewed in the chapter include: MNC’s global strategy, foreign subsidiary strategy, strategic paths, and strategic directions. An MNC’s strategic decision-making process is influenced by many factors. Some of the major factors include: (1) the nature of the ethnic orientations and strategic mind-sets of the MNC’s HQ strategic decision makers; (2) the nature and intensity of influence of host countries’ environments (e.g., their economies, markets, suppliers, labor markets, human talent, infrastructures, governments and politics, and religions, social structures, and cultures); and (3) the nature of cultural sensitivity of the MNC’s products and services. The MNC’s strategy paths, using these types of factors for guidance, have influence on the strategies of its foreign subsidiaries (interchangeably referred to as “foreign subsidiary units,” “foreign units,” or, for brevity, “units”). Foreign subsidiaries have to focus on their respective

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host country’s political, economic, social, and cultural backgrounds, including the intensity of ethnicity, and they also have to adapt the attributes and the marketing of their particular products and services to be more effective in their respective host country environments.

The Purpose of the Chapter An MNC’s success depends upon its relative global capabilities in the context of its various global environments. Its HQ’s strategic focus shapes its overall global strategy, its functional focus, and its foreign subsidiaries’ strategies. Further, each foreign subsidiary’s host country ethnic intensity (e.g., the more intense it is, the more the foreign subsidiary has to adapt) and the cultural sensitivity of the MNC’s product groups also shape the local and global strategic focus. For example, the more culturally sensitive the products are, the more the foreign subsidiary has to adapt the product and service strategies (particularly the marketing and customer services strategies) to the local culture. A foreign subsidiary develops its foreign unit’s corporate strategy through incremental inputs to its previous subsidiary corporate strategy through gap analyses to enhance its strengths-weakness profile so as to meet the criteria of effective performance set by the HQ and its own local environments. MNCs’ HQ should help the foreign subsidiaries in the formulation of their strategies based upon what they consider being effective approaches for them and based on the overall MNC vision and goals. MNCs would benefit from better strategic analysis that would generate the underlying issues of their international situation (e.g., its global market share, brand name recognition, product quality, value chain in the international context), and in doing this it would clarify their alternative strategy paths. Such an analysis would determine the organizational and environmental issues that influence the choice of MNC strategy paths, which, in turn, would help to reformulate the future MNC overall corporate strategy and, subsequently, the foreign subsidiaries’ corporate strategies. The comparison of the capabilities of the MNC organization and what it is expected to perform is the focus of the analysis. The analysis would determine the quality of organizational performance of an MNC in its various international and regional environments. It is meaningful to provide a conceptual framework for the analyses using a few selected MNC organizational and environmental dimensions or issues, e.g., MNC’s HQ centricity, host-country ethnicity, and product’s cultural sensitivity (Powell and Lim, 2018). Such analyses are important to determine the choice of

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A-PRIORI STRATEGIC FOCUS

• MNC headquarters’ centricity • International goals of MNC • HQ assignment of foreign unit’s role

(Inputs from Table 1.1, Figure 1.2)

ENVIRONMENTAL INFLUENCES

Foreign unit choice & Self determination

• Ethnicity of host countries’ cultures • Cultural sensitivity of products • Host country/regional countries’ determination of the unit’s role

Develop foreign unit strategy (Inputs from figure 1.2)

Integration for overall MNC strategy paths

Re-formulation of future MNC overall corporate strategy

Figure 1.1:  Multinational Corporation Strategy Paths: An Overview. Source: Adapted with permission from “Multinational corporation’s strategy paths: A conceptual analysis for its foreign units” by Y.H. Godiwalla, Journal of Global Business, 14(27), 2003, 43–52. Copyright 2003. Association for Global Business

future strategy paths and the MNC’s overall corporate strategy. These analyses should be then melded into an integrated framework, as portrayed in Figure 1.1. The synthesis of the overall analyses process is important for the MNC’s strategic path for it to be coherent and cohesive. The following explains the relevant, constituting concepts. The nature of the MNC HQ’s ethnic-centrism, of: (1) ethnocentric or domestic-orientation; (2) polycentric or multi-domestic; (3) region-centric or multinational; or (4) geocentric or global, can have a significant impact on the choice of the strategic focus and the functional focus (within each business) of the MNC. This issue is portrayed in Table 1.1. The strategic focus of the MNC for a particular foreign country can be also determined by the nature of the intensity of the ethnicity of the host country’s

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Table 1.1:  Multinational Corporation’s Headquarters’ Centricity and Functional Management Strategy-Mix Private

Strategic Focus

Domestic (ethnocentric)

Create markets for domestic products

Multi-domestic (polycentric) Multinational (region-centric) Global (geocentric)

Functional Focus

• Production (domestic) • Export marketing • Domestic mfg, mktg, HRM, Fin/Acctg, MIS Customize and • International mktg, HRM, production, R&D, satisfy each country HRM, Fin/Acctg market • Customize mktg-mix, MIS for each country • Multi-domestic competitiveness Regional • Regionally coordinated international mktg, coordination with production, HRM, Fin/Acctg, MIS certain countries as • R&D, production, marketing centers • Regional competitiveness Overall global • Global coordination for: competitiveness, marketing and profitability, growth operations synthesis • Global R&D, production, mktg, HRM, Fin/ Acctg, MIS

Source: Adapted with permission from “Multinational corporation’s strategy paths: A conceptual analysis for its foreign units” by Y.H. Godiwalla, Journal of Global Business, 14(27), 2003, 43–52. Copyright 2003. Association for Global Business

culture, and by the nature of the cultural sensitivity of the MNC’s product group. This issue is portrayed in Table 1.2. Each of the MNC’s foreign subsidiaries should have its own strategy formulation process. The process may be perceived by the foreign subsidiary to focus on at least meeting the performance expectations, as perceived to be set by the MNC’s HQ, its own stakeholders, its own local environment, and by itself. The foreign unit’s growth, competitive, and developmental strategy must rely on using its strengths to meet and exceed the criteria of effective performance. Finally, the foreign unit’s strategies must be integrated into the MNC’s overall corporate strategy. These issues are portrayed in Figure 1.2.

Literature Review Goals and strategy of a firm must be based upon a soundly evolved strategic vision, mission, and goal focus. Many studies point to the need of effective analyses that

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Table 1.2:  Host Country Culture and Product Analyses for Multinational Strategic Analyses Private focus: local network, H negotiation, HRM I Customize: mgmt style, G HRM service, H negotiation Adapt: mktg, promotion, mfg, supplier Standardize: product

Focus: competitive, HRM, process, local network Customize: negotiation mgmt style Adapt: promotion, P/OM Standardize: core growth and competitive strategies

Focus: local network, M negotiation, regional E coordination D Customize: mgmt style, I HRM, promotion U Adapt: products M Standardize: products, Mfg

Focus: local network, regional coordination Customize: mgmt style, HRM Adapt: product, P/OM, process Standardize: core growth and competitive strategies

Focus: mass L standardization O Customize: mgmt style W Adapt: promotion  Standardize: mfg, products, processes LOW

Focus: selective standardization of growth strategies Customize: promotion Adapt: products Standardize: operations

MEDIUM

Focus: local network, negotiation, product and services Customize: mgmt style process, service negotiation Adapt: HRM, product supplier Standardize: core growth and competitive strategies Focus: local network mktg, negotiation Customize: mgmt style, HRM, promotion Adapt: HRM, product Standardize: core growth and competitive strategies

Focus: regionalization, products Customize: selective products Adapt: HRM, mktg Standardize: operations HIGH

Horizontal Dimension: Cultural Sensitivity Of MNC’s Product Groups (Vertical Dimension: Intensity of Ethnicity of Host Country’s Culture; Horizontal Dimension: Cultural Sensitivity of MNC’s Product Groups) Source: Adapted with permission from “Multinational corporation’s strategy paths: A conceptual analysis for its foreign units” by Y.H. Godiwalla, Journal of Global Business, 14(27), 2003, 43–52. Copyright 2003. Association for Global Business

generate a correct strategic vision, mission, and goal focus (Asakawa, 2001; Brown, 1998; Ferrier, 2001; Hilkert, 1998; Lucas, 1998; Neelankavil, 2002). The need for first identifying a specific, focal vision makes it equally critical for an MNC’s foreign subsidiary unit in the context of its host country’s business, social and other environments (Daniels and Daniels, 1993; Hilkert, 1998). This chapter raises the

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EXPECTATIONS OF FOREIGN UNIT’S GOAL PERFORMANCE Satisfy/exceed expectations of: • headquarters • local environment • unit’s own people and their expectations

Criteria of effective performance

General organizational strengths needed to meet the criteria

Specific strengths of foreign unit needed to meet criteria of effective performance

GAP

Current strengths of foreign unit

Foreign unit’s growth, competitive and development strategy

Cumulative inputs integrated into MNC’s overall corporate strategy

Figure 1.2:  Foreign Subsidiary Unit Strategy Development Process. Source: Adapted with permission from “Multinational corporation’s strategy paths: A conceptual analysis for its foreign units” by Y.H. Godiwalla, Journal of Global Business, 14(27), 2003, 43–52. Copyright 2003. Association for Global Business

issue of each foreign subsidiary interacting with its strategic internal and external environments, and, formulating its strategic vision, mission, intent, and goal focus (Kemper, 1998; Taylor and Webber, 1996). Country culture is vital in the study of all aspects of international management. Some of the major trends in the study of country cultures include dimensions of

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culture. Greet Hofstede (1991, 2001) provided these dimensions: masculinity versus femininity, individualism versus collectivity, uncertainty avoidance (low versus high), and power distance (low versus high). Fons Trompenaars and Charles HampdenTurner (1998) provided cultural dimensions for “The 7D Model of Culture”: (1) relationship with people:  universalism versus particularism, individualism versus collectivism, specific versus diffuse, neutral versus affective, achievement versus ascription; (2) perspective on time: sequential versus synchronic; and (3) relationship with environment: internal versus external control. These dimensions provide analytical conceptualizations about the cultural profiles of countries, and they can have a bearing about the likely effective management and supervisory styles and organizational structures.

Evolution of Foreign Subsidiary Unit Studies have focused upon issues on the processes related to the foreign subsidiary management. These include those of Birkenshaw and Morrison (1995), and Jarrillo and Martinez (1990). The roles of foreign subsidiaries in their MNC organization have evolved as they seek to improve their strategic leverage in the context of their MNC organization (Bartlett and Ghosal, 1986; Gupta and Govindarajan, 1991, 1994; White and Poynter, 1984). Some attention has been paid to the strategic considerations of a foreign subsidiary in the context of its local, host country environments ( Jarrillo and Martinez, 1990; Papanasstasiou and Pearce, 1994; White and Poynter, 1984). The literature on foreign subsidiary appears to take the view that a particular role is assigned to it by its HQ according to the HQ’s perception of the foreign subsidiary’s capabilities and the strategic importance of the host country market to the MNC (Bartlett and Ghosal, 1986; Lo, 2016). In an important study, Birkenshaw and Hood (1998) provide a framework for viewing a foreign subsidiary’s evolutionary process, much of which is used in this chapter. The study suggests three major approaches which drive the evolution of a foreign subsidiary’s role (Birkenshaw and Hood, 1998). These are (1) HQ assignment, or the role in which the HQ imputes all important decisions to its foreign subsidiary units; (2) subsidiary choice, or through self-determination a foreign subsidiary formulates its own role; and (3) local environmental determinism, or the role of a foreign subsidiary is a function of the opportunities and the constraints set by its host country environment. In a similar approach, Birkenshaw (1999) outlines three broad approaches that can describe HQ-subsidiary relationships: (1) HQ domination style in which the HQ makes all important decisions; (2) rapid growth model which has three subsets: (a) HQ-driven transfer of resources to the subsidiaries, (b) subsidiaries locally

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seek resources from the host country for their growth, and (c) a combination of 2(a) and 2(b); and (3)  jointly planned, coordinated model in which both the HQ and foreign subsidiaries fully interact in forging future plans in close partnership. These three broad types characterize most of the evolving HQ-foreign subsidiaries relationships. The two sets in the above two paragraphs, each having three major approaches, are relevant in determining the foreign subsidiary’s role, although it is often perceived that HQ assignment plays a critical role.There is a close interrelatedness: the foreign subsidiary’s role, as formed by HQ’s influence and host country environmental pressures, eventually affects the HQ’s executives, the image of the foreign subsidiary in its host country environment, and the future decisions made by the foreign subsidiary’s executives (Chan and Holbert, 2001). It appears that the relative strength of influence of each approach varies as the foreign subsidiary’s role evolves over a period of time. HQ Assignment. HQ-driven evolution process of a foreign subsidiary can be: (1) product life cycle stages progression (Vernon, 1966, 1979) and/or (2) internationalization process (Contractor, 1989; Johanson and Mattson, 1988; Johanson and Vahlne, 1977; Noda and Bower, 1996). Both models are HQ-centered. This is because the HQ views a foreign subsidiary as an instrument to achieve the overall HQ’s goals and the goals which it imputes to the foreign subsidiaries. It may be interesting to note that HQ is not the only determining factor for foreign subsidiary evolution. For example, Almor and Hirsch (1995), and Young, McDermott and Dunlop (1991), who studied UK firms in the European context, have shown that HQ did lead but did not dictate the foreign subsidiaries. The past performance evaluation of the foreign subsidiaries, particularly the return on their assets and their resource utilization process, has been more important in the future growth plans of the foreign subsidiaries. Strategic initiatives may be also jointly pursued by the HQ and foreign subsidiaries. Similar approaches can be found in a study on MNC foreign subsidiaries by Edward, Ahmad, and Moss (2002). Subsidiary Choice. It represents the process of growth through self-determination by the foreign subsidiaries. In this model, the foreign subsidiaries are viewed as (almost) equals along with HQ so long as the foreign subsidiaries increasingly enact their environments to their own competitive and profitable advantage (Birkenshaw, 1991, 1995, 2001; Burgelman and Grove, 1996; Frenkel and Royals, 1998; Noda and Bower, 1996; Prahalad and Doz, 1981). Canada has long attracted foreign organizations to establish self-determining foreign subsidiary units which earn “world product mandates” status for their leading edge product development endeavors (Birkenshaw, 1995; Bishop and Crookell, 1986; Trompenaars and

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Hampden-Turner, 1998). Foreign subsidiaries in other countries have similarly attracted researchers to review the flowering of foreign subsidiary power for the United States (Asakawa, 2001; Birkenshaw and Hood, 1999; Edward, Ahmad and Moss, 2002; Frenkel and Royal, 1998; Gupta and Govindarajan, 1994), and for England and Scotland (Young, Hood, and Peters, 1994). The Michael Porter four-pronged model (the power of buyers, suppliers, threat of substitutes, and new entrants) can be a useful conceptualization to understand how a foreign subsidiary would be more intimately influenced by its strategic local and regional environments rather than by its HQ’s directives. Local Environment Determinism. Each foreign subsidiary’s local task environments are here believed to play a major role in its evolution. In this model, the foreign subsidiaries feel restricted by the local environments, e.g., economic, political, legal, social, and natural resources. The local environments’ construct of a country is so unique that it compels the foreign subsidiary to customize its strategic process and goal focus (Ferrier, 2001; Frenkel and Royal, 1998; Ghoshal and Bartlett, 1991; Marriotti, 1997; Prahalad and Doz, 1981; Rosenzweig and Singh, 1991; Solvell and Zander, 1998; Westney, 1994). The development and growth of foreign subsidiaries are significantly shaped by the local environments, e.g., local social ethnicity and business dynamism and attractiveness. In studying 89 foreign subsidiaries of 36 MNCs from Japan, Europe, and North America, Kriger (2003) found that (local) foreign subsidiary boards of directors were increasingly used. This trend indicates that local boards of foreign subsidiaries provide “a mechanism for both coping with legal and political pressures for increasing the access to information about local development” (Kriger, 2003). Further, the two forces that activate the local foreign subsidiary boards are: (1) early understanding of host country changes so as to develop “strategic windows,” and (2) satisfying the need of the local stakeholders of a foreign subsidiary to represent themselves and articulate their concerns and inputs to the foreign subsidiaries so that their goals and strategies incorporate the inputs, i.e., provide “windows of understanding” (Kriger, 2003). Local boards provide benefits to both, the host country people and the foreign subsidiaries. They seem to also satisfy the local aspirations and the need to express their inputs. The growth and evolution process of foreign subsidiaries depend on the motivations of the HQ’s and foreign subsidiaries, and the HQ-foreign subsidiary relationship. This process includes the following dynamics: (1) the HQ’s willingness to partner with foreign subsidiaries and to provide them with resources; (2) the foreign subsidiary’s initiative, choice, and self-determination; and (3)  the local environmental influences on the foreign subsidiaries.

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Approaches of Other Studies Corporate strategy of a foreign subsidiary is founded also on competitive and cultural considerations of the local market. A  foreign subsidiary’s corporate strategy is a comprehensive plan of action to increasingly improve its competitive and profitability position, customer satisfaction, and market share (Asakawa, 2001; Cvar, 1984; Godiwalla, 2003; Harari, 1994; Hitt, Keats, and DeMarie, 1998; Neelankavil, 2002). Different studies have pursued different directions or paths for analyzing the internationalization strategy (Birkenshaw and Hood, 2001; Downes and Mui, 1998). Strategies could be also viewed as being industry-specific, e.g., gaming and hospitality industry (Edward, Ahmad, and Moss, 2002; Henthorne and Williams, 1995). Other studies have taken up important issues in the strategic management field (e.g., competitiveness, profitability, and growth) as these are of common concern to most firms (Ferrier, 2001; Marriotti, 1997). In recent decades, many firms pursue strategic issues, like competitiveness, internationalization, and informational technology, with a sense of obsession (Chan, 2001; Harari, 1994). Often, the particular needs of host countries influence the MNC’s focal issues, e.g., marketing, manufacturing location choice, ethical conduct, and equity in labor practices (Andersson, Forsgren, and Holm, 2002; Erdener and Pacheo, 1998; Head, Thach, Perry, and Banham, 1998; Haug, 1995).

This Study’s Approach and Literature Support for It Different studies use different dimensions or issues, each for a specific purpose of interest, and each from a particular angle. This chapter focuses upon the match between: (1) intensity of ethnicity of an MNC’s host country, and (2) the cultural sensitivity of its products, as studies have indicated the importance of cultural issues (Hofstede, 1991). These issues are consistent with the product-market analyses and the strengths-weaknesses and opportunities-threats (SWOT) analyses as reflected in strategic management body of knowledge (Bartlett and Ghoshal, 1989; Hitt, Ireland, and Hoskisson, 2017; Thompson, Peteraf, Gamble, and Strickland, 2018). It is important also to apply the analysis of the functional management influence-mix on MNC’s overall corporate strategy and the foreign subsidiary’s corporate strategy. It also would help to determine the particular strategic functional management focus. This approach has support from the body of knowledge of strategic management, as reviewed by scholarly books and textbooks (Godiwalla, 1983; Godiwalla, Meinhart, and Warde, 1979; Hitt, Ireland, and Hoskisson, 2017). This review implies that foreign subsidiary in specific organizational settings could

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pursue a particular mix of functional management strategies, with a particular functional management as being more dominant. Also, gap analyses are an important strategic management concept that is applied in this chapter. The study of an MNC’s strategic direction or path is important for the study of future growth of an MNC.

MNC’s Strategy Paths: An Overview The MNC’s strategy paths depend upon the growth of its global strategy and the growth and evolution of its foreign subsidiaries. The nature of evolution and growth of foreign subsidiaries of an MNC would depend upon: (1) MNC’s HQ, its centricity and functional management mix, HQ choice; (2) each foreign subsidiary’s self-determination, choice of its strategic focus (based upon host country ethnic intensity and the cultural sensitivity of its products); and (3) the strategic local and regional environments. Figure 1.1 integrates all the issues and analysis of the other exhibits. This figure brings into fusion the two most important analyses: (1) a-priori strategic focus that consists of MNC HQ’s centricity and the international goals of the MNC, as in Table 1.1 and Figure 1.2, and (2) external environmental influences that consist of the intensity of ethnicity of host countries’ cultures and the cultural sensitivity of the products, as in Table 1.2. These two have to be simultaneously considered for determining the competencies of an MNC foreign subsidiary and what it should do to successfully meet all the challenges an MNC would face in achieving its organizational performance goals. The analyses would also reveal the specific areas of activities that need to be improved. Strategic continuity, congruence, and consistency from the top levels of an MNC’s HQ to the foreign subsidiaries are vital for the overall MNC. The close partnership between HQ and foreign subsidiaries on important issues (e.g., strategic decisions, resource transfers to and among the foreign subsidiaries, and innovation and entrepreneurial activities at the foreign subsidiaries’ level) enable to foster increasing foreign subsidiaries’ strategic initiatives that are vital for overall MNC growth and competitiveness. Such approaches would indicate the nature and the magnitude of “gap” between what the foreign subsidiary should be capable of achieving in the future and what it currently is capable of achieving. Such gap analyses will prompt an MNC to reduce its critical weakness and further fortify its most vital strengths. The assessment of a particular foreign subsidiary unit’s capabilities in comparison to its strategic host country environments would enable an MNC to

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reformulate the parts of its overall corporate strategy as it is pertinent to the particular foreign subsidiary. Cumulative analyses and strategies should be appropriately integrated into an MNC’s overall corporate strategy.

MNC HQ’s International Centricity and Functional Managements’ Strategy-Mix The nature of ethnic orientation of the top management of the MNC’s headquarters can have a priori influence upon the choice of the MNC’s strategic focus and functional focus. The ethnic orientation indicates the attitudinal complexion of the MNC HQ’s strategic decision makers and decision influencers. The inner core at the MNC HQ may be composed of a few key decision makers, who are flanked by several or many decision influencers. Here it is important to recognize the mindsets and ethnic orientations of both, the key decision makers and the decision influencers as they do the detailed work for the key decision makers. These issues are explored in Table 1.1. Table  1.1 presents the different international organizational centricity (e.g., domestic, multi-domestic, multinational, and global) that an MNC’s HQ could possess. For each type of centricity, there can be expected to be a specific strategic focus. For example, domestically oriented firms would focus on creating export markets to optimize domestic production, while globally oriented firms would focus on overall global marketing and operations. In this context, Hernandez (2014) found that the greater the number of higher level immigrant executives at the MNC’s HQ, the greater the propensity towards MNC’s internationalization towards the immigrants’ countries of origin. Thus, the collective international location propensity of the top HQ decision makers is an important factor for predicting the choice of the international directions, i.e., the choice of international regions and countries that the MNC would enact. Further, the “co-national immigrants,” through the “common country bonds can become unique channels of knowledge,” can influence the MNC’s future strategy paths on such decision choices as: country location and subsequent growth in it, exiting a country, transfer of resources among different foreign subsidiaries, and diversification into other industries within the host countries. A  further benefit of a more diverse immigrant population among the strategic decision makers at the HQ would be the wider world view and better willingness to explore international opportunities without too much prejudice. There would likely be an earlier and greater internationalization. This is desirable because there would be vetting of proposed decisions or approaches for possible unsubstantiated biases and, consequently, that could lead the MNC to a better strategic and international

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performance based on the merits of the meaningful evaluations of market opportunities and country and location choices. In this way the correct MNC strategy paths would be better chosen. Each ethnicity can be expected to also generate a functional strategy-mix because of the strategic focus that it exerts. Given the specific projection of functional management priority-mix at the HQ and at the country levels, the firm blends the functional managements in ways that would accomplish its goal expectations (Godiwalla, Meinhart, and Warde, 1979). For example, if for a particular country the foreign subsidiary’s products are finding resistance in the market, then the marketing functional strategies would get more importance. Goal orientation of overall global marketing and operations synthesis, for example, would induce the pursuit of global coordination of large-scale marketing and operations to generate competitiveness, profitability, growth, and organizational responsiveness through organic, not mechanistic forms of organization. In this way, the MNC achieves greater economies of scale through product design rationalization and operational standardization. Strategic orientation emanates from the type of ethnicity that the firm possesses and the strategic focus that it projects. For example, it may be interesting to contrast the multi-domestic (polycentric) approach with the multinational (region-centric) approach. On the one hand, the multicountry focuses on individual country markets economies and cultures with an eye to highly customize its country-by-country operations. On the other hand, the multinational approach, while focusing upon customizing within each region of several countries, it also seeks to coordinate, integrate, and so achieve the economies of scale and scope within each region. The a priori assumptions and philosophies do affect the strategy-mix choice.

Host Country Culture and Product Analyses for Multinational Strategic Focus The MNC’s strategic focus for a particular foreign country market can be determined by the nature of the intensity of the ethnicity of the host country culture, and by the nature of cultural sensitivity of the MNC’s product group for the country. The people of a foreign country may feel lightly, moderately, or strongly about their own country’s ethnicity and culture. Depending upon the nature of the intensity of their feelings, an MNC may have to adapt its strategic focus towards the foreign country’s market. The (low, medium, or high) cultural sensitivity of the products of the MNC can also influence the choice of the MNC’s strategic focus to the country’s market. These product-market strategy issues are explored in Table 1.2.

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Table 1.2 presents a 3 X 3 matrix in which: (1) the vertical dimension is the intensity of ethnicity (or a focus that centers on an ethnic background of a given culture), and (2) the horizontal dimension is the cultural sensitivity of the MNC’s product group. For example, if an MNC has one product group and has 25 countries of operations, then it must do Table 1.2 analyses for each of the 25 countries. If the 25 countries can be grouped together in a cluster of similar cultures or similar market countries, then that would be a more convenient and labor-economic method. This could be a most likely method if the intensity of ethnicity of host country culture and cultural sensitivity of the products of the MNC are both low. The table presents the strategic focus that an MNC should project and the nature and the content of: (1) customizing, (2) adapting, and (3) standardizing. The top, right cell is most challenging for an MNC because it has both, (1) a difficult product (because it is culturally sensitive) and (2)  a difficult country (because it is highly, ethnically focused culture). The MNC has to be careful and sensitive in the formulations of its strategies. It has to customize or highly adapt its products and services, processes, local interaction, HRM, etc., to satisfy the unique, fastidious needs of the host country culture. Each situation needs a strategy. For example, General Motors (GM) responded to market contraction because of Asian and Russian financial crisis by reducing structural and employment costs, capital spending, and adjusting operating schedules (General Motors Annual Report, 1998). GM similarly introduced, in 1998, a new small car in Brazil, as an attempt to introduce a series of new, adapted products for the specific needs of Brazil. On the other end of the spectrum of too right cell is the left, bottom cell. The firm could standardize its products, services, and major strategies. For example, Delphi Automotive Systems, formerly a division of GM, can develop a vision to be recognized by its customers as their best supplier. Its mission is five-fold: (1) be a global automotive systems supplier with component excellence; (2) achieve the passionate pursuit of customer satisfaction through technology, cost, responsiveness, and attitude; (3) grow revenue across a diversified customer base; (4) increase stakeholder value through revenue growth and superior returns; and (5) create an environment where every employee can contribute and excel. It may be observed that Delphi Automotive Systems makes automotive parts, which go inside the vehicles and so are culturally insensitive products.

Foreign Subsidiary Unit’s Strategy Development Process The earlier sections have addressed the MNC HQ’s strategic and ethnic orientations, and their effects on MNC strategy paths. We now address the foreign

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subsidiary’s strategy formulation process. The foreign subsidiary has to exceed the expectations for its own performance set by three sets of stakeholders or entities: (1) the MNC’s HQ, (2) the host country environment, and (3) the foreign subsidiary’s employees themselves. In doing so, it must identify and use its specific strengths to succeed on critical dimensions of activities, e.g., customer satisfaction and service, meeting host country needs of fuller employment, and human resource development. Further, the MNC must integrate all foreign subsidiaries’ strategies into an overall corporate MNC strategy. Figure 1.2 portrays a systematic process for developing the strategy of both, the foreign subsidiary unit and the overall MNC. The expectation (by the MNC HQ, and the foreign subsidiary’s local significant business and political leaders and other stakeholders) of the foreign subsidiary performance is a source of tension or anxiety as well as motivation for the foreign subsidiary to spur for better performance. It would look toward innovative ways to revitalize its operating activities and generate cost savings, better and timely products and services, or other significant performance criteria improvements. Meeting or exceeding performance criteria improvements is a strong focus of the top management. In trying to meet the criteria for effective performance, an MNC’s foreign subsidiary needs to identify the critical strengths that it must possess for exceeding the expectations of the stakeholders. If it does not currently possess the requisite strengths in full measure, then it should seek to revamp its capabilities. For example, if after sales service is weak, then it should train its technicians and other personnel better and also provide better tools and equipment, support staff, operating budget, and managerial skills. To revamp is a must. The gap analyses would reveal areas of deficiencies, and benchmarking other firms in the host country would also be a useful activity to provide a basis to reorganize and improve capabilities on critical activities. These become important inputs to the foreign unit in formulating its organizational development strategy, which in turn provides cumulative inputs (of all foreign units collectively) to an MNC HQ in the reformulation of its future overall corporate strategy.

Overall Implications and Usefulness of This Study The strategic focus of an MNC and its foreign subsidiaries can be determined by the organizational circumstances in which they operate. Some of the major organizational circumstances and their corresponding effective MNC and foreign subsidiary strategic approaches are here cited. For overall MNC, the strategic focus is determined by the nature of strategic, structural, and ethnic orientations. A domestically oriented MNC would focus on

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production or operational efficiency, functional management strategies, and export strategies to sell its excess production. A multi-domestic MNC would focus on intense international aspects of marketing, human resource management, and production and operations, with emphasis on country-by-country competitiveness. An MNC with strong multinational orientation would focus on greater regional coordination of all functional managements of the constituent foreign units, with emphasis on regional coordination and competitiveness. A globally oriented MNC would focus on global coordination for overall MNC competitiveness, profitability, and growth, with integration of global resources of its business units and functional managements and, if product sensitivity feasible and if culturally feasible, it would strive for greater standardization and affect economies of scale and scope. For the foreign subsidiary units, the strategic focus is determined by the nature of the mix and intensity of the ethnicity of the host country culture, and the nature of cultural sensitivity of MNC’s products. For low host country cultural intensity and its product’s low cultural sensitivity, the approach would be mass standardization in operations, supply chain, and adaption of the promotion process. For high on both, product’s cultural sensitivity and host country’s cultural intensity, the approach would be local networking, customize human resource management and managerial processes, and standardize essential growth and growth competitive strategies. For a host country with high cultural intensity and an MNC’s low culturally sensitive product, the approach would be local networking, customized management style, local negotiation, and human resource management; adapt functional managements; and standardize products. For a host country with low cultural intensity and an MNC’s high culturally sensitive products, the approach would be product customization to each regional market; adapt human resource management and marketing; and standardize production and operations. These basic orientations would be useful guides to MNC strategy paths. These templates are suggested for both the overall MNC organization as well as the foreign subsidiary unit organization.

Recommendations for Actions The top managements of the MNC headquarters and the foreign subsidiary units together have to recognize that their strategic paths are determined by their respective strategic task environments. The top management of the MNC HQ is influenced by the MNC structural orientations that reflect its ethnicity orientations and mind-sets. The top management of a foreign subsidiary unit must operate within its constructs, which are: (1) its HQ’s expectations, (2) its host country

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and regional environments, and (3) its own internal organization. It must seek to meet or exceed the expectations of these three different sectors. In very satisfactory situations of a foreign subsidiary unit meeting or exceeding these expectations, one can predict that it would grow well in its host country environment. The chemistry between the foreign subsidiary and the host country environments and peoples is vital for the survival and thriving of the foreign subsidiary. This is enhanced by a continuous engagement of the foreign subsidiary with the host country environments beyond the strict business sense, such as corporate giving back to the host country people in ways which are meaningful to them. Going beyond the business and economic performance, the foreign subsidiary needs to excel on the human or people dimension. MNC strategy paths depend upon its top management’s mind-set and deliberations of future directions. Its HQ’s centricity and its international goals are a priori considerations as it analyzes each of its host country’s environmental influences, e.g., the ethnicity, or intensity of ethnic identity of culture, and its products’ cultural sensitivity. Further, the development of the unit’s critical strengths becomes important inputs for the corporate strategy of the MNC. The plan for organizational development provides a concrete basis to improve its competitive advantage. Such a plan is generated by the gap analyses, i.e., the difference between the competences needed to exceed the criteria of effective performance and the unit’s existing capabilities. The particular analyses of (1) the ethnicity of host country culture and (2) cultural sensitivity of the product would generate the strategic focus as well as what the unit should customize, adapt, and standardize. This raises the argument of blending the twin considerations of product and local market, and achieving a proper match between them.

Recommendation 1: Provide Closer HQ-Foreign Subsidiaries Participation in Strategic and Operational Processes The close interactions between the HQ and foreign subsidiaries are desirable in all major activities. This approach would involve a good deal of executive time at the HQ and foreign subsidiaries, but such investment in time is necessary. The Justification. This would foster better empathy between HQ and foreign subsidiaries. It is likely to generate better understanding and appreciation of each other’s perspectives and challenges. There is more likelihood of synergy and fostering of problem-solving and proactive problem diffusion activities. Guidelines for Implementation. The major strategy implementation activities would require better joint approaches and closer communication regarding

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strategic and operational issues, problems, and challenges. Frequent meetings and follow ups are helpful.

Recommendation 2: Provide Widespread Sharing of Proposals, Plans, Problems, and Reviews A more widespread sharing within the MNC organization of operational issues (including plans, problems, and external political and industry influences) would lead to an organization-wide, coherent, and comprehensive understanding. The Justification. This would result in a uniform resource development process and the higher levels of competences will be spread throughout the MNC organization. Guidelines for Implementation. The HQ and foreign subsidiaries should have a timetable for periodically sharing competitive entrepreneurship and innovative knowledge and resources. Industry and market intelligence sharing and other organizational resource sharing are also parts of this recommendation.

Recommendation 3: HQ Should Support the Foreign Subsidiaries’ Innovation and Entrepreneurial Efforts The HQ should timely provide the requisite resources for the innovation and R&D plans and support the entrepreneurial endeavors for foreign subsidiaries. The Justification. Doing so would generate greater innovative spirit and activities within the foreign subsidiaries. This would keep all of the MNC organization well integrated. Guidelines for Implementation. It should improve its own capital budgeting and forecasting of the needed resources so that it has the resources that are available for fueling the foreign subsidiaries’ growth.

Recommendation 4: Increase the Use of Local Boards in Foreign Subsidiaries Have local or host country boards of directors in foreign subsidiaries. Use more host country nationals for foreign subsidiaries’ boards of directors. Also, have an HQ executive serving on such boards. The Justification. This would enable to foster better local stakeholders’ integration with the foreign subsidiaries. The local inputs would be better and

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timelier. Having an HQ executive also serving on local boards would ensure that an overall MNC context is preserved. Guidelines for Implementation. Choose local board members carefully as they would also inevitably serve the local interests. They should have the promise of being balanced, fair, and objective. Review their performance periodically and rotate them with term limits so as to get fresher local inputs.

Recommendation 5: Provide Broad, Flexible, and Highly Adaptive HQ and Foreign Subsidiary Leadership The HQ and the foreign subsidiary executives must have wider, more flexible, and highly adaptive plans and be open-minded in their perspectives for understanding unknown or strange scenarios. The Justification. This would allow for unknown scenarios since the HQ executives are often not intimate with the foreign subsidiary’s environmental details. This would be conducive to subsidiaries’ strategic initiatives. The need for adaptiveness and responsiveness to the changes can be justified by the many instances of the subsequent realities, which would prove to be different from the initial plans and strategies. Given the likelihood of the changes in the situation when the plans and strategies were initially crafted, and afterwards when the executives and supervisors (at all levels of the HQ and foreign subsidiary) actually face the realities, there is a greater need for thinking on one’s feet and be adaptive and pragmatic. This approach also requires very talented, well-trained, loyal, and committed people. Guidelines for Implementation. The HQ and foreign subsidiary leadership should be very alert to the changes in the external environments and be very promptly adaptive so that they are truly responsive to the external and internal environmental changes.

Recommendation 6: Provide Integrated HQ-Foreign Subsidiaries Strategy Formulation and Implementation Process The motivating incentives for better performance would mean that the HQ executives and the foreign subsidiaries are closely exchanging and coordinating the strategy formulation and implementation process. The Justification. The well-integrated HQ-foreign subsidiaries’ overall strategy formulation and implementation process would result in effective and cohesive strategic vision and action.

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Guidelines for Implementation. Focus should be on simplicity and effectiveness of the process of strategy formulation and implementation. The process should be clearly explained to the foreign subsidiaries. Further, the HQ should invite their inputs for the improvements for the process.

Recommendation 7: Include Immigrant Executives and Culturally Diverse People (e.g., from Foreign Subsidiaries) at the HQ At the HQ, develop an ethnically, culturally, and professionally diverse and broadminded leadership that would engender geographically open-minded and innovative, proactive strategic decision-making. Foreign subsidiary executives may be promoted to the HQ to achieve this diversity objective. The Justification. There will be better willingness to explore international opportunities in a wider sphere. There will be bolder risk-taking. International growth would be more on the basis of the strategically desirable rather than staying with the ethnically comfort zone. Guidelines for Implementation. Bringing in foreign subsidiary executives into the HQ, and integrating them in the top management team, would be a most desirable approach. It would bring in diversity and wider world view and also better empathy and a fusion between the HQ perspectives and the foreign subsidiary perspectives.

Recommendation 8: Provide Motivating Incentives for the HQ and the Foreign Subsidiary Executives The HQ must improve the compensation system for providing truly motivating incentives to the HQ and foreign subsidiary executives so that they have incentives to be continuously creative and adaptive in their operations. The Justification. The HQ and the foreign subsidiary organizational culture usually remain similar, if not the same, over a period of time despite changes in the task environments. This is true for scenarios even after a new management team is installed at the HQ or the foreign subsidiary. Guidelines for Implementation. For the organization to remain vibrant, innovative, and focused, a proper and sufficiently rewarding and motivating incentive system should be installed, and it should be periodically tweaked for its continuing relevance and motivational effectiveness. With the progress of time and changes, the older compensation systems should be reviewed for their possible antiquity, irrelevance, and outmodedness. This updating

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of the incentives is vital because otherwise they will not provide the needed incentives for the foreign subsidiary personnel to strive and achieve their objectives.

Conclusions An MNC’s global growth directions or paths should be comprehensively crafted through close partnership between the HQ and the foreign subsidiaries. For crafting future viable, flexible, and adaptive global strategy paths, what are needed are a combined MNC HQ and foreign subsidiaries leadership, and a sense of how such combined leadership would adapt and respond to the perceived future international scenarios. Extrovert or outgoing personalities and analytical mind-sets among the people at the HQ and foreign subsidiaries, without any undue constrained or restricted pressures, would benefit the MNC. It would result in the form of clarity in strategy paths that are based on analytical foundations, proper strategic vision, mission and goals, and highly pragmatic and adaptive approaches. In this way, they will carry out the underlying purpose of the strategy such that they will also adjust to the different situations as they unfold after the initial crafting of the strategy. Further, at every stage in its organizational development, a foreign subsidiary must strive to exceed the criteria for its effective performance, as perceived by itself, its local stakeholders, the HQ leadership, and its HQ stakeholders. For doing so, a foreign subsidiary would need to determine its strategic functional management-mix, strategic business-mix, and strategic product-mix, and then acquire the requisite resources and capabilities. If it does not currently possess the requisite resources and capabilities and the critical strengths in full measure for carrying out the new corporate strategy, then it should first seek to revamp its capabilities through additional doses of resource inputs. It should also follow through with a systematic reorganization and reallocation of resources for better, more efficient resource utilization process and be more effective insofar as achieving the goals of the new corporate strategy. The corporate strategy is then ready for implementation.

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Kriger, M.P. (2003). Creating Strategic Windows:  The Increasing Role of Subsidiary Boards in Japanese, European and North American MNCs. Proceedings of NAAMS, Midwest Business Administration Association, March 2003, 92–96. Lo, F. (2016). Factors leading to foreign subsidiary ownership: A multi-level perspective. Journal of Business Research, 69(11), 5228–5234. Lucas, J.R. (1998). Anatomy of a Vision Statement. Management Review, 87, 22. Marriotti, J. (1997). Is Competitive Advantage Really Sustainable. Industry Week, p. 246. Neelankavil, J.P. (2002). Determinants of Managerial Performance:  A Cross Cultural Comparison of Perception of Middle Level Managers in Four Countries. Journal of International Business Studies, 31, 20–36. Noda, T., & Bower, J.L. (1996). Strategy Making as Iterated Processes of Resource Allocation. Strategic Management Journal, 17, 159–192. Papanasstasiou, M., & Pearce, R. (1994). Determinants of the Market Strategies of US Companies. Journal of the Economics of Business, 2, 199–217. Powell, K., & Lim, E. (2018). Motive Meets Experience: Cultural Distance, Motive, Related Experience, and Foreign Subsidiary Ownership Structure. Journal of Business Research, 92, 81–92. Prahalad, C.K., & Doz, Y.L. (1981). An Approach to Strategic Control in MNCs. Sloan Management Review, 22, 5–13. Rosenzweig, P., & Singh, J. (1991). Organizational Environments and the Multinational Enterprise. Academy of Management Review, 16, 340–361. Solvell, O., & Zander, I. (1998). International Diffusion of Knowledge: Isolating Mechanisms and the Role of the MNE. In A.D. Chandler, P., Hagstrom, J., & Solvell, O. (Eds.), The Dynamic Firm:  The Role of Technology, Strategy, Organization and Regions. Oxford, England: Oxford University Press. Taylor, W.C., & Webber, A. (1996). Going Global. New York, NY: Penguin Books. Thompson, A.A., Peteraf, M.A., Gamble, J.E., & Strickland, A.J. (2018). Crafting and Executing Strategy:  The Quest for Competitive Advantage, Concepts and Cases. New  York, NY: McGraw-Hill. Trompenaars, F., & Hampden-Turner, C. (1998). Riding the Waves of Culture:  Understanding Cultural Diversity in Global Business. New York, NY: McGraw-Hill. Vernon, R. (1966). International Investments and International Trade in the Product Cycle. Quarterly Journal of Economics, 80, 190–207. Vernon, R. (1979). The Product Cycle in the New International Environment. The Oxford Bulletin of Economics and Statistics, 41, 255–267. White, R.E., & Poynter, T.A. (1984). Strategies for Foreign-Owned Subsidiaries in Canada. Business Quarterly, 49, 59–69. Young, S., Hood, N., & Peters, E. (1994). Multinational Enterprises and Regional Economic Development. Regional Studies, 28, 657–677. Young, S., McDermott, M., & Dunlop, S. (1991). The Challenge of the Single Market. In B. Burgenmeir and J.L. Mucchelli (Eds.), Multinationals and Europe. London, England: Routledge.

chapter two

Strategic Management for MNC Firms A Conceptual Discussion

Multinational corporations (MNCs) or global organizations have to proceed with a global and strategic perspective in order to be effective. This is in contrast to domestically or regionally focused organizations. MNC organizations would benefit from simultaneously pursuing: (1) a headquarters (HQ)-led, organization-wide, integrative, global, and strategic decision-making and (2) a decentralized foreign subsidiaries’ tactical and operational decision-making. The simultaneous pursuits of the two different approaches require capable management teams at both levels: (1) the MNC HQ as well as (2) the foreign subsidiaries. The unique task environments of each foreign subsidiary make it compelling for the HQ to delegate the operational and tactical decision-making to the foreign subsidiary. For the combined and well-coordinated MNC global vision, mission, strategic choices, goals, and overall MNC corporate strategy, the HQ must take the strategic, global leadership role. The partnership and collaborative efforts among the HQ and foreign subsidiaries’ executives will foster a togetherness feeling and better ownership of the responsibility among the foreign subsidiaries’ executives. The hierarchical, topdown approach would then be replaced by a joint, information-sharing approach that would engender an era of trust and mutual understanding and respect. The MNC organization would tend towards power equality rather than power inequality among the MNC entities. Power would then be posited to where most

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information and direct skills reside. The issues reviewed in the chapter include MNC strategic management, corporate and foreign subsidiaries strategies in MNC firms, and contingency approach in MNC strategic management.

The Purposes of the Chapter The purposes of the chapter are to develop contingency frameworks for analyses of foreign subsidiaries’ strategic situations and to help them in making effective strategic choices and decision-making for an MNC organization as a whole and for each of its many foreign subsidiaries, which operate in diverse organizational task environments. Strategic analyses make use of the contingency frameworks to facilitate effective analyses of a given foreign subsidiary’s organizational task environments and categorize its operating environments (such as, social, cultural, religious, political, economic, human skills and talents, supply chain, and other infrastructural environments). Contingent upon the nature of the operating environments, a foreign subsidiary can effectively formulate its strategic organizational choices, goals and major strategies, and operating strategies. The chapter adopts a comprehensive approach to enable a global firm to pursue flexibility and adaptability in its global strategic focus for both the MNC organization as a whole as well as for its foreign subsidiaries on a tailored and a-foreign-subsidiary-by-a-foreign-subsidiary basis. Further, the approach, through increased decentralization, would enhance the autonomous attribute of the foreign subsidiaries in an increased “owning” of its own organizational strategies. Again, this approach evokes the tenet of: (1) on the one hand, simultaneous centralized strategic leadership, vision, and coordination at the HQ and (2) on the other hand, the semi-decentralized and collaborated foreign subsidiaries’ own strategic activities, and (3) decentralized operating decision-making and activities.

A Review of Literature Strategic management in MNC firms is vital for a comprehensive and overall understanding of the issues and activities for organizational performance. Global firms or MNCs can have significant benefits from the long-term, strategic advantages if their strategies are well planned and developed. Global firms win out by using strategic leadership and by leveraging the differences among countries to their advantage. Compiling and collating similarities of the strategic and operating situations among the foreign subsidiaries into strategic taxonomies (or, categories

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of core strategic foci) would better provide a wide, full picture at one glance of the strategic quilt of the MNC organization. In that, the clusters of foreign subsidiaries which have similar strategic, cultural, and operating settings may use similar core templates of strategies. It is worthwhile developing a collaborative partnership focused on organizational culture in which the HQ and the foreign subsidiaries pursue mutual understanding and respect, trust, and interorganizational confidence. Ideally, there should be an open and free exchange of major information, organizational situations and experiences, and market intelligence. There should be a greater emphasis on ethical and strategic leadership. There should also be a continuous investment (of recruitment and training) in human talent. MNCs have to continuously study their foreign subsidiaries’ environments on an aggregate basis and make integrated MNC-wide plans for future growth, development, and competitiveness. The characteristics among countries should be studied for differences in their infrastructures; human and natural resources; political, legal, and economic systems; unique or special factors; and markets (Craig, 1993; Lundby and Caligiuri, 2013; Mohiuddin, 2017; Virzi, 2018). Understanding and using the knowledge of the comparative advantages among its countries of operations would make a global organization more efficient in the use of its resources, as it effectively strives to accomplish its global organizational goals. Leveraging the countries’ resource profiles and subsequently making strategic and operating decisions based on them, is what makes a global organization more efficient and competitive (Collings, 2014; Lundby and Caligiuri, 2013). The contingency frameworks (as portrayed in the figures) depict the different infrastructures and organizational settings that would indicate the different core templates of strategies that should be used by the subsidiaries for effectiveness. Other things being equal, those foreign subsidiaries which better leverage their host countries’ opportunities-threats factors would perform better than those other foreign subsidiaries that do not leverage as well. The overall differences may be evaluated for the firm’s operations in advanced, industrialized countries; fast-developing countries; and slow-developing countries. A global firm or MNC may develop a core set of broad strategies in order to be effective for each category of countries with similar levels and types of development. This is the assumption used in this chapter to develop core sets of strategies to effectively manage each foreign subsidiary, and this assumption is borne out by several scholars in various ways (Matthes, 1993; Prahalad and Doz, 1987; Reynolds, Lindstrom, and Despres, 1994; Shan and Hamilton, 1991; Solomon, 1995). It is tenable to consider that firms that operate in similar task environments may develop similar broad, core strategies because, by doing so, they would set

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forth their future strategic directions and choices that are consistent with the characteristics of their task environments (Godiwalla, 2018; Oster, 1994; Porter, 1988). Similar arguments have been put forward by Pavett and Morris (1995) for developing broad, core foreign subsidiaries’ strategies based on similar task environments and host country considerations. It is argued that a unit’s strengths-weaknesses analysis alone may not be sufficient and that more external-orientation and market analysis may be beneficial as supplemental analysis (Everett, 2014). The implication of this viewpoint is that no one approach or type of analysis is sufficiently telling and that a holistic approach and comprehensive grasp would bring greater verisimilitude and a higher confidence level of perspicacity. No one approach is enough as we learn that other analyses can provide details on a broader canvass. One can develop categories of contingencies and generalize the core strategies for each of the categories and use it to the MNC’s advantage. Developing strategically oriented and ethical and socially responsible leaders and supervisors at all levels and parts of the global organization would steadily improve the organization’s global image and reputation. Investing in (recruitment and training of ) human talent and ethics for improved organizational and professional culture that is embedded in ethical values and conduct would result in effectiveness in all parts of the global organization (Godiwalla, 1983; Virzi, 2018). Their long-term value is priceless. No advertising, marketing, or public relations campaign can match it. There is a growing realization for the need for pursuing improved ethical values and socially responsible conduct in corporations as they pursue to improve shareholder value, be they domestic or international in scope. A company that believes that “there has never been a question that they can do both: make money for the investors while making the world a better place” can greatly benefit (Fortune, 2018). For example, Henry Schein, a $12.5 billion global company, extends “beyond their fiduciary responsibility to shareholders and into the realm of corporate social responsibility” (Fortune, 2018). It has demonstrated that a company can be both profitable and ethical with high corporate social responsibility (CSR). The company, based in Melville, NY, employs over 22,000 people in 34 countries, is an MNC provider of business, clinical, and technological solutions to physicians, dentists, and veterinarians. It ranks 238 on the Fortune 500 list; and it has also been for 17 years as one of the Fortune’s Most Admired Companies, and on Ethisphere’s list of the World’s Most Ethical Companies. Stanley Bergman, its CEO, explains his company philosophy, “Henry Schein has been able to embed our commitment to ‘doing well by doing good’ into the fiber of our business by creating an ecosystem where we help our customers achieve their goals, provide our team members a sense of purpose, drive shareholder value, and make a positive difference in the

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world.” An example of its CSR activities that it contributes through “Give Kids a Smile,” the company with the ADA Foundation, provides support to over 6,000 volunteer dentists in giving free dental care to the United States children. Further, Bergman explains his company’s belief of fostering a caring culture, “Our commitment to creating shared value impacts how we do business, the way we partner, and the types of community engagement activities we focus on.” Fortune calls the company, “A shining example of global corporate citizenship.” Further, journalistic entities, as those cited above, provide media attention to the need for improved CSR by providing ratings that would lead to greater public awareness and improvements in ethical corporate conduct. This would be in the same way as governmental agencies (like National Highway Traffic Safety Administration) and private sector entities (like Insurance Institute for Highway Safety) evaluate and publish safety tests data of cars and other vehicles, leading to auto makers improving vehicular safety. Along with other car buying criteria such as reliability, fuel efficiency, performance, comfort, functionality, and styling, safety has continued to be an increasingly important criterion. Safety sells cars. Similarly, ethical and socially responsible corporate conduct can help in long-term improvements in corporate sales, profit performance, and corporate shareholder value.

Strategic MNC Vision and the Contingency Framework of Developed and Developing Countries The figures in the chapter are based on the argument that the nature and the state of environment and the rate of change of its specific host country environment significantly influence the choice of the strategic focus and the organizational strategies for a foreign subsidiary. The environmental influences include the general economic system, the general infrastructure, technology, market factors, general civic services, governmental machinery, and the pool of skilled people and advanced educated professionals.

The Contingency Framework The figures are based on the argument that an MNC firm needs to exercise strategic flexibility in developing effective strategic focus and organizational strategies to suit each of its foreign subsidiary’s environments. The foreign subsidiary’s host country environment generates a strong influence upon the foreign unit for it to choose a strategic direction, and this direction is contingent upon the environmental circumstances. In particular, information about the industry and market factors

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in the host country and nearby countries, which may constitute the greater catchment area for the foreign subsidiary, could provide inputs for more comprehensive analyses for the foreign subsidiary’s future directions (Everett, 2014). This contingency approach implies that the foreign subsidiaries could benefit from more comprehensive analyses, rather than short, brief strokes of random analyses based on convenience or on easy access to past data. Also, an MNC organization would benefit from developing a better grasp of the strategic situation and, subsequently, developing a more mature and comprehensive strategic focus and organizational strategies in a manner for meeting their needs and coping with their environmental challenges. This approach also clearly implies that foreign subsidiaries may have to spend more resources on data gathering and organizing and on subsequent analyses and reflection, than resort to ill-prepared action. This approach is contrary to the norm in organizations, particularly at middle and lower levels, where the pressures to perform quickly and show immediate results are paramount. In expediency, foreign subsidiaries executives must act to get immediate operating results. This is a situation for the foreign subsidiaries’ middle and lower level executives on whom multiple demands are placed. In such a situation, HQ executives should step up in the process and play a more collaborative, helpful, and problem-solving role (Godiwalla, 2018). The MNC organization should improve its competitiveness through well-knit partnership among the HQ and foreign subsidiaries executives. Patience and understanding of the HQ executives would also help in building foreign subsidiary executives’ self-confidence. Top management at MNC HQ and the top managers of the foreign subsidiaries must jointly focus on the MNC strategic vision, mission, goals, and strategy, and they must see an integrated, broad picture of the firm operating in diverse environments. Further, consistent with the overall MNC vision, mission, goals, and strategy, they must indeed encourage some strategic decentralization of the foreign subsidiaries to develop their local foreign subsidiaries’ visions, missions, goals, and strategy in the context of their respective host country environments (Ross, 2008). Such multilevel strategic visions, missions, goals, and strategies, when properly integrated, would lead the firm to a proper future (El-Namaki, 1992; Everett, 2014; Finkelstein and Hambrick, 1996; Hambrick and Mason, 1984). Periodic upward feedback from the foreign subsidiaries to the HQ would help the MNC to stay current in the changing realities in the MNC’s disparate organizational environments. From the incoming information from the grass roots environments of the foreign subsidiaries, the MNC’s top management should lead the overall MNC firm to make the needed changes in the strategic vision, mission, and goals (Want, 1993). After the changes in the MNC vision, mission, goals, and strategy have been reconfigured, the MNC should make efforts for a concerted

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restructuring of the firm (Finkin, 1992). Thus, a firm must generate changes in its strategic vision, mission, and goals, and it must tenaciously follow through its change-related strategies and redesign the organizational structure and organizational culture of the firm. Changes in strategy lead the future changes in organizational structure, organizational culture, and (organizational and engineering) technologies so that they are all aligned and congruent. The Complexities of MNC Organizations and their Implications. An MNC organization, because it operates in many countries, would be a very complex organization. It is likely that it would have its foreign subsidiaries develop different and distinct models of strategies, organizational structures, organizational cultures, internal processes, and (organizational and engineering) technologies (Godiwalla, 1983, 2018; Kogut, 1984). This is because the foreign subsidiaries have to tailor their structures, cultures, and activities to their host countries’ situations and environmental expectations. The diversity of the foreign subsidiaries’ organizational models would make an increasingly complex task for the HQ executives in managing and restructuring its foreign subsidiaries. This would lead to greater decentralization of decision-making, organizational design, and country strategies (Caudron, 1995; Godiwalla, 2018). More external, including market, focus and inputs may complement internal strengths-weaknesses analyses in that a wider coverage of analyses and that would bring closer to the reality (Everett, 2014).

The Growth Process of a Foreign Subsidiary Figure 2.1 provides a flow chart for describing the decision-making process for the growth of a foreign subsidiary. The growth of a foreign subsidiary is influenced by considerations of: (1) the earlier efforts of capital and human inputs in a foreign subsidiary and (2)  the subsequent plow backs (or, reinvestments) of profits and resources into the foreign subsidiary so as to capitalize for the changing dynamics in the foreign subsidiary environments. The progressive and repeated plow backs may cause situations that would need addressing during the different phases of the foreign subsidiary (Contractor, 1989). Market approvals and public reputation are vital as they affect customer loyalty and market directions in a competitive market place, and so international growth should be given particular attention (Topcu and Duygun, 2015). Considerations of organizational goodwill, brand recognition and customer satisfaction and loyalty, and corporate image and reputation should precede all investment plans. Also, the growth plans are better served with a properly developed customer service plans (Saritas and Penez, 2017).

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MNC firm’s headquarters “control” over the foreign subsidiary unit Quality of performance history of the foreign subsidiary unit

• Analyses of market opportunities • Competitive analyses • Host country versus regional and country growth opportunities Investment/re-investment decisions for each growth stage of the unit Growth plan and re-investment strategy of the foreign subsidiary unit

Figure 2.1:  A Model of Decision-Making for the Growth Process of a Foreign Subsidiary

Source: Adapted from, “Strategic management for global firms: A conceptual discussion,” by Y.H. Godiwalla, 2018, International Journal of Social Science Studies, November, 6(11), 1–9. After the initial publication by the journal, subsequent reproduction without permission by the Author, who retains the copyright, is permitted. Copyright 2018 by the Author.

In this context, Figure 2.1 would explain the process of decision-making for an MNC firm’s foreign subsidiary as it progresses through its different organizational growth phases. Such a decision-making process would engender a systematic and clear approach in arriving at a better plan of action. It would analyze the market opportunities in the host country and its nearby countries and regions and then generate a viable plan of investment. Growth plans, and the accompanying market analysis, together with industry projections of market growth, are an important consideration for the foreign subsidiary. It is important that a foreign subsidiary unit develops a priority plan for its investment needs at each stage of its (re)investment. The different phases of the foreign subsidiary firm exert different types of pressures upon the foreign subsidiary unit. A  foreign subsidiary can pursue a needs-based analysis and the external environmental analyses in terms of opportunities and newer trends. Thus, it could decide upon the options that are visible and available to it, such as: (1) maintain status quo of its operations, (2)  expanding host country market with existing product range, (3) expanding host country market with expanded product range, (4) expanding in other regional countries with existing product range, or

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(5) expanding into other regional countries with expanded products and services. These options pose the need for reviewing resource levels for the different phases of growth. Given the constraint of each resource level imposed upon the foreign subsidiary, it may have to pursue a limited set of options. For example, given a low level of resource availability, it may be constrained to restrict its strategies to modest growth with existing technology and with only minor improvements to its existing products. Good relationships between HQ and its foreign subsidiary are not just healthy and desirable but very vital for foreign subsidiary growth. These relationship issues add relevance to the other issues, such as MNC investment decisions, for the firm influences the outcomes of organizational growth. Thus, the growth strategy of an MNC firm must be correctly formulated and articulated in the context of the decision-making structures of the MNC firm.

The MNC Firm’s Strategic Focus: A Framework for Evaluating a Country’s Infrastructures, Economic System A foreign subsidiary’s host country environment is important as we compose its future, probable strategies. Figure 2.2 analyzes the level of development and the nature of the host country’s economic environment and infrastructure. The host country’s rate of development of its infrastructure can be either slow paced or fast paced. Other things being equal, the fast pace of development of the infrastructure is preferable to slow paced rate for the foreign subsidiary in performing its business activities for accomplishing its goals. It is likely that the fast-paced development will foster more sophistication of the infrastructure. The infrastructure can also be basic or developed. Again, other things being equal, the more developed the infrastructure, the better it is for the foreign subsidiary to function and do its business activities for accomplishing its goals. Figure 2.2 is a framework for enabling an analysis of the infrastructure as the foreign subsidiary goes through the process of decision-making of formulating its strategic focus, goals, and strategies. Both dimensions, (1) rate of change of infrastructure and (2) the quality of development infrastructure, are relevant because the current state of the general infrastructure and economic system would determine the foreign subsidiary unit’s choice of goals and strategies. And the rate of growth of the host country’s economy would enable it to grow at the particular pace. It can be generally said that each of the four cells provide cues as to what should be the future, probable strategies. Here are the suggested strategic foci for each of the four cells:

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SLOW

FAST

Cell 1: ORGANIZATIONAL ENVIRONMENT Few civic services Basic economic infrastructure Older technology, techniques Fewer market factors, structures Slow evolving economic system STRATEGIC FOCUS: Cooperate with host government. Train people.

Cell 2: ORGANIZATIONAL ENVIRONMENT Several, better civic services Developing economic infrastructure Newer technology, techniques Many market factors, structured Slow evolving economic system STRATEGIC FOCUS: Increase R&D effort to increase market share. Export to other growing markets.

Cell 3: ORGANIZATIONAL ENVIRONMENT Few civic services Basic economic infrastructure Older technology, techniques Fast developing economic system

Cell 4: ORGANIZATIONAL ENVIRONMENT Several, better civic services Developing economic infrastructure New technology, techniques Many market factors Fast developing economic system

STRATEGIC FOCUS: Invest in firm’s resources: capital, human, promotional, informational, etc. Increase promotion Basic/limited infrastructure and economic system

STRATEGIC FOCUS: Aggressively lead. Strongly compete Joint venture to increase volume and market share

Developed infrastructure and economic system

Figure 2.2:  MNC Firm’s Strategic Focus: A Framework for Evaluating a Country’s Infrastructures and Economic Systems Source: Adapted from, “Strategic management for global firms: A conceptual discussion,” by Y.H. Godiwalla, 2018, International Journal of Social Science Studies, November, 6(11), 1–9. After the initial publication by the journal, subsequent reproduction without permission by the Author, who retains the copyright, is permitted. Copyright 2018 by the Author.

For cells 1 and 2, which are slow-changing environments, the goal focus should be to increase the market share and to develop newer markets and market regions in other nearby countries for possible exporting and expansion of operations. For cells 3 and 4, which are fast-changing environments, the fast pace of growth of the economy encourages the unit to rapidly reinvest in important areas of activities so that it may fully exploit market opportunities and establish itself better in growing areas. Rapid environmental changes would require prompt and complete organizational improvements that are backed by adequate resources additions. For cells 1 and 3, the emphasis would be to develop and train its own people and invest in basic value chain activities of the unit. And afterwards, the foreign subsidiaries should keep on improving the needed human talent and skills to higher levels of sophistication.

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For cells 2 and 4, the emphasis would be to aggressively lead and compete in a sophisticated market place because of a more developed and mature market. And afterwards, the foreign subsidiaries should keep on improving the needed human talent and skills to higher levels of sophistication.

Organizational Strategies for Foreign Subsidiaries: Methods for Slower and Faster Developing Countries Figure 2.3 builds on Figure 2.2. Figure 2.3 provides a framework for developing organizational strategies for foreign subsidiary units, using the same two dimensions that are used in Figure 2.2. The broad indications of the effective organizational strategies for the foreign subsidiary are cited in the following:

SLOW

FAST

Cell 1: Centralized decision-making by HQ Formalized, mechanistic unit Emphasis on operating policies Short term horizon Internal orientation Emphasis on MNC HQ for major directions Cell 3: Semi-decentralized decisionmaking by HQ Organic unit Strategic focus Longer time horizon External & market focus Develops its own goals and strategies Basic/limited infrastructure and economic system

Cell 2: Decentralized decision-making Semi-organic, semi-fluid unit Evolving operating practices Short term horizon Internal orientation Emphasis on MNC HQ for major directions Cell 4: Decentralized decision-making Organic unit Strategic focus Longer time horizon External & market focus Develops its own goals and strategies Developed infrastructure and economic system

Figure 2.3:  Organizational Strategies for Foreign Subsidiaries, Depending on Each Host Country’s Characteristics: A Case for Slow- and Fast-Developing Countries

Source: Adapted from, “Strategic management for global firms: A conceptual discussion,” by Y.H. Godiwalla. 2018, International Journal of Social Science Studies, November, 6(11), 1–9. After the initial publication by the journal, subsequent reproduction without permission by the Author, who retains the copyright, is permitted. 2018 by the Author.

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Cells 1 and 2. For cells 1 and 2, the time horizons are shorter, and there is greater reliance on the MNC firm’s HQ for directions of the unit’s goals and strategies. In this context, the degree of centralization-decentralization is an important structural consideration. Here the tendency is for relatively greater centralization because of the slow rate of development of the infrastructure and economic system. Cells 3 and 4. For cells 3 and 4, the time horizons are longer, and there is a stronger external environmental focus in a more autonomous manner. There is also relatively greater decentralization in strategic decision-making and a relatively greater need of an organic (as opposed to a mechanistic) organizational structure because of the faster rate of change in the development of the infrastructure and the economic system. The broad, effective strategies are based upon the argument that firms would attempt to influence the strategic factors in their respective environments so that they are able to perform better in them. The choice of either shorter or longer time horizons and the stage of economic development of the environment have an impact on the choice of what would constitute the effective organizational strategies.

Recommendations for Actions A global firm should correctly analyze and define its many diverse host country environments in which each of its subsidiary units operate. Each subsidiary unit should develop its master strategic plan that is correctly suited to the needs of the unit’s challenges from its environments. The figures provide analytical approaches for growth-related decision-making of a foreign subsidiary unit, and for the core strategies that it should adopt, depending on the particular environment in which it is operating. Figure 2.1 provides the decision-making model for the growth of the unit, and Figures 2.2 and 2.3 are contingency frameworks for developing core strategies of each foreign subsidiary unit, depending upon its host country environments in which it operates. There are several meaningful implications which could produce benefits wrought through the approaches of better collaborative participation by the HQ and the foreign subsidiaries. The benefits may be slow to accrue when an MNC organization starts these approaches anew, but after sometime the executives at HQ and foreign subsidiaries would realize that the joint energies would generate better grasp and better influence of their joint destiny.

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Recommendation 1: Communicate and Pursue Across the MNC the Common “Big Picture” The overall MNC strategic partnership between the HQ and the foreign subsidiaries for formulating their own strategic choices as a combination approach would enable to see the “big picture” for the MNC organization. Justification. A comprehensive, integrated big picture is far more effective for analyses and planning rather than piecemeal and patchwork approaches that are created by incremental and localized efforts at different locations of the MNC firm. Guidelines for Implementation. The HQ and each of the foreign subsidiaries would have a task environment from which they would derive the strategic and operational focus. Each of these entities could be limited in its perspectives since each of them only assess its own focal environment. Therefore, there is the need of developing integrated, cumulative picture of collective assessments of all the foreign subsidiaries’ strategic environments because that would be more comprehensive rather than a one snap shot of the overall, MNC strategic situation taken only by the HQ. Both aspects (from the HQ and collectively from the foreign subsidiaries) are simultaneously needed for an effective MNC strategic management process (Kogut, 1984).

Recommendation 2: Pursue Collective MNC Organizational Conceptual Mapping The collective conceptual mappings of the HQ perspectives are melded with the multiple and diverse perspectives of the disparate foreign subsidiaries into a large quilt of enjoined, multiple perspectives of the HQ and foreign subsidiaries, as they would burgeon newer strategic analyses and diagnosis for considerations of actions such that they would far exceed the single monolith perspective of HQ even if the hierarchical top-down approach were practiced in the MNC organization. Justification. This comprehensive approach would not be automatic but is wrought through consciously nurtured and developed strategic leadership starting at the very top of the organization and also from the top of each and every one of the foreign subsidiaries. Growth and competiveness, the joint results of effective strategic leadership, are not achieved through random piecemeal, un-thought-through activities, but through well-planned and conceived long-term, broad picture about the ideal organizational strategy, structure, and culture (Stead and Stead, 2013). The organization

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must convince the stakeholders, particularly the owners and stockholders, about the strategic imperative of steady and patient approach for the long term. Guidelines for Implementation. The combined meetings of executives at all levels should encourage summarizing the trends and conceptualizing them for developing different strategic scenarios for future strategic options. These conceptual mapping exercises should not be written off as an empty activity, and it must be encouraged. The properly assembled data and information so gathered would help to formulate the mega trends, and they should be properly fused into a single big picture. The inconsistencies should be resolved, particularly if the synthesis processes are performed at different levels of the MNC organization, such as: lower-to-middle, middle-to-upper, and foreign subsidiaries-to-HQ.

Recommendation 3: Create a Culture and Structure that Is Organic, Flexible, Adaptive, and that Is Less Hierarchical, Having More Power Equality and Joint Approach The benefits of this approach are that the entire process would be based on the objective assessments of the situations in all theaters (or geographical regions) of the MNC operations, MNC environment, and foreign subsidiaries’ task environments. Justification: In an age where the quality and sophistication levels of managers, supervisors, and professionals at levels and parts of an MNC firm are better than only a half a century ago (and the standards keep going up), the MNC HQ must acknowledge that the foreign subsidiary units and the business units’ people have to be treated with more respect and more as partners than as subordinates. This approach would downplay the hierarchy. It would result in power equality among the players, and it would set the desirable backdrop of more collaborative approaches. Guidelines for Implementation. The approach will be less of the HQ passing out edicts to the foreign subsidiaries on the future strategic choices and goals and strategies; and less of rigid, hierarchical top-down and normative approach. Through a wider and fuller participation, and the creation of an organic and adaptive (as opposed to a rigid, mechanistic) organization, the result will be more of a flexible and responsive organization with mutual accommodation and a combined, comprehensive approach for better assessments and analyses of situations. It will be more of an agreed upon, joint response to the future strategic choices, focused on future goals and strategic

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directions for both the overall MNC organization and also for each of the foreign subsidiary’s own strategic choices, goals, and strategies.

Recommendation 4: Create a Wider, Joint Ownership of Responsibilities Carefully pursue increasing empowerment of the foreign subsidiaries. It is desirable to pursue the carefully increasing delegation, moderate amount of joint decision-making of strategic decision-making to the foreign subsidiaries for a fuller partnership, and the joint decision-making of the near-complete responsibilities of the operating decision-making to the foreign subsidiaries. Doing it carefully would give a sense of greater responsibilities to the foreign subsidiaries’ executives while stimulating a genuine sense of partnership to be near-equal and participative members of the whole MNC organization. Well-trained and responsible executives and supervisors are prerequisites for increasing decentralization. Even after careful decentralization, proper mentoring is vital. Justification. The broader and fuller transferring of the activity would engender a fuller, wider, and vertical (from top to down) “ownership” of the organization’s vision, mission, objectives, and strategies. Guidelines for Implementation. Create a better climate for generating cooperation so that the steering of the overall organization would become the total responsibility of all executive members of the MNC organization, including its foreign subsidiaries. Create a better climate so that there will be greater ownership, pride, and participative spirit among the foreign subsidiaries. Create a better climate so that there will be better goodwill and camaraderie between the HQ and the foreign subsidiaries. Create a better climate so that there will be a greater feeling of trust and shared responsibility.

Recommendation 5: Develop Similar and Transferable Core Strategies by the Foreign Subsidiaries in Similar Task Environments Create as many as needed core strategy templates that would aggregate the foreign subsidiaries’ core strategies, so afterwards, these can be shared or transferred among other foreign subsidiaries which operate in similar strategic environments and situations. This argument is portrayed in the figures of the chapter. Such an approach is called the contingency approach to managing the foreign subsidiaries. Justification. The analytical development of a series of templates of core strategies that may become the models of strategic action for the foreign subsidiaries is an economic approach (economic in that it would save HQ

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executives’ time) to defining the broad characteristics of foreign subsidiary’s strategy. The subsequent detailed formulation of specific strategies should be left to the foreign subsidiary. In selected instances, the templates of core strategies may be transferred from one foreign subsidiary to another foreign subsidiary, which are in similar strategic situations and have similar strategic and operating environments. Guidelines for Implementation. As mentioned earlier, an important assumption made in the development of the conceptual frameworks is that it is feasible for those foreign subsidiaries operating in similar task environments, i.e., using taxonomies of similar set of core strategies to manage in the host country environments (Ross, 2008). Conversely, different foreign subsidiary units operating in very different environments should pursue very different core strategies. It may benefit the whole MNC organization for developing taxonomies of core strategic approaches and major strategies for their foreign subsidiaries.

Recommendation 6: Create and Utilize the Synergistic Advantage The strengths-weaknesses profiles and opportunities-threats profiles of all foreign subsidiaries should be compiled. It would be to the collective advantage for the MNC organization to apply the analyses to several of the foreign subsidiaries such that the strengths of one subsidiary might be well applied to the opportunities of another foreign subsidiary, if so logistically tenable. Such external and market-oriented approach on a wider platform could generate hitherto untapped synergy. The process of growth could follow many different paths, and it is up to executives to continuously explore them. Justification. The organic synthesis of the strengths and weaknesses of the foreign subsidiaries, categorized into various strengths-weakness, opportunities-threats, and task environment taxonomies, would enable the MNC firm to identify and pursue the avenues of synergies for the MNC firm as a whole. Guidelines for Implementation. Pursue the sustained training and mentoring programs, on the job training as well as formal training on strategic aspects, of all executives in the HQ and foreign subsidiaries. These are the hallmark of improving strategic leadership (Davis, 2014; Virzi, 2018). Training and mentoring should be lifelong for a person and unending for an organization. The transferring of problem analyses and problem-solving across the MNC organization is a prerequisite for sustained and effective organizational competitiveness and performance. Such an approach engenders prolonged organizational learning.

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Recommendation 7: Create and Propagate a Consistent, High-Quality, MNC Identity, Reputation, and Image that Would Be Uniformly Perceived Around the World The major MNC organizations we see in our times (such as:  Amazon, Apple, BMW, Daimler Benz, DuPont, UPS, FedEx, IBM, Rolls Royce, Ritz Carlton, Siemens, Tata, Toyota) have each developed an organizational identity and reputation such that they would generate consistent, positive, desired impacts for the long-term benefit for the stakeholders. It is a fingerprint that creates in each one of us of the general public a feeling about the organization no matter from where we may come. Justification. The trust, reputation, and the image factor has a strong and powerful force for the MNC firm to continuously develop it so that many people around the world, whether or not they are MNC firm’s current clientele or any other stakeholder, would come to respect and feel very favorably about the MNC firm. This is a force that can overcome whatever little obscurity of complete information or gap in confidence that a future stakeholder of the MNC firm may have. Guidelines for Implementation. Pursue a consistent MNC identity which could exert its own force in the marketplace such that no advertising campaign can rival. This corporate reputation is built over decades of consistent, consciously developed and well-pursued high-quality organizational activities (Saritas and Penez, 2017). The word of mouth, people to people spreading reputation around the world is priceless. It has a significant positive impact for all activities of the organization, whether they are marketing in the same countries, recruitment, supply chain management, locating in newer country markets, seeking license and permits from authorities, dealing with regulators, seeking newer markets and manufacturing locations in newer regions, or negotiating with various other bodies (Mohiuddin, 2017; Topcu and Duygun, 2015).

Conclusion The above recommendations are possible if the MNC organization has a single and strong, comprehensive, shared value system across all organizational units around the world. Customer loyalty is a supreme goal. A  common organizational philosophy, which speaks volumes of organizational reputation, character, and goodness, should be broad and compelling enough to supersede the individual country’s

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cultural differences. This intangible benefit is possibly the strongest one. Good MNC organizational reputation starts with good ethical, visionary and enlightened leaders, managers, and supervisors. Ethical vision is a prime starting point in strategic management process. Developing ethical, visionary, and strategic global leadership at all levels is very vital for an MNC organization (Godiwalla, 1983, 2018; Virzi, 2018). Investing in people is more important than investing mainly in brick, mortar, cement, and equipment. Good employee and customer loyalty and corporate goodwill are an MNC’s best assets. The contingency frameworks would help in characterizing the specific organizational situation of each foreign subsidiary for formulating its major future directions and choices that are consistent with the overall MNC vision, mission, goals, and strategy. Collectively and when properly integrated, the total of the compiled, aggregate of the strategies of all foreign subsidiaries would help the HQ to revise and integrate the overall MNC vision, mission, goals, and corporate strategy. Strategic and operating environments for consideration at the foreign subsidiary level would include: the cultural (of the host country and nearby countries in the regions), social, religious, political, historical, geographical, economic, human skills and talents, supply chain, and other infrastructural environments. The proper strengths-weakness and opportunity-threats analysis would help to forge proper future major directions and redefine the foreign subsidiary vision, mission, goals, and corporate strategy. It is vital that the strategic and operational decision-making and implementation process should be flexible and adaptable at all levels. This flexibility is needed because the assumptions that were used at the time of the formulation of corporate strategy may not hold true at the time of the implementation of corporate strategy. It is possible, and even probable, that the environment has moved on and the newer changes would have come in. Good rewards, recognition, and incentives are important for the MNC organization to be fully alive, vibrant, and dynamic. For that purpose, the MNC should promptly recognize and reward managers and executives for superior performance, particularly when they display extraordinary strategic and operational initiatives and persist in effective promptly solving. Through greater emphasis on recruiting talented and dynamic people, and by providing subsequent training and mentoring, meaningful challenges, and career growth, the MNC will better realize the benefits of the culture of a high-performance organization. With talented people, the organization has a better chance for becoming more competitive. Greater autonomy to well-trained executives in the foreign subsidiaries, coupled with even greater coordination and communication between the HQ and the foreign subsidiaries, would help the foreign subsidiaries to take on greater

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responsibilities and increased ownership of their destinies within the strategic scope of the overall MNC vision, mission, goals, and corporate strategy. The catch words for effective strategic management are: talented people, good training, decent and good treatment of all people, good relationships, greater autonomy, and competitiveness.

Bibliography Caudron, S. (1995). Lesson learned from overseas. Personnel Journal, February, 8–20. Collings, D. (2014). Integrating global mobility and global talent management: Exploring the challenges and strategic opportunities. Journal of World Business, 49(2), 253–261. Contractor, F.J. (1989). Ownership patterns of U.S. joint ventures abroad and the liberalization of foreign government regulations in the 1980s:  Evidence from the benchmark surveys. Journal of International Business Studies, 21(1), 55–73. Craig, P. (1993). Pushing the right levers—The right way. Journal of Business Strategy, 14, 16–20. Davis, D.J. (2014). The pedagogy of leadership and educating a global workforce. International Journal of Progressive Education, 10(2), 32–36. El-Namaki, M.S. (1992). Creating a corporate vision. Long Range Planning, 25(6), 25–29. Everett, R. (2014). A crack in the foundation: Why SWOT might be less than effective in market sensing analysis. Journal of Marketing and Management, 1(1), 58–78. Finkelstein, S., & Hambrick, D.C. (1996). Strategic Leadership: Top Executives and Their Effects on Organizations. Minneapolis/St. Paul, MN: West Publishing. Finkin, E. (1992). Structuring a successful turnaround. Journal of Business Strategy, July/ August, 56–58. Fortune. (2018). A shining example global corporate citizenship. Fortune, September, p. 85. Godiwalla, Y.H. (1983). Strategic Management, Broadening Business Policy. New  York, NY: Praeger. Godiwalla, Y.H. (2018). Global strategic leadership for competitiveness: Empowering foreign units for coordinated strategic leadership. SciFed Journal of Environmental Studies (Online) August-September, 1(2), 8 pp. Hambrick, D.C., & Mason, P. (1984). Upper echelons: The organization as a reflection of its top managers. Academy of Management Review, 9, 193–206. Kogut, B. (1984). Global strategic management. Journal of International Business Studies (pre1986), 15(2), 216. Lundby, K., & Caligiuri, P. (2013). Leveraging organizational climate to understand cultural agility and Foster effective MNC leadership. People and Strategy, 36(3), 26–30. Matthes, K. (1993). Strategic planning defines your mission. Human Resources Focus, February, 11–12. Mohiuddin, Z. (2017). The impact of corporate social responsibility on organizational repute. Journal of Marketing and Management, 8(1), 1–7.

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Oster, S. (1994). Modern Competitive Analysis. New York, NY: Oxford University Press. Pavett, C., & Morris, T. (1995). Management styles within a multinational corporation: A five country comparative study. Human Relations, 48(10), 23–32. Porter, M.E. (1988). The Competitive Advantage among Nations. London, England: MacMillan. Prahalad, C.K., & Doz, Y.L. (1999). The Multinational Mission: Balancing Local Demands and MNC Vision. New York, NY: Free Press. Reynolds, M., Lindstrom, G., & Despres, C. (1994). Strategy, performance, and the use of environmental information. American Business Review, January, 45–50. Ross, L. (2008). Strategic global management. Financial Management, 28–31. Saritas, A., & Penez, S. (2017). Factors of purchasing decision and measuring brand loyalty: An empirical study of automotive sector. Journal of Marketing and Management, 8(1), 8–17. Shan, W., & Hamilton, W. (1991). Country-specific advantage and international corporation. Strategic Management Journal, 12(6), 419–432. Solomon, C.M. (1995). Learning to manage host-country nationals. Personnel Journal, March, 17–35. Stead, J., & Stead, W.E. (2013). The coevolution of sustainable strategic management in the global marketplace. Organization & Environment, 26(2), 162–183. Topcu, B., & Duygun, A. (2015). The impacts of customer loyalty on negative word-ofmouth communication and repurchase intention. Journal of Marketing and Management, 6(1), 16–27. Virzi, K. (2018). An examination of MNC leadership development strategies for multinational corporations. Journal of Economic Development, Management, I T, Finance, and Marketing, 10(1), 28–39. Want, J.H. (1993). Managing radical change. Journal of Business Strategy, 14(3), 21–28.

chapter three

Foreign Subsidiary Unit Strategic DecisionMaking Process

A foreign subsidiary unit of a multinational corporation (MNC) goes through its evolutionary stages as it grows in its host country environment. For each stage of its evolutionary growth process, there are specific challenges and expectations for which its top management must be fully aware in order to succeed in its decision-making and action. The foreign subsidiary unit’s top management must analyze its performance expectations and performance criteria, as set by the MNC’s corporate headquarters (HQ) and the foreign subisdiarry’s home and host countries’ stakeholders, in order to be effective in managing the foreign subsidiary. The issues that are covered in the chapter include: foreign subsidiary strategic management, international strategic management, and organizational evolution and strategy. Colonial subjugation and empires never last. The cruel methods of the Roman Empire to punish unwieldy (nations’) societies eventually led to their release of the colonized societies from under. Coming to more recent times, the more gentle and liberal British Empire, even with its naval and other military superiority, efficient administration and techonological and knowledge superiority, similarly ceased. Niall Ferguson, the scholar and historian, cites that has come to be so despite the beneficial effects of the British Empire on its colonies, such as the legacy of liberal decomcracy, private rights and freedoms, property rights, the common law, and the realtively efficient and modern systems of education,

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judiciary, administration, technologies, commerce and finance, railway and other transportation, communications and agriculture (Ferguson, 2002, 2004). No subjugated society, however weak or backward, can long trail in its race for self-determination and self-rule. All of the former empires will give way to self-rule among their former units. Sir John Glubb observes that the fate of empires is such that it has an average life span of 250 years, or, as he calls it, ten generations (Glubb, 1977). The fate of empires happens to be have a sunset in spite of the often stern, imperial strong-hold over the colonies and the beneficial effects of colonization. Similarly and very definitely, MNCs must not pursue strategic and operational subjugation of its foreign subsidiaries. An MNC’s HQ must go beyond partial the operational empowerment of its foreign subsidiaries. It must also prepare them to increasingly accept shared strategic responsibility and capability over and above substantial operational autonomy.

