Corporate Management in Europe (4/4)

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How to get in Europe? Geocentric Orientation

Remember Geocentric orientation strategy can be built as follow: 

o Geocentric Orientation – whole world orientation

The corporate culture is uniform and must result from all countries’ culture in which it operates.

•  Identity : Firm's corporate culture is deployed worldwide

•  Staffing : Worldwide profiles are hired for key positions

•  Decision : Collaboration of headquarter and subsidiaries everywhere in the world

•  Communication : Communication goes from headquarter to subsidiaries, as well as from subsidiaries to  headquarter and between subsidiaries

o Volkswagen / Škoda Case Study : Geocentric 0rientation Success

The challenge of this joint venture was in harmonizing the Czech culture with the Volkswagen’s (VW) culture. The formation of the new corporate culture has gone through three stages :

Analysis of the identity of Škoda – The analysis showed that employees were proud of Škoda tradition, delays in the delivery of their cars were very common. Employees weren’t familiar with individualism, initiative taking, independence and autonomy. The leaders' vision was influenced by socialism. 

The choice of development at Škoda – With the help of customer focus, profit maximization from internal and external customers, expanding  responsibility towards the consumer, giving autonomy to make decisions and reducing or even giving up the hierarchical thinking, Management sought to achieve a "best-in-class strategy". 

The action – It took time to change the situation at Skoda and to develop a new business. The former philosophy could not be incorporated because the employees could not identify with this new phylosophy. That’s why VW changed its policy and imposed a limited path towards a new culture to give space for the development of the culture of the Czech Republic.

To install this VW culture in the Czech plant, policy measures varied. For example, information was disseminated concerning the activities in all sections of the company, including in the head office, training was implemented at VW and VW were assigned to the VW factory in the Czech Republic to spread the to VW company philosophy. The main problem centered on the difference between  the socialist mind set and the VW culture. To resolve the problem, key positions were entrusted to employees from VW, trained in the dual system. The creation of a uniform corporate culture in a multicultural environment is a very important strategic task. The solution was to link the different work attitudes with different business structures for a new unit to be reborn. Then, all participants would be satisfied.

o Conclusion

The types of management differ considerably between countries, particularly concerning HRM. In case of alliances and mergers, this data is crucial. Especially since half of mergers bring less value than expected. Among the factors for these failures are phenomena related to the confrontation of cultures. It’s important to realize that collaboration between two companies from different cultures is quite delicate. Indeed, culture works on many parameters of management and if some variables are totally in contradiction, the partnership will be compromised. Culture affects communication (type of information flow, communication mode, type of interpersonal relationships, separation / life business), management (style, type of decision, the perceived role of education) the negotiation (the type of negotiation conducted, the type of desired relationship) and the organization and control (the type of responsibility, structure, mode of organization, formalization, recruitment, training, system promotion, planning, evaluation, innovation, leadership, conflicts solving). These are all aspects to be aware of  and to master to determine the possible organizational and strategic synergies between both organizations. These themes are crucial when it comes to Europe, considering its multicultural characteristics and diversity.

Finding the right people is often a key matter.

Thus, a company wishing to move abroad (through a subsidiary, a merger or  a partnership between two companies from different cultures) has to recruit high profiles capable of managing teams in a multicultural environment.For this reason, firms give more importance to the recruitment phase. Three possibilities present themselves to the company:- The company recruits national managers, with headquarter’s nationality,

• The company recruits national managers from the host country: these people are supposed to have easier relationships with host country’s employees and customers,

• The company may opt for the recruitment of managers with third countries nationality, because they have a very specialized professional competence or quality relationships with local groups.

• This recruitment should be done with keeping in mind that a predefined corporate management style has to be applied (Ethnocentric Orientation, Polycentric Orientation, Geocentric Orientation).

Each orientation comprises advantages and disadvantages :

• Ethnocentric orientation offers certainty that positions will be occupied by qualified nationals, and creates a unified organizational culture, but won’t develop host country cultural knowledge.

• Polycentric Orientation develops subsidiaries autonomy and creates a better understanding of local needs and demands, but can also create gap between headquarter and subsidiaries, hindering development of benefits such as economies of scale and unified culture.

• Geocentric Orientation doesn’t take into account cultural matter developing its own corporate culture beyond nationalities prerequisites. The challenge is to develop both global differentiation and global integration between headquarter and foreign subsidiaries.

Reference

European unity, the history of an idea, The Economist, December 30 2003

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