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 company’s 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 India’s case, the regulatory is generally said to be complicated. Besides,
environment is perceived to be somewhat lacking in terms of speed and transparency, though
it 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
coupled with inadequate direct communication with country’s 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, India’s 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.
Examples:-

Fast food chains like McDonald’s 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. McDonald’s
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 World

Is 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 8
Jun 2010.