The Purpose of the Chapter A foreign subsidiary, nested in its host country environment, goes through the four different stages of organizational evolution and growth:  (1) initial startup and setup in the host country, entrepreneurial; (2)  initial growth and collectivity; (3) formalization of procedures and large-scale structuring; and (4) sprawling elaboration and expanding bureaucracy. These four stages are similar to those of organizational cycle as articulated by Richard Daft (2016, p. 355). A foreign subsidiary must select effective strategies which would correctly focus on the unique conditions, challenges, and strategic and operational needs of each stage. This chapter provides conditions, challenges, and needs which can be expected during each stage of the foreign subsidiary unit’s organizational development. Further, it proposes the likely effective approaches and strategies to meet with the challenges for each stage. It also provides a model of the decision-making process for the top management of a foreign subsidiary unit. A foreign subsidiary of an MNC can be viewed as an organization which has to operate in the context of its: (1) own internal organizational environment, (2) strategic and operational external environments of its host country and nearby countries in the region, (3) its own stakeholders in its host country, and (4) its HQ top management. The foreign subsidiary may view the circumstances or conditions of these items in different perspectives than those perceived by the HQ top management. This is because the foreign subsidiary executives closely and continuously confront or interact with its own host country environmental factors, and these are not likely to feature as major factors in the ken of the HQ.

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The decision-making process of the foreign subsidiary’s top management should focus upon: (1) developing its own foreign subsidiary vision, goals and strategy, (2) adapting or re-designing its structure even though it may have established on an initial structural template, (3)  cultivating the desired organizational culture, and (4)  modifying and upgrading its (organizational and engineering) technologies and products to suit local operating conditions. In trying to focus on these, the foreign subsidiary’s top management must closely follow the expectations which its stakeholders, including the markets and suppliers, place upon the foreign subsidiary. These expectations may change over time, and the foreign subsidiary’s top management must modify its strategies as well. The particular current stage of organizational evolution of a foreign subsidiary is also important to the foreign subsidiary top management in its making the choice of its future strategic directions. This approach of focusing upon the specific challenges and expectations of each stage in the evolution of the subsidiary as an organization would enable the top management to generate effective strategies. Each of the stages of evolution presents for the top management a three-fold exercise:  (1) the performance expectations of the foreign subsidiary, as perceived by itself and as set by the local stakeholders, (2) the dimensions and criteria for evaluation of effective performance of the foreign subsidiary, as set by the stakeholders, and (3) the needed foreign subsidiary’s top management capabilities and traits.

Discussions on Foreign Subsidiary Unit’s Evolution Process When, during the days of the British Empire, the United Kingdom had its colonies and they had investors in the United Kingdom seeking good investment prospects in the then colonies, such as Canada, Australia, New Zealand, India, and those in Africa, they had a system of managing agents in the United Kingdom’s colonial countries; and they were more familiar about the investment prospects in the colonies than the investors in the United Kingdom, many of whom had retired from the colonies. The practice was then expanded to investors relying on the managing agents’ more intimate knowledge of the workings of the companies than did the investors themselves. The practice of the managing agency theory became more widespread to some other countries as well. It was a matter of trust that the investors displayed when they delegated the leveraging and redirecting the investments flows to the colonial companies which they judged to be more attractive investments. This approach subsequently became the concept and practice of

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diversified portfolios of the investors, devising a mix of investment targets depending upon the investors’ needs, such as those of safety of capital, profitability, portfolio growth, dividend, and yield. The practice of the managing agency mechanism was able to create a wall between the investors and the companies into which their monies were invested. A broader and current application of the managing agency concept is the agency theory, which is when the investors, stockholders at-large, and large block stockholders (e.g., large-scale investors investing large amounts in a firm) rely on the judgment of the top executive management, acting as the agents of the investors, in corporations. Such explanations of the agency theory of the firm are found because there is the notion that the investors, large block stockbrokers, and stock analysts evaluate the performance of the top management and the results of the firm’s financial and market performance. Thus, there is the perceived capability of the managing agents and the investment brokers that, if the top managements of large publically traded corporations do not perform according the stock market’s expectations, the managing agents and the investors would withdraw the investments from the firm and, instead, would redirect the flow of the investment capital to other investment targets with perceived better investment potentials. Such a potential threat would signal the workings of an active control system to the top managements of corporations. To further the agency argument, the investors would then rely on the top managements for an unspecified term, thereby entrusting them with the directions of the firm’s activities. In this way, the top managements become the agents of the investors, managing agents, large block stockholders, and the stock brokers (Birkenshaw, Hood, and Jonsson, 1998; Lala, 1993; O’Donnell, 2000; Roth and O’Donnell, 1996; Reuer and Miller, 1997; Roth and Morrison, 1992). The close or distant relationship between the MNC’s corporate HQ and the foreign subsidiaries would reflect the aforementioned managing agency theory and the expanded version the current times of the top management acting as agents of the investors and the stock brokers (Birkenshaw, 1996, 1998; Birkenshaw, Hood, and Jonsson, 1998; Rajagopalan and Finkelstein, 1992; Tosi, Katz, and Gomez-Mejia, 1997; Zajac and Westphal, 1995). An important issue for foreign subsidiaries is the local competitor environments that, in part, would shape the foreign subsidiaries’ offensive, defensive, and competitor strategies, in ways consistent with expectations of the hierarchically upward impact on the top management, managing agents, stock brokers, and subsequently, the investors (Miravitlles, Guitart-Tarrés, and Nuñez-Carballosa, 2014). During the momentous debates and vote in the United Kingdom regarding “Brexit” (i.e., whether or not Britain should exit from the European Union), one of the central issues was how much power should the centralized entity, the EU

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Parliament in Brussels, have over the United Kingdom’s internal affairs, as discussed by Bloomberg BusinessWeek (2016) and Simon Shuster (2016). The contentious issue was how much control or power should a super entity like the EU be allowed to have over the United Kingdom, one of its 28 member countries. The result of the June 23, 2016, Brexit vote in the United Kingdom was that the United Kingdom should get out of the EU. The frustration was wrought out of the lack of self-determination feeling on the part of a majority of voting Britons regarding their internal affairs. A conservative Member of Parliament (MP), Craig Mackinlay, remarked to Time contributor-author, Simon Shuster, on the day of the Brexit vote, “I’m only half an MP (of the United Kingdom), because half the decisions are made in Brussels.” Shuster (2016) further observes that “… the give-and-take between national sovereignty and European integration at the heart of the EU’s debate over the benefits of an ever-closer union among the peoples of Europe” (Shuster, 2016, p. 14). We may apply this tug-of-war phenomenon to international business. An MNC’s HQ is like the super central entity, as in the case of the EU Parliament in Brussels, while the foreign subsidiary is like the United Kingdom. The pulls and push would typify the centrifugal and centripetal forces that show the dynamics of the MNC HQ-foreign subsidiary relationships. One way to view the “correct balance” would be to hope for: (1) a greater centralized (at MNC HQ level) strategic coordination, overall MNC leadership and decision-making and (2) operational decentralization (at the foreign subsidiary unit level). For a proper perspective, good relationships among managers of an MNC HQ and its foreign subsidiary units are always desirable. Often, a foreign subsidiary unit’s managers may get promoted to the HQ. If that happens, they would have a better understanding of the foreign subsidiary’s plight as they perform the HQ executive role because they, now as HQ managers, will have better understanding of both sides, that of HQ and of foreign subsidiaries. It is vital to have a “we-are-in-this-together” feeling, bringing about greater unity and cooperativeness. Studies of the foreign subsidiaries growth processes are a matter of interest to many scholars of international business, including Birkenshaw and Hood (1998). They have analyzed the process and directions of growth of foreign subsidiaries. They argue that, as foreign units deal with their local task environments, they change their strategic and operating scope usually in an incremental manner. For example, they may increase their own strategic initiatives, thereby widening and/ or intensifying their own control over their strategic efforts. They may choose to widen their product range, expand the regional markets, increase their technological development, improve their supply chain, increase their capital projects, promote their products with greater vigor, or retrench by doing the opposite activities. These approaches would make them more decentralized, a condition that would

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be accelerated by their own resource self-reliance. The converse is true too. In this context, the degree of a foreign unit’s resource self-reliance can be an important factor. Further, Birkenshaw and Hood (1998) explain the degree of control by the MNC HQ over the foreign subsidiaries along three important characteristics. The important characteristics are:  (1) the HQ-driven strategic and operating initiatives, that is, depending on their control desire, knowledge of local host country environments, and the degree to which the subsidiary is dependent on the HQ’s resources; (2) the subsidiary-driven strategic initiatives, that is depending on their entrepreneurial capabilities and resource independence from the HQ; and (3) the local host environment’s factors. A foreign subsidiary may continue doing the same scope and content of activities, that is, continue with the same breadth and depth of its product lines, same processes, same equipment and other capital resources, same customer groups, same market regions, and same suppliers (Miravitlles, Guitart-Tarrés, and NuñezCarballosa, 2014). Such activities might indicate that their extant scopes of operations are stable and, if it chooses to, it could have future intentions to create and pursue newer foreign subsidiary vision, mission, and goals. On the other hand, it could redesign its scope of activities, that is, change (add or detract) its business and/or product portfolio, customer groups, suppliers, and enact newer markets (such as, newer customer groups and/or newer geographical regions). In this way, a foreign subsidiary would redesign its scope of activities. Such proactive initiatives would involve entrepreneurial endeavors. These would lead to revising its initial foreign subsidiary vision, mission, and goals. The top management of a foreign subsidiary should develop its strategic and operating scope through their perceptions of: (1) the strategic and operating choices of the HQ and the foreign subsidiary, (2)  the perception of local environmental (current and potential) opportunities and threats in the context of the foreign subsidiary unit’s strategic and operating needs, and (3) the needs and expectations of the host country environment. The focus of a foreign subsidiary may shift from one project or problem to another in the context of the strategic and operating d ­ ecision-making paradigm (Aggarwal and Ramaswami, 1992; Galunic, 1996; Noda and Bower, 1996; Poon, Kedron, and Bagchi-Sen, 2013). The continual assessment that is followed by the foreign subsidiary unit would depend on the foreign unit’s intraorganizational information gathering and evaluation, and based upon its assessment; it may pursue the reevaluation of its existing strategy and policy. Growth of a foreign unit is predicated upon its resource-acquiring capabilities, either on its own from its host country or from its HQ. Its extant strategy and policy considerations should be further evaluated for its changing

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growth needs. Competitor information and market analyses would further its evaluation of strategic alternatives. An MNC’s capability to understand the changing local conditions of its many foreign subsidiaries is at best limited. Examples of this viewpoint abound in the literature about the lack of knowledge by an HQ of the full, specific, and detailed circumstances of host countries, such as: (1) a United States MNC HQ might not know the detailed events that point to the direction, along with the reasons for it, of India’s ruling party, the Bharatya Janata Party, which liberalized the country’s economic scene (Karp, 2000); (2) a United States pharmaceutical MNC HQ might not know how to deal with the widespread violations of the rules of the World Trade Organization in Argentina by copying the specific patented drug formulations of United States MNCs (Wall Street Journal, 2000). Birkenshaw and Hood (1998) address the issue of a subsidiary unit’s evolution in the context of changing foreign unit’s scope. Other views on the subject can also be found from other scholars, e.g., Austin and Kohn (1991); Brewster and Pickard (1994); Filippov and Sergey (2014); Galunic, D.C. (1996); Moskowitz (1992); Naisbitt (1994); and Roth and Morrison (1992); . They conclude that the process of foreign unit’s organizational evolution and role are determined by: (1) the HQ imputing the role which they want the foreign unit to pursue, (2) the foreign unit’s own choice for itself (self-determination), and (3) local environment determining the foreign unit’s role. Global business activities of an MNC are inextricably influenced by international politics (Lim, 2015; Saner, Yiu, and Sondergaard, 2000). Local host country, regional and global politics can significantly affect organizational decision-making and action. Business diplomacy and being politically savvy are ways of displaying the foreign subsidiary’s competence to the external environment and stakeholders (Austin and Kohn, 1991). There is a stronger argument to show wisdom of the critical issues for the stage in the evolution of a foreign unit. The two approaches of economic view and behavioral process view are both significant approaches of understanding the increasing internationalization of an MNC (Andersson, 2000). Three strategy types of MNC growth are here considered: (1) the marketing entrepreneur, using international push strategy; (2) the technical entrepreneur, using technical development so that the market would seek out its products, thus the international pull strategy; and (3) the structure entrepreneur, using the strategy of international industry restructuring. The growth of an MNC with a focus on international market push strategy emphasizes the idea of analysis and targeting on specific market segments and geographical regions (Andersson, 2000). Push strategy is usually most needed during the first stage (see Table 3.1) of the foreign unit’s organizational evolution

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in its host country environment. It is also needed to a somewhat lesser extent in the second stage. The technical-oriented pull strategy becomes most needed during the second stage of the foreign unit’s evolution. It continues to be somewhat critically needed during the third and fourth stages of the foreign unit’s evolution process. The structure-oriented strategy is critical in the fourth stage of the foreign unit’s evolutionary process.

Top Management Decision-Making Process This is a process by which a foreign unit assesses its strategic capabilities and makes a determination for its future strategic action. It has to evaluate the critical activities which it has to perform in each stage of the foreign unit’s evolutionary process. This viewpoint makes it necessary for the top management to analyze the expectations of its stakeholders, which are listed in the top right part of the table. It also has to analyze the foreign unit’s current strategy, structure, organizational culture, and (organizational and engineering) technology in the context of the current stage of its organizational evolution. The top management should focus upon:  (1) the expectation of its performance, as set by its stakeholders; (2) the criteria for the evaluation of effective performance, as set by its stakeholders; and (3) its own capabilities and traits as a top management team. This process would enable the foreign unit’s top management to determine the foreign unit’s future course of action.

Issues of Organizational Life Cycle Stages of an MNC’s Foreign Subsidiary Unit When an MNC enters into a foreign country in the form of a (partially or wholly owned) foreign unit, then the foreign unit goes through phases of its organizational growth and evolution. These stages, as portrayed in Table 3.1, are very similar to the stages of an organization in starting up and growing in its own home country environment. For each of the stages of its evolution in its host country, a foreign unit can expect different challenges and expectations of performance by its stakeholders, which may include: MNC HQ, foreign unit employees, and host country’s markets, governments, industry, suppliers, and immediate communities in which the unit operates. These expectations span over issues such as: (1) the foreign unit’s performance expectations, (2) the criteria and dimensions for its effective organizational performance, and (3) the top management traits and capabilities.

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Table 3.1:  Organization Life Cycles of a Foreign Subsidiary Unit and Its Performance Expectations

Performance expectations of the foreign unit, as perceived by headquarters, host country stakeholders

Criteria and dimensions for effective organizational performance Methods of measuring performance

Stage 3 Stage 1 Stage 2 Formalization or Entrepreneurial Initial Growth and Larger Scale or Start-Up Organization Structuring

Stage 4 Sprawling Growth, Elaboration

Marketable product Marketing development Profitable, worthwhile market opportunity Viable business model for country Survival and product adaptation, and development Service development establishment

Team approach Reputation Corporate image Ethics Social responsibility Philanthropic givings

Local industry recognition. Growth, rapid Knowing right product range and application Correct product, service mix

Vision, mission, objectives, goals, strategy Benchmarking Structuring the organization Identify product depth and width Product range, diversity

Internal stability needs, high Mechanistic growth/ consolidation Increased staff Formalization, further

Develop policies, procedures Organizational efficiency Technical innovativeness Diversify product Predictable behavior and performance from all people Top Creativity Manage capital Mechanistic management Acquire and Manage growth atmosphere traits and allocate capital, Effective Delegate authority capabilities Marketing communication Professionalism Promotion Correct strategic Standardization Establish in choices of outcomes market place (expect) Dominant Entrepreneurial Entrepreneurial Technical and Strategic focus, marketer marketer structure logic Push strategy Push strategy Pull strategy Technical Marketer

Defend your position in industry Do not lose market share Hold your own Defend, defend, defend Intrapreneurial Decentralize Autonomous units Break organization into smaller, responsive units Technical and structure Push and pull strategy

Source: Adapted from, “Foreign unit strategic decision making process,” by Y.H. Godiwalla, 2016, Journal of Management and Strategy, August, 7(3), 1–9. After the initial publication by the journal, subsequent reproduction without permission by the Author, who retains the copyright, is permitted. 2016 by the Author.

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There are expectations of events and activities at each of the four stages of evolution of the subsidiary unit. The four stages of a subsidiary unit are: (1) entrepreneurial, (2) collectivity, (3) formalization, and (4) elaboration. These stages are similar to the stages of evolution of a firm, because a foreign unit too would go through a similar process of evolution.

Stage 1: Entrepreneurial or Initial Setup and Start-Up Stage In the initial setup and startup stage, the foreign subsidiary unit performs similar activities as a new organization starting up in its own domestic environment (Galunic, 1996). The major difference between the two is that a foreign subsidiary unit has received from its MNC HQ resources, proven business models, processes, organizational and engineering technologies, products and product designs, marketing methodologies and strategies, and capital and management information and control systems, all of which are specific to the organization and line of business. Nevertheless, a foreign subsidiary unit which is starting up in a new country environment needs to do the similar generic activities such as: choosing a specific marketable product for the host country market and identifying specific market opportunity in the context of the host country environment. These are needed to be done because what may be a specifically appropriate product and market opportunity in the MNC’s home country or its other foreign units’ host countries may not be as specifically appropriate a product and market opportunity in the foreign unit’s host environment. A few illustrative examples of the criteria for effective organizational performance can be: (1) the survival of the foreign unit, (2) the product adaptation and development to suit the local markets and modified product and marketing applications, (3) the development of service to satisfy the needs of its local constituents, and (4) the initial stable establishment of the organization. The foreign unit’s top management would need to be more creative, problem-solving, and improvising its activities as it establishes its linkages with the various local sub-environments in the process of forging its stakeholders (Raziq, Borini, Mendes and Martin, 2013). The greatest challenges for the top management of a foreign unit, after it has established the foreign unit organization in its initial and basic form, are (1) effectively marketing its product, (2) developing its local markets, (3) establishing effective marketing channels, and (4)  establishing interorganizational linkages, e.g., with banks, governments, unions, labor markets, and supplier organizations. To conclude, the setup and startup stage is the initial organizational formation stage that is marked by establishing its newly setup physical presence in the host

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country. Creativity, flexibility, availability of resources, and marketing are the vital managerial activities in this stage. As stated earlier, each stage has its own scenarios and circumstances which place upon the organization specific types of challenges (that are characteristic to that stage), and to which the organization should respond to satisfy the criteria, and this stage has its own challenges.

Stage 2: Collectivity Stage Once the start-up stage that establishes the initial organization in its host country is completed, the foreign unit should focus on: (1) achieving a better and wider recognition for itself from the local industry and economy; (2) achieving growth of sales units; (3) fine-tuning of the product design, the product attributes, and applications; (4) revising the product-mix and product depth; and (5) improving its organizational infrastructures for better organizational performance. The foreign unit must now be poised for growth. The dimensions and criteria for effective organizational performance should focus upon better than adequate performance in the host country context. These would require good development of the unit’s vision, mission, goals, and strategies that are concomitant with local aspirations and needs, benchmarking activities and outcomes of the leading companies in the country and region, setting up of organic form of unit’s organization, reorganizing the processes, and redefining the breadth and depth of product lines to better suit the local operating conditions and market expectations. The challenges of the top management of a foreign unit are to: (1) manage growth in a systematic (as opposed to chaotic) manner; (2) allocate, manage, and control capital, which is usually infused from the MNC HQ into the foreign unit during the setup, growth, and collectivity stage; (3) effective communication of its goals and strategies with its stakeholders; and (4) redefining its strategic choices and strategic intent as it learns more about what the host environments would prefer from the organization.

Stage 3: Formalization or Large-Scale Structuring Stage This stage of a foreign subsidiary is marked by building larger scale, more stable structures to predictably perform its formalized and standardized activities within departments. In this stage, a foreign subsidiary’s organization’s tasks are more differentiated; and once satisfactorily differentiated, the specific activities are more

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specialized and standardized for making them predictable and organized so that they can perform in an orderly manner. The foreign subsidiary organization could develop its own tailor-made internal organizational technology, and then it could seek to buffer it from the dynamics and vicissitudes of the external environments. The internal structure seeks stability as it manages to churn out a larger volume of activities to benefit from economies of scale. The local, host country market should provide enough sales units for substantial throughput activities for the organization to perform with increasing efficiency and scale of operations. With increases in volume the unit seeks to increasingly automate (consistent with host government’s policies regarding fuller employment of labor) and also to increase staff as it sets out to deal with increasing volume. The dimensions and criteria for effective organizational performance are set to ensure the continuity of organizational activities in a consistent manner. The foreign unit should keep striving for organizational efficiency and technical innovativeness. The former is to reduce overhead cost per unit, and the latter, to increase market share. With greater emphasis on consistency of organizational process, the focus on predictable outcomes becomes predominant. Growth challenges and variations emanating from the external environment would result in the organization seeking ways to regularize and systematize and to reduce variability in order to provide clarity and sense to the organization. The challenge for the top management is to perpetuate its bureaucracy and mechanistic atmosphere. The result is that all strategic decision-making is kept at the top level, while the middle and lower levels focus upon regular operating organizational activities. Professionalism and delegation of routine activity’s authority are ways to perpetuate bureaucracy. Professionalism is nurtured, and that is considered to be an effective way to perpetuate the regularized organizational activities in order to ensure predictable outcomes. The top management of the foreign unit has to generate a routine or “self-adaptive” organizational process which operates on an “auto pilot” approach, requiring only minimal attention from them. The near-mechanistic approach, with significant delegation of authority to the middle and lower management levels, would provide an efficient method of managing the organization.

Stage 4: Sprawling Elaboration, Further Bureaucratization This stage is when the host country market is wildly eager to have more of a foreign subsidiary’s products. It is marked by rampant and rapid organizational expansion

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and growth to such an extent that the organization finds it challenging to maintain a semblance of order unless it sets up further bureaucratization. Growth seems to march in all directions, and unchecked too. To cope with the rampant growth in size and scale of operations and increasing differentiation in the form of further “departmentation,” the top management of the foreign subsidiary may want to break the organization into smaller, semi-autonomous subunits and teams in order to make it more responsive to host country environmental challenges and changes. Management of change is a significant aspect of the continual adjusting and evolving process. This approach of creating subunits and multiple teams is effective in engendering internal process changes, and it would lead to the organization continually adjusting to the external changes and, if needed, significantly reinventing itself in the process. The emphasis would be to focus upon good organizational ethics and social responsibility and to project a good corporate image to the host country community. The top management of the foreign unit is expected to set a higher level of expectations for its own conduct in particular and in the way the organization deals with its local constituencies. Its credo has to be “growth with ethics,” and it should establish good relationships with all influential individuals and groups with all important external environmental segments of its host country, e.g., political groups, industrialists, bankers, suppliers, unions, and governmental agencies, companies in the same and other allied industries, local communities, and cities. The dimensions and criteria for effective organizational performance in this stage focus upon defending the foreign unit’s market position because the competitors would want its market leadership spot. It has to defend its market share by developing marketing strategies to consolidate its market performance through the effective use of the marketing-mix strategies (product, price, place, and promotion). Its strategies should include internal entrepreneurial and intrapreneurial approaches to reinvent the organization for regenerating, and its internal motivational and creative internal environment. The foreign subsidiary top managements’ traits and capabilities should include a continuation of the decentralization which was a major trend in the previous stage. The now larger organization needs to adapt to changing organizational activities in its attempt to effectively respond to changing environmental challenges. The organizational responsiveness should mainly focus upon rapid internal assessment and proactive response to varying external challenges. This is better done through a more organic or internal evolutionary mode of organization. Thus, what is called for is a smaller decision-making body of people who are: (1) empowered to make the decision, (2) skillful and knowledgeable in the details that are needed to make the decisions, (3)  good in communicating

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to all parts of the organization, (4)  good at interorganizational linkages, and (5) good at focusing on the core technology and basic vision and mission of the organization. Global competitor analysis may be the purview of the MNC HQ, for it is an overall corporate strategy. Strategic management of the overall vision, mission, and goals that are wrought through formal and systematic process should be the purview of the MNC HQ through such activities of strategic analyses. The gathering and analysis of information should be done in conjunction with the foreign subsidiary units. Strategic action should involve many executives and supervisors of the entire organization, including those of the foreign subsidiary units. The foreign units must be integrated into the process. MNC HQ may thus focus on the MNC vision, mission, goals, and major strategies. There should be healthy cooperation, integration, and involvement among all executives across the entire breadth of the MNC organization.

Recommendations for Actions The following are recommendations for actions for an MNC’s foreign subsidiary. They should be ideally done after consultation of major actions between the HQ top managers and foreign subsidiary’s top managers. The choice of the proposed organizational changes is dependent upon the stage of the foreign subsidiary. The top management of a foreign subsidiary must correctly assess the opportunities and threats of each stage, appropriately respond to the needs of the organization in the particular stage, and satisfy the expectations of the stakeholders of the foreign unit. Organizational growth and evolution of a foreign subsidiary would be smoother and better facilitated if it correctly navigates itself through the stages. The vision, mission, and skills and cooperation of the HQ and foreign subsidiary managements are critical to the process.

Recommendation 1: For the Entrepreneurial, Setup or Start-Up (First) Stage Establish and implement effective plans for ensuring the initial setup, survival, and establishment stage of the foreign subsidiary; emphasize the importance of this stage otherwise the foreign subsidiary will not establish itself well in its host country. Justification. The initial market acknowledgment and market start-up requires local knowledge of operations and the local network of connections. It is

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vital to get past this stage because more competitors (including those from other countries) will enter the market. Guidelines for Implementation. To get past the survival and establishment stage, the foreign subsidiary’s management should adapt the products, services, and operations to the contemporary realities of the new host country. There are other actions it should take. Initial promotion and market establishment through the modification of the unit’s business model to make it compatible to the host country’s needs and culture. Engaging the host country nationals and building resilient foreign subsidiary organization would be the suitable basis for surviving the initial establishment stage challenges. Promotional strategies, including advertising efforts, are needed. Entrepreneurial and market explorations and the establishment of suitable marketing organization and channel distribution systems are also needed.

Recommendation 2: For the Initial Growth and Organizational (Second) Stage The recalibration of the product range and depth, product-mix, marketing-mix, and operating methods to better reflect the local realities are the effective approaches for this stage. The reorganization of the foreign subsidiary would be needed since it is past its initial establishment stage. Such reorganization is needed for the larger volume and the smoother flow of its value chain activities and for a better focus on the target market needs. In this stage, the foreign subsidiary would need more resources. Growth needs more resource investment. Justification. Reinvesting in the foreign subsidiary strategies would require substantial organizational modifications so that the flow of activities would be better achieved. Continued promotional and advertising strategies would help to increase the expansion of the foreign subsidiary. During the growth period, additional doses of resources and human talent would help. The HQ must be prepared to provide these in a timely manner. Guidelines for Implementation. The foreign subsidiary’s management would have to recalibrate the product range and depth, product-mix, operational methods to better reflect and focus on the local conditions and realities, and, in this way, the modified startegies then are the effective approaches for this stage. The reorganization of the foreign subsidiary would be needed since it is past its initial establishment stage. It may involve identifying and removing bottle necks and streamlining the activities. Such reorganization is needed for smoother flow of value chain activities and for a better focus on the target market needs. In this stage, the foreign subsidiary would need

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more resources, whether it would be forthcoming from the HQ or locally garnered. Growth simply needs better management and more resources.

Recommendation 3: For the Formalization and Large-Scale Structuring (Third) Stage The challenge for this stage is coping with growth pains and the rapidly increasing size of operations. Justification. With rapid growth, the foreign subsidiary needs to restructure its activities of a higher volume so that formalization and administrative policies and similar bureaucratization would be helpful. Properly structured processes would help the reliable and organized flow of activities. Guidelines for Implementation. The foreign subsidiary’s management must choose a modified structure because it is important to cope with the large size of operations. Formalization is likely in this stage. Issues such as the needs for greater consistency, accuracy, flexibility, internal harmony, predictability, and reliability of organizational activities are very important as the larger foreign subsidiary organization seeks to adjust to the new stage.

Recommendation 4: For the Sprawling Growth, Elaboration, and Bureaucratization (Fourth) Stage The foreign subsidiary’s sprawling size would likely have resulted in slowness to change and respond to external challenges. In this stage, competitors are eager to snatch market share from it. Justification. The periodic modifications and the internal readjustments would involve the rearrangement of departments, responsibilities, and roles. The restructuring and consolidation would improve the flow of activities of the value chain and, consequently, improve the organizational efficiency. The periodic reorganization ideally should be done proactively rather than reactively. Guidelines for Implementation. The foreign subsidiary’s management should reinforce and reinvent the now very large organization, because such actions are needed for ensuring the competitiveness of the foreign subsidiary. The focus of the reorganization is to better protect and improve its market reputation and standing, market share, competitive advantage, adaptability, organizational efficiency, innovativeness, and reputation.

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Conclusions The strategic focus of a foreign subsidiary would vary with organizational challenges and the rate of change and the degree of complexity of the organizational environments. It would be important to understand the process of good analyses of issues for understanding the contemporary complexities of the organizational situation. The situation would depend upon the organizational response to the strategic variables inside and outside of the organization. The current, particular stage of the organization’s evolution is critical to the choice of the top management capabilities and traits, and the kinds of organizational performance that are expected of the organization. Strategic management of the overall MNC must be performed by all executives of the MNC for it to be continuously competitive and responsive. Strategic data gathering and analyses of all strategic issues should involve the active cooperation from all foreign units. Overall organizational strategic decision-making and action should be the concern of all of an MNC organization, and the foreign subsidiary units must be fully involved. The top management of the foreign subsidiary unit would do well to understand the subsidiary’s performance trends and review the changing performance expectations set by the HQ. The foreign subsidiary’s executives must also strive to exceed the major expectations of both sets of stakeholders, one at the HQ level and the other at the foreign subsidiary level; and in doing so, it would mostly meet with the simultaneous oversight from both levels. The organizational life cycle stage of a foreign subsidiary significantly determines: (1) a foreign subsidiary’s performance expectations, (2) the dimensions and criteria for effective organizational performance, and (3) the top management traits and capabilities. A foreign subsidiary must choose correctly its dominant strategic logic, based upon its current organizational life cycle stage. The four stages are: (1) entrepreneurial or start-up stage, (2) growth and collectivity stage, (3) formalization stage, and (4) sprawling elaboration and further bureaucratization stage. Each stage has its own challenges and uniqueness. A foreign subsidiary must identify its organizational evolution stage, and it must choose its activities within the construct of the stage.

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part b

HQ-Foreign Subsidiary Relationship: Constructs for Strategy, Structure, Culture, and Organizational Technologies Synopsis:  This part reviews the decision-making process that can improve the effectiveness of performance of the foreign subsidiaries in a healthy, cooperative organizational culture. HQ and foreign subsidiaries’ employees must feel a sense of oneness and togetherness in the overall MNC organizational activities and performance.

chapter four

MNC HQ-Foreign Subsidiary Unit Relationships Strategies for Improving Entrepreneurship and Innovation

Global competition has placed increased burdens upon multinational corporations (MNC) inducing it to be more responsive and, consequently less bureaucratic, through improved HQ-foreign subsidiaries relationships, foster better entrepreneurial and innovative activities. MNC corporate headquarters (HQ) strategy and structure can influence the effectiveness of its foreign subsidiaries’ performance. The framework and assumptions of MNC strategy and structure should be such that the foreign subsidiaries feel that they are better empowered and supported to effectively pursue innovative and entrepreneurial activities. The participation of the foreign subsidiaries in future MNC overall corporate strategy formulations and structural modifications significantly facilitate the effectiveness of the foreign subsidiaries’ performance. The chapter suggests frameworks to improve the effectiveness of MNC overall corporate strategy and structure for more effective foreign subsidiaries’ innovativeness and entrepreneurship. The use of innovation and entrepreneurial initiatives should extend to MNC subsidiaries, and not just be restricted to the MNC home country operations. The issues that are covered in the chapter include: global HQ and foreign subsidiary relationship, HQ-foreign subsidiary management process, and HQ-foreign subsidiary communication and coordination. Overall multinational corporate performance would improve if all of the organizational resources, including those of the foreign subsidiaries, were encouraged

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to be more entrepreneurial and innovative. The HQ should take the leadership of coordinating strategic initiatives for entrepreneurial and innovative endeavors of the foreign subsidiaries so that the overall organization pursues a coherent and unified approach. MNC’s HQ and its foreign subsidiaries interact in ways that can affect the foreign subsidiaries’ performance. The MNC HQ and its foreign subsidiaries need to create an effective working relationship that forges good scanning of the overall global environment and the foreign subsidiary unit’s task environment. The chapter suggests conceptual frameworks for improving the effectiveness of MNC’s overall corporate strategy and structure for more effective foreign subsidiaries’ performance.

The Purpose of the Chapter The purpose of the chapter is to present a set of tables regarding MNC HQ-subsidiaries relationship and address how the overall MNC performance could improve. The chapter first briefly reviews current literature, discusses the four tables, and provides conclusions and recommendations for actions. The chapter also draws ideas from a leading international organization from India, the Tata group of companies, to develop a model for global strategic decision-making through the use of a global strategic board. It also provides a three-phase, nine-step approach for formulating and implementing MNC entrepreneurial and innovative strategies.

A Review of Literature: Control, Innovation, and Entrepreneurship in MNC The literature reviews MNC’s HQ-foreign subsidiary relationships in a variety of ways when referring to the cultural influences and its effects on managerial, control, and performance processes (Lee, You, and Bae, 2017). The transfer of resources, technology, manpower, managerial processes, and practices is an important area that affects the MNC HQ-foreign subsidiary relationship. One school of thought is the knowledge and technology transfer function is important for the overall MNC and that the MNC HQ controls the functions (Chan and Holbert, 2001; Delios and Bjorkman, 2000; Godiwalla, 2003; Harzing, 2001; Kriger and Rich, 1987; McGrath, 1994; Kaufman, 2000). In using this approach, it assumes that the transfer flow is mostly from the MNC HQ to the foreign subsidiaries, although the reverse transfer process also takes place.

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The approach is similar during British Empire era when the universities in the United Kingdom were supposed to do all the research, and the universities in its colonies were not expected to do any research. The universities in the United Kingdom were the powerhouse for creating new research and, subsequently, the new findings were transferred to the universities in the colonial countries. The colonial universities then also taught the newer findings and the newer bodies of knowledge and research. Subsequent to the independence and self-rule by the former colonies, many of the universities of the independent countries themselves pursued more intense advanced education and research. This abovementioned model is what many MNCs use to varying degrees. Many centrally focused or HQ-dominated companies use this HQ-focused approach to organizational innovation engineering innovation and other forms of R&D. Matsushita, the Japanese consumer electronics corporation, mainly uses this approach. It performs engineering innovation and product R&D mainly in Japan and transfers them to its foreign subsidiaries. This approach might appear to be similar to many other Japanese MNCs. However, its archrival, Philips of the Netherlands, uses the opposite approach, that is to say, its foreign subsidiaries do much of the engineering innovation and product R&D, and the foreign subsidiaries then share the research with the rest of the organization, that is, the HQ and the other foreign subsidiaries. Another school of thought is through the use of three major approaches: (1) the HQ domination approach and (2) the rapid growth model, which has three sub-approaches:  (a) the HQ-driven transfer of technologies and resources for a subsidiary’s growth; (b) the subsidiaries raising their own resources for their own growth approach; and (c) the jointly planned, coordinated approach, whereby both, the HQ and the foreign subsidiaries, jointly plan and execute their future growth goals, plans, and strategies (Birkenshaw, 1999). Yet another approach is the “ownership consideration,” which is either wholly owned foreign subsidiary or joint venture (Benito, 1996). The consideration here is that the greater the host country’s political risk is, the greater would be the MNC ownership sharing with host country partners. Similarly, the greater the cultural distance between the home and the host countries, the more advantageous it is to have host country partners and greater host country equity participation (Benito, 1996; Calof and Beamish, 1994; Hewett and Bearden, 2001; Janssens, 2001; Vlajcic et al., 2019). Thus, shared risk-taking and managerial burden bearing, and consequently, greater mutual trust, are strong arguments for joint ventures and partnership in host countries. Cultural intelligence and transferability of specialty techniques, skills, and management practices are the challenges for the MNC to overcome. The MNC has to transcend the cultural distance and barriers when we consider how managerial and technical knowledge and management policies

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are to be transferred from the MNC HQ and MNC home country to its foreign subsidiaries and their host countries. Technical knowledge and equipment is more transferable than management styles practices. Managerial activities and styles are culture-bound and therefore more difficult to transfer. MNCs often build centers of excellence through the use of “subsidiary-specific­ advantages” (Moore, 2001; Birkenshaw, 1999; Nobel and Birkenshaw, 1998). Some of the common areas for centers of excellence include: R&D, new product design and development, production, marketing logistics, supply chain, and developing future supplier talent. MNCs can benefit from increased participation by the foreign subsidiaries because such participation would improve the overall MNC performance. This approach calls for increased responsibility and accountability on the part of foreign subsidiaries to pursue organized (i.e., organized between the HQ and the foreign subsidiaries) entrepreneurial and innovative activities. Growth and expansion can lead to improved organizational performance for organizations which are very innovative and entrepreneurial. Excessive centralized control by MNC’s HQ can be detrimental to organizational creativity, innovation, and entrepreneurial activity. Birkenshaw and Hood (2001) call this the emerging pattern of “liberalism.” They cite that “liberalism” in large MNCs is characterized to be a “more democratic approach to pursue new opportunities.” Innovative ideas can come if there is less emphasis on tradition, norms, control, rigid construct, and rigid belief structures that are designed to posit power and control to certain groups of people in the organization. Those who have greater reliance on current reality (i.e., those who are closer to customers, supplies, technology, and industry details) are more likely to address problems and focus on innovative ideas (Birkenshaw and Hood, 2001). Control from MNC’s HQ is an important factor, and it is often determined by the national cultures of the MNC’s home country, according to Pauly and Reich (1997). They cite the attributes of the United States, Germany, and Japan to be national political institutions of liberal democracy, social democracy, and developmental democracy, respectively. These political institutions generate the dominant economic ideologies of free enterprise liberalism for the United States, social partnership for Germany, and techno-nationalism for Japan. The nature of control and performance evaluation of subsidiaries for the United States tends to be more quantitative and objective measures, whereas Japanese MNCs tend to also use more qualitative measures in such evaluation. For corporate financing, the United States MNCs are relatively more decentralized and diversified, while German and Japanese MNCs are relatively more centralized. Control and degree of centralization of decision-making for future projects and growth plans are often influenced by home country’s national culture and political institution, as also found by other

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scholars (Andersson, Forsgren, and Holm, 2002; Birkenshaw and Hood, 2001; Pauly and Reich, 1997). Innovation is just not hierarchical. Neither can it be forced or dictated. On the other hand, it can take place anywhere, sometimes at an MNC’s HQ or in faraway foreign subsidiaries. It often takes place away (in a different location) from the control grips (if that happens to be so) of the HQ’s superiors and bureaucrats. What the HQ should do is to create a proper culture of innovation and provide positive leadership and coordination of the innovation activities. The examples of decentralized and partnered innovation and R&D are useful to consider here. A new version of Tide detergent was jointly developed by Proctor and Gamble’s Japanese unit and the company’s Cincinnati headquarters. The first color television developed within Philips of the Netherlands was not developed by its HQ in the Netherlands, but by its Canadian subsidiary. Innovation simply is not the prerogative of the MNC’s HQ alone. It should be coordinately planned, decentralized, and well-integrated with inbuilt flexibilities and free exchange of innovation progress and problem-solving. A similar argument of reverse innovation flow is reviewed by Kong, Ciabuschi, and Martín Martín (2018). In his insightful book, Managing Knowledge Workers, Professor A.D. Amar (2002) cites that compared to their old countries, immigrants were much more innovative after they came to the United States, because they felt that there were fewer traditions, traditional organizational control constructs, rules, and restrictions. They could use their own initiative in dealing with newer challenges in their lives in the new world. They were free to operate as they willed. They worked in the freedom of the intellect and creativity. Using other arguments, he suggests that an MNC’s HQ should provide more flexible and general (noncoercive) guidance, which should emphasize empathy, understanding, supportiveness, and proactive problem-solving for the field managers at the lower level. A similar argument is provided by Mariann Jelinek in her landmark book, Institutionalizing Innovation (1979), in which she cites studies of innovation in DuPont and General Motors. She decries the Winslow Taylor-ian approach of separating planning and coordination from the performance of a task. She argues that while such an approach frees up the management to pursue larger tasks of upper levels of management, complex organizations generally require an integrated and comprehensive grasp of the overall managerial role and organizational perspective. Thus, in Table 4.3 of this chapter the top line managers are included in the Strategic Global Advisory Board. The many arguments that Jelinek provides from the organizational theory literature is consistent with the tenets of Birkenshaw (2001) and Engelhoff (1984) on similar issues of control as they relate to improved innovative performance. Control, in any form (based on organizational or societal hierarchy, monetary control, power or influence), is a critical topic in innovation and entrepreneurship

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in organizations. To generalize, it is usually unfavorable to true, unleashed creativity in innovation. Control within one country culture and subcultures can suffer from some misperceptions. Control in MNC across diverse and dissimilar cultures can suffer from even greater misperceptions that can lead to MNC’s organizational dissonance and discord, thus stifling innovation and entrepreneurship. In a large, privately owned company, at annual review meetings of foreign subsidiaries, the CEO would, sometimes and justifiably so, admonish a few foreign subsidiaries’ top managers for their lower performance of the previous year under review. This would result for the following year in these foreign subsidiaries top managers a distinct demotivation and a decline in morale and an increase in insecurity, followed by an increased intransigence and inaction. On the other hand, when the CEO was favorably impressed with other foreign subsidiaries’ top managers for their superior performance and he praised them, these foreign subsidiaries’ top managers would be even more motivated and strive harder for their following year’s performance. The better thing to do, difficult as it may seem, is for the CEO to avoid being negative and admonishing even when a foreign subsidiary top manager has not performed well enough. Instead, the HQ should provide collaborative help and positive support in identifying and solving the foreign subsidiary’s problems in various ways, like sending capable HQ executives who have proven expertise in those specific problem areas of the foreign subsidiary. Getting such HQ’s attention by the foreign subsidiary would itself have a salutary effect on the foreign subsidiary’s top manager in addition to receiving the substantive skilled help from the HQ executives. In this illustration, the CEO, in his later years, would later mellow down and would modify his leadership styles to be more understanding and less admonishing of the foreign subsidiaries’ managers even if some of them were not performing at their best for a given year. Positivity and constructiveness in evaluations help, negativity does not. In studying about how MNC HQ may deal with foreign subsidiaries, as we have reviewed here before, several authors (Beugelsdijk, Ambos, and Nell, 2018; Birkenshaw, 1998, 1999; Chen and Cannice, 2006; Gates, 1996; Roth and Morrison, 1992; Schotter and Beamish, 2011) propose three MNC HQ-foreign subsidiary relationship styles:  (1) HQ domination; (2)  rapid growth model:  (a) HQ transfers resources and technologies to foreign subsidiaries, (b) foreign subsidiaries obtain resources from host or third countries (this is the self-sufficiency model), and (c) combination of 2(a) and 2(b); and (3) jointly planned and coordinated by HQ and foreign subsidiaries in a good participative, partnership, and collaborative spirit. This chapter adopts the style # 3 from above as it develops the rationale in Tables 4.1, 4.3, and 4.4. This viewpoint is further reinforced by the study of HQ-subsidiary relationship dynamics by Asakawa (2001), which indicates that “connected freedom”

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approach optimizes the foreign subsidiaries’ performance. That is to say, an MNC’s HQ must interact in such a way that both the HQ and the foreign subsidiaries, together feel that there is “high informational connectivity.” There should also be a “high degree of local autonomy.” Thus, “high connected freedom” on the part of foreign subsidiaries is expected to lead to improved foreign subsidiary performance, particularly in the field of R&D innovation, as studied by Asakawa (2001). These are the assumptions utilized in this chapter’s tables.

Discussion of the Chapter’s Concepts The chapter utilizes the various issues raised in the foregoing, and it presents four tables. The tables are discussed in the following four sections. The Conclusions and Recommendations for Actions synthesize the issues raised in these four sections. MNC Global Objectives

External Environments: • MNC global • Regional • Unit’s host country • Competition • Industry & market expectations for innovations • New market opportunities • Innovations

Goals

Organizational Environments: For each (MNC, regional HQ, foreign unit) analyze: • Values,culture, structure, aspirations • Technical capabilities, creativity • Entrepreneurial & innovative spirit & skills

Strategies

Internal Strategic Process: • Communication • Participative-ness • Degree of decentralization • Strategic & operational autonomy • R&D, product development process • Coherent MNC entrepreneurial & innovative process • Quality of organizational performance compared to expectations • New project management capabilities

MNC Entrepreneurial & Innovation Goals & Strategies: New projects for market opportunity exploitation New technology, product and process development New resource development

Table 4.1:  A Process Model for MNC Strategic Analysis for Improved Entrepreneurial and Innovative Performance

Source: Adapted with permission from, “MNC HQ-Foreign subsidiary unit relationship: A Model for Analysis,” (2003), by Y.H. Godiwalla, The Journal of Current Research in Global Business, 5(7), Winter, 35–44. Copyright 2003. The Association for Global Business

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The four tables present an overall approach for improved strategic initiatives for foreign subsidiaries regarding the entrepreneurial and innovative activities. Table 4.1 presents a process model for MNC as a whole to generate improved entrepreneurial and innovative activities. Table  4.2 presents a generalized framework for MNC strategic analyses based upon the centrism of the MNC. Table  4.3 presents a decision-making and structural framework for improved global MNC performance. And Table  4.4 presents a nine-step, three-phase approach for an MNC to formulate and implement entrepreneurial and innovative strategies. Table 4.1 proposes a process that is likely to help in the formulation of overall, global MNC objectives, goals, and strategy. There are the entrepreneurial and proactive approaches which are inherent in the strategies that are wrought through this analysis. Table 4.2: A Generalized Framework for MNC Global Strategic Analyses Based on Organizational Typology

Business Level

Strategic Orientation

Domestic/ Ethnocentric

Standardized Domestic “Here is the Product, take it or leave it” Multi-domestic/ Customized for Foreign Markets Polycentric local markets Multinational/ Regiocentric Global/ Geocentric

Customized for group markets (focus on similarities) Standardized, based on overall global market needs. Basic common needs are addressed

Regional Integration Global Integration

Entrepreneurial Country and Innovation Expansion Focus Focus Export Replicate home factories

Centralized at HQ

Look for more profitable country markets Exploit profitable regional markets

Decentralize in foreign units

Exploit profitable global, larger scale market opportunities

Coordinated combination, with focus on global efficiency

Somewhat coordinated combination

Source: Adapted with permission from, “MNC HQ-Foreign subsidiary unit relationship: A Model for Analysis” (2003), by Y.H. Godiwalla, The Journal of Current Research in Global Business, 5(7), Winter, 35–44. Copyright 2003. The Association for Global Business

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GLOBAL STRATEGIC ADVISORY BOARD Carefully chosen; staggered 4 yr. terms; Membership of 15 people from • headquarters top management • global regional HQs • foreign units

MNC HQ Top Management: • Strategic Management (CEO) • General & Operating Mgmt (COO)

Global regional units • regional strategic mgmt. • regional operating mgmt.

Products/Business/Technology Units • Strategic, prospecting

Operations Management

Foreign subsidiary units, affiliates, joint ventures

Dotted lines () mean exchange of improving entrepreneurial, innovative, competitive and other activities which would improve overall, global MNC organizational performance.

Table 4.3:  A Decision-Making and Structural Framework for Improved Global MNC Performance Source: Adapted with permission from, “MNC HQ-Foreign subsidiary unit relationship: A Model for Analysis” (2003), by Y.H. Godiwalla, The Journal of Current Research in Global Business, 5(7), Winter, 35–44. Copyright 2003. The Association for Global Business

The model focuses on the strategic orientation for entrepreneurial and innovation activities throughout the MNC organization. This includes MNC HQ, all regional HQs, and foreign subsidiaries. The important values that need to be inculcated are those of proactively searching for newer, even riskier, opportunities and technical and organizational innovations. Such entrepreneurial and innovative activities should be focused upon improving the future competitiveness and performance. Changing environments, technologies, and industry practices make it necessary for MNCs to pursue the entrepreneurial and innovative activities as a core strategy formulation component.

The Nature of Internal and External Environments The analysis of the organizational environments has a strong bearing in this context. They have a bearing on the choice of goals and strategies. External environmental analyses must consider the overall, global environments pertaining to the geopolitical, global economy, company-related major industry

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Phases Focus

MNC HQ

Regional HQ

Foreign Units

Phase 1 Explore & identify global & regional opportunities & challenges 1. Articulate overall MNC organizational needs: • technologies • businesses/ products • geographical areas • competitive challenges • industry trends • organizational needs

Phase 2 Decide broad goals & strategies for developing & exploiting new products & market opportunities

Phase 3 Implement strategies for exploiting strategic opportunities

4. Provide general scope & guidelines of strategic directions Coordinate strategy formulation process Evaluate projects’ costs

7. Provide resources Coordinate implementation plan & targets Evaluate & correct implementation Establish cost criteria and constraints for new projects

2. Explore leads for #1 above for the region: • growth for new business, products, markets, technologies • regional collaborative opportunities: marketing, technical, supplier, inter-unit • competitive strategies

5. Evaluate future strategic options Formalize strategies for the region: • products • markets • technologies • resources • new projects

8. Coordinate regional strategies’ implementation: • development of resources & markets • exploit opportunities

3. Explore leads to address #2 above. Assess: • local market opportunities • local skills, technologies • project mgmt. skills

6. formalize strategies for unit’s host country: • product-market • technical • resource buildup • project mgmt organization

9. Detailed implementation • motivating people • empowering • problem solving • flexible plans • project mgmt

Problem solving for: • new projects • resistance to change

Table 4.4:  Organization for Formulating and Implementing Entrepreneurial Strategies: The ThreePhase, Nine-Step Approach

sectors that are assessed on the global level, changing trends in these industries, and the technological advancements and changes likely to take place. Such analyses then must focus on the regional level and subsidiary unit level. At these levels, the analyses must be more detailed and specific in scope. They must be related to specific regions and subsidiaries. Such issues as local competitor analyses must compare organizational analyses of the competitors with those of the foreign subsidiary. The foreign subsidiary’s task environments must be the focus of its strategic decision-making. Organizational environmental analyses must consider not only the cover engineering technology, but also organizational technologies. Further, it must focus on

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technical, entrepreneurial, and innovative capabilities, values, and skills. The type of organization culture, which furthers the entrepreneurial and innovative activities, must be pursued. Growth and competitive goals and strategies become important components of innovative and entrepreneurial strategies. That is, the innovative and entrepreneurial activities must be seen to help the MNC organization to effectively compete and grow. The internal strategic process box delineates the important process items and other variables that can further the growth of an MNC through an effective strategic management process. These items and issues include:  free and open communication throughout the MNC organization, organization-wide participative style, reasonable empowerment and decentralization of decision-making, substantial strategic and operational autonomy to the regional and foreign subsidiary unit levels, a more encouraging approach to R&D units to innovate on their own with little pressure from the general management, and the substantive creation of cohesive project management teams with the requisite capabilities that are well integrated and with emphasis on improving quality and organizational performance. As one views Table 4.1, it can be seen that the strategic process focuses on the formulation of global goals and strategies of the MNC. These in turn generate the MNC’s entrepreneurial and innovation goals and strategies. These include the pursuit of new projects for exploiting newer market opportunities, newer technologies, and resource development. The emphasis of the table is on newer, more advantageous market and technological opportunity development and exploitation. Table 4.2 uses the four international organizational types: domestic/ethnocentric, multi-domestic/polycentric, multinational/region-centric, and global/geocentric. The table delineates the emphasis of business level and strategic orientations as they can have impact on the focus of the entrepreneurial and innovative activities. This issue has often proven to be important (and often complex) because there are multiple considerations, as in the study by Situmorang and Japutra (2019).

A Review of Issues of Organizational Typology As it can be seen, there are major distinctions in emphases among the four organizational types. The standout is the domestic/ethnocentric type. While the other three have a stronger “other countries” focus, there is a fragmentation and rifle approach in the case of the multi-domestic/polycentric approach. There is no conscious effort to either synthesize or integrate its international activities. In the multinational/region-centric approach there is an effort to better synthesize and coordinate within a region, but not so much among regions. The

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coordination quality could vary from region to region. External environmental differences, e.g., in competition, political and economic conditions, would affect the internal operations of the regional units. The global/geocentric organization would be more globally coordinated and integrated in all the major initiatives of entrepreneurial and innovative activities in order to achieve greater organizational efficiency and competitiveness. Organizations which are focused to global industry trends and competitive challenges are more likely to grow and be profitable. The innovative and entrepreneurial activities, when present, will provide the needed competitive edge and, over a period of time, will benefit the organization. A few important observations regarding entrepreneurial and innovative activities that need to be made for each of the four types of international organizational templates are as follows. Domestic/Ethnocentric: There is greater centralization. Innovation is the clear prerogative of the MNC HQ’s R&D as are the product and process innovation and redesigns. Similarly, entrepreneurial activities are usually pursued out of the MNC’s HQ directives. Multi-domestic/Polycentric: Innovation is significantly decentralized, and it is particularly applied aspects of product and process development. Each major foreign unit pursues innovation that is unit-specific. Similarly, entrepreneurship also is delegated to the foreign subsidiaries, to an extent that, as an overall MNC organization, the entrepreneurial activities are fragmented and spotty. There is no conscious effort to coordinate, nor synthesize with an eye towards rationalizing redundancies and duplications. The ongoing process of centrally undirected innovation and entrepreneurial process will, after many years, warrant an in-depth analysis for a central construct of the coordination of innovation and entrepreneurship. Multinational/Region-centric: Innovation and entrepreneurship are decentralized to the regions, or a cluster of country units. Within each cluster of nearly regional countries there is detailed coordination of entrepreneurial and innovative activities. There is a coherent, well-orchestrated, and integrated approach. And because the region is focused on the several country units, its innovative and entrepreneurial activities would be relatively better coordinated. Global/Geocentric: The MNC HQ plays a central and active role in providing broad coordination and integration of innovative and entrepreneurial activities. There can be broad strategic integration and direction of the broader goals, and operational decentralization of the detailed implementation of innovation and entrepreneurship.

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This model (of Table 4.3) is an adaptation from the model of the Tata conglomerate group of some 100 companies based in India. Ratan Tata, the former chairman of this very large, diversified enterprise, had McKinsey consultants advise him about strategic and structural issues (Ramaswamy and Namakumari, 2002; Business Today, 2003; India Today, 2003). The directors of the core, guiding entity, called Tata Sons, consists of some 18 directors, many of whom are chairmen of the giant companies within the Tata group. This central body has for more than the past hundred years pursued entrepreneurial, exploratory, and innovative activities which were beyond the business scope or the resource capabilities of the member companies. This core entity of its board of directors provides proactive, entrepreneurial direction to search for and exploit new business opportunities, start new enterprises, and nurture them until they are ready for initial public offering and become free-standing companies in their own right. The core entity also encourages entrepreneurial and innovative activities within the member organizations. Table 4.3 provides a similar framework. The Global Strategic Advisory Board, which is carefully chosen from the HQ executives and the CEOs of the regional and foreign subsidiaries, direct the broad strategic entrepreneurial and innovative activities of the overall MNC. The direction and encouragement should be broad, not detailed supervision of the foreign subsidiary unit’s level. The foreign subsidiaries should be left free to implement the broad directions in ways they see fit. Also, they must be given somewhat of a free reign in developing their own activities for newer products, businesses, and projects so long as these activities meet with the general criteria and fit with the broad strategic plan of the MNC. Tata Sons and Tata Industries, as the core promoters of new companies in new business sectors, are the entrepreneur and innovator of this large Tata enterprise (Ramaswamy and Namakumari, 2001). It is the risk taker. It explores, chooses, develops, subsidizes, and nurtures new infant ventures; establishes the effective basic organizational design and formulates the basic corporate strategy; chooses the leadership; and guides them past their establishment stage before Tata Sons invites initial public offering and public stock in them. Even after they have gone public, the core organization, Tata Sons, continues to actively participate in strategic management through representation on their board of directors and through the appointment of their top management teams. After the companies attain significant size, and after Tata Sons’ holding in the company is very small, sometimes as low as 7.5% as for Tata Steel, then it continues to provide top management leadership through elections at the annual stockholder meetings, although takeover attempts can be foreseen in certain cases (Ramaswamy and Namakumari, 2002). But because of the enormous trust and professional and ethical reputation that the industrial house of Tata does enjoy, such takeover fears, anxiety, and negative thoughts are diffused.

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The same approach should be used in Table 4.3. The “Global Strategic Advisory Board” members should perform the role of guiding the MNC HQ’s top management to pursue organization-wide entrepreneurial and innovative activities on both dimensions: (1) products, businesses, and technologies and (2) international geographical areas. The other important lesson to learn from Tatas is to promote a long-term approach of a coherent and integrated ethical, strategic plan. The activities for creating an effective MNC global, ethical strategic plan could be:

1. Promoting corporate name recognition of “Tata” in the different geographical regions based upon ethics, trust, integrity, leading technology, consistent product and service quality, and professional management 2. Developing strategic and competitive advantage and organizational and technological innovations and entrepreneurial efforts 3. Developing a framework of criteria to help in craft future technology-, business-, and region-mixes 4. Improving leadership development process at all levels and in all parts of the MNC, including the senior, HQ management members 5. Improving the integration of strategy formulation, implementation, and review within structure of the MNC so that a systematic approach to comprehensive strategic management is pursued throughout the MNC.

Table 4.4 provides the three-phase, nine-step approach that spreads across the three hierarchical levels, for formulating and implementing MNC entrepreneurial strategies. The focus of each of the three phases include: (1) exploring and identifying global and regional opportunities and challenges, (2) deciding on broad goals and strategies for developing and exploiting new products and market opportunities, and (3) implementing strategies for exploiting strategic opportunities. The nine steps are designed to achieve the focus of each of the three phases. The three phases, nine steps, as described in Table 4.4, start with the broader needs and goals of the overall MNC and of the regional centers. Then three hierarchical levels must interact and arrive at a consensus upon the broad goals and strategies for entrepreneurial activities which would improve the overall MNC performance. The emphasis should be on development, that is to say, developing human and capital resources. This is cited in step six of phase three for developing the resources at the foreign unit level. An MNC must be committed to developing its resources, particularly at the foreign unit because that is from where its global performance accrues. The implementation stage has major emphasis on the choice of an effective implementation plan, resource allocation, developing and motivating people, and the effective management of the implementation process through leadership,

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flexibility, and sensible performance evaluation. Such delegation of “the implementation discretion” (of modifying the interpretation of strategy for implementation) to implementing people is a sound advice, because the people directly involved in implementation of strategy would have to adapt and modify the details of strategy as they implement. The details of circumstances at the implementation stage would be different than at the formulation stage.

Recommendations for Actions Effective strategic management of an MNC requires stepping up above the level of good operating performance. It requires a well-crafted organization design and comprehensive corporate strategy that aggressively promotes entrepreneurial and innovation at all levels of the MNC. The chapter suggests that it may be done through greater direction from the top management through intense participative process using the structural model contained in Table 4.3. The center piece of the table is the core “Global Strategic Advisory Board” which advises the MNC executive leadership of global entrepreneurship and innovation. The MNC entrepreneurial and innovation strategies formulation and implementation must be pursued in a participative mode, with the clearly identified three phases and nine steps. These are delineated in Table 4.4. The three phases are: explore and identify global and regional opportunities and challenges, decide upon the broad goals and strategies for developing and exploiting new products and market opportunities, and implement the strategies for exploiting strategic opportunities. The implementation process must be seasoned with flexibility accorded to the regional offices and foreign subsidiary units to take advantage of unforeseen opportunities and to overcome unanticipated obstacles. Strategic control must be pursued with a broader and more general approach. The fewer the detailed directives there are, the better. The geographical distance between the MNC HQ and the regional and unit offices should induce the MNC HQ to be less autocratic, imperious, and peremptory. The age of HQ’s hierarchical arrogance has to yield to a better era of expanding the influence of the field managers in distant foreign subsidiary units to effectively harness the creative talents and to directly deal with the vicissitudes of their competitive and other external environments. The overall management of an MNC requires a proper global perspective, a good set of strategic global assumptions and plans, such as building and promoting a global reputation for trust, integrity, entrepreneurial progressiveness, technical innovativeness, sensible entrepreneurial aggressiveness, and professional management.

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Growth and competitiveness of an MNC must be built on sustained innovativeness and entrepreneurship that reside in the quality investments in the human talents and technical, professional, and business acumen of the field people who daily face their environmental challenges and, therefore, are most aware of their realities. Sustained, long-term growth and competitiveness would depend on the creation and nurturing the foreign subsidiary resources and talent. The major recommendations for actions are:

Recommendation 1: The HQ Should Provide Strategic Leadership, Close Coordination with the Foreign Subsidiaries, and Proper Incentive Plans It is the people at the top that matter. This is also true for an MNC and its foreign subsidiaries. Justification. The formulation of the guidance parameters should ideally be done in close communication between the HQ and the foreign subsidiary leadership. By doing so, the genuine consultation would bring true ownership of activities and the approaches among the foreign subsidiary leadership. Proper periodical updating of incentive plans would motivate the subsidiaries to perform better. Guidelines for Implementation. The general guidance and direction for growth, innovation, and exploration of newer opportunities would keep the many foreign subsidiaries meaningfully well-coordinated and not stray too far off from the MNC vision, mission, and goals.

Recommendation 2: The MNC Should Improve the HQ-Subsidiaries Communication, Sharing Operating Plans, Problems, and Solutions The foreign subsidiaries should share among themselves the major operating experiences and issues (problems and their solutions) so that they will benefit from the other foreign subsidiaries’ experiences. For example, in the case of certain Toyota cars’ uncontrolled acceleration in the United States, it is said that some similar issues had occurred in its European operations, but the Toyota’s European subsidiaries had not communicated this experience (problems and solutions) to Toyota’s United States operations. There was the additional delay in problem solutions reaching the car owners. Justification. Organizational learning is something that should be coordinated by the HQ. Good direction and leadership at the HQ is vital. Similarly, the implementation of MNC’s newer strategies and plans

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should proceed in a way that all the major experiences and problems and solutions are widely shared among the leadership of the foreign subsidiaries across the MNC. Guidelines for Implementation. Increase the frequency of communication and invest in better interactions throughout the MNC organization. The HQ should coordinate and choose the types of information which should be circulated to specific parts of the MNC organization. Good responsiveness to external challenges requires a better flow of information.

Recommendation 3: Organizing for Growth and Competitiveness through Entrepreneurial, Technical Innovation, and Cooperation with Foreign Subsidiaries The foreign subsidiaries have an advantage over the HQ because they are closer to their markets, suppliers, and other environments. Therefore, the overall MNC growth and competitiveness plans must be coordinated by the HQ leadership, using close communication between the HQ executives and the foreign subsidiary executives. Justification. This organizing of growth and competitive approach acknowledges that foreign subsidiaries should also take active roles because the task environments of the different foreign subsidiaries can be different, and an MNC HQ’s monolith approach and strategies might not be suitable. Guidelines for Implementation. The focus should be improving the competitiveness. The HQ should initiate improved training and joint exercises for wider networking among similar professional and product categories and market backgrounds across the MNC.

Recommendation 4: Improve the Organizational Culture and Core Values that Would Be Conducive to Innovation and Entrepreneurship in Overall MNC An MNC should improve its organizational culture and core values so that they remain congruent with the contemporary realities in all the regions in which it operates. Justification. MNC organizational culture and values are heritages of the MNC organization, and they have the force of history. Their effects are impelling and a manager, all by himself, cannot easily run against them if he wants to pursue newer, contrary approaches.

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Guidelines for Implementation. The organizational culture and values are the keys for improving the performance of the overall MNC. This would mean that the older culture should be the subject of critical analysis and newer future culture and values should be first identified and induced into the entire MNC organization.

Recommendation 5: Improve the Organization-Wide Institutionalization of Formal-but-Flexible, Adaptive, and Responsive Strategic Management Process The institutionalizing as an ongoing strategic management system across the MNC organization is important and that has to be planned and organized for the overall MNC. The entire organization needs to get used to this process. The Justification. Successful MNCs would install and tweak a good working strategic management process that is organization-wide, flexible, and adaptive for it to remain profitable and competitive. The process must be organic, flexible, self-adjusting, and evolving, and not rigid, time consuming, and complicated. Guidelines for Implementation. HQ must initiate the process so that it would cover all aspects of the strategic management process and make the organization more responsive to the future trends.

Recommendation 6: Integrate the MNC HQ-Foreign Subsidiaries (Table 4.4 Approach) This is the fuller integration so that the organization is properly integrated and focused. An example of such an integrating process is presented in Table 4.4. Justification. The process integrates all levels of the MNC organization: HQ, regional offices (if any) and foreign subsidiaries (as in Table 4.4). Guidelines for Implementation. Focus on the common activities and integrate them in a core set of processes with an executive coordinating each core activity until it performs on its own.

Recommendation 7: Create a “Global Strategic Advisory Board” This is an important step for ensuring that the MNC organization is focused on being strategic in its outlook. The Board should comprise of top managers from MNC’s HQ, regional (if any) and foreign subsidiaries’ offices.

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Justification. The Board would advise HQ’s top management on strategic issues at the global, regional, and country levels and so would cover all relevant issues. These could include advice on competitiveness, industry trends, and entrepreneurial and innovative issues. Doing so would integrate the entire organization to think strategic and develop the big picture. Guidelines for Implementation. Select diverse and ethically strong people on the board from inside and outside the foreign subsidiary. Care should be taken that there are no conflicts of interests and that the people would be able to carry out their duties in an independent manner.

Recommendation 8: Improve HQ Managers’ Leadership Styles for Motivating and Incentivizing the Foreign Subsidiary Managers Justification. HQ managers must be positive and motivating in their approach of communicating with foreign subsidiaries’ managers, otherwise the foreign subsidiaries’ managers will feel demoralized, demotivated, and dis-incentivized, thereby resulting in decrease in foreign subsidiaries performance. Guidelines for Implementation. Challenging as it may seem at times, particularly when a foreign subsidiary’s performance is declining because of weak foreign subsidiary leadership, even so the HQ managers should restrain themselves in overly admonishing them. By being genuinely interested in the causes of the foreign subsidiary’s plight and being problem-solving in approach, the HQ would probably see better results than if it were to be overly negative in its dealings with the foreign subsidiary.

Conclusions The MNC HQ-foreign subsidiary relationship models can be influenced by the external pressures of competition, price wars, rapidly changing technologies, changes in market structures, governmental and political influences, market expectations of innovation and product redesign, and societal changes. The internal pressures affecting influence could be internal drive for more rapid growth and profitability, and employees’ fulfillment through better career enrichment and compensation improvement. The external and internal pressures would cause strains in the MNC HQ-foreign subsidiaries relationships. The proper communication, incentive systems, coordination, and leadership would usually diffuse such strains and stresses, and also better facilitate smooth operations.

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Bibliography Amar, A.D. (2002). Managing Knowledge Workers:  Unleashing Innovation and Productivity. Westport, CT: Quorum Books. Andersson, U., Mats, F., & Ulf, H. (2002). The strategic impact of external networks: Subsidiary performance and competence development in multinational corporations. Strategic Management Journal, 23, 979–996. Asakawa, K. (2001). Evolving headquarters-subsidiary dynamics in international R&D:  The case of Japanese multinationals. R&D Management, 31(1), 1–14. Benito, G.RG. (1996). Ownership structures of Norwegian foreign subsidiaries in manufacturing. The International Trade Journal, 10(2, Summer), 157–198. Beugelsdijk, S., Ambos, B., & Nell, P. (2018). Conceptualizing and measuring distance in international business research:  Recurring questions and best practice guidelines. Journal of International Business Studies, 49(9), 1113–1137. Birkenshaw, J. (1999). The determinants and consequences of subsidiary initiative in multinational corporations. Entrepreneurship Theory and Practice, 24(Fall), 9–52. Birkenshaw, J. (2001). Unleash innovation in foreign subsidiaries. Harvard Business Review, 79(March), 131–140. Business Today. (2003). March 31, 45–54. Calof, J.L., & Beamish, P.W. (1994). The right attitude for international success. Business Quarterly, 59(1), 106–111. Chan, C., & Holbert, N.B. (2001). Marketing home and away:  Perceptions of managers in headquarters and subsidiaries. Journal of World Business, 36(2), 205–221. Chen, R., & Cannice, M.V. (2006). Global integration and the performance of multinationals’ subsidiaries in emerging markets. Ivey Business Journal, 70(3), 1. De Beule, F., & Van Beveren, I. (2019). Sources of open innovation in foreign subsidiaries: An enriched typology. International Business Review, 28(1), 135–147. Delios, A., & Bjorkman, I. (2000). Expatriate staffing in foreign subsidiaries of Japanese multinational corporations in the PRC and the United States. International Journal of Human Resource Management, 11(2), 278–293. Engelhoff, W.G. (1984). Patterns of control in US, UK and European multinational corporations. Journal of International Business Studies, 15(Fall), 73–83. Frenkel, S.J., & Royal, C. (1998). Corporate-subsidiary relations, local contexts and workplace change in global organizations. Industrial Relations, 53(1), 154–181. Gates, S., & Engelhoff, W. (1986). Centralization in headquarters-subsidiary relationships. Journal of International Business Studies, 17(Summer), 71–93. Godiwalla, Y.H. (2003). Innovation strategy for MNC and its foreign subsidiaries. North American Management Society, Chicago, March, 1–5. Harzing, A. (2001). Of bears, bumble-bees, and spiders: The role of expatriates in controlling foreign subsidiaries. Journal of World Business, 36(4), 366–379.

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Hewett, K., & Bearden, W.O. (2001). Dependence, trust, and relational behavior on the part of foreign subsidiary marketing operations: Implications for marketing global operations. Journal of Marketing, 65(October), 51–56. India Today. (2003). February 24, 12–20. Janssens, M. (2001). Developing a culturally synergistic approach to international resource management. Journal of World Business, 36(4), 429–450. Jelinek, M. (1979). Institutionalizing Innovation. New York, NY: Praeger. Kaufman, L.H. (2000). Centralized or decentralized management. Railway Age, August, 47–50. Kong, L., Ciabuschi, F., & Martín Martín, O. (2018). Expatriate managers’ relationships and reverse knowledge transfer within emerging market MNCs: The mediating role of subsidiary willingness. Journal of Business Research, 93, 216–229. Kriger, M.P., & Rich, P.J.J. (1987). Strategic governance: Why and how MNCs are using boards of directors in foreign subsidiaries. Columbia Journal of World Business, 22(Winter), 39–45. Lee, K., You, C., & Bae, J. (2017). The impact of foreign ownership and control on the organizational identification of host country managers working at MNC subsidiaries. International Journal of Human Resource Management, 28(12), 1739–1765. McGrath, N. (1994). Why HQ should relax its grip. Asian Business, 30(6), 46–48. Moore, K.J. (2001). A strategy for subsidiaries: Centers of excellences to build subsidiary specific advantages. Management International Review, 41(3), 275–290. Nobel, R., & Birkenshaw, J. (1998). Innovation in multinational corporations: Control and communication patterns in international R&D operations. Strategic Management Journal, 19(5), 490–496. Pauly, L., & Reich, S. (1997). National structures and multinational corporate behavior: Enduring differences in the age of globalization. International Organization, 51(1), 1–30. Ramaswamy, V.S., & Namakumari, S. (2002). Strategic Planning; Formulation of Corporate Strategy: Text and Cases; The Indian Context. Bombay, India: MacMillan. Roth, K., & Morrison, A. (1992). Implementing global strategy: Characteristics of global subsidiary mandates. Journal of International Business Studies, 23, 715–750. Schotter, A., & Beamish, P.W. (2011). Performance effects of MNC headquarters–subsidiary conflict and the role of boundary spanners:  The case of headquarter initiative rejection. Journal of International Management, 17(3), 243–259. Scullion, H., & Brewster, C. (2001). The management of expatriates: Messages from Europe. Journal of World Business, 36(4), 346–365. Situmorang, R., & Japutra, A. (2019). Foreign versus local managers: Finding the perfect leaders for multinational hotel subsidiaries. International Journal of Hospitality Management, 78, 68–77. Vlajcic, D., Caputo, A., Marzi, G., & Dabie. (2019). Expatriates managers’ cultural intelligence as promoter of knowledge transfer in multinational companies. Journal of Business Research, 94, 367–377.

chapter five

A Nurturing Headquarters Is Good for the Multinational Corporation

Good parenting, nurturing, training, and close networking within the organization by the headquarters (HQ) are very vital for the overall multinational corporation (MNC). An MNC’s HQ must pursue better nurturing and foster developmental and networking approaches in its relationships with its foreign subsidiary units. A well-supported and nurtured constellation of foreign subsidiaries will perform more cooperatively and harmoniously within the framework of the overall MNC organization. In turn, these approaches will generate more effective strategies for competitive performance because of the improved cross-fertilization of ideas. This is for younger and mature organizations because of the inherent hierarchical difference between the HQ and the foreign subsidiaries and the inherent “superior-subordinate” relationship. The HQ must pursue a spirit of collaboration and partnership that would generate a feeling of near equality among the partners. HQ may give the final assent even so, only after good deliberations and factual and rational analyses. Good nurturing and close communications would likely align the values and views of the many disparate foreign units, given the diverse environments of operations. Learning in an MNC organization, which has these collaborative, closer internal and stakeholder networking, communicative attributes, is multidirectional: HQ learns as much from the foreign subsidiary units as the foreign units learn from the HQ. Closer internal and external stakeholder networking in an MNC and good parenting and nurturing involve good, continuous expatriate

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training. These activities result in better organizational effectiveness and competitiveness. The issues that are reviewed in the chapter include: collaborative MNC, nurturing MNC executives, and MNC HQ-foreign subsidiary unit relationships.

The Purpose of the Chapter The chapter provides arguments that emphasize the importance of continuous nurturing, mentoring, training, partnering, and frequent and closer discussion by HQ and the foreign subsidiary units. It also reviews the assumptions of essential rationales for strategic and operational decision-making among the HQ and foreign subsidiary units. Competition, external environmental changes, and the pressure for sustained organizational growth and organizational scope enlargement as in the spheres of global operations make this focus on closer and collegial HQ-foreign subsidiary units’ relationships even more important. It is vital for long-term survival and growth for the MNC as a whole. High levels of unconditional empathy and real involvement among HQ executives in the foreign subsidiary units’ activities from a not-too-frequent, fully collaborative, and helpful, supportive manner would be truly beneficial. Wellcoordinated and well-organized discussions will bring to surface more issues upon which the HQ and foreign subsidiary units’ executives can jointly analyze, deliberate, decide, and act.

Nurturing and Well-Trained, Motivated Executives The chapter portrays the importance of good relationships between the MNC HQ and the foreign subsidiaries and the proper and empathetic treatment of foreign subsidiaries by the HQ. The fostering of good relationship and cooperation comes from a consistent and true mutual respect for the two entities. The initiative for this has to be the MNC HQ leadership for it to achieve this outcome. Only the MNC HQ can lead a good focus on nurturing the foreign subsidiaries and generating the quality of human relations between the executives of the HQ and the executives of the foreign subsidiaries. Included in the equation is the training of and the close communication between the executives of the HQ and the foreign subsidiaries. Well-trained, competent, and motivated executives at all levels of the MNC organization are a prerequisite of overall MNC performance, upon which is perched good, healthy mutual respect among the executives. Without consistent good performance, it is

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unlikely to have good relationship. Given good, well-trained and motivated executives, the nurturing would further overall MNC performance and also keep current the quality of good relationship and respect among executives at all levels. It is worthwhile to note the study of the behavior of mice which was reported by Begley (2000) on the experimental works of Michael Meaney of McGill University, Montreal, Canada. It was contrasting: (1) the calm, problem-solving behavior of mice that were pampered and loved (nurtured), from those (2) who were not pampered and not loved (not nurtured) by their mother mice. The mice that were pampered and loved (nurtured) by their mothers “had their brains turned on high,” compared to the non-loved mice. Begley (2000) said about Meaney’s findings which indicated that the well-loved mice (whose mothers kept sucking their heads like lollipops) “did not startle easily and were less fearful of novel situations.” They were much braver and dared to take greater risks. They were calmer too. However, Meaney’s findings indicated that the unloved mice were nervous and unsure of coping with novel situations; they did not show any problem-solving capabilities. “Their brain genes were not turned up as high, although such (or same) genes were present.” These mice were nervous, flustered, and easily gave up. Similar studies by Tsien (2000) reveal that mice can be remolded to display different attributes. Nurturing, on a sustained basis, is good for problem-solving and in coping with strange, unfamiliar situations. Speaking broadly, beings (humans or rats) have inherent genes which could be turned on “high” through careful, patient, and affectionate nurturing. One’s life experiences work on one’s genes (yes, the same genes) and one takes shape, either to be confident and successful, or otherwise. It is possible to work on the genes and turn a person around to be different. It is possible, with patience, persistent affection, to take the same genes of a being and reshape the being. For example, in spite of the natural propensities of an introvert child to be reticent and withdrawn, his guardians (parents, teachers, relatives, and friends) can reshape the child to become more extrovert and gregarious. We will learn this from the example of President Theodore Roosevelt. The father of President Theodore Roosevelt had encouraged him to become more outdoorsy despite his physical withdrawal and his tendency to be a withdrawn person and a heavy reader. It is said, “Roosevelt was born a sickly child with debilitating asthma, but he overcame his physical health problems by embracing a strenuous lifestyle.” His father worked on his son against the grain. With the help and encouragement of his father’s reshaping of him, he did become much more robust and gregarious in all his later adult life (Hart and Ferleger, 1989). His father’s values and his invisible moving hand had help to reshape him. He continued to be a scholar and also became very physically active. Roosevelt said of his father, “My

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father, Theodore Roosevelt, was the best man I ever knew. He combined strength and courage with gentleness, tenderness, and great unselfishness. He would not tolerate in us children selfishness or cruelty, idleness, cowardice, or untruthfulness.” Innately, he had followed his father’s advice as if his father had most actively shaped him. His father had augmented his personality beyond his original self. Thus, guardians (parents, teachers, and relatives) “nurturing against the type” of a child can work to reshape the child from his inborn to the newborn person. In reshaping the child, parents too can become reshaped. Reshaping is a two-way process, an important observation to remember as we apply this idea to HQ people nurturing and reshaping the foreign subsidiary executives. The idea that we should work on human beings when they are much younger has often greater currency. One may ask: But what about adults as they go about their challenging lives, balancing work and family expectations? And how would nursing home geriatric persons respond to such approaches? It seems viable to apply the tenet to older generations of people as well. The notion of caring and reshaping has been successfully applied also to grownups. Schellenbarger (2000) cites that in Massachusetts, day care centers have been caring for stressed young parents as they cope with the dual challenges and stresses of work life and family life. In a “paradigm shift,” Bright Horizons Family Solutions, which operates 300 centers in Massachusetts, has renamed its child care centers “family centers.” They promote overall family well-being and help to nurture balance in parental lives too. Again, as in the previous analogy, applying this issue to MNC situation, HQ executives are also themselves going to be reshaped as they nurture the foreign subsidiaries’ executives. For an MNC, closer partnering, expatriate training, and nurturing are important, ongoing managerial efforts ( Jelinek, 1979). They would make the overall MNC executives to be collectively responsible and responsive to their respective task environments. Like the well-loved and well-adjusted mice, they will confidently respond to novel situations. Applying this issue to the MNC situation, the more well-loved and well-adjusted the foreign subsidiary unit executives, the better will be the performance of the foreign subsidiary units.

