International
Management
Chapter
15
Structure:
 Managerial functions in an
intercultural context

Applying managerial
instruments in an intercultural
context
Authors:
Irina-Eugenia IAMANDI
Bogdan CERNAT-GRUICI
Radu FILIP
Cosmin JOLDEŞ
Objectives:
 To learn the particularities of
management in multinational
companies in an intercultural
context
1

To analyse the planning,
organization, coordination, control,
decision-making, communication
and ethics in multinational
companies, by considering their
multicultural character

To develop the abilities of
managerial communication and
problem-solving in the context of
cultural diversity

To analyse the ethical behaviour of
companies with international
activities
MINI CASE STUDY
BOX 15.1 The management of ABB global company
ASEA Brown Boveri (ABB) is a global company that produces electrical, electronic and energy
equipment, as well as a technological leader in the field of industrial digitization. ABB was originally set
up in 1988 by the merger of Allmänna Svenska Elektriska Aktiebolaget (ASEA) Swedish company and
Brown, Boveri & Cie (BBC) Swiss company. Later, more than 70 companies from Europe and the USA
were acquired and joint ventures were formed with companies from South Korea and Taiwan.
Currently, the company operates in more than 100 countries and employs about 135,000 employees at
global level. ABB also has a subsidiary in Romania.
The global management of ABB is provided by an executive committee headquartered in Zurich. The
committee consists of 11 executives of different nationalities: Swiss, Swedish, German, French, Italian,
Irish and American. The official language within the company is English. The executive committee is
responsible for ABB’s global strategy and performance. 35 managers report to the executive committee.
To be able to act globally, while maintaining local responsibility, ABB applies a matrix organization (it
is one of the few companies that have successfully implemented this type of organizational model at
global level), and since January 2016, the company is based on a corporate division and four global
product divisions. At present, the 35 specific business units are grouped into four main product
divisions: Electrification Products, Robotics and Motion, Industrial Automation and Power Grids. Each
business unit is coordinated by a member of the executive committee.
Each of the 35 managers implements the global product strategy and is responsible for the quality and
cost standards, the distribution of export markets and offering local know-how and expertise. The
national managers are usually recruited from the host-country and they coordinate the activity of all
local factories and report to the product managers. The local factories have their own organization, like
any other national company. The managers of the local factories report both to the global product
manager who decides on the general strategy, as well as to the national manager who coordinates the
activity of all local companies. ABB has more than 1,100 local businesses in over 100 countries of
operation. Using this type of organizational structure, the parent company runs the local operations
and succeeds in managing them globally.
The mixed global and local approaches are also found in the human resources policy of the company:
ABB set out a series of shared principles for employee remuneration based on fairness, competitiveness
and consistency, which are put into practice by applying local compensation packages. Among the main
fringe benefits offered by the company, the following are usually included: private pensions, life and
health insurance, access to medical facilities, flexibility in managing the working schedule, health
programs, leisure time benefits, etc. Moreover, different global and country-specific programs
dedicated to rewarding employee performance are also offered, so as to reflect the local conditions on
the implantation market.
Intra-organizational communication and awareness of the importance of corporate integrity are
constantly promoted by the managerial board of the company, so that employees in each ABB location
fully understand the ethical principles the company assumes and the consequences of inadequate moral
behaviour. Intranet integrity reporting and training sessions dedicated to most employees are used to
support employee ethical formation and development; over 2014-2015 period, more than 97% of ABB’s
employees at global level participated in anti-corruption training courses and 5,600 training sessions
for the health and safety of employees at the workplace were organized. ABB Company applies the GRI
G4 Guidelines for corporate sustainability reporting.
Sources:
Fatehi, K. (1996). International Management: A Cross-Cultural and Functional Perspective, Upper Saddle River:
Prentice Hall, pp. 84-85.
ABB (2016). About ABB. Available at: <http://new.abb.com/about>.
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15.1 Managerial functions in an intercultural context
The management of a multinational company involves the planning, organization,
coordination and control of its activities across different markets, in the attempt to maintain a
dynamic balance between business standardization and adaptation, considering the overall
approach of the company and the challenges induced by globalization and multiculturalism.
The present subchapter summarizes the main features of the four above-mentioned management
functions, in a logical order of their manifestation within the company. Thus, the corporate activity
begins with the planning process, by setting the organizational goals and implementation plans.
Directly related to the delimitation of the objectives at hierarchical level, the organization is the
second function which strengthens the corporate formal model and the distribution of tasks and
responsibilities within the company. Coordination or human resource policy is the function of
management that analyses the process of ensuring the appropriate personnel for implementing the
previously assumed organizational objectives; coordination involves recruiting, selecting, training
and efficiently motivating the employees. Finally, the control function ends the process initiated
by planning; control confirms the degree of meeting the projected objectives and establishes the
solutions required for streamlining the corporate business.
The next subchapter (15.2) reviews the main managerial tools to be applied in the intercultural
business context of the multinational firms: decision-making, communication and ethics.
These three basic instruments underpin the implementation of the managerial functions –
planning, organization, coordination and control – which will be presented below.
15.1.1 Planning in multinational companies
Planning – establishing the company’s goals and corresponding plans to put them into practice –
is one of the four main management functions, along with organizing, coordinating and controlling
the activities of the company. Based on the planning process, the other three managerial functions
are implemented, thus having a decisive role in defining and applying the corporate strategy, which
will enable the achievement of the expected results. The main role of the planning process is to
connect the present situation of the company with its short, medium and long-term objectives, by
defining the corporate strategies and the tactical and operational plans. In companies operating at
international level, planning is carried out by taking into account the specific characteristics and
risks associated with the international and intercultural context.
The corporate planning process is linear and logical, but also complex and integrated, starting from
the “top” and reaching the “bottom” of the company, taking place at all decision-making levels.
More specifically, organizational planning is carried out at three distinct levels within the company:
strategic planning – at the top management level of the company, targeting long-term objectives;
tactical planning – at the departments’ level, for setting up medium-term objectives; operational
planning – at the operative units’ level, for grounding short-term objectives. Any breakdown at a
corporate level will lead to negative consequences at a lower level or will jeopardize the
achievement of results at a higher level.
Taking the vision of the company as a benchmark, planning firstly involves defining the firm’s
mission; this represents its interests and relies on the corporate values that are adopted by the
company’s employees. For example, Box 15.2 lists the mission, vision and organizational values of
Coca-Cola global company.
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BOX 15.2 Mission, vision and values of Coca-Cola Company
The mission of Coca-Cola focuses on sustainability, it states the company’s objective and it is a
benchmark for corporate actions and decisions. Three main aims define the company’s mission:
- to refresh the world;
- to inspire moments of optimism and happiness;
- to generate values and make a difference.
The company’s vision strengthens its general framework for action and thoroughly guides its
business, by describing the features that the company needs to acquire in order to achieve sustainable
growth through long-term quality:
- people – to be an excellent workplace, where employees are inspired to maximize their full
potential;
- portfolio – to bring a global portfolio of quality brands of soft drinks meant to anticipate and
satisfy the demands and needs of the consumers;
- partners – to build up a successful network of customers and suppliers, generating mutual and
lasting value;
- planet – to be a responsible corporate citizen with a contribution to building and supporting
sustainable communities;
- profit – to maximize long-term revenues for shareholders, while being concerned about its
responsibilities towards all categories of stakeholders;
- productivity – to be a highly efficient and open-to-change business organization.
The organizational values guide the company’s actions and describe its global behaviour: leadership,
collaboration, integrity, responsibility, diversity and quality.
Source: Coca-Cola Journey (2016). Mission, Vision and Values, [Online]. Available at:
<http://www.coca-colacompany.com/our-company/mission-vision-values>.
Through the planning process based on the mission-vision-values system, the top management of a
company firstly defines the strategic objectives providing the medium and long-term business
directions of the company, as an integral part of strategic planning. According to the
methodology used by Kepner and Tregoe (1965), defining the strategy of the company is the most
important responsibility of the firm’s top management. Then, the strategic plan becomes the
starting point for tactical planning, when the managers will develop tactical objectives and
plans, which will, in turn, be further translated into operational objectives and plans through the
day-to-day operational planning.
Since the company’s mission is the foundation for strategic, tactical and operational plans, it is
important to be well understood and accepted by all the employees of the company and to guide
them in their current operations through successfully implemented business plans. The
organizational strategy has been firmly implemented and the planning process has reached its
objective only when these conditions have been met, and the employees have contributed, through
their actions, to the achievement of the company’s results (Kepner and Tregoe, 1965). Figure 15.1
highlights the connection between organizational goals and plans at the strategic, tactical and
operational levels.
According to Popa and Filip (1999, pp. 150-151), no matter the corporate level, planning includes
the definition of the objectives – the performance targeted by managers – and the plans resulting
from these objectives, namely, the measures that are to be taken in order to achieve the purpose
targeted. The successful implementation of an organizational plan depends on establishing the
following elements: specific actions to be carried out, time interval for putting them into practice,
necessary material, financial and human resources, as well as designation of a person responsible
for the implementation of the plan. In the organizational jargon, this person is also called the
4
“project sponsor”. While “the sponsors” of the strategic plan are the representatives of the top
management, the middle level managers are responsible for the tactical plans, and the heads of
working teams or even employees in the operative units are in charge with the operational plans.
Figure 15.1 From vision to organizational results
Source: Adapted from Popa, I., Filip, R. (1999). Management internaţional [International Management],
Bucharest: Economic Publishing House, p. 150.
A. Strategic planning in multinational companies
Strategic planning involves defining the strategic objectives that address the entire activity of
the company over medium and long term, as well as the strategic plan that usually includes:
PESTEL analysis, SWOT analysis, BCG matrix, company strategy and product or business unit
strategy. The competitive advantage 1 of the company, which aims to create synergies at
international level, is also defined at this last level. More specifically, strategic planning provides
answers to the questions: What is being produced and sold?, To whom is it sold?, What is the
competitive advantage of the company?. For example, through strategic planning, Transylvania
Bank (BT) decides what are the products it focuses on (banking products for individuals and legal
entities, treasury products), which is the most important segment of clients it addresses (SMEs)
and what is its competitive advantage (why would its customers prefer BT rather than other
banking institutions in Romania).
PESTEL analysis is one of the most important business tools for analysing the macroeconomic
environment; it aims at examining how the market determines the company’s activity and it
divides the influencing factors at organizational level into six main categories: Political, Economic,
Social, Technological, Environmental, and Legal factors. Most of these elements are
The competitive advantage is the ability of a company to achieve better results or performances than its
competitors, distinguishing it from other companies on the market (e.g. better quality of products and/or
services, increased adaptability to changes in the business environment, lower costs of raw materials).
1
5
interconnected and do not act independently. When any of these factors changes, the competitive
environment of the business operation is affected. For example, the rapid expansion of
technological factors in recent years deeply influences the way people carry out their activities, as
well as their lifestyles and standards, leading to an increased demand for high-tech products to
match this structural change. Thus, understanding how PESTEL factors generate change in the
external environment is merely a starting point in the analysis of the environment in a specific
region or country. The business representatives need to continue studying the key drivers of change
and their impact on different business sectors, markets, companies, and other organizations.
SWOT analysis, unlike PESTEL analysis, looks at both the external business environment and
the organizational internal environment. Its name derives from the abbreviation of the four
categories of internal and external factors that are examined, by balancing the Strengths and
Weaknesses of the company versus the Opportunities and Threats of the external business
environment in the country or area of internationalization. After applying the SWOT analysis, an
effective business strategy should capitalize on company strengths, mitigate weaknesses, take
advantage of external opportunities and reduce market threats. Thus, there are four possible
combinations between the internal and external elements of the company meant to identify the
most appropriate business strategy:
-
Maxi-maxi uses the company’s strengths to benefit from the environmental opportunities;
Maxi-mini uses the company’s strengths to diminish the environmental threats;
Mini-maxi aims at diminishing the company’s weaknesses in order to take advantage of the
opportunities in the external environment;
Mini-mini aims at mitigating the company’s weaknesses in order to reduce the threats in
the external environment (e.g. corporate restructuring or reorganization) (Popa and Filip,
1999, pp. 153-155).
Although the SWOT abbreviation may induce the idea that the analysis of the four categories of
elements should be done in this specific order (starting with the strengths of the company), in
practice, this is not a recommended approach, as the initial analysis of opportunities and threats
later allows for the right positioning of the strong and weak points of the company in the context of
the targeted market.
