Globalization has provided multinationals with an avenue to expand business operations in many foreign countries. Such companies enter into new markets through joint ventures, mergers and acquisitions, and subsidiaries. However, various challenges arise, namely, human resource management, government limitations, cultural differences, and wrong market entry strategies. Such problems lead to lack of business growth and development, which influence many multinational enterprises negatively in terms of huge losses leading to their failure and eventual exit from the market. However, various this report recommends various steps multinational corporations can take to avoid failure in international markets.
Over the past few decades, globalization has generated numerous opportunities for global business, trade, and investment. According to Cullen and Parboteeah (2013), many multinational organizations are trying to expand their operations internationally through many entry strategies, for example, joint ventures, and subsidiaries to attain further growth. Major U.S. and European firms such as Google are internationalizing following opportunities in other countries, for instance, high growth rates, and a growing middle class. China is an example of valuable countries that many multinational businesses focus due to its population of approximately 1.3 billion people (Lu, Hu, Liang, Lin & Peng, 2013). Such a society creates a broad market base for these organizations products and services.
While globalization can be profitable for organizations, it can also generate immense losses and frustrations. Furthermore, international expansion is one of the most challenging experiences for any multinational entity. There exist many challenges that foreign multinational organizations face when carrying out business in foreign countries that affect their business operation and development. Such problems include human resource management, government limitation, cultural differences, and wrong market entry strategies due to poor market analysis (Daniel & Reitsperger, 2013). The aim of this paper is to discuss the different challenges that lead to failure of enterprises that seek to operate successfully in other countries. The paper first gives an overview of the company under study, Google China. Then, it will indicate the different factors that lead to failure, discuss an exit strategy, and then recommend the appropriate steps to take to avoid failure during entry into other markets.
Google in China
In 2000, Google started its operations in China allowing the Chinese to search for information in their language. For around two years, the Chinese could use Google to surf the Internet. However, in 2002, the Chinese government blocked access to Googles website and rather started doing searches through sites approved by the government. When the government later gave access to Google, individuals found some sites that were considered politically sensitive unavailable (Lu et al., 2013). Apparently, China was obstructing sites the government deemed subversive.
To solve this issue, Google decided to establish an office in China with the goal of availing the Chinese access to the largest amount of information the organization could provide. Additionally, Google voluntarily agreed to censor the results the Chinese government considered subversive. Mainly, Google struck a deal with the Chinese government to launch Google.cn, a version that could be run from within China. Therefore, Google provided the censored information to the Chinese population, but it found it difficult to expand its operations in the lucrative market relating to developing commodities in the Chinese language and localizing them. Consequently, this move generated legal and ethical issues for Google because it was unable to honor the company standards of availing its clients a complete access to all resources.
In January 2010, Google faced cyber attacks that forced it to heed its exit from the Chinese online market. Apparently, internet security experts considered this decision diplomatic because it would prompt the Chinese government to reconsider its resolution on the censorship, which could aid Google to achieve the same level of competitive edge in the Chinese market as it enjoys globally (Lu et al., 2013). Given this, Google decided to evade Chinese governments censorship and instead route its Chinas online clients to Google.com.hk based in Hong Kong, which resulted into a non-renewal of its ISP License that would lead to a permanent exit from the lucrative Chinese market.
Factors Leading to the Failure of Multinationals in Foreign Countries
Human Resource Management Factors
Human resource management is a branch of a company that recruits and develops employees to promote the entitys objectives. The primary practices of this department include hiring, training, compensating, and retaining competent, consistent and committed workers in the organization. Notably, this is a crucial factor could be a competitive advantage for an organizations long-term development and image (Kuo, 2016). Following an increasing need for qualified employees in multinational organizations, the international human resource management models have been developed. Different individuals in the various countries exhibit distinct culture and conception on organizational behavior. When the multinational businesses implement this international standardized human resource management, the diversity and complexity of cross-culture and cross-nation bring strategy conflicts.
