Global Issues in Management

Global Issues in Management encompass the complexities and challenges faced by organizations operating in an increasingly interconnected world. A significant aspect of these challenges involves offshoring, where companies relocate parts of their operations to countries with lower labor costs. While this can lead to substantial cost savings, it also introduces risks related to cultural differences, legal compliance, and operational efficiency. Effective management is crucial in navigating these issues, particularly through the roles of expatriate and global managers who must adeptly handle cross-cultural communication and adapt to local regulations and customs.

Cultural nuances can impact communication and teamwork, making it essential for global managers to understand and respect diverse perspectives. Additionally, maintaining quality assurance and customer satisfaction across borders is a critical concern that can affect an organization's reputation. Companies must also consider the implications of public perception when jobs are offshored, for instance, the potential backlash from layoffs in their home country.

Ultimately, managing global operations requires a nuanced approach, balancing the opportunities presented by globalization with the associated risks. Organizations must evaluate these factors carefully to ensure that their strategies align with both their operational goals and the needs of their workforce across different cultural contexts.

Published in: 2021

By: Wienclaw, Ruth A.

Subject Terms

Global Issues in Management

Abstract

Although the potentially lower costs of offshoring parts of an organization's operations can be an attractive proposition, such a venture has associated risks, as well as opportunities. Management is the key to managing the risks and leveraging the opportunities in offshore operations. In addition to expatriate managers who oversee the day-to-day functioning of offshore operation, it is also important to hire global managers who operate across national lines. These individuals can help smooth the entry of the organization into the new culture and help the organization accommodate the needs of the host country. Working in a foreign culture under a different set of laws and regulations brings with it new concerns in the host county. Offshore operations can also exacerbate existing management concerns such as security issues and quality control, or even bring new domestic concerns including problems with public opinion. All such considerations need to be taken into account as part of a cost/benefit tradeoff analysis before making the decision to globalize the organization.

Overview

It is the goal of most businesses not only to survive but to thrive. To support this goal, most businesses typically look for better ways to reduce costs and increase income. Sometimes, this may be through more efficient production processes and practices or even through reducing the size of the work force. At other times, it is through the practice of sustainable innovation; the process by which an organization systematically analyzes various indicators of customer needs and industry trends and leverages these into cutting edge products and services that allow them to maintain their competitive edge and become leaders in the industry. In other situations, reorganization may be the key to performance improvement, and employees may be arranged into teams that can produce synergy and develop products or services that they could not have done alone. Alternatively, the organization may emphasize quality as a way to pull its workforce together and earn repeat sales from its customer base. The solutions to this problem are as varied as the organizations that search for them.

Increasingly, among the solutions considered by many organizations are the options of outsourcing and offshoring. Outsourcing is the practice of contracting work that could be performed by the organization in-house to another company. This is typically done to reduce the costs related to putting in an infrastructure for the stated function or process; to reduce hiring, selection, training, and other human resources costs associated with having additional employees on the payroll to do the new job; or because production or personnel costs are lower in the contract organization. Sometimes, this practice means that the work takes place on foreign soil where costs can be significantly lower. When this is done, the practice is called offshoring, and refers to any of the organization's activities that take place in another country. This is a particularly attractive option when labor rates in a foreign country are one-tenth of domestic labor rates, and the concomitant employee credentials appear — at least on paper — to be the same as those of the domestic workforce.

The process of globalization, however, is not without its drawbacks. Even organizations whose operations are spread across a single nation have learned that managing under such circumstances can be more of a challenge than if all the employees were under one roof. Despite the proliferation of high tech methods of communication such as satellite videoconferencing, encrypted e-mail, electronic white boards, and cloud computing, communication flow in management at a distance is not nearly as good as in management by walking around. When the organization's workforce is global, however, this situation becomes even more complicated. Even if the employees in the foreign operation or branch speak the same language as those in the organization's home country, if it is not the primary language for the international workers, communication can be a tedious process. Nuances of idiom, dialect, and vocabulary can be easily missed, resulting in misunderstandings on a personal level and inefficient processes or even customer dissatisfaction on a higher level. In addition, differences in culture can color communications, subtly nuancing the text from the literal word. For example, in order to help others save face, Japanese business persons may say one thing (e.g., "I will give your proposal serious consideration") while displaying body language that says just the opposite. Without understanding these intricacies in cross-cultural communication, getting one's message across can become more difficult than usual.