A Review of Literature Training of new and current expatriates and mentoring and nurturing them and having closer networking and collaboration (among HQ and foreign subsidiary units’ executives) are vital for an MNC because of the very many complex and diverse and difficult sub-environments with which the different peoples in the

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MNC work. Not all of them are familiar with the situations across the world, and so they would need periodic training, a point stressed by many scholars (Aguzzoli and Geary, 2016; Godiwalla, 2017; Ioannou, 1994, Rosenzweig and Singh, 1991; Sundaraman and Black, 1992). The diverse international environments pose real challenges for the international managers, and they would perform better if they were better and continuously trained and nurtured (Ebrahimi and Grieu, 1999; Finkelstein and Hambrick, 1996; Jelinek, 1979; Kamoche, 1996; McNerney, 1996; Morris, 2000; Otterbeck, 1981; Sundaraman and Black, 1992). The complex and dynamic nature of the different environments of an MNC’s foreign subsidiaries make the preparedness and training efforts more challenging for the MNC HQ (Godiwalla, 2014). There are several reasons for these issues, including:  (1) the ever-shifting organizational cultures and administrative processes of the foreign subsidiaries (Brief, Guzzo, and Schnieder, 1996; Galphin, 1996; Want, 1993), (2) the need for more effective control and influence by the MNC HQ over its foreign subsidiaries (Chang and Taylor, 1999), (3) the need for improving the R&D of its foreign subsidiaries so that they would out-perform the competitors in the local and regional markets (Muralidharan and Phatak, 1999), (4) the need for more effective adapting and formulating strategies by the foreign subsidiary units and improving the expatriate conduct in the local cultural setting (Newsweek, 2000; Robertson and Fadil, 1999), (5)  the need for more effective negotiations with host country players (Vachani, 1995), (6) the need for improving of the competitive advantage of foreign subsidiary units (Collis and Montgomery, 1998; Duncan, Ginter, and Swayne, 1998; McLaughlin, 1999; Porter, 1997), (7) the better innovation in foreign units (Hamel, 1998), and (8) the focus on ethical conduct for the overall MNC. Nurturing is vital in the process of improving the long-term performance. The focus should be of the interests of the reshaping of the future directions and future destiny. The better and frequent nurturing and training strategies may emphasize several of these issues as a foreign subsidiary executive would address his activities. When the nurturing is better, the performance of the foreign subsidiary units will also be better. Therefore, the positive reinforcement and encouragement are the hallmarks of sustained growth and also creative and innovative performance. Any negative or discouraging overtures, whether excessive or not, by the HQ upon foreign subsidiaries are detrimental to any long-term performance. The scope, nature, and content of the communications and interactions among the HQ and the foreign subsidiary units must be laid clear for all. For example, the scope, nature, and content could specify to be:  (1) the top-down and bottom-up, dual directional, real-time data and information exchange, discussions and

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analyses, and the proposing of essential rationales for strategic decision-making for all levels, HQ to foreign subsidiary units (Birkenshaw, 1999, 2001; Godiwalla, 2017; Gupta and Govindarajan, 1991) and (2) the quality of agreement on current issues and future directions as they are vital for increased competitiveness (Nohria and Ghosal, 1994). These issues and content of the various essential rationales for strategic decision-making are most important for the various levels of the MNC to discuss and agree so they will act in some synchronized manner and, through greater delegation and guidance, the foreign subsidiary executives will take increasing role of active decision-making such that the foreign subsidiary units will be prompt and complete in their strategic and operational responses to their task environments (Engelhoff, 1984; Godiwalla, 2004; Gupta and Govindarajan, 1991; Williams, 2009). The effectiveness of the courses of an MNC, as it forges into the future of different global arenas, is determined by the quality of coherence and clarity of its underlying central core strategic rationale. A clearer, coherent and well-communicated core strategic rationale for decision-making will result in a comprehensive network of overall MNC strategies. Frequent and concurrent counselling and discussions at both locations, the HQ and the foreign subsidiary units, by the HQ executives and continuous feedback by the foreign subsidiary units’ executives, particularly given that the MNC situation is characterized by the very diverse and complex nature of operating environments in the context of an MNC operating in diverse cultural and operating environments (Fish and Wood, 1996; Godiwalla, 2004; Haddock and South, 1996; Laabs, 1996). It is important that there exists the culture of mutual respect between the HQ and the foreign subsidiaries. It is necessary to improve the quality of sensitivity and appreciation of the decision-making and operating situation by both sides as the overall organization strives to seek coordinated, collaborative approach for improving the combined performance of the MNC. It may be mentioned that the more rounded manager and the versatile executive with many diverse skills and interests are the correct attributes to emphasize. It is also worthwhile to encourage more short-term, rotation-type of approaches to human resources management practices for placing different executives for short overseas stints of assignments. This approach will engender greater empathy and understanding. Predeparture managerial expatriate training and intense post-arrival mentoring and periodic upgrading of skills and perspectives are most worthwhile (Fish and Wood, 1996; Godiwalla, 2004; Harris, 1997; Ioannou, 1994). The important issue here is that that competitive performance and organizational growth of an MNC on all its fronts require sustained nurturing and mentoring on an MNC organization-wide basis (Chawonec and Newstrom, 1981; Harris, 1997).

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The Theory of Organizational Equilibrium March and Simon (1980), in their classical management theory, provide important explanations for how people in organizations are motivated. Employees, a most important organizational resource, need to be motivated. When they are motivated they will positively contribute to the organization’s important activities as it strives to achieve its objectives. It may be emphasized that, for an organization, the single most vital issue is that the employees make sustained contributions for the important activities for the achievement of organizational objectives. March and Simon (1980) refer to: (1) the contributions that the employees make and (2) the inducements (or, a total of objective and subjective, or material and nonmaterial rewards) that the employees perceive that they are receiving. To cite their main points here:

1. An organization is a system of interrelated social behaviors of a number of participants. 2. Each participant receives inducements form the organization for which the participant makes contributions. 3. The participant will continue to participate in the organization’s important activities so long as her or his perception is that the inducements are higher than their contributions. 4. The contributions from all the participants provide the pool of resources from which the organization manufactures the inducements. 5. Thus, an organization is “solvent” only as long as the contributions are sufficient to provide inducements necessary to sustain contributions.

It is an indiscernible topic in that it is a matter of speculation as to what would constitute the “pool of inducements” and what its value is for different individuals, because they may have different personal priority system for their material and nonmaterial satisfaction. The theory explains how and why employees are motivated to contribute (March and Simon, 1980; Takatsu, 1984). In the context of MNC HQ-foreign subsidiary relationship, it is important to note that the employees (at all levels of the organization in both the HQ and the foreign subsidiaries) must feel that their total material and nonmaterial rewards are at least equal to the efforts that they are making for the MNC organization. Otherwise, they will not feel motivated to contribute. Thus, nurturing is vital in that it helps to foster a feeling of oneness and togetherness among the peoples of the HQ and foreign subsidiaries rather than a bifurcation of the organization into a division of two sets of peoples. At best, nurturing would likely diffuse any unfavorable balance between contributions and inducements. If not, at least, good nurturing would guide people

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to realize the causes of unfavorable balance, and the executives would hopefully resolve the issues.

Closer Collaboration, Nurturing, Training, and Progress towards Greater “Internationalism” An MNC should improve the “internationalism” (a wider and greater appreciation of situations and peoples of the other parts of the world) among all its executives and supervisors throughout the MNC organization. This is a long-term endeavor and it would involve many people in the MNC. Such an endeavor should involve people such as: executives, managers, supervisors, and specialists at all levels and locations in the MNC organization. This would include people in the MNC home country and foreign subsidiary units’ host countries as well.

The Importance of Human Resource Development Many leading international organizations have planned focus on international human resource development, and these are perceived to pay off over a period of time. The focus upon international human resource development is pursued by major international organizations, as is evidenced in annual reports of some corporations, e.g., GE Annual Report 2017. Development of human resource has a significant impact upon an organization’s performance. In Fortune’s “America’s Most Admired Companies” (Fortune, 2018), the companies’ performance on employee talent and quality of management significantly correlates with the companies’ performance, as judged by their ranking in the top and bottom list of 500 firms, and, these issues were analyzed in the survey. The top firms in the list which had very high ratings for employee talent and quality of management were significant in their human talent development (Amar, 2002). Examples of the top companies are:  Apple, Amazon, Alphabet, Berkshire Hathaway, Starbucks, Walt Disney, Microsoft, Southwest, FedEx, JP Morgan, Netflix, Facebook, Costco Wholesale, American Express, salesforce, Nike, and Johnson and Johnson. The companies also performed well on rate on total return, a measure for shareholders interest. Conversely, the bottom companies in the survey list had very low ratings on employee talent and quality of management. They were also the least admired, and they also least served their stakeholders, including the shareholders. Thus, international human resource development is a long-term pay off and firms have to take a longer term perspective. Developing and nurturing high-quality top executives

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and specialists and other levels of human resource must be considered a top priority in organizations.

MNC’s Nurturing and Training for Foreign Subsidiary Executives Nurturing should be sustained and long term in orientation, and it should be an organization-wide effort. It should be characterized by unconditional understanding, trust, support, and collaboration among the executives of the HQ and the foreign subsidiary units. Important issues and disagreements should be openly and freely raised and discussed. HQ’s executives must embrace “full immersion” in the foreign subsidiary units’ local and regional values, cultures, conditions, and environments. They should understand the local and regional values in the greater spirit of internationalism. This deliberate HRM process of nurturing local values worldwide would enable HQ executives to accept and honor foreign subsidiary executives’ challenges and accomplishments. This spirit will foster a greater empathy and partnership culture. In turn, it would increase the international values, and it would attract better future international executive recruits. Current executives will want to continue to work in the organization. Additionally, better HQ executives will venture to take foreign assignments. Greater HQ domination in developing and pursuing human resource management (HRM) and training policies would lead to a greater standardization of global HRM practices. However, it would overlook local initiatives that would optimize the cultural considerations. Management is culture-bound. The inviting of a broader participation that allows for inputs from foreign subsidiary units would lead to richer global HRM practices, because it would have a more global cultural footprint. Thus, there would be a mature approach by foreign units on issues of HQ’s and foreign subsidiary units’ strategic and operational control. Though there are trade-offs of each approach (HQ-domination versus greater foreign subsidiary unit involvement), greater HQ-driven approach would cause a drive towards uniform globalization of HRM and management development. There are no clear-cut arguments that can be applied universally across the board. It must be on a case-by-case basis. It would depend on the organization at a given point in time. Thus, greater foreign subsidiary units’ propulsion in the HRM policies development could result in focus on local, host country issues and, consequently, on increasing autonomy of the foreign subsidiary units, the local circumstances would drive future strategic and operational scope and their respective decision outcomes. In this context, HRM policies (particularly those of training, mentoring

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and nurturing) would influence the strategic and operational decision-making process in the MNC organization.

MNC HQ’s Interventional and Nurturing Strategies A question may come up: How should an MNC’s HQ intervene as it seeks to improve the foreign subsidiary units’ performance through improved nurturing? This involves injecting (intervening) HQ action in the foreign subsidiary units. Most MNC HQ offices have some degree (little, moderate, high, very high) of internationalization. How much it has throughout the MNC organization is a good and relevant question. The greater the degree, the more receptive would be the nurturing and collaborative process. Understandably, not all MNC HQs display equally very high degree internationalism, and many MNC HQ’s product and business divisional executives are results-oriented (in the context of their own respective task environments), and they are often far removed from international business activities and the activities of the foreign subsidiary units. There is also less empathy from them. An MNC HQ must choose particular effective interventional strategies in dealing with issues within foreign subsidiary units, such as rapid, closer, and detailed involvement and engagement, or gradual and general engagement, as it seeks to nurture and collaborate with the foreign subsidiary units. Top management of the MNC should encourage its HQ executives and specialists to become more supportive, empathetic, and sensitive to foreign subsidiary units’ executives (Barnum, 1994; Fish, 1996; Laabs, 1996). There should be greater rapport. The HQ executives should foster in themselves more internationalism such that they would pursue their full collaborative approaches as they interact with foreign subsidiary units’ executives. In turn, and in time, they themselves may become ripe candidates for foreign postings and foreign assignments. Over time, they will show a greater propensity for internationalism in their thinking so that it would improve the MNC’s performance in its international activities because of a truly collaborative style (Birkenshaw, 1999, 2001). This growth process can be induced by positive interventions by the MNC’s top management, rather like previously cited example of the nurturing of the rats. The top management should work on the HQ executives and foreign subsidiary units’ executives regarding this issue. Among the home country executives and technical specialists, there may be a tendency to focus upon the particular methods of the MNC’s units within the home country as being the “one best” way of doing it. There can be a tendency to

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regard other approaches of other countries’ economies and cultures of the MNC’s foreign units to be less optimal or inferior. As it is suggested in the table, MNCs must encourage a more open, receptive, and interactive-oriented culture among its executives and technical specialists, both in the home country as well as in its foreign units, so that the MNC becomes more effective in its international business activities in all its foreign units and in its HQ.

Applying the Joseph Salmons Model (2015) of “Vertical” and the “Horizontal” of Interventional Migrations Joseph Salmons (2015) has introduced the models of “vertical” and “horizontal” migrations and language transfers. He studied the patterns of language transfers from an (invading) migration of superior skilled and resourced peoples of one region to another region which have lesser skilled and resourced peoples. Such migrations can be either peaceful or in the form of an aggression. “Aridization” of lands and consequent fears of starvation can lead to mass or stage-by-stage migrations of the affected peoples to transfer to other more favorable areas. Language and culture transfers mostly follow. The process of assimilation between the two sets of peoples can be “vertical” or “horizontal.” Salmons (2015) states: … systematic changes in community structure are what drive language shift, incorporating Milroy’s network structures as well. The heart of the view is the quintessential element of modernization, namely a shift from local community-internal organization to regional (state or national or international, in modern settings), extra-community organizations. Shift correlates with this move from pre-dominantly ‘horizontal’ community structures to more ‘vertical’ ones.

It is “vertical” when some of the host country people want to adopt the languages and practices of the inward migrations. This was the case of the British colonial invasions when many of the host peoples wanted to learn and ostensibly adopt the English language, the British education, customs, methods, knowledge, professionalism, and ways of life because they perceived them to be elite or prestigious. In many cases, the host peoples retained their own cultures and customs in personal and family lives, but adopted the professional knowledge and technical practices from the British. It is called “vertical” because the in-migrating people would bring into the host country newer languages and the host people want to “climb upwards” to adopt the incoming language and other practices. As a consequence, the transfer of the perceived more desirable professional, administrative, and educational systems, knowledge-based activities of the British also helped the

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host countries’ peoples to come closer with the rest of the advanced Western world and brought them closer to the current or modern times. Applying this idea to MNC HQ’s executives who, as expatriate managers in the regional HQs and foreign subsidiary units, it was found that they are able to significantly change (for the better) the local practices of the foreign units executives. When the MNC HQ’s practices are perceived to be better or more effective, then the foreign subsidiary units will want to “climb upwards” and adopt the HQ-prescribed methods. The Japanese MNCs are stronger in their HQ methods and values as they manage their foreign subsidiary units, as in case of Matsushita (of Japan). These are essentially top-down flows, that is, from the emanating regions (or, the MNC HQ) to the receiving regions or host countries (or, the foreign subsidiary units). Further, one can also project a “reverse” variation of the “vertical” model. That would take place when the foreign subsidiary units are providing significant upward flowing inputs to the MNC HQ, as in the case of the autonomous Philips of the Netherlands foreign subsidiary units creating newer R&D and products and providing other “upward” flow activities. It is “horizontal” (in the case of the Joseph Salmons model) when the migrating languages do not change the linguistic patterns of the host country peoples. The host country peoples continue with their own languages and do not allow for the osmosis or assimilation to take place. In the case of the MNC, if the MNC HQ’s practice transfers are not in abundance or forceful enough, then there is little or no “vertical” transfer, but the “horizontal” (or within the host country) process continues.

Correct the Indifference for (or Aloofness to) Anything Different or Difficult to Understand A persistence of ignorance and even dislike of anything that is foreign to one’s way of thinking or doing, as in the case of a driver of a broken down semitruck from northern United States getting no cooperation in getting repairs for his truck in the southern United States simply because he is different. This tendency is natural, although not conducive for better international understanding, for many people who are not exposed to other country cultures and who might even feel offended because they are so used to their own cozy culture. The MNC HQ’s top management must provide means and rewards to interact with and understand the peoples of very different cultures. This will have a desirable effect on the HQ staff for understanding their global markets and operating conditions, from one global quarter to another.

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It is understandable to feel more comfortable to flock together with others of the same culture (e.g., Thai students in the United States would spend much of their time together). However, this leads to ineffectiveness in leading and motivating people of other cultures. Leadership in diverse cultural settings leads to improved skills for international organizational performance. This is a common malady among many operations focused firms. Once they achieve a degree of near optimization among its operational variables, they want to buffer it from the vagaries of external dynamics. They also do not want to disturb its internal arrangements of organizational factors of production (or operations). That would include: little or minimal changes in the deployment of executives and specialists except those necessitated by vacancies arising from promotion, transfers, illness, or retirements. But to progress and be better prepared an organization must be ready to undergo changes even though these changes in themselves may be disruptive. The trade-off is better long-term organizational preparedness for international business.

Promote Close Knit Groups Many primary task employees of an organization tend to have relatively stable work groups (e.g., a group of five people working together for fifteen years become closely coordinated in their working). This approach tends to make its core members inward looking and therefore quite “closed” in their outlook. Such groups, with their membership quite solidified, tend not to open up to other groups. This hardening of one-group, core mind-set approach is not conducive to internationalism. MNCs must encourage opening up work group composition to include other groups’ views in close working relationships. To start with, other groups could include groups from different parts of one country, or of nearby countries. Such approaches generate openness and extrovert-ness.

Strategic and Operational Control and Coordination Strategic communication, planning and control, and coordination issues at the foreign subsidiary level are the heart of MNC HQ-foreign unit relationships. These issues take different forms as being important. These issues are here raised. In the evolution of their growing internationalization, firms grapple at these two opposing forces of integration and differentiation as they seek their preferred “balance” between: (1) HQ’s needs for synthesis, close coordination, and integration at the strategic and operational levels and (2) foreign units’ need for autonomy

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and responsiveness to host country and regional environmental dynamics. These issues have been discussed in various places in literature, a sample of which are captured in the anthology by Otterbeck (1981) and in the specific firm examples and approaches in articles such as those by Haddock and South (1996), Gupta and Govindarajan (1991), and Evans and Lorange (1989). Implicit in these discussions is the issue of whether locus of control, influence, and direction of (1)  strategy, (2)  coordination, and (3)  operations are going to be:  (a) predominantly at HQ, (b) predominantly at the units, or (c) jointly shared by the HQ and the units. Kamoche (1996) presents the issue in the form of integration (or, HQ-focused approach) and differentiation (or foreign unit-focused approach). His conclusion is that an optimal approach would include: (1) resource heterogeneity (i.e., diversity in international human resource education, skills, cultural backgrounds) and stakeholder contacts at unit level, and (2)  organizational learning, i.e., the MNC’s ability “to build on competencies that have been generated in one business activity or one region and to utilize these in other business activities or regions” (Kamoche, 1996). Examples of MNCs which pursue global integration are IBM, Unilever, Hewlett-Packard, Procter and Gamble, GE, and the very centralized Matsushita. Most of these firms stress a broad, central coordination of all major strategies and policies. On the other hand, those other firms which stress local responsiveness are Philips, General Electric Company (of the United Kingdom), Nestle, American Express, and ITT. These firms believe to a greater extent in allowing their foreign units to develop their own strategies and policies. There are also hybrid models which have an anchor country with satellite centers of R&D, as in the case of Toyota (whose HQ is in Japan) has R&D and product design facilities in California. General Motors (whose HQ is in the United States) has a $244 million R&D and product design facility in Shanghai, China, in which country it sold 2.31 million vehicles, the second highest figure after the United States. In China, the General Motors center also develops hybrid cars, electric cars, alternate fuels technologies, and newer engines and other technologies. By establishing these R&D centers, Toyota is closer to the big United States market, and General Motors is closer to the big Chinese market. The organizational rationale for centralized coordination is to coordinate more efficiently and economically, thus achieving economic improvement of the use of its global resources (Roth and Morrison, 1992). The organizational rationale for the decentralized approach is to focus on local adaptation needs, implying the local responsiveness will indirectly lead to global optimization in the long run. While the globalization approach makes a case for integration and a uniform management development (as was pursued by Unilever). However, cultural

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differences among countries make an MNC focus on local responsiveness, adaptation, and differentiation. Such models of structure and culture provide some flexibility for adjusting to the unique circumstances by the global organizational setting for generating growth and competitiveness. To achieve better “balance” between the two opposing approaches, an MNC should follow a common (jointly developed by MNC HQ and all foreign units through effective partnership between them), overall strategic vision and management development philosophy for the enterprise, then adapt that general vision to the local conditions for different regions and countries on such HRM details as: selection, training, performance appraisal, assessment, compensation rewards, socialization, and detailed management development and succession phans. Similar approaches and arguments have been forwarded by other scholars (Aharoni, 1991; Chen et al., 2015; Grant, 1991).

The Strategic and Operational Decision-Making Process in an MNC, Using Good Nurturing Table 5.1 provides a four-phase approach for effective strategic and operational decision-making process such that there is good communication at all stages of the process. The good nurturing would engender good interpersonal confidence and trust among the executives at all levels of the MNC organization. Good flow of information and good sharing of real-time data and developments (e.g., technological, customer performances and competitive) would enable the discussions to produce more viable and realistic decision outcomes. Greater mutual understanding and better training at all levels would enhance the quality of decisions and the implementation would also be beneficial. The approach of the table is to start with the broadest proposed objectives and goals and, most importantly, allow for all the lower levels to provide more detailed ideas and inputs in the formulation and finalization of the objectives and goals and strategy for the MNC as a whole. Then it proceeds to the next level, namely those of business division and regional offices and the foreign subsidiary units with regards to the formulation of their respective objectives and goals and strategies. Some of the issues of good leadership and good supervisor management styles that we associate with organizational behavior in general and domestic country context would also apply in the international setting. It is worthwhile to review good management and supervisory styles as we apply them in the MNC HQ-foreign subsidiary relationship context.

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MNC’s Corporate HQ

Overall MNC broad, long term goals comprehensive, integrated organ’l strategy. HQ seeks (near) consensus on broader issues among all business divisions and foreign units

Regional, And Divisional HQs

Regional units suggest their goals and strategies. Provide regional units, in conjunction with business and foreign units, provide ideas inputs, new mkt opportunities, ideas, strategies

Business Units, Foreign Units

Business units’ and foreign units’ goals, strategies. Provide inputs

Departments

Depts’ goals and strategies. Provide inputs having practical usefulness for them

Phase 2 Well integrated goals and strategies. HQ integrates all goals, compromises conflicting ideas in consultations with business, regional and foreign units. HQ proposes tentative corp., regional, divisional, unit goals, plans, strategies

Regional, divisional HQs suggest changes (ensuring practicalities of the above proposed items) to HQ in their obj., goals and strategy, after consultations with each unit under it Business, regional and foreign units review the proposed modifications and think through the practical implications Departments make dry runs of the proposed ideas, suggest refinements

Phase 3

Phase 4

MNC corporate goals, corporate strategy HQ announces finalized MNC Goals, Corporate Strategy, Broad divisional, regional, unit goals, strategies

Business divisions, foreign units propose tentative detailed goals, plans, strategies

Units seek modifications on more detailed items, based on practicality issues. Focus is on improving competitiveness and internal efficiency, effectiveness

Depts formulate detailed procedures, systems, set detailed targets, strategies, operating policies, budget for each quarter

Table 5.1:  Strategic and Operational Decision-Making Process in an MNC: A Nurturing, Cooperative, and Collaborative Model

Source: Adapted from, “A nurturing HQ is good for the MNC” 2018, by Yezdi H. Godiwalla, International Journal of Social Science Studies. Online: August 30; In-print: September. 6(9), 47–57. After the initial publication by the journal, subsequent reproduction without permission by the Author, who retains the copyright, is permitted. Copyright 2018 by the Author.

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Recommendations for Actions The recommendations are centered on the issues which would bind the MNC together and have a common communication, informational, and decision-making connectivity. This approach fosters integration within the MNC for a common vision and the specific methods for their accomplishment.

Recommendation 1: Make HQ Executives More International in Outlook and the Foreign Subsidiary Executives More Organization-Wide in Understanding Justification. These approaches would help in improving empathy and performance of the MNC. Guidelines for Implementation. It would benefit by following these approaches: (1) creating a “linking pin” organization (Likert, 1961, p. 113) for better communication across the entire MNC organization; (2) a systematic, well-orchestrated agreement between the HQ and the foreign units regarding long-term, overall objectives of the MNC as a whole; (3) provide some strategic autonomy for foreign units (and coordinated by the HQ) to seek local entrepreneurial opportunities; (4)  provide significant operational autonomy to the foreign units to manage their local operating situations; (5)  improving the nurturing of all its people at the HQ and all the foreign units to become more international; (6) making better use of management development approaches (including an extensive use of intranets for training) and appropriate use of expatriates from HQ’s home country, foreign unit’s local nationals, and third country nationals; and (7)  training their executives at all levels to “always adapt his (leader’s) behavior to take into account the expectations, values, and interpersonal skills of those with whom he is interacting” (Likert, 1961, p. 95). This implies that an HQ executive must first understand a foreign subsidiary executive’s perspectives before he interacts with him. Short duration visits and job rotations of HQ and foreign subsidiary executives would also be helpful.

Recommendation 2: HQ and Foreign Subsidiaries Must Engage in Intense Interactive Partnership Justification. Fast-growing MNCs facing dramatically competitive forces should seek greater influences of both HQ and foreign units in an intense interactive mode to pool the resources to deal with the common external competitors.

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Guidelines for Implementation. Good supervisory styles for the interface between HQ and foreign subsidiary units are vital for good organizational performance. Good leadership by HQ’s top executives is vital. It sets the tone of the interrelationships between other HQ’s executives and foreign subsidiary units’ executives. Leadership styles, which are characterized by greater mutual respect, autonomy, cooperativeness, and problem-solving, would result in improved organizational performance. It is important to have combined meetings and joint activities of HQ executives and foreign subsidiary executives. This approach should lead to a more unified and systematic strategic and operational growth approach at HQ and foreign subsidiaries. When there are conflicts between the MNC’s global interests and local interests, then there is even greater need for the HQ and foreign subsidiary units to more closely discuss for understanding the causes of the situation so as to separate: (1) the different issues on which it may be more beneficial for the overall MNC to adopt a global approach, (2) the other issues on which it may be more beneficial to adopt a more foreign subsidiary units’ orientation, and (3)  the remaining issues on which it may be more beneficial to adopt a more combined approach of HQ and foreign subsidiary units. They should then deliberate and resolve the outstanding issues.

Recommendation 3: HQ Should Pursue Integrated Global, Strategic Focus and Allow Operational Flexibility for Foreign Subsidiaries Justification. MNC is more focused on contemporary events and on changing realities on real-time basis on broader issues of: competition, market trends, technological changes, supplier dynamics, and local social and political economic trends. Guidelines for Implementation. This operational flexibility is achieved through an organized network of communication and well-forged partnership between the executives in the HQ and the foreign subsidiary units. Generate joint, partnership teams and overlapping committees.

Recommendation 4: For Internal MNC Control Process, HQ Must Avoid Depreciative, Coercive Control Process of Its Foreign Subsidiaries Justification. Just avoid it. For, doing it will almost certainly go counter to nurturing efforts and outcomes. The nature of control emanating from the HQ is an important, influencing factor. It can be convincingly argued that the national culture of a country affects the internal control process of an

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organization (Pauly and Reich, 1997). For example, if the national culture of the HQ is hierarchical and rigid, the likelihood is that the foreign subsidiary organization will have a similar pattern of control process. National cultures are the primary issues for us to examine as we study the internal control process. They cite that the United States has liberal democracy, Germany has social democracy, and Japan has developmental democracy. These national political institutions are the founding sources for an HQ to develop its coordination, control, and communication processes for a particular foreign subsidiary. They generate a preemptive influence upon the overall organizational coordination, control, and communication processes. For example, Pauly and Reich (1997) cite that such influences generate the dominant economic ideologies of free enterprise liberalism for the United States, social partnership for Germany, and techno-nationalism for Japan. To argue further, the HQ-foreign subsidiaries’ evaluation process and, therefore, the coordination, control, and communication processes of foreign subsidiaries for the United States MNCs tend to be more financial result-oriented, that is to say, they use finite, financial, quantitative, and objective measures. However, the Japanese MNCs’ HQs use more insightful, understanding, and combined quantitative-qualitative approaches in their evaluations of their foreign subsidiary units. For internal growth and providing resources and financing, United States MNCs are relatively more detached and less intimate. They are more decentralized and push the decision-making down to the foreign subsidiary units, placing the responsibility of results squarely on the shoulders of the foreign subsidiary units. This is sort of approach of, “you decide and we will hold you fully responsible for the total results.” On the other hand, the German and Japanese MNCs are more centralized. Financial decisions, as they relate to long-term capital expenditures and other projects, are more centralized. There is greater collaboration and participation between the HQ and foreign subsidiary units. These approaches do reflect the character and values of their home countries’ national cultures. Guidelines for Implementation. Evaluate the HQ’s national country culture and if it is unhelpful, then change the HQ culture through transformational leadership to make it more suitable for proper MNC HQ management styles.

Recommendation 5. Actively Pursue MNC-Wide Innovation and Creativity through Flexible, Broad, and Gentle Policies Justification. Innovation simply cannot be dictated or mandated. It cannot be top-down. Creativity can take place in unexpected locations and at

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unexpected times. Spontaneity and freshness of atmosphere can stimulate and foster the creative spirit. Innovation is often not planned, and it can take place anywhere, either at an MNC’s home country’s R&D centers or in foreign subsidiary units. It is fair to conjecture that it is more likely to take place where there is, in addition to better creative spirit, more nurturing, more resources, and free fostering atmosphere. Bureaucratic, rigid controls and approaches that stifle are less likely to spur true innovativeness. Guidelines for Implementation. Create a congenial, collegial culture with broad, minimally intrusive, supervisory coordination, collaboration, and oversight. Provide rewards, recognitions, and incentives for innovation and creativity. Examples of significantly decentralized innovation in MNCs are useful to consider. Philips, of the Netherlands, is strong on decentralized R&D process because of the very long tradition of innovation-active foreign subsidiary units when it comes to product and process innovations. By contrast, Matsushita, Philips’ archrival from Japan, is very centralized. Similarly, as another example of decentralized innovation, in Proctor and Gamble, a new version of Tide detergent was jointly developed by its Japanese unit and the company’s HQ in Cincinnati. The first color television developed within Philips was not developed by its HQ, but by its Canadian foreign subsidiary unit. Clearly stated, innovation is not the mandated prerogative of the MNC’s HQ. It is better that HQ coordinates it and allows for sufficient decentralized,and then followed up for ntegrated flexibilities. A similar argument is provided by Mariann Jelinek in her book, Institutionalizing Innovation, in which she cites studies of innovation in DuPont and General Motors. She argues that while such an approach frees up the management to pursue larger tasks of upper levels of management, complex organizations generally require an integrated and comprehensive grasp of the overall managerial role and organizational perspective. For example, the top-line managers should be made active participants of the committees regarding these activities. Andrew Carnegie said that he paid $75,000 annual salary (in the late 19th century) to Charles M. Schwab for doing the job of running his steel company and, very noteworthy to mention, another $1 million for managing people in a human way.

Conclusions In studying about how MNC HQ may deal with foreign subsidiary units, several authors propose these MNC HQ-foreign subsidiary relationship styles: (1)

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HQ domination model; (2)  rapid growth model:  (a) HQ transfer resources and technologies to foreign subsidiary units, (b) foreign subsidiary units obtain resources from host or third countries (this is the self-sufficiency model), and (c) combination of the two above methods; and (3) jointly planned and coordinated by HQ and foreign units in a good, participative, partnership, and collaborative spirit. The growth of a global organization requires an approach of broader perspective in that it should embrace the larger global and economic as well as cultural and political factors. A wider grasp of issues and conceptual mapping of a larger picture would indeed further strengthen as we study the quality of HQ-subsidiary relationship activities by Asakawa (2001). The study supports the tenet that the “connected freedom” approach optimizes the foreign subsidiaries’ performance. It is argued that an MNC HQ must actively interact in such a way that both, the HQ and the foreign subsidiary units, feel that there is high informational connectivity and information sharing. And, there should also be a high degree of local autonomy to competent people for effective responses to environmental changes and challenges. Thus, high connected freedom on the part of foreign subsidiaries is expected to lead to improved subsidiary performance, particularly with regards to creativity and innovation, as studied by Asakawa (2001).

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chapter six

Formulating an International Growth Strategy Considerations for MNC Decision-Making Process

Sustained growth is a generic goal of organizations. It is meaningful to review the issues that are relevant to the formulation of an MNC’s international growth strategy in the context of MNC HQ-foreign subsidiary relationship and environment. These include the ideas pertaining to the nature and extent of  multinationality of the MNC, the degree of decentralization, and  the strategic and operating decision-making process. An effective international growth strategy of an MNC  would provide it  the focus that aims to maximize the organizational capabilities and the scope of the environmental opportunities. International growth strategies also leverage the differences in resources of the countries of an MNC, as several studies have remarked (Gates, 1996; Godiwalla, 1997). There is a need for a systematic step-by-step approach to developing an international growth strategy. The quality of: (1) vision and goal clarity; (2) data gathering, sorting or collating, and reporting; and (3) analyses of data and subsequent decision-making regarding growth directions, would determine the outcome of the quality of the international growth strategy. International growth, competitiveness, flexibility, and long-term investments in human and capital resources are the keys to sustained international growth. Organizational development should be perceived as an important ingredient for an MNC as it strives towards strategic progress. An effective international growth strategy of an MNC is the key to the continuous long-term vitality and success of an MNC. The issues reviewed in the chapter

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include international growth strategy, global organizational growth, and MNC decision-making process.

The Purpose of the Chapter The chapter focuses on an MNC’s decision-making process for achieving its growth goals. Both, formal or hierarchical and informal communications between the HQ and foreign subsidiaries take place in the process. Resources requests and their allocations involve bargaining, and these issues are important for the pursuit of growth. The HQ and the foreign subsidiaries must agree on the issues of not just the organizational vision and priorities, but also on the method and the phases in the HQ-foreign subsidiary decision-making process, and the scope and content of decision-making at each level.

A Literature Review and Implications of International Growth Strategy The formulation of an international growth strategy requires the matching of an MNC’s global strengths-weakness profile, and global opportunities-threats profile. An overall global assessment of an MNC is a prerequisite for formulating an MNC’s overall corporate strategy. Several studies have reviewed the relationship between the degree of multinationality and organizational performance (Agmon and Lessard, 1977; Annavarjula and Beldona, 2001; Hirschey, 1981; Michel and Shaked, 1986). These studies analyzed if the firm’s economic performance was related to the degree of internationalization of the firm. There is a positive correlation between international growth rate of an organization and its overall organizational growth rate (Annavarjula and Beldona, 2001). A global orientation of an MNC would enable it to focus on the different global regions for choosing a superior match between its global strengths-weakness, and global and the various regional opportunities-threats. This approach is helpful in achieving above average rates of returns. An MNC must view itself differently than a domestically oriented organization which has the same international activities, particularly when these are subservient to its domestically oriented interests. Table 6.1 provides various dimensions of an organization’s multinationality. The more important aspects are the top management’s global leadership, global mind-set, ethnicity (preferably diverse ethnicity), and visionary approach to managing the overall organization. The emphasis should be on achieving effective use

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Table 6.1: The Dimensions of an Organization’s Multinationality 1. Top Management Ethnic Diversity:

Ethnic diversity of its top management; promotion of its foreign units’ managers into headquarters top management 2. Top Management’s Mind-Set: World-view relatedness mind-set 3. Geographical Resource Spread: Global location of physical and human resources 4. International Sales and Its Growth: Expressed as a percent of total sales (of units as well as dollar amount) 5. International Activities and Operations: Foreign productive/operational activities as a ratio of domestic activities 6. International Products/Services Degree to which they are available in most of Available: its international markets 7. Local Control of Foreign Units: Self-determination of foreign units’ strategic and operating activity Source: Adapted from, “Formulating an international growth strategy: Considerations for an MNC decision making process” 2016, by Y. H. Godiwalla, International Journal of Social Science Studies, softcopy in June, hardcopy in July, 4(7), 1–8. After the initial publication by the journal, subsequent reproduction without permission by the Author, who retains the copyright, is permitted. Copyright 2016 by the Author

of resources, and the selective global spread of these resources. The plans for global sales growth and operations should be congruent with the MNC’s expectations of the future of the global economy and demographics. The greater the widespread availability is of its products and services, the better would be its growth on the international dimension. Global competition drives an MNC to reorient its flow of its intra (or, internal) organizational activities so that its value chain is more streamlined. This, in turn, would better align the internal activities to the changing market expectations and trends. International growth strategy is of vital importance to an organization of some size. Annavarjula and Beldon (2001) provide a useful perspective of several approaches of international growth. These approaches include diversifying and/or expanding of the degree and the content of international activities of a firm on the following dimensions of its: (1) operation, that is to say, its value and volume of activities, sales, R&D, and manufacturing; (2) ownership, that is to say, particularly foreign ownership; (3) orientation, that is to say, the intent of international breadth,

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strategy vision; and (4) diversification-spread of products and businesses. There are measures to evaluate the extent of internationalization of an organization. When a fast-growing firm reaches its near maximum capacity from its domestic environments (markets, suppliers, and human capital), it may seek foreign markets and operational environments for its goal accomplishment. Its growth needs can be achieved by: (1) diversifying its products and/or businesses, technologies within the same regions; (2) diversifying its geographical regions, but keeping the same products, businesses, and technologies; and (3) diversifying its products, businesses, technologies, and also, its geographical regions. Thus, the degree of multinationality becomes the basis of assessing a firm’s future international growth, and distinguishing it from its domestic expansion, or domestic product, business, or technological diversification. Growth that is focused on international (as opposed to domestic) regions by dynamic firms does result in better performance on measures of: (1) sales growth, (2)  profitability (Grant, 1987), (3)  positive performance relationships between multinationality and performance in single business firms (Bühner, 1987), (4) multinationality is positively related to performance, and (5) multinationality increases scale efficiency by 3% and also reduces economic risk by 3% (Al-Obaidan and Scully, 1995). These are some of the considerations for international growth issues. The degree of an organization’s international or multinational spread is an important consideration because it would foretell its propensity to further expand into newer country markets and/or deeper into already expanded country markets. A survey of literature indicates the international growth can be assessed in MNC depending on the MNC size (or the level of activity); its ability to rapidly grow into same and/or different countries; and the diversity of its products, businesses, technologies, its customer groupings, and market regions. A review of literature on the process of international growth provides insights which are often industry specific and which focus on the paths of effective international growth, often studying it with the use of the internet (Annavarjula and Beldona, 2001;; Jain, 1993; Kuada and Sorensen, 2000; Label, 2001; Mauri, 2001). Growth of an organization can be along several dimensions: products, businesses, technologies, and geographical regions (within or outside the home country). These issues are well discussed for MNCs pursuing niche growth strategies in the work of Toften and Hammervoll (2011), in which they review growth approaches for the choice of innovation and market selection. In the case of international growth strategies for food products, which are often culturally sensitive, growth can be pursued using market penetration strategies when entering foreign country markets, as in the case of international marketing of cupcakes (Chen et al., 2015; Will, 2000). In hospitality industry, the effective transfer of knowledge, values,

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and skills are the key to success in international growth (García-Almeida and Yu, 2015). When there is the prospect of a foreign governmental partnership, there can be available several different forms of international growth approaches, such as related and unrelated diversification by an MNC (Ortiz-de-Urbina-Criado, Montoro-Sánchez, and Mora-Valentín, 2014). International growth focuses on growth prospects for the following essential strategic rationales for decision-making (Hallback and Gabrielsson, 2013; Lal, Pitt, and Beloucif, 2000):  (1) higher profitability, (2) faster growth rate, (3) greater safety of capital, (4) hedging local economic or industry cycles, and (5) diversifying cultural market regional orientations. A few of these points may be overlapping. The rapid globalization would be a source of organizational strain for coping with the scarcity of human, capital, and other resources. This places special expectations on international growth process, as in the cases of an MNC pursuing entrepreneurial growth strategies when marketing to emerging market economies with a relatively easier country entry (Ali, 2000; Fletcher, 2000; Hallback and Gabrielsson, 2013). A strong emphasis is the degree of spread in the internationalization of a firm. That is to say, the greater the spread, the better is the perceived internationalization, assuming that all or most of the international growth has been beneficial to the firm. In a study of businesses entering emerging market countries and using a business-to-business marketing method, growth approaches using an organizational ecology approach appears to have been useful in that the search for resources has been a key issue (Todd, Javalgi, and Grossman, 2014). Their study found that firms operating in emerging markets (such as China and India) have to deal with similar difficulties in the host countries such as the lack of economies of scale and of other sources of inefficiencies, international and domestic competition, the need for adequate human and financial resources (same as in other types of countries). An additional problem in the case of expanding into emerging market countries is the further difficulty caused by the lesser developed infrastructure of the emerging market countries. A better use of the ecological approach that takes into consideration of the macro country situation is effective because such an approach uses the fuller and overall grasp of “the dynamics between resource utilization and growth” (Todd, Javalgi, and Grossman, 2014). Strategic bargaining, together with its impact on strategic management, brings up the issue of the discussions and negotiations between an MNC HQ and its foreign subsidiaries. The bargaining power, as in the process of seeking and procuring even more resources by the foreign subsidiary, would require both formal and informal interorganizational linkages and communication. The hierarchical decision-making should be complemented by the dotted line communications.

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Together they could result in more joint decision-making and could result in better resource allocation process to the foreign subsidiary. On the other hand, it would also create internal political dynamics, including conflicts and personal agendas that may run contrary to the rational process of resource allocation. These would create behind the scene joint platforms for information sharing, sorting, and analyses. Having more local or host country competent top level managers in the foreign subsidiaries would increase the credibility (inside the HQ echelons) of their resources requests. Proper analyses for resource requests would be more convincingly forthcoming from them. These issues are discussed in the case study of a German company and its Chinese subsidiary, which was considered to be a strategic subsidiary because of the big Chinese market (Mattes and Sinje, 2013). In a study by Hernández and Nieto (2016), they found that firms can grow internationally using two modes:  inwardly (i.e., related to international supply chain operations) and outwardly (i.e., related to outbound marketing channels, such as serving or selling in foreign markets). They studied the differences in rates of international growth for firms adopting different international strategies, that is to say, those that perform only one type of international operation, and those that undertake both types of international operations simultaneously. The study used the logic that there would be greater benefits from using both inward and outward operations, because such connections would give access to related and diverse knowledge. The conclusions of Hernández and Nieto (2016) can be summarized: Based on a sample of European SMEs from different sectors, the empirical findings indicate that undertaking inward and outward operations simultaneously exerts a greater positive effect on turnover growth than performing just one type of international operation. This simultaneous effect is significantly higher when these operations take place in the same foreign country. The findings provide support for the idea that the acquisition of country-specific knowledge allows firms to boost sales growth.

There can be various ways to measure multinationality. For example, Annavarjula and Beldona (2001) used the following threshold for their study: (1) net international sales of at least $10 million, (2) at least 10% of sales from foreign operations, and (3) at least 10% of total assets located overseas. The same researchers further analyzed 26 empirical studies from 1971 to 1995 (publication dates of these 26 studies). They reported 18 studies which had positively related relationships of multinationality and MNC performance. Only two studies of the 26 reported negative relationships between multinationality and MNC performance. While some six studies reported neutral (or statistically insignificant) relationships between multinationality and MNC performance. The researchers showed that degree of “multi-nationality was positively and linearly related to performance” (Annavarjula and Beldona, 2001, p. 70).

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The United Kingdom has had some three centuries of quite “united-ness” of Wales, Scotland, Northern Ireland, and England. When Tony Blair, the Labour Party leader, became its ninth longest running prime minister (1997–2007), he sought to spin off or decentralize the four member kingdoms. The decentralization is through “devolution,” i.e., through the creation of separate legislatures in Scotland, Wales, and Ireland. At the same time, before the forces of Brexit, there is the centralizing force taking place, through pull towards Brussels, the center of the European Union. Thus, the two opposing forces of centripetal and centrifugal are simultaneously at work. For operating decision-making, there is decentralization. And for strategic decision-making, there is central coordination at London and further, at Brussels. For a pictorial representation please see Figure 6.1. The CENTRALIZED COORDIATION

DECENTRALIZATION Micro-level Strategic Decision Making

Macro-level Strategic Decision Making

1. United Kingdom: Legislatures of Wales, Scotland, Northern Ireland

UK Parliament in London

Brussels. European Union

2. Multinational Corporation: CEO of a Foreign Unit

Regional Dir. & CEO CEO of foreign units within the region

CEO & Board of Directors of the MNC

Local-level Operating & Strategic Decision Making EXAMPLE OF:

Figure 6.1:  A Model of Centralization and Decentralization for Strategic and Operational Decision-Making

Source: Adapted from, “Formulating an international growth strategy: Considerations for an MNC decision making process,” by Y. H. Godiwalla, 2016, International Journal of Social Science Studies, softcopy in June, hardcopy in July, 4(7), 1–8. After the initial publication by the journal, subsequent reproduction without permission by the Author, who retains the copyright, is permitted. Copyright 2016 by the Author

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figure provides the relative decentralization and centralized coordination of decision-making in the United Kingdom under Tony Blair, and the same analogy applies to an MNC in the context of these discussions. Considerations for global growth may be evaluated on the multiple dimensions of market and regional diversity, relative competitiveness in each market region, technological innovation rate, and market trends. These considerations become meaningful for growth-related decision-making because the global market forces would change the dynamics of the formulation of growth strategies. The dual pressures for centralization and decentralization are here considered. Centralization fulfills the top management’s need for control, while decentralization fulfills the capability to effectively respond to the expectations of the immediate task environments. The considerations for decision-making process are important because growth and strategic issues are a core aspect of corporate strategy. A  firm may be said to have generic issues, which typically includes: survival (requiring, for the safety of capital, the diversifying and/or consolidation of businesses, markets, and geographical regions); growth and expansion; profitability; above average returns; above average inducements to its stakeholders; competitiveness; and the development of human, capital, and informational resources. The achievement of a viable balance of centralization and decentralization is vital for a healthy organizational performance. With Tony Blair, the opposing forces of decentralization (to legislatures of Wales, Scotland, and Northern Ireland) and centralized coordination (at Brussels) were at work. Figure 6.1 portrays the similarity between Blair’s model of the United Kingdom and a similar model of an MNC. In the case of an MNC, the individual foreign units are often allowed significant local responsiveness. This is done through the creation of a host country board of (mostly local) directors for the foreign unit. Unilever, the giant British counterpart of United States’ Proctor and Gamble, has long adopted this model for its organization. Local boards of directors have a majority of local nationals and a few HQ’s home and third country nationals. The foreign unit CEO is usually a host country or third country executive once the foreign subsidiary has established itself fully in the host country. This is designed to ensure a more effective local responsiveness and local responsibility. Under the proposed model, the foreign units are significantly autonomous, together with partnership with HQ, in their local foreign subsidiary’s strategic decision-making, and almost completely autonomous for its local operating decision-making, so long as it is consistent with the overall MNC vision, mission, goals, and corporate strategy.

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The group of foreign units within a region should be coordinated. An example would be Ford of Europe and GM of Europe headed by their respective European top executive, or GE’s (Medical System) top Asian region executive working out of Tokyo. The regional coordination would ensure better economic and strategic synthesis and more importantly, the elimination or reduction of redundancy and duplication. Further, produce design and manufacturing and operations would be integrated for more economic efficiency and competitive advantage. In MNCs where there are regional centers within the MNC organizational structure, regional coordination at regional centers is a worthwhile approach. Countries and their cultures within a region may, to some extent, have common essential characteristics borne out of allied cultural history and roots, affiliated social systems, similar economic and other infrastructures, and possibly quite similar managerial decision-making processes. These somewhat culturally and infrastructural-allied clusters of regional countries should be viewed as an enlarged, little differentiated market and work place. And so, the region should be managed with a more meaningful regional coordination. The key focus should be to help units to be responsive. At the HQ of the MNC, the focus should be to effectively address the issues of global competition, industry economics, and political trends. The emphasis should be strengthening the competitive capability of each foreign subsidiary unit through superior R&D and product attributes, correct product range and depth, substantial investments in human and capital resources, and above all, a vision that is oriented towards the future and the external environment. These issues are also depicted in Figure 6.2. Strategic and long-term focus provides impetus for growth and competitiveness. Ongoing analyses of organizational needs and challenges would affect the reformulation of the long-term vision, goals, and strategy. These in turn would require changes in structure and culture. Growth and competitive pressures make it incumbent upon the organization to focus upon internal changes to respond to external challenges. The MNC HQ should focus upon the macro issues of global vision for the overall MNC as a whole. The emphasis is to focus on the overall organizational needs, particularly global:  global competitiveness, organizational development, research and development, long-term growth, improved organizational culture, and substantial focus on flexibility. For a regional HQ of a cluster of foreign units, the emphasis should be on growth of the regional development of the unit’s performance. Also, regional coordination and integration of units’ strategic activities and, to a lesser extent, operating activities would benefit from regional synergy and effectiveness. For each foreign unit, the focus should be host country responsiveness and competitiveness. These approaches are aimed at fostering

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MNC Headquarters Focus on: strategic vision, global competitive advantage, investments in long term human and capital resources through strategic coordination Headquarters of Regional Cluster of Foreign Units Focus on: regional strategic vision, regional competitive advantage, strategic coordination of foreign units within each region, operating integration (without centralization), & long term investments in human & capital resources Foreign Units (through locally constituted boards)

Focus on: local responsiveness & competitiveness, total local operating autonomy, coordinated strategic flexibility (in conjunction with regional & global headquarters) substantial investments in short & medium term investments in human & capital investments

Figure 6.2:  A Decision-Making Model for a Multinational Corporation

Source: Adapted from, “Formulating an international growth strategy: Considerations for an MNC decision making process” 2016, by Y.H. Godiwalla, International Journal of Social Science Studies, softcopy in June, hardcopy in July, 4(7), 1–8. After the initial publication by the journal, subsequent reproduction without permission by the Author, who retains the copyright, is permitted. Copyright 2016 by the Author

improved organizational culture and renewed energy towards future growth and competitiveness. An important consideration would be to focus on the centralized coordination of strategic decision-making and action, and the decentralization of tactical and operating decision-making and action. Thus, the strategic decision-making must involve the top, middle, and lower levels of management, with the top level taking the strong leadership in coordinating the process. Such leadership would induce the burgeoning of creative ideas and alternatives for future actions from all levels. The tactical and operating decision-making and action should be the prime purview of the lower levels of management in that they would directly interact with the task environments and, therefore, they are in the best position to make proper decision and take proper actions on real-time basis. This is particularly true in the case of joint partnerships with foreign governmental organizations where different forms of international growth approaches are considered, including related and unrelated diversification by the MNC (Ortiz-de-Urbina-Criado, MontoroSánchez, and Mora-Valentín, 2014). A model of a tri-level decision-making process for an MNC is important. Such a process would involve an orderly analysis and determination of the important aspects and factors for each decision-making item. Further, it would ensure

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that a thorough review and decision-making is performed at each level, and that the entire process is well coordinated. An MNC’s greatest challenge is to change and forge an acceptable global culture which is simultaneously functional to the MNC without being dysfunctional to the foreign units. It is a matter of achieving a proper balance. Figure 6.3 addresses this issue of the need for proper balance. The changing of organizational culture is an ongoing process of growth and challenge to stay competitive. The figure portrays a three-step process to change the organizational culture. It is important to note that the grassroots approach of including foreign units’ values and needs are as important as the HQ views and approach. An example of the need for the effective transfer of knowledge skills, values, and culture as a prerequisite for success is in the hospitality industry, as studied by García-Almeida and Yu (2015). The evolution of new culture of a foreign unit must been seen to be consistent with the essential aspects of the national culture of its host country. Such an emphasis of congruence (between the foreign subsidiary’s new culture and the CULTURAL NEEDS OF THE MNC: • Shared MNC Vision and Goals • Foreign Unit’s host countries national goals • Competitive trends-global, regional, local • Strategic challenges and strategic intent • Growth needs of the MNC PLANNED MNC CHANGES: • New initiatives in culture • New strategic and structural changes • New resource investments, human & capital

ORGANIZATIONAL CULTURAL CHANGES: • Changes in shared vision, values, focus • Changes in organizational HRM strategies, policies • Changes in rewards, compensation & recognition approaches • Changes in leadership styles • Changes in motivation process

Figure 6.3:  Changing the MNC Organizational Culture

Source: Adapted from, “Formulating an international growth strategy: Considerations for an MNC decision making process” 2016, by Y.H. Godiwalla, International Journal of Social Science Studies, softcopy in June, hardcopy in July, 4(7), 1–8. After the initial publication by the journal, subsequent reproduction without permission by the Author, who retains the copyright, is permitted. Copyright 2016 by the Author

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host country’s national culture) is vital if the MNC is to be simultaneously globally progressive and also locally acceptable.

Recommendations The growth of an MNC is an ongoing process of review of strategy, structure, culture, and organizational and engineering technologies. Their synthesis and synchronized pace among their changes would be helpful for smoother changes.

Recommendation 1: Choose a Viable Strategy and Align Structure, Culture, and Organizational and Engineering Technologies First choose an overall MNC corporate strategy and each foreign subsidiary corporate strategy such that it, at the same time, has a high probability that the organizational structure, culture, and technologies can (be stretch-modified to) support it. It is beneficial to have “stretch goals” to challenge the imagination and creativity of the executives and supervisors for achieving that extra performance. Similarly, “stretch corporate strategy” (at MNC and foreign subsidiary levels) can be nourishing for the executives and supervisors. Justification. By first choosing a viable and desirable strategy which would be both effective in improving the MNC performance in the long run and doable, the strategy will be effective. Guidelines for Implementation. Executives at the HQ and in the foreign subsidiaries must frequently interact and discuss the many aspects of the implementation process (including its challenges, problems, and effectiveness) of the extant strategy and discuss the changing realities of the environments and the likely future scenarios and approaches that the MNC might consider following.

Recommendation 2: Pursue Long-term Strategies for Market Share Growth, Competitiveness, Adaptability, and Investments in Human Resources (over and above Short-Term Profits) These multiple approaches are the keys to long-term international growth. No one strategy (within the corporate strategy) can singly perform the growth function; it has to be all together.

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Justification. The growth of the MNC organization has to be viewed as a longterm investment, and it should be nurtured in the way a parent nurtures and develops a child. Patience, persistence, and strategic, long-term perspectives would benefit sustained growth. Guidelines for Implementation. Inculcate the long-term vision in the HQ and the foreign subsidiary executives. Teach patience, kindness, and forbearance to the top HQ managers when they communicate with the foreign subsidiary managers.

Recommendation 3. Pursue “Organizational Development” and Upgrading the Capabilities of People Organizational Development should include the pursuit of cultural interpersonal empathy, intergroup cooperativeness, and supportiveness within the MNC. Justification. Organizational development is an important ingredient in strategic management progress for an MNC. The people of the organization must be self-reliant as they identify, diagnose, and solve organizational problems through sharing of information, specialized knowledge, and skills. Guidelines for Implementation. The formulation of international growth strategies requires a systematic approach. Focusing on vision and vision clarity and goal clarity is the first step because it resets the directional orientation. The focus then is the cooperation and partnering for data gathering, sorting and analyses, and the formulation of the growth strategies. They must learn the art of eclectically marshalling the correct skills and knowledge and address the different issues that the organization may face.

Conclusions Good organizational decision-making and efficient resource utilization are vital for the long-term effectiveness of an MNC and its foreign subsidiaries. An efficient organizational resource utilization process is vital for long-term MNC survival and growth in the context of its task environment. The matching and analyzing of organizational capabilities with the environmental expectations and the past trends is a core concept for the evaluation for the organizational resource utilization improvements. Another consideration is the MNC’s effective leveraging of the host countries’ economy, political, regulatory, and cultural similarity.

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In this way, the MNC’s growth strategies provide an MNC the effective means to maximize its potential, become more competitive, and maximize its value to all its stakeholders in the home and host countries. The overall organizational culture of the HQ, regional offices, and foreign subsidiary units should be well coordinated because a unified and common approach is vital, as portrayed in Figure 6.3. After the structure of a rational, coordinated, participative-style, and collaborative decision-making is conceived and installed in the MNC organization, the MNC should have the people in the MNC accept and follow the MNC’s shared vision, mission, objectives, and goals. They should have a common and agreed upon common MNC vision, philosophy, and views for the effective implementation of the overall corporate strategy.

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chapter seven

Strategic and Operational Scope of Foreign Subsidiary Units

A foreign subsidiary unit formulates the scope of its strategic and operating activities based upon the following factors: (1) its multinational corporation’s (MNC) headquarters (HQ), (2)  its host country and regional countries’ environments, (3) the global influences of its industry, (4) its own internal organizational environments, and (5) its own strategic leadership at HQ and foreign subsidiaries. The simultaneous review and reformulation of the strategic and operational scopes are vital for the successful foreign subsidiary unit’s goal accomplishments. Ideally, an enlightened, effective MNC should not be less of an HQ-dominated (or “empire”) model, but more of a coordinated community of competent subsidiaries (or, “commonwealth”) model. This would result in a foreign subsidiary being more of a capable, independent thinker and decision maker. Being more increasingly self-reliant is a necessary ingredient in being correctly responsive to local, host country challenges and changes. The chapter includes discussions of foreign subsidiary units’ activities, strategic and operational scopes of MNC’s foreign subsidiary units, and MNC competitiveness.

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The Purpose of the Chapter The chapter focuses on the interface between the strategic and operational scopes of a foreign subsidiary. These issues are important to the MNC HQ and foreign subsidiaries as they define their decision-making and action plans. They are important in that they also help to define the HQ-foreign subsidiaries relationship. The issues are important as the foreign subsidiaries interact with the HQ in its strategies for its host countries and the nearby regions. These issues are here reviewed with the idea that good HQ-foreign subsidiaries relationships as being vital to the overall strategic and operational activities of the MNC as a whole.

Transitioning from (1) HQ-Dominated Style MNC to a (2) Coordinated Community of Competent Subsidiaries Organization MNCs should help a foreign subsidiary unit in developing its effective scopes of strategic and operational activities. Foreign subsidiaries may undergo over a period of time evolutionary, linear, or even radical changes in the scope of its strategic and operational activities (Mahima Hada, Rajdeep, and Chandrashekaran, 2013). The stage in the foreign subsidiary unit’s life cycle determines the scope of its strategic and operating activities. The sharing of useful innovation, problem-solving, and knowledge among foreign subsidiaries across the MNC organization is an important component for added overall MNC competitiveness in this context, and it becomes an important component of foreign subsidiaries’ strategic and operational scopes (Filippova, 2014; Poon, Kedron, and Bagchi-Sen, 2013). Also, important considerations are the foreign subsidiary characteristics and structure and autonomy as they would affect the morale and motivation of the subsidiary management on day-to-day working terms (Raziq, Borini, Perry, and Battisti, 2013). When India abolished the managing agency system on April 2, 1970, the industrial house of Tatas (in India), run by Mr. J.R.D. Tata, had to move its multi-industry Bombay-based enterprise from a centralized “empire” mode of management to a “commonwealth” mode. R.M. Lala, the author of J.R.D. Tata’s biography, From Empire to Commonwealth, describes in Chapter XI, J.R.D. Tata’s management style thus: Until 1970 J.R.D., under the Managing Agency System, ruled an Empire carrying on his shoulders its burden and its glory. From 2 April, 1970 the Empire had become a Commonwealth. J.R.D. found himself in the role of the Head of a Commonwealth

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where he had to rule with persuasion and influence. His writ no longer ran over all Tata companies, for the Board of Directors of each company was independent of the parent company, although many or some on the Board are from Tata’s and, further, Tata’s still manage them on behalf of the shareholders of each company. In sum, when the Managing Agency System was abolished, an era had ended. As the years passed, powerful Managing Directors of individual companies stamped their own identities on the companies they ran. “While J.R.D.  is still alive, there was a sense of unity and continuing to knit the various companies together, and, what one might call the Tata ethos still holds sway, a Tata group identity that is greater than the sum of its many parts. This is so because (even) when J.R.D.  had previously ruled his Empire, he did so not as an autocrat but as a democrat who never imposed himself on his chief executives”. (Lala, 1993, p. 272)

An MNC must be managed just like a commonwealth (and not like an empire) of foreign subsidiaries. It should be managed through participation, discussion, power sharing and power equality, and persuasion and, whenever possible, through consensual decision-making. It should not be run autocratically. The CEO of an MNC should not command compliance from the chiefs of foreign subsidiaries, but instead seek open discussions and truly seek (near) consensus. This approach of providing fuller local strategic and operational autonomy makes the overall MNC organization, together with its foreign subsidiaries, more adaptive and responsive to the changing local conditions, and it is vital for foreign subsidiaries to be able to effectively adjust on their own to their environments (Griffith, Kiessling, and Dabic, 2012).

A Review of Literature Many scholars have pursued the idea of an organization pursuing the agency theory insofar as it provides the basis of internal organizational control mechanisms (Birkenshaw, Hood, and Jonsson, 1998; O’Donnell, 2000; Roth and O’Donnell, 1996; Reuer and Miller, 1997; Roth and Morrison, 1992). Issues of intra-firm interdependence (or relatedness among foreign subsidiary units and HQ of an MNC) seem to have strong support in the literature for providing the indication of the management process within an MNC (Birkenshaw, 1996; Rajagopalan and Finkelstein, 1992; Tosi, Katz, and Gomez-Mejia, 1997; Zajac and Westphal, 1995). Additionally, competitiveness of foreign subsidiaries is an important issue as the internal mechanisms and interrelatedness are addressed as being important HQ-foreign units relationships (Miravitlles, Guitart-Tarrés, and Nuñez-Carballosa, 2014).

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Birkenshaw and Hood (1998) have studied the process by which foreign subsidiary units evolve. They explain that as foreign subsidiary units evolve, the units increase or decrease their capabilities, and they also change the scope of the initial or previous charter. Further, Birkenshaw and Hood provide a framework for analyzing a foreign unit’s evolution, which they claim is driven by: (1) the HQ “imputations” and directives, (2) the foreign unit’s own choice, and (3) host country environmental influence. The foreign unit develops its role in its strategic and operating scope through its perception of: (1) the choices of the HQ and the foreign unit, (2) the perception of local opportunities and threats in the context of the foreign unit’s needs, and (3) the needs and expectations of the host country environment. The focus of a foreign unit may shift from one project or problem to another in the context of the above strategic and operating decision-making paradigm, particularly when choice issues of staffing of executives are involved, such as by using HQ, local host country, or regional or other third country executives (Aggarwal and Ramaswami, 1992; Galunic, 1996; Lim, 2015; Mahima Hada and Murali, 2013; Noda and Bower, 1996; Situmorang and Japutra, 2019). The continual assessment followed by the foreign unit depends upon the foreign unit’s intraorganizational information evaluation, and based upon it, its reevaluation of its existing policy. Growth of a foreign unit is predicated upon its resource-acquiring capabilities, either on its own from its host country or from its HQ (Griffith, Kiessling, and Dabic, 2012). Its extant policy considerations should be further evaluated for its changing growth needs. Competitor information and market analyses would further its evaluation of strategic alternatives.

Strategic Decision-Making at MNC: Relationship between MNC HQ and Its Foreign Subsidiary Units Table 7.1 provides the two contrasting attributes of the MNC’s HQ: (1) empire approach and (2)  commonwealth approach. The MNC’s HQ management assumptions have a major impact upon its ways of dealing with its foreign units. If it wants to completely dominate the foreign units then it would adopt the “empire” approach. This would be the case when an MNC wants to have a foreign subsidiary exactly follow the MNC HQ’s prescribed methods for its value chain activities because of the HQ’s belief that the MNC’s methods are the very reasons for its global competitiveness. This argument is amply demonstrated by the examples of the Japanese automobile companies when they established and expanded their operations in the United States. They followed their Japanese methods of value

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Table 7.1: MNC Strategic Decision-Making: Two Styles of Relationships between MNC HQ and Its Foreign Units Dimensions of Attributes

“Empire” Approach

  1. Assumptions

Autocratic HQ rules

  2. Strategic rationale

HQ vision is the only correct one HQ-driven growth strategy Limited Very close, tight knit More focused, uniform even among units Emphasis on HQ-preferred practices Not much meaningful

  3. Organizational philosophy   4. Strategic flexibility   5. Strategic coordination   6. Organizational structure   7. Organizational culture

  8. Lateral (inter-unit) communication   9. Inputs (by units) in strategic Limited, reactive decision-making 10. Strategy implementation HQ-driven process and method

“Commonwealth” Approach Community of units and HQ Shared vision actively developed by HQ and units Consensus-derived growth strategy Greater Loose, often uncoordinated More varying among units Grassroots, local, host country national culture Significant Substantial, proactive HQ and unit-driven process and method

Source: Adapted with permission from, “Strategic and operational scope of foreign subsidiaries,” by Y.H. Godiwalla, 2016, International Journal of Engineering Research and Science, 14(27), February, 2(2), 1–6. Copyright 2016. International Journal of Engineering Research and Science.

chain activities which were proven methods for quality and lowering of the cost structure through the use of Total Quality Management and Continuous Quality Improvement. On the other hand, if it wants to invite inputs ahead of time, fully discuss with the foreign units on an equal basis, and come up with a consensus (or near consensus) in its final decision on major issues, then it would adopt the shared, “commonwealth” approach. This would be the case when an MNC’s methods can be flexibly applied, allowing for a wider latitude for adaptation and local responsiveness without any loss in competitiveness. Table 7.1 provides details of attributes of the two different approaches. In the empire approach, the HQ drives the vision, goals, strategies, and structure. It even tries to enforce the preferred organizational culture upon the foreign units. The decision-making construct is very confining for the foreign units. They are specifically told what they can and cannot do. There is a tendency to uniformly

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administer all foreign units with a straight, even hand. This tends to take away any strategic flexibility or adaptability from the foreign units. The highly centralized decision-making process seeks to make foreign unit chiefs loyal, committed order takers and policy implementers. There can be no choice in a tightly run empire. The opposite approach is one where there is centralized coordination and decision-influencing performed by the HQ. This provides a forum for fuller discussion and analyses and organization of information and factual data for making decisions. The foreign units perform a valuable role in carefully gathering and analyzing relevant information so that they may provide useful inputs to the discussion and final decision-making process. The approach is one of community of the foreign units and HQ. The decision-making style is characterized as participative, open, fair, and systematic. There is more grassroots initiative to provide newer ideas and solutions. Further, there is better support for implementation once a decision has been made regarding the future course of action. There is a likelihood of better perceived equity in allocation of resources for expansion, future projects, and human and capital investments. This is because the process is generally more open, and the underlying reasons are usually provided to the foreign units. The horizontal, foreign unit-to-foreign unit interaction and communication would be very strong. MNCs need to focus upon making their choice of managing their foreign units. The nature of global environments can make a decisive impact upon the choice of the MNC HQ-foreign units’ relationship. A very competitive and turbulent environment may make the HQ decentralize all operational decision-making, and also some of the local strategic decision-making.

MNC HQ-Foreign Units Relationship Examples and Discussions The quality of an MNC’s HQ-foreign subsidiary unit relationship can be analyzed along important dimensions. These are delineated in Table 7.2. The level of perceived organizational crisis or challenge (or lack of it) is an important background upon which the MNC-foreign subsidiary unit relationships exist. If the level of perceived organizational challenge or crisis is high, then the relationship can be strained if the foreign unit does not closely and quickly follow the behests of the HQ. This is found in the case of Mr. Carlos Goshn (not-withstanding his ordeals during the late 2018) the then CEO of the ailing Nissan, driving the organization to quickly change, which he successfully did within one and a half years (Time, 2001). To achieve a dramatic turn around, Goshn had focused upon all domestic

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Table 7.2: MNC HQ-Foreign Units Relationship The corporate HQ-subsidiary units’ relationships should be analyzed in the context of these issues:

• Level of organizational crisis or challenge • History or lack of autonomy of the units; or, the power distribution between HQ and units • Degree of resource self-sufficiency of the unit • Interdependence of tasks and processes between HQ and the unit • Operative goal incompatibility • Task and process differentiation • Resource scarcity – as felt by all foreign units • Perceived uncertainty in the external environment • Diversity of cultures between HQ and foreign units • Perceived reward system inequity, incentives. Generally speaking, the greater the intensity of any, some, or all of the above would tend to intensify HQ-foreign unit conflict, and consequently, HQ-foreign unit relationships would suffer. This would result in greater distrust, adversarial working relationships, lack of empathy, increased tensions and decreased creativity, risk-taking, and entrepreneurial activities. There are ways to improve. A successful, global company would display lower or lesser intensity on all of the above parameters. Source: Adapted with permission from, “Strategic and operational scope of foreign subsidiaries,” by Y.H. Godiwalla, 2016, International Journal of Engineering Research and Science, 14(27), February, 2(2), 1–6. Copyright 2016. International Journal of Engineering Research and Science.

and foreign units to focus on the market, slash costs, rationalize product designs (e.g., reduced the vehicular platforms), and become very responsive. The history of autonomy and incentives distributions accorded by the HQ to its foreign units has a force and momentum which is difficult to reverse unless there is a perceived organizational crisis or challenge. Power and incentives distribution between the HQ and the foreign units are major factors in determining the relationship. The more equitable the distribution, the better would be the relationship. The greater the interdependence between HQ and the foreign units is, the greater would be the chances of conflict between them (Gates and Egelhof, 1986; Mattes and Sinje, 2013). This is because the decisions and actions of the foreign unit would be second-guessed. Resource dependence is an important issue. If a foreign unit is dependent upon its MNC HQ for its resources which are needed for capital improvements and human development, then the unit’s autonomy will be diminished. On the other

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hand, if it is able to raise its own resources locally (e.g., through retained earnings, plowing back of profits, local long-term financing or loans), then it is quite independent of the HQ. This situation makes it conducive for greater autonomy for the unit. The better the history of a foreign unit’s growth and profit picture, the better would be the chances for earning greater autonomy from the HQ. The HQ looks for good, sustained profits, good competitive performance, good morale, and good strategic flexibility (to change with the times). Thus, if a foreign unit aspires for greater autonomy, then the best way is to improve its performance on profits, competitiveness, morale, and strategic adaptability. Almost all MNCs would face the problem of cultural diversity between the MNC HQ and its foreign units. National cultures of the HQ and those of its foreign units are not only going to be different, but often quite distant. Cultural distance is a problem. And MNCs must seek ways to bridge that. This makes it necessary to have much more frequent interactions and personal visits in both directions: from HQ to foreign units and from foreign units to HQ. This helps to foster personal relationships. Executives on both sides will develop empathy and understanding for each others’ problems and difficulties. As it is, the great cultural divide makes it difficult to organize a unified global strategy, so it is not advisable to let weak human relationships spoil the process. Another common problem may be the perceived inequity of resource allocation and HR rewards and incentive systems for future growth. If some units feel that they are not getting their fair share of future growth projects, then their feelings of inequity will stifle the units’ executive initiative and drive. This must not be allowed to happen. Good, clear, open communication and exposition of HQ’s rationale for allocation of future funds and projects are the keys to good feelings among the MNC’s community of foreign units. Good HQ-foreign subsidiaries’ relationships are vital to sustained MNC growth, profitability, and competitiveness. The relationships should be a combination of: (1) supportive or helpful, (2) complimentary or praising, (3) critical thinking or constructive criticism, (4) that which is based upon factual data, (5) continuous or frequent interaction, (6) that which generates innovative solutions to problems, and (7) that which focuses on identifying, developing, or generating, and exploiting newer profitable market opportunities.

Successful MNC Focus on the Relationship Issues One may ask, “What are the vital issues for developing successful HQ-foreign subsidiary unit relationships?” There are many vital issues. They usually depend

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Table 7.3: Successful MNC Focus on Relationship Issues Successful MNCs should focus on:

• Strategic and operational decentralization and coordination • Lateral communication and cooperation across all foreign units • Analytical, rational, data-driven approach as well as insightful, qualitative, judgmental approach • Significant interactions between HQ-unit to people, in a most helpful manner • HQ is seen to seek prior inputs, and seriously consider them in making important decisions that have far reaching impact across the MNC and its units • Future top HQ managers are groomed in the foreign units • Resource allocation process is open, fair, needs as well as results based • Strategy formulation process is systematic, sophisticated, participative, highly integrated, and is based upon inputs from all foreign units and their respective external environmental segments, as seen by the units themselves • Competitors analyses, ethical, societal, and human resource issues are an integral part of strategy formulation and implementation process, taking care that inputs from and at unit levels are given at least equal importance • The HQ is perceived by units as being helpful to future growth of the units A supportive, helpful HQ would foster much more cooperative units. While there is no one formula to improve the HQ-foreign unit relationships, the above may be considered a portfolio of means from which to choose which methods or means would be more useful and effective. Finally, a global far-flung MNC cannot be unjustly dominated by its HQ and continue to be successful. The units must share in the vision; goals, strategies, methods, and tactics, and the units must also be able to participate more fully. This is a template of an effective HQ-foreign unit relationship model. Source: Adapted with permission from, “Strategic and operational scope of foreign subsidiaries,” by Y.H. Godiwalla, 2016, International Journal of Engineering Research and Science, 14(27), February, 2(2), 1–6. Copyright 2016. International Journal of Engineering Research and Science.

upon the unique situation of a particular MNC. Some of the generic issues are delineated in Table 7.3. This is neither an exhaustive list nor is it a list of the most important issues for all organizational situations. The relevant issues would depend on a given scenario for a given MNC organization, and they could vary even for the same MNC over different periods of time. A very likely common issue for an MNC operating in a very dynamic and competitive environment is the challenge of strategic and operational coordination. There is a need for both:  (1) autonomy for the foreign units and (2)  a coordinated, if not unified, endeavor to manage the foreign units in the wake of competitive players in the industry. Horizontal communication among the

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foreign units to share recurring problems among foreign units is worthwhile. Sharing of experiences would foster good team spirit among the foreign units. Before the HQ makes any significant decision which can have a major impact or concern to the foreign units, the MNC HQ must check with the units for their ideas, concerns, and suggestions. This approach would diffuse any subsequent conflict. Also, future cooperation would be enhanced so that implementing would be substantially smoother. Seeking prior inputs would be a practical and good approach. Good relationships between the executives of MNC HQ and foreign units are always beneficial. It is possible that future executives at the HQ may be brought in from the various foreign units. The forging of a “one-feeling” is conducive to grooming future executives in the ranks of the MNC HQ. Competitive analysis must be conducted globally by an MNC if it is to thrive in the long run. Strategic analyses and reviewing potential opportunities require active cooperation from all foreign units. Strategic action should be the domain of all of the MNC organization including the foreign units’ executives, not just the HQ executives. Mahima, Rajdeep, and Chandrashekaran (2013), using the argument, state that the foreign units must be integrated into the process. In this way the foreign units will truly share in the MNC vision, objectives, goals, strategies, and tactics. Through fuller participation and involvement the foreign units would generate a stronger will to further the MNC’s interests worldwide. Whenever discussions are planned, the MNC should encourage its HQ and foreign units to generate all the relevant data, information, and insights on the problem or project to be analyzed. In this way, analyses would be closely based upon facts, data, and genuine depth of insights. This approach would ensure that all decisions are based upon reality, not upon organizational politics and schemes.

Recommendations for Actions The recommendations for actions are about the nature of decision-making structures. Essentially, the recommendations specify the better decision-making construct so that the HQ and foreign subsidiaries do both: (1) closely work with each other in a coordinated manner and (2) retain their domain of decision-making which truly reflects their expected responsibilities. The responsibilities are:  (1) HQ is expected to be responsible for the MNC’s overall and strategic issues, and (2)  the foreign subsidiaries, for their own respective strategic and operational issues.

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Recommendation 1: The HQ’s Scope, Decide on the Overall MNC Strategic Issues In a continuum, the HQ should retain its final choice making authority for issues of future strategic growth and business scope (which newer businesses, products we should go into), and regional scope (which newer geographical regions it should go into). Justification: The HQ is best suited for viewing the MNC’s global picture. It is best poised to review the changing trends in the geopolitics and the global markets, industries, and economics for it to make future choices for the MNC as a whole. Guidelines for Implementation. The HQ executives, in conjunction with its stakeholders and board of directors, should decide the overall strategic issues. The HQ should have previously reviewed the bulk of the information based on the discussions of the inputs of information, ideas, and suggestions from its foreign subsidiaries and its business divisions.

Recommendation 2: The Joint HQ-Foreign Subsidiaries Scope, Decide on Foreign Subsidiaries’ Strategic Issues The HQ and foreign subsidiaries must jointly review the strategic issues of each foreign subsidiary. Justification. The joint discussions of issues related to the cluster of foreign subsidiaries would bring about the coordinated approach of the issues below and the issues above the foreign subsidiary managers. Guidelines for Implementation. The executives will have an exchange of the different perspectives between the HQ and the foreign subsidiaries, resulting in a healthy respect and understanding. The use of the approach of the clusters of foreign subsidiaries in a common geographical region which have similarities in their environments will provide an economy of effort on the HQ’s part, and a pan-subsidiaries-cluster communication process. Clusterby-cluster is the basis of grouping the review process.

Recommendation 3: Foreign Subsidiaries Should Decide on Their Own Operating Tactics The relations between the HQ and the foreign subsidiary units should be close and their scope of decision-making somewhat overlapping. Once the HQ have agreed

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in broad terms regarding the general operating principles for all the foreign subsidiaries and for each cluster of foreign subsidiaries in each geographical region, each foreign subsidiary should decide and act on its own operating tactics. Justification. The delegation of tactical decision-making would encourage the foreign subsidiaries to take greater initiatives in adapting to its environments. Guidelines for Implementation. The executives and the supervisors in the foreign subsidiaries must be well trained, experienced, and informed about the overall MNC strategic issues and foreign subsidiary issues and understand the changing managerial preferences in the changing times.

Recommendation 4: Frequent Joint Reviews by HQ-Foreign Subsidiaries of Strategic and Operational Effectiveness The HQ-Foreign subsidiaries should periodically meet and review the organizational performance at all levels of the MNC. Justification. Periodical reviewing of the performance of strategies and operating tactics within clusters of foreign subsidiaries would suggest future improvements. The review process would also provide inputs for future strategy and tactics formulation. Guidelines for Implementation. It may be worthwhile to periodically review (jointly by the HQ and foreign subsidiaries executives) the effectiveness of the operating practices within each cluster of foreign subsidiaries. This joint review would educate the HQ executives of the operating challenges at the foreign subsidiaries and also improve the future operating practices.

Recommendation 5: Provide Continuous Training and Career and Financial Incentives to Foreign Subsidiaries Executives and Supervisors Good training for foreign subsidiaries’ people based on performance improvements would be helpful in motivating them. Justification. Reviewing performance should be based on both quantitative and qualitative factors. Fairness in reviewing performance would increase trust in the HQ. Providing career incentives (promotion within a foreign subsidiary and to HQ) would be a strong motivating factor for foreign subsidiary people. Good training and upgrading analytical and implementation skills would actually help the people to perform better. People have to know what additional skills and knowledge they need for raising their performance.

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Guidelines for Implementation. Provide tailor-made programs of on-the-jobtraining, job rotation, group interaction skills, and technical skills for the foreign subsidiaries’ people. Financial and career incentives should be perceived to be fair and sufficient to motivate people. These should be explained ahead of time as clearly as possible, and they should be periodically reviewed and modified.

Conclusions MNCs should focus upon their global and foreign unit’s host environments in evolving the patterns of their HQ-subsidiaries working relationships. The more turbulent and competitive the environment, then the more decentralized should be the decision-making, coupled with better, well-trained executives and supervisors. The MNC should regard the foreign units more as a commonwealth or a community of (almost) equal members. This would lead to a more power sharing and power equality model. The focus should be more to coordinate and cooperate on important ongoing activities. The autocratic, top-down or “empire” approach of the HQ will be out of place in today’s dynamic and competitive environment. It is not just an idyllic notion based on some abstract egalitarian vision, but a realistic, practical model of an organization functioning in the modern competitive context. The history of HQ-units relationships would significantly influence the future trend of relationships. Happy, cordial helpful relationships of the pristine times tend to so continue. Close ties of consultative nature marked by supportive and reinforcing relationships similarly would continue. The greater the interdependence and resource dependence of the units upon or with the HQ is, then the greater would be the relative power of the HQ. The focus of the units would move away from HQ if the foreign units are capable of generating resources locally. There are many issues upon which MNCs should focus if they are to be successful. These include:  HQ carefully decentralizing (at a suitable pace) foreign unit’s local strategic and operational decision-making so that each unit has greater strategic flexibility and operational autonomy in order to be competitive, proactive, and profitable. The discussions between the HQ and the foreign units must be based upon factual data and clearly developed analyses so that the quality of decisions would be good. On all strategic decisions there should be substantial interaction between the HQ and the units, with the HQ seeking inputs form the units before decision-making. The resource allocation process must be open, fair, and should follow a consistent rationale. The HQ should be the integrator of the analyses of competition, ethical, social, human resource, and technological

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information and issues. In this way, the MNC would formulate a comprehensive, unified framework of strategic decision-making. The MNC, its HQ and its foreign units together, should ideally function as a close-knit federation of organizations focusing on a common purpose and vision. This approach is preferred to an autocratic HQ ruling over its subsidiary units. The focus on long-term growth and development should guide on all issues, particularly: competitiveness, profitability, organizational development, human resource development, and capital investments. The future and external orientations should drive an MNC’s corporate strategy.