BCG matrix (based on the acronym of Boston Consulting Group method) ranks the companies
according to the market growth rate and relative market share of their different product categories,
thus grouping them into four distinct quadrants:
-
“Dogs” or “Millstones” – low growth rate and low market share;
“Cash cows” – low growth rate, but high market share;
“Question marks” or “Dilemmas” – high growth rate, but low market share;
“Rising stars” – high growth rate and high market share.
Figure 15.2 shows the four generic categories of products of the BCG matrix, to help companies
make strategic decisions about their investment potential and generate future revenues from their
business segments. In the case of the products in the “dogs” quadrant, it is often suitable to change
the strategic objectives of the company completely, as the approach is not efficient and the
products sold on the market do not make a significant contribution to the company. For the
products situated in the “cash cows” quadrant, the recommended strategy involves (re)investing
profits in order to increase the growth rate. If the product is placed in the “question marks”
quadrant, one of the suggested strategies consists of strengthening the promotional activity and
capital investments on that market to facilitate the move to the “rising stars” area. Finally, if the
company has its products in the “rising stars” quadrant, then the current business strategy should
be maintained, because it proves to be efficient and it allows for an adequate competitive
positioning (Popa and Filip, 1999, pp. 155-156).
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Figure 15.2 BCG Matrix
Source: Milner Strategic Marketing Ltd. (2017). Using the BCG matrix for effective portfolio management,
<http://www.milnerltd.com/news/using-the-bcg-matrix-for-effective-portfolio-management/>.
According to Milner Strategic Marketing Ltd. 2 business consultancy company, the ideal case for a
firm placing a product on the market is to follow the subsequent evolutionary path: 1. launching the
product on a developing market, in the “question marks” category; 2. increasing the market share
of the product to become a “rising star”; 3. maintaining its market share as the market growth rate
decreases, in order to become a “cash cow”; and, finally, 4. positioning the product in the “dogs”
category, if the market share decreases as well. As a concluding remark, the BCG matrix allows the
company to manage correctly and efficiently its business portfolio through direct analysis of the
generated revenues, for a better management of the company’s resources.
In the strategic planning process, following the strategic analysis of the existing options – the
company’s position on the market has been studied, using at least one of the above tools – the
company strategies and the business unit (product) strategies are formulated and implemented.
Company strategy can take two forms: single product strategy or diversification strategy
(horizontal or vertical diversification – upstream and downstream vertical diversification).
A company that follows the single product strategy, also called the “big-fish-in-smallaquarium strategy”, concentrates all its corporate resources on this product, either on a single
market or across multiple markets; as a result, the product is likely to become very competitive,
which is a major advantage for the company. On the other hand, given that the existence of the
company depends on the evolution of this single product, the approach is very risky, and very few
companies take on this risk when faced with a very dynamic and changing business environment
(Popa and Filip, 1999, pp. 157-158). Generally, there are two specific situations when such a
strategy is recommended: 1. for small firms with currently limited resources which do not afford an
extension of the product range; 2. for larger firms that have created their distinctive competences
on the market by selling a product which is in constant demand. After the company has
successfully differentiated itself from the competition through this approach and has obtained
consistent revenues, an immediate diversification of corporate activity is recommended, in order to
effectively manage the associated risks and create long-term stability.
http://www.milnerltd.com/news/using-the-bcg-matrix-for-effective-portfolio-management/ [Accessed on
February 10th, 2017].
2
7
The strategy of horizontal and vertical diversification is highlighted in Figure 15.3.
Figure 15.3 Business diversification and current activities
Source: Adapted from Johnson, G., Scholes, K., Whittington, R. (2005). Exploring Corporate Strategy: Text
and Cases, 7th Edition, Essex: Financial Times/Prentice Hall, p. 286.
The diversification strategy within a company has the following features:
-
-
Vertical integration is aimed at including both upstream (backward) and downstream
(forward) adjacent activities of the company. “Backward integration” involves the development or incorporation of activities that are based on the supply of raw materials or other
resources needed in the current activity of the company. For example, raw materials,
equipment and labour force are important resources for a company’s production activity;
therefore, the acquisition of a manufacturer of components for the automotive industry by a
car producer company is a model of diversification of the company’s activities through
“upstream” or “backward” integration. “Forward integration” involves the development of
business areas that focus on the supply of products/services following the company’s
current activity (e.g. transport, distribution, service and maintenance). A consumer goods
company that acquires a commercial space (outlet) to sell its own products is an example of
“downstream” or “forward” integration. When the Benetton producer of garments acquired
land and sheep farms in Argentina to get its raw material (wool) at good prices, the Italian
fashion group applied a vertical “upstream” integration strategy. The same type of vertical
integration can also be identified in the case of the multinational chain of Starbucks coffee
bars, which acquires much of its coffee beans from its farms in various parts of the world
(Asia and Africa). On the other hand, Whirlpool is a global producer of home-appliances
that also provides service (maintenance) for the products it sells, thus implementing a
vertical “downstream” integration strategy.
Horizontal integration involves the development of complementary activities to the firm’s
current business. This type of strategy is recommended when the company can use the
8
same technology for developing more product ranges or the same distribution network,
when the company has a well-known brand name or when it targets the same customers
through various products and services (Popa and Filip, 1999, p. 158). For instance, many
companies have become aware that there are new opportunities on different markets to
exploit their own strategic capabilities by replacing the existing suppliers. The Romanian
banks are such an example; they developed their own insurance companies or brokers
during 1990s, to serve a wide range of their clients’ financial needs. This is how BCR
(Romanian Commercial Bank), BRD (Romanian Development Bank) and BT (Transylvania
Bank) acted in 1998, when they set up the ASIBAN insurance company, as well as BCR in
2002 when it set up BCR Insurance.
Business unit strategies are also called product strategies because it is at this level that the
firm’s products are developed and their sales strategy are defined; the focus is mainly on the
competitive advantage that the company is trying to create. Very well-known in the specialized
literature, the typology of product strategies developed by Michael Porter (1985) addresses three
types of generic strategic options available to companies – differentiation, cost reduction and focus
strategies:
-
-
-
Differentiation strategy is about providing different and more competitive products or
services than those of the competitors, on a market where demand is less sensitive to price
changes and competition focuses on product characteristics, technology and innovation;
that is why this strategy applies to innovative and quality competitive products, which bring
high unitary profits, but also have high prices.
By contrast, cost reduction strategy aims at gaining a competitive advantage through lower
costs than those of competitors and, implicitly, lower prices on a highly price-elastic
market; this strategy is recommended for companies whose products are not qualityoriented and only bring low unitary profits but are cheaper and more price-competitive.
Focus strategy no longer refers to the price-quality ratio as the main distinctive feature
from competition, but companies applying it target their products at specific markets,
niches or categories of consumers with specific needs; loyalty to production brand or trademark is the main competitive advantage that these companies are trying to consolidate.
To be as efficient as possible, a company should focus on only one of the three main strategies
outlined above. For example, in the automotive industry, considering the products sold on the
market, Lexus – Toyota’s luxury car division – applies a product differentiation strategy, Dacia
puts on a cost-cutting strategy, and Tesla – through its electric cars mainly addressing consumers
concerned with environmental protection – uses a focus strategy.
The strategic planning is put into practice at the level of departments and operative units, through
tactical and operational planning.
B. Tactical planning in multinational companies
Tactical planning aims to achieve a tactical goal and to formulate a tactical plan at each
departmental level, so that the company is allowed to implement its assumed objective. Tactical
plans aim to translate strategic plans at departmental level, offering more specific measures that
companies need to take in order to achieve their goals; each strategic plan is put into practice
through several tactical plans. Tactical plans include the actions (measures) to be effectively taken,
the time interval (usually more than one year), the necessary resources (financial, material and
human), and the person responsible for the implementation of the plan. The achievement and
implementation of tactical plans are usually done over an average period of 1-3 years and the
department managers are in charge.
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For example, using a strategic plan, Transylvania Bank aims to become the number one in the
financial and banking field during 2017-2019 periods. As a consequence, its tactical plan for the
human resources department should clearly specify the methods and activities necessary to equip
the bank’s branches with well-trained employees that can support the implementation of the
strategic objective; in addition, the tactical plan also mentions the required implementation time
(e.g. 18 months), the resources allocated (following a rigorous cost-benefit analysis), and the
person responsible (human resources manager).
C. Operational planning in multinational companies
Operational planning takes place at the level of operative unit (office) and it is defined by
establishing an operational goal and an operational plan, which also includes the activity/ies,
duration, resources and the person responsible for its implementation. Unlike tactical plans,
operational plans are more specific, since they refer to the accomplishment of a single activity and
have a short execution time of maximum one year (Popa and Filip, 1999, p. 159). Continuing with
the example of Transylvania Bank presented for the tactical planning, the personnel training office
in the human resources department can set the improvement and development of employees
according to the new market requirements as an operational goal; therefore, the operational plan
based on this objective will target the identification of training needs for each employee following
their assessment process, establishing the types of training needed within all branches of the bank,
and contracting a specialized training company that can provide the necessary training courses.
The management literature distinguishes between two categories of operational plans: single plans
– designed for one-off corporate activities (projects and programs) and permanent plans –
formulated for repetitive activities (company policies, standard operating procedures, and
company regulations) (Popa and Filip, 1999, p. 159).
For example, the Coca-Cola campaign to promote all its products on the Romanian market in 2019
is an operational program, while promoting Sprite carbonated beverage in the same country is a
component project of that program. The Coca-Cola’s corporate social responsibility (CSR) is a
company policy communicated to its internal and external stakeholders 3; in the bottling units of
the company’s products there are standard operating procedures, where the human-machine
interaction is rigorously traced, while in the human resources department the rules and
regulations for the personnel policy of the company are laid down.
15.1.2 Organization in multinational companies
To accomplish the assumed objectives and assign the tasks and responsibilities within the
company, corporate activities are grouped according to their shared features and are set up as
support-models called organizational structures (OS). Thus, the organization of activities within
the company reflects both the needs of internal development (e.g. enlargement of corporate
operations through the internationalization on a new market), as well as the conditions in the
external environment (e.g. various business requirements depending on the socio-cultural
specificity of the market).
The organizational structure of a company can be assimilated to its anatomy, representing the
formal arrangement of corporate resources, assets, responsibilities and information flows. From
this perspective, according to Morschett et al. (2015), the organizational structure exhibits a
The stakeholders are the individuals directly or indirectly affected by the company’s activity and that have a
say in company operations.
3
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number of important features and functions, including: describing and grouping the activities to
establish the tasks of the employees; defining the hierarchical structure containing the relations of
authority and subordination; determining the means of allocating the organizational resources;
establishing the ways of communicating for decision-making and control within the company.
Especially in the case of multinational companies, the organizational structure helps to establish a
balance between flexibility (reaction capacity) and consistency (integration capacity). The need for
reaction capacity results from the heterogeneous requirements specific to different countries where
the company operates, but also from the diversity of its lines of products and services. The need for
integration derives from the necessity to coordinate the company’s activities, with a view to
ensuring a uniform implementation of the business strategy at global level. Basically, the selection
of an organizational structure leads to varying degrees of flexibility or consistency, so that an
optimal balance should be struck between the requirements of (external) effectiveness and
(internal) efficiency at any time.
Three main categories of organizational structures are in place for companies with international
activities, depending on the firm’s degree of internationalization: international organizational
structures, global organizational structures and complex (non-traditional) organizational
structures (Popa and Filip, 1999, p. 121).
A. International organizational structures
Organizational structure with export department: In the early stages of the company’s
internationalization, when the external sales volume is low, the export activity is placed under the
responsibility of the marketing or sales department. As the share of exports increases in total
turnover, the next step is to create an export department, coordinated by an export manager,
usually subordinated to the marketing department or directly coordinated by the company’s top
management.
Organizational structure with department of international relations: Given that the
foreign operations of the company increase internationally, the firm capitalizes on growth
opportunities by creating an independent division that deals with all its international operations.
The manager of the international division coordinates and monitors all the activities of the
department and he/she is usually directly subordinated to the executive director of the company.
The creation of the department/division of international relations separates the corporate domestic
activity from the international one.
In general, as shown in Figure 15.4, the international organizational structures (OS) are broadly
divided into three basic organizational models: OS with export department, OS with subsidiaries
directly subordinated to top management and OS with department of international relations
(Popa and Filip, 1999, pp. 121-127). The main difference between the organizational structure
with subsidiaries directly subordinated to top management and the OS with
department of international relations refers to the degree of centralization and control of the
company’s external operations, which is higher for the latter. The OS with subsidiaries directly
subordinated to top management is a fully decentralized model, which offers a high degree of local
independence and adaptability to its subsidiaries in various foreign markets, but it does not benefit
from an integrated strategic approach.
