Melissa Truong (s3420505) Tutor: Prikshat Verma

A critical appraisal of the impact of globalisation on management practices

Since the nineteenth century, there have been three eras of globalisation: the first global economy from 1850-1929, the de-globalisation from 1929-1978, and the second global economy from 1978-present. The first era can be characterised by the spread of western imperialism, but was hindered by the Great Depression, which marked the beginning of the era of de-globalisation. Eventually, the world healed from the Great Depression and World War II and globalisation once again became the trend. In 1978, China adopted open market policies which allowed for rapid economic growth, one of several hallmarks that can be used to signify the start of the second global economy (Jones, 2010). These eras produced todays inter-reliant global economy and changed many principles of business, one of which is management. Globalisation has brought about many changes to the field of management that can be divided into two main categories: 1) how managers act and 2) the structure of management within firms. Managers must gain new characteristics and learn the negotiation techniques of various cultures to be successful in the global scene (Ganly, 2010; Churchwell, 2003; Hanna, 2012; Emmons, 2005). Moreover, globalisation favours firms with a merit-based and decentralised management structure and holds management to international standards and expectations (Bartlett & Ghoshal, 1999; Churchwell, 2003; Johnston & Lagace, 2002; Walt, 2013). Managers working in a global setting must have certain characteristics in addition to those typical of other managers. Among these characteristics are being mindful of cultural differences, taking on a local and global perspective and being able to form cross-boundary partnerships (Ganly, 2010; Churchwell, 2003; Hanna, 2012). First, global managers must be aware of cultural differences and standards or risk failure (Ganly, 2010). Globalisation places managers in unforeseen situations and requires them to be mindful of cultural differences For instance, an American, Jide Zeitlin, managing an Indian workforce while overseas had an unnamed employee unexpectedly resign. Supervising those from a higher caste discomforted the unnamed employee, which Zeitlin failed to take into account (Thomas, et al., 2008). Secondly, global managers must be able to adopt both a local and global perspective (Hanna, 2012). When Japanese firms began to globalise, they specialized their operations in various Japanese cities. However, on a global scale, there are many other options and opportunities outside of Japan. These opportunities include relocating the research and design division to England in order to gain access to the intellectual resources from top schools such as Cambridge and Oxford University (Churchwell, 2003). Such resources are unavailable to firms that have not yet globalized, but a global manager must be able to envision possible solutions to his problem from a local and a worldly standpoint. Globalisation opens many doors and allows for previously unreasonable solutions to be seen as economical and even profitable. Finally, managers of multinational companies must be able to forge cross-boundary alliances. With this ability, managers can allow their company to build the best team possible (Hanna, 2012). The result may be an incredibly diverse team, such as the department within United Technologies that consists of fifteen people from seven countries (Emmons, 2005). Nonetheless, this team is made of professionals who are among the best in their fields, increasing the potential for