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Mahima Hada, R.G., & Murali, C. (2013). MNC subsidiary channel relationships as extended links:  Implications of global strategies. Journal of International Business Studies, 44(8), 787–812. Mattes, J., & Sinje, S. (2013). Upgrading foreign subsidiaries in the case of a German multinational company: Bargaining processes at strategic and operative levels. Competition and Change, 17(2, May), 129–155. Miravitlles, P., Guitart-Tarrés, L., & Nunez-Carballosa, A. (2014). Competitiveness of Spanish foreign subsidiaries. Competitiveness Review, 24(3), 171–189. O’Donnell, S.W. (2000). Managing foreign subsidiaries: Agents of headquarters, or an independent network. Strategic Management Journal, 21, 251–548. Poon, J.P.H., Kedro., P., & Bagchi-Sen, S. (2013). Do foreign subsidiaries innovate and perform better in a cluster? A spatial analysis of Japanese subsidiaries in the US. Applied Geography, 44(October), 33–42. Rajagopalan, N., & Finkelstein, S. (1992). Effects of strategic orientation and environmental change on senior management reward systems. Strategic Management Journal, 13, 127–142. Raziq, M.M., Borini, F., Mendes, P., & Battisti, M. (2013). Subsidiary characteristics and impact on subsidiary strategic and operational autonomy. Journal of Transnational Management, 18(3), 219–241. Roth, K., & Morrison, A.J. (1992). Implementing global strategies:  Characteristics of global subsidiary mandates. Journal of International Business Studies, 23, 715–735. Roth, K., & O’Donnell, S. (1996). Foreign subsidiary compensation strategy: An agency theory perspective. Academy of Management Journal, 39, 678–703. Situmorang, R., & Japutra, A. (2019). Foreign versus local managers: Finding the perfect leaders for multinational hotel subsidiaries. International Journal of Hospitality Management, 78, 68–77. Time. (2001). Changes at Nissan. Time, January, 21, pp. 42–46. Tosi, H.L., Katz, J.P., & Gomez-Meji, L.R. (1997). Disaggregating the agency contract: The effects of monitoring, incentive alignment, and term in office on agent decision making. Academy of Management Journal, 40, 584–602. Zajac, E.J., & Westphal, J.D. (1995). Accounting for the explanations of CEO compensations: Substance and explanations. Administrative Science Quarterly, 40, 283–308.

part c

Entrepreneurship, Innovation, and Competitiveness

Synopsis:  This part reviews the concepts and practical ways to keep an MNC more innovative, competitive, entrepreneurial, and prospecting for newer strategic opportunities in the foreign subsidiaries’ host countries and other countries in their regions.

chapter eight

Global Organizational Innovation Strategy

Global innovation strategy makes a multinational corporation (MNC) more competitive and contributes to long-term profitability and growth. A focus on newer trends and approaches in the engineering technology and internal and external organizational innovation processes would help the innovative and entrepreneurial spirit and endeavor. The proper organizational entrepreneurial goals, strategy, and culture would generate greater connectedness with the relevant task environments for the global organization to explore and subsequently pursue newer profitable market opportunities, products, and services. Altogether, the integrated global sharing, joint experimentation among its subsidiaries and combined innovation effort, the well-interfaced global supply chain’s innovative endeavors, and the well-planned and systematic innovation strategy, together would spur greater global competitiveness and growth. It is the combined global approach that would effectively generate better innovation. The issues covered in the chapter include international management, innovation in international business, global innovative strategy, and organized innovation in global organizations.

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About Innovation George Bernard Shaw, the famous playwright, said, “The reasonable man adapts himself to world; the unreasonable one persists in trying to adapt the world to himself. Therefore, all progress depends on the unreasonable man.” It is also in this same vein that Elkington and Hartington (2008) argue that being unreasonable is, “a process by which older, outdated forms of reasoning are jettisoned and new ones conceived and evolved.” They further said that just as the unreasonable bicycle makers, the Wright brothers, dreamed of flying like the birds, “today’s social and environmental entrepreneurs see the possibility of helping people soar into the future where others see only insurmountable barrier” (Elkington and Hartington, 2008, p. 85). Innovation is the realized dreams of unreasonable people. The unreasonable people move the situation to suit their vision. They create a sense of challenge for themselves and others and even inject uncertainty and chaos to affect innovative changes which only their acumen guides it to fruition. Thomas Edison’s innovation is legendary. His five competencies of innovation are (1)  Solution-centered mind-set, (2)  Kaleidoscopic thinking, (3)  Fullspectrum engagement, (4)  Master-mind collaboration, and (5)  Super-value creation (Gelb and Caldicott, 2007). His innovation process is widely accepted as the template for successful innovation, and it is used widely by many innovators. Innovation is a process which is fraught with uncertainty and is fueled by persistence, creativity, and problem-solving. There is more discussion on this later in the chapter. Stability and instability within an organization are the twin sources of shortand long-term operational performance. Stability within an organization provides certainty and predictability, which in turn provide the productive use of current resources. On the other hand, instability provides uncertainty and chaos, which in turn raises the desire to examine the opportunities for innovation and creative problem-solving. It is instability, even to the intensity of crisis, which ensures the effective future organizational performance. This tenet, that is to say, that uncertainty induces innovation, is particularly true for organizations facing uncertainty emanating from pressures for innovation and from competitive challenges. Strategic orientation by its very nature is future and external orientation. It espouses the concept that organizations have the compelling need for adapting their internal configurations of resources, culture, structure, tasks, and technologies to the external challenges and pressures for changes. Strategic innovation focuses on preparing the organization for meeting the future challenges through effective innovation. Innovations, when meaningful, are the hallmarks of successful organizations.

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Innovations, when meaningful and of practical value, also would improve the lives of mankind. It uplifts the people from their struggling plights and saves them from drowning in helpless drudgery. Innovations bring about significant economic vitality and improve the quality of life, the standard of living to the people who give and receive the rewards of innovation. The transfer of innovation across the world brings about immense revolution of ideas, products and services, knowledge, and technical applications to the peoples across the world (Afuah, 2003; Govindarajan and Trimble, 2005). They spur economic growth and increase gainful employment, provide new income streams, revitalize employees in organizations and refresh their value chain members with renewed sense of purposes, and provide the customers and users of the innovations with better quality of life, often providing newer sources of satisfying newer needs which were hitherto undiscovered. Innovations in organizations often imply technological innovations (although there can be organizational innovations as well) and, additionally, they also can include using the existing technology and innovate the delivery or application process in ways that add practical convenience furthering customer convenience and satisfaction. In the face of immense competition, market pressures for continued innovation and fast-paced technical growth and changes, global organizations would benefit by creating an adaptive and high performance organizational cultures and processes for increased competitiveness to sustain better market shares and profits (Greco et al., 2016). For this growth and competitive purposes, global organizations may benefit by developing a committed and comprehensive global innovation strategy that straddles across the width of an MNC organization. Innovative culture should be the central value of the organizational culture, marked by high critical thinking backed by high creative thinking. One should regard working in an organization not only as a source of livelihood but also as a way life. And, innovation and critical thinking and backed by creative thinking must become the central way of life over and above the efficient performance of the routine operating activities (Afuah, 2003; Schilling, 2008; White and Bruton, 2011). This approach would combine the creative and operating activities, working together for the short- and long-term performance of the global organization. Innovation serves the twin born goals of organizational growth and competitiveness. Sustained performance of a global organization in a world marketplace depends on its ability to blend the operation performance with the emerging promise of innovation for future entries of organizational outputs of products and services of marketplace relevance (Lu et al., 2017). Innovation should be made not only the catch word in the global organization, but it must also be kept up as the ever burgeoning spirit of entrepreneurial creativity and innovation. The goals for innovative activity and the spirit of creativity and innovation should be inculcated in the people of the global

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organization for energizing the competitiveness and growth. Even mundane and routine tasks can benefit from innovation. Global or international organizations would benefit by pursuing a comprehensive global strategy of continuous innovation which would engender sustained future improved competitiveness and sustained growth. These are better pursued through looking beyond the daily, weekly, and monthly operating activities and by seeking newer approaches and experimenting with them. Both approaches should be simultaneously pursued. An adaptive and responsive organic, rather than a mechanistic, approach would engender the creative organizational culture that is so conducive to innovation and exploring and evaluating newer ideas in an entrepreneurial manner.

The Purpose of the Chapter This chapter deals with ideas for innovation strategies for a global organization for its improved competitiveness and sustained growth. The chapter presents ideas for global innovation strategy and implementation of an innovative culture and process. A global organization, with its headquarters (HQ), its various regional headquarters, if any, and its foreign subsidiaries, must function jointly and collectively in order to effectively innovate. The spirit of organizational innovation and renewal should be viewed as an ongoing, continuous activity for the purpose of meeting the challenges arising out of competition, market changes, and technological advances. Innovation burgeons from the pressures and challenges from outside and from fires from inside. Thus, growth and profitability are organizational goals that are better sustained through innovative and entrepreneurial endeavors. The search for the new and the better should never slow down.

International Organizational Innovation Strategies for Success The foreign subsidiaries of an MNC can become major engines of growth and also of effective innovation, competitiveness, and growth. Philips, of the Netherlands, has most of its technological innovation performed by its foreign subsidiaries. The challenge of becoming increasingly more international is to nurture newer, more useful ideas which may sprout from anywhere in the organization. These burgeoning ideas may come up from unexpected quarters as well. These creative ideas can be seemingly humble and unimportant; however, once they are viewed collectively,

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they can affect significant and substantial competitive advantage. For example, BMW kept on improving many smaller items and attributes in its cars year-afteryear until it was recognized to be a stellar performer. It is often believed that HQ and foreign subsidiaries jointly can perform effective innovation. This is quite different from the notion that innovation is centrally performed by the HQ and that these innovations are then passed down to the foreign subsidiaries. Growth-oriented innovation ideas are often generated by foreign subsidiary units (Birkinshaw, 2001; Govindarajan and Trimble, 2005). Because a global organization’s foreign subsidiaries can be in far-flung theaters of the organizational environment, each foreign subsidiary can focus upon its specific host country’s needs and develop newer strategies to meet with emerging demands and challenges emanating from its environments. Innovation can start from within a foreign subsidiary and, subsequently, the parts of the MNC organization can further the innovation process to make it commercially successful. 3M (Minnesota, Mining and Manufacturing) company has Champions or persons who completely dedicate themselves for a long time to start with a (product) idea and see it to its fruition until it is a full commercial success. For their new product ideas and proposals, they go through a series of rigorous organizational review and approval process to get funding for the projects. From these Champions come out future senior managers and top leaders of the organization. Some of them had made product blunders no matter how careful and thorough they were as Champions. Other organizations have specially assigned Guides whose role is to mentor and properly channel ideas among people and connect them with other relevant people, bring them together and encourage closer collaboration, and also obtain and provide resources and give supportive guidance. These facilitators are very helpful in channeling creativity to bright technical persons but who may need guidance in the context of a highly formalized organization.

Models for Relationships of HQ with: (1) Business Units and (2) Foreign Subsidiary Units Dealing with an MNC’s business units and foreign subsidiary units is an important MNC organizational relationship issue. The global or MNC organizational HQ must foster the cooperative spirit among the business units and foreign subsidiary units so that the partnership improves for innovation and dealing with long-term innovation challenges and needs (Birkinshaw and Hood, 1998; Birkinshaw, 1999; Gates and Engelhoff, 1986; Roth and Morrison, 1992).

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The three major ways for an MNC’s HQ innovation methods as it deals with its foreign subsidiaries are:



1. The HQ of the MNC organization’s top-down, directive management style:  The MNC organization at the top makes most of the important decisions almost unilaterally and hierarchically dictates the foreign subsidiaries to follow them (Gates and Engelhoff, 1986). This might lead one to infer that the top management knows what is best for the MNC organization rather than the HQ together with all the foreign subsidiaries. Some of the more common examples of this approach could be the large MNCs from the Far East Asia. They are somewhat HQ driven for their strategic decision-making. The MNC in its home country setting is the fountain source for innovative ideas. 2. Rapid growth and expansion approach: This approach has the following three alternatives methods and many global organizations resort to them, varying them as needed: (a) HQ-driven transfer of resource to the foreign subsidiaries:  capital, human, technological, and technical skills and creativity and other intangible resources: This approach focuses on a highly resourced HQ so that it can dominate the resource build up for the foreign subsidiaries. The transfer of resources provides leverage to the HQ expansion and growth activities of the foreign subsidiaries (Frenkel, 1998). Such transfers stimulate rapid growth of the foreign subsidiaries, a measure that can help a first or the second mover to consolidate its market standing in the subsidiary’s host country and region. (b) Foreign subsidiary obtains resources from its local, host country’s environments so that it is less dependent on the HQ for growth and expansion:  In this non-dependence model, the foreign subsidiary develops its own goals and plans for growth and expansion so long as it does so within the broad scope of the global HQ’s vision, mission, and goals. Its credibility and reputation would allow it to seek local, host country (or regions) for capital, technology, human resources, supply chain, and other organizational support activities to pursue its growth and expansion, using the same or different products, technologies, businesses, or markets (O’Donnell, 2000). (c) Some combination of the above 2(a) and 2(b): The foreign subsidiary may use varying mixes of the two methods 2(a) and 2(b) as it finds it useful, flexible, and viable for growth and expansion, with or without

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diversification. It may be that this hybrid model of local growth would facilitate rapid and untrammeled local growth and expansion. 3. Combination Model: The global headquarters and the foreign subsidiary combined develop growth, expansion and innovation plans and collaborate closely for the foreign subsidiary’s local expansion (Roth and Morrison, 1992). Often, the approach is marked by frequent and close communication and systematic step-by-step approach in planning and implementing the growth processes. Repeated cycles of combined growth approaches bring the two entities closer.

A Systematic Innovation Process The literature on Thomas Edison’s innovation process cites five steps, involving a solution-centered mind-set (Gelb and Caldicott, 2007, pp. 47–48). They are: (1) Align Your Goals with Your Passion, (2) Cultivate Charismatic Optimism, (3) Seek Knowledge Relentlessly, (4)  Experiment Persistently, and (5)  Pursue Rigorous Objectivity. These five steps are believed to be effective in facilitating the innovation process in ways that appear to be both disciplined and creative. They keep the process moving along and foster creativity in a focused way. The solution-centered mind-set approach in this process is supposed to loosen oneself and set oneself free and seek a better approach going forward. This approach fosters a creative and an open mind seeking ideas along a path centered for meaningful innovation. Thus, the approach, while flexible in its ways, is also broadly goal-oriented. The MNC organization must follow the simultaneous approach of flexibility and broad goal orientation as it orchestrates innovative processes in the MNC organization. An MNC’s HQ should nurture its foreign subsidiaries. The HQ can try different subsidiaries to test and develop different ideas, projects, business, or technological or product development. With these kinds of options, the HQ can nurture its foreign subsidiaries to experiment with newer approaches to suit local conditions and needs. They can try entrepreneurial ventures, enact newer markets, develop more locally suitable technologies and operational processes, and seek local collaborations; and they should take further steps for proper integration of the findings of fragmented research (Lu et al., 2017; O’Donnell, 2000; Smirnov and Levashova, 2019). Such initiatives can be viewed as tentative, but in the long run it is beneficial for a foreign subsidiary to become more self-reliant in its efforts to become more entrepreneurial, innovative, and locally adaptive (Chan and Mauborgne, 1993).

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Overall Global Organizational Vision, Mission, Objectives & Goals

Performance deficit: • Overall goals, targets, and • Actual performance

Resources, culture for innovation: HQ, regional, subsidiary organizational culture for creativity, R&D, innovation

Global Organization’s Overall Corporate Strategy

Objectives, Goals and plans: • Global HQ • Regions • Foreign Subsidiaries

Innovation deficit/needs, goals, strategies: • Global HQ • Regional • Foreign Subsidiaries

Innovation strategies, plans: Global Regional Foreign Subsidiaries

Figure 8.1:  The Formulation Process for Global Organizational Innovation Strategy

Source: Adapted from, “Global organizational innovation strategy,” by Y.H. Godiwalla, (2018), International Journal of Social Sciences Studies, 6(8), 1–9. After the initial publication by the journal, subsequent reproduction without permission by the Author, who retains the copyright, is permitted. Copyright 2018 by the Author

Models for the Global Organizational Innovation Strategy The figures and a table to portraying the global organizational innovation process are discussed here. Figure  8.1 presents a model for global organization’s global strategy and innovation strategy, and it suggests the use of gap analyses for this purpose. Figure 8.2 provides the global innovation process through analyses of the information gathered by the environmental scanning process, as a part of the strategic management process, in the use of strategic management process. Table 8.1 provides the three cycles, with a total of nine-step processes of the global organizational innovation, emphasizing a systematic phase-by-phase, planned approach.

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Global External Environmental Research and Analysis Industry, innovation trends

Overall Vision, Goals, Strategies

Global dynamics, and competitors

Overall, global organizational innovation expectations, targets Overall, global organizational overall innovation, R&D plans and directions Overall, global organizational content of detailed innovation, R&D plans and strategies, for the whole organization, business divisions, and foreign subsidiaries

Figure 8.2:  The Global Organizational Goals, Innovation Needs Analyses, and Comprehensive Innovation Goals and Plans Source: Adapted from, “Global organizational innovation strategy,” by Y.H. Godiwalla, (2018), International Journal of Social Sciences Studies, 6(8), 1–9. After the initial publication by the journal, subsequent reproduction without permission by the Author, who retains the copyright, is permitted. Copyright 2018 by the Author

Figure 8.3 suggests ways to implement innovation as a regular part of an overall organizational process. Figure  8.1 portrays the relationship between global corporate strategy and global innovation strategy. The organization’s global corporate goals and strategy provides specific indications about the global organization’s innovation goals and strategies. The MNC organization’s strategic management process would raise issues of external environmental challenges and provide focus upon the projected gap or deficit in organizational performance. The performance deficit or gap analyses, which are intended to specify the details of resource deficit in the context of the challenge, would raise considerations at the overall global organizational, regional, and foreign subsidiary unit levels. These performance deficit or gap issues may include topics such as product development and improvement, organizational process improvements, customer service improvements, marketing innovations, enactment of new market regions for the enlarged global organization’s markets, refocusing on organization’s primary purpose in view of changing environments. At the global organizational (HQ) level, the overall organizational innovation processes should include: global product-market offerings, organizational restructuring to better serve constituent markets, improved services to generate better organizational support for its foreign units for such activities as technical support,

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Table 8.1: A Model for a Systematic Process of Global Organizational Innovations: Three Phases with Nine Steps Phase 1 Primary Emphasis:

Role of the Global HQ:

Role of the Regional HQ:

Clear determination of the innovation directions, objectives, and the resources needed

Phase 2

Phase 3

Define the major Determine detailed details of innovation operational plans projects across the for effective global organization. implementation of Identify the innovation processes responsibility centers ofacross the organization. the projects in business Establish timetable of divisions, regional activities for performing offices, and foreign innovation. subsidiaries. Set up coordinating plans and monitoring processes. Step 1. Define the Step 4. Finalize Step 7. Overall broad parameters of detailed plans and organizational innovation needs and programs for effectively integration and discuss the future implementing the coordination of innovation challenges innovation processes. innovation activities and likely to come before Provide insourced/ detailed program for the overall organization.outsourced support effective performance Coordinate the for skills, knowledge of innovation. Establish discussions. Provide and equipment and metrics of performance information. Establish working capital for the of innovation activities. the innovation innovation process. Evaluate and correct the situation. Generate Develop effective performance continually. problem-solving coordination and Set yardsticks and approaches. Create monitoring process provide for additional broad picture of among all business resources for improving desirable innovation divisions regions. effectiveness of outcomes. innovation. Step 2. Define broad Step 5. Organize Step 8. Improve regional innovation regional units’ detailed activities and expectations and resources. Develop operationalize the challenges. Identify coordination processes network of intra- and additional data, skills, of innovate programs interregional cooperation and resource needs. among business for better innovation Provide constructive divisions and foreign effectiveness. Perform approaches for effective subsidiaries. better nurturing and innovation within the coaching of the divisions region. and foreign subsidiaries for better performance of innovation.

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Table 8.1:  Continued

Role of Managers of Business Divisions and Foreign Subsidiaries:

Phase 1

Phase 2

Phase 3

Step 3. Define subsidiary innovation needs, goals, and plans. Generate constructive innovation broad approaches to address the innovation expectations.

Step 6. Finalize detailed innovation plans. Identify innovation project teams. Focus on postinnovation implementation preparations.

Step 9. Perform all innovation activities. Evaluate the effectiveness of performance.

Source: Adapted from, “Global organizational innovation strategy,” by Y.H. Godiwalla, (2018), International Journal of Social Sciences Studies, 6(8), 1–9. After the initial publication by the journal, subsequent reproduction without permission by the Author, who retains the copyright, is permitted. Copyright 2018 by the Author

Innovation goals, plans and processes [incremental, radical] Refocusing, improving, re-organizing, renewing, refining the innovation implementation processes to excel targeted standards, adapting to contemporary realities, situations

Making innovation ideas into reality (transition stage) Making the innovation change as a regular organizational reality Full scale organization-wide implementation of the innovation Fuller employee internalization of the recent innovations Evolve the organizational culture and values to accept the changes Fully integrate, institutionalize the changes of successful innovations

Figure 8.3:  A Model for the Process of Institutionalizing Innovation at All Levels of an MNC: Global HQ, Regional HQ, Foreign Subsidiaries

Source: Adapted from, “Global organizational innovation strategy,” by Y.H. Godiwalla, (2018), International Journal of Social Sciences Studies, 6(8), 1–9. After the initial publication by the journal, subsequent reproduction without permission by the Author, who retains the copyright, is permitted. Copyright 2018 by the Author

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R&D, advertising, marketing, logistics, product adaptation, product redesign, and process redesign (Smirnov and Levashova, 2019). At the regional center level (if any), the focus should be on better coordination of its foreign subsidiaries’ activities as they can be better synthesized where such synthesis would build strengths through synergy, organizational learning and experience, marketing intelligence, and technical problem-solving. At the foreign subsidiary’s level, the focus is on effective adaptation to the local environment (Gelg and Caldicott, 2007; Roth and Morrison, 1992). Such adaptation requires continuous refining and innovation through organizational renewal and tuning with the local culture. The foreign units’ innovative activities may include: adaption to local supplier conditions, local technical constraints, local labor market conditions, local infrastructural constraints, and local market needs for the global organization’s products and services. In conclusion, the foregoing would lead to the revision of the scope, intent, and depth of innovation strategies. Growth and profitability are the more common motives of innovation. In addition, a common denominator for driving innovation is the challenge emanating from the external environment, notably the challenges of competition and changing and rising customer expectations. Often, internal environment can spur innovative endeavors, such as creative and innovative aspirations of the people. Innovative spirit can be nurtured through a creative culture of the people of the organization. Figure 8.2 depicts the process of analyses and assessment of environmental trends, and the organizational goals and capabilities. The top managements at the HQ, regions, and foreign subsidiary units must continuously scan their respective strategic external environments as they reassess the future needs. In the analyzing of patterns of environmental changes, an MNC (at all the three units of analysis: the HQ, regions, and foreign subsidiaries’ top managements) determines the competitor analyses and consequently assesses its innovation and competitive capability needs for the future. For an MNC, innovative directions are determined by the plans to cope with challenges or to proactively induce changes to the undesirable aspects of the future states of external environments. The anticipated future states of external environments often make the need for an organic global organizational focus to plan and prepare ahead and manage change effectively. In doing so, an MNC has to pursue innovative activities to meet the anticipated future challenges. The future MNC organizational goals would focus upon the MNC’s global organizational resource development plans. In the ongoing, global organizational resource development process, innovation and strategic responses must feature in future innovation processes.

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The global organizational innovation and growth plans would be integral parts of the organizational global strategies. Innovation is often viewed as a means to accomplish long-term global organizational goals and achieve increased competitiveness, growth, market share, and profitability. To conclude, for the global organizational, innovation must be considered as a strategy, a strategy to further the MNC’s organizational goal accomplishment process. Ideas of innovation thus must be viewed as ideas that are founded in the internal and external environments, such as: competitor analysis and challenges, technological advancements in the same or different industries, creative desires of the organizational peoples, and competitive pressures. Table  8.1 portrays the continuous process of nine steps of innovation. The continuous process is broken into three phases (or cycles) as they identify challenges, determine goals, plan for effective innovation to meet with external and internal needs, identify resources needed, and the implementation of the innovation strategy. Phase 1: Identify innovation goals and skills. The trends in the external events would give enough cues to the top management to develop a profile of the external challenges and the scope and content of desired problem-solving innovation. This step-by-step approach is similar to the one often used in management control systems. It has three steps out of a total of nine steps in the table: Step 1. The initial step is to identify the future global challenges and to generate a culture and climate to identify areas of sub-par performance, or external global threat areas which need to be addressed by the overall global organizational HQ. Step 2.  The regions should focus upon the regional challenges and develop regional innovation goals to foster growth and development of the foreign units within the region. Step 3.  Each foreign unit should focus on its host country’s challenges and needs and should develop unit-specific innovation goals and plans. Phase 2: Formulate innovation strategy, plans and identify resources. The second cycle should focus upon strategies and plans to accomplish the innovation goals to solve the impending problems. Step 4.  Define in greater detail and specificity the goals of innovation, and formulate strategy to focus upon innovation for all scopes: the overall global organizational, regions and foreign units.

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Step 5. The organization of regional activities and services of all foreign units within the region should be planned and coordinated in this step. Step 6.  Finalize detailed plans for each foreign unit to organize innovative activities. Phase 3: Finalize the details of implementation. This final phase requires a comprehensive integration of all the issues involved: Step 7.  Global coordination plans for innovation should be formulated for the overall global organization. Growth plans must be integrated in this approach. Step 8.  At the regional level, the focus should be to organize innovation details and activities for generating effectiveness. Step 9. Perform innovation activities. Implement innovation strategies. Improve innovation effectiveness to better achieve the corporate goals. To conclude, innovation should be a systematic activity that is well organized and institutionalized. Focus should be upon the results of innovation as it fosters better working culture and results. Competitiveness, market share, profitability, and organizational growth should be achieved through a continuous process of organizational renewal. The attributes of an innovative organization should continuously focus upon critical thinking, brain-storming for ideas for growth, and the culture should be to nurture talents, skills, and resources that are conducive to creative and innovative activities (Chan and Mauborgne, 1993). The emphasis of the figure is to generate enough innovative knowledge, resources and skills and to provide better growth and competitiveness in the market place. Organization-wise, the innovation process would be the emphasis of those who spearhead the change. The innovation is tested for possible inconsistencies and impracticalities. After the potential faults are removed, the innovation is implemented more fully into the system of the organization. Then the regularity of the administrative process, together with the innovation incorporated into the system, would influence the organizational culture and future process. This process should be pursued at all levels:  the global organizational HQ, regional HQ, and foreign subsidiary units. Further, there should be coordination and continuity of purpose and process among the three, the global organizational HQ, regional HQ, and foreign subsidiaries. The figure suggests that at each of the three levels, the global organizational HQ, regional HQ, and foreign subsidiary unit, innovation is the key to continued success and competitiveness of the global organization. Innovation, incremental

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or radical, may be focused and applied to result in tangible benefits to the global organization. It may be first tested and evaluated for viability and worthwhileness. This is done through continual or periodical testing and refining until it is most in tune with reality. It should be operationalized and repeatedly refined until it is institutionalized. To conclude, the four approaches foster innovation: (1) the global organizational HQ providing seed money, (2) using formal requests for future project proposals, (3) encouraging the units to nurture new ideas, and (4) forging strong inter-unit innovation networks and collaborations (Birkinshaw, 2001; Schilling, 2008). The flow of activities in the figure provides the guidelines for the successful innovation process along a well-directed path. Innovation comes from deliberate and conscientious planning and organizational learning so that the strategic leadership visualizes the vision of innovation and relentlessly pursues it.

Recommendations Recommendation 1: Create an Innovative Culture, Encourage People to Experiment Justification. Use Thomas Edison’s approaches. New ideas can come from anywhere in the MNC’s global organization. The MNC organization must bring together the innovative activities through the HQ’s strategic and innovative leadership. Guidelines for Implementation. Treat people with respect even if their ideas appear on the surface to be absurd or initially impracticable. Allow for mistakes. Keep trying to correct them and be problem-solving in approach. Encourage experimenting newer approaches. Apply the lessons learned from Thomas Edison.

Recommendation 2: Try to Follow Systematic, Organized Approaches to Innovation (as in the Figures and the Table) Justification. Even though we argue that innovation can be spontaneous and inspirational, for an MNC, these creative spirit and activities must be properly channeled through well thought out through organized activities, broad guidelines, communication, and coordination. The HQ and the foreign subsidiary (and other subsidiaries) can benefit from the collective, collaborative, and innovative endeavors.

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Guidelines for Implementation. There must be Guides and Champions (as in the 3M organization) for specific innovation or new product projects. These projects may be market driven and internally driven. There must be some semblance of organized process along the lines of the figures and the table. Apply the systematic approaches and methods of Thomas Edison.

Recommendation 3: Allow for Some Affordable, “Wasted” Monies on Unfruitful Innovative Projects Justification. From a series of related, or even unrelated, unprofitable, seemingly meaningless projects there could be the next great innovative result that could spur the MNC’s prosperity and competitiveness. The 3M organization has these examples. Jeff Bezos, the legendary Amazon CEO, prides in spending away monies on several projects so that he may see a few bright lights of the day. Guidelines for Implementation. Benefit from other innovative activities; learn from their mistakes and successes; adapt from their practices and processes, if applicable; generate a working template, and keep improving it, for innovation processes for a particular MNC organization with its unique characteristics and personality.

Recommendation 4: Provide “Guides” for the Technically Creative Talent Who May Be Organizationally Inept Justification. Often, those who are technically talented and creative can be less familiar about organizational processes and politics. There is a need for the helpful hand of the Guides, who would see their projects through the processes. Guidelines for Implementation. Identify such people for becoming Guides. This role of a Guide may be a part of their total job, and then assign talented, creative people to them. They would be the facilitators.

Recommendation 5: Provide (or Propose) New Products, Projects Opportunities to People Justification. By doing so will bring forward people who have held back the innovative pursuits. Guidelines for Implementation. Have marketing and technical people generate newer potentially profitable or cost-saving projects or problems so that people with the requisite skills and backgrounds can come at it in a focused way.

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Conclusions Global innovation strategy is a central pillar of overall corporate strategy of a global organization. It has the potential to invigorate the long-term, global organizational competitiveness, profitability, and performance (Schilling, 2008). Global growth and product-market expansion, technological superiority, competitive advantage, financial performances are some of the fruits of an effective innovation strategy. The pursuit of a well-conceived and planned global innovation strategy requires sound global innovation vision; systematic innovation plans, well-integrated global implementation time table and structure of implementation activities, and organized approach to implementation endeavor. Global innovation strategy should be an integral part of a comprehensive global organizational strategy. It should be involving all levels of the global organization: global HQ, business divisions, regional centers, and foreign subsidiaries in all its comprehensive, coordinated preparation and implementation. Innovation takes determination, grit, creativity, and capacity to take on uncertainty, and, also, very importantly, the “unreasonableness” quality of “the unreasonable man,” to which George Bernard Shaw, and John Elkington and Pamela Hartigan (2008) had referred. The successive waves of innovation that the civilization has witnessed and benefitted have taken place are those that have mostly been achieved by the daring risk takers, the entrepreneurs, and the mavericks, and by those who could think outside the box and off the wall and did not care what others thought of them. They did not do it in ways that others did not dare to take the risk nor had the imagination to even attempt to do so, let alone those who might timidly, tentatively try or test the path. They are the stand “alone-s,” the bold and tireless. They had the passion and the tenacity, the unwavering conviction, the romance and obsession of their ideas, and the desire to come up with something new and better and to make a difference for the betterment of mankind. The global organization must allow such people to coexist and must not force nor induce them to conform. It must allow them to pursue their dreams if the organization is to sustain the spirit of creativity and the brightness of innovation.

Bibliography Afuah, A. (2003). Innovation management:  Strategies, implementation, and profits. New  York, NY: Oxford University Press. Birkinshaw, J., & Hood, N. (1998). Multinational subsidiary evolution: Capability and charter change in foreign-owned subsidiary companies. Academy of Management Review, 23(4), 773–795.

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Birkinshaw, J. (1999). The determinants and consequences of subsidiary initiative in multinational corporations. Entrepreneurship Theory and Practice, 24(10, Fall), 9–52. Birkinshaw, J. (2001). Unleash innovation in foreign subsidiaries. Harvard Business Review, 79(3, March), 131–140. Chan, K., & Mauborgne, R. (1993). Effectively conceiving and executing multinationals’ worldwide strategies. Journal of International Business Studies, 24(3), 419–450. Elkington, J., & Hartigan, P. (2008). The power of unreasonable people: How social entrepreneurs create markets that change the world. Boston, MA: Harvard Business Press. Frenkel, S.J. (1998). Corporate-subsidiary relations, local contexts and workplace change in global corporations. Industrial Relations, 53(1), 154–181. Gates, S., & Engelhoff, W. (1986). Centralization in headquarters-subsidiary relationships. Journal of International Business Studies, 17(2, Summer), 71–93. Gelg, M.J., & Caldicott, S.M. (2007). Innovate Like Edison:  The Success System of America’s Greatest Inventor. New York, NY: Dutton (Penguin Group). Govindarajan, V., & Trimble, C. (2005). 10 rules for strategic innovation: From idea to execution. Boston, MA: Harvard Business School Press. Greco, M., Grimaldi, M., & Cricelli, L. (2016). An analysis of the open innovation effect on firm performance. European Management Journal, 34(5), 501–516. O’Donnell, S.W. (2000). Managing foreign subsidiaries: Agents of headquarters, or an independent network? Strategic Management Journal, 21, 525–548. Lu, J.G., Hafenbrack, A.C., Eastwick, P.W., Wang, D.J., Maddux, W.W., & Galinsky, A.D. (2017). “Going out” of the box: Close intercultural friendships and romantic relationships spark creativity, workplace innovation and entrepreneurship. Journal of Applied Psychology, 102(7), 1091–1108. Roth, K., & Morrison, M. (1992). Implementing global strategy: Characteristics of global subsidiary mandates. Journal of International Business Studies, 23(4), 715–750. Schilling, M.A. (2008). Strategic management of technological innovation. New  York, NY: Mc-Graw-Hill/Irwin. Smirnov, A., & Levashova, T. (2019). Knowledge fusion patterns: A survey. Information Fusion, 52, 31–40. White, M.A., & Bruton, G.D. (2011). The management of technological and innovation: A strategic approach. Mason, OH: South-Western, Cengage Learning.

chapter nine

Managing Foreign Subsidiary Competitiveness

Managing foreign subsidiary innovation and competitiveness are vital for overall, long-term, multinational corporation’s (MNC’s) global growth. Strategic, global leadership, vision, mission, goal focus, and strong high performance culture among the executives and supervisors of MNC’s headquarters (HQ) and foreign subsidiaries, together with flexible leadership in foreign subsidiaries, are vital for enabling the MNC to pursue the vision of improved innovation, competitiveness, and growth. Sustained innovation and competitiveness in an MNC’s foreign subsidiaries’ multiple country environments then becomes the means for overall MNC’s strategic enhancement. The issues covered in the chapter include foreign subsidiary’s innovation and competitiveness, foreign subsidiary’s strategy, foreign subsidiary structure and culture, and host country’s culture.

Issues of Foreign Subsidiary Competitiveness The long- and short-term goals and corporate strategy, business strategy, and foreign subsidiaries units’ corporate strategy of an MNC organization are derived from the MNC organization’s global vision and mission. Innovation, competitiveness, and growth are interconnected. Improved innovation leads to increased competitiveness. The strategic management process begins with leadership of a

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multinational corporation’s (MNC) top managers at HQ and foreign subsidiaries. The process begins with a strategic vision and mission, strategic analyses, choice of long-term objectives, shorter term goals, and the formation and implementation of the MNC corporate strategy and foreign subsidiary strategy. It involves the leaderships at the MNC HQ and the foreign subsidiary units. International management and strategic management are two important processes that need to be equally emphasized, and they have to be skillfully combined. Strategic and visionary international leadership is a key to MNC global effectiveness. Its local, regional, and global competitiveness depends on it. Competitiveness leads to sustained growth and profitability. Past organizational performance and current culture create an environment for change only if the strategic leadership has a well-integrated, global strategic plan (Wang and Emma, 2012). Strategic international leadership focuses on the global plan for improving the overall organizational competitiveness, effectiveness, and growth. An important focus of such leadership is the management of the differences of culture and operating conditions across different countries.

MNC’s Strategic Vision, Mission, and Goals It would be worthwhile to note that the MNC HQ leadership should initiate a tentative, broad strategic vision, long-term goals, and a basic strategy, and then seek active involvement from the foreign subsidiaries’ executives for reshaping and refinement. It is important that the MNC’s HQ have a clear strategic vision for the MNC’s future global position. It is more important that the vision should be first developed in close collaboration with the leadership in the subsidiaries, thus enabling it to become a widely shared vision, an important value during strategy implementation. What is desirable is a high level of commitment among the HQ and subsidiaries managers to a shared vision and strategy. There are some aspects of strategic vision that are more worthwhile. Strategic vision is the desired, preferred form and posture of an organization in the future. The strategic vision of the key executives of the MNC HQ and foreign subsidiary units can be used to collectively transform the organization. It is a foresight of what should be the “ideal” for the organization. It assumes that the current constraint would not limit the future full realization of organizational potential in that it assumes that all the needed resources are quite possible (Want, 1993). Strategic vision may appear to be out of a realistic reach or grasp of the organization, given its current capabilities, but that is all right. Hindle (1994) defines strategic vision “as an irrational barrier-leaping ambition for a company.” It becomes

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the flash point for future change. The somewhat higher vision can be urging the people to strive harder. An intense strategic vision can be the driving force towards change. Stretch goals, inspired by a glorious vision, may serve a motivating purpose.

Organizational Culture, Structure, Technology, Innovation, and Change The effective strategic leadership at foreign subsidiaries’ level should focus on exploiting profitable opportunities in their host countries. Strategic vision and organizational culture are interrelated and vital in this context. Strategic vision must be matched by an appropriate organizational culture that would correctly channel the activities and resources of the MNC organization (Karabell, 2010). It is important to see that changing an organization’s strategy and culture should focus on a comprehensive approach that addresses all aspects of the organization (Kono, 1994; Brief, Guzzo and Schneider, 1996). Further, organizational culture itself can drive changes in corporate strategy (Morgan, 1993; Trice and Beyer, 1993). This would be in addition to the sequence of strategy that could lead changes in responsive organizational culture. The industry environment is another external environmental segment that can cause organizational culture changes, including changes emanating from competition, customers, channel distribution, technological innovation, pressures affecting cost savings, and applications from the same or other industry (Selmer and Lauring, 2010). Cross-border and interorganizational partnerships provide significant technological advancements, with such examples as: (1) General Motors and Ford collaborated on a nine-speed automatic transmission; (2)  the United States federal government provided a research grant to General Electric and Pratt and Whitney to innovate and design future aircraft jet engines which brought out significantly better, safer, more fuel efficient, and less noise polluting engines than the previous generation engines; and (3) Boeing aircraft company collaborated with a consortium of six big Japanese companies and designed and made the major sections of the Boeing 777 aircraft; and, further, for this project, these six Japanese companies got investment insurance from the Ministry of International Trade and Industry (MITI), the powerful arm of the Japanese federal government for promoting Japanese business overseas. These examples indicate that collaborative endeavors by two or more organizations generate better products. In all these examples, any one company by itself would have found it difficult to pursue the project, given their other resource commitments at the time. A company as big as Boeing too had to resort to an international collaboration.

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Improvements in technology, manufacturing and operations, and research and development (R&D) also have a bearing on the improvements in competitiveness. In a study by Bandara, Sharma, and Chakrabarty (2019) of Australian manufacturing units or entities, they found that cost-sharing among the manufacturing entities had led to cost savings and, consequently, to greater competitiveness. It is found that an organization usually tends to conform to the patterns of the industry to which it belongs (Chatman and Jehn, 1994). Sorin-George Toma and Gradinnaru (2016) found in their study that there is a relationship between competitiveness and innovation. They concluded that in the global business, “innovation proves to be the engine for competitiveness all over the world.” They cite that innovation is driven by many factors, such as research institutions, international (or global) corporations which would include their foreign subsidiaries, small and medium size firms, universities, and individuals. One should add to that list the governmental innovation organizations like the United States federal government laboratories, NASA, NIH, and other scientific and health agencies; and private sector research organizations (like United Laboratories) because they also make major contributions for the advancements in research, innovation, and improvements in product design and process design, which may later extend to the private sector corporations. Sorin-George Toma and Gradinnaru (2016), in “measuring global competitiveness and innovation in the period 2013–2015,” had developed a country’s composite “global competitive index,” using such factors as: (1) basic requirements sub-index which included: property rights, efficiency, security and ethics in public and private institutions, infrastructure, health and primary education; (2) efficiency enhancers sub-index which included: higher education and training, goods market efficiency, labor market efficiency, financial market development, technological readiness and adoption, and market size; and (3) innovation and sophistication factors sub-index which included:  business sophistication and research and development. They had developed separate global competitiveness and global innovation indices. Among the top countries for the global competitiveness index for the period 2013–2015 were Switzerland, Singapore, United States, Germany, Hong Kong, the Netherlands, Japan, and United Kingdom. Among the top countries for the global innovation index for the period 2013–2015 were Switzerland, Sweden, United Kingdom, the Netherlands, United States, Singapore, Finland, and Denmark. It is important to observe that MNCs (either their HQs or their foreign subsidiaries) which operate in highly competitive and innovative countries, such as those countries cited here, would themselves be driven to perform at a higher level because of the strong competitive and innovative culture among the organizational entities. A country’s competitive and innovative climate would have a strong influence on a given MNC HQ or foreign subsidiary which operates in

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that country. It is similar to the situation in which an entering student finds that he has to work much harder and better if he were to enter in a university or college with much higher standards and competition levels than if he were to have enter a university or college with much lower standards and competition levels. Sorin-George Toma and Gradinnaru (2016), in reviewing the discussions on the relative importance of competitiveness and innovation, had concluded:  “Innovation represents one the cornerstones of competitiveness and requires improvements in various domains such as higher education and R&D.” They believe that competitiveness and innovation are closely interconnected and that the “main pillar of competitiveness is innovation.” They further believe that a country should make substantial investments and improvements in innovative capacity so that it may be competitive. While the relationship between strategy and culture is such that they influence each other, organizational leaders may first conceive of a new strategy and change by designing the structure and culture so that they can too implement the strategy and accomplish the goals (Deal and Kennedy, 1983). They pursue organizational change by a planned design. In this way strategy is viewed as the driving force that transforms the organization, its engineering and organizational technologies, structure, and culture. And, collectively they change the posture of the organization in its future environmental states (Finkelstein and Hambrick, 1996). Organizational leaders often use their organization as a means or an instrument to accomplish the goals which they personally impute upon the organization. This is referred to as the “instrumentality” of the organization. That is to say, they use the organizations as an instrument to achieve the goals which they have set for the organizations. In as much, they view strategy, technologies, structure, and culture as more specific tools to carry out the strategy and accomplish the goals that the leaders wish for the organization to accomplish. These are some of the issues of control and are vital to managers who must apply these controls in order to stay on course and accomplish the goals (Chang and Taylor, 1999).

National Culture and Foreign Subsidiary’s Organizational Culture The host country’s national culture of a foreign subsidiary unit has a major impact upon the foreign unit’s organizational culture, cross-cultural communications, and negotiations (Herbrig and Gulbro, 1997). For example, the ethical content of a foreign subsidiary unit can be significantly influenced by the national culture of the host country, in addition to the MNC’s HQ organizational culture (Robertson and Fadil, 1999). These ideas can have an important impact on the discussions

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of the managers of the MNC’s HQ with the managers of the subsidiaries. The cultural differences can make the global strategic management process slower and complicated. The foreign subsidiary unit has to address the often differing cultures of the MNC HQ, the MNC as a whole (including all the other foreign units), and the national culture of the host country (Harvey and Napier, 2010; Shin et al., 2007). The growth of a foreign subsidiary unit would in part depend upon its organizational strategy and culture (Vachani, 1995). Since the foreign unit exists in the context of the overall MNC as an organization, the local marketing environments, and the local national cultures, the unit has to strive to balance the often differing needs and expectations of these diverse groups. In this way, the foreign unit can manage its stakeholders.

Host Country Culture and Foreign Subsidiary’s Managerial Leadership The challenges emanating from cultural differences can make a foreign subsidiary unit’s global strategic analysis and decision-making process and also its innovation management process slower and complicated. Table 9.1 portrays some of the major factors that can influence a foreign unit’s managerial leadership. The foreign unit’s host country culture and operating environment have a strong influence upon the foreign unit. Most of the people of the unit are likely to be comprised of host country nationals. The national culture, economic, general, and particular industry factors of the host country provide the task environments with which the foreign unit has to interact. The cultural environment of a particular host country can exert influence to alter the preferred MNC HQ’s managerial leadership styles and approaches directed to the particular foreign subsidiary unit. The local customs and social approaches may make inviable the standardized managerial leadership approaches of the MNC’s HQ. The economy of the host country provides general conditions within which the foreign unit has to operate. Many of these are issues of infrastructure. The industry-specific factors include the competition, customer groupings, industry associations and standards, suppliers, and labor. These affect the unit more immediately and directly. These three sets of host country factors (culture, economy, specific industry) have a significant influence upon the unit’s managerial leadership. These include the choice of decision-making styles, rationale for strategic decision-making, and approaches to further design and development of organization.

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Table 9.1: The Host Country’s Influences on a Foreign Unit’s Managerial Leadership The Host Country’s: Societal and Cultural Influences

Economy and Allied Influences

Industry-Specific Details

• History of society, e.g., migrations, dominations of and by other countries, life style changes, material or livelihood developments that change ways and quality of life • Recent and projected migration patterns and their impact on labor and financial markets, political processes • Evolving values of society because of migrations and other dynamics, impact on society • Religions and beliefs, their influences on social and workplace values, attitudes and behavior

• Natural resources, • Specific industry’s particularly as they affect make-up: life styles and methods of • Industry structure, coping with life’s challenges processes and other issues • Competition, competitors’ • Plans for the development comparative strengths and of natural resources weaknesses • Infrastructure of support • Markets facilities and utilities, their • Suppliers quality and efficiencies • Labor, professional, skilled, • Financial institutions semi-skilled for various and govt’al regulatory specialties supervision • Customer groupings • Regional economics and • Industry associations impact on the factories and • Technological markets developments • Component suppliers Industry life cycle stage • Vendor suppliers Market leaders, runner ups, • IT services laggards • Utility and maintenance Relatedness with other services industries Industry growth rate • Life styles, standard of • Distribution system, Diversification strategies of living, quality of life, wholesalers, retailers, the multi-business groups, attitudes towards one’s job, physical distribution, host country and foreign company, profession logistics companies • Social structures and • Communication and IT Entrepreneurial strategies values, basis for stratifying systems and prospecting activities, society: system of caste, • Educational (general and impacts on markets, class, success, power/ professional) and training industries, and economy, influence, money, land standards and patterns, govt’al industrial policies, ownership, religious plans for improvements public policy, e.g., market standing regulation • Political, govt’al influences • Regional int. and ext. Mkt share spreads, disparities dominance

Continued 

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Table 9.1:  Continued The Host Country’s: Societal and Cultural Influences

Economy and Allied Influences

Industry-Specific Details

• Subcultures in internal • Governmental influences and external regions and on business, regulatory societal strata impact Political, legal, and govt’al • Capital formation, investor regulatory methods, law attitudes and motives, enforcement intensity and investor and customer effectiveness confidence • Financial regulation Cultural impact on life • Labor markets, availability style, values and details of skilled technical and Social responsibility managerial people in expectations from different specialties organizations • Trade patterns and dependencies with regional countries

Competitive advantages, innovations Organizational life cycle stages and stage-specific strategies, and management succession plans of direct competitors Dominant professional values among local and foreign personnel

(The foregoing approaches and ideas would determine:) Foreign Unit’s Leadership’s:



• Decision-making styles and approaches • Rationale for strategic and operating decision-making • Approaches to develop organizational structure, culture, technologies, information and control systems, policies, norms, and practices in the workplace

Source: Adapted with permission from, “Managing foreign subsidiary competitiveness” (2016), by Y.H. Godiwalla, American Journal of Management, March, 16(2), 11–16. Copyright 2016. American Journal of Management

The Matching of Foreign Subsidiary Leadership Styles to Host Country’s National Culture In a sense, MNCs are conglomerates even if they were to be in a single business. This is because of their very diverse, international operating settings and cultural variations. They have to have a mind-set of a conglomerate. That is to say, they should decentralize not only the operating decision-making, but also strategic

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Table 9.2:  Matching the Foreign Unit’s Leadership Style and Culture to the Host Country’s National Culture Foreign Unit’s Host Country’s Culture and Environment

Foreign Unit’s Appropriate Leadership Culture

1. Stable society and simple, stable economic 1. Unit’s centralized strategic decisionstructure, relative stability, factors of making, perpetuating bureaucracy with dynamics fixed job descriptions 2. Supportive and stable culture and technically 2. Highly specialized and intensely trained advanced environment institutionalized managerial culture 3. Technically advanced and changing 3. Technically specialized peer groups with environment focus on changing specific projects 4. Turbulent, risky, erratic, and uncertain 4. Close team of top executives making bold, economic, political, and competitive risky moves environment 5. Complex cultural environment subject to 5. Flexible, fluid, and temporary structure, changes (where no one comprehensive and informal and experimenting culture; approach or pattern of managerial approach risk-taking and intensely focused appears to be effective). managerial decision-making and strategy execution styles. Source: Adapted with permission from, “Managing foreign subsidiary competitiveness” (2016), by Y.H. Godiwalla, American Journal of Management, March, 16(2), 11–16. Copyright 2016. American Journal of Management

decision-making (Muralidharan and Phatak, 1999). They have to go another important step:  they should decentralize the leadership, managerial, and decision-making styles. To some extent, the MNC HQ must allow each of its foreign subsidiary units to formulate its own top management leadership styles and culture. Management is very culture-bound. An MNC HQ should not rigidly impose the entirety of its own HQ leadership and managerial styles and culture to its foreign units. Table 9.2 provides an example of some different host country cultural, economic, and infrastructural conditions that may suggest the appropriate foreign unit’s managerial styles. This is a suggestive or example list, and each foreign unit must analyze its host country’s cultural, economic, and infrastructural environments so that it may evolve its own effective managerial culture and d ­ ecision-making process. Each of the five different host country environments is reviewed here. The effective management style depends upon the political, social, and cultural

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conditions; pace of change; complexity of business decision-making environments; and structure of economy. Host Environment 1: Stable society and simple, stable economy can tend to have centralized strategic decision-making. The decision parameters, scope, and rationale remain essentially the same even over a relatively longer period of time, and so that, if it wanted, the foreign unit could centralize most or all of the major decisions at the foreign unit’s top management. The foreign unit can be run as a typical bureaucracy with specific job descriptions, and the detailed roles and tasks that are likely to remain the same for a long time. Host Environment 2: Supportive and stable culture and technically advanced environment enables the unit’s top management to pursue a highly professional approach. Because of the stability, the foreign unit organization can institutionalize the decision-making process. Top management approach is sophisticated and maintains a sense of permanence. Host Environment 3: This environment is different from the previous environments in that it is faster changing. Its change is somewhat linear, and not as erratic and turbulent as in the next two environments. The top management culture and decision-making style may be characterized by its specialized peer groups so that they can concentrate on technically intense activity. The changing nature requires shifts in focus, and so groups of peers focusing on important issues would characterize the top managerial mind-set. Host Environment 4: The erratic and turbulent nature of this environment requires the foreign unit’s top management to act boldly and quickly (not having the luxury of much time for fuller research and analyses), and act in close unison. This means that the unit’s top management must be close knit, loyal team players. They must know what and how each player thinks, decides, and acts in a diverse array of business, political, and people situations. The high risk nature demands that they should be great risk takers and strong, decisive players. An important trait of such a team is that they should be willing and capable of taking some loss should their risk-taking not work out. Host Environment 5:  This environment is characterized by unfathomable cause-effect relationships. When the foreign unit’s top management cannot decipher a consistent, effective decision-making rationale, then they have to adopt an experimenting approach. In this managerial decision-making style, the approaches are tentative and subject to repeated corrections. The managerial styles can be changing and evolving.

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Recommendations Recommendation 1: Invest and Concentrate on Innovation MNC and foreign subsidiaries should continuously focus on innovation of all dimensions: engineering technical, operations, product design, process design, and organizational innovation. Justification. Innovation leads to competitiveness. Greater emphasis on innovation would vitalize the organizational culture of the foreign subsidiary organization. Guidelines for Implementation. The foreign subsidiaries should generate newer approaches which would make the foreign subsidiaries more innovative, capable, and more competitive. The organization (MNC and foreign subsidiary) should invest more on innovation projects, some with clear goals and others with less clear goals. Creativity has no clear, predetermined path.

Recommendation 2: Recruit, Train Talented People and Channel them to Innovation Justification. An organization in which most people are intent on innovation or in some way continuously improving their processes, they will fall into the malaise of drudgery and noncreative work. Even if an organization, riddled with such malaise, hires new top and creative talent, the new hires will probably soon fall into the trap of mediocrity. Guidelines for Implementation. Create a culture of innovation and encourage people to think beyond their routine work by providing resources and time. Encourage people for higher education. Invest in it. Help people for training-on-the job, job shadowing, mentoring, job rotation, and job enrichment.

Recommendation 3: Reward, Provide Incentives, Praise, Recognize Creative Efforts (Even without Solid, Immediate Tangible Outcomes) Justification. Giving incentives (monetary and other incentives) for creativity and recognition and praise will help them with further self-confidence to experiment more, strive for better creative efforts. Guidelines for Implementation. The management should take a broader view of the resources used, allowing for room, money, and time to be used for these innovative projects or “side projects”; some of them may currently appear meaningless and without any profit-producing potential. At the very least, recognize the efforts even if there is no creativity outcome and encourage further efforts.

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Recommendation 4: Cross-Fertilize Innovative Efforts across the MNC Organization Justification. Often, the different parts of an MNC organization have different innovative activities and projects. Have people doing similar projects communicate with each other for possible collaboration or sharing of innovative experiences. The HQ may be better suited to generate such communication. Guidelines for Implementation. Then MNC’s HQ should take the leadership role in creating the climate and encourage the creative culture across the MNC organization. The foreign subsidiaries’ top managers should communicate with each other about their foreign units’ current interests and activities so that they may also connect their people at their own initiatives.

Recommendation 5: Directly Connect Innovation to Competitive Advantage; Frequently Demonstrate This Connection Justification. Although the people should be encouraged to follow their own creative instincts quite freely, it would be beneficial to frequently make observations as to how certain innovations resulted in greater competitive advantage for the (MNC or foreign subsidiary) organization. Doing so would make people be more focused in their innovative activities or projects, and they will choose such projects as those which are more likely to benefit the organization. Guidelines for Implementation. Guide innovative activities gently, kindly. Encourage those projects which are of interest to the people, given their propensities. After several of these projects that are closer to their heart, the managers may encourage and channel them to consider other projects which, if solved, will directly benefit the organization.

Recommendation 6: Search for and Adapt the Best Practices in Innovation in the Same and Similar Industries across the World Justification. There are better practices in every activity. Different organizations would have different high performing activities. For example, one organization may be outstanding for R&D but not for efficiencies of mass economies of scale, and another organization might be outstanding for superior marketing and channel distribution but not as great for R&D. It is up to an organization to search for such practices in the same and similar industries and relevantly apply them to itself.

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Guidelines for Implementation. Through continuous study of industry practices in different countries, an MNC and its foreign subsidiaries should identify and extrapolate suitable and viable practices and adapt and apply them to its own needs.

Conclusions The growth of an organization would depend on its competitiveness which in turn would depend on the innovativeness of the organization. Innovation is the pillar which fosters creativity and, hopefully, collective problem-solving. Collective organizational creativity and innovation generates its competitiveness and enhances its survival. Creative and innovative activities across the MNC organization should be encouraged. They should be properly coordinated for connecting and combining similar creative and innovative interests across the MNC organization wherever feasible. The HQ and foreign subsidiaries leadership must pursue and realize the full potential of the organization’s innovative capabilities. Managers must consciously pursue creative projects and encourage innovative efforts. Similar viewpoints and arguments have been forwarded by other scholars (Arredondo, 1996; Herbrig and Gulbro, 1997; Pornpitakpan, 1999; Selmer and Lauring, 2011; Suutari and Burch, 2001). In the long run, proper investments in R&D, innovation, and creative and innovative organizational culture would help generate better future growth, market share, and profits. Investing in employee training, nurturing talent, mentoring people, allowing them for personal or pet projects which spark and use their creative juices, and later channeling them to organizational-specific projects would yield better organizational innovativeness and competitiveness. Growth then becomes an outcome of innovation and a creative, entrepreneurial organizational culture that encourages experimentation and well-considered and careful risk-taking, with an eye on organizational performance and competitiveness. Organizational culture should foster meaningful creativity and innovation as a way of life and as a pillar of the organization’s central value system.

Bibliography Arredondo, P. (1996). Successful Diversity Management Initiatives: A Blueprint for Planning and Implementation. Thousand Oaks, CA: Sage. Bandara, Y.M.W.Y., Sharma, K., & Chakrabarty, D. (2019). Trends, Patterns and Determinants of Production sharing in Australian manufacturing. Economic Analysis and Policy, 62, 1–11.

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Brief, A.P., Guzzo, R.A., & Schneider, B. (1996). Creating a Climate and Culture for Sustainable Organizational Change. Organizational Dynamics, 24(4, Spring), 7–19. Chang, E., & Taylor, S. (1999). Control in Multinational Corporations (MNCs): The Case of Korean Manufacturing Subsidiaries. Journal of Management, 25(4), 541–559. Chatman, J.A., & Jehn, K.A. (1994). Assessing the Relationship Between Industry Characteristics and Organizational Culture: How Different Can You Be. Academy of Management Journal, 37( June), 552–53. Deal, T.E., & Kennedy, A.A. (1983). Culture:  A New Look Through Old Lenses. Journal of Applied Behavioral Science, 19(4, November), 501–509. Finkelstein, S., & Hambrick, D. (1996). Strategic Leadership: Top Executives and Their Effects on Organizations. Minneapolis, MN: West Publishing. Harvey, M., & Napier, N.K. (2010). Mentoring Global Dual-Careers:  A Social Learning Perspective. Journal of Applied Social Psychology, 40(1), 212–240. Herbig,P., & Gulbro, R. (1997). External Influences in the Cross-Cultural Negotiation Process. International Management & Data Systems, 97, 158. Hindle, T. (1994). Field Guide to Strategy. Cambridge, MA: Harvard University Press. Karabell, Z. (2010). With Stocks, It’s Not the Economy. Time, August 2, p. 20. Kono, T. (1994). Changing a Company’s Strategy and Culture. Long Range Planning, 28, 85–97. Morgan, M. (1993). How Corporate Culture Drives Strategy. Long Range Planning, 26, 110–118. Muralidharan, R., & Phata, A. (1999). International R&D Activity of U.S. MNCs: An Empirical Study with Implications for Host Government Policy. Multinational Business Review, 7(2), 97–115. Pornpitakpan, C. (1999).The Effects of Cultural Adaptation on Business Relationships: Americans Selling to Japanese and Thais. Journal of International Business Studies, 30(2), 317–335. Robertson, C., & Fadil, P. (1999). Ethical Decision-Making in Multinational Organizations: A Culture Based Model. Journal of Business Ethics, 19, 385–392. Selmer, J., & Lauring, J. (2010). Self‐initiated Academic Expatriates: Inherent Demographics and Reasons to Expatriate. European Management Review, 7(3), 169–179. Selmer, J., & Lauring, J. (2011). Expatriate Academics:  Job Factors and Work Outcomes. International Journal of Manpower, 32(2), 194–210. Shin, S.J., Morgeson, F.P., & Campion, M.A. (2007). What You Do Depends on Where You Are:  Understanding How Domestic and Expatriate Work Requirements Depend Upon Cultural Context. Journal of International Business Studies, 38(1, January), 64–83. Sorin-George Toma, P.M., & Gradinnaru, C. (2016). Global Competitiveness and Innovation in the Period 2013–2015. Ovidius University Annals: Economic Science Series, XVI(1), 114–119. Suutari, V., & Burch, D. (2001). The Role of On-Site Training and Support Expatriation: Existing and Necessary Host-Company Practices. Career Development International (Bradford), 6(6), 298–312. Trice, H.M., & Beyer, J.M. (1993). The Cultures of Work Organizations. Englewood Cliffs, NJ: Prentice-Hall.

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Vachani, S. (1995). Enhancing the Obsolescing Bargain Theory:  A Longitudinal Study of Foreign Ownership of U.S. and European Multinationals. Journal of International Business Studies, 26(1), 159–173. Wang, Y., & Tran, E. (2012). Effects of Cross-Cultural and Language Training on Expatriates’ Adjustment and Job Performance in Vietnam. Asia Pacific Journal of Human Resource, 50(3, July), 327–350. Want, J. (1993). Managing Radical Change. Journal of Business Strategy, 15, 21–28.

chapter ten

Entrepreneurial Challenges in Reformulating Firm’s Corporate Strategy A Framework for Analysis

Innovativeness and growth are wonderful words. Companies and foreign subsidiaries love them. Companies find pathways to them. Their goals embrace them. Innovativeness and growth, once established as important goals, become integral parts of a foreign subsidiary unit’s corporate strategy. The two words inspire the managers, supervisors, and other employees. Stockholders and stakeholders love them. Stakeholders like them because their inducements would also grow. A priori directional or strategic choices and decisions that a company makes have a profound impact upon its fortunes and outcomes. Growth is among the challenges a small firm or a foreign subsidiary that is in an entrepreneurial mode will face. Strategic choices are often not among the most concerns of the foreign subsidiary manager who is more like an entrepreneur. Strategic analysis and decision-making are among the most important activities a foreign subsidiary has to undertake in order to survive, grow, be continuously profitable, competitive, adaptable, and self-correcting through organizational development, and thus be responsive to unpredictable future challenges in its host country setting. It involves the manager’s risk-taking and requires his strong romance with the business model and the business idea (its technology, products, and markets). Risk-taking is a prerequisite for the entrepreneur or manager in order to progress as he overcomes challenges that defy any guaranteed confidence level in the choices he may make or the alternatives for which he opts. The issues covered in this chapter include

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entrepreneurial innovation, foreign subsidiary’s corporate strategy, entrepreneurial strategic analysis, innovation, and strategy formulation. This chapter first presents a two-page framework for analysis of the strategic situation facing the foreign subsidiary which can be regarded as an entrepreneurial firm in an unfamiliar environment of its host country. We may view the foreign subsidiary as an entrepreneurial firm which starts to operate in its host country. The top managers of the foreign subsidiary in essence are the entrepreneurs in a new country setting even though they may bring from the HQ’s home country to the foreign subsidiary’s host country successful components, such as: a proven value chain, product and process design, business model, marketing plan and process, and organizational structure template. It then suggests how the foreign subsidiary entrepreneur may improve the corporate strategy to meet with future challenges. This is an important challenge to recognize because not only is the whole situation quite unfamiliar to the foreign subsidiary’s top manager (more so if he is an expatriate from the HQ home country) but also if the foreign subsidiary is operating in a very dynamic environment (Adomako, Narteh, Danquah, and Analoui, 2016). The pursuit of innovativeness and growth then must be tempered with a vigilance and preparedness to overcome challenges. When in an intense entrepreneurial mode, a foreign subsidiary unit’s innovation strategy is often considered to be its corporate strategy.

Introduction Innovation and growth are among the more generic goals of a foreign subsidiary organization, along with establishment and survival, profitability, employee satisfaction, competitiveness, organizational development, flexibility, and adjustability. After the establishment stage, an entrepreneur dreams of sustained innovativeness and growth. He seeks newer ways to pursue them. Innovativeness and growth are driving forces on which a firm’s leaders concentrate. Innovation and growth are among the more important goals once an entrepreneurial company has gone sufficiently past the establishment stage and the leaders are able to concentrate on the more strategic issues for the firm’s longer term performance. The pursuit of innovativeness and growth is often rewarding but it is challenging. When reformulating its corporate strategy, an entrepreneurial firm should follow the processes indicated in this chapter. The process of reformulating of corporate strategy is not without difficulty. It is nebulous and uncertain as there appear to be no finite set of procedures which would provide a consistent logical concatenation of cause-and-effect relationships of the firm’s activities. There are

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often not enough algorithmic capabilities and skills and, instead, one has to rely more on heuristics as an uncertain way of decision-making. The process is fraught with hurdles and yet the company must strive to solve problems and overcome difficulties. The approach in this chapter provides an entrepreneur’s feeling of confidence and that would, in turn, provide a willingness to assuredly raise one’s head to see over the immediacy and transcend beyond the extant anxious establishment stage. The entrepreneur is now able to set his or her (henceforth “he” expressly means either “he” or “she”) sights higher. The willingness for the entrepreneur to suspend the anxiety of the earlier establishment stage and whole heartedly seek out the future is an important personal choice. When an entrepreneurial firm reformulates its corporate strategy, it views its strategic situation (often called current analysis) and considers the strategic factors and formulates its corporate strategy. Growth is an important consideration as it pursues its future corporate strategy. In this context, it is important for him to willingly suspend some anxiety of the survival stage and focus his emotional and intellectual energies on how to flexibly and adaptively focus on the strategic issues of sustained long-term innovation, growth and progress, and achieving his goals.

Entrepreneurial Decision-Making, Activities and Growth In his study, Forbes (2005) argues that those entrepreneurs who display higher “entrepreneurial self-efficacy” (ESE), i.e., those individuals, who believe that they can capably manage and perform all the relevant tasks of entrepreneurship, were more successful in their new ventures. Further, Forbes (2005) found that such entrepreneurs themselves had not only felt and showed a higher level ESE and self-confidence, but they had also greatly involved their employees. In addition, they showed that they had a firm grasp of the current facts and had felt that they could manage the current situation. In this study, building on this “construct of entrepreneurial self‐efficacy (ESE),” the author found that the results indicated that “entrepreneurs exhibit a stronger belief in their own abilities when their ventures make decisions in ways that involve other employees, that are more comprehensive, and that incorporate more current information. Exploratory analyses also provide preliminary evidence that ESE enhances firm performance” (Forbes, 2005). Fernández-Pérez, García-Morales, and Pullés (2016) studied the effectiveness of cognition process and identification of strategic entrepreneurial opportunities, or as they call it, “strategic opportunity recognition” (SOR). They found that the

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influence of strategic schemas on SOR is quite high. The issue of the interrelatedness between the external social networks and entrepreneurial strategic flexibility through the CEO’s cognition process is an important one. They concluded that regarding the model of entrepreneurial strategic decision-making, the external social networks do in fact make “a positive impact on strategic flexibility and performance, depending on their composition and CEO-specific social and cognitive factors” (Fernández-Pérez et al., 2016). Their evidence also led them to conclude that the combined approach (of social and cognitive factors together), as related to nature of decision-making modes, resulted in a greater ability for the entrepreneur “to respond flexibly to their evolving environments” (Fernández-Pérez et al., 2016). Lyon, Lumpkin, and Dess (2000) studied the research issue of how an entrepreneurial firm can perform well when it is in an entrepreneurial stage of the firm. Involved in the study was the issue of the “three approaches to measurement: managerial perceptions, firm behaviors, and resource allocations” (Lyon, Lumpkin, and Dess, 2000). Their study concluded that all three together are simultaneously important to the greater effectiveness of a sound assessment of the entrepreneurial situation. Entrepreneurial activity does inherently involve the entrepreneur to pursue risk-taking and have a strong romance and obsession with an idea (Adomako, Narteh, Danquah, Analoui, 2016). Entrepreneurs bring a new idea or a new application to an existing idea in a way that would be marketable and therefore benefit mankind. Focus on the marketable aspects of the idea is an important one. When one considers the rationales of entrepreneurial decision-making, it is interesting to review the neuroscience issues. Studies have shown the inconsistencies in strategic decision-making and how that can affect the course of the firm’s performance (Mitchell, Shepherd, and Sharfman, 2011). They studied hostility and dynamism as how these two factors affect an erratic strategic decision-making outcome. Unexpectedly, they found that, in dynamic environments managers make less erratic strategic decisions. Similarly, hostility and dynamism interact in their effect on erratic strategic decisions in that the positive relationship between environmental hostility and erratic strategic decisions will be less positive for managers experiencing high environmental dynamism than those experiencing low environmental dynamism. (Mitchell, Shepard, and Sharfman, 2011)

Thus, hostility in the environment can cause more erratic strategic decision-making than dynamism in the environment. Similar findings revealed the need for a more focused approach, seasoned with greater practice in

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strategic decision-making under heavier environmental conditions (Mehrabi and Kolabi, 2012). In their study, Jumpponen and Pihkala (2008) found that in the case of the managers of small businesses in post-USSR Russia were able to manage the change with lessening of external control in their businesses and yet within reason perform well in the relevant business environment. They analyzed to see if the companies which still operated in hostile environment had aimed at firm survival or did they actively scan the environment for attractive growth opportunities. Their findings indicated that, although the business environment was often projected to the outside world to be better developed since the departure of the former USSR in 1991, however, in many respects, they indicated that the business environment was not conducive to rapid startups or entrepreneurial activity. Hostile environments affected the rate of establishment and start up because the entrepreneur was bogged down with obstacles and the less than satisfactory development of the infrastructure and government climate for new businesses ( Jumpponen, Pihkala, 2008). Individual human decision-making and activities are sometimes based on other factors as well. Lee and Hyojung (2016) studied the issues of the neural science of strategic decision-making. They found that the temporal parietal junction (TPJ) and medial prefrontal cortex (mPFC) are specifically involved in accurately predicting the behaviors of others during social interactions. (Further,) mPFC has an important role in the arbitration between multiple strategies and learning algorithms during individual and social decision making. (Lee and Hyojung, 2016).

Thus, the complex human mind runs through many algorithms before arriving at the preferred choice, often less than fully logical. They posit the argument that the process is dynamic and depends on other or outside factors, like social interactions. In this context they state, “… during iterative social interactions, choices might change dynamically as knowledge about the intentions of others and estimates for choice outcomes are incrementally updated via reinforcement learning” (2016). Thus, the entrepreneurial strategic decision-making process is neither “purely” rational nor consistent. The entrepreneur usually is the technical developer. He more so focuses on the evolving content of the product or service (Svoboda, 2006). He is less likely to know the management details. He often does not have enough capital to launch the project off the ground. He also lacks the marketing and promotional know how. He needs help in areas of management, finance, and marketing until he learns them or he has people who will capably direct them. For him, entrepreneurial

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decision-making is neither a science nor an art. He pays little attention to the decision-making process in order to become better at it through practice. He just does what comes to him (Ucbasaran, 2008). Growth and entrepreneurial activity are closely intertwined. All entrepreneurs usually place growth as a most important goal. Growth in itself is very appealing and most people associated with the new venture which is associated with a strong expectation of growth. Stockholders love it. Stakeholders like it because of the expectations that their own rewards would also grow. They focus on growth in the future as they make current investments and reinvestments in the entrepreneurial ventures. The pursuit of growth is rewarding but challenging. It is not without difficulty. It is fraught with hurdles and the company must learn to obviate and overcome them. A priori directional or strategic choices and decisions that a company makes have a profound impact upon its fortunes and outcomes. Risk-taking behavior and, in particular, “gambling” propensities in decision-making circumstances of uncertainty are relevant here as we study entrepreneurs’ risk-taking behavior in the pursuit of an identified opportunity (Forbes, 2005; Lorains et al., 2014; Venkatraman and Huettel, 2012). Growth and entrepreneurial activity are viewed synonymously in risk-taking and the pursuit of an opportunity because they are very closely interrelated. All entrepreneurs crave for their entrepreneurial project to get off the ground and rise. In doing so, they may sometimes take undue risks or a hurried and incomplete analysis and decision-making process (Ucbasaran, 2008). In his study, Vermeulen (2006) felt that there should be more research on strategic decision-making for smaller and entrepreneurial firms, commenting that there is a greater body of research performed on larger organization. He developed a typology of entrepreneurial decision makers. He concluded from his empirical study of 646 entrepreneurs that there were five distinct types of decision makers:  Dare Devils, Lone Rangers, Doubtful Minds, Informers, and Friends and Busy Bees (Vermeulen, 2006). The study of entrepreneurs’ thinking and decision-making has been a point of interest to many. This includes the study of entrepreneurs’ decision-making in extreme circumstances of high uncertainty, time pressure, emotionally charged decision-making situations, and other consequential extremes. In their study, Shepherd, Williams, and Patzelt (2015) reduced the initial number of research from 602 wider scope articles to a shaper focused scope of 156 articles. Their findings indicate that the entrepreneur’s primary activities are: “opportunity assessment decisions, entrepreneurial entry decisions, decisions about exploiting opportunities, entrepreneurial exit decisions, heuristics and biases in the decision-making context, characteristics

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of the entrepreneurial decision maker, and environment as decision context” (Shepherd, Williams, and Patzelt, 2015). In this context, it may be observed that strategic management, which would include strategic data gathering, analysis, and decision-making, is a vitally important activity that a company must perform for future viability and continuous competitiveness and growth. It has to steadily and sustainably grow. Ideally, growth patterns should be consistent. A company’s growth ideally should be such that the company is continuously showing steady profits. It should strive to be increasingly competitive, and it should improve its adaptability. An entrepreneurial company, usually a small firm with fewer employees than needed to perform a proper data gathering and data categorizing and strategic analysis and decision-making, is not appropriately suited for pursuing an effective, mature, and professional formal strategic management process. An entrepreneurial firm should pursue organizational development activities so as to identify and solve its own problems and address its issues. In essence, it should become self-reliant and self-sufficient in so far as being able to correct itself if it goes on an undesirable direction. Ideally, it should do these self-correcting activities through sustained organizational development activities. In this way, it has a better chance of proactively managing its future challenges and difficulties, whether they are anticipated or unanticipated. The chapter’s major thrust is to present in a table a two-page framework for analysis. Table 10.1, with its two pages, provides: (1) the present situation and the circumstances that led to the present situation (the first page of the table) and (2) the future strategy (the second page of the table). There are some basic methodical issues when briefly filling out the details in the two-page table. The first page should be completed before going on to the second page. That is to say, the entrepreneur needs to analyze the circumstances that led to the present set of organizational situations. He then needs to analyze the overall set of circumstances. After assessing the reality of the current situation, he should focus on formulating future strategy which is the second page of the table. The entrepreneur is usually most concerned about the product and technology, and how he plans to promote it to the market. His concern of technological details of the product and the operational details of the service aspects keep him quite fully occupied with the immediacy. Such preoccupation with the immediacy keeps him focusing on the future, strategic issues. These future, strategic issues are important and they are raised in this chapter. He must be aware of his strategic intent if he is to be effective in his formulation of the future strategy (Hamel and Prahalad, 1989).

Copyright 2016. International Journal of Business Management and Research

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Source: Adapted with permission from, “Entrepreneurial challenges in re-formulating a firm’s corporate strategy: A framework for analysis” (2016), by Y.H. Godiwalla, International Journal of Business Management and Research, October, 6(5), 43–52.

Table 10.1: (Page 1) Reformulation of Foreign Subsidiary Unit’s Corporate Strategy: The Current Strategic and Operating Analysis – Page 1 202  the foreign subsidiary : working within a n i n t e r n ati o n a l f i r m

Copyright 2016. International Journal of Business Management and Research

Source: Adapted with permission from, “Entrepreneurial challenges in re-formulating a firm’s corporate strategy: A framework for analysis” (2016), by Y.H. Godiwalla, International Journal of Business Management and Research, October, 6(5), 43–52.

Table 10.1: (Page 2) Reformulation of Foreign Subsidiary Unit’s Corporate Strategy: The Major Projected Future Trends and the Projected Future Strategy – Page 2 entrepreneurial challenges in reformulating firm ’ s corporate strategy  | 203

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Current and Future Analyses: The Past Three Years, Emphasis on the Last Year and Projections for the Future The two-page table is a comprehensive, at-one-overall complete glance table of all the major factors which could be possibly relevant to the entrepreneur firm’s strategic analysis and decision-making. The entrepreneur needs to develop a clear understanding of his evolving current situation, and what circumstances brought his firm to the current situation; and, consequently, what the current situation may linearly lead to a situation in the future. In doing so, he should review the trends of the past few years of information, but give greater weightage to situation in the last one year. His method for a comprehensive review analysis should be to have at one, complete glance, all of the picture so that he can assess the current situation. He should see the problems as a whole and not break them into their constituent pieces. Overall grasp is vital rather than fragmented bits of causes. In this way, he can integrate and interrelate all the more important issues and factors which are or could be pertinent to a particular decision-making for future action. Page 1 of the table provides him with a perspective when it is completed. His foreign subsidiary firm’s organizational environments, both internal and external, would give him a full grasp of the quality organization’s performance. In particular, he should know his company’s competitors and what his strategy’s major components are (Porter, 1996, 1998). Once he is even more consciously aware of the firm’s currently pursued strategy, he can focus on the external analyses of major opportunities and the accompanying threats and risks. These are critical to an entrepreneurial firm, particularly in its early stages, so that the firm can focus upon effectively exploiting its profitable marketing opportunities. Because the scarcity of resources can be an important problem in a competitive situation, he must also check for and ensure the efficient use of resources (Brown and Eisenhardt, 1998). As it is delineated in page 2 of the table, the entrepreneur must analyze all aspects of his likely or projected future strategy (in its broad form), particularly on such issues as the new products-services and the new markets that he is trying to create and pursue (Kim and Mauborgne, 1999). His major task is to first conceive the new or modified/extended products and services for new or extended markets, and then promote the newly formulated products and services to the newly conceived markets. In doing so, he must he must skillfully combine his firm’s strengths which are needed to exploit the profitable market opportunities, contain its vulnerable weaknesses, deflect its threats, and solve problems. These issues and approaches may well become the cornerstone of the future strategy, as in page 2 of the table. Indeed, these issues may even become the components of the strategic

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intent of the future strategy. He needs to manage his firm in an uncertainty even after he scans the external environments for critical information (Elenkov, 2000). Such an approach would enable him to assess his own propensity to deal with uncertainty and manage in difficult circumstances. In analyzing the organizational strengths-weakness profile, he should make a judgment about the extent to which the organization is capable of meeting its current and near future challenges with a favorable cost-benefit analysis (Gadiesh and Gilbert, 1998). The thrust of his analyses should be on how he can make his organization more effective so that his firm’s strengths may yield better performance (Stalk, Evens, and Shulman, 1992; Watson, 1993). The two-page framework, contained in the table, is a working document to help him in analytical thinking and to raise and pursue discussions and to make intelligent and informed decisions. The at-one glance framework is meant to raise his conscious level about the factors in the framework so that he makes analysis and decisions based on factually and rationally inferred intervening, intermediate conclusions and decisions. This decision-making approach and process may be difficult, but they are achieved through a comprehensive review of multiple issues and many facets, and they would weigh in diverse arguments and judge the pros and cons of arguments in order to finally decide on a single course of action. Page 1 of the table provides a complete overview of the organization’s internal strengths-weakness profile and the past performance (through its profitable market opportunity pursuit endeavors) in the context of the recent past and current corporate strategy. Page 2 provides a set of likely, projected future scenarios from which the entrepreneur may make informed choices, directions, and strategy for the future. The two pages of the table provide a comprehensive framework for analysis and decision-making. They also afford him the way for effective reflection and review of the information in order to correctly consider all the relevant facts and information at one glance. The table is perspicuous and his overall comprehensive grasp in a single-sitting, a one-glance would provide him with an integrated review. It is not as if he has different straws of stray thoughts flying around him, without meaningful coherence and without his own consolidated comprehension. Instead, with the use of the framework, he would now experience more meaningful coherence, integration, and insights.

Assessment of the Recent Trends and Activities, and Projection of the Future Scenarios Page 1 of the Table 10.1 provides for a review of the current situation and would enable one to conceive a linear projection of various scenarios and trends leading

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to the future. Page 2 provides for a review of the further projected future trends. In Page 1, the approach of an assessment of recent trends focuses on the important external environments and the proposed changes in the firm. Gathering important information, compiling, and categorizing it in a taxonomy (within the columns of the table), and then analyzing it would lead to some trends and generate important inferences as to what may be the effective future course of actions. The pursuit of analysis and review of trends requires a review of newer events that raise the level of uncertainty in an increasingly unpredictable and uncertain world. Subsequently, the firm may develop the firm’s corporate strategy of the next cycle. The internal analysis focuses on products’ performance as expected by the market, including the competitor component. Strengths and weakness analysis would brings to the fore a realistic situation and generate an audit of current capabilities and potential capabilities of the firm. This creates a spectrum of what the firm can and cannot do in the short and long run. Benchmarking and improving are closely related and they must be closely integrated. These are important issues and they must be brought together. Benchmarking involves the various types of comparisons: (1) they could be comparisons with the other firms in the relevant reference groups in the same industry and other industries which bear some vital similarities; or (2) they could be comparisons with the same firm’s past performances in similar, comparable circumstances or similar period; or (3) they could be comparisons with other nonsimilar firms in the different businesses and technologies but having similar stages of entrepreneurial growth, comparisons with other firms, irrespective of industry, but whose entrepreneurs are of similar mind-set and personalities and possess similar entrepreneurial drive and characteristics. The market’s service needs escalate as the market grows and the market becomes more sophisticated. This would lead to greater awareness and selectiveness on the part of the customers, now more fastidious. It is particularly more manifested when the market’s players (customers and users, channel distribution members, independent service suppliers, competitors, regulators) are more fully informed, and where the different market players bear a rapid, near equalized and balanced information uploading. That is to say, when all the major players possess about the same up-to-date information very quickly. When all the needed information is fully available and product and service details are transmitted to all market players in real time, one can expect that the market will make better, realistic decisions about the trends affecting the industry. The entrepreneurial firm should focus on generating a greater resource base in order to derive the information and process it correctly and timely, make effective decisions, and execute them for the benefit of the entrepreneurial firm. Thus, the

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entrepreneur needs to be more focused and improve his products and services and make proper decisions. The firm may also need to evaluate its business lines and specific strategies as it improves its technological capabilities and people’s technical, managerial, and marketing skills and resources. These are needed in coping with the challenges of growth. The final part of page 2 of the table is to formulate the corporate strategy of the next cycle. The needed resources and the strategic intent are important aspects of this activity. The current review often provides with a “standing on solid ground” feeling because it is based on events that have actually taken place. The future scenarios are usually more influenced by and dependent on the events emanating from the external environments. Thus, external and future orientations are the very basis of a strategic approach. The entrepreneur must also be more future and external oriented. The analyses of the two pages must be combined as a comprehensive and an integrated framework for decision-making for future actions and future scenarios because the focus is on the continuous long term from the here and now. The approach of an integrated review engenders the grasp of the connectedness between the present and the future. This aspect of connectedness is important for a higher confidence level for the entrepreneur. Where he first was delving in the nebulous, the unknown, and the uncertain, he now has some better grasp of the connectedness of the present with the future, a sense of continuity that deflates into a feeling of helplessness and lack of control over the events. And, where there is disconnection between the present and the future, his presence of mind, flexibility, adaptiveness and creativity, and resourcefulness would acquit him; for, no corporate strategy should be cast in concrete and it should allow for unanticipated scenarios, good and bad. The growth of the firm’s performance along a chartered course makes him more confident of the entrepreneurial process.