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Figure 15.4 Models of international organizational structures (OS)
OS with export department
OS with subsidiaries directly subordinated
to top management
OS with department of international relations
Source: Adapted from Popa, I., Filip, R. (1999). Management internaţional [International Management],
Bucharest: Economic Publishing House, pp. 121-127.
B. Global organizational structures
The development of a company’s international operations creates the need to expand its activities
at global level and to build a corresponding organizational structure meeting the requirements of
global integration (Melin, 1992). Therefore, the creation of this type of organizational structure –
the global OS – must also address specific challenges related to the degree of control that the
parent-company has over its subsidiaries, as well as the autonomy degree of the foreign
subsidiaries when making key decisions (centralization versus decentralization). The global
organizational structure leads to reordering and merging the organizational interests into an
integrated structure, which can be based on one of the following divisions: functional, product,
geographic/regional or mixed (a combination of two out of the three previously listed dimensions).
According to Popa and Filip (1999, pp. 127-132), the global organizational structures – presented in
Figure 15.5 – may be found basically as four distinct organizational models: global functional OS,
global product OS, global regional OS and global mixed OS. Subsequently, depending on the
business strategy and the requirements of the external business environment, the global
organizational structure can be developed into a matrix OS or a transnational network OS.
Global functional organizational structure: This form of corporate organization focuses on
the key functions of a company, so that each functional or divisional department is also directly
responsible for its international activities. This type of organizational structure benefits from the
experience of each functional division and enables centralized control. Among the advantages of
global functional OS, the following are included: increased emphasis on functional expertise; high
level of centralized control; greater international orientation of all managers. The disadvantages of
this organizational structure – recommended for companies with relatively few products and
extended only on a limited number of external markets – refer to difficulties related to inter12
functional coordination and management of multiple product lines, due to the operational split
into different departments.
Figure 15.5 Models of global organizational structures (OS)
Global functional OS
Global product OS
Global regional OS
Global mixed OS
Source: Adapted from Popa, I., Filip, R. (1999). Management internaţional [International Management],
Bucharest: Economic Publishing House, pp. 127-132.
Global product organizational structure: According to the product line structuring of the
firm, each product has a corresponding division responsible for its production and development at
international level. The managers of product divisions receive internal product-related support
from all subordinate departments and they also enjoy high autonomy together with the
responsibility for making important decisions, as the product division operates as a profit center.
The global product OS is effective when managing diversified but standardized product lines at
regional level and it is useful when product changes are made. This type of organizational structure
allows for a close coordination between the technological and marketing aspects related to different
markets, given the differences in product life cycles on these markets.
Global regional organizational structure: By using this model of structuring the corporate
activity, the global operations of the company are organized according to specific regions or
geographic areas. The global regional OS is generally applied by companies having mature and
narrow product lines; its various geographical subsidiaries have a high degree of autonomy, which
allows them to focus on local market requirements, on monitoring market change and on quick and
efficient response to variations in the local environment. The main feature distinguishing this type
of organizational structure from the one with an international division (department of international relations) is that the domestic market is only one of the markets of the company and it is
no longer a priority when comparing with the foreign markets (Popa and Filip, 1999, pp. 129-130).
Box 15.3 briefly outlines the relevant example of the American-based Pepsi Company, which uses a
global divisional structure and combines the product criterion with the geographic criterion, in
13
order to create a mixed global organizational structure that is perfectly adapted to the
company’s current business development at global level.
BOX 15.3 PepsiCo’s global divisional organizational structure
PepsiCo globally produces and sells soft drinks and food products through six global divisions that act
by themselves or together with third parties to ensure the worldwide availability of the company’s
products and to meet the goals of the company. Currently, the six global divisions of PepsiCo form a
mixed global organizational structure and they enable the company to react effectively and
quickly both to the requirements related to developing and selling different products (beverages, FritoLay and Quaker foods) and to the constant changes in the external environment (North and South
America, Europe, Sub-Saharan Africa, Asia, Middle East and North Africa). The global divisions of
PepsiCo are briefly presented below; the first three highlight the product criterion and the last three
mainly stress the geographical component (North America is the strategic business area of PepsiCo, so it
is also emphasized in the product divisions):
- North America Beverages: includes all corporate businesses based on soft and carbonated
drinks, tea and coffee in the USA and Canada;
- Frito-Lay North America: produces and sells some of the most famous snacks (e.g. potato or
corn snacks) in the USA and Canada;
- Quaker Foods North America: produces and sells cornflakes, oatmeal, rice, pasta and dairy
products in the USA and Canada;
- Latin America: includes all corporate businesses based on soft drinks, food and snacks in
Latin America;
- Europe and Sub-Saharan Africa: includes all corporate businesses related to soft drinks,
concentrated syrups, coffee, tea, food and snacks in Europe and Sub-Saharan Africa, developed
only by PepsiCo or in partnership with other companies;
- Asia, Middle East and North Africa: includes all corporate businesses related to soft
drinks, concentrated syrups, coffee, tea, food and snacks in Asia, Middle East and North Africa,
developed only by PepsiCo or in partnership with other companies.
The organizational structure adopted by PepsiCo supports the consolidation of the corporate business at
global level and it ensures a high degree of control over its operations in different markets.
Source: PepsiCo (2016). Global Divisions, [Online]. Available at:
<http://www.pepsico.com/Company/Global-Divisions>.
C. Complex organizational structures
In the category of complex (non-traditional) organizational structures are found, among others,
matrix OS and network OS (Popa and Filip, 1999, pp. 132-139). These are briefly presented in
Figure 15.6 and they represent the last stage in the evolution of organizational structures.
Matrix organizational structure: This is an integrated corporate structure, which may consist
of product divisions intersecting geographical or functional divisions, leading to the formation of
teams focused on different projects and bringing together employees with various qualifications.
Unlike the global functional, product or regional OS, the matrix OS shares the control over the
various functional activities of the firm between its departments (Jones, 2010). Such an integrated
organizational structure facilitates a better interaction between employees across the company, as
well as the technology transfer for international operations and new products on different markets,
generating economies of scale and higher sales. In trying to reconcile divergent perspectives within
the organization, the matrix organizational structure may also lead to conflict situations (e.g.
subordination of an employee to two or more superiors) and can hinder the company’s ability to
respond quickly to the changes in the business environment.
14
Network organizational structure: Following a natural translation from simple to complex
cases, this is the final form of a global company. The network OS eliminates the role of two or three
dimensions of the matrix, it includes functional, product and regional features and it is based on a
complex network arrangement intended to link companies at global level (the network members
are legally independent). The network OS is not specifically defined by its formal structure, but by
the interlinking of its processes, thus describing the global integrated system of its various subsystems. The network OS is designed around several “nodes”, which are the units responsible for
coordinating the products, functional and area aspects of a multinational company.
Figure 15.6 Models of complex organizational structures (OS)
Matrix OS
Network OS
Source:
Adapted
from:
<https://cdn.vertex42.com/ExcelTemplates/Images/orgcharts/matrixorganizational-structure.gif>, <http://www.bestreferat.ru/images/paper/62/99/8059962.jpeg> (Matrix OS)
and Popa, I., Filip, R. (1999). Management internaţional [International Management], Bucharest:
Economic Publishing House, pp. 137-138 (Network OS).
According to Hodgetts et al. (2005), the conceptual framework of a network organizational
structure resides mainly in three basic components: spread subunits – the subsidiaries are located
anywhere in the world in order to take advantage of the low costs or provision of information about
new technologies or market trends; specialized operations – the activities of product subunits are
especially developed in the areas of research, design and innovation, and marketing, in order to
bring on specific know-how; interdependent relationships – the exchange of information and
resources between dispersed or specialized subsidiaries is facilitated.
15.1.3 Coordination in multinational companies
The objectives of the company and its organizational structure would be without substance and
could not be put into practice without the existence and involvement of the most important
corporate resources – the human resources. In general, the coordination or management of
human resources involves at least the following set of corporate operations through which
employees are: identified and attracted towards the company (recruitment); chosen according to
rigorous pre-established criteria and methods (selection); trained to acquire the needed
knowledge, skills and abilities for the optimal fulfilment of the job duties (training); involved and
positively influenced in order to meet both the individual and organizational goals (motivation).
15
Several relevant features of personnel coordination in multinational companies are presented in
this section; the general issues of human resources management (HRM) are not highlighted here
but there is a special focus on the particularities induced by internationalization and multiculturalism on the personnel policies for companies with international activity. The managers in
charge of the international operations of these companies will benefit from special attention in this
subchapter, starting from the basic idea that these managers are the main decision-makers in an
international and intercultural context and their careers’ management in business organizations is
highly important for achieving strong corporate performance.
A. Recruitment of employees in multinational companies
One of the main challenges associated with business operations across national borders is the
employment of adequate human resources for the international assignment. The main available
options are hiring a local employee (a person from the host-country) or an expatriate employee (a
person from the home-country or from a third country) for that foreign mission. The key
advantages and disadvantages of these two fundamental options will be briefly presented below.
Concerning the employment of a national resident (inpatriate) to run the operations of the
company in the host-country, the main advantages of this option are: familiarization with and
knowledge of the local markets and communities, national laws and regulations, cultural
environment and local economy as a whole; knowledge and practice of the local language and indepth cultural assimilation; approach of a long-term perspective and commitment of the employee
over a longer period of time to consolidate an integrated business strategy, as opposed to the case
of an expatriate that is rather guided by short-term goals and immediate results; manifestation of
empathy concerning the other local employees and avoidance of a pre-eminence behaviour
sometimes shown by the expatriate managers; building the image of a good and responsible
corporate citizen for the multinational company that uses local managerial talents and resources;
favourable answer given by the company to governmental pressures in the host-country to take on
mainly locals to fill management positions; last but not least, adopting a less expensive staffing
policy, as hiring a local employee is usually cheaper than appointing an expatriate for the same
position (Armstrong, 2010, p. 105; Dessler, 2012, p. 583). Due to the high costs and the problems
associated with the appointment of expatriates in managerial positions in the foreign subsidiaries
and operations, most multinational companies are currently employing local staff for most of these
executive jobs; expatriates represent a minority of the managerial personnel and they are hired
only in exceptional cases (Dessler, 2012, p. 583). One of the most frequent disadvantages of hiring
a local resident in a top management position within a subsidiary in the host-country is the risk of a
poorer understanding of the business objectives and overall strategy of the parent company, if the
local employee did not receive proper previous training (Portolese Dias, 2012, pp. 524-525).
On the other hand, there are situations when the employment of an expatriate (foreigner) is
necessary to manage the corporate business operations in the host-country. When it comes to the
typology of expatriates according to their country of origin, the specialized literature distinguishes
between ‘expatriate’ (person coming from the country of origin of the company) and ‘transpatriate’
(person coming from a third country, which is different both from the home-country of the firm
and the host-country of the operation) (Dessler, 2012, pp. 582-583). For example, an American
employee working in the Romanian subsidiary of a USA company is an ‘expatriate’, while a
Bulgarian employee holding a position in the Romanian subsidiary of a USA company is a
‘transpatriate’. The term “expatriate” will be used below to cover both situations when the person
appointed in the managerial position is not a local resident.
The following situations should be mentioned when it is recommended to appoint an expatriate
manager to run the foreign operations in the host-country: the need to have the experience and/or
16
expertise that local staff lacks, at least at the beginning of the assignment; the need to employ
specialized personnel that was trained in the country of origin of the company or at the
headquarters, especially when the parent company decides to launch a new product or service on a
foreign market (Armstrong, 2010, p. 105); the need for higher control over the organization and the
integrated and consistent implementation of its business strategy, starting from the premise that
home managers are already familiar with the company’s policies and culture and, therefore, it is
more likely that they apply the headquarters’ working style (Dessler, 2012, p. 583). Several
disadvantages of appointing an expatriate include: the risk of a more difficult adaptation of the
manager and his/her family to the foreign environment and local living conditions, as well as the
corresponding decrease in his/her productivity and efficiency; language barriers and lack of
cultural empathy/sensitivity; higher employment and expatriation costs, including administrative
formalities and procedures (Portolese Dias, 2012, pp. 524-525).