Other differences in culture — including the basic shared assumptions, beliefs, norms, and values consciously or unconsciously held by the various national groups — can also affect communication. In addition, such differences often result in culture shock for expatriate managers (i.e., managers from the home country who work in the host country) as a result of their immersion in the foreign culture. This includes such symptoms as homesickness, irritability, hostility toward local nationals, and ineffectiveness at work, all of which can negatively impact not only the expatriate's effectiveness at work but his or her mental and physical health as well. Differences in the assumptions, values, and other aspects of culture also means that different management styles are often required in operations in host countries than are required at home. Not understanding the differences resulting from issues of comparative management can lead to managerial ineffectiveness, poor management-employee relations, and decreased organizational effectiveness.

Offshoring operations to different countries also means that one must deal with different legal, political, and economic systems. Any of these factors may restrict the way that the organization is allowed to conduct business in the host country, and management needs to understand these new parameters and learn how to work effectively within them. For example, in France, employees are legally allowed to work up to a restricted maximum number of hours per week. On the other hand, the ability of the employer to fire employees is severely restricted. In European Union (EU) countries, organizations are required to "inform and consult" employees on an ongoing basis on various actions that affect employees. Other issues such as minimum wage, maximum work hours per week, and minimum number of holidays can also vary from country to country.

Globalizing an organization, however, requires more than merely setup or contracting for cloned operations in another country. Global management needs to take into account the cultural, legal, and other constraints of the host country and develop or adapt a local management style so that the employees in the host country can be successfully led and become productive members of the larger organizational family while still recognizing the individual needs attendant with the cultural and legal requirements of the host country. To do this, special types of managers are required.

Although good expatriate managers are essential for keeping the international organization competitive within the global marketplace, another level of manager is also necessary: the global manager. These individuals are top managers who operate across national lines. Global managers need the ability to watch trends both at home and abroad in order to proactively deal with potential problems within the organization as well as to spot opportunities for the organization to increase its market share or take or maintain the leading edge in the industry. In addition, global managers need to be closely attuned to the needs of the customer, both in the home country and in the host country, so that the potential gains resulting from offshored work are not offset by losses caused by decreased customer satisfaction. This ability to think and act both locally and globally requires a special kind of manager.

The most common characteristic cited as a requirement for a good global manager is a "global mindset." This has been variously defined as the ability to conceptualize complex geopolitical and cultural forces and their impact on business; or the ability to scan the world from a broad perspective, looking for unexpected opportunities to reach both organizational and personal goals and objectives. However, political savvy alone is not enough. A good global manager must also have well-honed managerial skills. These include excellent leadership skills, the ability to build effective multicultural teams, and the ability to act as a change agent — someone who guides an organization through a change effort. To be effective in this role, global managers need to have knowledge of how to conduct a change effort, an understanding of the organization, and sufficient power to implement change.

The literature also suggests that global managers need to be visionaries, with the ability to observe trends and opportunities around them and turn these into successful strategies to help the organization grow and be more successful. This ability includes skillfully sorting relevant from irrelevant data, systematically analyzing various indicators of customer needs and industry trends across countries, and leveraging these into cutting edge products and services that allow the organization to maintain its competitive edge and become leaders in the industry.

Global managers can be divided into three categories, all three of which are necessary to resolve the complex and often contradictory problems that can arise within the global organization. These are global business managers, country managers, and functional managers.

The global business manager acts as a strategist, architect, and coordinator within the organization, bringing together its various components and leveraging the strengths of each into a successful overall organization. Global business managers are constantly looking for opportunities and concomitant risks for the organization in order to better position it within the market and increase its levels of performance and success. As opposed to top managers whose work is limited in scope to one country, global business managers look for opportunity wherever it may be found, even when it is across functional or national lines. Global business managers work toward coordinating and linking capabilities across these artificial barriers in order to fully capture the benefit of running an integrated global operation.

Another type of managerial specialist that the global organization needs is the country manager. This person's role is to act as sensor, builder, and contributor. The global country manager ensures that the needs of the local customers in the host country are met and that any legal requirements in the host country or locality are satisfied. In addition, the global country manager defends the organization's market position against local competitors.

The third type of global manager that is essential for successful global operations is the global functional manager. This person acts as a champion for the organization function and a cross-pollinator with other functions. Part of the global functional manager's tasks are to build an organization that learns from its experience — both successes and failures — and to leverage this knowledge into the creation of innovation in order to stay on the leading edge of the industry. To do this, the global functional manager seeks specialized information and best practices from both domestic and foreign sources in order to bolster the organization in its pursuit of excellence. The global functional manager also acts as a champion of innovation within the organization, encouraging and nurturing the creativity of employees and teams.

