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Implications of Home Country Culture and Institutions

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05.10.2020
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The process of globalization has for a long time been assumed to bring about a kind of convergence of cultural, political, as well as economic aspects of life. As a consequence, within the globalization debate, international firms are usually presented as harbingers of global practices (Abraham & Patro 2014). This is reinforced by the fact that knowledge is assumed to move rather easily within national borders as compared to moving across them. However, researchers have slowly recognized the complexity and internal differentiation of these international firms. Because of this, it has emerged that subsidiaries of these firms were not actually internally differentiated. The truth is they are managed in various different ways by the international firm’s headquarter. Further, it has also been noted that despite business becoming increasingly global in various respects, international firms remain highly dependent on certain local environments for developing their competitive advantages (Berry et al. 2015).

The perception that home country firms tend to have a much bigger influence on the characteristics of their subsidiaries has cast doubt on the presumed role of these firms in the globalization process. This is even more true as far as the process of international transfer and harmonization of technologies and practices is concerned (Godey et al. 2012). In addition, the view that what is transferred by the international firm to its subsidiaries is what can be assumed as being an international best practice is also increasingly questioned. Thus, far from appearing as nationless organizations, even the most global international firms in many aspects still appear to be strongly rooted in their home country culture and institutions. This has had an implication on various practices of the organization to a certain extent.

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This international firm’s home country culture and institutions are in reality the main sources of the country of origin effect. This refers to the psychological effect that influences how a subsidiary conducts its business practices on the basis of the influence of the home country (Ramsaran 2015). In many instances, the mechanism through which this effect tends to manifest itself includes hiring home country nationals by the international firm and the embeddedness of the administrative structures and preferences of the home country nationals in the organizational structure and processes of the subsidiary. However, with time this effect has spread to other non-conventional areas, such as corporate social responsibilities, internal organization, and foreign entry strategy (Rezvani et al. 2012). In order to adequately study an international firm’s home country culture and institutions and the implications, it has on its corporate social responsibility, internal organization, and foreign entry strategy, Procter and Gamble (P&G) will be used to illustrate this. P&G is an international firm whose home country the United States is an advanced economy. It has established itself in a number of developing economies. The host country of choice for the purpose of this paper is Kenya.

Corporate Social Responsibilities

Analyzing the corporate social responsibilities (CSR) of P&G in Kenya will be effective in determining whether an international firm’s home country culture and institutions in 2016 still have any implications to its CSR. CSR, in this case, refers to a phenomena that has for a long time been promoted as a possible solution to the problems arising from globalization that prevents the process of sustainable development. This phenomena is commonly described as the process of integration of social and environmental concerns into business practices (Haynes, Murray & Dillard 2012). Over time, companies of all sizes, including international firms, have come to the realization that business, as usual, cannot account for the needs of stakeholders. As a result of this, there is a need for more to be done to effectively include the needs of all people that are affected by their business activities. With respect to the case of P&G and its subsidiary in Kenya, it can be said that an international firm’s home country culture and institutions do not have any implications for its CSR presently. A number of reasons support this notion.

In the first place, P&G’s culture and institutions do not have any apparent implications to its CSR as a consequence of operating in a developing country. In this regard, the fact that this company operates in a developing country means that it has to do more given the economic challenges existing in this country. This explains why P&G has inserted itself in many more CSR projects in Kenya as compared to its home country. Further, this also explains why there is a significant amount of difference in the nature of the CSR activities undertaken by the firm in the US and in Kenya. For example, P&G has a lot of education programs in its CSR in Kenya as compared to the US (Dudovskiy 2012). This is due to the fact that many more children in Kenya are disadvantaged when it comes to accessing educational opportunities. One such program is the Always Feminine School program which P&G started over 20 years ago (Rajni 2014). This program aims at ensuring that young girls are able to stay in school by educating them on feminine hygiene, puberty, and menstruation. This is usually done in partnership with the Ministry of Education. In addition, the Always Keeping Girls in School is also another education program that has been facilitated by P&G (Kamran et al. 2012). It aims at ensuring that young girls are able to attend school throughout the year despite the challenges of the menstruation which prevent many of them from attending school.