As regards the staffing policy in an international context, Dessler (2012, pp. 584-585) highlights
other transitory or short-term solutions – such as localization abroad or transnational
virtual teams – involving multiple international travels but no formal relocation. The localization
policy refers to the permanent transfer of an employee from the country of origin to a foreign
subsidiary abroad, but the employee will be subject to local staff policies, because he/she will not
be considered an expatriate anymore and will be assimilated to a local employee. The development
of global or transnational virtual teams is a form of collaboration between employees of a
multinational company in different countries, where the Internet-based video technologies and
software programs for group decision-making allow the corporate members to communicate and
work together without moving or relocating. Finally, in order to benefit from a favourable local
context, large multinational companies also resort to offshoring human resources; this means that
the company’s employees in a foreign country currently fulfil certain tasks and jobs that used to be
fulfilled by the employees in the country of origin (Dessler, 2012, p. 585). A good example is the
case of IBM Company and its HR outsourcing in India of a significant part of the research and
development for its products and services sold at global level; the employees of the IBM’s Indian
subsidiary are now engaged in research, development and innovation activities that were
previously carried out by IBM’s employees at the headquarters. In this case, the main reason for
IBM’s HR outsourcing is represented by the lower labour costs in India.
The corporate decision to go for local or expatriate employees is influenced by various factors, such
as: the technical skills of the personnel, the (de)centralization of decision and control, the
organizational culture, the personal values and preferences of top management, etc. H. Perlmutter
(in Dessler, 2012, pp. 585-586) identifies three international approaches in human
resources policies according to the core values of the top management: the ethnocentric,
polycentric and geocentric approaches. In an ethnocentric-oriented company, the key management
positions are predominantly filled by employees from the parent company, and the prevailing
attitude is that the methods, management style, knowledge, evaluation criteria and leadership
applied by the company in the home-country are superior to those in the host-country. In a
polycentric-oriented company, its foreign operations are staffed with local employees in the hostcountries and employees from the country of origin are hired by the headquarters; the underlying
vision of such an approach is that only the managers from the host-country can fully understand
the culture and market behaviour of the host-country. Finally, the personnel policy of a geocentricoriented company focuses on employing the best individuals for the key positions within the
organization, regardless of their nationality, starting from the belief that the best manager for a
specific job in a company can be found in any of the countries where the company operates. The
geocentric staffing policy can contribute to strengthening the organizational culture and a set of
stronger and more consistent corporate values across the entire team of global managers (Dessler,
2012, pp. 585-586).
17
B. Selection of employees in multinational companies
The selection of the most suitable candidates for the international operations of the company
begins with setting up certain requirements and criteria to be met, which will be verified through
tests and/or interviews. According to Mathis and Jackson (2010, p. 215), the match between the
individual and the characteristics of the job to be filled is essential for the corporate operations
taking place across national borders, as the employee must demonstrate appropriate personality
traits, skills and interpersonal competences to be effective in the international business
environment. In addition to the technical and administrative skills necessary for the job, Portolese
Dias (2012, p. 531) thinks that a series of complementary skills and abilities must be taken into
account in an effective selection process for a candidate to be sent in a foreign assignment:
international experience, extroversion, stress resistance, risk tolerance, knowledge of the foreign
language(s) and previous cultural experience.
Considering the current technological development and social media coverage, companies are
increasingly appealing to detailed online posting of the selection criteria for the jobs they want to
fill. A fragment of the job description – publicly posted on LinkedIn – for an expatriate financial
manager of Deloitte consulting company in Romania is presented in Box 15.4.
BOX 15.4 Selection requirements for the Financial Manager of Deloitte
Romania
The Financial Manager of Deloitte Romania will be a key member of the management team, he/she will
directly report to Deloitte’s Chief Executive Financial Officer and will closely collaborate with the
General Manager in Romania, the Operations Manager and other managers of the business units. The
person holding this position should supervise all the financial aspects of the company’s business in
Romania, should coordinate financial reporting, planning and forecasting, cash management and fiscal
issues for Deloitte Romania, and should manage the team of local accountants.
Some of the required qualities of the future Financial Manager of Deloitte Romania are listed here: to
be a reliable person, able to take decisions on his/her own, a professional with the necessary
qualifications, with in-depth knowledge of accounting, finance and general business principles, with
proven experience in performing the job duties through observing the highest professional and ethical
standards in the field.
According to the job description, the main requirements of this position are:
- proven experience as a financial manager or a similar position;
- thorough knowledge of accounting, fiscality, legislation and best practice cases;
- comprehensive knowledge of financial analysis and forecasting;
- proficient use of MS Office and financial management programs (SAP knowledge is a plus);
- analytical thinking to identify the market trends;
- outstanding organizational and leadership skills;
- excellent interpersonal and communication skills;
- acknowledged qualification in the accounting or financial field (ACCA or equivalent).
Source:<https://www.linkedin.com/jobs/view/251428200?trkInfo=searchKeywordString%3AExpatria
te%2CsearchLocationString%3A%252C%2B%2Cvertical%3Ajobs%2CpageNum%3A1%2Cposition%3A1
%2CMSRPsearchId%3A78355495-2a38-4b80-94a1-a46bf80d29ea&refId=78355495-2a38-4b80-94a1a46bf80d29ea&trk=jobs_jserp_job_listing_text> [Accessed on January 25th, 2017].
Mathis and Jackson (2010, pp. 239-240) outline the five most frequent key competencies for
successful global employees:
18
-
-
cultural adjustment (awareness of cultural differences, cultural adaptability, acceptance of
diversity and multiculturalism, international or global experiences, etc.);
personal characteristics (emotional stability, uncertainty acceptance, flexibility and risktaking, physical strength and stress resistance, etc.);
organizational requirements (knowledge of the company, technical abilities, skills related
to job fulfilment, etc.);
communication skills (knowledge of the local language, oral and written communication in
foreign languages, non-verbal sensitiveness, effective attending and listening skills, conflict
resolution skills, etc.);
personal and family circumstances (personal life requirements, consideration of family
aspects, financial or economic concerns, further career development, etc.).
Using a typology similar to that of Mathis and Jackson (2010), Portolese Dias (2012, pp. 525-527)
adopted and analysed S. Ronen’s five categories of selection criteria for international
managers contributing to the successful fulfilment of the mission assumed by the expatriates (S.
Ronen is a researcher dedicated to studies on global management):
-
-
job-related factors (technical skills, knowledge of the company’s operations in the country
of origin and the host-country, managerial skills, administrative competence);
relational factors (uncertainty acceptance, behavioural flexibility, objective and unbiased
vision, cultural empathy and low ethnocentrism);
motivational factors (trust in the foreign operation, matching between the foreign
assignment and personal career development, interest in international experiences, interest
in host-country culture, willingness to experience new behaviours and attitudes);
family-related factors (spouse’s willingness to live abroad, adaptability and support offered
by the spouse, stability of the marriage);
linguistic factors (knowledge of the host-country’s language, non-verbal communication
skills).
Although the selection criteria for expatriate managers are given adequate consideration in most
companies with international activity, failure in corporate foreign missions is a frequently
experienced situation in business practice. As a result, Deresky (2006, p. 362) summarizes the
most important factors mentioned by researchers and companies as causes of negative outcomes,
taking into account the failure registered by some expatriates in their overseas missions: selection
based on the criteria of the headquarters rather than on the specific needs of the foreign operation;
inadequate training and assistance of the employees prior to their overseas assignment; moving
away from the vision of the headquarters or lack of support from the parent company; inability to
adapt to the local culture and work environment in the host-country; problems with spouse and
children adjustment (their low adaptation to the new conditions and family disagreements); poor
compensation and inadequate financial support for the expatriate; deficient programs for further
career development and repatriation.
Finally, different measures to improve the chances of a successful mission abroad are proposed in
the specialized literature (Dessler, 2012, p. 589) in order to prevent the occurrence of failures in the
foreign operations of international companies: providing a preliminary accurate image of the
expatriate’s expectations of the new job; an in-depth analysis of the expatriate and his/her family;
helping spouses of international managers to obtain jobs abroad and providing better support for
the expatriate and his/her family; improving orientation programs and benefit packages offered to
expatriates; developing global networking programs, where local managers can provide support
and advice for expatriate managers; shortening the length of staying abroad; emphasizing the
match between the job requirements and the person filling that job, as everyday experience has
shown that expatriates who are satisfied with their jobs are precisely those who adapt best to the
characteristics of the foreign mission (Dessler, 2012, p. 589).
19
C. Training of employees in multinational companies
After choosing the most suitable person for a specific job in a foreign operation of the company, the
employees are given training and development opportunities so as enable them to efficiently fulfil
the objectives set by the company.
In order to be successful on missions abroad, the expatriate managers should receive both
technical and cultural training programs. The technical training aims at acquainting the
expatriate with the foreign operations of the company and the strategic goals to be fulfilled, while
the cultural training is designed to familiarize the expatriate with the local norms and
behaviours in order to integrate him/her in the business environment of the host-country. Cultural
training is considered the most sensitive field of expatriate training, having a decisive role in the
success or failure of the company’s external operations. This is why cultural training programs are
the specific issue to be presented in the following lines, in the context of training and development
of employees at international level.
According to Deresky (2006, p. 363), there are three stages of employee training and development
for foreign operations, as follows:
-
orientation – preparation before going abroad;
adaptation – on-the-site training, after arriving in the host-country;
repatriation – preparation for returning to the country of origin.
The cultural orientation and training programs that expatriates and their families receive before
going abroad affect significantly the success of the foreign operation and are designed to generate a
positive effect for their intercultural adaptation. At the same time, Mathis and Jackson (2010, p.
256) add that training programs help expatriates and their families to adapt to the new
environment and interact with their host-country partners.
Mathis and Jackson (2010, pp. 256-257) highlight three basic components of intercultural
competence training programs for global employees, taking into account that cultural training
includes an extensive area of social skills and personality traits:
-
-
-
cognitive component – employee’s knowledge of other cultures (e.g. specific cultural
training on aspects such as traditions, history, local norms and habits, courses for learning
the language of the host-country);
emotional component – employee’s perception of other cultures and his/her empathy about
cultural aspects (e.g. developing social skills for managing new intercultural situations,
eliminating preconceptions about the new culture, developing communication skills);
behavioural component – employee’s reaction in intercultural situations (e.g. international
projects, formation of intercultural social skills, ‘cultural assimilator’ method). The cultural
assimilator is a programmed training and learning method, consisting of a series of short
case studies and critical incidents that present intercultural interactions and types of misunderstandings that may arise between expatriate and local employees in the host-country;
due to the complexity and high costs involved in the development and use of such a cultural
training tool, the cultural assimilator is generally applied only to employees in managerial
positions within the foreign operations of the company.
As mentioned before, in addition to pre-departure training, most companies also offer continuous
on-site cultural training in the host-country during the initial phases of the mission abroad. This
component of the cultural training is essential, mainly for those operations involving expatriation
over a longer period of time, because the employees have already come into contact with the new
culture and they are in a position to deal with new and often complex cultural situations.
20
Starting from the importance that understanding local culture has for the success of expatriate
managers in a foreign operation, Deresky (2006, p. 365) presents different methods for
training the expatriates used in their cultural adaptation process; these are classified by R.
Tung in increasing order of their complexity:
-
general information about the local environment – attending documentary programs on
the geography, history, economy, socio-political life of the host-country, etc.;
cultural assimilators – participating in the simulation of practical situations that are very
frequent in the interactions between expatriates and locals;
learning the language of the host-country – access to the basic phrases of the local
language in the first stages of the expatriation, in order to establish initial contacts;
emotional training – information and understanding of the cultural differences that may
arise between the country of origin and the host-country;
on-the-site experiences – engaging in interactions with people from different cultures.
The cultural training is provided by the company’s specialists or by a professional firm; in any case,
Portolese Dias (2012, p. 533) considers that there are at least five main components to cover any
kind of training for an employee going abroad: learning the local language, knowledge of the
culture, setting the goals, managing family and stress issues, and repatriation.
In order to achieve a successful foreign mission, many companies prepare both their employees
and their family members for expatriation, considering that the following issues are among the
most frequent causes of family non-adaptation to the new environments: language problems, social
matters, schooling, accommodation, and medical services. As a result, companies are trying to find
the most effective solutions to the above problems and to meet the needs of expatriates’ families by
offering various measures: developing social networks abroad so that the members of the
expatriates’ families can socialize and participate in different leisure activities, offering substantial
support for children’s schooling and appropriate accommodation, assigning of mentors for the
spouse and other measures that can facilitate the transition of the expatriate’s family to the new
environment (Portolese Dias, 2012 , pp. 536-537).
D. Motivation of employees in multinational companies
The involvement of employees in supporting the organizational objectives is achieved through their
appropriate motivation, in accordance with their personal expectations, sector of activity, corporate
culture and company size, national culture of the country of implantation, etc.
