Leading Global Businesses
By the end of this lesson, you are expected:
– to understand the different types of international businesses
– to discover what to pay attention to in a global business
– to be aware of cultural dimensions
Leadership in today’s economy, where physical borders do not define boundaries, requires discipline, culture, and processes for sustainable success.
To thrive, global organisations have to be effective in coordinating operations across a geographically dispersed organisation, managing performance to ensure execution, and developing and leveraging talents globally.
A multinational company has decentralised operations with little communication amongst divisions. In addition, the local community affects the multinational business’s marketing strategy. For instance, McDonald’s has establishments in dozens of countries but its menus vary depending on the culture. In Israel, McDonald’s serves a kebab on flatbread rather than the hamburgers seen in the United States.
A company becomes a global enterprise when it integrates all of its units and focuses its marketing strategy on a worldwide scale. For instance, a global software company would sell the same operating system in all countries, but make a few changes to the program to account for foreign language speakers. Homogenising a product line as much as possible allows the company to keep costs low by selling a larger volume of a certain good.
Many leading companies are evolving from multinational structures into global businesses, yet struggling to find a core group of global leaders who are effective operating in regions around the world, independent of their national origin.
The most progressive of these businesses recognise that to serve their global customers most effectively, the diversity of their leadership must mirror the diversity of the customers they serve. Leadership can no longer be concentrated at headquarters with leaders from the headquarters’ country. Such an organisation needs hundreds of leaders who are effective operating anywhere in the world.
Clearly, no single organisational model is best for all companies handling the realities of rapid growth in emerging markets and round-the-clock global communications. Another reason no single model fits all global companies is that their individual histories are very different.
Although individual companies are necessarily responding differently to the new opportunities abroad, there seem to be a common set of four tensions in managing strategy, people, costs, and risk on a global scale. The importance of each of these four tensions will vary from company to company, depending on its particular operating model, history, and global footprint.
Being global brings clear strategic benefits: the ability to access new customer markets, new suppliers, and new partners. These immediate benefits can also create secondary ones. Building a customer base in a new market, for example, provides familiarity and relationships that may enable additional investments.
But being global also brings strategic challenges. Many companies find it increasingly difficult to be locally flexible and adaptable as they broaden their global footprint.
Watch this video if you want to discover how a business (Starbucks) developed from local to global.
At the same time, many companies find deploying and developing talent in emerging markets to be a major challenge. They have to find a person well versed in the culture, needs and processes of the organisation while having the understanding of the local market and its challenges.
Large global companies still enjoy economic leverage from being able to invest in shared infrastructure ranging from R&D centres to procurement functions. Economies of scale in shared services also are significant, though no longer uniquely available to global companies, as even very local ones can outsource business services and manufacturing and avail themselves of cloud-based computing.
But as global companies grow bigger and more diverse, complexity costs inevitably rise. Efforts to standardise the common elements of essential functions, such as sales or legal services, can clash with local needs. And emerging markets complicate matters, as operations located there sometimes become irritated by the costs they must bear as part of a group not directly connected to them (rigid global processes, complying to global standards, expenses linked to a regional research centre, etc).
Furthermore, globally standard, exhaustive risk-management processes may not be the best way to deal with risk in markets where global organisations must move fast to lock in early opportunities.
Understanding these four tensions is just a starting point. Capturing the benefits and mitigating the challenges associated with each will require global companies to explore new ways of organising and operating.
Cultural norms play a large part in interpersonal relationships at work. When you grow up in a certain culture, you take the behavioral norms of your society for granted, and you don’t have to think about your reactions, preferences and feelings, provided that you don’t deviate too much from the central tendency in your society.
However, when you step into a foreign culture, things suddenly seem different, and you don’t want to cause offense. By using Cultural Dimensions’ model as a starting point, you can evaluate your approach, your decisions, and your actions, based on a general sense of how people in a particular society might think and react.
Psychologist Dr Geert Hofstede published his cultural dimensions model at the end of the 1970s, based on a decade of research. Since then, it’s become an internationally recognised standard for understanding cultural differences.
Hofstede studied people who worked for IBM in more than 50 countries. Initially, he identified four dimensions that could distinguish one culture from another. Later, he added fifth and sixth dimensions, in cooperation with Drs Michael H. Bond and Michael Minkov.
When Hofstede analyzed his database of culture statistics, he found clear patterns of similarity and difference along the four dimensions. And, because his research focused solely on IBM employees, he could attribute those patterns to national differences, and minimize the impact of company culture.
[Optional] 3-min video. Link: https://www.youtube.com/watch?v=EcrFudqIGr4
Global leadership can be developed if leaders possess an understanding of global businesses, a deep interest in other cultures, in collaborating across cultures, and in integrating the best of an organisation’s capabilities to maximise effectiveness. In the long run, this is the company’s only true sustainable competitive advantage.