Melissa Truong (s3420505) Tutor: Prikshat Verma

the company. Globalisation complexes the role of managers by demanding additional characteristics, but unavoidably so, since the playing field has grown far beyond national borders. In order to assist global managers to acquire the previously mentioned characteristics, they must also learn to adapt to negotiation techniques of other cultures. Although business is usually conducted quite formally in the US, informal influences can be important to business deals conducted with other countries. Japan, Germany, Italy and Russia are only a few countries where this holds true. In Japan, keiretsu, or industrial groups, are powerful; in Germany, Allianz is particularly influential in the financial sector; in Italy, certain families are dominant; and in Russia, the Russian mafia, along with other groups, can heavily affect business deals (Sebenius, 2002). Being conscious regarding how to negotiate in varying situations can often be the deciding factor. Managers who choose to be ignorant of the possible role informal influences can play in different settings are only hurting their chances for success. On the contrary, it is possible that informal influences play no role in negotiation techniques. Stone Container, a US firm, learned this lesson the hard way. They had a contract with the Honduras government regarding a forest project and assumed the president held the powers relevant to the decision making required for the project. As a result, Stone Container conducted business principally with the president. However, others in the Honduras political system interpreted this exclusive interaction as a corrupt deal among power players (Sebenius, 2002). This situation is the opposite extreme from those where informal influences are required, but nevertheless one that is conceivable for a global manager. Learning which groups are influential or not is only one side of negotiation techniques because there are also global variances in the strength of legal systems. In many cases, legal systems may be corrupt and other times they may be weak or nearly non-existent, as is the case with Japan and Russia, respectively (Sebenius, 2002). The amount of authority of legal systems hold is crucial to discerning how business is conducted and how political powers may affect business because legal systems are one of the few institutions to which firms must answer. Disrespecting the differences in negotiation techniques can be one of the costliest mistakes a manager can make while a firm is globalising. The actions of managers are not the only aspect of management that has been affected by globalisation; the structure of management has been affected, too. Until World War II, the majority of leaders and managers of British firms were chosen based upon loyalty and relationships. The rise of American firms in the global community introduced managers who were, instead, appointed based upon merit. UK and European firms once relied on paternalistic management for overseas operations, as illustrated by the history of Unilever management. Global managers of Unilever were all part of William Levers inner circle and, after Levers death, an Overseas Committee was formed, thereby formalizing the paternalistic management structure of the firm (Bartlett & Ghoshal, 1999). Unlike European firms, management within US firms was not grounded in elitism and paternalism. Managers were instead chosen based upon merit and management was divided into separate departments, allowing roles to be delegated to specialized divisions within a company. It was this structure, rather than the paternalistic one, that proliferated throughout the world as US firms globalized. As such, management became more formalized and bureaucratized. US management is more demanding and driven in comparison to the former European management that emphasized connections (Johnston & Lagace, 2002). In no way does this suggest that networking is not important to business dealings, but rather it is not the sole factor for promotion within a firm. Moreover, it enhances the management as a profession. The value and worth of an individual can aid their success as opposed to who they or their family knows. In other words, competence, 2

Melissa Truong (s3420505) Tutor: Prikshat Verma

experience and training are required of managers now. These three necessities are also found in long-standing, respected professions such as becoming a doctor or lawyer. Incompetent managers who earned their seat through personal relationships are becoming rarer due to the modification in management structure that occurred with globalisation. While some globalising firms struggled to shift their management structure away from paternalism, others struggled due to centralised management (Johnston & Lagace, 2002). Globalisation has increasingly made the decentralisation of management a necessity, another concept influenced by the structure of US management. Managers from US firms are accustomed to having a considerable amount of authority because management is based upon delegation of power. In other countries, authority tends to lie with the top-most managers rather than with all managers in a company. US managers placed in a foreign workplace were resistant being controlled by others and expected more autonomy and independence (Johnston & Lagace, 2002). As companies become multinational, it soon became clear that decentralisation was beneficial rather than a hindrance. The world has become smaller with globalisation and delegating power enables strategic decisionmaking (Churchwell, 2003). These reasons for the success of decentralisation are embodied by Zaras management structure. Zara understands that the world functions more rapidly with globalisation and introduced the concept of fast fashion, which allows clothing items go from the drawing board to stores in a mere fifteen days. This concept is supported by layers of managers, from those at the store level to those in various departments like marketing, design, production, and distribution. All managers are empowered and have the ability to provide feedback at any point along the business value chain (Ferdows, et al., 2004). Zaras effective decentralisation of decision making turned the company into the worlds largest fashion empire and made its founder, Amancio Ortega, the king of the fashion world. With over 6,000 stores that span 80 countries and ever increasing growth revenues, there is no doubt Zara is a thriving, multinational company that is reaping the rewards of decentralised management (Walt, 2013). Globalisation has undoubtedly encouraged successful multinationals to embrace a decentralised management structure, as evidenced by Zaras huge success. Globalisation has changed management in many aspects, but at the same time, it has also streamlined management towards adopting convergent, international standards and expectations, such as an intrapreneurial work culture, being customer-centric, and overall high standards (Emmons, 2005). Average companies of different countries may differ vastly, but multinational companies, regardless of their country of origin, are actually quite similar. First, prosperous global firms share an intrapreneurial work culture (Emmons, 2005). Innovation within companies is encouraged in order for companies to reap the full potential of every employee. Promoting constant improvement allows firms to continually grow and become more profitable. In addition, multinational companies such as Zara tend to be customer-centric and place customers at the forefront of their concerns (Emmons, 2005; Walt, 2013). Considering that customers are generally a companys main source of revenue, it is only logical that globalised firms focus on their customers. Last but not least, multinational companies are held to high standards. As the leading companies of the world, they are expected to serve as role models for up-and-coming companies. Multinationals must also strive to produce products of high-quality. Product recalls are devastating to a firms image, especially one that is multinational since their audience is wider (Emmons, 2005). Global firms may enjoy greater profits due to a larger market, but they have even more to lose if mistakes are made. An international market also means having an international eye or watchdog monitoring 3