Regarding the influence of culture on motivation, three of the most relevant and impacting
cultural dimensions are the following: individualism vs. collectivism, low vs. high power distance,
and short vs. long-term orientation (according to Hofstede et al., 2010). For example, in an
individualist culture (e.g. USA), the employee motivation is primarily achieved through personal
benefits, mainly financial incentives and individual promotions within the organization, as a result
of rewarding the performance and outcomes of each employee; at the opposite end, in a collectivist
culture (e.g. China), the employee motivation takes into account the group’s interests and ensures
internal cohesion, so that the benefits are shared among all members of that respective community.
Another cultural dimension – power distance – reflects the degree in which individuals perceive as
natural the policy of having high variances between different hierarchical levels when rewarding
employees in organizations: in a culture with high power distance (e.g. South American countries),
the increased disparities between the salaries of the managers and those of the employees at the
bottom of the hierarchy are accepted and seen as normal, while in low power distance cultures (e.g.
Northern European countries), the big differences are perceived as unfair and discriminatory.
Concerning the approach of time, the short-term oriented cultures (e.g. USA) prefer immediate
21
benefits and incentives, while long-term oriented cultures (e.g. China) are rather motivated by
compensation packages ensuring them greater stability within the organization.
The motivation process within companies is based on the formation of an appropriate reward
package. According to Armstrong (2010, pp. 107-108, retrieved from Bradley et al., 1999), the
elements determining the composition of the reward system for international companies are:
corporate culture, labour markets in the home-country and the host-country, local cultural issues,
and institutional and legal factors. These elements focus on the choice the managers have to make
between supporting corporate consistency and equity – by developing standard reward policies to
facilitate the transfer of employees across national borders – or reacting to pressures to adapt to
local practices (Armstrong, 2010, pp. 107-108).
Reward policies within most international companies ensure that the remuneration conditions for
their expatriates are at least as good as they would have been if the employees stayed in their
countries of origin. In business practice, the various payments and incentives (e.g. bonuses for
difficult situations) that are offered to expatriates enable them to have a better financial situation
than they would have enjoyed in their countries of origin for the same position. From the organizational perspective, the basic choice (‘classical’ dilemma) is whether to adopt a home-based reward
policy or a host-based reward policy for expatriates (Armstrong, 2010, p. 108), choosing between
standardization-consistency and adaptability-localization when compensating the international
assignees. However, the last decades have confirmed that multinational companies have the
additional option of using a global reward policy, appreciated as more reasonable and objective for
all parties involved. The three reward models will be presented briefly in the section below.
Home-based reward policy: This approach is intended to give the expatriate abroad a salary
equal to the one in the home-country (for similar or equivalent position held within the company),
plus a series of additional compensations for moving overseas. This reward method is also called
the ‘build-up approach’ or ‘balance sheet approach’. Among the allowances to be added to the basic
salary of an expatriate, the following can be listed (if applicable): adjustment of the living standard
(applied to net income and dedicated to daily current expenses), compensation for equalizing tax
regulations between the two countries, premium for stimulating employment abroad, incentives for
difficult situations and localizing in the host-country, housing allowance and utilities, tuition fees
for children, medical and rest leave, etc. (Armstrong, 2010, pp. 108-109).
Host-based reward policy: The second approach of compensating the expatriate abroad
involves granting a salary and benefits (e.g. company car, paid holidays) that are in line with those
offered to local employees in the host-country for a similar position held within the firm. This
method provides a high level of fairness between expatriate and local managers, and it is adopted
by companies using the ‘market rate approach’, which confirms that the expatriate salaries
correspond with the level of local rewards. Usually, in addition to base salary, the companies also
offer supplementary benefits to expatriates, such as tuition fees, accommodation, health insurance
and long-term benefits (e.g. social and life insurance, pensions in the country of origin). Rewarding
expatriates according to the host-country’s remuneration system is fair from the local perspective
and less expensive for the companies than the policy presented above, but it can be much less
attractive or stimulating for the employees going to work abroad, especially in riskier environments
(Armstrong, 2010, p. 109).
Global reward policy: This final approach is usually applied to expatriates in middle or top
management positions and refers to the implementation of a common global pay and benefits
package for each position (e.g. production manager at national level) available worldwide in the
multinational company, regardless of the country of operation. This method is appropriate as a
broad recognition of the current global labour market, where internationally qualified specialists
apply for the same jobs all over the world (Briscoe and Schuler, 2004, p. 322). When the same pay
22
level is applied in different countries, it is usually indexed according to the local conditions, while
the expatriate managers receive ‘expatriation benefits’ in comparison with their local co-workers
ascribed to the same positions.
The customary practice nowadays for multinational companies is to use a combined method for
rewarding their expatriate employees; the companies try to provide an optimal balance between
efficiency and equity, so that the expatriates should be stimulated to successfully carry out their
missions and the organization should be able to offer a favourable work environment for the
development of local employees.
15.1.4 Control in multinational companies
The last of the management functions, control (monitoring corporate activities) assesses how the
company’s strategy has been or is implemented, as well as the degree of achieving the objectives
assumed at different levels of the organization. Timely information about the company’s operations
is obtained through control, so that managers can act and make the most appropriate business
decisions. According to Lynch (2000, pp. 578-580), the achieved information during control can be
used to: evaluate the options for resource allocation; observe the progress in implementing the
company’s strategy; evaluate the performances and decisions of the managers; provide a response
mechanism and self-regulation through small steps that are crucial for applying the company’s
strategies in rapidly changing markets.
In multinational companies, several additional challenges arise in the exercise of control: the
different business experience and heterogeneous reporting of subsidiaries on the accomplishment
of the corporate objectives set at headquarters; the economic, technological, social, political and
cultural differences on the operating markets of the company; the degree of centralization of the
relationships between the parent-company and its subsidiaries, etc. Moreover, the importance of
control is also determined by the activity sector of the company’s operations. For example, in some
business sectors – such as production – the process of control is particularly important. Companies
in the car parts industry (e.g. Continental AG, TRW Automotive) have very well-established control
systems that constantly monitor the achievement of performance standards. For other domains of
activity – such as an advertising agency, for instance – control is of lesser importance.
The stages of the control process aim at: (i) establishing standards, (ii) measuring registered
performances and quantifying key performance indicators – KPI, (iii) comparing achieved
performances with initially set standards, and (iv) getting the results and making appropriate
decisions (Popa and Filip, 1999, pp. 166-167). Following control, managers may decide to apply one
of the following directions:
-
maintaining the initial plan – if achieved results are in line with initially set standards;
correcting the deviations – if the differences between achieved results and initially set
standards are relatively low;
changing the standards – if the differences between achieved results and set standards are
significant and there is no way to redress them.
According to Popa and Filip (1999, pp. 170-172), three types of business performances are
assessed through the control process: financial performance, quality performance and human
resources performance. In the case of multinational companies, the performances evaluated are
influenced by the context of the external environment as well. For example, the assessment of
financial performance is determined by factors such as taxation, inflation rate or monetary parity
in countries where the company has operating subsidiaries; the financial reports must be
completed both by using the currency of the host-country – to allow for comparison with local
23
firms – and by using the currency of the home-country – to facilitate the comparison between the
subsidiaries of the company in different markets. The evaluation of quality performance is also
influenced by local culture; for instance, the prevalence of German companies for quality in the
machinery and equipment industry or the highly competitive price-quality ratio of Japanese firms
in the high technology industries are very well-known. The cultural differences make a decisive
impact on the performance of human resources too, because the assessment of employees is done
by considering the local mentality: in an individualist culture, the results obtained by each
employee are measured, while in a collectivist culture, the evaluation of the group’s results prevails.
In business practice, there are several types of control: there can be direct or indirect control,
when analysing the way of achieving it, and preventive, current or verification control, when
dealing with the moment of achieving it (Popa and Filip, 1999, pp. 168-169). A brief overview of
each type of control is presented below:
-
-
-
direct control involves direct interaction between supervised person and supervisor;
indirect control is mainly implemented through the compiled reports;
preventive (feed-forward) control takes place before executing the activity to be evaluated
(e.g. CVs and letters of recommendation that candidates present during selection process
have the role of providing the decision-makers with preliminary information regarding the
potential performance of future employees);
(con)current control is simultaneously taking place with the activity to be evaluated (e.g.
video surveillance of some production processes, especially those involving a high degree of
precision and low human interaction);
verification (feed-back) control applies after the activity has been completed (e.g. preparing
financial statements at the end of financial year to ensure that the set financial indicators
are met).
As with any corporate activity, the issue of control efficiency is also examined, mainly considering
the cost and time requirements for completing the evaluation. The following efficiency criteria
of control should be mentioned:
-
-
-
accuracy and suitability of information – the complexity and precision of information, as
well as the moment of obtaining it are essential for the best performance of control, mainly
in multinational companies, where the information is transmitted with more effort between
headquarters and subsidiaries;
existence of diverse control criteria – the sum and variety of control indicators contribute
to a more correct assessment of corporate performances; for example, there is the need for
complementing a financial indicator like ‘profit margin’ with a market indicator like ‘market
share’, especially in highly volatile business environments or subject to financial crises;
need for implementing corrective actions – the control activity is not only meant to detect
organizational breakdowns, but it aims at finding the best option for solving a potential
problem.
There are several ways for improving the control function, and all of them are focussed on
obtaining useful and cost-effective information about the company and its business environment.
24
15.2 Applying managerial instruments in an intercultural
context
The managerial functions outlined above cannot be put into practice unless the managers have a
set of tools at their disposal, vital to make decisions and pass on to their subordinates the specific
tasks that they have to perform in efficient, legal and ethical ways altogether. Therefore, decision,
communication and business ethics are the main tools that managers use to achieve their assumed
goals, regardless of their size and importance. Operating in different cultural contexts, with
different values and perceptions, is an additional challenge for the managers of the companies with
international activity.
This subchapter presents the managerial decision-making, communication and business ethics in
multinational companies (MNCs), starting from the essential idea that every manager constantly
uses them in his/her current work. For example, when planning the company’s future activities and
setting the goals to be met, the manager uses the decision-making process; passing on the tasks to
his/her employees is carried out through managerial communication; all corporate activities
should be completed with moral consideration.
15.2.1 Managerial decision-making in multinational companies
Decision-making is an integral part of a manager’s daily routine, and in the case of multinational
companies – where spatial, temporal and cultural differences appear between decision-makers –
this process has several specific features. In the context of global business, it is essential for
international managers to efficiently understand and manage the influence of culture on the
styles and processes of decision-making.
Deresky (2006, pp. 167-168) highlights some of the cultural factors generating significant variances
between decision-making in different countries: preference for individualism or collectivism at
national level, objective or subjective approach of the decision, risk acceptance or uncertainty
avoidance by the decision-makers, existence of internal or external control over the outcomes of
the decision, acceptance of innovation in the decision-making process, etc. Moreover, the decision
may be: characterized by a long-term or short-term perspective, specific to a democratic
(egalitarian) or autocratic (hierarchical) society, fast or slow, etc.
Thus, in collectivist cultures (e.g. Korea, Japan), the decision-making models correspond to a more
homogeneous, participative, group mentality, whereas in individualist cultures (e.g. the USA, the
UK), the decision-making process significantly varies from one person to another. The Western
cultures (e.g. the USA, the UK, Germany) prefer an objective approach of the decision-making
process, based on rationality and the most specific information, while at the opposite end there are
more subjective and profoundly emotional cultures (such as the Asian, Arabic or Latin cultures),
that choose to make a decision by also taking into account the feelings and emotions of the people
involved, and the decision is analysed in a wider context. From the risk perspective, the cultures
that highly avoid risk (e.g. Romania) have the most complex decision-making procedures, trying to
cover all the situations that may arise; alternatively, the cultures that accept a high degree of
uncertainty in their business operations (e.g. the USA) are more inclined towards risky decisions.
The need for internal or external control also divides the decision-makers into two categories:
those who believe that they can fully control the environment through their decisions (e.g. Western
cultures) and those who believe that their entire activity is guided by an external force and,
implicitly, the difficult situations cannot be changed, but they should only be accepted as such (e.g.
25
Arab cultures). Regarding the inclusion of innovation and new solutions in the decision-making
process, there are rather conservative cultures (that appreciate past experiences) and rather
innovative cultures (that are forward-looking and strongly support the technological progress)
(Deresky, 2006, pp. 167-168).
Different value systems lead to significant differences in the way that decision-makers consider the
alternative solutions or choose the optimal solution, frequently because certain situations are not
seen as problematic by the people involved (Deresky, 2006, p. 168). For instance, in Eastern
cultures, managers prefer to avoid solving a problem in order not to create a conflictual situation
that would strongly disagree with regional cultural specificity, or not to offend the board of the
company; in Western cultures, the fast and effective solving of problems is essential and considered
a fundamental management rule.