Recommendations Recommendation 1: Focus on Establishing with Three “M”s: Money, Marketing, and Management Justification. The initial establishment of the foreign subsidiary firm requires the critical three “M”s: money, marketing, and management. The startup is an uncertain process because of the relative newness or unfamiliarity of the environment. This feeling of strangeness might linger even if the foreign subsidiary has established itself for a few years ago.

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Guidelines for Implementation. In this stage, the focus should be to keep providing faster doses of: (1) money; (2) trained, talented, and versatile human resources; (3) marketing (including advertising, promotion, channel distribution, and customer service); and (4) proper management of the organization.

Recommendation 2: Proper Analyses Using the Two-Page Framework in the Table Justification. The systematic approach to analyses is helpful in assessing the situation and understanding the causes of the current situation. This would induce to make more analytical decisions that are based on appropriate information and useful data. Guidelines for Implementation. Focus on information gathering, interacting with external entities, collate and compile information, and make proper assessments of the current situation. After comprehensive analyses of the current situation, the foreign subsidiary managers should decide on the future directions and strategies.

Recommendation 3: Enact Early the Important Segments of Host Country Environments Justification. In the setup and subsequent stages, the foreign subsidiary must discriminate the more important from the less important external segments in the host country. By enacting early the more important segments of the host country environments, it will set up useful organization-environment linkages. The important segments will recognize the foreign subsidiary firm as a business entity in a more favorable light which would prove to be beneficial for the growth of the foreign subsidiary. Guidelines for Implementation. By focusing on the more important and the immediately needed services, the foreign subsidiary would be able to set priorities for its proper entrepreneurial progress and further, fuller establishment in the host country.

Recommendation 4: Recruit and Integrate More Host Country, Local People Justification. By doing so the foreign subsidiary would have local people with local knowledge, mind-sets, and contacts, and this would help the foreign subsidiary’s top managers in formulating and using the more correct applied rationales of decision-making and better practical approaches.

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Guidelines for Implementation. Screen carefully for the people of the host country. It may be helpful to hire the local origin people with the home country education and professional experience. For example, for a United States MNC, hire and train a person of its foreign subsidiary’s host country origin and who also has the United States educational and professional backgrounds. This would be a good and lucky recruit.

Recommendation 5: Exchange Promising People between HQ and Foreign Subsidiary Justification. Exchange of promising people (particularly host country nationals) between HQ and foreign subsidiaries will enable a host country person to gain the overall organizational philosophy and make personal contacts with the people at the HQ. These would be useful upon his return to the foreign subsidiary. Now he would have “the best of the two worlds”:  (1) the local, host country acumen and culture and (2) the HQ organizational philosophy, perspectives, policies, and procedure. Guidelines for Implementation. Carefully recruit host country origin people fresh out of the universities in the MNC HQ’s home country and who may have worked in the MNC HQ’s home country to gain the home country experience, and then inculcate in the MNC’s organizational philosophy, values, and internal policies and procedures. He will grow up as a real MNC organization man.

Conclusions The table provides for the convenience of an “at-a-glance” review and analyses for helping an entrepreneur to: (1) correctly assess the current reality and analyze it (page 1 of the table) and (2) make intelligent and educated projections for the future and reformulate the firm’s corporate strategy (page 2 of the table). This table addresses the challenge of achieving comprehensive, overall current and future views. It also helps the entrepreneur in being more detailed, yet more overall (to see problems as “wholes”) in his complete grasp of the organizational situation so that he can formulate future strategies. The benefits of innovation, risk-taking entrepreneurial activity, and growth are important aspects for a foreign subsidiary entrepreneurial firm as its leaders eschew the temptations of random, excessive, unreasonable, or irrational risk-taking that is likely to result in less than desirable results. The focus of the review and analysis of the table is on important issues of the current analysis of the known entities

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and events (analysis that is derived from page 1 of the table), and also the probable future events if the firm were to follow a particular course of events (analysis that is derived from page 2 of the table), such that the two combined would generate a higher level of confidence of the future courses of actions that the entrepreneurial firm’s leaders are contemplating. The continuity of the present into the long-term future is important for the entrepreneur because of the desire to keep his both feet on the ground and hold the reigns of the future as he chariots his firm over the horizon and into the future. By his very innate romance and obsession with his entrepreneurial idea, his venture, his products, his services, his customers, and his markets, all of which he wants to increasingly enact, and his sacrifices, and, in fact, putting his whole life on line, he is willing to see only the optimistic, rather than the realistic, side of the review and assessment of his firm’s current and future internal and external environments. He is only convinced of what is possible, even if only remotely possible. His desire to share the benefits to the mankind of his unique idea, as the inspiration soon dawns on him, is that his burgeoning enterprise will override any and all anxiety of uncertainty and any fear of the future. He is wholly optimistic and he has not a shred of reservation. It is from the extant, from the present, and even the portentous, from here and now, to the future and beyond that he is fully focused on his romanced idea. This total immersion in his infant venture brings forth his enthusiasm and drive to forge through the future as uncertain as it may be. Innovation and growth, twin born with his risk-taking, romance, and progress, propel him to seek newer and riskier approaches when older methods do not yield the desired results, often apparently if not for anything but to be different and for the sheer excitement of it. Innovation applies not only to creatively improve its engineering type of R&D of the product design and of its operating technologies, but also to the innovation of the business model through critical review and creative rethinking of the way a firm does its business and performs its internal operations and the ways by which it relates to all its stakeholders. Growth will be his obsession once he establishes his entrepreneurial firm. This is because, with increasing sales and enlarging markets, there can be no higher complement to him than an increasing acknowledgment and acceptance of his products and services. His desire to grow and have his infant venture, acknowledged as a meaningful, relevant, and worthwhile enterprise, would drive him to prove others wrong and himself right, no matter the high personal cost and the grave business danger. In his desire to further his earlier success, he seeks the pursuit of expanding his marketable opportunity, often without much regard to the extant attendant risks, threats, challenges, and costs. The line dividing good sense and good judgment, on the one hand, and nonsense, on the other hand, does not exist for him. He is the

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pioneer for whom no sensible analysis, no reasonable, cautious decision-making exist. As the steward of his future project, he and he alone is the bright star, the great defender, the sole proponent. Only he can propel the project. Only he can bring his great idea to a glorious fruition. He strongly feels that he has to spearhead his project as if he is the standard bearer and all his energies will conquer all obstacles, threats, and challenges, known and unknown. His grasp of the overall situation is vital for proper analysis, review, decision-making, and action.

Bibliography Adomako, S., Narteh, B., Danquah, J.K., & Analoui, F. (2016). Entrepreneurial orientation in dynamic environments. International Journal of Entrepreneurial Behaviour & Research, 22(5), 616–642. Brown, B., & Eisenhardt, K. (1998). Competing on the edge: Strategy as structured chaos. Boston, MA: Harvard Business. Elenkov, D.S. (2000). Strategic uncertainty and environmental scanning: The case of institutional influences on scanning behavior. Strategic Management Journal, 18, 287–302. Fernández-Pérez, V., García-Morales, V.J., & Pullés, D.C. (2016). Entrepreneurial decision-making, external social networks and strategic flexibility: The role of CEOs’ cognition. European Management Journal, 34(3, June), 296–309. Forbes, D.P. (2005). The effects of strategic decision making on entrepreneurial self‐efficacy. Entrepreneurship Theory and Practice, 29(5), 599–626. Gadiesh, O., & Gilbert, J.L. (1998). Profit pools:  A fresh look at strategy. Harvard Business Review, 76(3, May–June), 139–147. Hamel, G., & Prahalad, C.K. (1989). Strategic intent. Harvard Business Review, 67(3, May–June), 63–76. Jumpponen, J., & Pihkala, T. (2008). Entrepreneurial decision making in Russia—Strategic management in hostile business environment? International Council for Small Business, World Conference Proceedings, 1–19. Lee, D., & Hyojung, S. (2016). Neural basis of strategic decision making. Trends in Neurosciences, 39(1, January), 40–48. Lorains, F.K., Dowling, N.A., Enticott, P.G., Bradshaw, J.L., Trueblood, J.S., & Stout, J.C. (2014). Strategic and non-strategic problem gamblers differ on decision-making under risk and ambiguity. Addiction, 109(7), 1128–1137. Kim, W., & Mauborgne, R. (1999). Creating new market place. Harvard Business Review, 77(1, January–February), 83–93. Lyon, D.W., Lumpkin, G.T., & Dess, G.G. (2000). Enhancing entrepreneurial orientation research: Operationalizing and measuring a key strategic decision making process. Journal of Management, 26(5), 1055–1085.

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Mehrabi, R., & Kolabi, A. (2012). Investigating effect of entrepreneur’s personal attributes and cognitive heuristics on the quality of entrepreneurial strategic decision making. Global Business and Management Research, 4(2), 178–192. Mitchell, J. Shepherd, D., & Sharfman, M. (2011). Erratic strategic decisions: When and why managers are inconsistent in strategic decision making. Strategic Management Journal, 32(7), 683–693. Porter,M.(1996).What is strategy? Harvard Business Review,74(6,November–December),  65–67. Porter, M. (1998). Clusters and the new economics of competition. Harvard Business Review, 76(6, November–December), 77–90. Shepherd, D.A., Williams, T.A., & Patzelt, H. (2015). Thinking about entrepreneurial decision making. Journal of Management, 41(1), 11–46. Stalk, G., Evans, P., & Shulman, L. (1992). Competing on capabilities: The new rules of corporate strategy. Harvard Business Review, 70(2, March–April), 57–69. Svoboda, E. (2006). Methods of strategic decision making in the management of entrepreneurial subjects. Journal of Central European Agriculture, 6(4), 597–602. Ucbasaran, D. (2008). The fine ‘science’ of entrepreneurial decision-making. Journal of Management Studies, 45(1), 221–237. Venkatraman, V., & Huettel, S.A. (2012). Strategic control in decision-making under uncertainty. European Journal of Neuroscience, 35(7), 1075–1082. Vermeulen, P. (2006). Strategic decision-making in small firms: Towards a taxonomy of entrepreneurial decision-makers. EIM Business and Policy Research 2006. Watson, G.H. (1993). Strategic benchmarking: How to rate your company’s performance against the world’s best. New York, NY: Wiley.

chapter eleven

Organizational Innovation for MNC and Foreign Subsidiaries

Organizational innovations include and even go beyond technical or engineering innovations. They also review such topics as strategic issues of innovating the scope and mixes of businesses and products, mixes of products, and scope and mixes of the geographical regions that the MNC would enact. For example, they can have multiple applications of a basic product and process design for generating multiple product and process applications to improve the economies of developmental and innovational investments. Other examples of innovations can also focus on changing operating activities like improving the value chain and the manufacturing or operations of the organization. These organizational innovation improvements could result in many possible benefits, such as cost savings, improved competitiveness, widening product offerings, and organizational effectiveness as it strives to achieve its organizational goals and generally its long-term performance. Often, the corporate strategy and innovation strategy are fused. A multinational corporation (MNC) should innovate, both: technologically and organizationally. An MNC should nurture the organizational culture for better employee development and positive engagement, as it seeks to improve its competitiveness, growth, market shares, and profitability. It should pursue the practices of organizational development and change. These practices would facilitate organizational innovation and renewal. It should develop comprehensive organizational

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innovation strategies. Innovation should be a way of life and the spirit of innovation, like the spirit of entrepreneurship, must be nurtured. Effective corporate strategies, at both the MNC and foreign subsidiaries levels, are vital for the overall MNC’s organizational success. An MNC should analyze and, where appropriate, consider to renew an MNC’s technologies, business models, industry-mix, business-mix, region-mix, and country-mix and, as applicable, develop better processes, products, industries enacted and business ventures, cross-border collaborations, and country markets. The CEOs at headquarters (HQ) and at foreign subsidiaries, as the primary architects and leaders of corporate strategies and organizational innovations, at the overall organizational and foreign subsidiaries levels, respectively, should exert strong and activist leadership for ensuring long-term survival, competitiveness, and growth. The issues covered in the chapter include: organizational innovation, strategic international growth, international competitiveness, innovation, and corporate strategy.

Issues of Technological and Organizational Innovation Innovation in foreign subsidiaries can take different forms depending on the history of innovation in an MNC. For example, if an MNC has an approach of allowing partial or full participation of the foreign subsidiaries for collaboration in innovation, then they will have a better innovative culture. If not, then it is possible that they might not have much of an innovative culture. Innovation is a long-term investment. It generates tangible and intangible outcomes. Tangible outcomes include improved products and processes, better reputation, increased profits, improved market shares and market standing, and better infrastructures for future innovations. Intangible outcomes include the creation of a culture for innovation, an atmosphere of newer and diverse ideas and creativity and experimentation, willingness for cross-fertilization of ideas and for collaborations, and an improved focus on pursuing technical possibilities and on market orientation and customers’ applications. Sustained cross-border and interorganizational collaborations and partnerships would lead to synergies and an exponential increase in innovations and experimentations. Good innovative organizations would pursue total and overall innovation, over and above pure engineering and technological innovations. Organizational innovations, while including engineering and R&D types of innovations, also address the ways organizations do business and manage themselves. Organizational innovations help to review and change our assumptions about who we are as an

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organization and what and why we do our business as the way we do. They may review and change the fundamental business model and organizational model. As an example of reconfiguring the scope, content, and nature of business, one may review the example of Gould (once called, Gould National battery Company), which had discarded the battery and automotive parts business and went into high-tech, electronics industries (Flanigan, 1988). Going back in time, it had been making car batteries, other engine parts, and ball bearings. It had less than $500 million in sales, but it made good products and the profits, which were good, were plowed back into the business. However, later on, the higher expected profits did not follow. The company’s CEO became impatient and wanted to get out of the old business and go into newer, modern technologies. He wanted to do something different from making the old products like automotive batteries and auto parts, like ball bearings. So, he sold its old businesses and bought electronics companies. Sales climbed to $2.5 billion. He wanted to go into more attractive business. He had changed the scope and primary purpose of the business of his company. This is an example of changing the primary purpose of and the type of business. Organizational innovations may address issues that result in changes in the primary purposes, e.g., changes in product, business, industries, and geographical regional-mixes, and pursue retrenchments or increases in current businesses or enter into newer business, and other issues dealing with the future scope, nature, and content of an organization’s activities. Organizational innovations may similarly help in reviewing potential changes in the market-mix (customer groupings and geographical regions), and consider launching newer approaches such as increasing or decreasing an organization’s engagements into these market categories of customer groupings and market regions. In all these organizational innovations, an MNC must focus on sustained future growth and competitiveness. These are better pursued through getting out of the mold of routineness and mechanistic organizational life, and getting into vigorous creativity entrepreneurialism and innovativeness.

The Purpose of the Chapter This chapter deals with organizational innovative strategies for an MNC. It presents models for innovation strategy. An MNC’s HQ, its various regional HQs, and their foreign subsidiary units’ HQs, must collectively function in order to innovate. The spirit of organizational innovation and renewal should be viewed as an ongoing continuous activity for the purpose of meeting the challenges arising out

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of competition, market changes, and technological advances. Thus, growth and profitability are organizational goals that are better sustained through innovative, creative, and entrepreneurial endeavors. Organizational innovation activities include: the rethinking of the entire value chain, the business model, the marketing plan, and technical issues.

A Review of Literature There are multiple facets of the study of international organizational innovation activities because they deal with different countries. In the organizational innovation efforts across the MNC, the HQ and foreign subsidiaries’ top managements must cope with different cultures, different standards of technical requirements or regulations and infrastructural developments, and different organizational cultures of the foreign subsidiaries. It is vital to have effective management of the cultural differences and operational variability and uniqueness among the foreign subsidiaries within the MNC organization (Brett and Doz, 2016). The cultural and operating differences pose challenges to the HQ, in addition to the varying levels of innovative enthusiasm among the foreign subsidiaries. A  strong and intense innovation drive by the HQ to increase organizational innovation may prove useful, and yet on occasions it may prove to be counterproductive if the foreign subsidiaries are not in sync with the HQ’s organizational innovation pace. Managing the cultural and operating differences aspect among the foreign subsidiaries is as important as managing organizational innovation aspect among them. It is not just the technical and other organizational innovation management, but also the cultural and operating differences management that are the prime jurisdiction of the HQ’s top management. The HQ’s strategic and organizational leadership in viable ways are vital for the long-term survival, competitiveness, and growth of the MNC as a whole.

George Bernard Shaw’s Great Influence around the World George Bernard Shaw, the Irish-British dramatist, or G.B.S. as he was also fondly known, was famous around the world. He had enormous influence on the peoples of the world. He enthralled the peoples with his plays which were his mouthpiece for questioning anything and everything. He used his plays to project his views on social change. Through his plays, he made people think. He entertained his

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audience with his plays such as Pygmalion (later adapted as My Fair Lady), Man and Superman, Major Barbara, and Saint Joan. He is one of only two people who have won both awards, the Oscar and the Nobel. When he died on November 2, 1950, “all the illuminated signs on Broadway and Times Square (in New  York) were dimmed in salute.” It was a tribute to this most influential man (O’Toole, 2017a). At Shaw’s death, Jawaharlal Nehru, the first prime minister of independent India, said, “He was not only one of the greatest figures of his age, but one who influenced the thought of vast numbers of human beings during two generations.” Albert Einstein said of him, “Shaw is undoubtedly one of the world’s greatest figures both as a writer and as a man” (O’Toole, 2017b). He first lectured his liberal reform on soap boxes in London, like politicians then did, to try to introduce his new ideas into the rigid, conservative Victorian society. When his views were not accepted by the upper establishments and conservatives, he explained his socialistic and radical views to anybody and everybody, from “the University don to the London washerwoman.” He took his cause to the common people. He got a wider audience when he turned into a successful playwright, and he entertained people and passed on his message of social change. The spirit of Shaw (of challenging the current values, ideas, and practices) is very relevant to the chapter because we should question conventional assumptions and practices when we pursue true organizational innovation. Great innovators had this as the common trait. Not questioning issues and not challenging assumptions are considered lazy and unacceptable to such independent thinkers. They blaze new trails. All progress comes from the unreasonable people who try to change the world around them according to their own views. Fintan O’Toole (2017a) said of Shaw: That influence could be summed up in one bracing imperative: the duty to be a skeptic. He challenged his readers and audiences to burst bubbles of conventional wisdom on almost every issue imaginable, from the rightful place of women to the pretensions of empires, from the glory of war to the treatment of animals, from homosexuality to children’s rights, from religious doctrine to the treatment of the poor. When Shaw’s demolitions of received ideas provoked outrage and obloquy, he courageously defended his intellectual independence. He abhorred cruelty and made mincemeat of propaganda.

The important point of this part on George Bernard Shaw is to remember that the raising and questioning of assumptions is an important part of organizational innovations. Questioning the ways we do our work in our organizations, even if they have been in practice for very long, is an important step before we can innovate and improve our organization’s performance. The dismantling of the old order

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and older practice is a perquisite step before we can build a new order. The raising and questioning of issues and assumptions is vital as the spirit of the inquiring mind brings and seeks innovation. This critical thinking in the true spirit of creativity and constructive criticism is vital. The people who question and raise issues are not looked upon favorably, yet they are the precursors of innovation. Critical and creative thinking, including constructive criticism, with a clear constructive plan for the future, while often uncomfortable and meeting unwelcome reception, must be encouraged. These are the components of progress. Later on and ultimately, it is up to the people to accept the progress if it is viable to them and it shows superior performance.

Thomas Edison’s Approaches for Innovation Thomas Edison, one of the greatest inventors of the United States, has many great ideas of the methodology for those who want to engage in innovation (Gelb and Caldicott, 2007). These ideas are summarized here. Thomas Edison was always wrapped up in his innovations. He was obsessed by them. His innovation methods and activities are legendary. His methods are superb and exemplary, and they are briefly recounted here. Solution-Centered Mind-Set. Thomas Edison had a phenomenal mind buzzing with ideas, and he kept it focused on finding solutions. His solutions-centered mind-set was focused on specific goals; and his persistent experimentation, characterized by objectivity, would lead him to discover the issues and the solutions. In this context, the solution-centered mind-set would be tantamount to customer orientation because the strong focus on solving the customers’ problems would bring about, as Thomas Edison called it, “the happiness of man.” Kaleidoscope Thinking. He would turn his head sideways and see the same information from different angles, different perspectives, and in different light; and he would find different approaches that would lead him to unlikely, but worthwhile solutions. He absolutely reveled in creating and reviewing concepts and ideas. He was a fountain source of newer and diverse ideas. He kept on generating them. He was not only burgeoning with new concepts, he also reviewed old concepts in newer ways. He was a powerhouse of ideas. Write Notes and Notes, Keep Notebooks. He made detailed notes and drew many sketches of his inventions. He made detailed accounts of his experimentations and their results. His lawyers had told him to do so diligently in case he had to use them to defend his inventions in a patent’s court. These notebooks were of great use for him and his people to refer to past work so that they would find answers to

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the current innovation problems in case the future solutions lay hidden in the past experiments. Reviewing them, in addition to refreshing his memory, also would help him to find newer ideas and newer concepts. The reviewing would trigger his creativity and imagination. Such reviewing helped him to connect ideas across many current and potential projects, pursuing broader thinking, into initially seemingly unrelated issues. Doing these activities helped him to find uncommon solutions that would have been elusive with traditional linear thinking. Work at Intense Pace, Relentlessly. Edison worked tirelessly and with intense passion, fully engaged to pursue his solutions no matter how challenging they were to grasp them. He pursued his projects with complete zeal and total dedication. He had an obsession beyond compare. Collaboration. Edison fully believed in collaborating with his team. His strength was in his teamwork-like efforts which he personally led. He believed in free and frank exchange of views, and he believed in open question and answer sessions as these were vital to keep the research inquiries alive and thriving. He invited and respected contradictions to his own thinking. He would draw from different people different skills and expertise. He relied on problem-solving and creative energies form all people. Creation of Super Value. Edison truly believed in the customer orientation. He believed that he should work tirelessly for, as he called it, “the happiness of man.” This meant that he should study the needs of the customers and the characteristics of the market and find solutions for the benefit of mankind. His customer-centered activities were wrought out of the motives to improve the lot of mankind.

MNC’s International Growth and Innovation Strategies for Success An MNC’s foreign subsidiary can be made to be a fertile hot bed for innovation. Philips of the Netherlands has most of its R&D and innovative processes done by its foreign subsidiaries. The challenge of becoming increasingly more international is to nurture new, useful ideas wherever they spring up. These ideas spring up from all sources. Such ideas can be small, but when viewed cumulatively, they can affect substantial competitive advantage. Growth focus innovative ideas are often generated by foreign subsidiaries (Birkinshaw, 2001). Because an MNC’s foreign subsidiaries can be in far-flung theaters of an MNC’s global environment, each subsidiary can focus upon the specific needs of the host country and nearby regional countries for developing newer strategies to meet with emerging demands and challenges.

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Foreign Subsidiary’s Innovation Processes Dealing with foreign subsidiaries can be a sensitive issue. Good approaches which suit both, the HQ and a particular foreign subsidiary, would be most ideal, assuming that the foreign subsidiary appears to perform well insofar as the results are concerned. Ideally, an MNC’s HQ must assess how each foreign subsidiary should be best dealt with on an evolving basis by the MNC’s HQ before formulating its particular type of HQ-foreign subsidiary relationship (Birkinshaw, Hood and Jonsson, 1998, 1999; Brett and Doz, 2016; Gates and Engelhoff, 1986; Roth and Morrison, 1992). Good relationships are vital for HQ and for the foreign subsidiaries. This may need additional efforts as the relationships straddle across different country cultures and cross-cultural and cross-language hurdles. Good cross-cultural communications and relationships need extra efforts, and yet they are most needed.

Five Ways of Foreign Subsidiary Getting Outside Help for Its Innovation The five major ways for a foreign subsidiary to pursue organizational (including technical) innovation by seeking and getting outside help (such as resources or collaboration, or both) are the following: 1. HQ-Led Innovation: The MNC HQ dominates all innovation decision-making processes. It develops a decision-making construct and develops clearly directed, action-oriented approaches which are thrust upon the foreign subsidiary to follow without much question. It is expected that the subsidiary accepts the directives from the MNC HQ. 2. Innovation Growth Model: There can be three subsets of this category. They are: (a) MNC HQ-driven transfer of innovational and developmental resources: MNC HQ’s transfer of technology, capital, human, and technical resources to the fledging foreign subsidiaries enable them to expand in their respective host countries. (b) Foreign subsidiary seeks local resources for their growth:  Under little or no direction or strategy from the MNC’s HQ, a foreign subsidiary expands its innovational resource needs on its own. It seeks capital, technology, human resources, and equipment resources almost on its own from their host country and third countries to expand, diversify, and grow (O’Donnel, 2000). Interorganizational linkages are vital. (c) A combination of (a) and (b): A foreign subsidiary grows through both efforts, by HQ-generated resources and through its own initiatives.

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Growth is focused upon making the most of both approaches, which signify greater flexibility and desire for growth. 3. Jointly Coordinated Innovation Model: Both the MNC HQ and the foreign subsidiaries participate in the formulation of future growth plans and processes and focus on a closely coordinated and partnered approach. This fosters closer cooperation between the HQ and foreign subsidiaries, as well as among the foreign subsidiaries. Growth is viewed as a systematic and planned activity with emphasis and closer partnership among all entities of the MNC. 4. Horizontal Collaborations with Other Foreign Subsidiaries within the MNC Organization: It seeks and gets collaboration and resources for its technical and organizational innovation. In this way it is less dependent on HQ. Such an approach allows for a foreign subsidiary to transcend the limitations of resources and mind-set of an MNC’s HQ. 5. Resources and Collaboration with Host Country, HQ, and Other Foreign Subsidiaries (within the MNC) in other Countries: In this model, the foreign subsidiary interacts with the local, host country entities (governments, businesses, research and university innovation institutions, management and technical consultants) and successfully innovates to its advantage. In this way, it is less dependent to HQ for innovation.

The Importance of Nurturing of Foreign Subsidiaries An MNC’s HQ should also focus on nurturing its foreign subsidiaries. It can try different subsidiaries to test and develop different ideas, projects, or product development. With these kinds of options, an MNC HQ can nurture its foreign subsidiaries to experiment with newer approaches to suit local conditions and needs, such as market responsiveness and relative host country munificence. A foreign subsidiary can try entrepreneurial ventures, enact newer markets, develop more locally suitable technologies and operational processes, and seek local collaborations. Such initiatives can be viewed as tentative, but in the long run it is beneficial for a foreign subsidiary to become more self-reliant in its efforts so that it becomes more entrepreneurial and locally adapted (Chan and Mauborgne, 1993).

Discussions on the Models on the Innovation Strategy for MNC and Foreign Subsidiaries The figures and tables portray the ideas about innovation process in an MNC and its foreign subsidiaries. They cover the innovation process in the context of the

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MNC organization and within the foreign subsidiary organization. It refers to the MNC global vision, mission, goals, and strategies and the foreign subsidiary vision, mission, goals, and strategy. The figures and tables are reviewed here. The approach is that the innovation process should be through analyses of the environmental scanning process as a part of the strategic management process. MNC innovation process emphasizes a systematic planned approach. Once an effective innovation process is established, it should be institutionalized as a regular part of organizational process. Figure 11.1 reviews the innovation process within a foreign subsidiary. Growth needs a good innovation program. From the MNC HQ’s point of view, it not only should review the foreign subsidiary’s sales and profitability record, but also its innovation record. Therefore, the history of innovation and sales and profitability

Foreign unit’s vision, mission, goals, strategy (Within the construct of MNC’s vision, mission, goals, strategy) Review Innovation Record of Foreign Unit: -Foreign unit’s innovative capability in host country -HQ’s innovation support to foreign unit—current, future -MNC’s other foreign units’ innovation outputs -Competitors’ innovations -Foreign unit’s profit performance, compared to other foreign units -Improve foreign unit’s creativity culture, communication, interactions with other units (foreign and business) -Improve networking with local innovation entities, R&D firms, businesses, universities

-Pursue joint projects with HQ, other foreign units, firms, govts

Foreign unit’s tentative desired innovation areas, focus, scope, paths, activities, e.g. overall value chain, mfg, mktg, product/process design, applied technical innovations Foreign unit’s tentative list of innovation and creativity projects, and their revenue and cost projections

Foreign unit’s compilation of viable innovation project-mix -Explore collaborative opportunities with other foreign units -Seek HQ’s resource support for innovation

Finalize foreign unit’s innovation goals, plans, strategies, project budgets -Form project groups -Provide technical training and workshops for collaborations, innovative exercises

Figure 11.1:  A Model for a Foreign Subsidiary Unit’s Effective Innovation Process Source: The Author

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record can have a strong impact on the HQ’s predisposition in providing resources for the foreign subsidiary’s innovation projects. Consistent long-term investments in innovation are likely to yield better results if they are focused on specific current and potential profitable market opportunities. If a foreign subsidiary generates a good crop of viable innovation projects and these get approved and funded, then it can expect a good harvest of future innovation. After the evaluation and approval of the innovation projects, the quality of success of these projects would depend on the effective implementation through skill and tenacity. Proper resource support, good management styles, good HQ-foreign subsidiaries relationships, and good organizational culture would facilitate the foreign subsidiary in accomplishing its innovation goals. It would be helpful in the long run for a foreign subsidiary to network with the relevant local, host country entities (other firms, governments, universities, and research laboratories); MNC HQ; and other selected foreign subsidiaries. Figure 11.2 provides a flow chart of the formulation process of a systematic innovation strategy in a foreign subsidiary. Technical innovation trends (on the one hand) and the visible profitable market opportunities (on the other hand) can give rise to potentially good innovation projects. Otherwise, good technical innovation trends would have to wait for someone to make good use of them by applying them for a practical benefit. Thomas Edison’s pursuit of “the happiness of man” is both practical and sublime. From a practical point of view, good equipment resource and human talent resource can take innovation ideas from concept plans to reality. The integration of

MNC HQ Corporate Strategy and Innovation Strategy Foreign Subsidiary Unit’s External Analyses of Host Country and Nearby Regional Countries (Markets, suppliers, govt., natural resources, infrastructure, industrial, commercial, political and social environments)

Scientific, technical trends

Foreign Unit’s Goals, Strategies

Local economy, tech., competitors

Foreign Unit’s innovation cost-benefit analyses

Foreign Unit’s innovation projects-mix, new R&D initiatives and programs

Foreign Unit’s Innovation Strategy: Integration of projects and innovation plans, finalize budgets, form talented teams, allocate resources for innovation projects, set broad guiding principles and construct, seek collaborations with and additional resources from HQ and other foreign units within the MNC organization

Figure 11.2:  The Phases in Foreign Subsidiary’s Innovation Strategy Formulation Source: The Author

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the various issues in the figure must be systematically integrated so that the foreign subsidiary’s innovation goals and strategy are accomplished. It is also important to integrate all the factors of producing the innovation projects so that they are properly implemented. Growth and profitability are better achieved when there is proper integration, together with clear innovation priorities, proper resources, and human passion. Figure 11.3 focuses upon the evaluations of specific new customer groupings in the same countries, and in the newer country markets and regional markets for possible future establishment of MNC’s operations. In this way, it can enact newer environments. It should consider these prospective newer markets in light of their resources and their economic, political marketing and social trends. This process involves environmental scanning for choosing the best fit between profitable market opportunities and organizational strengths-weaknesses. Environmental scanning must be done on a periodic basis to review newer developments in environmental opportunities.

Search and screen business, economic environments for potential new profitable business ventures

Evaluate new ventures in context of: • Countries and regions • Joint ventures • New products/businesses Analyze relative competitive advantages and strategic advantages of each proposed new ventures Seek on viable match between the: (1) Criteria for successful performance of each venture and (2) Organizational capabilities to perform well for each venture

Choice of “best fit” venture Develop strategies to pursue the venture(s)

Figure 11.3:  A Model for Evaluating and Formulating New Foreign Business Venture Proposals Source: The Author

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The first step should be to identify the countries with good general economic climate. The next step is to look for better ventures or investment opportunities in the countries. The criteria of safety of capital, rate of return on investment, payback period, and market growth prospects should be used in evaluating proposals. The competitive intensity and investment climate may also be studied in analyzing the investment proposal. The evaluation should be based upon the simultaneous evaluation of:

1. The requisite level of rigor and the expected level of challenge for the MNC to overcome for successfully performing in the situation, and 2. The organization’s capability in meeting the challenge in order to succeed.

This simultaneous evaluation would enable the organization to perform well. The better the “fit” is between 1 and 2 in the above, the better would be the foreign subsidiary unit’s performance. Figure 11.4 analyzes the information obtained from other outside sources, and it compares the relative attractiveness of a list of countries that an MNC may be Value chain analysis

Exploratory studies of groups of countries

Competitive advantage of MNC’s products and organization

Choosing a list of countries to enter In depth country studies: • Risk analysis • Marketing research • Political and legal analysis • Industry analysis • Labor market analysis • Infrastructure related studies Organizational strategy for the country’s operations • Entry strategies • Organizational start up strategies • Marketing strategies • Operations strategies • Local community & Public relations strategies • Political strategies

Figure 11.4:  A Model for Formulating a New Country Entry or Expansion Strategy Source: The Author

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considering to enter or expend its operations. If there has been a prior experience of an MNC in many countries, that would enable it to more efficiently organize its operations in its subsequent countries. That is to say, organizational learning would provide more maturity and confidence in subsequent MNC endeavors to enter or expand its operations in a new country. It could make its efforts more effective. In choosing entry or expansion strategy, an MNC must first analyze its value chain and internal strengths, with such questions as:  Does it have core competencies which are valuable, rare, or costly to imitate by competitors? This inquiry must be done in the context of the host country markets. Also, strategic advantage should be the focus of such inquiry. Once it determines the extent of strategic advantages of a group of countries under consideration, it can then focus on the analysis of environments of political, economy, markets, and labor market; industry; and other infrastructures for the group of countries. It then is better poised to choose the country or countries of entry or additional expansion of its operations. It should develop a portfolio of strategies to first set up the organization, and after that, to implement its decision to enter and expend its operations in the host country. Its capabilities in marketing and organization are vital. Its successful enactment of organizational environments (e.g., those of suppliers, labor markets, distribution, legal and regulatory) is a positive step in the growth of the organization along sound lines. The implementation of strategy should be focused upon the realities of the host country to which it must as fully adapt as it is possible. Table 11.1 portrays the continuous process of nine steps of innovation. The continuous process is broken into three cycles as they identify challenges, determine goals, plan for effective innovation to meet with external and internal needs, identify resources needed, and the implementation of the innovation strategy. Cycle 1: Identify innovation goals and skills: The trends in the external events would give enough cues to the top management to develop a profile of the external challenges and the scope and content of desired problem-solving innovation. Step 1. The initial step is to identify the future global challenges and to generate a culture and climate to identify areas of sub-par performance, or external global threat areas which need to be addressed by the overall MNC HQ. Step 2.  The regional HQ should focus upon the regional challenges and develop regional innovation goals to foster growth and development of the foreign units with the region. Step 3. Each foreign unit should focus on its host country’s challenges and needs and should develop unit-specific innovation goals and plans.

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Table 11.1: A Model for the Overall MNC Organization’s Innovation Process (3 Cycles, 9 Steps) Cycle 1 Focus: MNC HQ:

Regional HQ:

Foreign Units:

Cycle 2

Identify innovation goals Innovation strategy, and skills plans, and resources 1. Identify and 4. Define specific communicate future goals and strategy challenges facing innovation. Provide overall MNC. Elicit specific innovation suggestions. Define directions. Provide scope and seriousness resources and of situation. Define training. general goals of innovation and desired outcomes. 2. Focus on regional 5. Organize regional applications of the units’ resources. challenges. Identify Coordinate regional units’ resources innovation. and interests to solve these. 3. Identify specific and 6. Finalize detailed detailed goals and skills innovation plans. and likely approaches Identify teams. that can contribute to the overall solution.

Cycle 3 Implement innovation strategy 7. Global coordination plans for implementation of innovation plans. Set targets, standards of performance.

8. Focus on regional coordination of innovation process. Set targets, standards of performance. 9. Generate innovation. Evaluate and improve innovation.

Source: The Author

Cycle 2: Formulate innovation strategy, plans and identify resources: The second cycle should focus upon strategies and plans to accomplish the innovation goals to solve the impending problems. Step 4. Define in greater detail and specificity the goals of innovation, and formulate strategy to focus upon innovation for all scopes: overall MNC, regional and foreign units. Step 5. The organization of regional activities and services of all foreign units within the region should be planned and coordinated in this step. Step 6.  Finalize detailed plans for each foreign unit to organize innovative activities.

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Cycle 3: Implement innovations strategy: The third cycle focuses on the effective implementation in a flexible and adaptive way, allowing room for responding to unknown factors. Step 7. Global coordination plans for innovation should be formulated for the overall MNC. Growth plans must be integrated in this approach. Step 8. At the regional level, the focus should be to organize innovation details and activities for generating effectiveness. Step 9.  Perform innovation activities. Implement innovation strategies. Improve innovation effectiveness to better achieve corporate goals. To conclude, innovation should be a systematic activity that is well organized and institutionalized. Focus should be upon the results of innovation as it fosters better working culture and results. Competitiveness, market share, profitability, and organizational growth should be achieved through a continuous process of organizational renewal. Finding a suitable country for an MNC to do business can be challenging. An MNC pursues leads to explore opportunities in new countries. After eliminating unsuitable leads, it then concentrates upon useful and promising leads. It explores the viability of entering into a new country. This section provides a method to study countries and choose the country it should enter. An MNC should analyze Table 11.2:  An Analysis of Market Information of a Foreign Subsidiary’s Host Country topics for Research and Analyses:   1. Population by language, religion, ethnic groups   2. Population by age, income, major occupations   3. Rates and number of households (as percentage of each regional population)   4. Percentage of households with bicycles, radios, cars, personal computers, televisions, washers and dryers, running water, sewage systems, and electricity   5. Per capita disposable incomes (per capita national income less taxes and savings) categorized by each region   6. Personal and household consumption pattern; trend over the past five years   7. Role of government in the local economy: (a) its purchases of goods and services, by each product and service category, and (b) as a percentage of GDP   8. Number, size, and types of state owned-/controlled enterprises and corporations   9. Imports, exports, and intercountry transfers of products and services: by product, origin, and destination 10. Statistics on generic demand for proposed product: (a) total demand, (b) domestic production, (c) imports, (d) foreign manufacturers operating in host country Source: The Author

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its strategic options as it navigates its way through the mass of available data and information in its decision-making process. Table 11.2 is an outline of gathering basic data for exploratory study. Such basic study can be done through available secondary data. The purpose of an exploratory study is to determine whether or not the MNC should go into a given country. Country studies give relative pros and cons of each country. It also gives a comparative analysis of a group of countries. In this way, the MNC can choose the correct sequence of countries to enter. From the data gathered from the exploratory study would come out a more definitive direction of pursuing a proper strategy. Strategic thrust may focus upon the critical problems of the organization. The attributes of an innovative organization should focus upon growth and the culture should be to nurture talents, skills, and helpful activities (see Table 11.3). It is vital for an MNC and foreign subsidiary organization to first establish a starting point of an effective innovation process and then it should institutionalize it. The main emphasis of the figure is to generate enough innovative skills and provide growth and competitiveness in the market place. Organization-wise, the innovation process would be the emphasis of those who spearhead the change. The innovation is tested for possible inconsistencies and impracticalities. After

Innovate [incremental, radical] Improving & refining the innovation to exceed organizational expectations of implementation, i.e., practical considerations

Transform innovation from idea to reality (transition stage) Operationalize change Employee’s implementation of the innovation Wider employee acceptance of the innovation Change in organizational culture and values Institutionalization of the innovation

(The above process should be followed by each: MNC HQ, regional HQ, and foreign subsidiary unit.)

Table 11.3:  A Model for the Process of Institutionalizing Innovation at Each Level of an MNC: MNC’s HQ, Regional HQ, and Foreign Subsidiary Unit Source: the Author

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the potential faults are removed, the innovation is implemented more fully into the system of the organization. Then the regularity of the administrative process, together with the innovation incorporated into the system, would influence the organizational culture and future process. This process should be pursued at all levels:  MNC HQ, regional HQ, and foreign subsidiary units. Further, there should be coordination and continuity of purpose and process among the three: MNC HQ, regional HQ, and foreign subsidiary unit. The figure suggests that at each of the three levels: MNC HQ, regional HQ (if there is one), and foreign subsidiary unit, innovation is the key to continued success and competitiveness of the MNC. Innovation, incremental or radical, may be focused and applied to result in tangible benefits to the MNC. It may be first tested and evaluated for viability and worthwhileness. This is done through continual or periodical testing and refining until it is most in tune with reality. It should be operationalized and repeatedly refined until it is institutionalized. Innovation may be fostered through four approaches: (1) MNC HQ providing seed money, (2) use formal requests for future project proposals, (3) encourage the foreign units to nurture new ideas, and (4) forge strong inter-unit networks (Birkinshaw, 2001).

Evaluating an MNC’s Potential Foreign Business Ventures and Formulating Its Strategies Corporate strategy of an MNC is vital to its success. Top managerial leadership as a steward of the MNC’s corporate strategy is the key to the effective management of corporate strategy. The top management must analyze the MNC’s business-mix, country-mix, and the development of new business ventures and country markets. The chief executive officer’s (CEO) role is paramount as he is the chief architect and leader of corporate strategy. He should display strong activist, strategic leadership. The chapter provides figures and tables which review the various concepts related to evaluating an MNC’s potential international organizational innovation and formulating its strategies.

Recommendations The recommendations draw for the ideas of George Bernard Shaw and Thomas Edison in that they focus on the MNC and foreign subsidiary organizations’

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capacity for tolerance allowing its employees to pursue self-questioning and critical thinking, creative imagination, persistent innovative endeavors, and collaborative spirit to solve problems for the “happiness of man.”

Recommendation 1: Create and Nurture an Innovation Culture in the Organizations of the HQ and Foreign Subsidiaries Justification. The overriding approach is to have an innovative, high performance and collaborative culture in an organization for long-term effectiveness and competitiveness. Guidelines for Implementation. HQ should lead this by treating the executives at HQ and foreign subsidiaries with mutual respect and decency even in trying times or situations, such as faltering foreign subsidiaries’ performance. Good and decent ways of dealing with people is the starting point in creating good organizational culture. Then the next phase is to set stretch goals and provide additional resources and support, good training, and mentoring for improved organizational performance.

Recommendation 2: HQ Should Lead in Overall MNC Coordination of Innovation Activities and Provide Resources Justification. Leading by example is always a good idea. The persons at the top do matter. That is, at both HQ and the foreign subsidiaries. What they do and how much they demonstrably attach importance to their activities will directly transmit to the lower echelons. Guidelines for Implementation. The managers at the top should directly be involved in organizational innovation. If the middle and lower managers and supervisors see that the top management is strong on innovation, then they too will feel strongly on innovation.

Recommendation 3: Create, Continue to Evolve Basic Templates of Step-by-Step Process of Innovation Process from Which Each Foreign Subsidiary May Adapt Justification. Please see Table 11.3 regarding this issue. It specifies how each level and part of the MNC could be innovative.Each organization is unique and so it must find its own way to be innovative. Once it finds its particular effective way, it should not only keep on improving but also develop basic templates of innovation process so that it can be adapted and used across the organization.

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Guidelines for Implementation. Find the successful organizational innovation management examples; identify the common phases and approaches; reduce them to a basic, organizational-wide, applicable template; and communicate it to all units across the organization.

Recommendation 4: Network for Innovation with HQ, Host Country Entities, and Other Foreign Subsidiaries Justification. The HQ should set the format for helping the foreign subsidiaries in establishing a useful network within and outside the MNC HQ and foreign subsidiaries’ organizations. Guidelines for Implementation. Identify the areas where the HQ and the foreign subsidiaries on their own fall short in performing, identify the specific activities and the external entities which can best help the organization to perform on those activities. Create interorganizational linkages and networks and properly service these relationships on an ongoing basis.

Recommendation 5: Organizational Innovation Should Include and Go beyond Engineering and Technical Innovation Justification. Many organizations have R&D and engineering innovations done within a factory itself side-by-side the mass manufacturing or operations. One step further would be to have one or multiple separate R&D facilities perform R&D and engineering alone, without the operating activities. However, other forms of organizations (going beyond R&D and engineering) are not systematically performed anywhere. So, as a starting point, specific groups in each unit of the MNC HQ and the foreign subsidiaries must be encouraged to take up this organizational innovation responsibility. What are needed are: critical thinking, creative thinking, and judgmental analyses. Thinking outside the box (outside the categories or boxes of, for example: engineering, marketing, production, accounting, and other categories in organizational taxonomies) would help in building cross-disciplinary thinking. Guidelines for Implementation. Within each unit of an MNC organization (HQ, business units, foreign subsidiary units, and other units), assign the responsibilities for organizational innovations and provide support, guidance, and training.

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Recommendation 6: Create “Super Value” for the Customer, Focus on Customer’s Needs Justification. Being focused on the needs of the customers and users, the innovation process assumes the character of problem-solving. Thomas Edison called the relentless quest for finding “super value” or solutions and inventions are for “the happiness of man.” He had a “solution-centered mind-set,” which means a customer focus. Guidelines for Implementation. Working backwards (or reverse engineering), find customers’ problems and needs and, given the capabilities and talents, one should inquire about the kinds of solutions that can be achieved. Then brainstorm the possible processes that would achieve the solution to the problems.

Recommendation 7: Innovators Should Work Relentlessly, with High Intensity and Dynamism Justification. Thomas Edison worked at relentlessly, with high energy level all the time, often in solitary settings so that he could create fresher and newer ideas. Such high energy endeavors brought him great results. Guidelines for Implementation. Involve the innovation people in many ways so that their curiosity and interest are continuously piqued. They would positively engage in collaborative creativity and find it of singular interest to find the right solutions and answers. Managers, engineers, and scientists should be induced to feel strongly about their innovation projects so that they may really be obsessed and give dramatically intense energies to their innovation projects.

Recommendation 8: Let Newly Hired Talents First Pursue Their Dream Innovation Projects, Then Induce Them to Focus on Organizationally Important Innovation Projects Justification. In a study by Harvard Business School professors, they found that R&D department managers of large companies first let the incoming PhDs to first exhaust their own personal creative, dream projects (Hower and Orth, 1963). After two years or so of their own innovations, they would increasingly and positively respond to the company’s encouragements and inducements to focus on the organizationally important and profitable innovation project, such as R&D of new potentially profitable products.

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Guidelines for Implementation. Select the best talents and allow them to integrate into the organization at their own pace, in addition to their normal operating duties and, within reason, try to allow them to pursue their dream projects and then induce them to inculcate organizationally relevant and profitable innovation projects.

Recommendation 9: Raise and Question Issues Like George Bernard Shaw, Carefully at First Justification. Critical thinking precedes creative thinking. Constructive criticism is an important part of progress. Without critical and creative thinking and constructive criticism, there cannot be constructive progress. Guidelines for Implementation. Create a culture for critical and creative thinking where raising and questioning assumptions and issues are welcomed. Generate newer ideas for possible, careful experimentation on pilot scale at first, if needed, and then on a fuller scale afterwards if so warranted. Carefully channeling the organizational innovation process to success is the skill, craft, and work of a masterful manager who goes beyond the operating level performance into the uncertain process of experimentation and innovation. It is important to channel the energies of the people in positive and constructive ways by focusing on current and potential problems and on finding solutions for them. Wherever there is discontent, investigate early into its causes, then positively and constructively address them to solve the problems and resolve the genuine, valid concerns and difficulties.

Recommendation 10: Pursue Organizational Development and Change Activities Justification. For an organization to perform well, it must be internally well integrated and creative in defining its current and potential problems and solving them itself through effective communication and team work. Group work and pooling of resources, skills, and talents are helpful in organizational development and change activities. Guidelines for Implementation. Pursue activities for group training and building emotional intelligence; better communication; empathy; and integration among units, divisions, and departments through processes like collaborative activities involving interdepartmental teams and cross-border groups for better synthesis of the organization.

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Conclusions In the long run, an MNC needs to evaluate the prospects of future growth of its activities in different countries through scanning the environment, analyzing the relative investment and venture opportunities, and matching the organizational capabilities with the expectations of the market place in the host country. We should emulate some of the great minds. We should have both, a critical thinking and a creative thinking. We need to emulate George Bernard Shaw (for critical thinking) questioning current values, assumptions, and practices if we are to look not to the past but to the future to make future progress. We need to emulate Thomas Edison (for creative, innovative thinking) if we are to be innovators as a way of life. We need to focus on our problem-solving and keep a strong eye on the customers’ need and solve his problems. We need the unending energies and zeal to keep on experimenting and innovating. As managers, we should nurture the culture of continuous learning and innovation. We should forever yearn to learn. When we recruit talented university graduates, we must let them first pursue their interests as a part of their weekly time, within reason, and then later on induce them to follow the MNC’s organizational innovation projects. Many scholars uphold the views and values that are exhorted here, i.e., that good management leadership and styles are vital for dealing with people at all levels for enhancing the proper spirit of organizational innovation. HQ executives must be restrained in their negativity when dealing with the lesser performing managers of foreign subsidiaries, or they will be demoralized and the flame of innovation will be extinguished (Adler and Graham, 2001; Beamer, 1998; Beamish and Zhang, 2000; Bettis, Hitt and Ireland, 1998; Frenkel, 1998; Gates and Engelhoff, 1986; Hallowell, 1999; Mauricio, 1999) . To keep the spirit of innovation alive, strategic HQ managerial leadership must take hold of the major directions where the future of the MNC interests lay and follow the paths in the directions. The HQ top management, leading by example and by giving their importance to organizational innovation projects the much needed attention, will bring about greater focus on such projects by the peoples of the entire MNC organization.

Bibliography Adler, N.J., & Graham, J.L. (2001). Cross-cultural interaction: The international comparison fallacy? Journal of International Business Studies, 20(3), 515–537. Beamer, L. (1998). Bridging business cultures. China Business Review, 25(3), 54.

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Beamish, P., & Zhang, J. (2000). Why businesses fail? Journal of Management Studies, January, 232–248. Bettis, R., Hitt, M.A., & Ireland, R.P. (1998). Relationships among corporate level distinction, competencies, diversification strategies, corporate structure and performances. Journal of Management Studies, 23(February), 401–416. Birkenshaw, J., Hood, N., & Jonsson, S. (1998). Building firm-specific advantages in multinational corporations: The role of subsidiary initiative. Strategic Management Journal, 19(3), 221–241. Birkinshaw, J. (1999). The determinants and consequences of subsidiary initiative in multinational corporations. Entrepreneurship Theory and Practice, 24(1, Fall), 9–52. Birkinshaw, J. (2001). Unleash innovation in foreign subsidiaries. Harvard Business Review, 79(3, March), 131–140. Brett, J.M., & Doz, Y.L. (2016). HBR’s 10 Must Reads on Managing Across Cultures. Boston, MA: Harvard University Press. Chan, K., & Mauborgne, R. (1993). Effectively conceiving and executing multinationals’ worldwide strategies. Journal of International Business Studies, 24(3), 419–450. Flanigan, J. (1988). Gould was too star-struck for its own good. Los Angeles Times, August 31. Frenkel, S.J. (1998). Corporate-subsidiary relations, local contexts and workplace change in global corporations. Industrial Relations, 53(1), 154–181. Gates, S., & Engelhoff, W. (1986). Centralization in headquarters-subsidiary relationships. Journal of International Business Studies, 17(2, Summer), 71–93. Gelb, M.J., & Caldicott, S.M. (2007). Innovate Like Edison; The Success System of America’s Greatest Inventor. New York, NY: Dutton (Penguin Group). Hallowell, E.M. (1999). The human moment at work. Harvard Business Review, 77(1), 58–66. Hower, R.M., & Orth, C.D. (1963). Managers and Scientists. Boston, MA: Division of Research, Graduate School of Business, Harvard University. Mauricio, B. (1999). Taking self-managed teams to Mexico. Academy of Management Executive, 13(3), 15–25. O’Donnell, S.W. (2000). Managing foreign subsidiaries: Agents of headquarters, or an independent network? Strategic Management Journal, 21, 525–548. O’Toole, F. (2017a). Why George Bernard Shaw had a crush on Stalin. The New York Times, September 17. O’Toole, F. (2017b). The World has never needed George Bernard Shaw more. The Irish Times, October 28. Roth, K., & Morrison, A. (1992). Implementing global strategy: Characteristics of global subsidiary mandates. Journal of International Business Studies, 23(4), 715–750.

part d

Training Expatriate Executives

Synopsis: This part explains the processes of training and mentoring of executives and supervisors of the MNC headquarters and the foreign subsidiaries and shows how these can improve the effectiveness of an international organization, including its foreign subsidiaries.

chapter t welve

The Making of the United States Foreign Subsidiary CEO

A domestically oriented organization’s manager who is considering a foreign subsidiary assignment would have to pursue self-improvements so that he would be an effective foreign subsidiary manager. The skills applicable to a (domestically oriented) manager would have to be enlarged, with newer perspectives for him to be effective foreign subsidiary manager or CEO. A plan to prepare a foreign subsidiary manager or CEO would require the development of skills development on many issues, particularly with those which have cross-cultural implications. The challenges are due to unfamiliarity of the foreign situation, including challenges of coping with: greater uncertainty, anxiety and stress, reduced coping capability, reduced adaptation, problem-solving and management, and challenges in cross-cultural communication and relationships. The chapter focuses on United States as the home country of a multinational corporation (MNC). The same concepts can be applied to another MNC headquartered in any other country. The concepts and their applications in essence would be the same. A domestically oriented senior manager of a United States organization who is aspiring to be a top level foreign subsidiary manager or CEO would have to deal with a host of diverse issues in functioning in the foreign environment. The challenges would be great because the foreign environment poses not only cross-cultural challenges but also unfamiliar operating conditions, such as value chain

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components, stakeholders, and general economy of the foreign country. The industry environment in the foreign country, and its potential implications on effectiveness, would over extend the existing imagination and skill sets of the domestically oriented manager. When the manager is about to go on a posting in a foreign subsidiary, he or she would be overwhelmed by issues of strangeness, cross-cultural differences, and unfamiliarity and he or she (subsequently, “he” would explicitly mean either “he” or “she”) would experience the foreign posting more demanding than his counterparts in the United States organization’s home country operations. Often an organization may identify a person, quite early in his career, for being on track through years of sustained grooming, for becoming a foreign subsidiary toplevel manager, eventually leading up to be a foreign subsidiary CEO. In such cases, the ideas of this chapter equally apply to him as to someone else who is to assume the role of the CEO right away or relatively very soon. The expatriate deals with challenges of unfamiliarity, uncertainty, stress, cultural differences, language and other communication barriers, operational and logistical differences, and difficulties. Also, there are the challenges to build new social relationships in work and social settings. United States organizations need to focus continuing attention upon the expatriate training to ensure expatriate success that is vital to its international operations. A United States expatriate executive bound for emerging market countries may find himself in significantly strange environments of culture, operations and logistics, community, organizational and administrative process, markets and supply chain, and local economic and political and legal systems. He would benefit from being prepared to deal with challenges of stress (because of uncertainty, strangeness, and anxiety); adaptation; communication; and building work and social relationships in work and nonwork or social settings.

Background Issues The importance of training the expatriate from United States companies is increasingly better appreciated in the recent few decades. In this context, it would be good to compare the practices of companies from the United States and from selected other companies, particularly Japan. Further, studies over a period of time indicate that expatriate training practices in United States companies have been both different than those of selected other countries and evolving to what appears to be for the better. For example, the studies of His-An, Yun-Hwa and Kim (2005), Rosalie Tung, Selmer and Lauring (2011), and Wang and Tran (2012) have shown that, in the past, when it came to United States expatriate training, the United States companies were quite different from those of some European or Japan. For example,

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whereas, on the one hand, United States companies used to provide inadequate time, resources, and opportunity for expatriate predeparture training, Japanese companies, on the other hand, have been thorough in their selection and have provided better time and opportunity for predeparture training of their expatriates and their spouses. Japanese companies have allowed for more time for training, e.g., they have also provided the executive (who is more insightfully chosen for a specific foreign posting) and his spouse to make a few work-and-pleasure trips to the foreign subsidiary and the host country of his future posting. Comparisons between the United States and Japanese practices are believed to have led to improvements in United States practices for better preparing the United States expatriate and spouse. United States companies, over a period of time, are believed to give more consideration to the selection, preparation, and predeparture training of the expatriate and his spouse. This awareness of the need of providing more preparation has led to major changes in the approaches concerning expatriates. Whereas in the past, the United States expatriate was quickly selected and sent off with little preparation time for studying the issues of his foreign assignment (study of the foreign country’s culture, religion, language, logistics, operating conditions, country history, foreign subsidiary operations, and other relevant issues), now there is greater awareness for the importance of spending more time for predeparture training, with increasingly more time freed from his regular United States job duties. Whatever little preparation time the United States executive was allowed to spend in the past, it was alongside his regular United States job duties. There was little time off for his preparing for his foreign assignment. The growing need for United States executives to perform well overseas in terms of not only executive and technical performance, but also perform well in terms of host country cultural, communication, empathy, motivational, and leadership performance, has led to the improvements in the predeparture training. Moreover, it would be strategically beneficial for the United States companies to have better training and mentoring of their expatriates because then the United States companies could better pursue global growth. The United States expatriate faces unfamiliar and socially diverse environments to an extent that he needs substantial training in dealing with the very different cultural and operating conditions in his foreign assignment. The United States expatriate’s learning curve, no matter how good and fast, can be easier and freer from costly or embarrassing mistakes if he spends more time and attention to training and mentoring. These have to be done with lessening of his regular, current Unites States job responsibilities, on the one hand, and increasingly greater training for the foreign assignment, on the other hand. Then the purpose of his training and preparation would be well served.

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The training must address many issues that would be of importance to the expatriate upon his arrival in the host country for his foreign assignment. These issues include: (1) cross-cultural adaptation and adjustment to local working and nonworking environments; (2) coping with his own stress wrought from unfamiliarity, uncertainty, and anxiety of the strange situation; (3) self-confidence building for dealing with foreign situations and function in unfamiliar surroundings with knowledge of operant cause-effect relationship; (4) building his emotional stability, full of self-efficacy, self-monitoring, flexibility, and motivation that would ensure better adjustment so that he may better concentrate on the task; (5) build tenacity, achievement-orientation, initiative, and focus on task effectiveness; (6)  continuously improving communication to be more effective in his social interactions with host country nationals and nurture better working relationship in work and nonwork settings; and (7) build for himself additional perceptual, reasoning and adjustment and achievement-oriented skills for operating in non-English-speaking countries. Successful expatriate top-level United States manager’s performance is a necessary for the successful United States foreign unit’s performance in foreign environments. International growth and expansion of United States global organization, that heavily relies on the international HRM strategy of initially using home country (or HQ) executives and specialists until local talent is developed and set in place, would benefit from this two stage approach.

The Purpose of the Chapter This chapter addresses the United States expatriate’s training objectives and goals and will identify first the way and means of preparing them to be a more effective expatriate manager, and second, the dimensions and goals of the expatriate training process. A set of well-articulated expatriate training objectives and goals would set a clear tone and focus for preparing the self-expatriate to quickly adjust and perform effectively in his foreign assignment. The United States expatriate training process addresses the importance of two distinct parts: (1) the expatriate predeparture training which includes the issues of his/hers: “self ” or individual, self-efficacy, stress management, adjustment, adaptation, achievement, communication, social interactions, clear understanding of the criteria of his effective performance by which he would be evaluated, and strategic leadership in the host country context; (2) the issues of the expatriate’s post-arrival faster initial learning curve, continuous self-improvement and training (coupled with a faster and more enduring learning curve), and mentoring from a wise and insightful mentor and guidance from a wise and insightful mentor.

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The rationale for the expatriate training is to provide the United States expatriate a better chance for effective performance leading to not only effective problem-solving but also effective entrepreneurial performance, better adjustment to the local setting, and better understanding of the application of expatriate job technical and administrative content in the foreign subsidiary unit’s organizational context, while at the same time adjusting to the host country’s local cultural and operational setting. With the two expatriate training parts: predeparture training and post-arrival training, the expatriate manager would be freer in his “self ” to more fully focus on the content of his work. He would be better able to correct previous unsolved problems or issues of his foreign subsidiary unit and set relevant strategic, longer term objectives, entrepreneurial directions, specific shorter term goals, strategies, and effectively implement them. The premise of the chapter of the proper training of the United States expatriate is that an effective, currently domestically oriented United States manager, working mainly in the United States, can be trained to become an effective expatriate manager in a culturally and operationally different country if he/she learns: (1) the “soft” skills (e.g., adjustment to the foreign environments, cultural, social interaction, motivational, communication, leadership) and (2) the host country-specific operational skills that are needed for his particular foreign assignment. It is likely that the selected person would have the requisite technical knowledge and the “hard” skills (such as the knowledge of the technical content and methods, specialized and formalized expertise and training acquired over a time, industry-specific problem-solving skills, and company-specific administrative procedural skills), and good insights of the company HQ’s philosophy, objectives, goals, corporate strategy, policies, and preferred practices and processes. By making his instilling into himself, through the expatriate training process, the host country related “soft” skills it would likely complete his requisite expatriate skills portfolio.

The More Specific Issues of the Chapter Are Summarized The explanations of the more specific issues covered in the ­chapter are:

1. Emphasizing of the need for a well-developed and effective predeparture training and post-arrival continuous self-learning, self-training, and mentoring processes is vital for improving his effective expatriate performance. The criteria of effective expatriate performance are his perceived expectations as to how well he is doing his expatriate managerial job. They include: greater levels of his own, personal, host country-related: adjustment and acceptance, stress management, self-efficacy, perspicacity, use of his “soft” skills, cross-cultural empathy, communication and motivation,

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leadership, achieving the goals of the expatriate and subsidiary unit, and exceeding all expectations placed on him by the HQ office and the foreign subsidiary unit’s stakeholders. 2. Emphasizing of the benefits or advantages of an effective predeparture and post-arrival training process is a great motivator to take his training process seriously. The benefits would accrue from an expatriate manager who is well adjusted, with lower stress level, coupled with a greater tolerance for higher levels of ambiguity and stress, sufficient confidence for fully exerting himself to effectively perform his expatriate managerial roles such that it would exceed the performance expectations and criteria of his company HQ and the stakeholders of his foreign subsidiary. 3. Emphasizing of the need for providing the dimensions and goals for the process for the expatriate training would help to provide the detailed scope and content of the expatriate training; these should be tailor-made to the specific future foreign assignment of the expatriate, thus making the training process itself for the expatriate more meaningful and valid, and that conviction itself should make him feel that he should pursue his training in greater earnest. 4. Emphasizing of the importance of the expatriate training in more practical terms.

While often regarded as an important conceptual topic for discussion in the literature, this chapter, through its exhibits explanations and discussions, provides approaches and methods for accomplishing it.

A Review of Literature The literature reviewed here suggests that a United States organization should pay special attention to training needs of United States expatriate bound for foreign assignment. This need for special attention to the training needs of United States expatriates is argued by many scholars. Global competition places special need for improved expatriate training so that the foreign subsidiaries perform more effectively.

The General Needs for Improved Expatriate Training The United States companies would continue to face greater challenges as they enter into increasing internationalization and as they deal with ever increasing global competition. Among the challenges, this issue of global competition is

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focused in this chapter. It is important to provide proper expatriate’s own assessment and training. This important topic should be addressed by all United States companies for improving their foreign organizational performance, and the proper training of the United States expatriate is directly relevant for United States companies for effectively dealing with global competition. Luthans and Farner (2002) well express this argument when they say: As global competitive battles heat up, the importance of developing expatriate managers for international success should not be overlooked. In search of a competitive advantage, MNCs are increasingly devoting more attention and resources to cultural training as a way to improve job performance of their international assignees.

The need for increased adaptability to local conditions in the host country and to the host country nationals (HCNs) would dominate the initial period after the expatriate’s arrival at the foreign assignment. Among the considerations that are important to the training needs assessment is the expatriate’s self-confidence to manage the cultural differences between his home country and host country, and his local training resource after his arrival in the host country. A study by Lee and Croker (2006) concluded with these findings: (1) the greater the expatriate confidence and his adaptability, then the lower is the perceived need for expatriate training; (2) the greater the complexity of task, the lesser the capability of host managers and the greater the cultural difference, then the greater is the perceived need for the expatriate’s training; and (3) the expatriate’s learning preference and the expatriate’s instructor’s training methods would determine the need for training and effectiveness of training.

The United States expatriate executives and specialists slated for foreign assignments need to be more aware of the challenges of the foreign assignments and focus on their predeparture and post-arrival needs. Adaptability to local cultures and to operating and living conditions are prerequisites before the United States expatriates are able to fully focus on the content of their job. Different studies have suggested different priorities for expatriate training. Chang (2005) compiles the works of Tung (1992), Oddou (1991), Brewster and Pickard (1994), Petranek (2004), Suutari and Burch (2001), and Zakaria (2000). In doing so, Chang (2005) cites: Some of the more common features are cross-cultural training, communications (including language) training, clarification of performance criteria and expectation, cooperation and collaboration skills, managing stress and emotions, local logistics and everyday life issues, knowledge of the foreign subsidiary and its local environments.

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When one considers some of the major topics for ensuring effective expatriate local adjustment and executive performance, one may list topics like cultural sensitivity, communication, behavioral flexibility, stress management, problem-solving in strange environments, and leadership and supervisory traits in the host culture. While the list can be long, it often feels that it cannot be exhaustive enough. Shin, Morgeson, and Campion (2007) cite studies to indicate: Communication competence, cultural empathy, interpersonal skills, and social interaction would improve cross-cultural adjustment to working and non-working environment.

Predeparture and Post-Arrival Training Much of the literature focuses on predeparture training. While predeparture training is very important, literature also suggests that post-arrival mentoring and training are also important. In some cases, initial adjustment and effective performance without costly missteps are strong reasons for post-arrival mentoring and training. An experienced executive or trainer who is very familiar with host country culture and operating conditions would be an effective mentor and coach. Such mentoring and coaching would be confidential. Shin, Morgeson, and Campion (2007) emphasize two stages of training: predeparture and post-arrival: First, in the pre-departure stage organizations select and train individuals for expatriate assignments. Second, in the post-arrival stage, when expatriate workers begin to interact with host country nationals (HCNs) and adjust their behaviors to the host country’s cultural norms and values for better performance, behavioral cross-training can be implemented to ensure that expatriates behave in culturally appropriate ways. (Further), behavioral training is more effective in the post-arrival stage because expatriates tend to be more motivated to learn once they are in their assignments.

The Importance of Individual Evaluation of the Expatriate The United States expatriate, upon his arrival in the host country, can be overwhelmed by strange and unfamiliar situations. The challenges that the United States manager experiences in his own United States domestic environment can be high. Individual evaluation and analysis are vital to the process of predeparture training and preparation. This provides a starting point in the expatriate training process. Varner and Palmer (2005) emphasize the importance of, “the role of the individual, the importance of hierarchy, the importance of context in communication, and attitudes towards time and changes.”

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Varner and Palmer (2005) suggested an integrated four-stage expatriation process: (1) potential expatriates are screened for personality characteristics, contributing to expatriate success; (2)  expatriates focus on developing a conscious self-awareness including their preferences, likes, and dislikes; (3) potential expatriates study the other culture and their reaction to it; and (4) expatriates explore adaptation possibilities and strategies. Mental maps dictate how we react to events and people around us. In order to understand others, people need to explore their own cultural stereotypical thinking. Only after they have gained self-awareness can they develop a solid basis of cooperation (Varner and Palmer, 2005). Regarding the “multisource 360-degree feedback system,” Luthans and Farner (2002) state that it is “both a way to evaluate expatriate cultural training at behavioral and performance levels, as well as a way to develop expatriates to make them more effective once in the local culture.” Their “expatriate management effectiveness questionnaire (EAEQ)” elicits perceived opinions of an expatriate’s manager, subordinates, and peers (hereafter referred to as “others”) that would be measured by items such as “This person is able to answer my questions” and “This person is technically competent.” Four dimensions used in the EAEQ are:  (1) Technical Competence: “This person is able to answer my question”; (2) Management Skills: “Solve specific problems and contribute to MNC’s broader goals,” and their ability to plan, coordinate work, schedule resources, try new ideas, control, and follow-up; (3) Interpersonal Skills: “capability to get along with and work through others in a caring way,” “caring emphatic concern for everyone,” “listening to my ideas and concerns,” and “recognizes and gives credit to others who deserve it”; and (4)  Leadership Effectiveness:  “expatriates desire and need self-confidence to lead and work through people to accomplish assigned duties …” and “The person is loyal and committed to this organization.” They further add a fifth and a sixth scale: confidence/efficacy and cultural fit. Confidence/efficacy or, “how well one can execute courses of action required to deal with prospective situations” in a highly task- and context-specific manner. Cultural fit would imply a better match between the individual personality and the cultural realities of the host country.

Self-Efficacy Knowledge about oneself is an important prerequisite, first step for effectively dealing with other cultures. A strong, well-developed sense of self-confidence or “self-efficacy” has a strong predisposition to better plan, prepare, and execute the adjustment for foreign assignment. Studies on self-efficacy and self-monitoring indicate that they help in effective expatriate adjustment (Badura, 1982; Badura and Locke, 2003; Gist and Mitchell,

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1992). Self-efficacy is “a person’s belief about his ability to perform a particular task effectively” (Maurer, Weiss, and Barbeite, 2003). Self-efficacy has powerful effects upon learning a new task and, consequently, the performance of the task itself (Gist and Mitchell, 1992). Further, self-efficacy directly influences learning process by: (1) the choice of task and learning goals and activities, (2) the nature and amount of effort for the task, and (3) the level and nature of persistence to master the task despite its strangeness or difficulty (Badura, 1982). Adjustment and achievement orientations are important. Shin, Morgeson, and Campion (2007) state that for an expatriate there are the extra demands place on an expatriate for a more adjustment-oriented and achievement-oriented personality, as compared to an executive for domestic assignments. Two studies, one by Mendenhall and Oddou (1985), and the other by Black (1990), articulate the three critical dimensions for effective expatriate adjustment in foreign environment: the relationship dimension, the perceptual dimension, and the self-dimension. In the same vein, Shin, Morgeson, and Campion (2007) state: The relationship dimension refers to skills related to fostering of relationships with host nationals. For successful expatriate adjustment, it is essential to develop good relationships with HCNs. By maintaining proper relationships with HCNs expatriate workers are able to interact with them appropriately, to overcome problems and to perform assignments effectively.

Further, on this issue, Cui, van den Berg, and Jiang (1998) found: significant relationships between communication competence, cultural empathy, social interaction, and cross-cultural adaptation. (Studies) suggested that relationship dimensions such as cultural empathy and interpersonal skills become important when dealing with cultural differences. A study found that better interpersonal skills were positively related to expatriates’ adjustment to working and non-working environment in host countries.

Communication Communication can be a challenge if the language in the host country is different from that of the expatriate’s repertoire of fluent spoken languages. The building of relationships helps for expatriate effectiveness and better language competence is an important, helpful factor. When the host country’s main commercial and working language is other than English, Shin, Moregson, and Campion (2007) suggest that the expatriate would need additional skill levels. They state:

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The work demands for social and perceptual skills, reasoning ability and adjustment and achievement-orientation personality will be higher in non-English speaking countries than in English speaking countries.

Their justification is expressed: … because language is an essential communication medium, expatriates may need more social skills in non-English speaking countries than in English speaking so they can develop favorable relationships with HCNs via social interactions.

Stress Management As an expatriate manager steps into his foreign assignment, he sees unfamiliarity all around him. His stress, anxiety, and uncertainty (as to what to expect) levels go up. This reduces his ability to correctly observe, analyze, and solve local problems. Managing stress is vital. Predeparture and post-arrival preparation and training can be helpful in reducing stress, anxiety, and uncertainty. Mendenhall and Oddou (1985) studied the self-dimension, i.e., self-confidence and tolerance of stress, and they state … (these) are closely related to individual’s abilities and personality characteristics. This includes confidence in one’s ability to deal effectively with foreigners and new surroundings.

Similarly, the study by Black, Gregersen, Mendenhall, and Stroh (1999) stated that unfamiliar surroundings would raise the level of one’s stress and that can significantly impair the expatriate’s own effectiveness. Lowering one’s own stress or raising the tolerance of stress can be helpful in better effectiveness. Stress-related studies of Payne (1994), Mahoney et al. (1998), Matthews and Wells (1988), Priester and Clum (1993), and Fraser and Tucker (1997) show that cognitive breakdowns, such as lapses of memory, reasoning, and perceptions in difficult situations, would cause stress levels to go up. Further, increases in stress levels cause ineffectiveness in problem analyses and problem-solving. The individual ceases to correctly fathom cause-effect relationships:  Shin, Morgeson, and Campion (2007) conclude: In turn, such perceived uncertainty may lead to intolerance of anomalies and incongruities and a strong need for explanation of cause-effect relationships. Thus, these kinds of reasoning ability would be particularly important set of cognitive abilities for expatriate work. This suggests that expatriate work will have higher reasoning ability

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requirements than domestic work because of stress, uncertainty, and anxiety associated with unfamiliar situations.

Further, Shin, Morgeson, and Campion (2007) cite literature on stress for emphasizing the … cognitive abilities as particularly important in stress-coping process. For example, studies have found a positive relationship between cognitive failures (failures of memory, reasoning and perception in everyday life) and stress susceptibility. In addition, it has been shown that problem-solving ability is negatively related to stress level. In a similar vein, uncertainty can be caused by an individual’s inability to adequately structure or categorize information. In turn, such perceived uncertainty may lead to intolerance of anomalies and incongruities and a strong need for explanation of causeand-effect relationships. This suggests that expatriate work will have higher reasoning ability requirements than domestic work because of stress, uncertainty, and anxiety associated with unfamiliar situations.

Caligiuri (2000) found that emotional stability was negatively related to the expatriate’s desire to terminate their assignments. Other scholars (Acyan, 1997; Harrison, Chadwick, and Scales, 1996; Ones and Viswesvaran, 1999) arrived at similar conclusions regarding the importance of emotional stability in foreign assignments. Caligiuri (2000) also “found that emotional stability was negatively related to the expatriate’s desire to terminate their assignments.” Other scholars (Acyan, 1997; Harrison, Chadwick, and Scales, 1996; Ones and Viswesvaran, 1999) arrived at similar conclusions regarding the importance of emotional stability in foreign assignments. In conclusion, a United States expatriate should focus on his training needs for the particular culture and task environment of the foreign country. Briefly, he needs to develop better self-efficacy, cultural sensitivity and behavioral flexibility, improved reasoning of foreign situations, stress management, communication, building relationships for working and non-working environments, and exert hard for operating in non-English language cultures. We learn from the literature review that United States companies need to further their efforts for the United States executive to be better prepared for his expatriate posting. His (predeparture and post-arrival) expatriate training needs to be more systematic and formalized. It should focus on issues and approaches that would improve his understanding of his “self ” and self-efficacy, reduce stress and, even so, tolerate some inevitable stress, build on his capacity for greater cultural sensitivity and empathy, develop better communication (local working language) skills, setting personal and subsidiary unit’s objectives and goals, and be achievement-oriented,

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coupled with cultural sensitivity as he leads and motivates his foreign subsidiary people.

Research Findings and Suggestions for Improvements It is worthwhile to review the important findings of research on training and mentoring of expatriates or foreign managers and also suggest improvements. They are helpful to derive useful conclusions and recommendations. The table is useful in developing the recommendations set forth later in this chapter. The table presents five major issues: (1) general issues, (2) self or individual issues, (3) self-efficacy issues, (4) communications issues, and (5) stress management issues. Each of the five issues of the table is briefly treated here, first explaining in the (1) parts of each issue the main content of the literature and then, in the (2) parts of each issue, the comments of the author of this chapter. General Issues: The literature states that there is a strong need for better expatriate training when the self-confidence is low. Greater local training would lead to greater competence and competitiveness. Training needs are accentuated when task complexity is high and self-confidence is low. Greater communication capability, empathy, and social interaction would reduce stress. While these are useful observations, even so the United States companies should pursue even more intensive training for developing better skills for empathy, sensitivity, interaction, and communication in the several cross-cultural contexts. The training should start earlier and provide the expatriate free time from his regular work in the United States to pursue expatriate training. This would help the United States expatriate to be more astute, in addition to his dynamism and aggressiveness in problem-solving approaches. “Self ” and Individual Issues. The literature states that mental mapping and schemas are important to reveal and predict behavior. Emotional stability of the individual leads to job longevity. Emotional intelligence is even more important in foreign jobs than in domestic jobs. Thus, understanding of one’s own schemas and mental mapping would create more meaningful self-awareness that would help the expatriate to cope with the overwhelming onslaught of strangeness. Self-Efficacy Issues. The literature states that self-efficacy helps better adjustment and performance of new tasks in new contexts. This chapter further adds that for developing self-efficacy one should focus on the personal level and it requires probing into one’s self. That calls for humility, not a likely thing for an already well-established middle or senior level manager. This would call for professional

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trainers in sensitivity training and organizational development to help the manager unfurl and lay bare his own self, his likes, dislikes, hang ups, fixations, biases, prejudices, and stereotypes. More importantly, he should be willing to correct these upon revelation. He has to be candid and accept his strengths and weaknesses when viewed in the context of the foreign country’s cultural and operational setting. He would also have to practice his behavior adjustment and modification, such as time management, self-disciplining activity. Communication Issues. The literature states that the United States expatriate, probably with English as the sole language competence, would have to work harder at adjustment and social skills in countries where English is not the primary commercial language. This is true, and we may further add that the language is the conduit for conveying culture. Thus, working knowledge of spoken, working language of the host country is most helpful. Learning the nuances, connotations, and local culturally acceptable manner of communication and social interactions are clearly helpful for the expatriate not to make embarrassing situations for himself. Stress Management Issues. The literature states that the higher stress reduces emotional stability, performance, sound comprehensions, analysis, understanding the cause-effect relationship, and problem-solving in the host country. These tend to reduce the expatriate job interest level and commitment, and drastically affect his job satisfaction and longevity. While United States companies are well regarded for its executives having the knowledge of “hard” or technical content and skills, it is important for United States companies to pay greater attention to developing the executive’s “soft” skills, self-awareness skills, and people skills. Better stress management, coupled with a higher stress tolerance, would enable the expatriate to make more sound, balanced analysis and decision-making and in a way that better befits the local social, cultural, political, and organizational working environment.

The Models It is vital for expatriates to effectively cope with ambiguity, uncertainty, and unfamiliarity caused by cultural distance, new operating conditions, and develop higher levels of self-confidence and better stress management capability. Also, executive leadership skills (setting goals, motivating, and goal accomplishment activities) in the foreign environment are vital. The two figures provide a set of United States expatriate’s training objectives and goals (Table  12.1) and the dimensions and goals of the United States expatriate training process (Figure 12.1 and 12.2). These issues reflect many of the ideas raised in the chapter.

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Table 12.1:  A Summary of the Current Research Findings and Suggestions Issues and Descriptions

Authors

Deficiencies/Recommendations

General Issues Develop better expatriates (expats) Task complexity, low expat confidence level require more expat training Expat training leads to competitive advantage Communication competence, empathy, inter-personal skills, social interactions lead to leadership better adjustment Self - Individual Issues Mental maps reveal personality predict reactions to situations Emotional stability increases expat job longevity Self-Efficacy (S-E) Issues S-E , self-monitoring help expat’s adjustment S-E great for learning new tasks Expat assignments are harder, requiring more adjustment and achievement Relevant for expat: self, adjustment, relationship, perception Good relations with HCNs help problem-solving, perform effectively Communication Issues US expat will adjust better in English speaking countries than in non-English speaking countries

Luthans, Does not specify details and methods Farner Lee, Croker Need for more intense expat training Lee, Corker Needs to add cross-cultural, team, leadership training Shin et al Leads to cross-cultural adjustment and would also lower stress

Varner, Palmer Caliguiri Badura, Badura et al Gist, Mitchell Shin et al

Needs to show how to apply to expat training; better screening than training device, and improve mental mapping Need to show how to deal with emotional stability Intense behavior modification, reinforced can lead to lasting change and adjust Strong focus on new tasks can master them Requires greater task acceptance, focused efforts to exceed performance expectations

Mendenhall, Vital parts of total expat picture Oddou, and Black Shin et al Expat will perform better if work thru’ people than singly, doing much of the work Shin et al

In non-English speak country, need more expat training, better local language speaking skills

Continued 

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Table 12.1:  Continued Issues and Descriptions

Authors

Deficiencies/Recommendations

US expat needs better social skills in non-English speaking countries US expats need to work harder to adjust, achieve, perceive, reason, in nonEnglish speaking countries Language skills generate empathy, better social skills and interactions

Shin et al

More social skill training for non-English countries, need working knowledge of local language, keep working on social skills More intense pre-departure training for non-English countries

Shin et al

Shin et al

US bound for non-English countries: work harder at social etiquette, skills; quickly learn (even some) working local language, keep learning and practicing language Stress Management Issues (Because of Unfamiliarity, Ambiguity, Uncertainty) Higher stress reduces Mendenhall, Oddeon, Stress mgmt very impt. Learning performance (memory Payne et al to live with higher stress yet breakdown, bad problemaccept it analysis and solving) Higher stress lowers Priester, Clum, Shin Improve rational analysis comprehension of causeet al skills even under high duress; effect relationship, Post-arrival mentoring local categorizing info, sound interactions helpful reasoning, problem-solving abilities Higher stress reduces Caliguiri, Ones and Improve emotional intelligence, emotional stability Viswesvaran stability through better which reduces expat job understanding of self, post commitment arrival mentoring, practice stress management, local social interactions, more training of HCN, more delegation Source: Adapted with permission from, “The making of the US foreign subsidiary CEO”, (2014), The Current Research in Global Business, 17(27), 52-66. Copyright 2014. The Association for Global Business.