Application. As discussed above, there are many general management concerns that need to be taken into account before making the decision to move or outsource part of the organization's operations to another country. However, even if the right global and expatriate managers are found, issues of culture shock and comparative management resolved, and sufficient qualified employees found in the host country, both corporate management, in general, and the global and expatriate managers, specifically, are left with other concerns that could negatively impact the foreign operations.

One major issue for management is security in the overseas operation. This includes the confidentiality of proprietary information, processes, and products. These issues can be better controlled if management is on site, but in completely outsourced operations, this can be a difficult task indeed. Since the potential loss of revenue, market share, and customer confidence resulting from lost data can have disastrous impacts on a company, it is important that the organization remain in possession of sensitive material even if that means the task cannot be outsourced. There are some ways that an organization can protect itself from potential security breaches, but these tend to be expensive and difficult to manage, and often offset any savings gained by outsourcing or offshoring in the first place.

Another major concern faced by managers of global organizations is the problem of quality assurance and maintaining the same standards in a host country that one has in the home country. Whether the work is outsourced to a foreign contractor or done in-house at a foreign operation, the same high standards that are used to judge work in the home country should be applied to the work done at the offshore facility. If this is not done, substandard products and increased costs to redo the work will offset the savings gained in having the function or process done offshore. Policies and procedures need to be specified up front, as do the standards to which work is to be done. Further, good communication between the offshore workers, between the workers and their managers, and between the managers and corporate headquarters is essential. Good communication is also essential for shaping the workers at the offshore facility into a high functioning team that works well together and contributes to the effectiveness and success of the organization.

Maintaining high levels of customer satisfaction is another important issue in managing the global organization. If quality assurance levels are not high, the number of defects can rise or the quality of service can decrease. If this situation reaches the threshold where it is noticeable by the consumer, it can negatively impact customer satisfaction as well as the likelihood of the customer continuing to use the organization's product or service. In many cases — particularly with high tech products — the reputation of the organization depends not only on how well a product works, but how the organization responds to requests for technical help or other customer service.

Although outsourcing call center activities to a country where labor costs are lower can be attractive, these savings are often offset by other costs. Research has found that nearly 80 percent of organizations who outsourced their customer service function to an overseas facility failed to meet their cost savings projections. This fact is accounted for by various factors, including: high costs associated with quick turnover of overseas employees, the concomitant costs to hire and train replacements, and the loss of customers due to their dissatisfaction with the service they receive. In fact, research findings show that up to 60 percent of organizations that outsource a portion of their customer service capabilities will lose customers as well as incur additional costs.

This situation is associated with another problem that must be dealt with by management in global organizations: public perception. Sending jobs overseas typically results in a loss of jobs and layoffs in the home country. This fact, combined with the potential for increased customer dissatisfaction, can severely damage an organization's reputation for quality and service. Loss of jobs not only affects public opinion: It can also affect the employees' satisfaction on the job as well as their performance. Also, it must be remembered that layoffs can be a costly affair. Severance packages for those who leave as well as retention bonuses for employees who stay during the transition to offshore operations can cause costs to escalate. If these costs cannot be recouped by offshoring, the move will have been in vain.

Offshoring parts of an organization's operations has the potential to reduce costs. However, managing functions that are dispersed not only across miles but across nations can make this a very tricky proposition. To make it work, managers need to be on-site to supervise the day-to-day operations of the offshore operation as well as to deal with local laws and regulations, make sure that the new employees transition smoothly into the organizational culture, and that the organization accommodates the special needs of the culture in the host country. In addition, managers need to be alert to the opportunities of working in a global economy as well as the associated risks. The opportunities should be leveraged by a good global manager into new opportunities that bring personal and organizational success. The risks — including problems with security, quality assurance, customer satisfaction, and public relations — need to be managed and minimized. Before making the decision to offshore some of the organization's operations, corporate managers need to carefully consider all these and other advantages and disadvantages in a cost/benefit tradeoff analysis to determine whether or not the potential gains of offshoring outweigh the potential costs.

Terms & Concepts

Comparative Management: The study of management practices in different countries.

Culture: The basic shared assumptions, beliefs, norms, and values held by a group of people. These may be either consciously or unconsciously held.