The managerial decision-making process can be technically analysed from the perspective of
the component elements and the structural stages.
The constituent elements of the decision-making process are: the decision-maker (e.g. international manager), the set of decision alternatives (e.g. targeted markets for international
expansion), the set of decision criteria (e.g. profit) and decision assessment (e.g. profit size), the
environment (e.g. global market), the set of decision consequences (e.g. increase of market share
and number of clients) and the objectives targeted by the decision-maker (e.g. leading position at
regional level) (Popa and Filip, 1999 , pp. 175-176).
According to Popa and Filip (1999, pp. 176-179), the managerial decision-making process –
graphically depicted in Figure 15.7 – involves a series of consecutive stages, briefly presented
below and illustrated in the case of a multinational company (MNC) whose managers have to
decide on entering a new foreign market:
1. Identification of the problem – the correct and complete outlining of the situation to be
solved, by firstly highlighting the causes that have generated it and the negative effects that
will appear if the best solution is not found in that given context. For an MNC with business
experience in Central and South-Eastern Europe and consistent financial resources, the
penetration of the Romanian market after the EU integration of the country is a great
opportunity, which should not be missed in favour of the competitors. If the objective is to
enter the Romanian market, one of the main problems associated with it is the choice of the
most appropriate form of entering our country.
2. Identification of possible solutions – generating as many potential alternatives as possible
for solving the previously identified problem, with their corresponding advantages and
disadvantages, so that the future selection of the optimal solution to be based on as many
complementary criteria as possible. For the MNC mentioned above, the possible solutions
are represented by different forms of market penetration: direct or indirect export, licensing
or franchising, branch or subsidiary, acquisition, joint venture or other form of complex
cooperation, etc.; these forms are analysed at least in terms of their costs, risks and control
degrees. In general, the higher the costs and risks involved, the greater the control that the
company needs for its business operations; for instance, in the case of a wholly-owned
subsidiary, the company has full control over its business operations, but this is a costly and
risky internationalization form if a very thorough investigation of the external environment
was not previously conducted.
3. Assessment of potential solutions – analysing, comparing and ordering the options for
problem-solving according to their specific advantages and disadvantages, by considering
the feasibility of implementing each and every solution, the contribution of each solution to
the effective solving of the problem and the corporate consequences of putting into practice
26
each solution. The managers in charge of the above-mentioned MNC will undertake a
judicious analysis of the available solutions in terms of their feasibility, considering the
strengths and weaknesses of the company, as well as the opportunities and threats of the
external environment. In addition to the individual assessment of each potential solution, it
is also essential to prioritize them, in order to immediately have a viable alternative at hand
(‘second best choice’), if the first selected solution fails on the way. For example, if they
decide to enter the Romanian market by acquiring a competitive local player for quickly
achieving a favourable position at national level, but they fail to find a company that meets
the requirements of efficiency and competitiveness altogether, the managers of the MNC
may then decide to set up a new wholly-owned subsidiary on the Romanian market. Even
though the costs may be comparable to those of acquiring a local company, the risks are
certainly higher for this option, as the managers have no experience of operating the
business on the Romanian market.
4. Selection of the optimal solution – making the proper decision (choice) by establishing the
solution that best solves the problem and has the most favourable results, using a series of
methods and tools according to the corporate management and culture of the company.
Going further with the above example, setting up a wholly-owned subsidiary for the
investigated MNC is the most appropriate option, in line with the managerial philosophy
and organizational culture of the company, due to its intensive control over the business
operations. In this regard, a particularly useful decision-making method may be the costbenefit analysis, which compares the financially quantifiable advantages with disadvantages
of opening the new subsidiary.
5. Implementation of the decision – putting into practice the chosen solution, by using all the
necessary resources, that were previously carefully planned, and considering the cultural
specificity of all parties involved. After the final decision is taken (see point 4 above), the
selected solution is tested and the manager has to fully coordinate the material, financial
and human resources that are already available or should be further attracted for opening
the subsidiary. The economic, social, political, technological and cultural context at local
level decisively influences the entry of the company into the new market (for example, the
process of hiring new employees should be aimed at achieving the corporate goals, but it
should also be in line with the local laws, rules and practices of human resources). The
implementation of the decision can be considered a “reality test” for the company, because
the feasibility of the solution and the skills of the managers are now challenged against the
conditions in the real business environment.
6. Follow-up and evaluation of results – measuring the effectiveness of the decision taken
and assessing its consequences, with a view to determining whether the implemented
solution was the optimal choice or whether it is necessary to resume the decision-making
process for choosing another solution to the problem. Finally, after opening the new
subsidiary in Romania, the MNC will have the real picture of the success of the decision
taken, analysing the profitability of its business operations. A correct assessment of the
decision taken can only be made after a reasonable period of time following the set-up of
the new subsidiary, so that its activity should be evaluated in regular operating conditions.
These steps of the decision-making process are presented in Figure 15.7. When a manager is faced
with a current, less complex solution, for which he has already established a standard procedure or
operating system, some of the above steps may be omitted (the same is true for a daily decision),
although all the stages are inherently involved in the decision. In the end, the quality of the
decision is essentially influenced both by the abilities of the decision-maker and the accuracy of the
stages of the decision-making process. The degree of centralization of the decisions in MNCs must
also be considered.
27
Figure 15.7 The stages of the decision-making process
Source: Adapted from Popa, I., Filip, R. (1999). Management internaţional [International Management],
Bucharest: Economic Publishing House, pp. 176-179.
A typology of decisions specific to multinational companies states the degree of centralization.
The centralized decisions – taken at headquarters and effective for the entire multinational group
– are the ones that ensure harmonized coordination and integrated control over the operations of
the company across the markets; at the opposite end, the decentralized decisions – taken at local
level and specifically related to the activities of a particular subsidiary – are tailored to the national
requirements and make the decision-making process more context-specific.
When analysing the managerial decision-making process in international business, Aharoni et al.
(2011, p. 138) found that top managers of multinational companies decisively influence each
operational aspect of the company through their decisions, including the business portfolio,
competitive advantages, market positioning and organizational performances, reinforcing the
importance of decision-making in international management. Aharoni et al. (2011, p. 138) conclude
that the decision-makers in multinational companies come from different cultures and, as a result,
they make the decisions in different ways; the decision-making process is influenced by a series of
personal characteristics of the managers, especially the individual experience, knowledge and
acceptance of uncertainty and risk. Therefore, the decision-making process in multinational
companies is not standardized, there are only centralized decisions or shared decisional elements
for all the subsidiaries of the company.
15.2.2 Managerial communication in multinational companies
In general, communication is the process of transmitting messages between sender and receiver.
Managerial communication is the exchange of messages between manager and his/her employees
in a certain organizational context. According to Popa and Filip (1999, p. 225), the managerial
communication fulfils at least two basic roles: on the one hand, it helps the company to achieve its
specific identity, contributing to the consolidation of its organizational culture; on the other hand,
it is a means for building a positive, external corporate image, by nurturing the relations with
various groups of stakeholders.
28
International managerial communication brings on an additional challenge for the participants in this process, generated by the existence of cultural differences and different perceptions of
the manager and his/her employees on the essential aspects of life, considering that they come
from different national cultures. For example, after the opening of the Romanian market to foreign
direct investments (FDI), the multinational companies (MNCs) have seized this opportunity and
set up subsidiaries in Romania; the management of these subsidiaries was represented – at least in
the early stages – by expatriate managers, coming from the countries of origin of the MNCs, who
were more familiar with the operating modes and objectives of the companies. At that moment, in
addition to the obvious language differences between managers and their employees, the cultural
differences also profoundly influenced the communication process (e.g. the formalism degree in
corporate relationships, the preference for written or oral communication, the need of employees
to express their points of view or the dissatisfaction about certain corporate issues, the engaging of
employees in the decision-making process, etc.). In this context, a natural dilemma for a manager
is precisely how to send a message to his/her subordinates, so that the result of the interaction
between them should be effective for the company.
The effectiveness of international communication lies in the way this process is conceived. The
elements of the international communication process are the following:
-
-
-
message (e.g. the manager gives to the employee the task of elaborating a dedicated report
on the feasibility of launching a new product on the market);
ways and channels of communication (written communication – reports, emails, notes,
etc.; verbal communication – speeches, videoconferencing, phone-calls, etc.; non-verbal
communication – gestures, physical distance, etc.);
communication flows (top-down communication – from manager to employee; bottom-up
communication – from employee to manager; lateral communication – from one employee
to another or from one manager to another);
sender (the transmitter of the message, e.g. the manager);
receiver (the person receiving the message, e.g. the employee).
On the other hand, the effectiveness of communication is also influenced by communication
barriers such as: lack of a clear communication strategy, consideration of wrong information or
principles, too much information, lack of clarity or accuracy of the message, choice of an unsuitable
communication channel, risk of distorting the message, etc. Specific barriers in international
communication may be: language barriers, cultural barriers and perception barriers. In order to
ensure the most effective communication, both in terms of message and timeframe, managers
should understand and avoid communication barriers, particularly as they differ from one culture
to another and from one cultural context to another (Popa and Filip, 1999, pp. 242-244).
Especially when dealing with the activity of multinational companies, the process of managerial
communication is decisively influenced by the cultural factor, leading to the cultural barriers in
communication mentioned above. One of the main cultural dichotomies focussing exactly on the
communication process and on the transfer of the message highlights the significant differences
that come up between high-context and low-context cultures (Hall, 1976, in Popa and Filip, 1999,
p. 49). Thus, in high-context cultures (e.g. Asia, Middle East, Latin America), communication is
often implicit, indirect, and the message should be interpreted within the original context; the
emphasis is on oral communication, and the preservation of the relationships and interests of all
involved parties (“face saving”) plays a significant role. At the opposite end, in low-context cultures
(e.g. the USA, Northern Europe), communication is explicit, direct, and the message has the same
meaning regardless the context; written communication and business interest are predominant.
For instance, a high-context Japanese employee will not contradict his superior under any
circumstances, but he will try to highlight his point of view by bringing additional arguments (“yes,
29
but ...”); instead, a low-context American employee will have no problem in arguing or defending a
different position in front of his superior (Popa and Filip, 1999).
Starting from the research of Hofstede et al. (2010), Table 15.1 presents in more detail the way
culture influences managerial communication in multinational companies.
Table 15.1 The influence of culture on the communication between manager and
employees in companies with international activities
Impact of CD on different features of managerial communication
High index of CD
Low index of CD
High power distance:
Low power distance:
- Centralization is preferred
- Decentralization is preferred
- Subordinates expect to be specifically
- Subordinates expect to be consulted in
Power distance
told what to do
the decision-making process
- Communication and relationships are
- Communication and relationships are
also affective, “face saving”
mostly pragmatic and rational
Individualism:
Collectivism:
- Legal regulations are prevalent
- Moral rules are prevalent
- Direct expression of feelings and
- Direct employee assessment leads to
opinions is encouraged
harmony breakdown
Individualism
- Written communication is appreciated
- Oral communication is appreciated
- Subordinate-manager communication
- Subordinate-manager communication
does not address personal issues, private
combines both professional and personal
life is not approached at work
issues
Masculinity:
Femininity:
- Communication is based on clear,
- Communication is based on intuition
assertive, even aggressive opinions (if the and consensus, opinions are indirectly
Masculinity
case)
expressed, harmony is a priority
- Conflict solving is done through victory
- Conflict solving is done through
of the strongest
negotiation and compromise
High uncertainty avoidance:
Low uncertainty avoidance:
Uncertainty
- Many rules are necessary
- Only general rules are necessary
avoidance
- Communication must be as formal and
- Communication may be more informal
accurate as possible
or ambiguous
Long-term orientation:
Short-term orientation:
- Communication is integrated, and
- Communication is sequential, it follows
subjects can change over time
a clearly set agenda
Long-term
orientation
- Managers and employees are perceived
- Managers and employees are perceived
as having the same aspirations
as having opposite interests
- Communication is high context.
- Communication is low context.
Source: Hofstede, G., Hofstede, G. J., Minkov, M. (2010). Cultures and Organizations: Software of the
Mind. Intercultural Cooperation and Its Importance for Survival. Revised and Expanded 3rd Edition,
London, New York: McGraw Hill, pp. 76, 124, 170, 217, 251.