It provides the basic argument that the effective pursuit of the items of the Key Strategies and Self-Improvement would lead to a fuller accomplishment of the items of the training objectives and goals. The accomplishment of the Training Objectives and Goals are vital for the success of the expatriate in the host country. It is important and necessary for the expatriate to set broad, general objectives and detailed, specific goals for himself in his foreign posting. Without the

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Figure 12.1:  Expatriate Training Objectives and Goals Key Strategies of His Expatriate Training and Self-Improvement • Self-efficacy, self-confidence, self-discipline, time management, and stress management, including developing a higher tolerance for stress, uncertainty, ambiguity for sustained effective decision-making and efficient decision implementation processes • Cross cultural adaptation and adjustment to working and non-working environments • Understanding (and his diligent follow through) of the specific performance expectations and criteria for his own job evaluation, as set forth by both, his company HQ and the stakeholders in his host country • Adaptation-orientation: continuously inculcating better skills to adapt in the host country’s cultural, social, communicative, administrative and operational contexts • Achievement-orientation: for greater goal-orientation, self-motivation, persistence, initiative, self-motoring, self-discipline and control, time management, and dealing with uncertainty, ambiguity and strangeness, and pursuing approaches of greater entrepreneurial and enterprising • Communication skills in the local language (also, with respect to connotation) and cultural context • Social interactions with host country nationals in work and non-working situations • Leadership skills of decision making, goal setting, and teamwork and motivation in the host country context. ↓

Achieving the Expatriate Training Objectives and Goals • • • • • • • •

Develop managerial leadership in the host country’s context Skills in dealing with local people, at levels of individuals, groups, society-at-large Communication, working knowledge of local language Longer term and strategic perspective, with the pursuit of longer term objectives for himself and the foreign subsidiary Successful adaptation to the host country task environments (cultural, corporate, social, operational, logistical, industrial, political, governmental) Decision making in foreign countries: individually and in teams Faster and more enduring learning curve, and, fewer initial and costly, mistakes Effectively perform his expatriate managerial roles to the fullest extent of his abilities.

Source: Adapted with permission from, “The making of the US foreign subsidiary CEO”, (2014), The Current Research in Global Business, 17(27), 52–66. Copyright 2014. The Association for Global Business.

well-articulated objectives and goals he is likely to be overwhelmed and driven by the events upon his arrival in the host country, rather than his pursuing his chosen desirable objectives and goals. It is not altogether unacceptable if he sets somewhat, but not too exaggerated, lofty goals so long as he has specific goals that are high but attainable and so long as the goals are a source of motivation.

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Figure 12.2:  The Expatriate Training Process: Its Dimensions and Goals • Self:  1 Better self-confidence to achieve the expatriate task goals through greater persistence, motivation, self-discipline and focus and coping with unfamiliarity and uncertainty. 2 Better stress management to achieve better emotional stability and equanimity to be better at problem solving, cognitive capability, i.e. improved and enlarged memory, reasoning and perception in everyday work and non-work life. 3 Better adjustment through “self-efficacy,” flexibility and motivation. 4 Better (self ) achievement-orientation for the foreign posting. 5 Better decision-making and leadership skills in the foreign country context. • Social and Work Interactions and building relationships through improved communication, empathy, cultural sensitivity and behavioral flexibility and interpersonal skills • Expatriate Task Performance: through fuller knowledge of “cause-effect” relationships in local situations and better goal setting and accomplishment, problem solving in the local context and leadership skills • Cross-cultural Communication: e.g. acquiring a working knowledge of the local language, knowing and practicing the proper connotations and nuances • Post-arrival Mentoring: There could be a mentor of a few mentors. The mentor(s) could be in the home country, host country, third country. The mentor(s) may be those who are familiar, experienced and insightful with the cultural and operating conditions in the expatriate’s host country. A close and confidential mentoring process would help the expatriate to have a more confident and easier host country entry; it would relieve him of much of the uncertainty and stress as to how he would go about his expatriate job, particularly in the early stages and in newer projects even in the later stages of his expatriate tenure. This higher level of effective mentorship benefits is achieved through prior expatriate-mentor(s) discussions for improved evaluation of planned changes that the expatriate may be contemplating, and, for the likely ways of implementing them. Close and frequent consultations with the host and home country mentor(s). The mentor(s) should be very wise and insightful of the host country’s local culture and practices and may have local connections or influence. Source: Adapted with permission from, “The making of the US foreign subsidiary CEO”, (2014), The Current Research in Global Business, 17(27), 52–66. Copyright 2014. The Association for Global Business.

Broad, general objectives and detailed, specific goals go together. Broad, general objectives provide a beneficial function in that they would provide a broad context and perspective for the general guidance. Detailed, specific goals are time-specific, quantified, and set in the forecasted specific circumstances of the expatriate’s foreign assignment and environment. An example of the expatriate’s broad, general objectives could be his achieving greater understanding and assimilation of the

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host country’s culture and customs, with a view to selectively pursuing personal behavior modification for better harmony with the local texture of norms. An example for the expatriate’s detailed, specific goals for training and self-improvement could be to significantly increase his personal knowledge of all the most important components of the host country’s religion(s), customs, and protocol before his scheduled arrival in the host country, and, subsequently, increase the depth and scope and his personal effectiveness as an expatriate executive by a subjective/notional 5% every month. The figure focuses upon the key strategies that would facilitate the accomplishment of training objectives and goals. The key strategies cover issues that enable the expatriate to achieve his fuller potential of executive performance almost as if he were in his United States home environment. Among these strategies are first his own convictions that he can successfully function in the foreign environment and accomplish the goals that he and his HQ have set for him. His cross-cultural skills, such as empathy and sensitivity, communication and language competence, and adjustment and flexibility are vital. His knowledge about himself and his building greater “self-efficacy” would help him to better understand the workings of the local environment and how to successfully solve problems and manage his task. His achievement-oriented and adjustment-oriented efforts are important in this regard because they together help him to better perform his expatriate role. Only if he is better adjusted and is free from stress, can he focus on doing his expatriate tasks. Self-efficacy aspects are the starting point in the self-improvement program. Without self-efficacy, an expatriate cannot efficiently perform; he cannot efficiently observe, process, analyze, and use the information for sound decision-making and action. With the initial shock of strangeness and cultural differences, the expatriate should possess equanimity and be in command of his emotions. The tolerance of the unfamiliarity, uncertainty, and ambiguity, which are so inevitable for foreign assignments, is an exercise for the expatriate. It is important, as far as possible, to raise the threshold level of tolerance before departure for his foreign assignment. The expatriate should develop insights of the host country’s culture, operating conditions and norms, and value chain process of the foreign subsidiary unit. Cross-cultural adaptation and adjustment propensities (before departure) are achieved through many activities, such as frequent and quite intimate interactions with people (in the home country of the expatriate) of the same or similar culture of the host country. Working knowledge of the host country’s official language would be helpful for effective cross-cultural adaptation because a language is the conduit through which cultural overtones are conveyed. Cross-cultural communication has a major part in the adjustment process. Another example of improving

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the cross-cultural adaptation and adjustment is to make prior business-and-pleasure trips of the country and region of the foreign assignment and interact with the local people, including those of the foreign subsidiary. Cross-cultural adjustment and achievement orientations are interrelated in the expatriate successful performance process. Achievement orientation is a strong motivator for the expatriate. It would override any of his negativity, reservation, or doubt that may otherwise adversely affect him, and any negativity emanating from the unfamiliarity, ambiguity, and the uncertainty. The expatriate’s leadership skills will forge his role to be in optimistic personal style and will better enable him to set the subsidiary goals, and to pursue them vigorously. His dynamism and confidence-radiating personality would win over others to his goals and would take away any hesitation among his followers as to the validity of his goals. The training objectives and goals (cited in the lower box in the figure) that he sets for himself are the outcomes of his successful pursuit of self-improvement strategies. These training goals are helpful for him to succeed as a foreign subsidiary unit leader. His communication skills (working knowledge of the language, formal and informal presentations, and group discussions) would enable him to build better relationships in work and nonwork environment. His ability to get along well with host country nationals is a vital element as he gets results through them, and his working knowledge of the local language would considerably help him. Further, his social and team management skills can only come about if he is at one with himself, self-confident and free from undue stress. The figure delineates the expatriate training objectives and goals for achieving expatriate initial success. The importance of the United States expatriate better knowing his own self would help him in better dealing with unfamiliarity, uncertainty, and ambiguity in his foreign situation. Important in this context is his cognitive and problem-solving ability. This refers to his memory, reasoning, and perception capabilities in everyday life situations. His predeparture training of what to expect in his foreign assignment and his conditioning about his flexibility to conduct himself in the foreign culture would enable him to adjust better and faster. He has to be confident enough to be sufficiently focused on his leadership role. He has to transfer his skills to the foreign country with adaptation and flexibility so that they apply to its cultural and operational environments. His information gathering and analysis in collaboration with his people of the foreign subsidiary should be effective so that he becomes an effective coordinator, leader, and collaborator with the host country nationals in pursuing the foreign subsidiary’s broad objectives and goals. This calls for not only his high intelligence but also his greater

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cultural sensitivity so that he can meaningfully apply in the host country’s cultural and operational context. He should realize that differences in nuances, e.g., in the United States (with lower power distance), he would seek inputs from his subordinates, but in the Middle East (with higher power distance), he would adopt a more top-down approach, at least initially, unless he can change his work group’s subculture to a less steep power distance. Change has to start with himself. His growth depends upon his introspection and self-analysis to determine who he is and where he came from in terms of his personality profile and make up. This would enable him to know how to proceed to the kind of profile of an executive to which he needs to change. He should keep growing in his foreign assignment(s). The early stages of knowing himself would allow him to eclectically change his personality profile insofar as a leader is concerned. This would improve his self-confidence and lower his stress level because he knows himself and so he can better come to terms with his task environments. This advance in his preparation is achieved in his predeparture training in which he would expose himself to the cultural and operational characteristics of the foreign country (His-An, Yun-Hwa and Kim, 2005; Prud’homme and Trompenaars, 2000; Yeh-Yun and Wei, 2006). As he immerses himself in studying of the host country work and social environments, he would realize the newer, specific conceptual mapping and schemas, and he would learn the newer people skills for the foreign country culture. Once he consciously reprograms his personal changes, he then has to internalize them before his departure for his foreign assignment. There are many useful ways of knowing the foreign subsidiary unit’s situation, e.g., going through its correspondence with the HQ, talking to people who have visited the foreign subsidiary, other companies’ expatriates who have knowledge and experience of the foreign country, foreign consular offices of the host country, the United States Department of Commerce, the various Internet websites, and work-and-pleasure trips to the foreign country and the subsidiary unit organization itself. The approaches suggested here would make him more familiar about the circumstances of the foreign country, and he would know what to expect once he starts his foreign assignment (Tung, 1992; Wynne, 2006). This approach of learning the circumstances in the foreign country would reduce his stress level because he would gain a better understanding and thereby have a better idea as to what to expect and how he would deal with the situation once he assumes his foreign posting. He would feel better prepared and his ambiguity would give away to specific knowledge and pragmatic actions that he may consider when he arrives in the host country. He would have a personal feel about the specific priorities that he would

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follow as he takes charge of the situation upon his arrival in the foreign country. This would make him more decisive and confident, which, when carried forward to the host country nationals, would translate to better leadership and better, confident grasp of the situation. This would enhance his credibility and relevance in the very early periods of his foreign posting. Often, an important difference between the roles of his United States posting and his foreign assignment is while in the United States he is a specialist intensely performing a relatively narrow scope of activities; however, in the foreign subsidiary, he is the overall generalist with much broader responsibilities (Caliguiri, 2000). These broader set of responsibilities would make his more integrative analytical skills more critical. He would have to demonstrate his skills of the integration of many diverse, broad issues, in addition to his in-depth skills of key areas. Upon arrival in the host country for assuming his foreign assignment, he has to be both on guard to know what he should and not do, culturally speaking, and, be very creative to inject new thinking and analysis. Further, he would have to show prudence and good judgment to introduce changes and innovation in a proper manner and at a proper pace that are quite acceptable to the local culture. He has to be culturally and operationally very astute before instituting changes so that they are well accepted. He would have to make high-level personal contacts and presentations, internally and externally, such as meeting governmental dignitaries and business officials, making speeches in front of important groups. Because of his high position, he would be viewed as the ambassador of the company and, by way of inference, of the United States. He would have to conduct himself in the most acceptable way, with due deference to the local norms, etiquette, customs, and protocol. All eyes would be on him. He is conspicuous. His approaches should be pretested with his mentor for all important activities in the early stages of his foreign assignment. For example, his mentor must review and approve all his first speeches, address, line of approach of major activities. In this way, he would avoid making mistakes or embarrassing slips. The argument here is that while he is already facile and fluent in these issues in the United States context, he needs to internalize the attributes in the foreign country context. His having a mentor who is familiar with the host country culture and norms would make him better prepared to prevent mistakes and project a favorable and respectable image to the host country people (Chao and Sun, 1997; Fraser and Tucker, 1997; Mendenhall and Stahl, 2000). For major, high profile events, he should check with his mentor for every important event and also for activities which change the way his foreign subsidiary unit has be accustomed to working (e.g., changes in internal structure, policies, and processes) that he may be

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contemplating. While the expatriate’s own rational judgment may convince him to a particular course of change, his mentor, with his insights of the host country, may dissuade him to do so for now at least, and instead, he may suggest to the expatriate at least it to defer it to later date on the grounds that the foreign subsidiary organization is not yet ready for the contemplated change. The post-arrival activities should include his mentor guiding him and his continuous self-improvement from the feedback that he senses from the host country nationals and from his mentor’s corrections and guidance. This mentoring may be entrusted to a veteran United States expatriate in the host country, either of the same or another company, or in a third, nearby country. If local mentoring is not a possibility, then an experienced home country executive, who is insightful of international management, or the host country culture and circumstances, may assume the role of the mentor of the expatriate. Mentoring would provide the needed guidance, and it would also absorb and dampen some of the expatriate stress caused by unfamiliarity, uncertainty, and ambiguity (Karabell, 2010). Mentoring would alleviate much of the nervousness caused by the initial shock in the initial stages of the expatriate’s arrival in the host country. This mentoring approach would obviate early costly mistakes and pave the way for faster adjustment, an important prerequisite for the expatriate to concentrate on his people aspects of his task and the content of his work.

Recommendations The United States foreign subsidiary top-level manager or CEO faces culturally and operationally different task environments in his foreign assignment. By improving his predeparture and post-arrival training and mentoring, he can adjust better, adapt to the local situation, better focus on the executive task relatively earlier. His expatriate performance depends on his adjustment and achievement orientations; his “self-efficacy”; his stress management, his cognitive problem-solving capabilities; his self-discipline, monitoring, and motivation; his motivation, persistence, and longer term or strategic perspective; his communication capability; and his social interactions with host country nationals in work and nonwork environments to build relationships that are so vital for his expatriate effectiveness. The objectives for the United States expatriate should be first clearly formulated for a particular foreign assignment so that he may focus his training program for a specific foreign assignment. The training objectives for the expatriate should be based upon the unique needs of the expatriate and his particular foreign assignment. His unique personal characteristics, past assignments and experience, skills,

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the nature of his openness to dissimilar cultures and foreign practices should be considered when formulating his training program. In addition, the considerations of his foreign assignment must be used to formulate his training program. The foreign assignment issues include the foreign country’s details, such as its history, religions, culture, subcultures of the host country and its neighbors; life styles; infrastructure, economic, technical, and business systems; social and business customs; protocol and etiquettes; and communication styles and methods. The recommendations for the expatriate’s predeparture training objectives and activities should selectively include the following.

Recommendation 1: Develop His Managerial Leadership Skills in the Host Country Context Justification. In his manager’s position in his home country, he may be an effective leader. That does not automatically mean he will be an equally effective leader in a foreign country, particularly if he finds it difficult to practice the same leadership and managerial methods. He needs to adjust to the newer environment and find out what will and what will not work in the foreign country. Guidelines for Implementation. The HQ trainers and experienced international managers should provide him with the needed knowledge and skills if the HQ has internally the needed training capability; otherwise, it should get it from outside. They should provide the expatriate with a greater understanding and appreciation of the details of the host country environment, the foreign subsidiary, and the challenges of the foreign assignment. He should familiarize himself with what he can expect to find and how he might manage in the foreign subsidiary setting.

Recommendation 2: Improve His People Skills in the Foreign Country Social Context Justification. The people skills are culturally grounded. They are specific to a given country and its culture, norms, and practices. They vary from one country to another. Guidelines for Implementation. The expatriate needs to understand the extent to which his people skills can effectively apply in the foreign country situation. He needs to learn the host country’s preferences and practices in interaction in the professional and social settings. He should adapt himself in the foreign country’s cultural setting. The HQ trainers and experienced

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international managers should provide him with the need knowledge and skills.

Recommendation 3: Improve Communication (Including Local Language) Skills in the Host Country Justification. His communication, if it is in the United States English language, should be modified to suit the style of English language as it is used in the professional and social settings in the foreign country. Guidelines for Implementation. When an expatriate reviews his communication skills in the foreign country context, he should take into consideration the cultural, educational, and religious environment of the country. Communication takes place in the cultural setting. And, the knowledge of the mere denotive meanings alone does not help. He should use the English language devoid of any United States slangs, terms, and idiomatic expressions. He would do well if he were to have a basic knowledge of the language of choice when he first arrives there, that is better than not having any knowledge. The HQ trainers and experienced international managers should provide him with the needed knowledge and skills.

Recommendation 4: Developing a Long-Term, Strategic View of the Foreign Assignment so that the Expatriate Would “Want to Stay” with His Foreign Assignment Justification. The HQ should encourage the expatriate to feel that he can stay in the foreign assignment longer than expected. This often happens to be the case. For example, an expatriate who is sent for six months actually stays on for nine months because of the foreign subsidiary’s needs. This is even though the trend is now for expatriate assignments to be shorter rather than longer foreign assignments. A  strategic, longer term horizon would enable an expatriate to have a greater feeling of being embedded in the local situation. This long term perspective is necessary for the expatriate to want to take greater ownership and tenacity to solve the difficult problems with lasting solutions. Guidelines for Implementation. Encourage the expatriate to believe that he will stay for a longer period so that he is mentally and emotionally prepared and conditioned to personally invest himself in the foreign country. He will take more interest in the host country and the people and the activities of the

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foreign subsidiary. The HQ trainers and experienced international managers should provide him with the needed conditioning, knowledge, and skills.

Recommendation 5: The HQ Should Clearly and Specifically Explain to the Expatriate about How He Will Be Evaluated Justification. An expatriate should not fly blind. His performance will be evaluated based on what the HQ has in mind about how he should perform (Acyan, 1997). The HQ’s explicit performance expectations of his foreign assignment, if communicated to him, would help him considerably to correctly focus his energies while he is doing his work in the foreign subsidiary. Guidelines for Implementation. Much before his departure for his foreign assignment, a particular, a senior HQ manager should be assigned to help him and he should clearly and specifically explain to the expatriate how the HQ will evaluate the expatriate’s performance. After his being there in the host country for some time, the HQ managers must correct the manner and the content of his work, if so needed, so that he stays on track. A fuller understanding as to how specifically he will be evaluated by his company’s HQ and his host country stakeholders is not only important but also useful to the expatriate. If he has had some or many past foreign assignments of similar nature, that will provide some guidance. His prior knowledge of the specific HQ-derived performance expectations and performance criteria is as vital as the specific performance expectations by the host country stakeholders. He should know both. The HQ trainers and experienced international managers should provide him with the needed knowledge and skills.

Recommendation 6: Improve His Flexibility and Adaptation Skills Justification. Encouraging and training him to modify his personality traits to become more flexible and more adaptable to the needs of specific types of foreign situations would ease his transition for a fuller adjustment to the host country’s cultural, logistical, industrial, and commercial environments. Guidelines for Implementation. Given his personality characteristics and the cultural realities of the foreign country of his posting, the HQ must help him to learn the particular behavior traits which would be better suited for the foreign country of his posting. The HQ trainers and experienced international managers should provide him with the needed knowledge and skills.

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Recommendation 7: Developing Better Understanding of the DecisionMaking Skills that Build on Insights of the Foreign Unit People and Local Knowledge of the Business Situations Justification. The people in the foreign subsidiary will have a wide repository of its problem-solving knowledge and skills. They are the best sources for the expatriate to use for his doing his job. The local, foreign subsidiary people can be his best help. Guidelines for Implementation. The HQ must teach him how to understand the body of expert knowledge that exists in the foreign subsidiary. He should learn the method of finding out who possesses which skills and how he should harness the specific, needed skills to help him solve his specific problems while he is there on the job. The HQ trainers and experienced international managers should provide him with the need knowledge and skills.

Recommendation 8: Improving Quick Learning Capability of Local Methods and Practices, Regulations, Norms, Customs, and Etiquette so as to Avoid Costly, Embarrassing Mistakes Justification. The HQ must train him for becoming culturally adept, savvy, and suave. The local people, including those of the foreign subsidiary, will judge him very soon on his arrival. So he should make proper first impressions. Guidelines for Implementation. He should learn beforehand what would constitute the proper conduct as a foreign subsidiary manager representing the MNC HQ. He would become the ambassador of the MNC and its HQ. He should learn the preferred norms and etiquettes and internalize them for his behavior while in the host country. The HQ trainers and experienced international managers should provide him with the needed knowledge and skills.

Recommendation 9: Developing a Better Understanding of the Host Country’s History and Culture Justification. His better grasp of the host country’s history and culture would enable him to better understand the host country nationals and the neighboring countries’ nationals. Having this knowledge will help him to employ the correct conversational topics and to avoid dangerous conversational topics. Guidelines for Implementation. The HQ should help him learn the history and background (historical, cultural) information of the foreign country where

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he is to be sent. Learning this ahead of time would help him know how he should conduct himself while he is there. For example, if he is to be sent to India, he should know the history of the British rule in the old India and how the independence from the British resulted in the partition, dividing the old country (British India) into two countries, India and Pakistan, both of which have had a few wars. While he is in India he should avoid topics that relate to these issues. The HQ trainers and experienced international managers should provide him with the needed knowledge and skills.

Conclusion The expatriate’s predeparture training and post-arrival mentoring focus on preparing and conditioning him to be effective and appropriate in the context of the host country and regional countries. The post-arrival mentoring is very important because the expatriate’s learned content during the predeparture training stage needs guidance for its implementation. Further, in his new situation, he is even more motivated to learn. The early phases of the expatriate’s post-arrival mentoring should be done by an experienced, mature international manager who has worked in the host or a nearby country. This approach would help the expatriate in the early months as he grapples with numerous issues and decision-making challenges in the new unfamiliar surroundings and task environment. His predeparture training program should focus on himself as a person in dealing with his inner self, other people, the tasks of managing his foreign subsidiary’s activities in its host country environment, his communication and leadership styles, and adaption and achievement orientations in the host country.

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chapter thirteen

Training Expatriates for Emerging (Developing) Market Countries

Successful expatriate experience is borne out by effective selection of the expatriate, the correct match between him, the foreign subsidiary and the foreign country, and the predeparture training, and post-arrival mentoring of the expatriate and his family. With the increasing importance of emerging market (or developing) countries, multinational corporations (MNCs) from advanced countries experience the need for better training of their executives and specialists and their families for different cultures and economies compared to those of their home county. This is particularly true if the expatriates are from advanced countries like United States. The chapter focuses upon effective training for a United States MNC expatriates for the emerging market (or developing) countries. The same ideas can be applied to expatriates of MNCs which are headquartered in other advanced countries. The issues covered in the chapter include expatriate training, foreign executive training, managing foreign subsidiary, and cultural and communication skills for a foreign country. Training of expatriates is vital for an MNC. MNCs from many countries used to experience frequent premature return of their expatriates because of their ineffective adjustment to the challenges in the host country even though they had good specialized, technical or “hard” skills and even though they were effective managers in their own, advanced home country. The sources of inadequate preparations and ineffective adjustments could be the reasons for their ineffectiveness.

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These reasons could include ineffective: (1) expatriate selection, (2) match between the expatriate’s personality and the country of foreign assignment characteristics, (3) training and preparation, (4) post-arrival mentoring, (5) the adaptation of the expatriate and his (or her) family to the host country and the expatriate work situation, and (6) a general ineptness of the expatriate to fit in the host country setting. Effective expatriate training strategies help effective adjustments in the host country, leading to effective expatriate performance. It is important to take heed of these points as they can be helpful.

Importance of Continuous Training for the Expatriate Education, learning, training, and development are fundamental to a human being and necessary to pursue effective organized activities. An expatriate would feel the need for even more specific education and training if he were to arrive in a foreign country for his foreign assignment without any predeparture training. The cross-cultural and cross-economy movement or straddling (e.g., from advanced to developing) in one’s career require training to be even more applied to the transitionary nature of the expatriate’s placement. This straddling from one level (e.g., higher level) of infrastructural and economic development to a different level (e.g., lower) makes it difficult for adjustment without proper training and mentoring. Training is necessary and vital even though it may be difficult. Expatriate movements from advanced countries to developing economies require not mere gradual adaptation but dramatic shifts in mind-sets and in the essential rationales for decision-making in business and social conduct, daily activities, and logistics. The need for an expatriate’s shifting from: (1) his high technical skills, as applied to advanced infrastructures, to (2) high operating and problem-solving skills, as applied to lower level infrastructures, can not only be novel but also challenging. If that were not all, the situation is further compounded by the expatriate’s need for coping with different or strange societal, operating and governmental values and systems. This complicates his coping mechanism. These challenges are common for expatriates coming from advanced, industrialized countries and going to less developed or developing economies. Given that the focus, nature, and content of an expatriate’s requisite best practices and optimal activities are different for different levels of economic development, the expatriate has to dramatically readjust. His straddling from an advanced country to a developing country necessitates reorienting his mode of operation and to unlearn his older skills (or, at least place them in abeyance until future relevance) and learn anew the needed skills and the

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repertoire of reflexes and specific information so that he can effectively operate in his foreign assignment in an emerging market country. Development and training should be continuous and lifelong. They should focus on meeting projected, future challenges. They should be both (1)  general training (for any country) for an international manager and (2)  country-specific training for a particular executive posting in a specific country. An expatriate must periodically refresh and upgrade his expertise, skills, and knowledge base as he moves through the different phases of his career in an organization, even if his international career is within a few countries. For an expatriate, the challenge is greater (than a predominantly domestically oriented executive) because of the need to operate in different and strange national cultures and organizational operating environments. Their cultural distance and operational differential between the home country and host country is an important factor. That is to say, the greater the (cultural and operating) distance and differential are, the greater would be need of the foreign subsidiary and country-specific training. Prior specialized expatriate job performance should be blended with high technical specialization and cultural adaptation for an expatriate to be effective.

Purpose of the Chapter The purpose of the chapter is to study some common problems that cause ineffective United States expatriate performance in emerging market countries, and suggest effective strategies that would result in improved United States expatriate performance in host countries. This topic is important because many United States MNCs have had premature return of their expatriates, or their continued ineffective performance. This situation should be better addressed through better expatriate selection, training, and mentoring. United States MNCs for the most part should pay even greater attention to developing more customized training programs for their expatriates as they address the strategic analysis in the particular foreign subsidiary unit and its host country. Consider the evidence from Wynne (2006) to the effect that expatriates workers tend to make the most expensive and damaging business decisions during their first 18 months in a foreign country. Two major causes are communications and cultures (emphases are added).

This finding is a strong reason that United States MNCs should better select, train, and mentor their expatriates for the particular foreign subsidiary unit organization and its host country culture. Proper match, training, and mentoring are vital.

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The chapter contributes to the development of an approach of first analyzing and understanding the specific strategic situation of the particular foreign subsidiary unit and its host country, and then customizing training programs for the chosen expatriate candidate. It exhorts the focusing on the strategic analysis of the particular foreign subsidiary unit prior to the selection and training of the United States MNC expatriate. It identifies the key factors and processes which are vital for effective training of the United States expatriate.

A Review of Literature Studies have shown that intensive predeparture training of United States expatriates about working in emerging market or developing countries would improve expatriate effectiveness (Austin, 1991; Brewster, 1994; Jaeger and Kanungo, 1990; Schramm, 2006; Solomon, 1994; Taylor, 1996). The United States expatriate is often overwhelmed as he straddles from his intense United States technical or specialized managerial role to the strange foreign operating environment, often fraught with challenging cultural and communication differences. Further, the levels of economic development and industry sophistication are so varied among countries that the United States-emerging market country differential results in the United States technical manager being unable to contend with his task environment. He would have to severely reconfigure his operating paradigms and also adapt, if not drastically change, his people skills and his problem-solving skills. This significant challenge for the less often than adequately prepared United States manager to attempt to adjust to stunningly different operating conditions have led to premature United States expatriate’s return to the United States homeland at an alarmingly high 20% rate. The cost of a premature expatriate return to United States MNC in the past was in the range of $300,000–$400,000 (McNerney, 1996; Tan, 2006; Wynne, 2006). Foiled foreign assignments, particularly in emerging market countries, also bear high emotional costs for the United States expatriate and his family. Foreign technical manager assignments cost in excess of $1 million for a mere three year duration, with an average expatriate success rate of 50% (Collings, Scullion, and Morley, 2007; Gershkovich, 1997). Thus, in light of the high cost and the severe challenge for the United States expatriate to succeed in his overseas assignments, particularly in emerging market countries, we have to do better on selection, training, and mentoring of the United States expatriate. Emerging market (or developing) countries usually have a relatively slower rates of change and lesser sophisticated external organizational environments,

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compared to advanced countries. This issue is relevant as we study the internal decision-making process of an organization. Robert Duncan’s (1972) findings of his empirical research study of a manager’s perceived environmental uncertainty of his organizational environments used the following dimensions for the (total) organizational environments. Duncan (1972) used the two organizational environmental components: (1) internal (personnel, functional, and staff units, strategic organizational level) and (2) external (customer, supplier, competitor, sociopolitical, technological). For the external organizational environments, he used the two external organizational environmental dimensions:  (1) the complexity dimension, i.e., simple or complex, and (2)  the rate of change dimension, i.e., static or dynamic. Thus, there would be four categories of organizational environments, presented here in a continuum: (1) static-simple, (2) static-complex, (3) dynamic-simple, and (4) dynamic-complex. Intuitively, it can be felt that operating in a static-simple environment would be relatively the least difficult and challenging, while operating in a dynamic-complex environment would be most difficult and challenging. The Duncan (1972) empirical study also found that: (1) the static-simple organizational environment had relatively the least manager’s perceived environmental uncertainty, and (2) the complex-dynamic organizational environment had relatively the highest perceived environmental uncertainty. Further, and consistent with the findings of the Duncan (1972) empirical study, the Godiwalla, Meinhart, and Warde (1979) empirical study found that (on the one end of the continuum of organizational environment), the simple-static organizational environment, which had the manager’s relatively the least perceived environmental uncertainty, required relatively the least organic organizational structure and relatively the least scores of importance for the general management (or top management) function for the perceived effective management of the organization and for the perceived competent response to the environmental changes in achieving the organizational goals. However (on the other end of the continuum of organizational environment), the complex-dynamic organizational environment, which had the manager’s relatively the highest perceived environmental uncertainty, required relatively the highest organic organizational structure and relatively the highest scores of importance for the general management (or top management) function for the perceived effective management of the organization and for the perceived competent response to the environmental changes for achieving the organizational goals. From the foregoing, one can categorize that emerging market countries are relatively closer to the static-simple category and the advanced countries are relatively closer to the dynamic-complex category. It may be inferred that the nature

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of experience of the management of a foreign subsidiary would be different in emerging market countries than that in advanced countries. For example, one the one hand, some of the challenges in emerging market countries would be dealing with the relatively slower pace and lesser sophisticated systems and infrastructures. While, on the other hand, some of the challenges in advanced countries would be dealing with relatively a faster pace and higher sophistication of the systems, competition, and infrastructures. The top or general management functions of foreign subsidiaries operating in the two extremely different categories of organizational environments of emerging market countries (relatively static-simple) and advanced countries (relatively dynamic-complex) will pose different nature of challenges to the top managers of the foreign subsidiaries.

The Important Role of Emerging Market Countries Doing business with the emerging market countries is good for United States and for the world as a whole. As economic growth spreads to different corners of the world, the increasing standards of living make all countries prosper, both the giving countries and the receiving countries. John Naisbitt (1994) expresses the sentiment thus:  “the bigger the world economy, the more powerful its smallest players.” Emerging market countries’ growth rates have been much higher than that of United States, so it is beneficial for United States to pursue their business opportunities in emerging market countries. Social economists’ exhortation is that doing business with the underdeveloped parts of the world can make good economic sense. This is an argument cited by John Kenneth Galbraith in his influential book, The Affluent Society. He exhorts that the richer countries should help the poorer countries. In helping them, he argues, the richer countries will increasingly operate their own economies at fuller capacities. Further, the enlarging emerging market economies would provide additional and growing markets for the advanced countries.

The Relative Advantages of Using MNC HQ’s Executives as Expatriates in Foreign Subsidiaries There are two major reasons why United States MNCs, in certain circumstances, probably would be benefit from utilizing United States expatriates instead of the foreign subsidiary’s host country people as executives. Hailey (1996), Shin et al. (2007), and Tan and Mahoney (2006) provide discussions that converge on two

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major reasons. The first major reason is the United States executives have superior specialized and technical knowledge and capability, and organizational expertise and experience wrought from their MNC’s unique, successful operating process in the United States. This is a strong, favorable distinguishing and favorable factor for the United States MNC expatriate being sent to the foreign assignment. The positive difference between a United States MNC’s technical manager (on the one hand) and emerging market country’s manager (on the other hand), in this regard, is significant enough to justify the utilizing of the United States MNC executive to serve as an expatriate in a foreign country. The disadvantages of using MNC HQ’s executives are that: the HQ’s executives would not be, at least in the beginning, very adept and well adjusted, and he and his family may feel excessive strain unless they are united in the foreign subsidiary’s host country and they also feel well adjusted. The second major reason is the issue of trust and confidence for a closely held and a closely, tightly managed United States MNC. They would feel more confident if their own United States MNC executive is managing (or is one of the top people in) the MNC’s foreign subsidiary in the emerging market countries. This higher confidence level is vital for the fuller empowerment of the person in charge of the foreign subsidiary. This high level confidence is hard won through the closer interactions among managerial cadres between the MNC’s headquarters (HQ) and foreign subsidiary, thus making it imperative to use their own proven HQ executives to manage subsidiaries in far-away countries. This is particularly true of an MNC which has a unique, successful, specialized technology or a proven organizational process. While a global mind-set may frown on this practice, it may be worthwhile to illustrate that Japanese companies (at least during the early foreign subsidiary establishment) tend to heavily rely on the Japanese company HQ loyalty, knowledge, and experience to be overriding reasons of expatriate deployment rather than the use of host country executives. Thus, this rationale of staffing by United States MNC expatriate transcends global human resource management argument, which typically favors the host or third country method, rather than the use of the host country expatriate method. United States MNC executives have stronger technical and other hard skills than those of Japanese MNCs. The United States executives have strong hands-on knowledge of the operational process in the United States environment. They bear a wider repertoire and experience of solving operating problems of their organization. For rapidly expanding United States MNCs, home-grown and nurtured managers can provide stronger technical and organizational insights and performance as the MNC provides them with foreign assignments for their career growth and their professional self-actualization. This is critical if the MNC wishes to retain its high caliber, aspiring talent. The

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prospect of future prestigious and autonomous assignments would give reasons to continue working for their organizations in the hope of better job satisfaction. A United States MNC expatriate will better perpetuate the MNC HQ philosophy and strategies in an effective manner so as to project the correct image of the MNC in a foreign country. The local subsidiaries’ personnel will alter or emulate the MNC-specific best organizational and technical practices from the expert United States expatriate. Correct beginning in a foreign country would set the right path for the future of the subsidiaries. Thus, for the earlier stages of the establishment of a United States foreign subsidiary, it would be beneficial to use United States’ home-grown expatriates. Assessing the Expatriate’s Skills to Determine His Training Needs. The key attributes of a United States manager’s current skill level (before departure to foreign subsidiary) must be first assessed. According to New Zealand Management (2006), these are management, leadership, organizational development, and governance. Each of these is further explained here. New Zealand Management (2006) includes considerations as:  broad management skills, knowledge of the workings of an organization, external forces of change and challenges, and the specialized expertise to make the organization more competitive. Additionally, according to New Zealand Management (2006), the important detailed attributes are: (1) Leadership includes the visionary capability, the practice of honesty, integrity, building opportunities for people, and the ability to be comfortable in an environment of uncertainty and ambiguity. (2) Organizational development is the creation of an appropriate organizational culture that is self-reliant in managing challenges and change. (3) Governance responsibility includes the areas of strategy, ethical values, policy, monitoring and review of people and performance, coaching, and the effective management of stakeholders and their interests. Further, the nine drivers of management capability are often cited to be: (1) visionary and strategic leadership, (2) performance leadership, (3) people leadership, (4) financial leadership, (5) organization capability, (6) application of technology and knowledge, (7) external relationships, (8) product innovation, and (9) process innovation. A United States expatriate manager may be assessed for his performance in the United States along the aforementioned dimensions. The major causes of ineffective expatriate performance are the mistakes in communication and managing cultures as the expatriate goes up in the learning curve in his foreign assignment (Black et al., 1999; Brewster and Pickard, 1994; Marquardt and Engel, 1993; Werner and DeSimone, 2005; Wynne, 2006). The supervisor-subordinate relationships in United States operations often determine the selection of executives for foreign assignments, according to Varma et al. (2001) in her leader-member exchange (LMX) model. This leads one to conclude

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that effective LMX practice would enable a supervisor to better nurture his subordinate’s communication and dealing with specific cultures. The selection of an expatriate for a specific country, given its operating conditions and culture, would also be more effective. Skills Needed Most:  Social, Perceptual, Reasoning, Adjustment, and GoalOrientation. It has been found that for effective expatriate performance in foreign assignments, the competences for social and perceptual skills, reasoning ability, adjustment-orientation, and achievement or goal-orientation personality are higher than for an executive in domestic (or, same environment) assignments (Shin, Morgenson, and Campion, 2007). This brings to bear a stronger need for a better assessment of potential expatriate candidates along these evaluation criteria. In this context, many MNCs have been rethinking their criteria in the expatriate selection and training (Collings, Scullion, and Morley, 2007). In the context of adjustments to a different culture and expatriate operating environment, Melkman and Trotman (2005) emphasize the importance of training programs that reflect different cultures, and communication and learning styles. Their consulting experience in this context enable them to express a conviction that effective learning not only takes place when an executive is in a multicultural sensitivity situation but also it can also take place “when participants share different perceptions that are intrinsic to varied cultural backgrounds” (Melkman and Trotman, 2005).

A Discussion on the Models: The Three Figures There are three important interrelated issues that would strongly affect the choice of expatriate training programs. They are: (1) the findings of a strategic analysis of the foreign subsidiary unit organization, (2) the gap or the difference between the operating and task environments of: a United States executive in the United States and the United States expatriate in foreign subsidiary, and (3)  the foreign subsidiary unit’s operating systems and culture. A review of these three issues would identify the major deficiencies that a United States expatriate candidate would have, and these in turn would provide the scope and content of an effective training program for him. The three issues should be properly integrated for the expatriate training program to be effective. While the first issue helps to narrow the scope of the expatriate task design, the second issue helps to identify the specific areas of training, and the third issue provides the needed skills for the expatriate to develop tailor-made (for the particular foreign subsidiary) styles to lead, motivate, communicate, and supervise.

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The Three Figures The three figures have the three issues, which are outlined here: (1) Analysis of the foreign subsidiary’s strategic and operating situation. This would provide direction for the correct expatriate training choices, from a strategic point of view. This is portrayed in Figure 13.1. (2) Depending on the findings of the strategic analyses of the foreign subsidiary, it is probable that the content of the United States MNC’s training programs for the expatriate would be relevant and effective for the host country situation. This is portrayed in Figure  13.2. (3)  The cultural differences between the United States and the host country make it necessary for the United States expatriate to be skilled and trained for coping with the cultural differences. This is reviewed in Figure 13.3. Together, the three figures provide a systematic approach to analyze the United States expatriate’s training needs. The integration

Analysis of the Foreign Subsidiary’s External Environments: • Direct competitors • Value chain • Customer groups • Distribution system • Labor markets • Risks (political, economic)

Analysis of Its Internal Environments: • Organizational culture • Administrative process • Strengths-weaknesses • Technologies • Stakeholders influence

Desired US Expatriate’s Skills Profile for Subsidiary Effectiveness: • Cultural, political, and social skills • Communication skills • Operational skills • Technical, administrative and operational adaptability skills

Training Strategies for the US Expatriate: • Strategy formulation and implementation (objectives, goals, strategies, targets, etc.) • Organizational design issues (decision making, administrative process) • Culture (national, regional, organizational) • Technologies (IT, engineering, organizational) • Communication (in the local context)

Figure 13.1:  The Foreign Subsidiary’s Strategic Analysis for Determining the Expatriate’s Training Needs Source: The Author

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MNC HQ–Foreign subsidiary interface for global and host country strategic management process (vision, objectives, goals, strategy for subsidiary MNC Global and Foreign subsidiary HRM strategies → Training of US expatriate Differences (nature, extent, content,) among MNC overall global, HQ home country, and foreign subsidiary for: • Culture, society, community • Infrastructure, operating methods • Organization-environment interaction process • Technological (IT, engineering, organizational) • Market systems (promotion, selling, distribution, competition, service) • Governmental, political, legal influences Scope and content of the US expatriate’s training needs and plans for the foreign subsidiary’s host country conditions Training strategies for the US expatriates for his being successful in the foreign subsidiary organizational environments; training for host country’s; culture, markets, value chain, decision making, supervisory styles, external groups.

Figure 13.2:  Overall MNC and Foreign Subsidiary Strategic Analysis and the Expatriate Training Strategies Source: The Author

of these issues are important in the planning the training program of the United States expatriate. A similar process would be applicable and should be followed if the expatriate is from an advanced country other than United States (e.g., Germany). The comparison would be between that advanced country (e.g., Germany) and the foreign subsidiary’s emerging market (or developing) country. Just as an organization analyzes its internal and external strategic environments to formulate its corporate strategy and Human Resource Management (HRM) strategies, so too should a foreign subsidiary analyze its external and internal environments to formulate its foreign subsidiary unit’s corporate strategy and its HRM strategies, as they relate to the United States expatriate’s training needs. Expatriate training needs must be focused upon the current and projected future strategic scenarios of the foreign subsidiary. The external analyses may include local and regional industry analyses (market trends, competitor analyses, other stakeholder preference changes). Host country general environmental trends analyses are particularly relevant, such as those for local legal, politics, economic, cultural, and societal issues.

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the foreign subsidiary : working within a n i n t e r n ati o n a l f i r m Dimensions of Foreign Subsidiary’s Operating Systems:

• Socialization/culture : acculturation priorities, customs, styles, communication process (formal and informal), preferred behavioral stylesin work and social settings • Operating methods : value chains, organizational systems, policies, practices, power flow and distribution, industry and other organizational norms • Human Resource Management policies: (1) Training;mentoring on-the-job learning, career development, formal programs (b) compensation/rewards benefits • Organizational resources/systems : capabilities, sophistication levels, capital and human resources

US MNC’s HQ operating systems: national, industry, organizational

Differences between the two

Foreign Subsidiary’s local operating systems: national, industry, organizational

US MNC Expatriate’s Training Strategies : leadership, cultural, behavioral, decision-making, communication, motivational, technical, and other organizational processes

Figure 13.3:  The Foreign Subsidiary’s Operating Systems and Culture: Foreign SubsidiarySpecific Training of the MNC Expatriate Source: The Author

The foreign subsidiary’s organizational characteristics, such as its strengths and weaknesses, are important for the expatriate to understand the inner workings of the subsidiary organization. Each subsidiary has its unique ways of decision-making and operating preferences. These usually reflect the host country’s national culture and the subsidiary’s organizational culture. It is important that the United States expatriate understands these if he is to be an effective expatriate manager. The training needs of the expatriate executive would depend upon the external and internal subsidiary organizational analyses. These training needs should include components of technical, managerial, cultural, and social skills. While the United States expatriate’s technical capabilities are likely to be very strong, his cultural and social sensitivity, cultural adaptation, and behavioral flexibility skills would likely need improvement. The cultural and operational distance between United States and emerging market country, to which the United States expatriate is expected to go, would determine the intensity of cultural and social skills training needed for the United States expatriate. It is for these areas of training that the United States MNC should focus his training programs. The training programs may be tailor-made to suit the unique and specific foreign subsidiary’s needs. Each foreign subsidiary unit has its unique organizational situation. These need to be addressed in the training programs so that the United

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States expatriate becomes immediately effective in solving the problems of the foreign subsidiary. The dimensions for the training programs include:  (1) strategy formulation and implementation (expatriate’s styles: participative versus authoritative, problem-­ solving, proactive versus reactive, degree of delegation, superior-subordinate interactions); (2) organizational design issues (task design, structuring of tasks, nature of communication, and decision-making patterns); (3) culture (national, regional, and organizational); (4)  technologies (informational, engineering, organizational); and (5) communication (in the local context of the host country). Figure 13.2 provides a framework for strategic analyses as they have a direct bearing on the choice of effective training strategies for the United States expatriate. It is relevant to consider the differences among the three strategic organizational environments of: MNC global, MNC HQ’s home country, and foreign subsidiary host country. These are analyzed in Figure 13.2 in order to develop the scope, nature, and content of the expatriate training. The six dimensions of differences may include:  culture, society, community; infrastructure, and operating methods; organization-environment interaction process; technologies (including IT, engineering, organizational); market systems; and governmental political and legal influences. The differences among three environments for these six dimensions should provide a clear direction for effective expatriate training programs. The expatriate training programs should focus on training for effective performance in host country’s culture, markets, value chain, decision-making, supervisory styles, and dealing with external groups. Figure  13.3 provides the four major dimensions (of socialization/culture; operating methods; HRM policies for training, and compensation/rewards and benefits; and organizational resources and systems) for studying a foreign subsidiary’s operating systems. The comprehensive assessment of the operating system of subsidiary is their contrast with that of the MNC headquarter organization. It is important for the expatriate to consciously realize and internalize the differences between his home country and the foreign country, which will become his host country when he takes up the foreign assignment. The differences between the two entities are then studied for the formulation of the United States expatriate training strategies on the major dimensions of: leadership, cultural, behavioral, decision-making, communication, motivational, technical, and other organizational processes.

Discussion on the Three Models The proper identifying of the major deficiencies of the knowledge skill set of an effective executive in the context of a particular foreign subsidiary unit organization

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and its host country would be the key to developing a customized training program for an expatriate candidate. The “hard” or technical skills, and specific expertise, and the “soft” or cultural sensitivity with behavioral flexibility skills should be focused to the executive job situation in the foreign subsidiary unit. These issues are reviewed by several scholars (Galbraith, 1984; Gershkovich, 1997; Melkman and Trotman, 2005; Solomon, 1994). Acquiring the current knowledge specific to the foreign subsidiary and the host country is very important. The better the expatriate studies about them, the more confident he will feel and the better he will project an impressive image to the foreign subsidiary employees and the host country people. This is a very good way to start the foreign assignment. It is good to be immediately effective. The proper focus of the training program would ensure the effective performance of the United States expatriate on all issues, such as the internal working within the subsidiary organization, as well as the interactions with the external subsidiary environments in the host country. In all cases of expatriate training, learning the cultural, communication, perceptual, and people skills aspects have to be emphasized.

Recommendations Recommendation 1: Training for the Correct Perceptual, Reasoning and Decision-Making and Cultural-Social Astuteness, and Personal Adjustment and Achievement Justification. These are the fundamentals for an expatriate from any country. Training on these would help the expatriate to smoothly slide into the foreign assignment country with immediate performance. He must possess an intimate and superior knowledge of all products, policies, and processes. He must know the top management philosophy in specific terms as they may apply to his foreign subsidiary. Guidelines for Implementation. The MNC’s HQ should provide (from inside and outside the organization) the needed education for the expatriate’s behavioral flexibility and adjustability so he may appropriately learn to suit his conduct very capably to the foreign assignment when he gets there.

Recommendation 2: Familiarize the Expatriate about HQ’s Resources and Personalities so He Can Use Them When in Foreign Subsidiary Justification. He will be perceived as an “HQ man,” at least at the start. He would be expected to have better knowledge about the overall corporate

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philosophy, goals, strategies, policies, procedures, and resources, and how to draw on them when so needed. He would be better regarded and be a better problem solver if he also can be proficient in drawing on the HQ’s resources. Besides, in many developing countries, a manager is supposed to know everything about the unit’s problems and activities. Guidelines for Implementation. Rotate the expatriate in several major units and departments in HQ organization and in all major production and operations units of United States. He should forge a bond and trust with the key people in all important business units, product lines, and operating areas that are important to the particular foreign subsidiary. He will win admiration and respect from the foreign subsidiary employees for his being knowledgeable and for his close contacts in the HQ organization and for getting things done quickly from the HQ.

Recommendation 3: He Should Focus on Communication Skills in Terms of the Host Country Justification. His success as an expatriate manager will depend on his managerial style, cultural and social adaptation, and communication. The more effectively he communicates, the more effective he will be as an expatriate manager. Guidelines for Implementation. He should learn to modify and speak the English language so as to suitable to the local, professional people. He should avoid United States idiomatic expressions and sports and slang phrases. If possible, he should also have a basic, working knowledge of spoken language of the people of the host country. He can keep on improving the local spoken language after he arrives in the host country.

Recommendation 4: He Should Know about the Governments and Business Environments in the Host Country Justification. Initially, he would have to rely on a few senior and trusted foreign subsidiary employees. Even so, he must have his own contacts and insights about the local governments, businesses, and industries so that he knows how to deal with them. Guidelines for Implementation. The HQ should provide this education from all sources, internal and external. It is a process of learning the details and the ways by which the host country functions. He should keep notes on all important issues and reread them over the early months of his assignments.

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Recommendation 5: He Should Have Intimate Understanding about the Issues Covered in the Three Figures and in the Following “Conclusions” Section Justification. Intimate knowledge of the foreign subsidiary’s value chain processes and the major, recurring problems and issues it has recently faced would give him a basis for immediately and effectively functioning. The more he understands about the situation of the value chain of the foreign subsidiary, the more thorough will be his managerial skills in the foreign subsidiary context. He is less likely to make serious and embarrassing mistakes in his early months. His preparedness will also garner respect from the foreign subsidiary people. Guidelines for Implementation. The HQ should provide him with the recent trends in the foreign subsidiary’s activities and also the communications between the HQ and the foreign subsidiary. He should seek to communicate with the key senior and middle-level executives who are directly responsible for the foreign subsidiary on all important matters. This will bring him up to date about the foreign subsidiary so he can have a running start as soon as he gets there.

Recommendation 6: Continuous Mentoring of the Expatriate after His Arrival at the Foreign Subsidiary Justification. Even after a fuller predeparture training, a wise, experienced, veteran executive, who is knowledgeable about the foreign country or region, must mentor the expatriate. This would bolster his confidence and make him do the correct activities. He can find answers to the questions he needs to ask someone more experienced in order to function more effectively. He can trust the wise and experienced mentor and confide in him about his personal feelings, views, concerns, and plans as what he believes he should do, along with the supporting reasons. The wise mentor may have cause, on occasions, to caution him and ask him to be patient and wait for now until he establishes himself better in the foreign subsidiary and the host country, or until the circumstances are more propitious for the changes he is proposing. Guidelines for Implementation. The HQ should provide him with one or more experienced international managers and who have good idea about the host country or the geographical region so that he can guide the expatriate on important issues and before he takes important steps, such as making significant changes in the foreign subsidiary or making an important

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representation to the host country’s governmental officials. He should run through these plans so that the wise and experienced mentor can guide him properly.

Recommendation 7: Relaxation and Having a Balanced and Healthy Life Style Even When the Work Is Hectic Justification. It is important that he has a balanced work-life in the foreign subsidiary and host country even when he is overwhelmed with work. In doing so, he is less likely to have a burn out or stress-collapse, and less likely to make incorrect decisions or behave erratically. Guidelines for Implementation. When he arrives in the host country he would be in his early learning stage in the host country. He will be overwhelmed with all the strange and new things at work and in the daily life routine. Even so, he should relax when he has completed his daily work. He should socialize, make new friends, play sports, pursue his hobbies, spend time with his family and enjoy himself as much as he can in his off duty hours. If there should be important work that needs his attention, he should get trusted help from his foreign subsidiary employees and start to carefully and gradually delegate to them after properly preparing them. In this way, he will not be all the time overwhelmed.

Recommendation 8: Improve the Expatriate’s Management Skills for Diverse, International Cultures in General, and for the Foreign Subsidiary’s Host Country Culture in Particular Justification. Management, supervision, and communication are culture-bound. Management and supervisory styles and communication skills must be in harmony with host country’s life style preferences, culture, etiquette and customs, and values. Guidelines for Implementation. The HQ must provide greater awareness and education to the expatriate from internal resources and external resources about the details of the foreign subsidiary and the host country culture.

Recommendation 9: Improve the Expatriate’s “Generalist” Skills Justification. In the HQ organization, most executives, except at the top level, typically concentrate on a few major issues (business, products, functional managements, and operations within a value chain) as their expertise. As an expatriate in the foreign subsidiary he will have to know it all. He has to be

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an all-rounder, a generalist, and be very good at that. The people in the foreign subsidiary will expect his knowing it all. He is expected to have answers for everything that affects the foreign subsidiary, particularly as activities that come from the HQ. In effect, the expatriate is viewed as the official conduit between the HQ and the foreign subsidiary. Guidelines for Implementation. The HQ must provide him with a deeper understanding of the HQ’s current philosophy, vision, goals, strategies, and policies. The more thorough his training is, the more effective he will be. Further, even after his establishing himself in the foreign subsidiary and the host country (perhaps a year or two), the HQ should have him periodically visit the HQ for consultations and to apprise him of the newer developments in the HQ. In this way, he will be kept abreast with HQ’s policy changes. Also, these periodic visits will keep him loyal to the heart of HQ’s decision makers and strategy framers.

Recommendation 10: Expatriate Must Keep Pursuing: Ethics, Integrity, and Developing People Justification. At home and abroad, the reputation of the MNC brand name and organization is the most valuable asset, intangible as it may be. The more the expatriate is true to the ethical corporate creed, and not corporate greed, the better will be his long-term effectiveness in the foreign subsidiary. Guidelines for Implementation. Give him very strict instructions about the need for the highest ethical and integrity standards. There should be no room for compromise or pursuing better subsidiary performance at the cost of ethical conduct. Expose him to recent cases of lapses in ethics and integrity across the world among international organizations and the consequent tangible costs and intangible damage that the other organizations have had to incur.

Recommendation 11: Reward the Expatriates Handsomely, Respect Them Immensely Justification. Monetary and perquisite rewards are important incentives. Being well regarded by all the top, middle, and lower level HQ people would be most gratifying for the expatriate to sacrifice all that he does for the MNC by going on the foreign assignment. He will be motivated to stay in the foreign subsidiary and strive to do better if the incentives and respect are always forthcoming from the HQ.

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Guidelines for Implementation. Pay higher salary and benefits and perquisites, such as a furnished home, chauffeured car, club membership, and periodic visits to their United States home. In addition, the HQ may provide him with such incentives like bonus for good performance for a longer, productive stay in the foreign subsidiary. These would be a good start for the expatriate to favorably view his reward package. The incentives should be high enough for him to want to straddle over the hardships and sacrifices that he and his family would be making. The salary should be higher than for comparable ranks at HQ and on par with other foreign subsidiaries of similar sizes. The top managers should set the tone in all communications between the HQ top officials and the foreign subsidiary. Nothing in open communication from the HQ should be of admonishing type or sarcasm. A proper decorum and mutual respect must be followed even when HQ’s product, service, accounting, and marketing managers have good reason to observe the short comings of the recent foreign subsidiary performance and to suggest ways to improve the foreign subsidiary performance. A well-trained and highly motivated expatriate manager is worth all these issues covered in this recommendation. By these ways, the HQ would be communicating its seriousness in the need for the superior performance of the foreign subsidiary.

Conclusions The United States MNC expatriate has to operate in significantly different cultural and operating environments when he enters an emerging market country. His foreign subsidiary assignment will challenge him on dimensions which he had not previously considered as relevant or important. The challenging dimensions often are communications and dealing with culture, somethings he had taken for granted in his home country of the United States. He now has to quickly adapt, become political, socially and supervisory savvy. He has to quickly grasp the operating methods of the foreign subsidiary and its operating task environments. The chapter suggests that a United States MNC first pursue strategic analysis of the foreign subsidiary, and develop an ideal attribute list of an executive for the subsidiary for the various dimensions of strategy (vision, objectives, goals, strategies, targets); structure; culture (IT, engineering, organizational); technologies; and communication.

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The differences in: (1) the MNC’s HQ organization, on the one hand, and (2) the foreign subsidiary organization, for culture, infrastructure, organization and environment interactions, technology, market systems, and governmental political and legal influences, on the other hand, are then analyzed to formulate the needed expatriate training skills. The difference or gap would point to the areas of improvement. Further, the foreign subsidiary’s operating systems and culture are analyzed for socialization and culture, operating methods, HRM policies for training and compensation, rewards and benefits, and organizational resources and systems. These are contrasted with those of the MNC’s HQ organization. The differences would help in formulating expatriate training strategies to fill the gap. The expatriate strategies may focus on leadership, cultural, behavioral, decision-making, communication, motivational, technical, and other organizational processes. The United States executive must be trained on both dimensions: general (for any international assignment) and specific (for a particular foreign subsidiary unit and for a specific host country). An effective training program must display attributes that address: (1) the strategic needs of the particular foreign subsidiary organization in its tasks environments; (2) the method of filling the gap between the operating environments of the MNC home country and the foreign subsidiary’s host country; and (3) the supervisory and HRM-related activities that are specific to effective performance in the particular foreign subsidiary organization and its the host country culture.

Bibliographys Austin, J.E., & Kohn, T.O. (1991). Strategic Management in Developing Countries: Case Studies. New York, NY: Free Press. Black, J.S., Gregersen, H.B., Mendenhall, M.E., & Stroh, L.K. (1999). Globalizing People Through International Assignments. Reading, MA: Addison-Wesley. Brewster, C., & Pickard, J. (1994). Evaluating expatriate training. International Studies of Management and Organization, 24(2, Fall), 18–36. Collings, D.G., Scullion, H., & Morley, M.J. (2007). Changing patterns of global staffing in the multinational eEnterprise: Challenges to the conventional expatriate assignment and emerging alternatives. Journal of World Business, 42(2, June), 198–213. Duncan, R.B. (1972). Characteristics of organizational environments and perceived environmental uncertainty. Administrative Science Quarterly, 17(3), 313–327. Galbraith, J.K. (1984). The Affluent Society (4th ed.). Boston, MA: Houghton Mifflin. Gershkovich, K. (1997). How to keep your expats. Across the Board, 34(5), 62.

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Godiwalla, Y.M., Meinhart, W.A., & Warde, W.D. (1979). Corporate Strategy and Functional Managements. New York, NY: Praeger. Hailey, J. (1996). Breaking through the glass ceiling. People Management, 2(4, July), 32–34. Jaeger, A., & Kanungo, R. (1990) (eds.), Managing organizations in developing countries. London, UK: Routledge. Jaeger, A.M., & Kanungo, R.N. (Eds.). (1996). Management in Developing Countries. New York, NY: Routledge, Chapman and Hall. Marquardt, M.J., & Engel, D.W. (1993). Global Human Resource Development. Upper Saddle River, NJ: Prentice Hall. McNerney, D.J. (1996). Global staffing:  Some common problems—and solutions. HR Focus, 73(6, June), 1–6. Melkman, A., & Trotman, J. (2005). Training international managers. People Management, 11(17, September 1), 1–2. Naisbitt, J. (1994). Global Paradox. New York, NY: William Morrow. New Zealand Management. (2006). Building better managers. New Zealand Management, 53(9, October), 1–3. Schramm, J. (2006). Overseas attractions. HR Magazine, 5(12, December), 128. Shin, S.J., Morgenson, F.P., & Campion, M.A. (2007). What you do depends on where you are: Understanding how domestic and expatriate work requirements depend upon cultural context. Journal of International Business Studies, 38(1, January), 64–83. Solomon, C.M. (1994). Success abroad depends on more than job skill. Personnel Journal, 73(4, April), 51–60. Tan, D., & Mahoney, J.T. (2006). Why a multinational firm chooses expatriates:  Integrating resource-based, agency and transaction costs perspectives. Journal of Management Studies, 43(3, May), 457–484. Taylor, S., Beechler, S., & Napier, N. (1996). Toward an integrative model of strategic human resource management. Academy of Management Review, 21(4), 959–985. Varma, A., Stroh, L., & Schmitt, L. (2001). Women and international assignments: The impact of supervisor-subordinate relationships. Journal of World Business, 36(4, Winter), 380–388. Werner, J.M., & DeSimone, R.L. (2005). Human Resource Development (4th ed.). Mason, OH: Thomson/South-Western. Workforce Management. (2006). International assignments best served by unified policy. Workforce Management, 85(3, February 13), 36–37. Wynne, M. (2006). The hidden cost of expatriate executive. Global Cosmetic Industry, 174(10, October), 49–50.

chapter fourteen

Training for the Overseas United States Managers

Multinational corporations (MNCs) would be more competitive if their expatriate managers, professionals, and technical specialists are better prepared for the challenges that they would face in their foreign subsidiary and their foreign subsidiary’s host country operating conditions, task environments, and social cultural settings. The challenges that they would face in the foreign subsidiary and host country would require them to deal with the new operating systems, unfamiliar, different, and unusual environments of:  commerce and financial, operating and logistical, governmental and political, social and cultural, economic and market systems, supply chain and infrastructural systems, industrial and labor markets, and educational and skilled training facilities. As an expatriate, he has to manage his whole self, his own capabilities, and his overall personality and feelings so that he can manage more effectively and cope with the uncertainty and the unknown. In this context, the personality aspects include: coping with his own personal reservations and doubts about venturing out on the foreign assignment, managing his perceived managerial environmental uncertainty, his self-confidence for personal adaptation, his ability to communicate with people in the host country culture, his leading and supervising his foreign subsidiary’s employees with empathy in host country cultures, and his self-motivation for accomplishing his foreign subsidiary’s performance goals.

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In his book, Prisoners of Our Thoughts (2010), Dr. Alex Pattakos, a well-known psychiatrist, talks about the importance of making our lives meaningful even in the worst of circumstance. Emphasizing that we should not be the prisoners of our minds, he exhorts us to transcend our circumstances and finding real meaning to our lives. Finding a true meaning to our lives that would make a meaningful difference in the world is so very important. For an expatriate, he has to find the true meaning to his life as an expatriate for a particular foreign subsidiary in a particular host country. The more he is convinced of the true meaning, the more he will feel strongly about his foreign assignments. Upon his arrival in the host country, he must be feel that he can rely on his predeparture training for managing his personal, integrated self (free from any undue tension); social and communication skills in the culturally and operationally different environments; and managing in the host country’s political, governmental, marketing, and economic systems. Although the chapter views from the perspective of a United States manager or expatriate, the same basic argument may be adapted to an MNC and an expatriate from another country after allowing for cultural recalibrations. Training or learning is very basic to human beings. We keep learning all our lives. We go through the important “liminal” and transition stages (where departure and arrival stages almost coexist, as in puberty, betrothal, funerals) in our lives, and we learn to adjust and seek progress through such experiences (GuimaraesCosta and Cunha, 2009). Expatriates must go beyond learning. Expatriate adjustment is a difficult process of reducing “cultural cognitive dissonance” in which the expatriate goes through “cognitive dissonance that arises from adopting or condoning culturally expected behaviors that are inconsistent with the expatriate’s own values or attitudes” and in which the expatriate continuously strives to control acculturative stress through a combined approach of learning (appropriate behavior expectations) and dissonance reduction processes (Maertz, Hassan and Magnusson, 2009). Continuous training keeps us personally up to date, and also keeps the organizations competitive. For example, for the HQ manager’s foreign assignments, the United States MNCs must seriously take the task of training before the manager’s departure to the foreign subsidiary. The same basic argument may be adapted and applied to another country’s MNC. Upon his arrival in the foreign country, he should seek counsel from a veteran international manager his mentor. As managers and specialists, we work in the context of a particular environment and, consequently, we develop a cultural sense which is unique for the particular location. Thus, “cultural intelligence,” the antecedents of which are: overseas employment, education, vacation, experiences, is an important issue for United States managers to pursue (Crowne, 2008). Further, the “Big five personality traits”:  extroversion and agreeableness (for interaction adjustment),

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conscientiousness (focus on duty), neuroticism (anxiousness), and openness to experience (for adjustment to newer work) are found to be relevant to foreign assignment performance (Huang, Chi, and Lawler, 2005). Training United States managers (or, managers from any other country) for foreign assignments is particularly challenging because they have to cope with the foreign countries’ unfamiliar cultural, work and nonwork environments of that make up for additional adjustment challenges for the United States expatriate. He has to manage an organization and conduct himself in a different country’s varied social, political, culture and operating challenges to the United States expatriate that can foil the performance of even the most competent United States–based executive unless he effectively manages himself with the local adjustment and expectations. He has to lead, manage, and personally conduct himself in different social and cultural settings that have different practices and expectations of a highly placed executive. The host country’s behavioral expectations and conduct of a highly placed executive may be different from those of the United States. This cultural distance would place upon the United States executive the need for him to learn the different local etiquettes, protocol, norms, and customs. The additional personal challenge to the United States expatriate takes place in many forms, including those of: personal uncertainty, anxiety and stress because of unfamiliarity, ineffective problem-solving in the local host country context, difficulty in managing cultural differences when it comes to communication and establishing working relationships, problems in personal adaptation, and not overcoming the obstacles to achieving his full executive performance potential. The expatriate has to become more aware of these challenges and try to better cope with them. The HQ expatriate has to assess his own capability; know his own personality; and assess the foreign assignment, the operating processes, and problems of the foreign subsidiary. These efforts would help to determine the precise content of his training. Further, he needs to gauge the cultural difference between his home country (e.g., for an organization headquartered or based in United States, the home country would be United States) and the host country (in which is the foreign subsidiary) in order to determine his training for his social and cultural adjustment. This cultural or “soft” content of his training is vital for his leading in the host country social setting.

The Purpose of the Chapter The purpose of the chapter is to specify the scope of the training and mentoring needs of an HQ executive for his foreign assignment. The focus of the chapter is

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on his likely training dimensions, goals and content for his culturally distant foreign assignment, and how he may pursue an effective training program prior to his departure. The challenges are many and they are great when the cultural difference is more diverse and wide. The approach here is to identify the training needs and how to fulfill them.

A Review of Literature The operational, administrative, and structural relationship between the MNC’s HQ and its foreign subsidiaries is a relevant topic for the HQ executive’s foreign assignment training. Karabell (2010) found that S&P 500 companies have more than half their sales revenue coming from outside the United States. In case of high technology companies (3M, Hewlett-Packard, Intel), it is more than two-third from outside of the United States. That is similarly so for other global MNCs:  Philips of the Netherlands and Samsung of South Korea. The Shaw Group, a maker of nuclear power plants, has been raking big revenues in overseas markets like Saudi Arabia. When the growth of the economies of the United States, Europe, and Japan are relatively flatter, many emerging market countries are growing at an average of 9% a year, thus offering good growth prospects for MNCs (Karabell, 2010). MNCs continue to have big managerial opportunities and responsibilities abroad. Training of international managers and specialists continue to be even more important. While structural issues that emphasize a strong HQ-driven MNC organization, as in the case of the Japanese consumer electronics giant, Matsushita (on the one extreme) would elicit a different expatriate training than those that emphasize a strong foreign subsidiary-driven MNC organization, as in the case of Philips of the Netherlands (on the other extreme). Many United States MNCs are not so much in any one extreme. They follow a mixed approach in which both, the foreign subsidiaries and the United States MNC’s HQ, would follow a participative model. Zahra (2001) proposes a dual influence on an MNC’s foreign subsidiary unit. An MNC HQ may often pressure a strong corporate strategic mandate, implying a strong focus on which an HQ-approved global strategic paradigm is imperative. The other force is the influence of local environment of the host country and nearby regions that have an effect upon the MNC’s foreign unit. In his study, Zahra (2001) found that both forces impose additional entrepreneurial expectation on the foreign subsidiary. This means the subsidiary would have to prospect for newer opportunities and deal with the issues of risks, threats, and uncertainties emanating from the environments of the host country and other nearby countries. The expatriate, in his foreign

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subsidiary, would thus perform the role of an entrepreneurial CEO or an entrepreneurial executive of the subsidiary unit and seek newer and better ways of doing business. He would more than ever be dealing with his own anxiety and stress in view of the perceived environmental uncertainty. Global competition increases on all fronts and, over a period of time, many emerging countries’ MNCs would enter the international fray, making it even more challenging for the United States expatriate. Growth rates in emerging markets countries are better than those in industrialized countries. All the more reason for MNCs, with their expanding geographic scope, need to better manage their foreign operations, with even greater emphasis on foreign subsidiary competitiveness and operational efficiency. Thus, for example, in the case of a United States company, the United States executives are vital in the United States MNC international growth goals. It places extra emphasis on more effectiveness of United States MNC international managers and specialists. They need better training, focusing on the general expatriate international and specific foreign country training. Luthans and Farner (2002) explain the link between increasing global competition and the stronger need for expatriate training. On the influence of increasing global competition, they argue, “As global competitive battles heat up, the importance of developing expatriate managers for international success should not be overlooked. In search of a competitive advantage, MNCs are increasingly devoting more attention and resources to cultural training as a way to improve job performance of their international assignees.” In case of a United States company, the managers would bring their MNC HQ’s philosophy, experience, goals, strategic context, and credibility. They need to bolster their international and country-specific acumen and then they will perform better. The use of expatriate managers would result in better foreign subsidiary performance, thus improved overall United States MNC global competitiveness. Their knowledge of United States MNC’s HQ corporate vision, mission, values and philosophy, goals and strategies, and policies and operating systems would help in focusing on competitive advantage.

Implications of the Study of Manager’s Perceived Environmental Uncertainty of (Total) Organizational Environments Organizational (internal and external) environments vary across countries, such that they have impact on the type of organizational decision-making and managerial styles, structure, and culture. The consideration of the nature of external environments of advanced countries versus developing (or emerging) market countries comes to bear regarding the choice of a viable managerial decision-making style, structure, and process. Robert Duncan’s (1972) empirical study of managerial

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perceived environmental uncertainty of organizational environments indicated that: (1) there are two components: internal (personnel, functional and staff units, strategic organizational level) and external (customer, supplier, competitor, sociopolitical, technological); and (2) there are two external organizational environmental dimensions: (a) simple-complex and (b) static-dynamic. Thus, there would be four categories of organizational environments, expressed in the sequence of a continuum from relatively the least managerial perceived environmental uncertainty to relatively the highest managerial perceived environmental uncertainty:  (1) ­static-simple, (2) static-complex, (3) dynamic-simple, and (4) dynamic-complex. Further, and consistent with the Duncan (1972) study, an empirical study by Godiwalla, Meinhart, and Warde (1979) found that:  (1) the simple-static environment, which had relatively the least manager’s perceived environmental uncertainty, required relatively the least organic organizational structure and relatively the least importance of the general management function for the perceived quick and competent response to the environmental changes; and (2) the ­complex-dynamic environment, which had relatively the highest perceived environmental uncertainty, required relatively the maximum organic structure and relatively the highest importance of the general management function for the perceived quick, competent response to the environmental changes. From the point of view of managing a foreign subsidiary, managing doing so in the emerging market countries (relatively closer to the static-simple category of organizational environments), is challenging in a different way than managing it in advanced countries (relatively closer to the dynamic-complex organizational environments). The emerging market countries, on the one hand, would pose the challenges of coping with the relatively slower paced progress for the foreign subsidiaries because of the relatively lesser sophisticated infrastructure and systems. The advanced countries, on the other hand, would pose the challenges of coping with the relatively faster paced race for the foreign subsidiaries because of the relatively more sophisticated competition, infrastructure, and systems. We may draw further inferences from these two studies for international management. On the one hand, managers in organizations operating in static-simple organizational environments experienced relatively the best clarity in strategic and operational decision-making. While on the other hand, managers in organizations operating in dynamic-complex organizational environments experienced relatively the least clarity in strategic and operational decision-making. One could further infer that, on the one hand, the emerging market (or developing) countries more closely and relatively approximate nearer the static-simple end of the continuum. While on the other hand, the advanced countries more closely and relatively approximate nearer the dynamic-complex end of the continuum.

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The leadership challenges and the preferred managerial styles for each of the two extreme categories (of static-simple and dynamic-complex) were different in nature. On the one hand, the static-simple would expect the managers to clearly choose a few strategies as priorities and, doing so, it would appear to them to suffice in achieving the organizational goals. While on the other hand, the dynamic-complex would expect the managers to, instead of enabling them to clearly choose a few strategic priorities, keep trying many combinations of priorities of strategies, and yet they would appear to feel relatively unsure of accomplishing the organizational goals.

United States Managers Managing Cultural Differences in Foreign Assignments Many industrialized countries have cultures and operating environments vastly different from those of the emerging market countries. The wide cultural and operational gap poses a great challenge to the United States MNC executive, who is used to a much higher level of sophistication and efficiency of organizational, industrial, and economic systems. Cultural distance matters, particularly when studying gender (Dupuis, Haines, and Saba, 2008). They found that perceived spousal willingness to relocate, beliefs regarding spouse and couple mobility, relative income, and the presence of children are associated with the willingness to accept a foreign assignment. Emotional intelligence was found to be helpful to stay committed to the foreign assignment, given the importance of better emotionally controlled, better mood adjustment, better self encouragement, better social skills, better caution in speech and conduct, and better sensitivity to others’ feelings and needs. High emotional intelligence also predicted greater tenacity to rough out difficult foreign assignment and also a greater tendency to continue to work and harder too, for the MNC. A proper selection of the United States manager and also his spouse and children is an important consideration. United States MNCs seeking and using spousal inputs in the expatriate selection process have led to greater spousal support and better host country adaptation of both family members. Therefore, it is true that, “when the spouse adjusts, goes, and does it, everything follows” (Black and Gregersen, 1991). Further, it could make a difference for the quality of adjustment depending upon whether the MNC assigns the expatriate, assigned expatriate or “AE,” to the foreign subsidiary, or the executive works his way into the foreign assignment, self-initiated expatriate or “SE” ( Jokinen, Brewster, and Suutari, 2008). Their

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research found that for most adjustment dimensions, the AEs adjusted to the foreign assignment less than the SEs. The AEs enjoyed better organizational power and influential networks and knowledge of the: task-related skills, social judgment skills, cognitive skills, organizational systems, business and industry, and the particular people in the organizational structure. In dealing with cultural differences between the home and host countries, the executive socialization at the HQ and the values of dimensions (power distance, assertiveness, uncertainty avoidance, individualism, and cultural distance) provide some important guidelines for the decision-making of the placement of the home country (or the United States) manager in a particular foreign subsidiary from an available choice of subsidiary position vacancies. High values of assertiveness and power distance were found to be the main predictors of expatriate deployment at the foreign subsidiary, while cultural distance between the home and host countries was found to asymmetrically related (Brock, Shenkar, Shoham, and Siscovick, 2008). The United States executive has to be adaptable and self-confident in dealing with this big difference. A study by Lee and Croker (2006) arrived at these conclusions: (1) the greater the expatriate confidence and his adaptability, then the lower is the perceived need for expatriate training; (2) the greater the complexity of task, the lesser the capability of host managers and the greater the cultural difference, then the greater is the perceived need for the expatriate’s training; and (3) the expatriate’s learning preference and the expatriate’s instructor’s training methods would determine the need for training and effectiveness of training.

Thus, the United States executive has to become more familiar and adept at functioning as a manager in his foreign assignment through better predeparture training. Takeuch, Tesluk, and Lepak (2005) suggest an integrative model for understanding an international experience, using general adjustment and work adjustment as predictors for determining if he will serve the full term or return early. They found that past international experience moderates the relationship between: (1) current assignment tenure and (2) general and work adjustment, and also that general and work adjustment directly affect expatriate’s early return intention. The use of cultural adaptation (four) modalities: is a useful conceptualization; according to the four-step, sequential approach identified by Yamazaki and Kayes (2007): (1) concrete experience (followed by divergence), (2) reflective observation (followed by assimilating), (3)  abstract conceptualization (followed by converging), and (4) active experimentation (followed by accommodating). Their empirical

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research concluded that the greater the time spent in a host country, the better the concrete understanding (or, worse abstract conceptualization), the greater the active experimenting in local adaptation, and the greater is the movement from assimilating to accommodating (through more specific, concrete learning). The greater the number of home country expatriates in the host country, the less would be the assimilation because of the stronger buffer from the need to learn the new culture. Expatriates develop multiple adapting mechanisms and adaptive flexibility.

Predeparture Training and Post-Arrival Mentoring Predeparture knowledge of the foreign assignment and other issues like living conditions become important content of training of the expatriate. The importance of such content of the expatriate training is reviewed by many studies. Chang (2005) had compiled the works of Tung (1982), Oddou (1991), Brewster and Pickard (1994), Zakaria (2000), and Petranek (2004). Through such integration, Chang (2005) stated: Some of the more common features are cross-cultural training, communications (including language) training, clarification of performance criteria and expectation, cooperation and collaboration skills, managing personal anxiety and inner stress and emotions, local logistics and everyday life issues, knowledge of the foreign subsidiary and its local environments.

The expatriate would be challenged in his first weeks and months in the foreign assignment. He would have to quickly adjust to the host country people and environment. Predeparture training of cultural sensitivity, communication and local language, behavioral flexibility skills, stress management, solving problems in strange environments, and leading and motivating in different cultures are some of the more important training items. Shin, Morgeson, and Campion (2007) cite studies to indicate: “Communication competence, cultural empathy, interpersonal skills, and social interaction would improve cross-cultural adjustment to working and non-working environment.” Predeparture and post-arrival training are both very important and they complement each other. Predeparture training would condition the expatriate as to what he can expect in the foreign assignment and how he would manage himself. This training would help him to understand the host country culture, communication, methods of operation, and way of life. However, the real impact that would overwhelm the expatriate is after he arrives in the host country. Here he has to muster all his own innate intelligence together with his training in his home

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country. Here the guidance of a mentor would be of great help. Shin, Morgeson, and Campion (2007) argue the benefits of the two stages of expatriate training; predeparture and post-arrival: First, in the pre-departure stage, organizations select and train individuals for expatriate assignments. Second, in the post-arrival stage, when expatriate workers begin to interact with host country nationals (HCNs) and adjust their behaviors to the host country’s cultural norms and values for better performance, behavioral cross-training can be implemented to ensure that expatriates behave in culturally appropriate ways. (Further), behavioral training is more effective in the post-arrival stage because expatriates tend to be more motivated to learn once they are in their assignments.

United States Manager’s Review of Himself, a Self-Analysis The United States manager has to correctly and objectively identify or define himself as to who he really is, and he has to understand how and why he has his own fixations on things foreign. In so doing, he knows about his own point of reference (i.e., a true location of his opinion coordinates, so to speak) as he perceives the host country’s situation and its people. This exercise would establish in his mind his own position in the configuration of the different local cultural values, norms, and behavioral practices. He has to be conscious of his opinion location as he sees the foreign country and its people. Varner and Palmer (2005) emphasize “the role of the individual, the importance of hierarchy, the importance of context in communication, and attitudes towards time and change.” The need for a United States manager going through a process for a wellplanned training for his foreign assignment is well articulated (Harvey and Napier, 2010). Varner and Palmer (2005) also argue that an “integrated four stage expatriation process” would serve the United States manager very well. These four stages are: (1) potential expatriates are screened for personality characteristics … contributing to expatriate success, (2) expatriates focus on developing a conscious self-awareness including their preferences, likes and dislikes, (3) potential expatriates study the other culture and their reaction to it, and (4) expatriates explore adaptation possibilities and strategies.

Self-awareness and full consciousness about himself prove to be important for a United States manager’s overseas performance. His assumptions would color his decision-making, thus the greater need for his starting his training with himself and staying with his own self as he will always be a part of his solutions as he manages abroad. We have conceptual mapping continuously going on within our

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minds. In this context, Varner and Palmer (2005) state: “Mental maps dictate how we react to events and people around us. In order to understand others, people need to explore their own cultural stereotypical thinking. Only after they have gained self-awareness they can develop a solid basis of cooperation.”

United States Manager’s Executive Capabilities A United States executive’s managerial capabilities are often the main focus for overseas training because he has to manage in foreign situation. We start by looking at his executive track record in the domestic United States operations. We assess his managerial skills and capabilities in his home country operations. The evaluations of his managerial competence can be an important assessment for determining what his training needs would be before we can compile the content of his predeparture training program (O’Sullivan, 2008; Prud’homme and Trompenaars, 2000; Suutari and Burch, 2001; Takeuchi, Tesluck and Lepak, 2005). We also need to interact with his wife from the start. The inclusion of the wife for her inputs and opinions strongly influence for a more favorable disposition of the couple for the foreign assignment (Harvey and Napier (2010). Recent research has shown a different approach towards training. In the “multisource 360-degree feedback system,” Luthans and Farner (2002) state that it is “both a way to evaluate expatriate cultural training at behavioral and performance levels, as well as a way to develop expatriates to make them more effective once in the local culture.” Their expatriate management effectiveness questionnaire (EAEQ) asks for perceived opinions of a person’s manager, subordinates, and peers (hereafter referred to as “others”) would be measured by items such as “This person is able to answer my questions,” and “This person is technically competent.” The four dimensions used in the EAEQ are:  (1) Technical Competence:  “This person is able to answer my question”; (2) Management Skills: “Solve specific problems and contribute to MNC’s broader goals,” and their ability to plan, coordinate work, schedule resources, try new ideas, control, and follow-up; (3) Interpersonal Skills:  “capability to get  along with and work through others in a caring way,” “caring emphatic concern for everyone,” “listening to my ideas and concerns,” and “recognizes and gives credit to others who deserve it”; and (4)  Leadership Effectiveness: “Expatriates desire and need confidence to lead and work through people to accomplish assigned duties …,” and “The person is loyal and committed to this organization.” They further add a fifth and a sixth scale: confidence/efficacy and cultural fit. Personal confidence and self-efficacy are characterized by, “how well one can execute courses of action required to deal with prospective situations” in a highly task- and context-specific manner.