Human resource management is one of the most popular challenges in international management and business operations. Notably, some primary human resource management elements lead to the failure of multinational corporations. First, the lack of technical expertise in the host country leads to a shortage of talent to operate the business (Story, Barbuto, Luthans & Bovaird, 2014). Google is a technological oriented multinational company that employs individuals with knowledge and skills in information technology. However, there is a prevalence of arts in Chinese universities as opposed to technical fields, which results in an increase in talent shortage. As a multinational company, Google aims at attracting employees with advanced technical skills who understand international operation techniques efficiently. The lack of this type of expertise is a major factor that leads to failure of many multinational corporations.
The differences in the compensation and benefits systems between the host and the parent countries pose a challenge to many multinational businesses (Story et al., 2014). Particularly, Chinas economy has been experiencing growth over the past years, which has led to the growth of wage rate. In multinational companies, mainly Google, the salary of workers depends on their performance. As previously noted, most of the Chinese workforce lacks the necessary expertise. Consequently, lack of the required skills and knowledge leads to poor performance. Therefore, there is no much compensation and benefits to the Chinese staff, which lowers the wage rate. Further, the few qualified and experienced employees get dissatisfied with the job leading to high turnover of qualified workers.
Notably, this is a prime challenge that faces many multinational companies seeking to enter into foreign markets, particularly in the Asian countries. Google is a good example of a multinational enterprise that met government limitation in China to the extent of contemplating an exit from the Chinese market. Mainly, governments set policies, laws and administrative orientations that limit the operations of the multinational entity (Kobrin, 2013). The Chinese government censored the results from Google searches, particularly, any information relating to politics, religion, and pornography. Consequently, Google could provide little information, but it was difficult for it to expand its operations in the Chinese market.
When a government limits the operation of a foreign multinational entity in the country, legal and ethical issues within the company result. For example, it was within Googles ethical standards to provide a broad range of information to its clients. Therefore, when the government censored this information, it limited the achievement of this Googles ethical requirement. Additionally, Google was forced to comply with the Chinese government to continue its operations within the lucrative Chinese market. Notably, this compliance was against the code of ethics set by the parent organization in the United States. In many instances, multinational companies find government limitation a big challenge to overcome and opt to exit the market in the particular foreign country.
Culture is an essential factor that influences the international operations of a multinational company in a foreign country. People from different regions have different traditions, norms, values, and attitudes. If foreigners want to manage a business in a country, they first need to understand the fundamentals of the countrys culture, particularly, the business culture that tells people the acceptable ways to conduct business in a certain society. Furthermore, culture can influence business-government relations and managerial approaches (McFarlin & Sweeney, 2014). To put this into context, the specific examples where the culture of a foreign country can affect administrative practices include centralized and decentralizes decision-making, informal and formal procedures, and individualism and communism.
For example, in China, there exist three primary traditions, namely, Confucianism, Taoism, and Buddhism. These traditions form the roots of the Chinese culture, which play an essential role in business behavior and decision-making. It is a big challenge for multinational companies to acquaint with such cultures because these unique business values and beliefs are fundamentally different from those of the mother nation. Additionally, because of the profound influence of the traditions, people prefer to uphold the requirements of their culture instead of believing contracts during business activities. For instance, because of the profound effect of Confucianism, the Chinese would rather believe people instead of business contracts. Failure often occurs when multinational companies fail to uphold the culture of their host country, which leads to exit from the foreign market.
Wrong Market Entry Strategy
Making the right entry decisions impact the multinational companys performance in global markets. Additionally, other strategic marketing mix resolutions play a significant role. Particularly, there is a need for a strong market entry strategy, which heavily influences the entitys other marketing mix strategies. According to Khanna and Palepu (2013), the multinational company must decide on the target market, the corporate objectives for this market, the manner and time of entry, the marketing mix plan, and a control system to monitor the companys performance in the entered foreign...
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