Cultural
dimension (CD)
Although these cultural differences and their impact on managerial communication still exist, the
global expansion of business has also partially mitigated some of the most prominent differences,
creating what can be considered a common business language. Yet, the effective management of a
multinational company is strongly influenced by the communication process between manager and
employees, when considering local cultural sensitivities.
As mentioned before, the manager’s ability to transmit messages and to be understood by his/her
subordinates has an important role in the process of managerial communication. Thus, in addition
to the cultural component, the personal factor (such as the manager’s skills and knowledge) is also
a decisive element in international communication. Box 15.5 illustrates different aspects of the
30
communication between managers and employees, from the perspective of the main management
styles.
BOX 15.5 Organizational communication and management styles
Managerial communication in organizations is closely linked to the management styles that managers
prefer to apply for coordinating their subordinates. When selecting the most appropriate management
style, there are a number of issues that managers should consider, including at least the following:
strategy and objectives of the company, organizational culture, national culture (for companies with
international activity, both the culture of home-country and the one of host-country), specificity of the
industry, experience of the manager and employees, typology and mentality of the employees, etc.
The influence of the management styles on the communication between manager and his/her subordinates is presented below, starting from a typology of management styles:
- Autocratic management style: The managers disregard the ideas and suggestions of the
employees, and the subordinates are totally dependent on their superiors. There is only one-way
communication from the manager to the employees, and the subordinates have no say in the
management decisions, which they must observe and apply as such.
- Paternalist management style: The managers decide what is best for the employees and for
the company. As far as the organizational communication is concerned, the suggestions and
feed-back provided by the employees are considered by managers before they make a decision.
- Democratic management style: The managers encourage the employees to provide feedback, and the subordinates are invited to freely communicate their ideas on the organizational
issues. This management style ensures an effective and accurate communication between
managers and employees of the company. Therefore, the superiors consider the opinions of
their subordinates before they make a decision and there is a two-way communication (from the
manager to the employees, but also from the employees to the manager).
- Laissez-faire management style: The managers do not have a decisive contribution to
running the organization, given that the employees make decisions and coordinate activities on
their own. The employees are not dependent on the managers, and communication is informal.
- Management by walking-around style: The managers are an integral and essential part of
the team and they are effective listeners. The superiors often interact with the employees to get
informed about their opinions and suggestions, and there is also a two-way communication
(with more emphasis on transmitting information from the employees to the manager). In this
case, the manager is rather a mentor for his/her employees.
Depending on the corporate and national contexts, the managerial communication in companies with
international activity involves using one or more of the above-mentioned leadership styles. In multinational companies, although there is a common framework for organizational communication, the
subsidiaries may develop different communication policies between managers and employees in order
to better reflect the local conditions.
Source: Adapted from Management Study Guide (2016). Management Style – Meaning and Different
Types of Styles, Available at: <http://www.managementstudyguide.com/management-style.htm>.
As in the case of the managerial decision, the international communication is also influenced by the
culture of the people involved in this process. Managerial communication is embedded in each
function of management; the planning, organization, coordination and control of the activities of a
multinational company are not possible without the constant interaction between the manager and
his/her employees. For a highly effective interaction, the awareness of how differences may be
harmonized for the benefit of the business organization is essential.
31
15.2.3 Business ethics and management of companies with international activities
The last decades were strongly marked by economic, social and technological transformations and
they reiterated the question regarding the morality of the economic agents or the natural question
that appears both in theory and practice about the obligations (if any) of the companies in pursuing
social and environmental goals in their current business activities as well. This corporate duty is
included in the analysis of economic ethics or morality of the business environment, no matter if it
is imposed by the society or it is voluntarily assumed by the business organizations for different
reasons. This section of the chapter addresses international business ethics; companies acting in
diverse national contexts and being influenced by or influencing the local environments are the
subjects that will be analysed from the ethical point of view.
Business ethics. Necessary or compulsory?
Business ethics is the specific set of values, principles, rules, norms and moral standards that
guide the behaviour of economic agents (Crăciun, 2004, Iamandi and Filip, 2008, p. 28). The
ethical norms and standards (fairness, non-discrimination, honesty, loyalty, respect, compliance
with assumed obligations, lack of manipulation, etc.) encourage a good conduct of the economic
agents in society, so that their actions could be interpreted as “good” and “right” by the community
and other market players, but without being imposed by law. The moral rules imply voluntarily
assumed obligations by individuals, in addition to those duties imposed by law (Crăciun, 2004).
At national and global level as well, the respect for business ethics by corporate actors is certainly a
prerequisite of sustainability and stability of the business environment. From an organizational
perspective, the reasons for companies applying ethical principles in their economic activities are
diverse, but the pragmatic and deontological arguments prevail.
The pragmatic approach to business ethics (Utilitarian origin) refers to the strict adherence
to ethical norms and principles by companies, assuming that a consistent application of a fair
market behaviour will be beneficial for them in the medium and long term. For instance, a firm
that respects its business partners and does not try to manipulate them even when it could do it (in
commercial negotiations, for instance) enhances its image on the market and strengthens a lasting
business relationship. In this situation, manipulation of the business partners might have been
proven a quick but short-lived advantageous business practice, leading to unprofitable behaviours
on medium and long-term, since the deceived partners would avoid to engage in future business
relationships with the unethical company (Crăciun, 2004, Iamandi and Filip, 2008, pp. 104-106).
The pragmatic argument highlights that business ethics is considered necessary by the companies.
The deontological approach to business ethics (Kantian origin) emphasizes the perceived
commitment of companies to act impartially on the market, accepted as an implicit duty to respect
the local community and the consumers that demand their products and services. Thus, starting
from the example with the firm duly respecting its business partners, the deontological analysis
stresses the right intention and liability that the company assumes to act in a non-discriminatory
way for all parties involved (Crăciun, 2004, Iamandi and Filip, 2008, pp. 104-106). The deontological argument outlines that business ethics is perceived as compulsory by the companies.
Although the two approaches presented above are philosophically opposed, the simultaneous
consideration of the pragmatic and deontological argument highlights the fact that business ethics
is both necessary and mandatory. Moreover, the increasing pressures of the stakeholders’ groups
require the companies’ adoption of moral and socially responsible behaviours meant to offer
market reliability and strengthen their competitive position.
32
One of the challenges related to business ethics is identifying the appropriate method for
implementing the right decisions in the business operations conducted by companies, especially at
international level. In this regard, Carroll and Buchholtz (2012, p. 193) developed a mechanism for
making effective and ethical business decisions, considering the three main categories of corporate
responsibilities: economic responsibilities (to generate profit and well-being for shareholders),
legal responsibilities (to comply with the laws and regulations in force) and moral responsibilities
(to act in a fair and non-discriminatory manner by taking into account the interests of all parties
involved). Thus, a corporate action is acceptable and recommendable if it is profitable, legal and
ethical altogether, meaning that it is positioned at the intersection of the three areas of corporate
responsibilities. If only two out of the three conditionalities (economic, legal and moral) are met,
the company should investigate to what extent the respective action is genuinely appropriate.
Ethical problems and dilemmas in international business
The analysis of the morality of international companies is decisively influenced by the economic,
social, political, ecological, technological and cultural differences between countries as well. Thus, a
corporate business practice that may be perceived as discriminatory in certain parts of the world
(for example, assigning primarily men in leading positions, granting preferential treatment for top
managers, stimulating business relationships through gifts between trading partners) is considered
as acceptable and normal in other regions. For example, the actions listed above are immoral and
even illegal in the USA or Western Europe, and the companies in these countries have very strict
ethical codes of conduct that prohibit them; by contrast, in several Arab or Oriental countries, these
actions are not perceived as wrong or discriminatory, but are rather induced by local culture.
In this context, the main ethical problem faced by multinational companies – coming from more
developed countries of origin or with more stringent ethical standards – is to choose the most
appropriate type of corporate behaviour so their practices are not considered immoral: strictly
applying the ethical codes of conduct wherever they operate in the world, or adapting the business
practices according to the local context, including the ethical issues as well. The dilemma of ethical
standardization vs. ethical adaptation remains a topic of interest for the international companies,
in light of the potential advantages and disadvantages of each alternative. If the company chooses
to apply the same strict ethical standards regardless of the country of implantation (for instance, by
providing a compensation scheme for local employees similar with the one in the home-country,
even if this practice is more expensive than the benefits granted by its competitors), the company
acquires a better image on the market, because it is perceived as a fair and responsible economic
agent; however, it loses several competitive advantages related to a market with relatively low
ethical standards and community expectations. At the opposite end, if the company makes a choice
for ethical flexibility and adapts its practices to the local context (such as consolidating business
relationships by offering expensive gifts to trading partners), the company has an easier entry on
the implantation market, but there is a risk of depreciating its global image and even being severely
criticized by the public opinion in the country of origin (Crăciun, 2003, Crăciun, 2004, Iamandi
and Filip, 2008, Iamandi, 2010).
In its attempt to achieve a sustainable economic and ethical balance, a company with international
activities needs to find the optimal solution to the previously stated dilemma. Donaldson (1989)
proposes an ethical algorithm particularly useful to international managers for solving the moral
dilemma faced by companies coming from highly developed home-countries but operating in less
developed host-countries. The algorithm generates the corporate moral obligations and outlines
the ideal framework for the company to implement less moral business practices than those
specific to its home-country (Iamandi and Filip, 2008, pp. 99-100, Iamandi, 2010, pp. 147-148),
yet keeping its status as a moral economic agent.
33
Donaldson (1989) proposes theoretical solutions for two types of situations that usually generate
ethical conflicts: a) the economic variances, and b) the socio-cultural differences. In the first
situation, the company with international activities needs to investigate the moral acceptability of a
business practice from the perspective of the country of origin, should the home-country and the
host-country be equally developed. In the second case, in order to accept a business practice that is
contrary to the stricter moral norms in the home-country, that practice must be vital to the
operation of the business in the host-country and should not directly violate any fundamental
human rights. Moreover, from an ethical perspective, the company has the duty to publicly
disagree with the implementation of the business practice when this is conflicting with the rigorous
moral norms in the country of origin (Iamandi and Filip, 2008, pp. 99-100). The conclusion to the
fundamental ethical dilemma in international business is that companies should strategically
maintain a set of general moral standards and norms (such as protection of fundamental human
rights or minimization of negative impacts), which no business practice should ignore, regardless
of the economic and socio-cultural context; at the same time, they should also efficiently and
competitively adapt their corporate activities to the local context.
Among the most frequent ethical issues faced by multinational companies, at least the next are to
be mentioned: bribery and corruption, lower salaries for the employees in the host-country related
to the employees in the home-country, sexual discrimination, employment and mistreatment of
children at work, failure to respect the fundamental human rights, less equitable marketing
practices and consumer protection in countries of implantation, environmental pollution, etc.
(Crăciun, 2004, Iamandi and Filip, 2008, pp. 78-94, Mitchell, 2003).
As to the moral duty or effective responsibility that multinational companies have for the fair
development of all business parties involved, the last decades have brought on increasing
expectations from global and local communities. The multinational companies are now supposed
to have direct responsibility for the proper regional development conditions alongside the nation
states, due to the corporate financial strength and image capital granted by consumers.
Corporate social responsibility and companies with international activities
While business ethics (BE) places the economic and philosophical debate in the area of duties of
the economic agents of not harming the other parties, corporate social responsibility (CSR) is
perceived as a higher manifestation of business ethics, embodied in the voluntarily and freely
assumed commitment of the companies to do good by acting in the benefit of the community.
In the official communication of the European Commission in October 2011 (EC, 2011, p. 6), CSR
is defined as “the responsibility of the companies for their impact on society”; this motivates the
integrated assessment of the economic, social and environmental effects of corporate actions from
the perspective of the community as a whole (Iamandi, 2013, p. 14).
Moreover, at European level, the importance of CSR for the society is confirmed through the
mandatory reporting of corporate social involvement, laid down in Directive 2014/95/EU that
came into effect in the 2017 financial year. This directive addresses the EU “companies of public
interest” with more than 500 employees and refers to the corporate obligation to report on its
sustainability (to issue an annual non-financial statement) regarding the environmental, social,
human rights and anti-corruption issues, etc. (Breniuc, 2014) supported by the company. Two of
the recommended standards for CSR reporting are GRI Sustainability Guidelines and ISO 26000.
The GRI Sustainability Guidelines 4 is a corporate sustainability reporting system issued by Global
Reporting Initiative (GRI) and it is based on a series of economic, social and environmental
4
https://www.globalreporting.org/standards/g4/Pages/default.aspx [Accessed on September 5th, 2016].