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Self-Reliance and Personal Efficacy One should have a very good inventory of one’s own strengths and weaknesses, along the lines of the specific foreign assignment. Objective assessment is a prerequisite to fuller grasp of what further training needs would be relevant for a particular United States MNC executive. “Know thyself ” is the first step to plan for training of the expatriate. It is worthwhile to have a healthy self-confidence attitude that reflects a strong positive approach to whole heartedly facing and solving any problem. This has a preemptive impact upon the expatriate performance in his foreign assignment. Studies on self-efficacy and self-monitoring have shown that these two important attributes help in effective expatriate adjustment (Badura, 1992; Badura and Locke, 2003; Gist and Mitchell, 1992). Self-efficacy is “a person’s belief about his ability to perform a particular task effectively” (Maurer, Weiss, and Barbeite, 2003). Self-efficacy has shown to have strong effect on learning an unfamiliar, difficult task, and, therefore, the performance of the task itself (Gist and Mitchell, 1992). Self-efficacy can very directly and favorably influence the person’s learning curve by: (1) the choice of task and learning goals and activities, (2) the nature and amount of effort needed for the task, and (3) the level and nature of persistence to master the task despite its strangeness or difficulty (Badura, 1992). Similarly, Shin, Morgeson, and Campion (2007) argue that there are extra demands on an expatriate in foreign assignments for a more adjustment-oriented and achievement-oriented personality, as compared with an executive for domestic assignments. A study by Mendenhall and Oddon (1985)) states the three dimensions for effective adjustment in foreign environment: “the relationship dimension; the perceptual dimension, and the self-dimension.” In this regard, Shin, Morgeson, and Campion (2007) have stated an interesting opinion. They state: The relationship dimension refers to skills related to fostering of relationships with host nationals. For successful expatriate adjustment, it is essential to develop good relationships with HCNs (home country nationals). By maintaining proper relationships with HCNs expatriate workers are able to interact with them appropriately, to overcome problems and to perform assignments effectively.

Regarding the achievement of the goal of a faster cultural adaptation and behavioral adjustment in unfamiliar foreign countries, Cui, van den Berg, and Jiang (1998) believe that there are: significant relationships between communication competence, cultural empathy, social interaction, and cross-cultural adaptation. (Studies) suggested that relationship

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dimensions such as cultural empathy and interpersonal skills become important when dealing with cultural differences. A study found that better interpersonal skills were positively related to expatriates’ adjustment to working and non-working environment in host countries.

The Importance of Expatriate’s Communication Skills Communication is a key to effective managerial performance because it is through people that he accomplishes results. In a foreign assignment, the challenge is greater for the expatriate to analyze the organizational situation. Thus, communication, including a rudimentary working spoken knowledge of the local language, would help him to better interact and foster good relationships with host country nationals (HCNs) in the foreign operations. By doing so, the expatriate will better acquaint himself of the operating situation and make more effective decisions. Good communication is the conduit through which he and his people can function as an integrated team. Language capability should be considered as an integral part of the communication skill enhancement training. If the host country’s main commercial and working language is not English, Shin, Moregson, and Campion (2007) suggest that in the foreign assignment, the expatriate executive would need additional social adaptation skill capabilities. They state: The work demands for social and perceptual skills, reasoning ability and adjustment and achievement-orientation personality will be higher in non-English speaking countries than in English speaking countries.” Their reasoning is:  “… Because language is an essential communication medium, expatriates may need more social skills in non-English speaking countries than in English speaking so they can develop favorable relationships with HCNs via social interactions.

Managing Anxiety and Problem-Solving High anxiety can inhibit problem-solving and decision-making capabilities. As students in an exam hall of a difficult subject, our minds can go blank when we are very afraid. It takes time to regain composure before we can focus on answering the exam questions. Similarly, the expatriate must learn to manage stress and to tolerate moderately high levels of stress when he confronts strange situations. His stress and anxiety feelings would preclude him from correctly understanding and solving the work situations. His mentor can help him in managing his stress in the post-arrival stage. Mendenhall and Oddou (1985) further studied the ­self-dimension, self-confidence, and tolerance of stress, and stated,

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… (these) are closely related to individual’s abilities and personality characteristics. This includes confidence in one’s ability to deal effectively with foreigners and new surroundings.

Fear of anything foreign or different is something that the first-time expatriate needs to overcome. The suspicion and the fear of anything foreign is a major obstacle in the training for an expatriate for his first foreign assignment. A person who believes that his own culture is the best will feel: “If something is different, it must be wrong.” Thus, the more an executive exposes himself to newer task environments and cultures in other countries, the more he will be disposed to deal with newer cultures and task environments. Fear of the unknown is a challenge to overcome. Not knowing what to expect leaves a gnawing feeling that plagues many an otherwise competent person. An outstanding person in United States operations, with a proven record, might have a hard time in his foreign assignment. The reasons may well be that he was not fully prepared for the foreign nature of his work and social environment. Black, Gregersen, Mendenhall, and Stroh (1999) state that a sudden exposure to strange or unknown surroundings would raise his personal anxiety and stress that would significantly impair the expatriate’s effectiveness as an executive or specialist in the foreign country situation. Similarly, studies on stress by Payne (1994), Mahoney et al. (1998), Matthews and Wells (1988), Priester and Clum (1993), and Fraser and Tucker (1997) show that cognitive breakdowns, such as lapses of memory, reasoning, retrieval, and perceptions in difficult situations, cause stress levels to go up. Further, increases in stress levels cause ineffectiveness in problem analyses and problem-solving, decision-making, and implementation. In very unfamiliar environments, an individual often cannot with accuracy fathom the cause-effect relationships in specific problem situations. Shin, Morgeson, and Campion (2007) state: In turn, such perceived uncertainty may lead to intolerance of anomalies and incongruities and a strong need for explanation of cause-effect relationships. Thus, these kinds of reasoning ability would be particularly important set of cognitive abilities for expatriate work. This suggests that expatriate work will have higher reasoning ability requirements than domestic work because of stress, uncertainty, and anxiety associated with unfamiliar situations.

Shin, Morgeson, and Campion (2007), on reviewing the literature on stress, state the importance of: … cognitive abilities as particularly important in stress-coping process. For example, studies have found a positive relationship between cognitive failures (failures of

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memory, reasoning and perception in everyday life) and stress susceptibility. In addition, it has been shown that problem-solving ability is negatively related to stress level. In a similar vein, uncertainty can be caused by an individual’s inability to adequately structure or categorize information. In turn, such perceived uncertainty may lead to intolerance of anomalies and incongruities and a strong need for explanation of cause-and-effect relationships. This suggests that expatriate work will have higher reasoning ability requirements than domestic work because of stress, uncertainty, and anxiety associated with unfamiliar situations.” Caligiuri (2000) similarly “found that emotional stability was negatively related to the expatriate’s desire to terminate their assignments.

Other scholars (Acyan, 1997; Harrison, Chadwick, and Scales, 1996; Ones and Viswesvaran, 1999) made similar findings about the important role that emotional stability (or equanimity) plays for the expatriate.

Expatriate’s Training Objectives The expatriate’s training objectives are to build on the home country executive’s capabilities. Such a training program may cover the generic expatriate for an international assignment in general, as well as the specific country assignment. When we view the specific country assignment, we narrow the scope and concentrate on the particular country culture and the particular needs of a foreign assignment. The objectives include: managerial skills in the particular host country setting; people skills in the host country, working knowledge of local language and communication skills; a longer term perspective that makes the expatriate more tenacious to look for enduring solutions and not quick, temporary fixes; quick and effective adaptation to local culture, organizational situation, and country’s operating situation; decision-making in the local setting; the work ethic that promotes a fuller and more enduring learning curve; and the knack for avoiding initial costly mistakes through mentoring and communication with trustworthy local nationals about appropriate executive conduct.

Training for the Expatriate and the Expatriate’s Spouse Black and Gregersen (1991); Dupuis, Haines, and Saba (2008); and Harvey and Napier (2010) argue that the successful expatriate performance would depend upon the adjustment and motivation of both the husband and the wife. The training for both persons must be tailor-made to focus on their unique individual needs, and on particular foreign assignment and local culture. These items of training include:  knowledge about oneself; self-efficacy, self-confidence, and a positive approach of surmounting any obstacle; better stress management and tolerance

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of uncertainty and anxiety; better adjustment-adaptability orientation; better achievement and goal accomplishment orientations; building better relationships through better language skills; better empathy, sensitivity, and understanding and willingness to change one’s behavior to accommodate host country’s core values; and knowledge of the task environment and social setting of the particular foreign assignment. The MNC needs to seek detailed inputs from the spouse in determining the desirability of a particular subsidiary/country placement. The more in-depth consultations and sincere follow-through are, the better would be the expatriate performance (Black and Gregersen, 1991).

Discussions The specific goals and perspectives for the United States expatriate’s career should be clearly formulated, particularly for his specific foreign assignment so that he may focus his training program for the specific foreign assignment. The expatriate’s predeparture training and post-arrival mentoring should focus on preparing or conditioning him to be more effective and appropriate in the context of host country and regional countries. The predeparture training goals for the expatriate should be based upon the unique needs of the expatriate and his particular foreign assignment. The expatriate’s unique personal characteristics, past assignments and experience, skills, and the nature of his openness to dissimilar cultures and foreign practices should be considered when formulating his training program. In addition, the considerations and the requirements of his foreign assignment must be used to formulate his training program. The foreign assignment issues include the foreign country’s details. These host country’s details include: its history, culture, and subcultures of the host country and its neighbors; life styles; infrastructure, economic, technical, and business systems; social and business customs, protocol, and etiquettes; and communication methods. The expatriate’s predeparture training objectives should include:

1. Developing managerial leadership in the local host country context 2. Improving people skills in the host country society 3. Improving communication, including language, skills in the host country context 4. Developing a fuller perspective (of a few or several years) for the foreign assignment so that the expatriate would want to “stay” with his assignment. This is even though the trend is now for expatriate assignments to be shorter rather than longer. A  longer term horizon would enable

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an expatriate to have a greater feeling of being embedded in the local situation. This perspective is necessary for the expatriate to want to take greater ownership and have greater tenacity to solve the difficult problems with lasting solutions by:



1. Improving flexibility and adaptation skills that would ease the transition to the host country’s cultural, logistical, industrial and commercial, and foreign unit environments 2. Developing a greater understanding of the local decision-making skills that build on insights of the foreign unit people and local knowledge of the business situation 3. Improving quick learning capability of local methods, customs, and etiquette so as to avoid initial costly or embarrassing mistakes; faster learning curve, accompanied by more accurate learning and retention. These are the strong suits of the effective expatriate 4. Developing a better understanding of the host country’s history and culture (and similarly those of the neighboring countries of the nearby regions) that would enable him to better understand the host country nationals and their neighbors.

The post-arrival mentoring is very important because the expatriate’s learned content and acquired knowledge content during the predeparture training stage needs further guidance for its implementation. The early phases of the expatriate’s post-arrival mentoring should be done by an experienced, mature international manager who has worked in the host or a nearby country, (Chao and Sun, 1977; Pattakos, 2010). This approach would help the expatriate in the early months as the expatriate grapples with numerous issues and decision-making challenges in the new unfamiliar surroundings and task environment. The expatriate also should balance or reconcile the MNC HQ focus on the corporate and global perspective, on the one hand, with the host country environment situation, on the other hand (Pattakos, 2010; Peltokorpi, 2008; Wynn, 2006; Zahra, 2001).

The Methods of Accomplishing the Training Objectives The expatriate’s predeparture training program should focus on himself as a person dealing with his internal self, dealing with other people, and dealing with the

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tasks of managing activities in the host country environment context. He has to have a good starting point of personal development of the host country’s culture and operating systems. Then he needs to keep learning well from his additional experience. In dealing with his own personality, he should strive to become more effective as a person. He should function almost as well, and as soon as possible, in the host country, as he does in his home country. These personality aspects include managing his stress and anxiety (Kopelman, 2009). The unfamiliar work and nonwork, social and daily life situations in his foreign assignment course would cause increased perceived environmental uncertainty and personal anxiety and stress. The expatriate has to become facile in the cause-effect relationship in the host country context. Predeparture training would condition him about how host country nationals make decisions, interact, and conduct business. The expatriate should build his competence of problem-solving through improved cognitive capability. This calls for a fuller awareness of the nature of host country’s business customs, methods, and processes. Cognitive capability in this context is important and refers to the expatriate building a better repertoire of his reasoning and perception in everyday life, with a quick learning curve that relies on good memory and retrieval process. This approach would enable him to feel that he has a good grasp of the situation of his task environment, an important state of emotion that drives down his personal stress. His self-efficacy and self-confidence are important for him to be effective. He may have a strong track record as an effective manager in the domestic environment, yet he needs to further his confidence in himself for meeting the greater challenge in the unfamiliar task environment (Selmer, 2006). Together with greater tolerance of stress, anxiety, and uncertainty because of unfamiliar environment, he needs to be an even more optimistic and confident person. He should have a firm mind-set that radiates endless confidence that he can and will solve all problems in the foreign assignment, some of which may take a longer time. The more familiar he is with the problems of his foreign assignment before he leaves for the foreign assignment, the better will be his grasp of his situation to deal with the realities after his arrival in the host country. For a more effective adjustment to the host country environment, he himself must be emotionally stable. His equanimity and staying cool and steady even in different or unfamiliar problem situations will be critical for him to solve problems. He must know himself better, know his own ways of dealing with his challenges, and his preferences and views. He must develop a plan to improve his dealing with these emotions. He must self-monitor his improvement plan. Even when he is down, emotionally, he still must have an optimistic posture. He must develop

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a wider range of flexibility of his personal behavior and personal adjustment to varying social, task, and logistical situations. His studying of the conditions, work and nonwork, of the host country would be necessary for building and retaining such composure. Effective expatriate performance would also depend upon his continuously building himself to be better on each of these dimensions:



1. Stronger adjustment-oriented personality that emphasizes improved personal emotional stability; self-control and self-monitoring; personal flexibility; and a greater capacity to tolerate uncertainty, unfamiliarity, stress, and anxiety. 2. Stronger achievement-oriented personality that relies on:  (1) tenacity to focus on clearly set task and personal goals by overcoming obstacles; (2) stronger initiative to solve problems in the unfamiliar foreign situation; (3) sustained higher personal motivation that relies on “cold” heat rather than hot emotion to solve problems through people; (4) longer-term, strategic perspective of his foreign assignment that is built on the premise that he will stay with the problems and not run away from them (and a clear mandate from the MNC HQ to this effect would provide him with the necessary support); and (5) proactive and entrepreneurial focus for exploring newer opportunities that would benefit the foreign subsidiary beyond the short term.

His ability to accomplish performance through the local people is critical (particularly critical in the initial phases of his foreign assignment) to his expatriate leadership role. In this regard, he must continuously develop better communication skills, including a working knowledge of the local commercial language. He needs to become a better listener, be better at building cultural empathy and interpersonal skills, and be better in social interaction for working as a team player. His people skills will have to be even better in the foreign assignment than in his domestic assignment. When he is in the foreign assignment he would be to rely even more on the local people for gathering, sorting, interpreting information, and for guidance for generating alternative courses of actions. In many cases, he should not attempt to chart the detailed actions in complete isolation, but in conjunction with local people. His people skills will be useful again as he improves their capabilities by training them. Further, if his foreign assignment is in a country where the working language is not English, then he would have to be even better in his social and perceptual skills, his reasoning ability, and the adjustment and achievement orientations of his personality for him to overcome the language barrier.

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Recommendations for Training Overseas Managers An overseas United States manager should seriously follow a well-planned training program on a series of topics. These would typically include personal assessment and improvement; managing oneself, i.e. self-discipline, motivation, and efficacy; adaptation and achievement orientations; stress management; foreign operational, logistical, and cultural adaptation; communication (including the use of the local language), motivation, and leadership; building local social and work networks and learning to function through the work and social networks to enhance his effectiveness as a manager; and improve his own decision-making skills in the foreign country (Mendenhall and Stahl, 2000). Upon his arrival in the foreign country, he should have someone experienced to mentor him to effectively deal with his personal stress and uncertainty; social situations in work and nonwork settings; decision-making in teams; and complex or unfamiliar problems in the task environments. Expatriate training is a prerequisite for effective expatriate performance. Expatriates, at least initially, face more obstacles challenges, uncertainty, strangeness, and stress than do domestic managers. The early stages shock in the host country is because of the cultural differences, reduced situational understanding and coping capability, ineffective adaptation and problem-solving, reduced communication fluency, and work relationship competence. The initial weeks and months are characterized by a need for being mentored for dealing with his visible leadership situations that would serve as exposures to the host peoples about his own relevance, and leadership and managerial worthiness in the host country. The prerequisite for a good selection choice would imply that the United States manager and the United States manager’s spouse are both genuinely interested in and highly motivated to pursue the specific foreign assignment and that they are at least happy to go and work in the particular foreign country. The selection and training for the United States managers should address the following areas:

Recommendation 1: Carefully Select the Expatriate, the Spouse, and the Family Justification. Even if the MNC chooses the technically and experience-wise, the “best” candidate, if the spouse and the children factors are not at all favorable, the expatriate will not work out in the foreign posting. It has to be the whole family. Guidelines for Implementation. Understand the whole family situation. Discuss with spouse and children (if they are of a relevant age group). Send the expatriate candidate and spouse for a work-and-pleasure trip to the foreign country to see for it.

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Recommendation 2: Develop People and Leadership Skills Justification. The developing of the people skills is vital because as a manager, he has to get things done through people. Guidelines for Implementation. Depending on his current people skills level, the HQ should improve his personal, organizational, and professional leadership skills. Train him to sharpen and enhance his skills of human interaction, communication, and small and large group management. The HQ should provide him with this training from internal or external sources.

Recommendation 3: Impress upon the Expatriate the “Big” Picture, the Vision Justification. Only if the expatriate exudes the long-term vision and feels strongly of the big picture, will the foreign subsidiary people follow him fully. His own belief level should be high if he is to carry himself in a more self-confident and effective stature. Guidelines for Implementation. Explain to the expatriate the great future plans and vision in specific terms. He should feel convinced about them and the usefulness of them so that he feels motivated to strive towards to big picture. The HQ should provide him with this training from internal or external sources.

Recommendation 4: Train the Expatriate to Be Dynamic, Self-Disciplined and Personally Efficient and Committed Justification. The foreign assignment would overwhelm the expatriate because he has to manage the all-round and overall activities in the foreign subsidiary organization. He has to become much more efficient, versatile, and personally committed. Guidelines for Implementation. Train his personality even more and intensely inspire him to develop even greater self-discipline, even more quickly adjusting to foreign situations with even quicker and more effortless adaptation and with even a stronger focus on goal achievement. He needs to develop the requisite self-discipline of becoming continuously achievement-oriented, which would require his setting higher level goals followed by his intense endeavors. The HQ should provide him with this training from internal or external sources.

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Recommendation 5: Learn to Better Manage Himself, Build Better Equanimity: “Grace under Fire” Justification. With high stress and perceived environmental uncertainty, he has to manage his stress levels. Even after doing so, he will still experience discomforting anxiety. He should learn to tolerate, at least for an initial period, some level of gnawing anxiety in the back of his mind. He should learn to shrug the feeling of discomfiture and instead focus on the work at hand. He needs to learn to develop equanimity and be calm even in stormy situations. Guidelines for Implementation. Through proper predeparture training, he should learn to develop himself for greater equanimity and experience greater evenness of mind even under stress for more effectively managing personal stress and anxiety in the unfamiliar and strange task and personal scenario. He should strive to be calm and in full grasp of the issues even when many things are flying by very fast. He should possess better emotional stability through better self-efficacy, monitoring himself for improved self-flexibility and motivation. This training would lead to better self-confidence, coupled with a strong problem-solving orientation. The HQ should provide him with this training from internal or external sources.

Recommendation 6: Train the Expatriate to Become Extra Perspicacious and Develop Better Intuition in the Context of the Host Country Justification. He has learned the instincts for decision-making and action in his home country context. Before he arrives in the host country, he must have a sufficiently good level of instincts and intuition for decision-making and action in the host country context. In this way, he will be effective upon arrival. Guidelines for Implementation. The HQ should provide him with exercises using the host country environment’s actual data, circumstances, and information so that he learns to think in terms of the host country. Using actual short cases and problems and analyzing them would be helpful. The HQ should provide him with this training from internal or external sources.

Recommendation 7: Teach Him Local History and Life’s Circumstances so He Can Soon Function Well Justification. He should learn the data of local scenario, local history, local politics, and social practices so he can function well.

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Guidelines for Implementation. Provide him with real-life stories and human interest stories about the background of the people of the host country and give him the understanding about how the local people live and work. Short examples and pictures would supplement his discussions and reading. The HQ should provide him with this training from internal or external sources.

Recommendation 8: The HQ Must Provide Him with Initial Mentoring Justification. Even after a rigorous predeparture training, the HQ must provide the expatriate with the wisdom, mentoring, and guidance of an experienced veteran manager who is familiar with the host country practices and circumstance. This would help the expatriate to reduce his stress and also avoid initial mistakes and embarrassments. Guidelines for Implementation. The HQ should connect him with a suitable and quite compatible veteran (current or retired) manager who is familiar with the host country. The two should build a connection and rapport, and they should communicate frequently and confidentially about any and all aspects of the expatriate’s private and professional life. The HQ should provide him with help this training from internal or external sources.

Conclusions Because of the major leap into unfamiliar foreign assignment, the United States manager would need developmental considerations for both training before departure to a foreign country and mentoring after his arrival in the host country. Both predeparture training and post-arrival mentoring would help him to prevent any early embarrassing mistakes and also help him in his own adjustment so that he can better focus on the content of his work (Harvey and Napier, 2010). The predeparture training is meant for developing: (1) the HQ manager’s own personal capabilities and his own personality, such as self-confidence, self-motivation, self-discipline, and self-monitoring; stress management; achievement and adaptation orientations; and adopting a long-term, strategic perspective and a constancy of purpose despite difficulties and uncertainties; (2) the capacity to perform work and achieve goals through others by communicating, networking, and servicing relationships through good interaction and communication in the context of the host country culture; and (3) the personal resourcefulness to solve problems in the context of the host country culture and task environments.

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Bibliography Acyan, Z. (1997). Acculturation of expatriate managers:  A process model of adjustment and performance. In ZA. Acyan (Ed.), New Approaches to Employee Management (Vol.  4, pp. 1–40). Greenwich, CT: JAI Press. Badura, A. (1992). Self efficacy mechanisms in human systems. Journal of Applied Psychology, 37, 122–147. Badura, A., & Locke, E.A. (2003). Negative self-efficacy and goal effects revisited. Journal of Applied Psychology, 88, 87–89. Black, J.S., & Gregersen, H.B. (1991). The other half of the picture: Antecedents of spouse cross cultural adjustment. Journal of International Business Studies, 22(3), 461–477. Black, J.S., Gregerson, H.B., Mendenhall, M.E., & Stroh, L.K. (1999). Globalizing People Through International Assignment. Reading, MA: Addison-Wesley. Brewster, C., & Pickard, J. (1994). Evaluating expatriate training. International Studies of Management and Organization, 24(3), 18–35. Brock, D.M., & Oded, S., Shoham, A., & Siscovick, I.C. (2008). National culture and expatriate deployment. Journal of International Business Studies, 39(8), 1293–1299. Caligiuri, P.M. (2000). The big five personality characteristics as predictors of expatriate’s desire to terminate the assignment and supervisor-rated performance. Personnel Psychology, 53(1), 67–88. Chang, W. (2005). Expatriate training in international non-governmental organizations:  A model for research. Human Resource Development Review, 4(4), 440–463. Chao, G.T., & Sun, Y.J. (1977). Training needs for expatriate adjustment in People’s Republic of China. In A. Aycan (Ed.), New Approaches to Employee Management (Vol. 4). Greenwich, CT: JAI Press. Crowne, K.A. (2008). What leads to cultural intelligence? Business Horizons, 51, 391–399. Cui, G., Berg, S.V., & Jiang, W. (1998). Cross-cultural adaptation and ethic communication: Two structural equation models. The Howard Journal of Communications, 9(1), 69–85. Dupuis, M.J., Haines III, V.Y., & Saba, T. (2008). Gender, family ties, and international mobility:  Cultural distance matters. The International Journal of Human Resource Management, 19(2), 274–295. Duncan, R.B. (1972). Characteristics of organizational environments and perceived environmental uncertainty. Administrative Science Quarterly, 17(3), 313–327. Fraser, K.P., & Tucker, C.M. (1997). Individuation,l, stress and problem-solving abilities of college students. Journal of College Student Development, 38(5), 461–467. Gist, M.E., & Mitchell, T.R. (1992). Self-efficacy: A theoretical analysis of its determinants and malleability. Academy of Management Review, 17, 183–211. Godiwalla, Y.M., Meinhart, W.A., & Warde, W.D. (1979). Corporate Strategy and Functional Managements. New York, NY: Praeger. Guimaraes-Costa, N., & Cunha, M.P.E. (2009), A liminal perspective of international managers. Organizational Dynamics, 38(2), 158–166.

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O’Sullivan, A., & O’Sullivan, S.L. (2008). The performance challenges of expatriate supplier teams: A multi-firm case study. The International Journal of Human Resource Management, 19(6), 999–1017. Pattakos, A. (2010). Prisoners of Our Thoughts. San Francisco, CA: Berrett-Koehler. Payne, R. (1994). Individual differences in the study of occupational stress. In C.L. Cooper & R. Payne (Eds.), Causes, Coping, and Consequences of Stress at Work (pp. 209–232). New York, NY: Wiley. Peltokorpi, V. (2008). Cross-cultural adjustment of expatriates in Japan. The International Journal of Human Resource Management, 19(9), 1588–1606. Petranek, G.F. (2004). Global human resource development:  The four C approach. Human Resource Development Quarterly, 15(2), 249–252. Priester, M.J., & Clum, G.A. (1993). Perceived problem-solving ability as a predictor of depression, hopelessness, and suicide ideation in a college population. Journal of Counseling Psychology, 40(1), 79–85. Prud’homme van Reine, P., & Trompenaars, F. (2000). Invited reaction: Developing expatriates for the Asia-Pacific region. Human Resource Development Quarterly, 11(3), 237–244. Selmer, J. (2000). A quantitative needs assessment technique for cross-cultural work adjustment training. Human Resource Development Quarterly, 11(3), 269–282. Selmer, J. (2006). Adjustment of business expatriates in China:  A strategic perspective. The International Journal of Human Resource Management, 17(12), 1994–2008. Shin, S.J., Morgeson, F.P., & Campion, M.A. (2007). What you do depends on where you are: Understanding how domestic and expatriate work requirements depend upon cultural context. Journal of International Business Studies, 38(1), 64–83. Suutari, V., & Burch, D. (2001). The role of on-site training and support expatriation: Existing and necessary host-company practices. Career Development International, 6(6), 298–312. Takeuchi, R., Tesluk, P.E., & Lepak, D.P. (2005). An integrative view of international experience. Academy of Management Journal, 48(1), 85–100. Tung, R. (1982). Selection and training procedure of US, European and Japanese multinationals. California Management Review, 25(1), 57–71. Varner, I.L., & Palmer, T.M. (2005). Role of cultural self-knowledge in successful expatriation. Singapore Management Review, 27(1), 1–26. Wynne, M. (2006). The hidden cost of expatriate executives. Global Cosmetic Industry, 174(10), 49–50. Yamazaki, Y., & Kayes, D.C. (2007). Expatriate learning:  Exploring how Japanese managers adapt in the United States, The International Journal of Human Resource Management, 18(8), 1373–1395. Zakaria, N. (2000). The Effects of Cross-cultural Training on the Acculturation Process of the Global Workforce. International Journal of Manpower, 21(6), 492–510. Zahra, S.A. (2001). Entrepreneurship in the multinational corporation: The effects of corporate and local contexts. Academy of Management Proceedings, G1–G6.

chapter fifteen

Strategic International Human Resource Management The Key to International Competitiveness

The quality of a multinational corporation’s (MNC’s) strategic international human resource management (SIHRM) should be enhanced for greater effectiveness of an expatriate. It should be well-integrated, worldwide, and organization-wide. Growth and competitiveness of an MNC depends on it. Good SIHRM requires the MNC’s expatriate executives and supervisors to be continually trained so that it would improve an MNC’s competitiveness. Doing so would realign capital, informational, and other resources for an MNC to become increasingly competitive; and it would effectively function as a team to accomplish proper objectives. Performing the SIHRM function for an MNC is a greater challenge than managing the human resource management function for a predominantly domestic firm. Yet the key to greater MNC’s organizational performance is to effectively manage the needs of the international executives, technical specialists, supervisors, and employees. The Executive Vice President of SIHRM of an MNC must have equal status and involvement as the other Executive Vice Presidents in the strategy formulation and implementation process. An MNC’s expatriates and their families have special relocation-related needs that must be addressed if it is to take care of its expatriate needs, so that they can effectively contribute to the foreign subsidiary’s competing. Foreign subsidiaries have to compete on the quality of internationally delivering products and services.

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Successful international performance is the process in which all MNC employees are well trained and well placed in the context of their organizational units and their locations (National Foreign Trade Council, 2016). With increasing international competition, effective international managers should improve an MNC’s competitiveness in all aspects of an organizational unit’s value chain, namely, inbound supply chain activities, internal operations, outbound activities of marketing, sales promotion, and customer and technical services. The globalization of the economy has made international experience of managers vital for successful MNC performance (Fraser and Tucker, 1997). There are many arguments and observations that should make it a strong concern for MNCs to pursue SIHRM, because it would better address the needs of the employees. Consider some of the following major reasons why United States executives decline international assignment offers, or they prematurely return from foreign assignments, as cited in a joint survey report by Windham International, National Foreign Trade Council, and Institute of Human Resources (1999). The joint survey report originated from Cornell University: 1. Family adjustment and disruption problems: Children’s schooling, loss of friends and relatives and local activities such as church, sports, and clubs 2. Spouse’s career problems: As a trailing spouse, unimportant spouse, career isolation, career vacuum, and loss of professional identity and pride 3. Life style restrictions: Little personal freedoms, restricted movements, boredom, cultural differences, often emptiness in leisure time, and too much overwhelming work and responsibilities 4. Challenge of the unfamiliarity:  Language, life style, customs, economic system, business methods, organizational process, and governmental interactions 5. Unfavorable assignment location: Location-related hardships and incompatibility 6. Financial costs: Loss of dual income, dual taxation, and buying-selling of homes 7. Suspicion of unsatisfactory reentry into the MNC’s home country operations: Such as their witnessing of some returning expatriates’ weakened career paths in headquarters. It seems clear that United States MNCs should do more to address the problems and needs of the expatriate family so that the expatriate experience is successful and beneficial to the MNC. Successful preparation of the expatriate family and effective support from the MNC are viewed as vital to the greater effectiveness of the expatriate manager in his international assignment.

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Consider the results of the same survey in which responding United States companies indicated the extent to which they provide support for international assignments for their expatriates and their families:



1. Only 62% of responding companies provide cross-cultural training, with only 32% to all family members, while 38% offer no cross-cultural training at all 2. Only 3% of companies offer extra income for loss of spousal income due to international relocation 3. Only 41% of companies helped in finding the spousal job in the host country, only 37% provided spousal networking assistance, and only 20% provided spousal education or training, while 35% provided no employment help for the spouse 4. Two percent outsourced all expatriate related administration to experienced firms 5. Only 43% of companies make global awareness training available to a wide group of employees, while some (23%) limit it to employees in international area.

For a United States MNC to focus on effective international performance, their support for the expatriate employee and his family has to be much improved from the support levels indicated in the survey. United States MNCs should do much more to attract their employees for foreign assignment opportunities. The issue of dual career families involved in foreign posting makes it necessary for MNCs to develop a more attractive and flexible approach to view each prospective expatriate family on a case-by-case basis. The SIHRM has to go beyond taking the strict viewpoint of only focusing on the employee and consider the needs of the entire family. International expansions by fast-growing MNCs would have a greater need for talented and technically competent managers and specialists for foreign assignments. A  flexible and enlarged approach of the SIHRM would attract many competent managers from United States operations to seek foreign assignments. Also, an MNC should develop a good promotion path plan for the expatriate managers who are willing to relocate themselves and their families (Barnum, 1994; Batt and Hermans, 2012; Gilbert et al., 2018;; Medich, 1995; Solomon, 1996). Their reentry career path in the United States (i.e., their return from foreign postings to their home country) should be well assured and well planned some months in advance of their actual reentry into United States.

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MNC’s Global Approach and Expatriate Strategies Figure  15.1 portrays the position of the SIHRM in the context of an MNC’s vision and mission as well as its overall corporate strategies. The SIHRM must be well integrated with the MNC’s overall strategic management team and framework. The SIHRM executives must: (1) be on equal footing with other headquarters’ (HQ) executives and (2) play an active part in strategic decision-making in the MNC organization, including that affecting foreign subsidiaries. The directions Global Strategic Vision ↑ Global Objectives, Goals & Strategy ↑ Global HRM Objectives & Goals

Headquarters HRM Philosophy

Headquarters Approach Towards Foreign Assignments

Expatriate-Related Goals and Strategies

• organization-wide global awareness • expatriate selection, training, development • new expatriate mentoring • expatriate and location matching • expatriate succession expatriate job enrichment, rotation, growth • expatriate and family needs & considerations • expatriate and family visits & communication with homeland(s) • expatriate performance evaluation process

Figure 15.1:  A United States MNC’s Global Approach and Expatriate Strategies

Source: Adapted with permission from, “Strategic international human resource management,” (2000), by Y.H. Godiwalla, The Journal of Current Research in Global Business, 2, Fall, 78–86. Copyright 2000. The Association for Global Business.

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and pace of growth in different international units may require prior planning and preparation of expatriate executives in developing specific skills and area familiarity before the MNC can be expected to have a constructive engagement in that region. Long-term, effective executive development and management succession planning are vital links in the process. International growth of an MNC can be closely tied with the monetary and fiscal policies of the countries in which it operates, more particularly those of its home country. Harvard Professor N. Gregory Mankiw, along with Professor D.W. Elenford, articulates the flight of foreign direct investment in and out of a country based upon the Nobel-winning Mundell-Fleming model (Mankiw and Elmenford, 1999). MNCs market planning may benefit from the patterns of economic growth using the Mundell-Fleming analysis which provides a basis of an open world theory. Since no one country can operate its domestic economy in isolation, as the model indicates, then the interrelatedness among the economies of countries brings to bear an MNC’s prospecting for future growth and, consequently, make it necessary for its SIHRM’s preparation to effectively support such growth. While an MNC may study the fiscal and monetary policies of a specific country, and this may be worthwhile, it is more important to study the actual pattern of international economic movements from country to country. MNC’s international growth and competitive strategies are the engines that drive MNC activities beyond the routine operating activities. These have implications for an MNC’s SIHRM planning (Sparrow, Brewster, and Harris, 2004). For example, MNC’s push into a Middle East region may require intense Middle East area studies for its expatriates, either from the United States or from other countries. The SIHRM planning process would then involve the selection and training of expatriates and their families. The SIHRM development preparations and expatriate training may be conducted in conjunction with area market analysis and planning. This would point to a greater need for interaction between the SIHRM executives and other functional managements (e.g., operations, marketing) executives. Organizational analysis of an MNC’s foreign subsidiary unit should follow analysis of the global and the foreign subsidiary’s regional market and economic trends. Such analysis would point to the future training and organizational development needs of the foreign subsidiary unit.

Expatriate-Related Goals and Strategies Expatriate-related goals and strategies are derived from the SIHRM objectives and goals, as depicted in Figure 15.1. These include the issues that would better

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sensitize the top HQ executives about their focus of expatriates’ needs. Effective HQ approach would lead to successful selection, training, development of expatriates and, to an extent, their dependent family members. In a large MNC, where one can expect a large pool of executives, the organization must match the expatriate with the location (i.e., the country) and assignment (i.e., the foreign subsidiary organization), and not just the assignment. This would ensure a cultural closeness as well as technical matching. This approach of simultaneously matching of host country culture and technical aspects of the foreign assignment would significantly improve the expatriate’s effectiveness. Expatriate executive succession planning should be an important issue for an MNC’s SIHRM because it would provide for:  (1) upward mobility of expatriate executives, (2) expatriate job rotation (to regenerate executive freshness), and (3)  future foreign subsidiary units’ organizational growth needs (e.g., as when additional expatriates are needed at a foreign subsidiary unit). Effective expatriate succession planning should be done for each foreign subsidiary and for each geographical region. An expatriate’s continuous mentoring and his long-term performance evaluation processes must be well planned, well established, and well communicated, and so the newly assigned expatriate should know how and when he would be evaluated (Vance and Paik, 2006). Mentoring must begin immediately upon his arrival at his new assignment in order to provide him with better adjustment to his new responsibility in a strange situation. The veteran executive, who would mentor the expatriate, should properly guide the expatriate not only for proper adjustment and his job content in fuller terms, in addition, he should also guide and channel him towards more favorable expatriate performance evaluations. In this way, the mentor would serve the interest of the foreign subsidiary organizational performance as well as the expatriate for his favorable expatriate performance evaluations. The individual is as important as the organization.

Role Analysis and Role Expectation of an Expatriate Executive The roles and responsibilities of an expatriate executive are unique and different from the roles and responsibilities of a “domestic executive.” The expatriate executive is at the same time expected to look after HQ’s interests as well as host country-oriented goals of the foreign subsidiary unit. To an extent, there will be goal conflict in the mind of a newly assigned expatriate executive who is attempting to find his comfort zone of positioning himself between the HQ

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(on the one hand) and the host country culture and the foreign unit (on the other hand). A usual strong point for an expatriate to be chosen for a foreign assignment is his portfolio of: 1. Technical knowledge content and skills 2. Organizing, leadership, and managerial skills 3. Cultural and strange situation adaptability 4. Operating details management 5. Innovative, entrepreneurial, and problem-solving skills. These issues are delineated in in Figure 15.2. While the mix of skills would vary, the expatriate executive is expected to effectively manage other people doing the organization’s primary tasks (purchasing, • Expatriate Role Dimensions: • technical content and skills • organizing capability • human interaction skills • leadership skills • adaptation skills: cultural, logistical, decision-making, technical, organizational • innovative, entrepreneurial skills • operating details management skills • host country networking and interaction skills • familiarity with host country economic system • host country government and industry relations • skills for coping with strange situations • skills for managing the family’s needs • headquarters expectation of the expatriate’s role

Expatriate Role Mix Priorities

Expatriate Personal Goal Setting

Expatriate Personal Goal-Mix Focus

Figure 15.2:  Role Analysis of an Expatriate

Source: Adapted with permission from, “Strategic international human resource management,” (2000), by Y.H. Godiwalla, The Journal of Current Research in Global Business, 2, Fall, 78–86. Copyright 2000. The Association for Global Business.

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manufacturing and operations, and marketing) and supporting tasks (accounting, finance, SIHRM, legal, external relations, R&D, management information systems, and accounting and financial control systems). If two expatriate executive candidates for a foreign assignment are perceived to be equally qualified on technical, managerial, organizational, leadership, and problem-solving skills, then the critical deciding factor would be the candidate’s ability to adapt to and effectively perform in the particular culture and of the specific foreign country. If two candidates are unequal in technical and managerial capability, but of similar cultural adaptability, then the matching of the candidate to the technical and managerial challenges of the foreign assignment must be done. Roles of an expatriate executive can change over time for a variety of reasons, such as: changing needs of the same foreign assignment, changing local environment, changes in the expatriate’s personality make-up, changes in the local culture, changes in technology (engineering and organizational), and changes in HQ-foreign unit relations. For these kinds of changes the expatriate’s role composition can change. Also, growth in the scope and size of local operations of the foreign unit can significantly expand the roles and responsibilities of an expatriate executive. Increasing challenges can change the role expectations of an expatriate. These challenges could include:  increasing competition; increasing host governmental regulation of the industry or foreign firms increasing labor strife; and difficulty in getting factors of production (labor, raw materials, equipment, energy, utilities, and support services). When any of these challenges threaten to foil smooth operations of the foreign unit, the expatriate’s role becomes fraught with additional burdens of responsibility. The focus is crisis management and problem-solving. The expatriate has to focus upon the immediacy and crisis management. The requisite roles and responsibilities of an expatriate executive for him to be effective are largely determined by the local environment, operating situation, host country culture, HQ expectations of the expatriate, and the expatriate executive’s concept of his own role itself.

An Expatriate Executive’s Challenges in His Host Country As Table  15.1 depicts, the challenges an expatriate executive can expect can be multifold in dimensions and complexity. The dimensions of the challenges are similar to those of a “domestic executive” (or an executive functioning in his home culture), except that the challenges of these dimensions are extended. As can be reviewed in Table 15.1, each of these dimensions acquires an additional range of challenges because of international setting.

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Table 15.1:  An Expatriate’s Challenges in a Host Country Leadership: Technical: Operational: Innovative: Communicative: Cross-Cultural: Managerial Style: Entrepreneurial: Keeping Close to Home Culture:

ability to lead in a different/strange culture adaptation to local levels of equipment and knowledge and skills adaptation to local pace, logistics, and infrastructural capability ability to innovate in the context of host country and the foreign unit’s resources ability to communicate in the local language(s) and context ability to adapt and relate to local culture(s) and the unit’s organizational culture(s) ability to adapt personal preferences and styles to local unit’s needs and organizational culture ability to prospect, pursue opportunities in the host environments ability to replace home sickness with variety of local interests and activities, and keeping bond of home culture alive (through visits, telecommunication)

Source: Adapted with permission from, “Strategic international human resource management,” (2000), by Y.H. Godiwalla, The Journal of Current Research in Global Business, 2, Fall, 78–86. Copyright 2000. The Association for Global Business.

The dimensions that are directly affected because of differences in culture are:  communication, cultural adaptation, and managerial style. The dimensions that are directly affected because of varying methods are: operational and technical. The dimensions that are directly affected because of differences in organizational task environment are: operational, innovative, technical, and entrepreneurial. These differences increase the challenges upon the expatriate. These increases in challenge make it more difficult for him to manage and he has to work harder to cope with the newness of the situation. He has to develop for himself a sense of the underlying logic of managing the new situation.

Strategic International Human Resource Management (SIHRM) There are good reasons for developing strong SIHRM. Consider some of these observations. Some surveys emphasize the point that 65% of foreign assignments prematurely end because of ineffective preparation of the expatriate (Global Human Resource Service, 1997). MNCs increasingly transfer their people to other

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countries as they compete globally; global mobility is on the rise (Morris, Penning, and Clark, 1997; Tung, 1981). Long-term approach towards SIHRM is stressed: expatriates should be chosen from among candidates for their long-term benefit to the organization and not just to fill a slot in the immediacy (Bjorkman and Welch, 2014; Ioannou, 1994). Expatriate selection must fit with the MNC’s overall plan of management development. Cross-cultural interaction skills are often ranked very high as a criterion of MNCs, whether or not an executive is scheduled for a foreign posting (Harris, 1997). The underlying reason appears to be that the need for better understanding of different cultures, and being able to effectively function in them, has become important. Cross-cultural skills have to be acquired through actual experience, not something that can only be read. Diversity even in domestic organizational settings has been emphasized. An executive of a large MNC emphasized that the work force should mirror the global cultural landscape in all its major locations. Thus, ideally, every office must have people from many cultural and national backgrounds in order to capture the global spirit (Laabs, 1996). Improvements in SIHRM have improved expatriate success. These include:  better compensation and benefits, selection, training and mentoring, socialization process, managing the placement process, and evaluation and mentoring system (Fish and Wood, 1996; Ozbilgin, 2004; Stening, 1994). An MNC should also address the power and politics within its organization because potential expatriates would decide to pursue a foreign career path if it leads to better prospects in rank, compensation, and responsibility (Birdseye and Hill, 1995; Perkins and Shortland, 2006). If an MNC does not promote successful senior expatriates in the corporate structure, then many younger aspiring expatriates would give up the foreign opportunity (Light, 1997). Making overseas assignments take place even at more junior levels would help to develop a pool of globally oriented managers who have all the attributes of managing foreign units because they have assimilated all the education wrought through foreign executive working and living. It is worthwhile to consider creating and maintaining “a talent pool of executives” from which the MNC can draw for future staffing needs. For example, the Tata group of companies, and Godrej and Boyce company both adopt the idea of some sort of “a talent pool of executives”; and they utilize it for its future staffing needs. Both are very large enterprises based in India and have an international presence. They have a similar approach in that they hire talented executive trainees, namely, fresh Master’s graduates from top management and other professional schools. After a diverse hands-on training for some two years in various units

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across the organizations, they are placed in starting executive positions. They climb and remain in this talent pool for assignments in the various parts of the organizations. They would work in several executive roles as part of the “a talent pool” from which they would be sent to various higher level executive assignments of the organizations. This “talent pool” method is a practical, flexible approach to meeting the needs of an MNC organization.

Expatriate Selection Criteria and Methods Many different criteria have been used across the industries to select expatriates for foreign assignment (Chawonec and Newstrom, 1981). These may vary due to the varying circumstances: (1) corporate priority differences, (2) changing industry environments, (3) different organizational cultures, (4) varying competitive pressures, and (5) varying SIHRM practices and challenges in the international arena. Some of the criteria for selection are listed here: formal education, additional technical or specialization training, technical skills, managerial capabilities, previous assignments (domestic and foreign), success record or rate, personality profile, skills for learning new languages and for communication in other languages, self-starter and entrepreneurial capabilities, career potential, company experience, international skills, flexibility and adaptability, organizing ability or institutional building capability, team work capability, and family situation and spousal adaptation. Different methods are used to select expatriates, even in the military (CrowleyHenry and Heaslip, 2014). These include:  performance evaluation, interviews, group discussions, references, insights of candidates’ supervisor(s) and co-worker(s), written instruments, general knowledge of international issues, host country requests, making profiles of the “ideal” expatriate and then finding one in real life from inside or outside the organization, and career development analyses. Many MNCs have acknowledged that the task of selection of a good expatriate is really challenging. It is also significantly challenging to develop the chosen individuals to effectively perform in their future assignments (Vance and Paik, 2006). One important issue is that the SIHRM goes well beyond selection of positioning of an expatriate. It is as important for the MNC to perform after the selection as before it. Rosalie Tung (1981, 1992) and Elizabeth Light (1997) have delineated the many ideas and factors that can contribute to the success of the expatriate’s performance. These ideas are supported by other, more recent studies, such as those by: Gilbert, Bobadilla, Gastaldi, LeBoulaire, and Lelebina (2018); by Mezias and Scandura (2005); and by Stoermer, Haslberger, Froese, and Kraeh (2018).

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It is useful to know about these factors as they would help, with proper training, in improving the performance of expatriates. The factors which contribute to successful expatriate performance include: 1. Technical competence on the job: The expatriate in a foreign unit will not have wide ranging specialized and technical support that he may have grown used to relying on at the HQ or in the MNC’s home country setting. 2. Personal traits or relational capabilities: How an individual deals with others makes a difference in his effectiveness; he should be able to live and work with people whose value systems, beliefs, customs, manners, and ways of conducting business may well be very different from his own. 3. Ability to cope with diverse environmental variables: In any country activity, a manager must have the ability to identify and cope with environmental constraints, such as government, trade unions, competitors, society, and customers; the expatriate should be able to do the same in the foreign country as well as he can do in his home country. 4. Family situation: Expatriate’s spouse has to be comfortable and happy in the foreign posting otherwise the expatriate would not be happy in his role; besides, many expatriate families have dual career families, and this makes spousal consideration even more critical. 5. Managing staff in different cultures:  Management is culture-bound. Managing people in different cultures is more complex because there are different managerial traditions and structure in different societies.

Recommendations Recommendation 1: Make the SIHRM Department at the HQ Which Is Equal to All Other Functional Managements at the HQ Justification. The growth and competitive needs of the MNC must be addressed through effective SIHRM department. When the SIHRM has equal status, there is a better attention to the needs of human resources. Guidelines for Implementation. The Executive Vice President of an MNC’s SIHRM function should be a part of the strategic management process to be truly effective. He must have an equal status as other functional managements in all strategic international decision-making. He must take an active part in the strategy formulation and implementation process across the MNC organization.

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Recommendation 2: Improve the SIHRM Function to Benefit All Expatriates, According to the Figures Justification. The concerns of the expatriates and their families must be properly addressed for them to effectively perform. Guidelines for Implementation. The SIHRM should be systematic and focused on the major concerns of the expatriate’s and his family’s needs in the host country. The benefits for the expatriates must be comparable to those in the industry and to the geographical regions of the foreign unit.

Recommendation 3: Make (Almost) All MNC People More Internationally Savvy Justification. An MNC must think forward and be more internationally savvy, otherwise it will fall behind the competing MNCs. Guidelines for Implementation. Provide cross-cultural training to the prospective expatriates, offer extra income for loss of expatriate’s spousal income, help in finding the expatriate’s spousal job, do not outsource HR activities for expatriates, and make global awareness training available for many employees above a certain level.

Recommendation 4: Improve Managerial Effectiveness of All Executives Justification. Organizational effectiveness depends on cumulative managerial effectiveness. Guidelines for Implementation. MNC should provide help for all domestic and international executives in improving the skills of:  (1) technical content; (2) organizing, leadership, and managerial; (3) cultural and strange situation adaptability; (4) operating details management; and (5) innovative, entrepreneurial, and problem-solving.

Recommendation 5: Use Criteria, Factors, and Goals in Expatriate Selection and Further Train Them on These Factors and Goals Justification. The growth of an MNC’s expatriate executive cadre would depend on proper selection of expatriates and on further training them. Guidelines for Implementation. After expatriate selection using the following criteria, factors, and goals, an MNC should provide additional hands-on training and help for expatriates in these same factors: (1) technical competence on the job, (2) personal traits or relational capabilities, (3) ability

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to cope with diverse environmental variables, (4)  family situation, and (5) managing staff in different cultures.

Recommendation 6: International Human Resource Planning Must Sync with Overall MNC Planning Justification. Success of an MNC depends not only in the quality of strategy formulation but also in its implementation. For this, it needs effective SIHR so that people are properly prepared. Guidelines for Implementation. The Executive Vice President of SIHRM must closely communicate with the other Executive Vice Presidents and provide inputs.

Recommendation 7: An MNC Should Be Flexible in the Use of Its Expatriate Selection Criteria Justification. The changing circumstances facing an MNC may understandably compel it to reconsider the mix of its expatriate selection criteria. It must respond to the external environmental changes. For example, the British Indian Civil Service in the late 19th century moved from selecting bright intellectuals to technically astute minds who were capable of following procedures. It proceeded to make the change through the changes in the examination and selection process. It moved from the charismatic, leadership model to the bureaucratic, administrative, and procedural model. The British Indian government felt that its administration needed to be more administratively efficient. Guidelines for Implementation. An MNC may change its priorities as the circumstances demand when formulating its criteria-mix for the selection of expatriates, using such factors as: (1) corporate priority differences, (2)  changing industry environments, (3)  different organizational cultures, (4)  varying competitive pressures, and (5)  varying SIHRM challenges in the international arena.

Conclusion Strategic international human resource management is becoming increasingly important. It calls for a global perspective in human resource management in all parts of the MNC organization. Growth of the MNC and its competitiveness

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depend upon the MNC’s ability to induce and motivate its people to accept the changing face of the organization’s cultural make up. Diversity in the work place should pave the way to accelerated globalization of the corporate mind-set. Expatriate developmental strategies must be integrated with the MNC’s strategic management process, and they must be used to develop expatriate-related goals and strategies, as portrayed in Figure 15.1. Expatriate managers may have many role dimensions that are at the same time complex and diverse (as it can be seen in Figure 15.2), and these role dimensions are continuously changing. Thus, there are possibilities of changes in an expatriate’s personal goal-mix. An expatriate’s challenges in a host country are similar to those of a “domestic manager” to start with; and further, they are more complex and demand more adaptation on his part, as it can be seen from Table 15.1. Leadership, operational, and communicative and cross-cultural challenges can be the more critical issues for the expatriate as he initially adapts to the new foreign assignment. And as he slides and settles into his foreign posting with his initial adaptation behind him, he then needs to work on the challenges of being more proactively innovative, entrepreneurial style and personal managerial style, and his ability to remain fresh and not become home sick. Challenges to the expatriate change in their content and intensity are something of concern and they must be dealt. Local conditions and events determine his career changes as an expatriate.

Bibliography Barnum, C. (1994). US Training Manager Becomes Expatriate. HRM Magazine, 39(4), 82–96. Batt, R., & Hermans, M. (2012). Global Human Resource Management:  Bridging Strategic and Institutional Perspectives. Research in Personnel and Human Resource Management, 31( July), 1–52. Birdseye, M.G., & Hill, J.S. (1995). Individual, Organizational/Work and Environmental Influences on Expatriate Turnover Tendencies: An Empirical Study. Journal of International Business Studies, 26(4), 787–798. Bjorkman, I., & Welch, D. (2014). Framing the Field of International Human Resource Management Research. The International Journal of Human Resource Management, 26(2), 1–15. Chawonec, G.D., & Newstrom, C.N. (1981). The International Human Resources Management. Business Quarterly, 27(3), 82–96. Crowley-Henry, M., & Heaslip, G. (2014). Short-Term International Assignments. Military Perspectives and Implications for International Human Resource Management. European Management Journal, 32(5), 752–760.

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Fish, A., & Wood, J. (1996). A Review of Expatriate Staffing Practices in Australian Business Enterprises. International Journal of Human Resource Management, 7(4), 846–863. Fraser, K.P., & Tucker, C.M. (1997). Individualization, Stress and Problem-Solving Abilities of College Students. Journal of College Student Development, 38, 461–467. Gilbert, P., Bobadilla, N., Gastaldi, L., Le Boulaire, M., & Lelebina, O. (2018). Innovation, Research and Development Management (Innovation, Entrepreneurship and Management Series). Hoboken, NJ: ISTE, Limited; Wiley. Global Human Resources Service. (1997). Destination and Host Community Services. Harris, C. (1997). Capitalizing on the Global Workforce:  A Strategic Guide for Expatriate Management. The China Business Review, September–October, 91–104. Ioannou, L. (1994). Cultivating the New Expatriate Executive. Crow International Business, July, 43–60. Laabs, J.J. (1996). Global HR Inroads Paved at Conference: HR Pioneers Explore the Road Less Traveled. In, Global Business Leadership Through HR Conference. Personnel Journal, 75(2), 70–94. Light, E. (1997). Bridging the Cultural Divide. Management, 44(7), 35–37. Mankiw, N. G., & Elmendorf D.W. (1999). Government Debt. In J.B. Taylor & M. Woodford (Ed.), Handbook of Macroeconomics, I(C) (pp. 1231–1745). Amsterdam: North Holland. Medich, F.H. (1995). The Management of Expatriates:  Implications for Agribusiness. Agribusiness, 11(4), 383–397. Mezias, J.M., & Scandura, T.A. (2005). A needs-driven approach to expatriate adjustment and career development:  A multiple mentoring perspective. Journal of International Business Studies, 36(5), 519–538. Morris, R., Penning, J., & Clark, S. (1997). The Changing Overseas Assignment: Managing for Competitive Advantage. Compensation and Benefit Review, March–April, 32–41. National Foreign Trade Council. (2016). Charting new pathways at WTO. April. Washington,  DC. Ozbilgin, M.  (2004). “International” human resource management. Personnel Review, 33(2), 205–221. Perkins, S., & Shortland, S. (2006). Strategic International Human Resource Management: Choices and Consequences in Multinational People Management (2nd ed.). London, England; Philadelphia: Kogan Page. Solomon, C.M. (1996). CEO Mom: The Tie That Binds the Global Family. Personnel Journal, 75(3), 80–96. Sparrow, P., Brewster, C., & Harris, H. (2004). Globalizing Human Resource Management. London, England: Routledge. Stening, B.W. (1994). Expatriate Management:  Lessons from the British in India. The International Journal of Human Resource Management, 5(2), 385–404. Stoermer, S., Haslberger, A., Froese, F., & Kraeh, A. (2018). Person–Environment Fit and Expatriate Job Satisfaction. Thunderbird International Business Review, 60(6), 851–860. Tung, R. (1981). Selecting and Training of Personnel for Overseas Assignment. Columbia Journal of World Business, 16(4), 73–77.

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Tung, R, (1992). Selection and Training Procedure of U.S., European and Japanese Multinationals. California Management Review, 25(1), 57–71. Vance, C., & Paik, Y. (2006). Managing a Global Workforce:  Challenges and Opportunities in International Human Resource Management. Armonk, NY: M.E. Sharpe. Windham International, National Foreign Trade Council, and, Institute for International Resources. (1999). Global Relocation Trends:  Survey Report (Originated from). Ithaca, NY: Cornell University.

part e

Ethical and Social Responsibility Issues for the Foreign Subsidiary

Synopsis: This part explains and discusses the importance of ethical and socially responsible performance expectation for all parts of a multinational corporation, including the foreign subsidiaries which operate in diverse cultural and political environments, and which can often have different expectations of ethics and social responsibility.

chapter sixteen

Corporate Social Responsibility Theoretical Discussions

Organizations, as integral parts of a society, must conduct themselves with the higher standards of legality, ethics, decency, honor, and corporate citizenship. They should exceed the higher expectations of a given society. The modern day rapidity of social media and journalism, together with widespread global scope, make it necessary for organizations to be ever so vigilant, careful in their conduct. It calls for increasing standards of internal sensitivity, communication, and training so that their employees meet and exceed the rising societal and stakeholder expectations. In the case of an MNC, over and above high ethical behavior, the social responsibilities goals and strategies would depend upon a foreign subsidiary’s host country needs and expectations, and overall MNC’s and foreign subsidiary unit’s resource capabilities. This issue is important in determining the sustainability and scope of social responsibilities goals and strategies. The stakeholder approach is important. Stakeholders of the MNC as a whole and those of each foreign subsidiary unit are together important in this regard. The issues covered in the chapter include: corporate social responsibility (CSR), business ethics, and corporate social responsibility theoretical discussions.

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Foundational Issues of Social Responsibility It is worthwhile to review some of the foundational ideas that have given rise to the CSR of an organization. While these issues are evolving over the many decades, they continue to generate further growth and also give additional challenges and expectations to organizations to comply with the rising expectations.

The Relevance of Social Responsibility CSR has become a pervasive topic in popular business press and academic literature and also is getting important attention to business leaders and top and middle management levels. Today, modern business organizations have to be more mindful of all its stakeholders and the general public, compared to what their counterparts had to do only half century ago. Stockholders, while very important, are no longer the only important stakeholder; and they are not only objects of adoration of the management of an organization, particularly if the organization is a large, global, or multinational corporation (MNC). CSR standards and expectations are continuously rising. Globally or domestically oriented organizations are not only expected to produce quality products and exceed investor expectations, they are also expected to exceed the public and stakeholders’ ethical and social responsibility expectations. These expectations, which are ever-rising, are for the organizational conduct for:  legal, ethical, economics, decent or honorable, and philanthropic activities. These expectations are even more sensitive for larger global organizations or MNCs. CSR has become a quite pervasive topic in business literature. Although, historically, the prevailing notion of CSR was embedded in liberal market economies, today organizations are seen to be integral parts of a society; and they must conduct themselves with the higher standards of legality, ethics, decency, and corporate citizenship. Thus, CSR comes to the fore. Furthermore, today the rapidity of modern social media and journalism, together with widespread global scope, make it necessary for organizations to be vigilant and careful in their conduct. This new situation calls for increasing standards of internal communication and training so that the employees of organizations meet and exceed the rising societal and stakeholder expectations. This chapter analyzes the theoretical discussions upon CSR, and suggests recommendations for organization’s actions. The management of organizations has to communicate, train, and oversee ethical and decent or honorable behavior of an employee’s actions as they may affect the perceptions of the public and the stakeholders. As the rapidly responsive global

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social media and journalism closely looks at the corporate conduct, organizations must be ever so vigilant in planning and executing decisions. Society seriously holds organizations accountable for their conduct as a matter of a trust issue. If they lose the society’s trust, they may also lose their business. They must simultaneously compete and be highly ethical, and decent or honorable, and socially responsible to keep earning the trust. Religion often plays a strong role in the development of a society’s cultural and business values and ethics (Ali and Al-Aali, 2015; Duska, 2014; Tlaiss, 2015).

Background Events and Considerations The widespread shock and strong protest from the public and government after the severe 2008–2010 United States financial meltdown again reminded the public that executive recklessness and excess can dramatically destroy the lives of the many. The public and the stakeholder expectations include prudent and careful strategic and operating decision-making and execution. Responsible business decision-making and action are the watch words for management and employees. These are again the reminders of the severe 2008–2010 financial meltdown and its consequences. These 2008–2010 events have required the swift and drastic governmental intrusive, corrective actions that reactively reset the U.S.  free market system to higher safety levels. The focused corrective actions by the government substituted prudent executive decision-making and managerial action. One is reminded of the magnitude of the requisite governmental intrusive corrective action that followed the 1930s Great Depression. Corporations need to be periodically reminded of the need for ever greater vigilance and for more responsible risk-taking to deal with the vicissitudes in the external environment. Although there have been significant regulatory oversight since the 1930s, even so, there should be an organizational attempt to better govern itself. There should be a well-designed and ­well-administered organizational process. They should reflect a high quality of self-disciplined and self-monitored corporate decision-making process and corporate conduct that enhances ethical and responsible corporate performance. Elected governmental officials and society have a more direct closeness to each other and usually respond to the changing opinions in these situations. Further, the appointed government civil servants follow extant laws, statutes, rules, policies, and precedents in reigning in the aberrations of corporate conduct (Alzola, 2015). These governmental and public concerns and awareness have targeted on issues across many industries, across manufacturing and service sectors, in auto

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industry, and in sectors of retailing, banking, mortgage, investment, and insurance. Since the 2008–2010 financial meltdowns, the government and public have strongly espoused the instilling into corporations of the more prudent judgment, the curtailment of their greed, and the strong self-discipline and self-refrain to avoid the repetition of the reckless business decision-making and behavior. These events since the meltdown have led to widespread public demand for better oversight and control to curb any wrong doing, greed, grossly irresponsible actions, or reckless judgments.

Corporate Governance and Social Responsibility As stewards of business organizations, the top managements are charged with their economic performance and for exceeding investor expectations in a manner consistent with the laws, societal values, and expectations of corporate conduct. Pressures on governmental officers for identifying possible fraud or other illegal, unethical, and imprudent financial and operating actions would eventually force the hand of governmental intrusion. Although governmental intrusive actions usually appear to be reactive, these do have future salutary and serious impact on the corporate sector. Modern business organizations have to be more mindful of all its stakeholders and the general public than did their counterparts just a half a century ago. Stockholders are no longer the only group to satisfy. Board of directors is also made to be more accountable of the corporate conduct, in addition to the corporate executives. Businesses in the modern day are not only responsible to their owners but also to the larger society. The stakeholder approach focuses on satisfying the widespread need of social accountability and answerability by the top management of a corporation. Corporation size is an important consideration in the scope of answerability. Thus, the larger corporation is, the larger are its responsibilities and the greater the potential for good or damage to the larger society, and consequently, the greater conspicuity to which it bares itself.

Hierarchical Considerations of Business Ethics and Social Responsibility The economic goals of a business organization have a strong driving force. Business organizations are legal, economic, and social entities with specific business goals, strategies, and activities. In that, a business organization has to be intensive in

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its goal-directed activities for its survival and progress (Goodman and Arenas, 2015). In this way, it can satisfy the economic expectations of its stakeholders. It is expected to achieve the economic performance in the given economic, competitive, and other conditions in which it operates. Business and society have special relationship and bond. A for-profit or a nonprofit organization is a social organ with business and economic objectives. It operates within a society. There are varying values and standards for a large MNC which would have many foreign subsidiaries in different countries. The host countries of the foreign subsidiaries would have varying expectations and standards for corporate behavior. So, in such cases, it must reflect the higher ethical ideals of the society as it conducts its organizational activities. Otherwise, the society would not so happily support it even though many of the people buy and use its products and services if the organization is an efficient producer. Its economic and technical excellence alone will not absolve it if it pursues unacceptable ethical and CSR activities. While the detailed ethical values, practices, and priorities are culture-bound, there are basic core ethical values that are common to many cultures, with varying priorities and methods of implementation. Global organizations may need to have a set of generalized core philosophy and values for its entire global organization, while allowing its individual foreign operations to develop detailed CSR goals and activities to match valid local expectations.

A Review of Literature The literature review ranges from a focus on pure profit objectives that are solely focusing on the corporation’s financial responsibility to stockholders. On the one end of the spectrum is the Milton Friedman school of thought of the single-minded pursuit of profit maximization and the responsibility to the stockholders. On the other end of the spectrum is a more liberal and generous focus, that of an organization focusing upon both internal economic performance as well as the expected external contributions to the society. The wide range of spectrum provides an organization with a strategic choice perspective.

Current Conceptualization of Hierarchy of Business Ethics and Social Responsibility The following provides an oft-quoted hierarchy of business ethics and social responsibility. It can provide with a combination of the internal and the external organizational expectations of an organization.

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Archie Carroll (1991) provides a hierarchy of responsibilities for an organization, as in the following (Carroll, 1991, 1999):

Level 4: Level 3: Level 2: Level 1:

Philanthropic responsibilities Ethical responsibilities Legal responsibilities Economic responsibilities

In this context, it may be observed that the public and stakeholder expectations have gone up. They have rising expectations such that organizations have to be ever more vigilant to pursue the priority system as in the following with the wide spread use of social media and the ever observant journalists. Organizations have to be not only careful but also pursue greater transparency, and they should be better at internal training and communication for building a better culture.

Proposed Hierarchy of Business Ethics and Social Responsibility There may be another priority or hierarchical system of values. The chapter of this book proposes one such system. A general priority or hierarchical system of organizational conduct, as expected by the public and its stakeholders, may be delineated as in the following hierarchy: Philanthropic responsibility Being honorable: Over and above the call of ethics and legal Economic responsibility Ethical responsibility Legal responsibility It is imminent that future will exact higher standards as expectations of the public and stakeholders rise globally. The rising conscience of the public and stakeholders would place greater expectations on organizations to perform with a purer organizational conscience. It is argued in this approach that, for an organization as a self-contained unit within its society to perform acceptably, it must first perform economically in a sound, legal, and ethical manner. It must first generate an acceptable profit so that it meets its financial obligations to its stockholders. This solid economic performance is needed for it to be a good social responsible corporation. It can then pursue serious CSR.

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Other Hierarchies and Perspectives of Business Ethics and Social Responsibility There can be a wide variety of priority systems or hierarchies of responsibilities, as observed before. CSR takes different forms for different people. There are based on different conceptual foundations, religions, cultures, values, and assumptions. Depending on the choice of CSR, it can have far-reaching consequences on corporate conduct. As it can be expected, different scholars have different views and concepts, making for a wide range of views and intensity of values. For the wide range of views and values, the scholars include: Ali and Aali (2015); Alzola (2015); Asgary and Mitschow (2002); Brady, Crittenden, Hoffman, and Robertson (2002); Cottrill (1990); Clikeman (2004); Donaldson (2003); Freeman and Gilbert (1988); Duska (2014); Freeman and Liedtka (1991); Goodman and Arenas (2015); Grant (1991); Kim, Monge, and Strudler (2015); Kraft and Hage (1990); Salbu (1993); Saunders and Thorne (2002); Snider (2003); Stoffman (1991); and Tlaiss (2015). Their arguments are further explained in the following paragraphs.

The Wide Spectrum of Perspectives of Business Ethics and CSR It may be pointed that several of the scholars have recurring or similar themes with varying interpretations and approaches. They suggest varying gradations of CSR intensity, from (on the one hand) Milton Freidman-like economic pursuit (Friedman, 1962) to (on the other hand) modest profit-intensive priority mix that is blended with high social responsibility orientations. Many scholars agree that firms must pursue some form of careful and responsible corporate conduct and worthwhile social responsibility activities. They have several divergent perspectives regarding the combinations of their directions and priorities. Some scholars emphasize that the ethical conduct must be considered as an iron-clad requirement, while eclectically choosing affordable corporate giving and social responsibilities programs (Alzola, 2015; Armstrong, 2003; Asgary and Mitschow, 2002; Brady et al., 2002; Donaldson, 2003; Epstien, 1987; Kim, Monge, and Strudler, 2015). Other scholars believe in the importance of adopting the stakeholders approach as the pivotal concept for developing effective social responsibilities activities (Cottrill, 1990). Furthermore, some others go over and above, a step beyond, and, they state that strategic management process must first start with a strong moral core (Ali and Al-Aali, 2015; Alzola, 2015; Epstien, 1987; Freeman and Gilbert, 1988; Kim, Monge, and Strudler, 2015; Kraft and Hage, 1990; Tlaiss, 2015).

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There is the stronger counter current to the Milton Friedman school of thought which is that firms should single-mindedly serve the stockholders and that forprofit firms should not at all pursue social responsibilities (Friedman, 1962; Grant, 1991; Stoffman, 1991). Also, for international business, some scholars cite the cultural gap and divide among countries as a major challenge for global firms to formulate effective global social responsibility goals and programs (Alzola, 2015; Asgary and Mitschow, 2002; Brouthers and Brouthers, 2001; Kim, Monge, and Strudler, 2015; Saunders and Thorne, 2002; Snider, 2003; Wozniak, 1997). These assumptions and concepts point to the greater need for a comprehensive approach of global social responsibility and conduct that are based on a more basic values, and, also that economically well-performing firms must give back to society just as they get the resources and revenues from the society. This wide range of social responsibility activities, along with alternative and varying methods, can be sustainable only if the organization is consistently performing profitably. Implicit in the sustainable concept is that an organization must show at least a reasonable growth that is satisfying its stakeholders. Growth may be manifested in terms of growth in sales revenues, international business expansions, market shares, product innovation and augmentation, product range expansion, target market segment expansion, product application enlargement, organizational development and career development of its employees, improved competitiveness, and sustained total quality management. Organizational growth and improving profits are interrelated. So too are profits and sustainable social responsibility programs. These issues generate a perspective about an organization in that an organization must harmoniously coexist in the society. It must respect the values and expectations of the society as it pursues its economic goals. These views are supported by Freeman and Gilbert (1988, p. 89) when they state: Firms are social entities, and so they should play a role in social issues of today. They should take seriously their ‘obligations to society’ and actively fulfill them.

The application here of the stakeholder approach to the study of socially responsible corporate conduct is a worthwhile one. Scholars seem to use the stakeholder approach to facilitate the progress of social responsibility action. Epstien (1987, p. 104) states that the stakeholder approach is a cause-effect relationship between an organization’s social responsibility and the effect upon its stakeholders. His view regarding the socially responsible corporate performance is that it should be viewed as: relating primarily to achieving outcomes from organizational decisions concerning specific issues or problems which have beneficial rather than adverse effects upon pertinent stakeholders.

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Moreover, a global organization, including its foreign units operating in its host countries societies, would perform better if it pursues the stakeholders approach to better integrate and coordinate the valid needs of all its stakeholders. Freeman and Liedtka (1991, p. 97) state in this context: If we come to see corporations as connected sets of stakeholders, all of whom are ‘in it together’, then we are able to live in a way that doesn’t carve up the world into ‘economic, social, political, and technological’ parts.

As a continuation of the above argument, it may then be said that a global organization must simultaneously satisfy its headquarters’ (HQ) stakeholders and all those of its foreign subsidiary units.

The Models and Recommendations The models generate theoretical considerations about CSR. This implies that it should make concerted and sustained efforts to communicate, train, and oversee its employees to be increasingly better at CSR. Improved CSR performances are wrought through the participation of the employees of the organization. The models provide some of the basic concepts regarding the fundamental ethical values, and how an organization can effectively institutionalize them across its internal environment. This is even more important, and challenging too, for a diverse and globally spread out organization.

Recommendation 1: Establish and Communicate a Process for “Business Ethics and Social Responsibility to be as Integral Parts of the Strategic Management Process” (Table 16.1) It proposes the role of an “Ethics Advisory Board” (in the top left box of the table) in exerting influences for a higher ethical and social responsibility conduct of all its employees in all decisions and actions conducted on behalf of the organization. Justification. Business ethics advisory board has a strong influence in ensuring the effective CSR plans formulation process. Growth in the organizational activities and competitive pressures are blended with CSR values. The advisory board members should be chosen from diverse backgrounds so that the board may exercise a more judicious approach and reflect a wider perspective of how

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Ethics Advisory Board, selected representatives from categories of: • Social, welfare services • Consumerists, activists groups • Industry specialist (from outside) • Company’s employees from different levels/parts • Unions • Top Mgmt official, representing executive mgmt • Banking officials, CPAs, lawyers, professors, technical or mgmt consultants, retired govt’al executives

Separate and additional reviews by line and staff personnel: Top level executives Middle level executives Lower level executives Supervisors

Ethical Advisory Board’s responsibility for proper: Objectives, goals, policies, Strategies and implementation guidelines, programs Formulate specific CSR goals, plans and activities

Multi-level managerial and supervisory review of: Goals and plan regarding ethics and social responsibility activities Integrate the overall CSR picture

Effective strategy formulation and implementation: Integrating CSR with Vision, mission, objectives, goals and corporate strategy

Table 16.1:  Business Ethics and Social Responsibility as Integral Parts of the Strategic Management Process Source: Adapted from, “Corporate social responsibility: Theoretical discussions,” (2016), by Y.H. Godiwalla, International Journal of Social Science Studies, April, 4(4), 1–10. After the initial publication by the journal, subsequent reproduction without permission by the Author, who retains the copyright, is permitted. Copyright 2016 by the Author

an organization should fit in the context of its entire general and specific task environments in all of its countries of operations. The board should reflect a broad cross-section of the society in which the organization exists. Guidelines for Implementation. The board should suggest to the top management the ethical and socially responsible conduct. These are then to be applied in the organization’s strategic management process, i.e., the formulation and implementation of objectives, goals, corporate strategy, and operating tactics. Ethical values should be the bedrock of organizational activities. The establishment and purpose of this action should be communicated to the people in the organization. The board is also an advisory entity to generate and ensure that a higher test of ethics and CSR that would be applied to all current and future proposed

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organizational long-term objectives, goals, corporate strategy, specific strategies, and activities. The focus should be to evaluate the consequences of each major choice or an alternative and to improve a plan for the chain of events that would follow the potential implementation of a given decision and choice.

Recommendation 2: Establish and Communicate a Process for “Formulating and Implementing Ethical Behavior Guidelines” (Table 16.2) It presents a process for developing the guidelines of ethical conduct, their development and implementation. The organizational environments provide cues for Review of the major factors and trends in the general and task environments of the organization, such as : Marketing, supplier, social, local, general economy, governmental, legal, industry

Major Guidelines for Ethical Activities For: 1. Organizational: • Fair HRM practices regarding employees: recruitment, promotion, layoffs, career development and training, fairness and considerateness in dealing with employees • Vigilance over and mentoring of employees regarding ethical behavior on issues such as: bribery and other unfair practices in dealing with customers, dealers, suppliers, government, ecology, patents, technical safety • Vigilance over, mentoring of employees regarding issues such as: sexual harassment prevention, and, dealing with minorities, women, handicapped, new employees • Continuous education of all employees about the above

2. Environmental: • Honesty, integrity and trust in dealing with external stakeholders and general public • Networking with external stakeholders & other external segments to develop newer ethical standards, goals, strategies in a changing environment

Major Approaches for Effective Ethical Activities regarding the: • Support from all parts of the organization for ethics • Communication and mentoring and training on ethics • Overseeing of the activities on ethics

Table 16.2:  Formulating and Implementing Ethical Behavior Guidelines

Source: Adapted from, “Corporate social responsibility: Theoretical discussions,” (2016), by Y.H. Godiwalla, International Journal of Social Science Studies, April, 4(4), 1–10. After the initial publication by the journal, subsequent reproduction without permission by the Author, who retains the copyright, is permitted. Copyright 2016 by the Author

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the details of the formulation of strategies for the management of ethical issues for both the organization’s internal and external environments. Organizational task environments are important to elicit basic cues of the organization’s future activities. However, these cues must be blended with important ethical values and considerations for steering the organization’s course along ethically and socially acceptable paths. Justification. The focus is on trust, honesty, truthfulness, and fair dealings with all parties. The bottom box presents the basis of developing an organizational ethical backbone through education, and by the top executives setting the proper example. Guidelines for Implementation. The organizational general and specific task environments pose a significant pressure on its internal decision-making and activities. This pressure tends to vitiate the clarity of ethical conduct. Thus, the emphases by the two lower boxes of the table should be on creating those correct and appropriate guidelines for ethical conduct and to pursue more ethical approaches and processes for the long-term ethically acceptable performance. The establishment and purpose of this action should be communicated to the people in the organization.

Recommendation 3: Establish and Communicate the “Guidelines for Implementing Ethical Social Responsibility Activities” (Table 16.3) It presents the more applications-oriented details for ensuring that the organization would be ethical to all entities. These entities include: employees and unions, publics and community, customers and suppliers, ecology, and foreign subsidiaries. Justification. The approach here is that an organization must interact with its external environments in such ways that would benefit the environment. An organization should have an established code of conduct for ethical behavior. Further, it should also have an established set of guidelines for ensuring that important practices that touch sensitive aspects are properly formulated and promulgated to all organizational members. Guidelines for Implementation. The organization-environment linkages must be mutually beneficial and they must represent higher level ethical conduct. Also, over a period of time, an organization must contribute to the society in meaningful ways that address the important concerns of the societal needs.

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Table 16.3:  Guidelines for Implementing Ethical Social Responsibility Activities The formulation of guidelines for fair and ethical activities, on such issues as: 1. Fair HRM practices, particularly related to: Women, minorities, sexual harassment prevention, recruitment, training, career development, and promotion 2. Transparency, integrity, truth and good faith, trust worthiness in all transactions with all stakeholders on issues such as: Potential dangers of company’s operating activities, such as industrial accidents issues Product safety issues and disclosures, fair and truthfulness in advertising, product usage cautions Supplier relations and suppliers’ industrial safety, and product/component safety standards 3. Fairness to Customers: Product safety issues disclosures, fair and truthful advertising, product uses and product use instructions, proper customer education for safety and greater customer satisfaction 4. Environmental responsibilities: Improving technologies, training, and practices for environmental safety 5. International activities: Ethical and social responsibility conduct in all activities and interactions that would generate a higher level of respect from all constituencies. Source: Adapted from, “Corporate social responsibility: Theoretical discussions,” (2016), by Y.H. Godiwalla, International Journal of Social Science Studies, April, 4(4), 1–10. After the initial publication by the journal, subsequent reproduction without permission by the Author, who retains the copyright, is permitted. Copyright 2016 by the Author

Conclusions Some major conclusions include that organizations are parts of our society, and we expect them to perform well in all sense, e.g., economic and behavioral, consistent with our values. Given their large size, MNCs should be aware of their large, collective economic and other powers and, therefore, they can have a mega impact on the society. The emphasis should be on promoting integrity, trust, honesty, and fair dealing in all activities of the organization. The ethical conduct guidelines, once established, are then the purview of the middle and lower level management through the creation and application of guidelines for the common practices of the organization as it conducts its normal business activities. Business ethics and social responsibility are interrelated. An organization must first address its ethical component and then also address, as the Harvard Business

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School strategic management professors refer to as, “its acknowledged obligations to segments of society other than stock holders.”

Important Conceptual Considerations in Business Ethic and Social Responsibility Ethical and social responsibility values should guide an organization’s actions because an organization is rooted in its society. A society provides an organization: (1) the very basis of its existence; (2) its sustenance; and (3) the scope for its future survival, profitability, and growth. Therefore, an organization must comply with the society’s expectations of its conduct, and its construct of acceptable business ethics and social responsibility. Moreover, it must continuously keep exceeding the society’s expectations of what may be legitimately claimed to be the obligations and responsibilities of a well-performing, profitable organization. In the case of an MNC and its foreign subsidiaries, the social responsibilities goals and strategies would depend upon each foreign subsidiary’s host country needs and expectations, and the overall MNC’s and foreign unit’s resource capabilities. This issue is important in determining the sustainability and scope of social responsibilities goals and strategies. The stakeholder approach is important. Stakeholders of the MNC as a whole and those of each foreign subsidiary unit are together important in this regard. The synthesis of the needs of all stakeholders at both levels (the MNC HQ’s level and the foreign subsidiaries’ level) should be considered in formulating the business ethics and social responsibility objectives, goals, and strategies. Social responsibility is culture-bound. Thus, each host country culture and values must determine the specific, detailed social responsibilities goals, strategies, and programs. The overall social responsibilities framework of the MNC is important. It must reflect the broad trends and changes in the social fabric of the world as a whole. While this overall, global MNC framework should be the guidepost, the host country culture and social responsibilities expectations and needs must be the drivers of a foreign unit’s social responsibilities goals and strategies. The level of host country’s governmental and civic services and social programs should also be helpful in determining the scope, extent, and content of a foreign unit’s social responsibilities programs. At the same time, these programs must be consistent with the foreign unit’s and MNC’s resource capabilities and profit performance. When a particular foreign subsidiary’s host country’s ethical and social responsibility standards are higher than those of the MNC’s home country, then it would an expectation that the foreign subsidiary would strive to meet and exceed the

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higher standard. This would, in turn over a period of time, stimulate the rest of the MNC organization to achieve the higher standard. The hierarchical preference scheme is a good scheme, starting with the legal and ethical, and economics, and then moving up to the decent, honorable, and then to the philanthropic and socially responsive conduct. It is implicit that an organization would strive to climb upwards in this hierarchical scheme. An organization’s management must strive to steer its employees to achieve the rising standard as it continually adjusts to the larger society’s needs. A multidimensional stakeholder approach is an organized way of achieving a desirable and equitable or balanced way of pursuing CSR. This appears to have a better chance of serving most needs of the organization’s stakeholders in an equitable manner. CSR is now an accepted phenomenon. It is now a given in the corporate scenery. An organization must establish a high level of trust and respect in the eyes of its immediate society and in the regional and international society at large. Noncompliance of CSR is no longer an option. Compromising CSR can have serious consequences. Legal and ethical compliance is an absolute must. However, by merely pursuing the barest of legal and ethical conduct will not suffice in the long run in the case of a very well performing, profitable organization. There is a growing stakeholder and public expectation that corporate conduct would fully embrace decent and honorable activities. Good economic performance would also require philanthropic and socially responsive activities.

