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THINK GLOBAL, ACT LOCAL

The World Is Flat: A Brief History of the Twenty-First Century is an international

bestselling book by Thomas Friedman that analyzes globalization, primarily in the early

21st century. The title is a metaphor for viewing the world as a level playing field in terms of

commerce, where all competitors have an equal opportunity. As the first edition cover

illustration indicates, the title also alludes to the perceptual shift required for countries,

companies and individuals to remain competitive in a global market where historical and

geographical divisions are becoming increasingly irrelevant. Globalisation cannot be avoided

in 21st

century. But is it that easy?

Most multinational companies are able to manage their businesses very well at home,

but often struggle in other countries. While their business processes are well run in their

home country, they find that the same processes perform unsatisfactorily or at least sub-

optimally in their overseas entities.

This is mostly a result of replicating the business models, organisational structure, processes

and practices in different countries without full appreciation of the fact that businesses have

to be organised and their risks managed differently, in foreign land.

There are various underlying factors why governance of business has to be customised to

local situations. MNCs entering different countries need to understand such local factors and

identify an appropriate response to them, when designing, setting up and running businesses.

Here are some of the top reasons for why and how MNCs face some typical business risks in

India.

Market behaviour: Customers, vendors and channel partners behave differently in different

parts of the world, and India is no exception. The local behavioural pattern, commercial practices, expectations, traditions, culture and ethical standards in India market are much

different than in the western world, West Asia or East Asia.

This throws up the risk that a foreign companys business rules, policies and processes that

may have been working successfully elsewhere may be quite misaligned to the local needs in

India. In many cases, even the business model needs adjustments to meet local market

requirements. Besides, there is a higher risk of inadequate screening of business associates in

a foreign land.

Local regulatory: In Indias case, the regulatory is generally said to be complicated. Besides,

environment is perceived to be somewhat lacking in terms of speed and transparency, thoughit is changing for the better. This is in contrast to the situation in the home country of the

MNCs. This difference comes with its risk that the time tested business models, supply chain

design, accounting policies and procedures, and record to report processes of many foreign

companies may be sub-optimal or tax inefficient in India.

Overdependence on local management: Long distance and inadequate local knowledge

leads to multinationals depending too much on the local top management in India. This

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coupled with inadequate direct communication with countrys local staff tends to increase the

risk of power abuse and control failure.

Besides, influence of the local top management discourages the staff to speak up. Another

risk that MNCs generally face in India is that of disruption in strategy implementation and

operational control due to higher attrition even at the senior levels, since India is a fast

growing economy and offers lucrative job opportunities.

Work environment: With its cultural difference from other parts of the world, Indias work

environment is different, and expectedly so. The difference in employees expectations from

the job, societal pressure, and stress level leads to the existence of a different set of drivers

for their motivation and engagement, giving rise to a set of challenges in human resource

management that is much different from those in the developed world.

Foreign companies that replicate their global HR practices without adequate alignment with

local work environment and employee mentality, often struggle with sub-optimal employee

engagement and thus lower performance. Performance and customer satisfaction risks are

therefore higher.

Further, in far off business units, the risk of collusion between employees and business

associates or amongst the employees themselves is high. Internal control design that may be

working well elsewhere in the company may prove to be inadequate or ineffective to mitigate

these risks in India.

Size of business: Very often, the relatively smaller contribution of an Indian entity to the

global revenue and/or the bottom-line of the MNC, takes its toll on the attention that its

governance deserves. While the executive attention is mostly focused on the market share,

technology, revenue and cost targets, there is generally less than required allocation of budget

for governance, risk and compliance review.

The global internal audit effort is also very often minimal due to the size of the India entity.

This emboldens local non-conformity. Proprietary issues and frauds, if any, remain unknown

or are not properly or timely investigated.

Finally, given that MNCs in India face some different and heightened business risks than they

do in their home country, it is only prudent that they customise the governance framework to

suit Indian situation.

Business operations should be analysed in the right context, benchmarks should be relevant,

internal control design and review mechanism have to be appropriate and adequate,regulatory compliance framework should be comprehensive, people policies and practices

need to be customised, ears must be close to the local staff in general and communication

must be direct, business associates must be effectively screened and above all, companies

must be vigilant in hiring so as to have honest and capable people who take a medium to long

term view of the business rather than simply focus on meeting short term targets and

reporting attractive numbers.

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Examples:-

Fast food chains like McDonalds fall somewhere in between it has rigid operational

systems that it implements worldwide but makes small changes in menu in every country

while maintaining its core value proposition low cost and quality fast food. McDonalds

approach of localization is often cited as an example of Think global (international best

practices) and act local (adaptation to local tastes).

Procter & Gamble has become the most successful foreign marketer in China by making a

personal investment in Chinese talent. In addition to hiring and developing local managers,

P&G dispatches hundreds of researchers to live with Chinese families and observe how they

approach everyday tasks, from changing the baby to brushing their teeth. The resulting

knowledge plays into product names, positioning, and advertising. And wherever possible,

P&G formulates products using local flavours, colours, and textures. Jasmine-flavoured Crest

toothpaste, for instance, capitalizes on the Chinese belief that tea is good for controlling bad

breath.

REFERENCES:

1. http://www.wikisummaries.org/The_World_Is_Flat :-Summary of book The WorldIs Flat: A Brief History of the Twenty-First Century by Thomas Friedman

2. Article on MNCs should think global but act local in Economic Times issue of 8Jun 2010.