THE CHALLENGES THAT

THE CHALLENGES THAT HINDER MULTINATIONAL FIRMS FROM IMPLEMENTING GLOBAL STRATEGIES IN EMERGING ECONOMIES

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Introduction

In business terms, global strategy is an organization’s strategic roadmap to globalization. This means an organization’s efforts in taking advantage of the opportunities that international markets offer. Companies often struggle, however, with global strategy because it can become challenging to manage across different cultures and countries. This limitation is due to a number of challenges that multinational firms must overcome in order to successfully carry out global strategies. This can present some interesting dilemma for organizations as they try and implement their strategies by balancing cultural differences and nuance of local business practices between different regions. Because of this difficulty, international managers often face somber choices when it comes to where they should focus their efforts on global strategies.

This article will explore the challenges that multinational firms face when implementing global strategies while also exploring why these hurdles prove difficult in emerging economies such as China, Mexico and Brazil. This study is especially important in understanding the challenges that firms face when implementing global strategies. In addition, this will also serve as guide to help business leaders make informed decisions on where they implement their global strategies. For the most part, companies that have successfully developed global strategies have found ways to overcome these challenges by employing a range of strategic tactics but most importantly by working closely with one another. Aside from implementing strategy, these firms made an effort to build trust with overseas partners and share resources as a way to overcome some of the cultural differences between different countries.

There are numerous challenges that multinational firms have had to overcome as they try and execute their global strategies. These challenges can vary based on the country/culture that the firms are operating in as well as industry what it is that they do. This can range from managerial aspects such as country culture and language barriers to differences in business culture and practices between countries. These challenges include such as competitive marketplace, institutional differences, language barriers and working together with other firms.

Corporate Citizenship

Issues of corporate citizenship arise when multinational corporations conduct business in developing countries. It is important for managers to have an understanding of their company’s relationship to the surrounding culture and the community in which it operates in. They must also have a clear idea on how they predict their involvement will affect said culture. Once managers can successfully resolve their level of corporate citizenship within the host country, they will be able to accomplish their goals while avoiding conflict with local populations.

The Institutional Environment and Infrastructure.

This refers to all public laws, policies, institutions and organizations (private or public) that directly affect corporate activities such as tax laws, banking regulations, labor laws and the implementation of these laws. Institutional barriers represent a major challenge that hinder multinational firms from implementing global strategies in emerging economies. Because of the differences between countries, it is sometimes difficult for a firm to run operations in multiple places at once. Firms must work closely with local institutions and government leaders to ensure that they are able to continue their efforts throughout these areas. The ability of these firms to successfully take advantage of globalization may be hindered by institutional barriers such as political climate and regulations.

Technological Environment and Infrastructure

This refers to the host state’s utility, communications, and transport systems that support business activities. Both the technological environment and infrastructure into which multinational firms enter an emerging economy may not yet be developed and, as a result, multinationals tend to find more obstacles in their global strategies for these economies than corporations headquartered in more developed economies. There are numerous publications on the issues of how the technological environment and infrastructure hinder multinationals from implementing global strategies in emerging economies. One major literature review, which is divided into four parts, discusses how technology is accessed and used in underdeveloped economies. The first part deals with the access and use of information through telecommunications networks. The second part focuses on physical connections between production facilities and markets through transportation infrastructure, including both roadways and railways. The third part covers manufacturing equipment used by multinational firms compared to those of foreign corporations. The final part discusses dealing with the various issues associated with monitoring technological developments in emerging economies.

Cultural Differences

While the causes of cultural differences may be different from country to country, there are certain overarching issues that need to be addressed in order to understand why they exist. These three main factors include: economic factors; the formation of social systems and organizations; and the development of national identity. In understanding the role these pieces play, multinational firms will have an advantage over those who have not integrated this information into their global strategy. They will also be able to recognize prominent global trends in terms of economic factors, social structures, and national identity and how they structure their business approaches accordingly.

The cultural environment and infrastructure. This is the knowledge of host state’s culture, values, beliefs, preferences and practices that multinationals can use to maximize their global strategy and market performance. Multinational firms entering developing economies may find that the host state’s culture is underdeveloped and this may be a major impediment to their global strategies.

Certain cultural differences can also hinder firms from implementing global strategies in emerging economies such as China, Mexico and Brazil. These differences can make it more difficult for corporations to work with one another because communication is more likely to be hampered by language barriers and cultural differences that many companies must overcome when trying to implement global strategies. The ability for firms to successfully implement their global strategies may be hindered by the issues of cultural differences that they have to face when trying to be successful in emerging economies. Because of the differences in business culture and practices between regions, multinational firms must adapt to these conditions and make a conscious effort to overcome them. They must also be able to reach an understanding with local partners when they come up with plans that they want to implement. If they can effectively overcome cultural differences, these organizations will be able to work together in managing foreign operations.

International and National Accounting Disparities

Differences in business accounting, taxation, and customs regulations. These are just a few of the challenges that multinational firms face when implementing global strategies in emerging economies. In order to manage risk, multinational firms must take into account these realities when planning global strategies. Despite this all being important considerations, regional complexity and the distance between sites make it difficult for firms to implement strategies in emerging economies. This can lead to unfavorable financial outcomes for both parties involved as a result of local discrepancies in decisions that are not taken into account early on in the process.

Economic Systems

It is critical that multinational firms consider the global economy and the host state’s economic system tendencies as an integrated and unified unit, drawing on similarities to help with differences. The key to maximizing global success is keeping a flexible perspective in which executives develop their strategic approaches knowing they will be adapting them to different environments with different levels of cultural sensitivity and familiarity. For example, emerging economies are commonly controlled by state-owned enterprises which operate as monopolies, creating a unique market structure and business environment. 

Political Systems

In the global economy, multinational corporations (MNCs) are challenged by the fact that each country is embedded in its own unique political system. It is essential to recognize key political forces and analyze how they influence, and are influenced by, particular states. The MNC must understand how these forces will affect their ability to choose a global strategy, achieve their goals in foreign markets, and interact with host governments and local actors (market participants), as well as understand the role of host state’s governing elites’ domestic considerations and perceptions. MNCs who fail to consider this risk creating strategies that fail to see the globally relevant cross-border interconnections.

Conclusion

The success of a global strategy depends mostly on how effectively an organization can establish value creation through cost leadership or differentiation as well as location advantages. These are important because they allow firms to obtain global competitive advantage while also making them more likely to succeed because of their ability to adapt quickly by working with other companies from different countries. These firms also increase their chances of success by increasing brands, products and services. Once they can reach a strategic level and view things through that lens, they can adjust their strategy as necessary and make sure that it aligns with their goals.

Firms can use internationalization strategies to help overcome some of the cultural challenges that we face when trying to successfully implement global strategies in emerging economies. There are a number of benefits associated with going global including; If you manage a multinational firm then you must have a clear understanding of your role in the global economy. You must be able to effectively perform many tasks such as identifying potential markets and making decisions on where to locate as well as choosing the best management strategy for your organization.

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