Conclusions Strategic CSR planning should be an integral part of the strategic management of an overall MNC organization. Business ethics and social responsibility should be regarded as the starting point of any organization’s strategic management process, and not added as an after-thought. Such a sound principle of strategic management approach and process would serve an organization very well in the long run. In this way, its meaningful enactment of its social environments would better integrate it with the society. The society in such a case would better regard and value the organization than if it did not enact the social environment. Such an approach would engender higher trust and bond between an organization and the society.

Bibliography Ali, A., & Al-Aali, A. (2015). Marketing and ethics: What Islamic ethics have contributed and the challenges ahead. Journal of Business Ethics, 4(29), 833–845. doi: 10.1007/s10551.

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Alzola, M. (2015). Virtuous persons and virtuous actions in business ethics and organizational research. Business Ethics Quarterly, 3(25, July), 287–318. Armstrong, M.B. (2003). Professionalism and ethics in accounting education. Missoula, MT: University of Montana. Asgary, N., & Mitschow, M.C. (2002). Toward a model for international business ethics. Journal of Business Ethics, 36, 239–246. Brady, M.K., Crittenden, W.F., Hoffman, J.J., & Robertson, C J. (2002). Situational ethics across borders: A multicultural examination. Journal of Business Ethics, 38, 327–338. Brouthers, K.D., & Brouthers, L.E. (2001). Explaining the national cultural distance paradox. Journal of International Business Studies, 32, 177–195. Carroll, A.B. (1991). The pyramid of corporate social responsibility: Toward the moral management of organizational stakeholders. Business Horizons, 34, 39–48. Carroll, A.B. (1999). Corporate social responsibility:  Evolution of a definitional construct. Business and Society, 38(3, September), 268–295. Clikeman, P. (2004). Socially conscious corporation:  How can you reap the rewards of good corporate citizenry? Strategic Finance, April, 23–35. Cottrill, M.T. (1990). Corporate social responsibility and the marketplace. Journal of Business Ethics, 9, 723–728. Donaldson, T. (2003). Editors comments: Taking ethics seriously—A mission now more possible. Academy of Management Review, 28, 363–378. Duska, R.F. (2014). Why business ethics needs rhetoric: An Aristotelian perspective. Business Ethics Quarterly, 1(24, January), 119–134. Epstien, E.M. (1987). The corporate social policy process:  Beyond business ethics, corporate social responsibility and corporate social responsiveness. California Management Review, 24, 99–111. Freeman, R.E., & Gilbert, D.R. (1988). Corporate strategy and the search for ethics. Englewood Cliffs, NJ: Prentice Hall. Freeman, R.E., & Liedtka, J. (1991). Corporate social responsibility: A critical approach. Business Horizons, 34, 92–97. Friedman, M. (1962). Capitalism and freedom. Chicago, IL: University of Chicago Press. Goodman, J., & Arenas, D. (2015). Engaging ethically: A discourse ethics perspective and social shareholder engagement. Business Ethics Quarterly, 2(25, April), 163–189. Grant, C. (1991). Friedman fallacies. Journal of Business Ethics, 10, 907–913. Kim, T.W., Monge, R., & Strudler, A. (2015). Bounded ethicality and the principle that “ought” and “can”. Business Ethics Quarterly, 3(25, July), 341–361. Kraft, K.L., & Hage, J. (1990). Strategy, social responsibility and implementation. Journal of Business Ethics, 9, 12–18. Salbu, S.R. (1993). Corporate social responsiveness: Choosing between hierarchical and contractual control. Journal of Business Ethics, 12, 27–35. Saunders, S.B., & Thorne, L. (2002). The socio-cultural embeddedness of individuals’ ethical reasoning in organizations (cross-cultural ethics). Journal of Business Ethics, 35, 1–14.

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Snider, J. (2003). Corporate social responsibility in the 21st century: A view from the world’s most successful firms. Journal of Business Ethics, 48, 175–186. Stoffman, D. (1991). Good behavior and the bottom line. Canadian Business, 64, 28–32. Tlaiss, H. (2015). How Islamic business ethics impact women entrepreneurs: Insights from four Arab Middle East countries. Journal of Business Ethics, 4(129), 859–877. Wozniak, L. (1997). International business ethics: When a corporate code of conduct is NOT enough. Relocation Journal, July, 1–28.

chapter seventeen

Framework for Social Responsibility Strategies for Foreign Subsidiaries Operating in Diverse Cultural Environments

A multinational corporation (MNC) is in a unique social responsibility situation. It has to comply with social responsibility expectations and norms in varying economic, social, and ethical scenarios of its multiple foreign country environments. Different countries have different expectations of business organization’s social responsibility activities. This is particularly true for a geographically diverse MNC. Managing in many diverse, varying cultural environments is a certain challenge for an MNC. Ethical and social responsibility expectations, which reflect a country’s culture, vary from country to country. An MNC operating in diverse cultural environments would encounter diverse ethical and social responsibility expectations from among the countries of its operations. The task of managing its social responsibility strategies across the countries of its operations is as interesting as it is complicated. It can be torn between following (1) a standardized, common, monolith global policy and (2) customizing to each country’s culture and social responsibility expectations.

The Purpose of the Chapter The purpose of the chapter is to provide a framework which simultaneously addresses the two common tendencies of an MNC:  (1) the desire to have a

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common, overall MNC’s global social responsibility policy and (2) the desire to customize each of its foreign subsidiary to its host country culture’s social responsibility expectations. The important tenet is that while a foreign unit must satisfy host country’s local expectations and needs, the MNC as a whole must also formulate integrative, overall, core, fundamental values and guidelines for its social responsibility.

A Review of Literature Literature on social responsibilities provides a diverse spectrum of perspectives. It ranges from: (1) a focus on pure economic or profit objectives, i.e., sole responsibility to stockholders, as espoused by Milton Friedman to (2)  a more liberal and generous role of an organization focusing upon both internal economic performance as well as external contributions to the society. The wide range of spectrum provides an organization with a wide strategic choice perspective. It can blend the internal and the external needs and expectations to suit its strategic posture. Archie Carroll (1991) in this context provides a hierarchy of responsibility for an organization, as in the following, starting from the basic end to the higher end:  (1) economic, (2)  legal, (3)  ethical, and (4)  philanthropic. Implicit in this approach is that, for an organization to perform appreciable social responsibilities, it must first perform well as an economic entity. That is to say, it must first turn a good profit on a continuous basis. This profit performance is a prerequisite for an organization to participate in any meaningful social responsibility activity. Even though there is a wide range of opinions as to how much and in what form an organization should perform its social responsibility, scholars agree that firms must pursue some form of sustainable social responsibilities programs in the long run. They have varying viewpoints about the focus and emphasis. Some emphasize the a priori ethical conduct as a prerequisite to social responsibilities programs (Armstrong, 2003; Asgary and Mitschow, 2002; Brady et  al., 2002; Donaldson, 2003; Epstien, 1987). Other scholars focus on stakeholders approach as a core principle to develop social responsibilities programs (Cottrill, 1990). Others emphasize a strategic approach to social responsibilities and that strategic management must start with a strong moral, ethical, and social responsibility core (Epstien, 1987; Freeman and Gilbert, 1988; Kraft and Hage, 1990). Yet others argue against the Milton Friedman school of thought, i.e., firms should single-mindedly serve the stockholders and that there is no place for social responsibilities (Grant, 1991; Stoffman, 1991). For international business, several scholars

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cite the cultural gap and divide among countries as a major challenge for MNCs to formulate effective global social responsibility strategies (Asgary and Mitschow, 2002; Brouthers and Brouthers, 2001; Saunders and Thorne, 2002; Snider, 2003; Wozniak, 1997). These tenets, in sum, point to the need for an integrative approach to social responsibility for an MNC such that it would be based on an ethical and moral core and that firms must give back to society because it gets so much from it. Within a range, the higher the volume of activities is, the better would be the absorption of the organizational overhead costs and the lower would be the unit costs, resulting in higher unit profits. This wide range, along with alternative and varying methods of social responsibility action, can be sustainable only if the organization is consistently performing profitably. Also implicit in the sustainable concept is that an organization must show at least a reasonable growth. Growth may be manifested in terms of growth in sales revenues, market shares, product innovation and augmentation, product range expansion, target market segment expansion, product application enlargement, organizational development and career development of its employees, improved competitiveness, and sustained total quality management. Organizational growth and improving profits are interrelated. So too are profits and sustainable social responsibility. The two paired relationships of organizational growth and profits would make an organization a vehicle of efficient resource utilization process, and improve its role as a social and economic organ in the society. Thus, an organization, a social organ with economic goals, must properly exist and conduct itself in its society. Otherwise, the society may find it undesirable to support the organization in its midst. This leads to the idea that an organization, because it is a part of the society, must bear additional responsibility beyond profit performance, particularly to the larger community. This is well articulated by Freeman and Gilbert (1988, p. 89): Firms are social entities, and so they should play a role in social issues of today. They should take seriously their ‘obligations to society’ and actively fulfill them.

Social responsibility expectations are culture-bound. Social responsibility expectations of a particular country would depend on the values, aspirations, and ideals of the people, as well as the economic and environmental conditions and the standards of living of its people. The culture reflects the values and customs of a society. Each country, or a region of a country, has its own unique culture. Each unique culture places upon its organizations unique expectations for their conduct, whether the conduct refers to their internal operations or to externally oriented

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business transactions, or even to externally oriented nonbusiness transactions. This would include expectations of social responsibility activities. Ongoing interactions between a society and an organization build a bridge of relationship between a society and the organization. Such a bridge or relationship should be a happy one otherwise the society may ill-regard the organization even if it was a most efficient utilizer of its resources and even if it was a remarkable profit-generating machine. Thus, an organization must not only conduct its business activities efficiently and within the spirit of the law of the society, but it must also pursue responsible conduct beyond the strict definition of business activities and go beyond into social responsibility. The concept of the stakeholder approach is useful in the study of an organization’s social responsibility. Scholars seem to use the stakeholder approach to facilitate social responsibility action. For example, Epstien (1987, p.104) posits the stakeholder approach as a cause-effect relationship between an organization’s social responsibility and the effect upon its stakeholders. He views social responsibility as: relating primarily to achieving outcomes from organizational decisions concerning specific issues or problems which have beneficial rather than adverse effects upon pertinent stakeholders.

Further, an organization, including its foreign subsidiary unit operating in its host country society, would perform better if it pursues the stakeholders approach to better integrate and coordinate the valid needs of all its stakeholders. Freeman and Liedtka (1991, p. 97) express this sentiment that, as an organization striving to effectively function, we should feel connected as interrelated stakeholders and not a separate, unrelated segments. We must regard ourselves as well connected into an integrated whole. As a continuation of the above sentiment, it may then be said that an MNC must satisfy its headquarters’ (HQ) stakeholders, and all the foreign subsidiary units must simultaneously also satisfy their respective stakeholders. Further, as we have stated before, social responsibility expectations are embedded in the values of the culture of a given society, therefore cultural differences among countries make it necessary for an MNC to study the cultural divide among its countries of operations and decide how it would develop its social responsibility agenda (Clikeman, 2004; Salbu, 1993). This viewpoint of cultural distance or differences is widely expressed in the international business literature. An example of the additional challenge placed upon an organization operating in multiple, diverse, cultural environments is that of Wozniak (1997, p. 1) when he states:

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Business behavior emanates from the complex set of factors that define a culture. These factors include how we perceive the environment, time, power, structures, space; the emphasis we place on relationship or tasks, on individuals or the collective; how we think and communicate. Confucianism focuses on collective order and hierarchy. The social corporatism of Sweden stresses social class and equality of results.

Cultural dimensions in international business literature widely use the Hofstede’s five cultural factors of uncertainty avoidance, power distance, masculinity-femininity, individual-collectivism, and Confucianism. Although there is some debate about these factors and how valid they may be in this context, they are most widely accepted and they are validated by previous studies. They are “regarded as the most extensive examination of cross-national values in a managerial context” (Brouthers and Brouthers, 2001, p. 188, item 4). To conclude, an MNC may find it beneficial to focus on its social responsibility endeavors, adapting them to suit its various home and host country cultures and stakeholders.

Conclusion of Literature Review Earlier discussions in literature review provide useful ideas. Ideally speaking, some of these may be summarized here in a “normative” manner. Many of these perspectives are incorporated in the three models. To the extent feasible, many of the following tenets that are derived from the discussions on the literature review may be applied in foreign unit’s social responsibility situations. Social responsibility process of an MNC must be viewed as important and integral parts of strategic management. Social responsibility of an MNC must be both broad and specific, that is, it must be broad enough to be global or “universal” and specific enough to be applicable to the unique social responsibility expectations of each of its host countries. They should be wrought after a well-coordinated application of stakeholder approach. The stakeholders of the MNC’s home country and of each of its host countries should be taken into consideration in the application of the stakeholder approach. The economic or profit performance of the overall MNC and that of the foreign unit must be taken into account, that is, social responsibility action should be after achieving a sustained satisfactory profit performance of a well-established foreign unit. If a foreign unit is in its infancy establishment stage, the MNC HQ may approve a modest social responsibility scope and outlay for the initial years of a new foreign unit. Social responsibility programs must be a long-term planned

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approach that simultaneously reflects both local needs and corporate capabilities. Cultural differences among the MNC’s countries of operations should be fully addressed, that is, MNC HQ must be as sensitive to the host countries’ cultures to the extent feasible. The level and scope of involvement of social responsibility programs would be more effective if the MNC and its foreign unit took into account the realities of host country’s social programs, civic infrastructural facilities, and the expectations of host country people with respect to the foreign unit’s social responsibility actions.

A Discussion on the Models The models are here discussed. They are based upon the tenets delineated in the foregoing review (Figure 17.1). The MNC HQ’s home country culture might often be an anchor for the MNC’s global social responsibility plans. However, because an MNC has a multicultural composition, it must analyze and adjust to the different cultures for its social responsibility strategies. It must view the global, basic issues as well as the unique cultures of each country. The MNC has to be conscious of both, a set of fundamental universal common, generic core values for social responsibility and a customized approach for Cultures of its: • Home country • Host countries of all its foreign units

Overall global social responsibility expectations for MNC

Cultural differences among MNC host and home country cultures

Unique cultural expectations of each country culture, and their impact upon social responsibility of MNC headquarters and each foreign unit

Figure 17.1:  Country Culture and Social Responsibility of a Foreign Subsidiary Unit Source: The Author

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Stakeholders of MNC headquarters

Social responsibility of MNC headquarters

Stakeholders of each foreign unit

Social responsibility of each foreign unit

Coordination and Integration of social responsibility strategies for the overall MNC

(1) Broad, global, and, (2) Country-specific social responsibility goals and strategies

Figure 17.2:  Stakeholder Approach and Social Responsibility Source: The Author

the unique details of social responsibility of each country culture. Universal fundamental core social responsibility attributes must reflect the current broad trends of social changes across the world. This approach is relevant for the MNC as a whole for its overall social responsibility strategies. While , on the other hand, for the foreign unit, the approach is more focused and strong adaptation. The country culture-specific expectations must drive the details of foreign unit’s country-specific social responsibility strategies, plans, and activities. The literature review provides a strong emphasis for the adoption of stakeholder approach as a basis for coordinating social responsibility strategies. Figure 17.2 views stakeholders at both units of analysis: the MNC HQ and the foreign unit. This approach should lead to better coordination and formulation of social responsibility goals and strategies for the overall MNC and for each foreign unit. The figure provides an approach to formulate the broad global core values of social responsibility as well as country-specific strategies (Figure 17.3).

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Level of: • Host country’s munificence • Governmental social programs • Civic infrastructure facilities • Expectations of local people

Scope of Foreign Unit’s: • Local operations • MNC’s social responsibility programs • Long term commitment to host country operations

Foreign Unit’s Social Responsibility Goals and Objectives

Foreign Unit’s Social Responsibility Activities

Figure 17.3:  Major Factors Determining a Foreign Unit’s Social Responsibility Programs Source: The Author

Here two sides are important: (1) host country and (2) the MNC organization. These two are discussed here:



1. The foreign unit’s host country resource environment is important. If it is munificent, the role of the foreign subsidiary would be different than if the resource environment is undernourished and underproviding. The level of infrastructure, civic services, and other governmental programs of the host country should be a major factor in determining the social responsibility needs of the host country, and in turn should determine the goals and strategies for the foreign unit. The needs of the host country must drive the goals and strategies. 2. In this context, it is also important to consider an MNC organization. Its resource availability, organizational capabilities, and interests become important. This refers to organizational resource capabilities at both levels: overall MNC organization and the foreign unit organization. Contained in this analysis is the profitability of the overall MNC and the foreign unit. Profit trends and future profit forecasts are relevant to determine the sustainability and extent of social responsibility activities and expenditures.

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Recommendation 1: Make Choices and Plans for MNC’s HQ and Foreign Subsidiaries for Formulating a Viable Portfolio of Ethical and Social Responsibility Programs Social responsibility programs include a variety of activities from which the foreign subsidiary unit may choose an effective mix of programs. These activities or programs could include those related to:

1. Worker and supervisors’ management relations 2. Societal and local community expectations 3. Customer satisfaction in innovative ways 4. Industrial (other companies) activities 5. Supply chain members and their expectations 6. Fair and just treatment of all employees, in all HR practices and supervisory practices 7. Fair and just treatment of minorities, female employees, and handicapped people 8. Programs for the prevention of sexual harassment 9. Careful, proper approaches and disclosures to the relevant segments of peoples regarding potential dangers of the company’s products and processes 10. Highest levels of ethical conduct and best practices which would promote trust, reputation, and integrity and project a proper image 11. Ethical conduct in dealing with external segments, public, government, other companies on issues such as:  no bribery or corruption, no unfair treatment of any group, no harassment or reprisal; and all dealings should be of good faith. Justification. While there can be tailor-made details for each foreign subsidiary in the context of its host country, there may also be central, fundamental core values and guidelines of strategic social responsibility decision-making. Guidelines for Implementation. The MNC HQ and each of its foreign subsidiaries should partner in formulating:  (1) the overall MNC social responsibility portfolio (or, mix of social responsibility programs) and (2) the portfolio-mix of social responsibility programs of each of its foreign subsidiaries. These programs should be fair, uniform, and consistent. They should review the effectiveness of their social responsibility programs annually.

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Recommendation 2: Create and Sustain an Ethical and Socially Responsible Organizational Culture; Provide Recognition, Incentives, and Rewards for Good Performance Justification. A strong ethical and socially responsible culture is the best way to improve the interactions with the segments of the external environments and stakeholders. That is the most effective way to enhance the organizational reputation, image, and trust. It is better than spending on a large advertising and public relations budget. Guidelines for Implementation. The upper echelons of the managers and all the supervisors should themselves be of the most impeccable character and display the best ethical conduct in all their organizational and personal decision-making and conduct. Setting the example is the best way to go. Have closer interactions with all subordinates and influence their present and potential business decision-making and organizational conduct. Focus on “suspect” employees and keep them under closer interactions and more frequent counseling.

Recommendation 3: Search for Useful Socially Responsible Opportunities that Would Serve the Local Needs, Invite Employees to Pursue, Give Incentives for Exemplary Performance Justification. Without proactivity and initiatives by the foreign subsidiary management, nothing can be achieved. There may be a number of unseen projects which could be potentially beneficial to the host country communities. The management has to seek them, and they should encourage employees to also seek them because host country employees are in a good position to know where the real needs exist. Guidelines for Implementation. The foreign subsidiary management should scan and search the environments and select the better opportunities as judged by the internal interest and criteria and by the positive impact on the host country communities. These opportunities should be communicated internally for employees for selecting them. The foreign subsidiary should reward the employees for these projects. They should also encourage the employees to seek them out on their own.

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Conclusions Social responsibility goals and strategies depend upon the host country’s needs and expectations, and overall MNC’s and foreign unit’s sustained profitability and resource capabilities. This viewpoint is important in determining the sustainability and scope of social responsibility goals and strategies. The stakeholder approach is important. Stakeholders of the MNC as a whole and of each foreign unit are important in this regard. The synthesis of the needs of all stakeholders at both levels may be considered. Social responsibility is culture-bound. Thus, each host country culture and values must determine the specific, detailed social responsibility goals, strategies, and programs. The overall social responsibility framework of the MNC is important. It must reflect the broad trends and changes in the social fabric of the world as a whole. While this overall, global MNC framework should be guidepost, the host country culture and social responsibility expectations and needs must be the drivers of a foreign unit’s social responsibility goals and strategies. The level of host country’s governmental and civic services and social programs should also be helpful in determining the scope, extent, and content of a foreign unit’s social responsibility programs. At the same time, these programs must be consistent with the foreign unit’s and MNC’s resource capabilities and profit performance. Social responsibility issues must be an integral part of an organization’s strategic management process. A business organization is a social organ with economic and other goals as it exists in the society. An MNC must be careful in developing effective social responsibility strategies that are sensitive to the host country culture and customs if its foreign subsidiaries are to exist in harmony with the host country’s society.

Bibliography Armstrong, M.B. (2003). Professionalism and ethics in accounting education. Missoula, MT: University of Montana. Asgary, N., & Mitschow, M.C. (2002). Toward a model for international business ethics. Journal of Business Ethics, 36, 239–246. Brady, M.K., Crittenden, W.F., Hoffman, J.J., & Robertson, C.J. (2002). Situational ethics across borders: A multicultural examination. Journal of Business Ethics, 38, 327–338. Brouthers, K.D., & Brouthers, L.E. (2001). Explaining the national cultural distance paradox. Journal of International Business Studies, 32, 177–195.

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Carroll, A.B. (1991). The pyramid of corporate social responsibility: Toward the moral management of organizational stakeholders. Business Horizons, 34, 39–48. Clikeman, P. (2004). Socially conscious corporation:  How can you reap the rewards of good corporate citizenry? Strategic Finance, April, 23–35. Cottrill, M.T. (1990). Corporate social responsibility and the marketplace. Journal of Business Ethics, 9, 723–728. Donaldson, T. (2003). Editors’ comments: Taking ethics seriously—A mission now more possible. Academy of Management Review, 28, 363–378. Epstien, E.M. (1987). The corporate social policy process:  Beyond business ethics, corporate social responsibility and corporate social responsiveness. California Management Review, 24, 99–111. Freeman, R.E., & Gilbert, D.R. (1988). Corporate strategy and the search for ethics. Englewood Cliffs, NJ: Prentice Hall. Freeman, R.E., & Liedtka, J. (1991). Corporate social responsibility: A critical approach. Business Horizons, 34, 92–97. Grant, C. (1991). Friedman fallacies. Journal of Business Ethics, 10, 907–913. Kraft, K.L., & Hage, J. (1990). Strategy, social responsibility and implementation. Journal of Business Ethics, 9, 12–18. Salbu, S.R. (1993). Corporate social responsiveness: Choosing between hierarchical and contractual control. Journal of Business Ethics, 12, 27–35. Saunders, S.B., & Thorne, L. (2002). The socio-cultural embeddedness of individuals’ ethical reasoning in organizations (cross-cultural ethics). Journal of Business Ethics, 35, 1–14. Snider, J. (2003). Corporate social responsibility in the 21st century: A view from the world’s most successful firms. Journal of Business Ethics, 48, 175–186. Stoffman, D. (1991). Good behavior and the bottom line. Canadian Business, 28–32. Wozniak, L. (1997). International business ethics: When a corporate code of conduct is NOT enough. Relocation Journal, July, 1–28.

chapter eighteen

The MNC’s Global Ethics and Social Responsibility A Strategic Diversity Management Imperative

A multinational corporation’s (MNC) ethical and social responsibility issues should be important and integral parts of its strategic management process. The MNC headquarters (HQ) must decide on its core ethical and social responsibility values and priorities, and it should empower its foreign units to formulate their specific programs and strategies to respond to changing host countries’ environments. Ethical and socially responsible conduct of an MNC is an important concern in strategic management. Ethical conduct, which is beyond the minimum legal conduct, is an important requirement for MNCs in most countries. Socially responsible conduct is similarly a most desirable activity. Expectations of both ethical conduct and socially responsible conduct can vary in different cultures and political and social systems of different countries. Despite pressures of customizing for each country culture because of the cultural relativism of ethics and social responsibility, there is a growing need of improved global approach (or universalism approach) by MNCs on these two dimensions. The issues covered in the chapter include managing diversity in MNCs, diversity management in ethics and social responsibility, and ethical and social responsibility in foreign subsidiaries. An MNC’s social and cultural environments, as they change from time to time, should have a bearing on the MNC’s ethical and socially responsible conduct. An MNC’s social and cultural environments comprise at three tiers: global, regional, and host country. Thus, an MNC must take into account the stakeholders

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at the three tiers as it formulates core ethical and socially responsible goals and strategies at the levels of MNC’s HQ, region, and host country. For the MNC’s HQ for a broad global scope, the core ethical and socially responsibility values and priorities may be of greater concern. For the foreign subsidiary, the focus would be the more customized application and the detailed strategic and operational processes. Some ethical and socially responsible values and priorities may be quite common to many countries, particularly if they are culturally (and, often, regionally) close. Even among culturally close countries, the specific nuances and interpretation, implementation, and priorities of ethics and social responsibility could vary. Ethical and socially responsible conduct is culture-bound. Even so, the globalization process increasingly brings countries closer on essential issues; and that tends to make core values for many ethical issues similar. Such issues may be very general, e.g., honesty, fairness, integrity, protecting ecology, and meeting and raising industry standards and norms.

Definitions of Ethics and Social Responsibility Ethics are defined as the process of distinguishing the morally right and good from the wrong and bad, and they imply a moral duty to pursue the good and the right. Business ethics are concerned with the good or right and the bad or wrong behavior in the business context. International business ethics apply to the varying business ethical issues in diverse country cultures. Social responsibility is conceptually allied to business ethics. It implies that businesses should act more responsibly, beyond the pure profit or economic motive. It embraces the stakeholder approach, and it also concerns the larger society and ecology.

The Purpose of the Chapter The purposes of the ­chapter are:

1. To emphasize the importance of making ethical and socially responsible issues to be integral parts of the MNC’s strategic management process 2. To provide frameworks that outline the formulation of the overall, broad ethical and socially responsible values, goals, and strategies at the MNC HQ level (for the overall MNC), and the detailed specific strategies at the foreign subsidiary level (for each foreign subsidiary).

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The chapter stresses the importance of managing and reconciling the two opposing forces: (a) the need for a very broad uniform, global ethical and social responsibility approach and standards and (b) the need for customizing ethical and social responsibility detailed application of the standards, strategies, and programs to each country culture. The chapter makes a case for focusing on continuous evolution of the MNC worldview of global social responsibility to be broader and more universal, viewing the world as a relatively undifferentiated, whole society that has very similar general human values, needs, and concerns. At the same time, the MNC must allow for country-specific social responsibility programs and activities that are customized to each country’s unique circumstances. It is appropriate that, at the MNC’s HQ level, the MNC would develop general, global core values and priorities to help direct organizational resources worldwide. And, within this general, global core values and priorities framework, each foreign subsidiary unit should be empowered to tailor-make its own detailed activities and programs as a continuous improvement response to its host country’s changing needs and expectations. Much of the challenge of the executives of MNC’s HQ and foreign subsidiaries is to make proper judgments to pursue an effective ethical and social responsibility strategy, both globally and locally, in view of contradictory pressures (as those outlined in the first paragraph of the following literature review section) and in view of resource availability with regard to social responsibility programs.

A Review of Literature What is acceptable and what is unacceptable is a matter of opinion. It is interesting to consider this quotation from Shakespeare’s Hamlet, Act 2, Scene 2: There is nothing either good or bad but thinking makes it so.

What we think is good or bad is usually determined by the way we are influenced culturally. There is a growing awareness of MNCs to better focus on an ethical conduct that goes well beyond the strict legal interpretation. Because of their size, MNCs are usually more conspicuous in the public eye, and so there is a greater need for a formal ethical code of conduct for its employees. The challenge is to be able to reconcile the contradictory forces of:

1. A universal ethical code (i.e., it is possible to have core general values and priorities of preferred ethical conduct)

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2. Cultural relativism (i.e., the need to adapt or customize ethics to local culture) 3. Competitive pressures (i.e., other companies from other countries might pursue a lesser ethical approach in gaining unfair competitive advantage over those companies following stricter ethical standards in doing business).



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Much like a rainbow, there are different shades and colors of social responsibility approaches and programs. Scholars provide this range of this spectrum; for example, Asgary and Mitschow (2002); Brady, Crittenden, Hoffman, and Robertson (2002); Cottrill (1990); Clikeman (2004); Donaldson (2003); Epstein (1987); Freeman and Gilbert (1988); Freeman and Liedtka (1991); Grant (1991); Kraft and Hage (1990); Salbu (1993); Saunders and Thorne (2002); Snider (2003); and Stoffman (1991). Many of these scholars agree that there is a need for ethical and social responsibility issues management to be integrated in strategic management decision-making at the highest level in the organization, that there should be more effective and sustainable social responsibility programs, and that there is the issue of duality of global versus local considerations for ethical and social responsibility programs. There is also the argument that business organizations should go beyond the Milton Friedman tenet that the only responsibility of a business organization is to its shareholders, namely, the responsibility to return a good profit (Grant, 1991). However, here it is also argued that good social responsibility is good business, that the goodwill and reputation of ethical and socially responsible organizations will win in the long run and that an MNC will earn the public’s respect and admiration. Managing stakeholders has been one approach on this topic. And Archie Carroll (1991) sums it up in his pyramid:

Level 4: Level 3: Level 2: Level 1:

Philanthropic responsibilities Ethical responsibilities Legal responsibilities Economic responsibilities

The assumption here is that organizations must continuously achieve very good performance on the first three levels before focusing on the fourth level. Almost similar to Maslow’s hierarchy of needs, this pyramid focuses on the lower three levels as the basic, necessary organizational performance needs. After the first (bottom) three levels are satisfied, the firm may focus on the top level organizational performance. For instance, a firm must perform economically well if it can sustain social responsibility performance. It is worthwhile to reiterate the notion that business organizations are social organs with economic and other business goals, and that they exist in their society.

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Therefore, they should be responsible to the society which allows them to exist and thrive. This viewpoint is well espoused by Asgary and Mitschow (2002). Further, Freeman and Gilbert (1988, p. 89) provide the reasons why business organizations should go beyond mere economic goal orientation. They are: Firms are social entities, and so they should play a role in social issues of today. They should take seriously their ‘obligations to society’ and actively fulfill them.

One important consideration for an MNC is that its social environment is much more broad and diverse than a more domestically oriented organization. The challenge is to be at the same time global and local in its socially responsible values, priorities, and programs. More importantly, an MNC must feel that it is a part of many societies of many countries in which it has operations. It is indeed a challenge to implement this approach. Freeman and Liedtka (1991, p. 97) express the viewpoint that all parts and activities of an organization are in it collectively together and not as separate, isolated, and individual parts. Also, in this context, the breadth of cultural diversity makes it challenging for formulating and implementing these ethical and social responsibility programs. Wozniak (1997, p. 1) captures the sentiment well: Business behavior emanates from the complex set of factors that define a culture. These factors include how we perceive the environment, time, power, structures, space; the emphasis we place on relationships or tasks, on individuals or the collective; how we think and communicate. Confucianism focuses on collective order and hierarchy. The social corporatism of Sweden stresses social class and the equality of results.

From an overall MNC point of view, it becomes more difficult to forge a common set of core social responsibility values and priorities. And yet the need to develop a viable core set of values and priorities is important. It is a starting point in the process of overall MNC strategic management process and for formulating ethical and social responsibility programs and strategies for different regions and for each host country.

Discussions on the Models The three tables provide the models for achieving the purposes of the chapter. Ethics and social responsibility should be an integral part of an MNC’s process of formulation and implementation of its vision, mission, goals, corporate strategy, and activities. The central theme is that the MNC HQ should seek common core values for the overall organization, provide a framework of formulating priorities

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of ethics social responsibility, and empower foreign subsidiaries to customize specific ethical codes of conduct and social responsibility programs. The three tables provide a conceptual base for a broad global, strategic framework for formulating MNC objectives, goals, and strategies and for countries’ ethical and social responsibility strategies. Within the broad MNC strategic picture, each foreign subsidiary periodically (re)formulates its goal-mix for the state of its current environment. Based on its current environment, it formulates its corporate strategy and ethical and social responsibility strategy for the current time frame. The MNC HQ and its foreign subsidiaries strive to have a common core of ethical and social responsibility values, and more customized host country–focused ethical and social responsibility programs. Table 18.1 provides the process by which an MNC reviews important social and economic issues (both global and local) as it formulates its overall strategic Global MNC Economic and Business Issues Global, Regional & Local Social & Cultural Issues

Global MNC Strategic Management Issues: MNC Long Term Objectives, Goals and Strategies ____________________________________________________________ Foreign Unit’s Country Culture (fcc)

For Country A (fcc)

For Country B (fcc)

For Country C (fcc)

Country’s Ethical & Social Resp. Expectations (e, sre)

For Country A (e, sre)

For Country B (e, sre)

For Country C (e, sre)

For Country B (e & srs)

For Country C (e & srs)

Ethical & Soc. Resp. Strategies (e & srs)

For Country A (e & srs)

Table 18.1:  MNC’S Global Strategic Management and Foreign Subsidiaries’ Ethical and Social Responsibility Strategies Source: Adapted with permission from, “The MNC’s global ethics and social responsibility: A strategic management imperative,” (2006), by Y.H. Godiwalla, Journal of Diversity Management, 1(2), 43–52. Copyright 2006.

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management issues, including its goals and overall corporate strategy. The next phase is to allow each foreign subsidiary unit to customize its goals and specific social responsibility programs to the host country’s unique needs and circumstances. These programs and strategies would reflect the host country’s cultures and social responsibility needs and expectations. For the MNC HQ, the overall global strategic management issues that pertain to the overall and global scope of the MNC are important. Other considerations, such as its position in the industry, markets, regions, and society, and the values for which it stands, become important. An MNC’s foreign subsidiaries operate in diverse cultures. Each culture has its unique set of expectations and needs. The lower half of the table provides a logical approach for each subsidiary to customize its local ethical and social responsibility strategies, based upon the local culture’s expectations and needs. Diversity Management Issues. For an MNC’s HQ, the challenge is of managing the disparate parts of its organization that are set in culturally diverse populations. The many countries’ cultures, with all their different backgrounds, pose management issues, e.g., styles of supervision, policies, and decision-making process and communication. Together, they pose interesting challenges of how to more effectively manage the organizational process. Cultural diversity management then becomes a central focus of the MNC HQ, in addition to other organizational HQ foci. Table  18.2 provides focus on the foreign subsidiary’s strategic management process over different “time frames,” where a “time frame” is when the essential rationale for decision-making is the same. The changing organization’s environmental situation would make it necessary for foreign unit to change its ethical and social responsibility philosophy, directions, approaches, goals, programs, and strategies. Changes in social values and priorities in the host country’s culture, for example, would make it necessary for the foreign subsidiary to modify its goals and strategies. It is from the analyses of business and societal environment of the host country that the goal-mix of the foreign subsidiary should be (re)formulated for each time frame. The foreign subsidiary’s corporate strategy should be derived from the goal-mix which would indicate the major components of its corporate strategy. And from its corporate strategy, should be derived the detailed ethical and social responsibility strategies. When the business and societal environments significantly change, then the goal-mix should also change. When the environments change, the goal-mix should change; and when the goal-mix changes, the corporate strategy should also change.

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A Foreign Subsidiary’s Basic Mission & Primary Purpose

A Foreign Subsidiary’s Long Term Global Objectives

Time Frame 1 B&SE(1)

Time Frame 2 B&SE(2)

Time Frame 3 B&SE(3)

Goal Mix for each time frame (GM)

GM(1)

GM(2)

GM(3)

Corp. Strategy for each time frame (CS)

CS(1)

CS(2)

CS(3)

Ethical, Social Resp. Strategies for each timeframe (E, SRS)

E,SRS(1)

E,SRS(2)

E,SRS(3)

Bus. & Societal Environ. for each time frame (B & SE)

(time-frame 1,2,3 in parenthesis)

Table 18.2:  A Foreign Subsidiary’s Strategic and Ethical and Social Responsibility Management Process Source: Adapted with permission from, “The MNC’s global ethics and social responsibility: A strategic management imperative,” (2006), by Y.H. Godiwalla, Journal of Diversity Management, 1(2), 43–52. Copyright 2006.

Diversity Management Issues. As can be seen in Table 18.2, the business and societal environments of a host country may have culturally diverse stakeholders’ populations, including suppliers, employees, customers, nearby communities, and government and political leaders. Further, as cultural dynamics take place, the foreign subsidiary must manage the varying and changing social make up in terms of:  societal changes, including consumerist and activist movements, customer preference changes, employee attitude changes, changes in HQ’s philosophy, and organizational cultural changes within the foreign unit and other nearby foreign units. Thus, (time) longitudinal cultural changes provide an additional dimension of cultural diversity management challenges.

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Table 18.3 embodies the viewpoint of the chapter, namely that the MNC HQ should focus on deciding upon core global values and priorities for ethical and social responsibility issues. Within this broad core set of values and priorities, each region and each foreign subsidiary should develop its own specific social responsibility programs and strategies. While the MNC HQ finalizes and shares with the foreign subsidiaries the core global ethical values and core social responsibility priorities, it is for each foreign subsidiary to apply the general MNC values and priorities to its current local situation. The foreign subsidiary should apply the detailed programs, such as those delineated in the lower box of the table. In sum, the three tables provide the connection between strategic management and ethical and social responsibility in the context of international business. The tables combine and provide an organizing conceptual framework for MNC HQ and foreign subsidiaries to simultaneously address the global environments for formulating coherent MNC ethical and social responsibility values, goals, and strategies for an MNC as a whole and for the foreign subsidiaries. Diversity Management Issues. While the MNC HQ is concerned with core ethical and social responsibility values, the diverse cultural values and orientations of the many foreign subsidiaries make it further challenging to the HQ to come up with a common set of ethical and social responsibility values. Diversity issues often make the work of HQ more complex, and challenging and interesting. The broad social responsibility goals and strategies can be just that, broad. The detailed strategies should be left to the foreign unit management. MNC’s Global Perspectives: Core Global Ethical Values and Core Social Responsibility Priorities

(For each foreign subsidiary unit:) Customized Detailed Ethical & Social Responsibility Strategies, e.g.: • Ethical issues re: bribery, honesty, integrity, accountability, fairness, legal compliance and beyond, fair employment and staffing practices, ecological • Social responsibility (need-based) issues re: community-oriented programs, charitable & philanthropic activities, local and regional developmental, educational and medical activities

Table 18.3:  MNC’s: (1) Core Global Values and Priorities and (2) Customized Foreign Subsidiary’s Detailed Ethical and Social Responsibility Strategies

Source: Adapted with permission from, “The MNC’s global ethics and social responsibility: A strategic management imperative,” (2006), by Y.H. Godiwalla, Journal of Diversity Management, 1(2), 43–52. Copyright 2006.

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Discussions and Recommendations An MNC’s global ethical and social responsibility is an important and integral part of its strategic management process. Ethics and social responsibility is not a choice, but an imperative for an MNC. Ethical and socially responsible conduct should be the cornerstone of any organization’s core values and strategic management process. The process should start with such a conduct as the basis of all strategic management thought. It should be embodied in an organization’s vision and basic mission. For an MNC, the ethical and social responsibility charge becomes imperative because it is globally conspicuous, and its activities have global impact and ramifications. Thus, an MNC’s activities must emanate from an ethically and social responsibly inspired vision and core values. It must lead the charge for industry-wide higher standards, norms, and practices. It must be a leader in the industry not only in technology, organizational practices, product features, R&D, marketing organization, and performance, but it must also lead in ethics and social responsibility in its home country and all its other countries. The pursuit of rapid growth, increased market share and profits, competitive performance, and its other commercial activities must be done in consonance with its established core ethical values and socially responsible vision. Growth with ethics is the right way. Organizational culture at an MNC’s HQ and at its foreign subsidiary units must reflect the established core ethical and social responsibility values. If the organizational culture is lagging behind the improved core ethical and socially responsible values, then the organizational leaders must influence to change the organizational culture. Ethics are culture-bound. Different societies place different expectations and priorities on organizations for their ethical and socially responsible conduct. These variations of expectations and priorities set by different country cultures upon an MNC’s multiple country subsidiaries indeed pose complexities. An MNC with many subsidiaries or joint venture organizations in many diverse country cultures would expect to customize its detailed ethical and social responsibility strategies for different country cultures. It may choose to have common, global core values regarding ethical and social responsibility, and vary its detailed content and process regarding ethical and social responsibility from one country culture to another. Cultural differences among countries would result in different culturally directed ethical and social responsibility strategies. Social responsibility programs should be sustainable, i.e., an MNC can afford them over a period time, only if it is sufficiently profitable. The concept of

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sustainability is closely tied to the MNC’s continuous profitability. Further, the MNC must show a reasonable growth which may be manifested in terms of sales and market share, and profitability, R&D, product range and applications, expansion of regions, and organizational development. It is more likely that an MNC manifesting these growth attributes will be more likely to pursue, if it wants to, sustainable social responsibility programs. The concept of sustainability is based upon: (1) the ability of the foreign subsidiary to sustain the expense of these strategies, (2) the estimated long-term effects and benefits of these strategies, and (3) the relative cost benefit analysis of these strategies. Here the projected benefits may be judged from the point of view of the host country. If the assessment of sustainability indicates a good prospective future, then there would be more reasons for furthering and expanding ethical and social responsibility programs and strategies. Organizational growth, environmental munificence, social environmental responsiveness and encouragement, strong and positive impact of social responsibility programs on the local social fabric, and better communication and coordination among organizational members and their extra-organizational linkages tend to reinforce the worthwhileness of these programs, thus providing a likelihood of perpetuating these programs. A business organization can be here viewed as a social organ with specific business goals and that operates in its host society. It is inevitable for such an organization to focus upon its host society if it is to find support from the host society to allow the business organization to thrive and flourish. Growth and success of a foreign subsidiary similarly depends upon its ability to forge and strengthen organization-environmental linkages in ways that help it to better adjust to the environment and enable it to better address the needs, concerns, and expectations of the society of the host country. It would be beneficial for the foreign subsidiary if it would customize to the core social values of the host country culture. Should it find that unacceptable, it can be argued in hindsight that the MNC’s entry into the country was not a good strategic move. In this event, the MNC’s course of action may be withdrawal from the country. Barring such an action, to the extent feasible within the scope of the MNC’s core ethical and social responsibility values, it is important for foreign subsidiaries to accept the host culture’s core values. Such a conscious move would better align social responsibility strategies to the more focal needs of the host country societies. Its detailed ethical conduct should similarly be fine-tuned to the local cultures, thus making the MNC better accepted by the host country. Good fit is a good thing. Should there be the case of the need to maintain higher standards with regard to ethical conduct, it probably would be prudent to do so. This is particularly relevant to the issues such as: avoidance of bribery, integrity,

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honesty, truthfulness and fairness, worker safety and fair employment practices, and ecologically responsible practices. The cultural divide can pose a difficult challenge for an MNC’s HQ when it strives to compose a core set of values and priorities for global ethics and social responsibility, and, more importantly, when it develops detailed strategies and programs for each host country culture, and plans for their implementation. The translation of an MNC’s global core set into specific strategies for each host country requires intimate knowledge of the needs and expectations of the host country people. Their culture should become the basis of the foreign subsidiary’s foundation for its ethical and social responsibility strategies.

Recommendations The following recommendations, justification, and guidelines emphasize the strategic imperative of sound the MNC’s ethical and socially responsible conduct. It should to be an organization-wide and top management involved process in order to be fully effective.

Recommendation 1: HQ Should Exert the Ethical and Social Responsibility Components in Its Strategic Management Process Justification. The HQ has the vantage point of view in that it gives it the unique focus for exerting the coordinating and articulating the overall ethical core and social responsibility values. Guidelines for Implementation. It would be helpful if MNC’s HQ would take greater initiative and proactively lead in coordinating, integrating, and communicating the overall core ethical and social responsibility values. In arriving at them, it should engage in a participative approach so that there is a clear partnership between the MNC HQ and foreign subsidiaries. It should lead in making strategic initiatives in newer ethical and social responsibility practices. For doing so, it should involve the foreign subsidiaries. It should also survey the newer and emerging practices among other organizations, domestic and international, in its home country and foreign countries.

Recommendation 2: Cluster Culturally Similar Countries and Develop Core Ethical and Social Responsibility Goals and Programs Justification. It may be practical to cluster culturally close countries in the process of developing broad core values of the MNC. The analyses and

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formulation of ethical and social responsibility performed in clusters provide for better consistency and synthesis, as viewed by the external environments. Such an approach would engender a cohesive public image within a geographical region. Guidelines for Implementation. This is a meaningful pattern and template for more efficient strategic management endeavors. Form regional country clusters and analyze the common needs and expectations for ethical conduct and social responsibility and formulate regionally common, generic goals and plans.

Recommendation 3: Formulate Detailed Goals and Plans for Each Country to Include Its Needs for Diversity Justification. It may be beneficial to generate greater culture-rich details in the formulation of detailed ethical and social responsibility strategies for a particular country. Guidelines for Implementation. The unique, local expectations within each foreign country must be individually addressed so that the foreign subsidiary may highlight the unique aspects of the country’s culture as it formulates the details of the ethical and social responsibility programs and activities.

Recommendation 4: Follow the Trends and Review the Ethical and Socials Responsibility Goals, Plans, and Programs Justification. This activity is needed in order to keep in step with the external changes and to make sure that the MNC’s and the foreign subsidiaries’ ethical and social responsibility goals, plans, programs, and activities are congruent with changing realities of the foreign subsidiaries’ respective host countries. Guidelines for Implementation. A process should be set in place that allows for an ongoing review and evaluation of the MNC core values and the detailed foreign subsidiary strategies. Such review must include global and local changes and trends in social values, infrastructures, economy, legal aspects, and industry norms.

Recommendation 5: The MNC (HQ) CEO and Other Top Management Must Be Actively Involved in the Ethical and Social Responsibility Process Justification. Their personal, active, and direct involvement would send a strong message across the organization about the importance of the ethical and social responsibility activities.

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Guidelines for Implementation. The MNC HQ’s CEO and many of the other top managers should be fully involved in the process and have fuller communication with all foreign subsidiaries’ top management.

Recommendation 6: Make Sure that the Ethical and Social Responsibility Programs Are Sustainable Justification. For the foreseeable future, the current programs ideally should appear to be ongoing and continuous. Otherwise, the host country’s environments would take an unfavorable view if the foreign subsidiary drops or curtails some of its programs. Good profit performance of the foreign subsidiary is a prerequisite for smooth and predictable continuity. Guidelines for Implementation. The MNC and foreign subsidiary top management should jointly address the issue of sustainability of the ethical and social responsibility strategies and programs so that the organization has a clear plan for the continuity of these programs for all the foreign subsidiaries.

Conclusions Strategic management premises must be founded upon ethical and social responsibility considerations. Strategic management must evolve from basic social values, needs, expectations, and considerations as they can be compatible with an organization’s business and economic needs. Strategic management and ethical and social responsibility are very closely interrelated. Good strategic management practice is one which is correctly based upon sound ethical and social responsibility considerations. It is vital for any organization, more particularly the more global and larger organizations, to integrate core ethical and social responsibility values and goals into the organization’s overall strategic management process. Adding them as an afterthought to its corporate strategy is not an acceptable approach because the foundation of any business organization is in its society, local and global. For an ongoing strategic management process, an organization should increasingly focus on sustainable and worthwhile social responsibility programs. Periodic evaluations of the effectiveness of such programs are important, thus making strategic management focus not only on the evaluation of business and economic performance, but also on that of social responsibility programs. The issues of diversity management are addressed within the discussion of each table. The MNC HQ must show tolerance, accommodativeness, sensitivity, and breadth in managing global diverse cultures. Growth in organizational

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diversity is inevitable as the MNC’s business scope and magnitude grows. As diversity intensifies, the MNC’s HQ must focus on the even broader, even more general issues of objectives, goals, policies, and strategies as it deals with its global diversity management.

Bibliography Asgary, N., & Mitschow, M.C. (2002). Toward a Model for International Business Ethics. Journal of Business Ethics, 36(3), 239–246. Brady, M.K., Crittenden, W.F., Hoffman, J.J., & Robertson, C.J. (2002). Situational Ethics Across Borders: A Multicultural Examination. Journal of Business Ethics, 38(4), 327–338. Brouthers, K.D., & Brouthers, L.E. (2001). Explaining the National Cultural Distance Paradox. Journal of International Business Studies, 32(1), 177–195. Carroll, A.B. (1991). The Pyramid of Corporate Social Responsibility:  Toward the Moral Management of Organizational Stakeholders. Business Horizons, 34, 39–48. Clikeman, P. (2004). Socially Conscious Corporation:  How Can You Reap the Rewards of Good Corporate Citizenry? Strategic Finance, April, 23–35. Cottrill, M.T. (1990). Corporate Social Responsibility and the Marketplace. Journal of Business Ethics, 9, 723–728. Donaldson, T. (2003). Editors Comments:  Taking Ethics Seriously—A Mission Now More Possible. Academy of Management Review, 28(3), 363–378. Epstein, E.M. (1987). The Corporate Social Policy Process: Beyond Business Ethics, Corporate Social Responsibility and Corporate Social Responsiveness. California Management Review, 27, 99–111. Freeman, R.E., & Gilbert, D.R. (1988). Corporate Strategy and the Search for Ethics. Englewood Cliffs, NJ: Prentice-Hall. Freeman, R.E., & Liedtka, J. (1991). Corporate Social Responsibility:  A Critical Approach. Business Horizons, 34, 92–97. Grant, C. (1991). Friedman Fallacies. Journal of Business Ethics, 10, 907–913. Kraft, K.L., & Hage, J. (1990). Strategy, Social Responsibility and Implementation. Journal of Business Ethics, 9, 12–18. Salbu, S.R. (1993). Corporate Social Responsiveness:  Choosing between Hierarchical and Contractual Control. Journal of Business Ethics, 12, 27–35. Saunders, S.B., & Thorne, L. (2002). The Socio-Cultural Embeddedness of Individuals’ Ethical Reasoning in Organizations (Cross-cultural Ethics). Journal of Business Ethics, 35(1), 1–14. Snider, J. (2003). Corporate Social Responsibility in the 21st Century: A View from the World’s Most Successful Firms. Journal of Business Ethics, 48(2), 175–186. Stoffman, D. (1991). Good Behavior and the Bottom Line. Canadian Business, 64(5), 28–32. Wozniak, L. (1997). International Business Ethics:  When a Corporate Code of Conduct is NOT Enough. Relocation Journal, July, 1–28.

chapter nineteen

Ethical Issues Analyses in International Management A Framework for Analyses

Ethical issues are very important components in strategic management of any business organization. For a multinational corporation (MNC), ethical issues are more complex because:  (1) ethics are culture-bound and (2)  an MNC operates in diverse cultural settings. Because of the cultural differences among an MNC’s multiple cultural and ethical environments the management of cultural issues is challenging. Teaching ethical issues in international business courses is made more complex than teaching business ethics that keeps in mind one country’s culture and ethics at its focus. Most situations in international business do have specific problem areas as their functional area focus, e.g., supply chain, operations, marketing, etc. Even so, many of them could have the situations of potential ethical implications. This chapter is intended to help glean such potentially ethically implicated situations and issues and meaningfully analyze them for effective strategic management process. The strategic management process (vision, mission, goals, strategic analyses, corporate strategy formulation, and implementation) must start with an ethical and socially responsible core, and not just have the ethics and social responsibility filters added on later in the process as an afterthought. The aim is to have an ethical corporate strategy. The issues covered in the chapter include international ethical conduct, business ethics, social responsibility and corporate strategy, and ethical corporate strategy.

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The Purpose of the Chapter Ethical (or, when going beyond that, social responsibility) concerns in business are culture-bound and they are derived, not only from the values of a given society, but also from the positive and the negative experiences of a given society. It is difficult and impractical to set out as an edict from the headquarters (HQ) a common, very detailed code of ethics for all cultures (Bailey and Spicer, 2007; PenaVinces and Delgado-Marquez, 2013; Sherrard and Wisskirchen, 2014; Tan and Ko, 2014). Issues of ethics and social responsibility in international business are even more confounding for an MNC whose international operations encompass many diverse cultural settings around the world (Dion, 2015; Fontrodona, Ricart, and Berrone, 2018). Culture of a host country is one of the determining factors in developing a code of ethics or a public affairs policy for a given MNC’s foreign subsidiary unit. For an MNC, its stakeholders are: 1. Parent country:  MNC HQ’s employees, its external domestic and global stakeholders 2. Host country: subsidiary organization’s employees, its host country’s external stakeholders 3. Expatriates: executives, specialists 4. Third country nationals: as MNC employees in foreign subsidiaries (other than in the foreign subsidiaries in their own home countries) and HQ. The chapter develops a framework for analyzing ethical issues in MNCs by providing analytical approaches to evaluate the cultural and ethical environments of an MNC and each of its foreign subsidiaries. These analytical tables provide an instrument to compile all the relevant ethical factors for an MNC and each foreign subsidiary, and then provide integrative analyses for the strategic and operating executive. They would help to sort the critical from the noncritical issues. They would be the framework to give at one glance a bird’s eye view of the entire ethical situation of the MNC and its particular foreign subsidiary. They also provide a basis of comparison between the MNC and its comparable competitors in different theaters of operations around the world. For the strategic manager, i.e., the MNC’s CEO, the subsidiary CEO, other executives, and supervisor, these tables are a basis for improved practice of ethics in all facets of its strategic ­decision-making. They induce a strategic manager to use proper ethics and social responsibility as an initiation of the strategic management process, rather than as an added afterthought of the strategic management process . The tables are also

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effective, didactic instruments for better imparting higher level ethical values to the executive as he might have to deal with possible, lower level ethical practices in some countries.

A Brief Review of Literature MNC HQs struggle between developing standardized, general global ethical policies, on the one hand, and customized host country policies consistent with host country culture, on the other hand (Asgary and Mitschow, 2002; Jackson, 2000; Milton-Smith, 2002). Further, host country culture plays a strong influence in the choice of a viable social responsibility strategy for a host country (Banai and Sama, 2000; Davids, 1999; Dion, 2015). MNCs have to focus upon the particular ethical issues, philosophy, and values as shared within the MNC HQ structure (Carr et al., 2000; Jackson, 2000). The sources of ideas for social responsibility programs could be embedded in the conditions of the host country’s society and environment. Wherever feasible, the foreign subsidiary should endeavor to address the specific concerns of the society.

Discussions While there is no one model list of topics or items that constitute an MNC’s issues for ethics or social responsibilities, some of these that typically surface as being important are listed in Tables 19.1 and 19.2. In very broad terms, these issues can be grouped under: (1) complete avoidance of bribery (or corruption or extortion); (2)  community service; (3)  trust, integrity, honesty, and reputation; (4) fair treatment of all stakeholders, e.g., employees (male, female, handicapped, young, old, of different religious or ethnic groups), customers, suppliers, and communities; (5) ecologically responsible conduct; (6) responsible “macro” dealings with important local authority groups, e.g., governments, industry associations and companies, community groups, media, and supplier organizations or associations; and (7) corporate “givings” or philanthropy to worthy local causes and developmental projects The way an MNC and its foreign subsidiary unit conducts itself in its host country would define the ethical and social responsibility profile (Enderle, 2015; Kline, 2005; Neiman, 2013; Spence, 2007; Tran, 2010; Williams, 2011; Wozniak, 2007). The local people of the host country would compile their perceptions of the foreign unit in a cumulative manner. That activity would lead to the formation

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Table 19.1:  Ethical Issues in International Management: Nature of Norms and Preferred Practices as They Relate to Ethical Issues In MNC’s home country: In each host country:   1. Brief review of culture as it relates to MNC’s operations: a. National: b. Regional: c. Local:  2. Competition:  3. Customers:   4. Governmental regulations:   5. Business practices:   6. Child labor:   7. No bribery/corruption/extortion:   8. Human rights:   9. No sexual harassment: 10. Confidentiality: 11. Social responsibilities: 12. Trust, integrity, honesty: 13. Ecological responsibility: 14. Fair treatment of employees: 15. Community service and relations: 16. Staffing methods in subsidiaries: Source: The Author

of the reputation of the MNC and its foreign subsidiary unit in its host country setting . The chapter is aimed at helping the executives to better analyze situations of ethical and social responsibility through the use of the tables.

Analyzing the Trends in the Situations of International Ethics and Social Responsibility It is worthwhile to review a series of events relevant to the ethical and social responsibility considerations that can provide a subsidiary with a meaningful trend for review, analyses, and making subsequent changes in its policies and programs. The trend would suggest to an executive a narrative of events of an organization.

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Table 19.2:  The Dimensions of the Foreign Subsidiary’s Ethical and Social Responsibility Strategies Regarding Its Host Country Based upon the Findings from Table 19.1, formulate the desired MNC’s foreign subsidiary’s strategies and programs for its host country regarding these dimensions:

(1) Society and community (social responsibilities) (2) Complying with governmental laws and regulations (3) Customers (4) Competition (5) Industry relations and standards (6) Labor and union relations, and employment practice regarding: a. Children b. Women c. Minorities d. Prevention of sexual harassment e. Staffing (home, host, or third country appointments) (7) Fair treatment of employees (8) Proper disclosure to employees and public of any current and potential danger of company operations and products (9) Promoting image of integrity, trust, and quality (10) Policies for no bribery, no corruption, and no extortion Source: The Author

Thus, his definition of the scope for a trend of events is an important issue here, because it sets the scope and areas for managerial discussions. Generally, all organizational situations focus on the important administrative handling issues, even though there is no one correct method of handling any administrative issue, problem, or situation. The framework is for analyzing the critical issues of an organization’s ethical issues in its global environment, and then to generate clear decisions about how to handle these problems. Tables 19.1 and 19.2 provide the framework for analyzing the important situations that an MNC faces at the MNC HQ level and at the foreign subsidiaries level. Each foreign subsidiary should be reviewed one at a time. Thus, for example, if an MNC is operating in 30 foreign countries, there should be 30 tables for Table 19.1 and 30 tables for Table 19.2. Table 19.1 presents the dimensions that are usually important for an MNC as they can become issues of social responsibility or ethical concerns. These items, as listed in Table 19.1, are examples; and an MNC would have to compile important topics as of the point in time of doing such analyses. The important tenet here is that the analyses are supposed to highlight the cultural distance between the

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MNC’s home country and the particular host country in question. The appreciation of the cultural distance would enable the executive to be more astute as he focuses on Table 19.2. Table 19.2 is a “decision-making” type of a table. That is to say, after collecting the information from Table 19.1, and after making the assessment and analyses of the situation as described in Table 19.1, the question that should be asked would be: What should the MNC do in Table 19.2 for a particular host country? The various items listed in Table 19.2 describe the typical ethical items that an MNC foreign subsidiary unit could face in its host country setting. There can be other (than ethical) issues, and the MNC should include them as a decision-making item as well.

Recommendations Recommendation 1: Executives and Supervisors Should Screen Newly Planned Activities for Possible Ethical and Social Responsibility Mistakes Justification. It is likely that newly planned business programs may have inbuilt scope for unanticipated consequences which could have negative impact on organizational ethical conduct. As one looks for potential negative side effects of the implementation of a new strategy, the approach should be an over-careful one, saying to oneself, “Anything that can go wrong, it will go wrong.” Guidelines for Implementation. Educate the executives and supervisors to search for unseen or unobserved faults in the seemingly innocent future business strategies and plans. Every contemplated, planned strategy should be initially considered, so to speak, guilty until proven innocent. Even after careful screening for potential bugs, the careful and proactive stewarding during the implementation process of a newly planned business endeavor is of the essence. The supervisors and employees should carefully watch the implementation process and look for often hidden, possible side effects of a new plan or strategy.

Recommendation 2: Appoint on Foreign Subsidiary Boards of Directors Local People Who Have Fresher Thinking, and Also Who Have Wider Perspective of Ethical and Socially Responsible Organizational Conduct Justification. The HQ and the foreign subsidiary managers should ensure that the performance expectations of the foreign subsidiary people are realistic

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and attainable and that they should not be pressured to seek unethical or even illegal methods to achieve the excessive, unreasonable, or too high goals. Guidelines for Implementation. Where there are local, host country people on the boards of foreign subsidiaries, the people should be of a broader composition to include business and nonbusiness backgrounds. Where there are no directors on foreign subsidiaries (as in the case of smaller or newly founded foreign subsidiaries), then the relevant MC’s HQ’s department must supply people for periodic oversight for ethical conduct of the foreign subsidiary in such ways as to ensure objectivity in scrutiny and promote a heightened conscience among the foreign subsidiary managers, supervisors, and other host country employees.

Recommendation 3: At the HQ, Develop Broad and Sound Ethical and Socially Responsible Core Values for Encompassing Overall MNC Operations. These Should Reflect Its Core Organizational Value, Philosophy, Vision, and Mission Justification. The foreign subsidiaries are far flung and their peoples are remote from the HQ, often without sufficiently intense exposure to the true and working interpretations by the HQ of the organizational vision, mission and values, and goals and corporate strategy. Guidelines for Implementation. The HQ executives must reinforce, in their annual meetings with the foreign subsidiaries executives, the MNC vision, mission, corporate strategy, and also the newer, recent ways by which they are moving to accomplish them in the changing environments. There has to be fuller discussions at the HQ and the foreign subsidiaries about the competing challenges in the markets and other segments of the external environments so that the executives and supervisors are aware of the recent developments and challenges and the HQ’s ways of coping with them. The foreign subsidiaries should also be invited in this discussion and must be encouraged to suggest their ideas on the ways to cope with challenges. Such discussions should result in a documentation of minutes and conclusions which should be circulated for further comments and discussion.

Recommendation 4: During Foreign Subsidiary CEOs’ Annual Meetings, Share Experiences of Coping with Challenges to Ethical and Socially Responsible Conduct Justification. Sharing one good experience and practice at one foreign subsidiary among other foreign subsidiaries is a good way to spread the

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problem-solving behaviors across the MNC organization. Otherwise, organizational learning would be localized and stunted. Annual meetings are a good venue to get the attention to newer and better methods of solving problems and coping with challenges that require newer approaches because older methods might not work as well. Guidelines for Implementation. The HQ must screen such stories and set up the agenda at a session specially assigned for the purpose. Invite prominent ethics and social responsibility professors, community leaders, eminent nonprofit or governmental agency leaders to address the issues or be moderators of the sessions.

Recommendation 5: Formulate Corporate Goals and Strategies Which Are Consistent with the MNC’s Core Values Relevant to Its Ethics and Social Responsibility Justification. Unless in the highest hierarchy of the organizational decision-making, the correct tone and direction is set, the rest of the decisions will be subject to the vagaries of the people’s whim and fancy. It has to be done correctly from the top rung of the ladder of decision-making. It would set the example. Guidelines for Implementation. The MNC HQ’s executives must set forth in their publically acclaimed corporate core creed, values, philosophy, and plans on ethical and social responsibility issues. Such declamatory approaches must be passed to the foreign subsidiaries’ peoples.

Recommendation 6: Hire and Promote People with the High Ethical and Socially Responsible Backgrounds, Behavior, and Performance Justification. International strategic human resource decisions regarding promotions and appointments of people, such that they consistently support ethical and socially responsible behavior, will send the message to the rest of the organization. The MNC and foreign subsidiaries managers should use this international strategic human resource management method as a tool to better channel the conduct of the people to move in the correct directions. Guidelines for Implementation. Hiring, promoting, giving raises and praises, and giving attractive projects and locations to people of good performance and also of higher human grace will send the message to all in the MNC organization that shabby ethical conduct will never be tolerated, even with good

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profit performance. Personal ethical hygiene and stern social conscience are the order of the day. Focus on quality people, not just in business and their professional specialty performance, but also on people who possess higher human values, morals, and social conscience.

Recommendation 7: Have Employees Volunteer Personal Time for Social Responsibility Activities in Partnering Groups, Recognize and Reward Them Justification. Singly and alone, an employee will likely give up in his volunteering, even though we can expect a lighter frequency, e.g., half a day in two weeks of their own time, and later, when the effectiveness of the project is underway, to be supplemented by some company time. With partner(s), he will reinforce his motivation. Incentives and recognition will give him monetary reason to move forward. His family’s extra income, however minor, is surely as good a motivator as a source of pride. Guidelines for Implementation. An executive, supervisor, or an employee should choose partners wisely for working on volunteer social responsibility projects. Suitable partners will help: (1) in providing cross-fertilization of newer and fresher ideas about the social responsibility projects, and (2) the people who are the intended recipients of the benefits of the social responsibility projects. The intended recipients would then become partners in the projects, not just idle beneficiaries receiving easy handouts. Their participation would bring about the needed chemistry among all the players and will keep the enthusiasm higher until the fruition of the projects. Hopefully, the beneficiaries would themselves become more self-reliant. Successful performance in a series of projects would provide exemplary effect on the rest of the foreign subsidiary organization.

Conclusions Tables 19.1 and 19.2 provide a framework for analysis for effective decision-making on ethical issues for an MNC with operations in multiple host country environments. The key is to determine the host country culture and ethical preferences for each foreign subsidiary and formulate ethical policies for the host country culture. Further, the cultural distance between the MNC home country culture and the cultures of each host country, considered one country at a time, should be analyzed for the managers to appropriately determine the requisite ethical and social responsibility goals and plans.

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Good organizational strategy and policy are such that they should be consistent and internally coherent. Great business performance must be integrated with good ethical and socially responsible organizational behavior (Aguilera, Rupp and Ganapathi, 2007; Chih, Chih and Chen, 2010; Eteokleous, Leonidou, and Katsikeas, 2016; Jacoby, Storm and Jacoby, 1992; Ma, Zeng, Shen, Lin, and Chen, 2016; Park, Song, Choe, and Baik, 2015). Otherwise, performance, however good, will falter because the society will decry its good business performance. Business history has taught us that many organizational slip-ups have had dire and long-term consequences and have done damage to the organizations which were one-sided, solely profit-driven in their approach, whether it is unchecked greed, carelessness or callousness to safety concerns, deaf to valid employees’ concerns and needs, or blind to social implications of organizational policy and choices. The enlightened manager is as important as the effective manager.

Bibliography Aguilera, R., Rupp, D., & Ganapthi, J. (2007). Putting the “S” Back into Social Responsibility: A Multilevel Theory of Social Change in Organizations. Academy of Management Review, 32(3), 836–863. Asgary, N., & Mitschow, M.C. (2002). Toward a Model of International Business Ethics. Journal of Business Ethics, 36, 239–246. Bailey, W., & Spicer, A. (2007). When Does National Identity Matter? Convergence and Divergence in International Business Ethics. Academy of Management Journal, 50(6), 1462–1480. Banai, M., & Sama, L.M. (2000). Ethical Dilemmas in MNCs International Staffing Policies: A Conceptual Framework. Journal of Business Ethics, 25, 75–86. Carr, T.R., Kaikati, J.G., Sullivan, G.M., Virgo, J.M., & Virgo, K.S. (2000). The Price of International Business Morality: Twenty Years under the Foreign Corrupt Practices Act. Journal of Business Ethics, 26, 213–222. Chih, H., Chih, H., & Chen, T. (2010). On the Determinants of Corporate Social Responsibility: International Evidence on the Financial Industry. Journal of Business Ethics, 93(1), 115–135. Davids, M. (1999). Global Standards, Local Problems. The Journal of Business Strategy, 20, 38–51. Dion, M. (2015). Epistemological and Pedagogical Challenges of Teaching International Business Ethics Courses. Journal of Teaching in International Business, 26(2), 109–135. Enderle, G. (2015). Exploring and Conceptualizing International Business Ethics. Journal of Business Ethics, 127(4), 723–735. Eteokleous, P., Leonidou, L., & Katsikeas, C. (2016). Corporate Social Responsibility in International Marketing:  Review, Assessment, and Future Research. International Marketing Review, 33(4), 580–624.

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Fontrodona, J., Ricart, E., & Berrone, P. (2018). Ethical Challenges in Strategic Management: The 19th IESE International Symposium on Ethics, Business and Society. Journal of Business Ethics, 152(4), 887–898. Jackson, T. (2000). Management Ethics and Corporate Policy. Journal of Management Studies, 37, 349–363. Jacoby, F., Storm, D., & Jacoby, D. (1992). Beyond Borders: Ethics in International Business (Ethics at Work). Washington, DC: Jacoby/Storm Productions & Ethics Resource Center. Kline, J. (2005). Ethics for International Business Decision Making in a Global Political Economy. London, England: Routledge. Ma, H., Zeng, S., Shen, G., Lin, H., & Chen, H. (2016). International diversification and corporate social responsibility. Management Decision, 54(3), 750–774. Milton-Smith, J. (2002). Ethics, the Olympics and the search of global values. Journal of Business Ethics, 35, 131–142. Neiman, P. (2013). A Social Contract for International Business Ethics. Journal of Business Ethics, 114(1), 75–90. Park, Y., Song, S., Choe, S., & Baik, Y. (2015). Corporate Social Responsibility in International Business: Illustrations from Korean and Japanese Electronics MNEs in Indonesia. Journal of Business Ethics, 129(3), 747–761. Pena-Vinces, J., & Delgado-Márquez, C. (2013). Are Entrepreneurial Foreign Activities of Peruvian SMNEs Influenced by International Certifications, Corporate Social Responsibility and Green Management? International Entrepreneurship and Management Journal, 9(4), 603–618. Sherrard, M., & Wisskirchen, G. (2014). Next Up for North American Employers and Unions? International and Corporate Social Responsibility. ABA Journal of Labor & Employment Law, 29(2), 245–282. Tan, B., & Ko, S. (2014). An Evolutionary Logic towards the Convergence of International Business Ethics. Society and Economy, 36(4), 493–510. Tran, B. (2010). International Business Ethics. Journal of International Trade Law and Policy, 9(3), 236–255. Spence, L.J. (2007). CSR and Small Business in a European Policy Context: The Five “C”s of CSR and Small Business Research Agenda for 2007. Business and Society Review, 112(4, Winter), 533–552. Williams, S.L. (2011). Engaging Values in International Business Practices. Business Horizons, 54(4, July/August), 315–24. Wozniak, L. (2007). International Business Ethics: When a Corporate Code of Ethics is NOT Enough. Relocation Journal, July, 1–28.

chapter twenty

Ethical Conduct Protection Board for the Global Organization Issues in Strategic Management for Global Organization

The chapter proposes the creation of and presents the role of an “Ethical Conduct Protection Board” in a global organization or a multinational corporation (MNC) so that it guards against intended and unintended lapses in ethical conduct. An MNC, operating in multiple countries to achieve its global business goals, operates in the context of its many countries’ social environments. It must conduct itself in the multiple social environments in an acceptable manner. The Ethical Conduct Protection Board should be located at the MNC’s headquarters (HQ) and it should report, not to the CEO, but directly to the Board of Directors of the organization in order to preserve its independence, objectivity, and effectiveness. The purpose of the Ethical Conduct Protection Board is to create and modify the values, standards, and general guidelines of ethical conduct, and to oversee the MNC’s business activities so that it conforms to these ethical values and standards. The issues covered in the chapter include Ethical Conduct Protection Board, ethical issues in MNCs, overseeing ethical conduct, and preventing unethical conduct. The creation of an “Ethical Conduct Protection Board,” hereafter maybe referred to as the “Board,” within a for-profit or nonprofit (including global) business organization can be an effective method for setting the high standards of ethical conduct for the employees of the organization, for overseeing their conduct, and for taking proactive or preventive, and reactive or corrective actions for adhering to these standards on a continuous basis. It is important that the global organization

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pursues universal, core values and general standards for its global conduct for its organization as a whole, while allowing each of its foreign subsidiaries to develop detailed ethical issues activities for their respective host country cultures.

Identification of the Issues A for-profit business organization is a social organ with specific business, economic, profit, and financial objectives. A particular for-profit business organization operates within a particular society or a particular country culture that has its particular values, norms, and specific preferred practices in business- and society-related activities. A particular society or country culture sets its particular values and norms and it expects conformity from among its peoples and corporate citizenry. Different societies or countries’ cultures have distinctly different emphases in its sets of values and norms, as these norms and values have evolved and set over generations of its people. If a particular for-profit organization is to be a well-accepted corporate citizen in a particular society or country culture, then the for-profit business organization too, like an individual citizen, has to abide by the society’s or country culture’s specific values, norms, and specific preferred business- and society-related activities. A for-profit business organization has to at least meet the minimum threshold of acceptance of the society’s or country culture’s specific values, norms, and businessand society-related practices. Otherwise, the particular society would tend to reject the particular for-profit business organization. It may be useful to clarify the society- and business-related activities of a forprofit business organization. Society’s related activities of a for-profit business organization refers to the organization-society interactions that reflect the quality of organization’s conforming to the society’s laws, explicit and implicit major and minor norms, and the reactions of the public within the society of significant actions of a for-profit business organization as these are perceived to impact the public opinion. Business-related activities are the activities emanating from within a for-profit business organization of what Michael Porter (1985) calls the “value chain” of an organization. These include the activities of and the processes within all the functional managements, such as purchasing; operations; marketing; accounting; finance; R&D; HR; IT; legal; and external, governmental, and institutional relations, as in the works of Godiwalla (1979), where the activities of functional managements are seen to influence the corporate strategy of a single business organization and, further, the functional managements of all the various products and

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business divisions and geographical divisions within a for-profit business organizational structure provide a basis for understanding the internal operations of an organization. More recent treatments of the Porter’s applications of “value chain” or business activities for competitive business performance can be found in the works of Thompson et al. (2012). These approaches emphasize efficiencies in operations, on the one hand, and market orientation, on the other hand. Another way of conceptualizing the business activities of an organization would be to use Henry Mintzberg’s (1993) five parts of his template of an organization. His “operating core” activities (Mintzberg, 1993, pp. 11, 18) have relevance to Michael Porter’s “value chain” activities. Even if a for-profit business organization’s performance has a stronger focus on growth in profits, sales revenues, and market shares of its products and services, compared to that of its direct competitors, it must still pay heed to the particular society’s and country culture’s values, norms, and preferred business- and society-related activities. Even if it is very innovative in its product design and process design, using the state of the art operations, very customer-focused, very competitive, and very efficient, compared to its competitors, when considering the quality of acceptance by its customers and consumers of its products and services, it must pay heed to the particular society’s values, norms, and preferred business- and society-related activities. Ideally speaking, a successful organization combines high performance on both dimensions, (1) ethical and societal, and (2) economical. A for-profit business organization, with its customary strong focus on profits, showing high market performance for its products and services, its business practices and activities, even so, must, adhere to the basic threshold ethical values of the society or country culture as the for-profit business organization conducts its organizational and other business and society activities. Otherwise, a society or country culture, despite its acceptance of and deriving a high satisfaction from the use of the superior products and services of the for-profit business organization, would still disapprove of the for-profit organization’s unacceptable society-related activities on the social values dimension.

Core Global Ethical Values While a particular society’s specific, detailed ethical values, practices, and priorities are regionally or locally culture-bound, however, there are fundamental, basic, core ethical values that may be similar or even essentially common to many cultures. The core values in their essence may be “universal” in nature. The ways by which these fundamental, core values, although in their quintessential attributes may be

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similar or even the same, are articulated and approached, and the methods of their practice could be different and may vary from one regional culture to another. The fundamental, core values may be similar or even the same across the cultures. However, their more detailed manifestations can vary from country to country. Examples of ethical conduct would include:  fair and honest and up-front dealings on all issues within and outside the MNC organization; interorganizational transactions should be free from any dishonesty or bribery; and a continuous attempt to raise the specifics or details of the ethical bar which, to start with, must be much above the legal threshold. Further, because the cultural differences among countries differ, the global organization should have, in addition to a global set of fundamental or basic core values, many subsets of the more detailed ethical and behavioral expectations that are country-specific.

The Purpose of the Chapter The chapter proposes a framework for the creation of an “Ethical Conduct Protection Board” within a global organization so that the people of global organization conduct themselves in an ethical manner, despite the pressures and challenges that may induce them to be unethical. The Board would analyze the various trends in the societal and legal environments of different countries and study their cultures, as these more closely affect their particular businesses in order to formulate for the for-profit global organization, a global set of fundamental, basic, core values, and the desirable practices that the all the peoples of the global organization may follow in order to comply with the global set of the fundamental, basic, and core values. The purpose and functions of the Board is to first creating a strong and urgent sense of “ethical conduct responsibility” that reflects the higher standards of ethics and values. They would reflect the general guidelines of ethical conduct, and oversee the detailed business activities so that the activities of the people in the global organization may conform to the standards of the higher ethical values. These ideas are presented in the figures and a table, and they provide the basic core ethical values and how an organization can effectively institutionalize them. The Board would protect the global organization from intended or unintended ethical lapses of its peoples in the society- and business-related activities across the world as these activities can impact the organization. The overseeing by the Board must be viewed as an important, ongoing activity. It may invite anonymous inputs for suspicious acts of fraudulent, dishonest, or other unethical conduct as the people conduct their activities. In so doing, the Board has the opportunity to

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proactively take corrective actions and prevent these potential unethical behaviors. For unethical acts already committed, the Board must seek to correct the people involved, and seek to include the prevention of similar actions in future by the same people or other people in the global organization. Thus, the ongoing, operating activities of the Board are both proactive and reactive. The rationale for the purpose of the chapter is that the ethical conduct within an organization is an important issue. It can proactively prevent many potentially damaging activities. The argument here is that unless for-profit global organizations make a concerted effort to have a strong “watch dog” role that is assigned to a special unit, herein called: the “Board,” the people in the organization, under pressure to keep producing results in face of steep global competition, would feel that they can bend the rules of the game. And, over a period of time, the cumulative effect of such mini lapses would be a significant and a gapping mega lapse in ethical conduct such that, if exposed, it would be embarrassing to the organization. The very presence of the Board, with its oversight and monitoring powers and actions, would have a salutary effect upon the people of the organization. In view of the serious nature of its functions, the Board should directly report to the whole Board of Directors or a subcommittee of the Board of Directors, of a global organization, rather than only to the chairman, president, CEO, or executive president. In this way, the Board can feel free to conduct its activities as it would have the freedom of vigilance and actions. This would overcome the disadvantages of concentration of power engendered because of the duality or even the multiplicity of the roles of chairman, president, and, CEO that often exist in organizations. Additionally, together with business ethics, the closely allied topic of social responsibility is also raised in the chapter. One viewpoint for studying the nature of the interrelatedness of the two issues of ethical conduct and social responsibility is that an organization, while performing its business functions, must first concentrate on discharging its obligations of legal and ethical conduct, and, then, if feasible, focus on its social responsibility issues which, although also very important, are not in the central scope of this chapter. The specific purposes of the chapter can be summarized as in the following:

1. The emphasizing of the need of the creation of a well-formalized “Ethical Conduct Protection Board” 2. The emphasizing of the benefits of an effective, formalized Board. These include the creation of an organizational culture of ethical conduct by the employees of a for-profit, global business organization in face of the usual pressures of showing higher performance (such as, pressures to show higher

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growth in profits, return on investment, sales revenues, market shares, operational efficiencies) even in face of the obstacles emanating from sources of vicissitudes (such as: competition, dynamic and often unpredictable environments, economic and industry cycles, changing customer preferences, newer technologies, supply chain upheavals, distribution and logistical disruptions, governmental regulations, activist movements). The benefits would also accrue from the effective process for setting the high standards of ethical conduct for the employees of an organization, for overseeing their conduct, and for continuously taking proactive and reactive corrective actions for adhering to these standards.



1. The emphasizing of the need for and providing of methods of the simultaneous creation of a set of universal, core values and general standards for its global conduct for an organization as a whole, and the setting up of the more flexible and detailed goals, programs, and activities for each of its foreign subsidiaries so that it would enable them to continuously adapt to their changing social conditions. 2. The figures and the table provide methods of accomplishing the purposes in an organizational setting. 3. The importance of the creation of such a functioning Board is that while ethical conduct often provides a good topic for conceptual discussions in the literature, this chapter, through its figures and the table, provides methods for accomplishing it.

A Review of Literature The literature on this subject area provides a broad spectrum of quite diverse views on what precisely would constitute the requisite, proper ethical and social responsibility. They all agree that for-profit business organizations should follow the letter and the spirit of the law and that they should be ethical. They do, however, vary in the role of a for-profit business organization insofar as the twin focus on accomplishing economic and business objectives, on the one hand, and social responsibility, on the other hand. The issue of specifying the manner in which such social responsibility may be carried out is somewhat less of a focus across the literature. They address some of the ways by which a for-profit business organization should ensure ethical conduct. Fewer scholars, however, explicitly and singly focus on the means, the organizational structure, or specific methods for ensuring the

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adherence to the ethical standards. This chapter attempts to address these issues through the creation of an “Ethical Conduct Protection Board,” together with its functions and lines of reporting. There can be many and varied topics areas of concern when reviewin the issues of ethical behavior. A sample of the areas or topics for illustrative purpose can be found in the works of Wells (2017). It is useful to review the various scholars’ viewpoints and their underlying rationale for their respective views; and, here two major sets of viewpoints are presented. The first set of scholars emphasizes that an ethical conduct is an axiomatic prerequisite to social responsibilities programs; this tenet is held by a number of scholars, such as: Aguile