Culture Shock: The psychological toll experienced by expatriates after approximately four to six months of living in another country. Symptoms of culture shock include homesickness, irritability, hostility toward local nationals, and ineffectiveness at work.

Expatriate: A person who is not a citizen of the country in which he or she is working.

Global Manager: A top manager who operates across national lines.

Globalization: Globalization is the process of businesses or technologies spreading across the world. This creates an interconnected, global marketplace operating outside constraints of time zone or national boundary. Although globalization means an expanded marketplace, products are typically adapted to fit the specific needs of each locality or culture to which they are marketed.

Host Country: A foreign country in which an organization has set up an offshored branch or operation or in which it has contracted for outsourced work to be performed.

Management: The process of efficiently and effectively accomplishing work through the coordination and supervision of others.

Management by Walking Around (MBWA): The practice in which top management of the organization get out of the office and talk directly to their employees. This practice helps managers better understand the needs and concerns of the employees, reduces the filtering of the data, gives them quicker access to the data, and improves communication flow throughout the organization.

Management Style: The way in which a manager supervises his or her employees. Different management styles (e.g., coercive, permissive, persuasive) are appropriate depending on the ability and needs of the workers, the situation in which they are working, and the personality of the manager.

Market Share: The proportion of total sales of a given type of product or service that are earned by a particular business or organization.

Offshoring: The practice of relocating part of an organization's business to another country with lower costs. Off-shore work is performed by local employees in the new country and was previously performed by domestic employees.

Organizational Culture: The set of basic shared assumptions, values, and beliefs that affect the way employees act within an organization.

Outsourcing: Work that could be done by an organization that is instead performed by another company on a contract basis. Outsourcing can include support (e.g., cleaning and janitorial services), production (e.g., the manufacture of parts needed to make a product), or services (e.g., customer service provided by a contract organization).

Risk: The quantifiable probability that a financial investment's actual return will be lower than expected. Higher risks mean both a greater probability of loss and a possibility of greater return on investment.

Bibliography

Dabic, M., & Zorko, I. (2011). Insights into the transformation of multinational managers into global managers. International Journal of Human Resources Development & Management, 11(2–4), 257–273. Retrieved November 21, 2013, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=63543143

Grosse, C. (2011). Global managers’ perceptions of cultural competence. Business Horizons, 54, 307–314. Retrieved November 21, 2013, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=66694710

Harvey, M., Novicevic, M., Leonard, N., & Payne, D. (2007). The role of curiosity in global managers' decision-making. Journal of Leadership & Organizational Studies, 13, 43–58. Retrieved April 27, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=24402027&site=bsi-live

Kakumanu, P., & Portanova, A. (2006). Outsourcing: Its benefits, drawbacks and other related issues. Journal of American Academy of Business, 9, 1–7. Retrieved April 27, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=22994812&site=bsi-live

Kardes, I., Ozturk, A., Cavusgil, S. T., & Cavusgil, E. (2013). Managing global megaprojects: Complexity and risk management. International Business Review, 22, 905–17. Retrieved November 21, 2014, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=89885115

Khan, H., & Bashar, O. R. (2016). Does globalization create a ‘level playing field’ through outsourcing and brain drain in the global economy? Journal of Developing Areas, 50(6), 191–207. doi:10.1353/jda.2016.0143. Retrieved February 28, 2018, from EBSCO Online Database Business Source Ultimate. http://search.ebscohost.com/login.aspx?direct=true&db=bsu&AN=121815770&site=ehost-live&scope=site

Mahon, J. F., & Millar, C. M. (2014). ManAGEment: The challenges of global age diversity for corporations and governments. Journal of Organizational Change Management, 27, 553–68. Business Source Complete. Web. 21 Nov. 2014. Retrieved November 21, 2014, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=99125300

Okoro, E. (2012). Cross-cultural etiquette and communication in global business: Toward a strategic framework for managing corporate expansion. International Journal of Business & Management, 7, 130–138. Retrieved November 21, 2013, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=79243470

Pucik, V., & Saba, T. (1998). Selecting and developing the global versus the expatriate manager: A review of the state-of-the-art. Human Resource Planning, 21, 40–54. Retrieved April 23, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=1548285&site=bsi-live

Global Issues in Management

On this Page

Subject Terms

Global Issues in Management

Abstract

Overview

Terms & Concepts

Bibliography

Suggested Reading