Melissa Truong (s3420505) Tutor: Prikshat Verma

multinationals. Nikes corporate division in Mexico is as a testament to how globalisation has forced management to converge upon international standards. In Mexico, it is tradition to have two hour lunch breaks to allow for family lunches. Nonetheless, Nikes corporate division in Mexico still voted to switch from the traditional Mexican two hour to the internationally acceptable one hour lunch break. Managers sacrificed their lifestyle and custom in favour of adopting international standards (Emmons, 2005). Although globalisation has allowed firms to reach higher levels of success, it has raised ethical issues also. The most obvious, and overly debated, ethical dilemma involves outsourcing, which creates job loss in developed countries and job creation in developing countries (Grg, 2011). Barclays Bank relocated 500 jobs to India to lower costs, which enabled the firm to lower prices and expand business (Grg, 2011). But outsourcing is not the only ethical issue that arises from globalisation; bribery is another concern, especially since it is not illegal in most developing countries. At times, it is necessary to indulge in bribery for companies to maintain a competitive advantage. At other times, it may be occur if managers are victims of extortion, like scenarios where bureaucrats order businesses to pay fees for no particular reason (Churchwell, 2005). In either case, it is debatable whether bribery is morally justified since business success is no measure of moral justification. The most overlooked ethical issue is that of Englishnization. In 2010, a Japanese firm, Rakuten, mandated its workers must become proficient in English by 2012 or face demotion. The CEO reasoned the mandate was necessary for the company to remain globally competitive. However, forcing a second language on workers results in lower productivity and demoralizes them. A French company issued a similar mandate two years before Rakuten and their workers, even those fluent in English, felt alienated and devalued due to the language barrier (Girard, 2012). Similarly to outsourcing and bribery, Englishnization may allow companies to sustain its competitiveness, but at what cost? Many ethical issues raised by globalisation can be justified from a strictly business perspective, but that justification quickly weakens from a moral perspective. Engaging in outsourcing, bribery and Englisnization may increase a firms profits and bring about global success, but it comes at a price. Ethics is not the only price of globalisation; globalisation comes at a cost so steep that it may be unsustainable. A myriad of environmental problems, fuelled by global demand, accompany globalisation (Ashford, 2004; Grg, 2011). Despite the measures companies may take to engage in sustainable practices, customers consumption habits must be dampened if there are any hopes in rectifying the environmental damages from globalisation (Ashford, 2004). Globalisation boils down to perfecting the art of exploitation on a global scale and, albeit, in a subtle manner. Once exploitation is complete, future generations are left with a saturated market, unless some form of advancement allows for the exploitation of a different resource. Many believe that globalisation is unsustainable, pointing to the collapse of the first global economy and questioning whether history will repeat itself (Dapice, 2002). However, no sources point out that the exploitation involved in the past is fundamentally different from the current exploitation. Previously, exploitation was primarily that of natural resources. Nowadays, exploitation has shifted to that of human and intellectual resources. Another by-product of globalisation is terrorism. Globalisation has driven the rise of terrorism, as evident by how terrorist groups obtain their weapons, and may, ironically, be destroyed by it (Dapice, 2002). There is no question that terrorism adversely affects global business; airline companies have barely just recovered from the shock it received on September 11, 2001. If 4

Melissa Truong (s3420505) Tutor: Prikshat Verma

terrorism leads to nuclear war, there may be nothing left for future generations irrespective of the sustainability measures companies pursue. Irrespective of what the future may hold, it is evident that the current second era of globalisation has changed management in the many facets previously discussed, but has also led to the convergence of management towards international standards and, thus, honed the abilities and structure of management. Although there is no one right way to manage others, there is an underlying basis for successful management established by international standards and made possible via globalisation. Some fear history will repeat itself and the second era of globalisation is doomed to collapse (Dapice, 2002), but only time will tell whether globalisation can sustain itself.

Melissa Truong (s3420505) Tutor: Prikshat Verma

Bibliography
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