34
performance indicators to increase transparency and facilitate corporate reporting in the main
sustainability areas (Iamandi, 2013, pp. 17-18). The ISO 26000:2010 5 is the international standard
of social responsibility and is about assessing the contribution of the organizations to sustainable
development, mainly regarding environmental protection, operating within local communities,
workplace practices, social justice and corporate governance (Iamandi, 2013, p. 19).
Regardless of all attempts to regulate or standardize CSR reporting at European or global level,
corporate social responsibility should not be perceived as a state or governmental constraint, but as
a voluntary choice of companies, assumed by pragmatic or deontological reasons, in a market
economy where both social and environmental criteria are considered. Furthermore, the help and
promotion of CSR at national level is due to the awareness of the growing role that large companies
have on the international arena, because of their financial strength and the potential to support
regional economic and social development (Iamandi, 2010, p. 132).
On the other hand, corporate social responsibility is not always thought of as necessary or effective.
In this context, there are also opponents to CSR idea, arguing that the only responsibility of
business organizations – regardless their size – is to make significant profit (Friedman, 1970),
while social and environmental objectives should be entirely the obligation of nation states and
governments, which have the duty to keep these supervisory levers (Iamandi, 2010, p. 139).
Whether corporate social responsibility is directly or indirectly supported, there is a need for an
international business environment where principles such as fairness, non-discrimination and
sustainability remain a priority.
The involvement of multinational companies in CSR projects is embodied in three main areas:
-
-
-
economic initiatives (better management of economic and commercial risks, enhanced
quality of products and services, reinforced relationships with business partners, customers
and employees, etc.);
social initiatives (community philanthropy and volunteering, improved management of
human resources and their related performances, strengthened relationships with local and
regional communities, support for social, cultural, artistic and sports projects, etc.);
environmental initiatives (better waste and resources management, better management of
environmental issues and risks, etc.) (Iamandi, 2013, pp. 109-111).
The Box 15.6 highlights the specific case of Starbucks, which has been actively involved in various
CSR projects at a global level during the 2008-2015 period.
The model of internationally responsible companies confirms the competitive advantages that
CSR may bring:
-
5
increasing corporate competitiveness and creating new business opportunities at local and
international level;
improving corporate image and financial performances;
strengthening relationships with business partners and valuable employees by maintaining
long-term contractual commitments;
increasing consumer loyalty towards the responsible and community-engaged company;
enhancing operational efficiency through better use of corporate resources;
cooperating with local and global communities in managing issues of common interest;
reducing the risks associated with corporate activities;
involving stakeholders in different corporate issues;
increasing innovation, etc. (Iamandi, 2013, p. 71).
http://www.iso.org/iso/home/standards/iso26000.htm [Accessed on September 5th, 2016].
35
BOX 15.6 Corporate social responsibility of Starbucks
The Starbucks Company is the world’s largest chain of coffee shops and the world leader in coffee
roasting and retailing of coffee-based products.
During the 2007-2008 economic crisis, when a series of recession measures were applied at corporate
level, Starbucks set out several targets of corporate responsibility and sustainability for the next period.
The 2015 global report of CSR examined the degree of achieving the established objectives (total or
partial fulfillment).
The CSR objectives fully met by the end of 2015 were: 100% of the traded coffee was ethically sourced
(e.g. no fundamental human rights violations in the process of coffee cultivation and harvesting, no
pollution of the environment); $ 20 million in investments and loans to farmers and local communities
were granted; 50,000 young people were involved in activities related to innovation and support of local
communities; 100% renewable energy was used for generating the necessary electricity in the globally
located coffee shops of the company; 25% of the water consumption was reduced in the coffee shops of
the company.
The CSR objectives partially met by the end of 2015 were: positioning of recycling bins in front of all
worldwide located stores; selling 5% of Starbucks’ drinks in own glasses or mugs of the customers, in
order to reduce the consumption of disposable cups; decreasing by 25% of the consumption of energy in
the stores of the company; building new and wholly-owned stores by the company to acquire LEED
certification (Leadership in Energy & Environmental Design).
The measures proposed and implemented are beneficial to local and global communities, but they are
also effective for the operations of Starbucks. In the medium and long term, the company will become
more competitive by implementing this set of responsible actions.
Source: Adapted from Starbucks (2016). Global Responsibility Report 2015, [Online]. Available at:
<http://globalassets.starbucks.com/assets/ee8121c1a6554399b554d126228d52ed.pdf>.
In conclusion, the transformation of CSR into a viable business strategy is a relatively new trend at
international level, leading to win-win situations both for the companies involved and the hostcommunities benefitting from it. The recent theoretical and practical evolution of CSR confirms
that, in the years to come, the international economic environment will be deeply influenced by a
growing involvement of multinational companies in solving social and environmental issues related
to their main activities.
SUMMARY

Planning is one of the four main functions of international management, along with
organization, coordination (human resources policy) and control of corporate activities. The
planning activity begins with proposing the mission of the company, highly influenced by a
clear definition of corporate vision, values and lines of action. Planning is about setting the
organizational goals (the target – the performance aimed at) and related plans (how to get
to the objectives proposed – the measures taken) in order to achieve the expected goals. A
properly defined plan includes: necessary measures to be taken, timeframe (duration),
required material, financial and human resources, as well as person responsible for the
implementation of the plan. Thus, organizational planning can be achieved at three distinct
levels: strategic planning – at top management level, tactical planning – at department
level, and operational planning – at operative level. The strategic planning involves setting a
strategic goal for the whole business of the company and a strategic plan consisting of:
PESTEL analysis, SWOT analysis, BCG matrix, company strategy and product strategy. The
36
tactical planning comprises a tactical goal within the department and a tactical plan to
implement the corresponding goal. The tactical plan covers the measures (actions to be
taken), time interval (usually more than one year), required (financial, material and
human) resources and responsible person. Similarly, the operational planning is defined by
establishing an operational goal within the operative business unit and a matching
operational plan. The following components are needed when accurately defining an
operational plan: measure(s), time duration, needed resources, person responsible and type
of plan (single or permanent plan).

Organizational function is based on the organizational structure (OS) – the formal model
designed to ensure the division of labour and assignment of tasks, identification of
managerial authority and control, as well as coordination of activities. The OSs can be
centralized or decentralized, and the factors influencing centralization of authority within
business organizations are: company policy, cultural approach, decision-related costs,
company size and strategy, organizational culture and experience, availability of managers,
control techniques, etc. The evolution of OSs of firms with international activities is
influenced by their business internationalization degree and international experience. The
typology of OSs in international management highlights three main categories of models:
international, global and complex (non-traditional) OSs. The international OSs include: OS
with export department, OS with subsidiaries directly subordinated to top management and
OS with department of international relations. The global OSs include: global functional
OS, global product OS, global regional OS and global mixed OS. In what concerns the
complex OSs, the most important ones are matrix OS and network OS.

Coordination or human resources (HR) policy at organizational level includes the following
activities: establishing the necessary HR, recruiting HR, training HR, rewarding and
motivating HR. In the context of business internationalization, these activities must be
analysed by considering the intercultural component. The recruitment of international
managers can be made from the host-country (local manager), home-country (expatriate
manager) or a third country (transpatriate manager). The most relevant selection criteria
for international managers are: job-related factors, relational factors, motivational factors,
family-related factors and linguistic factors. Training of HR in an international context has
three central components: pre-departure training, on-site training and repatriation
training. The types of training programs for expatriate managers are: general information
about local conditions, cultural assimilators, learning the language of the host-country,
affective learning and practical on-site experience. Among the specific activities of HR
policy, motivation is strongly influenced by cultural differences, as far as attitudes towards
work and individuals are concerned. Four main ways of rewarding employees in multinational companies are usually put into practice: home-country standards, host-country
standards, standards from the employees’ country of origin or a global reward system.

Corporate control focuses on ways of implementing company strategies and ways of
meeting hierarchically-set objectives, in the context of an increasingly changing business
environment. Following corporate control, obtaining timely information on company
activities is essential, as managers are then able to act accordingly and make the most
suitable business decisions. The stages of the control process are the following: setting
standards, measuring performance indicators, comparing performance indicators with
initially set standards, and, finally, evaluating results and making the decision (maintaining
the initial plan, correcting the errors or changing the standards). The performances
assessed within international companies are: financial performance, quality performance
and human resources performance. The classification of control may be designed according
to at least two criteria: applied control method – direct and indirect control; moment of
37
control – preventive, current and verification (feed-back) control. Some of the key-criteria
for assessing control efficiency are: accuracy and opportunity of the information, existence
of various control criteria and need for implementing a corrective action.

Decision-making – as the main managerial tool – allows the efficient development of
corporate activity giving the operating environment of the company, as well as the setting
and attainment of previously agreed organizational objectives. The managerial decision is
strongly influenced by culture in multinational companies. The steps of the decisionmaking process are the following: identifying the problem, generating possible solutions,
evaluating the potential solutions, making the decision or choosing the optimal solution,
implementing the final decision, following up and evaluating results. There are several
typologies of managerial decisions according to different classification criteria: frequency of
decision-making – programmed vs. unprogrammed decisions; number of decision-makers
– individual vs. group decisions; decision-making level – centralized vs. decentralized
decisions, etc. Top managers in multinational companies regulate every aspect of corporate
activity through the scope of their decisions.

Managerial communication is a decision-making process and one of the main managerial
tools, aimed at achieving a specific organizational identity and building a positive corporate
image. The main elements of communication are: message, communication channel,
communication method (oral, written or non-verbal messages) and communication flow.
Culture has a huge influence on the managerial communication process, being responsible
for the main differences between transmitting messages in low context vs. high context
cultures. Communication is also driven by the corporate management styles. The
communication process within companies with international activities reflects a series of
internal (organizational) and external (market-specific) conditions.

Business ethics – understood as a structured set of principles, values and moral norms
applied to the economic field – is both necessary and mandatory for the good conduct of
corporate business activities. The main moral issue faced by multinational companies
operating in different national contexts is the choice between ethical standardization and
ethical adaptation of the business practices. Observing the fundamental human rights at
international level represents a set of minimal ethical standards that no company should
violate, regardless of the local conditions of the country of implantation.

Although CSR refers to the voluntary commitment of companies to take actions meant to
benefit the community, society expectations regarding the conduct of large corporations
have lately brought about a series of directives and standards at European and global level,
trying to regulate and standardize the CSR involvement and reporting. The CSR actions
may be included into three main areas: economic, social and/or environmental initiatives.
In the medium and long term, the CSR is a win-win strategy, mutually beneficial for the
responsible company (through benefits generated at organizational level) and for the
general community (through corporate support for social and environmental projects).
KEY TERMS
Mission, vision, organizational values, strategic planning, tactical planning, operational planning,
SWOT analysis, PESTEL analysis, BCG matrix, company strategy, product strategy, horizontal
integration, vertical integration, upstream integration, downstream integration, differentiation
strategy, cost leadership strategy, focus strategy, prospector strategy, defender strategy, analyser
strategy, reactor strategy, international organizational structures, global organizational structures,
38
complex organizational structures, local employee, expatriate employee, transpatriate employee,
outsourcing of human resources, ethnocentric-oriented company, polycentric-oriented company,
geocentric-oriented company, selection criteria for international managers, job-related factors,
relational factors, motivational factors, family-related factors, linguistic factors, cultural training,
cultural assimilator, direct control, indirect control, preventive (feedforward) control, (con)current
control, verification (feedback) control, managerial decision, decision-making process, centralized
decision, decentralized decision, international communication, managerial communication, low vs.
high context communication, autocratic management style, paternalistic management style,
democratic management style, laissez-faire management style, management style through direct
interaction, business ethics, deontological approach in business ethics, pragmatic approach in
business ethics, corporate social responsibility (CSR) of multinational companies.
REVISION QUESTIONS
1. How could organizational planning be achieved and what are its advantages?
2. What are the particularities of strategic planning in multinational companies?
3. Is there any type of connection between the organizational structures adopted by companies
with international activities and their internationalization stages? Explain.
4. What are the available options regarding the recruitment of international managers?
5. What elements are to be included in an efficient compensation packages for expatriate
managers?
6. What is the aim of control and what are the stages of the control process?
7. In what way does culture influence the managerial decision in multinational companies?
8. What are the main stages of the managerial decision-making process as viewed by a
multinational company?
9. In what area and in what way is the impact of culture reflected on managerial
communication in multinational companies?
10. Do you think that there is a certain management style that consolidates the efficient
communication between manager and his/her employees? Give an example.
11. How could multinational companies solve the fundamental ethical dilemma in international
business?
12. What are the main actions that multinational companies may choose to introduce when it
comes to applying CSR?
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