Further, a firm’s home country culture and institutions do not presently have any implications to its CSR as a consequence of the emergence of voluntary guidelines and pressures from the national governments. In the case of P&G and its operations in Kenya, it is evident that the Kenyan Government in an attempt to oversee the protection of its people has placed more pressure on P&G to improve its CSR standards in the country (Dudovskiy 2012). This pressure can be said to be more with regard to the Kenya government as compared to the US. As a result, the firm is expected to directly contribute to the wellbeing of the Kenyan society, including to an extent assuming a kind of political role. This is best demonstrated by the notion that currently the process of globalization within the national context of governance in a country such as Kenya is slowly eroding. This can mostly be blamed to the lack effective governance since Kenya, as most developing nations, is heavily affected by the problem of corruption as well as the lack of resources. This has the impact of leading to many public institutions in this nation to lack the appropriate funds, enforcement mechanisms to provide some public goods, and manage various forms of environmental problems. It is at this point that international firms such as P&G step in to fill the void (Kamran et al. 2012). However, the same cannot be said with regard to the status of the things in the US given that, as a developed nation, it is not subjected to poor governance and lack of resources to the extent that P&G has to assume a kind of political role in the country.

In 2016, an international firm’s home country culture and institutions still do not have any implications to its CSR since CSR activities are framed with reference to their social context. Because of this, these activities are usually influenced by the prevailing institutions within this context (Abraham & Patro 2014). This implies that P&G’s CSR activities in the US will be influenced by institutions in the US while those in Kenya will be influenced by institutions in Kenya. Thus, the home country of origin effect will have no significant impact on the CSR activities conducted in Kenya. This is further supported by the fact that when firms internationalize they are usually subjected to other laws and regulations different from those of their home country environment (Ramsaran 2015). Given that there is no agreed upon definition of CSR, this has the meaning that what it compromises of differs across nations. This presents the expectation that international firms due to the need to apply and respond effectively to external pressures in the host country in which they operate will need to adhere to the CSR expectations of these countries. The same thing applies to P&G which is forced to accommodate the CSR orientation of Kenya and abandon the CSR orientation of the US. In particular, P&G has structured its CSR orientation to relate to the distinctive regulations and expectations of Kenya in order to be able to attain legitimacy in this country.

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Internal Organization

The internal organization of a firm refers to the manner in which it is structured to run its various operations and activities. This further includes the conditions, entities, and factors that can be found within a firm (Godey et al. 2012). Some of the most common aspects of the internal organization of a firm are organizational structure, organizational culture, and leadership style. The question of whether an international firm’s home country culture and institutions still have implications to its internal organization in 2016 can be answered as follows.

To gain an understanding of the internal organization of P&G, it is essential to note that the company has adopted an organizational structure that aims at offering the global benefits of an international company. Thus, P&G has adopted a unique organizational structure that has eliminated most of the traditional overlaps and inefficiencies that have existed in many large firms (P&G 2016). This organizational structure is composed of various global business units, market development organizations, global business services, and lean corporate functions. The global business units mainly place focus on consumers, brands, and competitors. In this regard, the P&G subsidiary in Kenya is part of this business unit. On the other hand, the market development organizations are responsible for finding out the consumers and retailers in each market that this firm competes with. This has the meaning that there is a market development organization that looks into the Kenyan market. The lean corporate functions serve to ensure that there is ongoing functional innovation and improvement in the capability of the organization. Subsequently, this organizational structure also offers the benefit of integrity and relevancy to consumers in what the firm asserts is more than 180 countries that its products are sold in. Kenya is among these countries (P&G 2016). This has the implication that the corporate structure that is used in the US as P&G’s home country is the same structure that is being applied in Kenya. Therefore, the corporate structure that is used in P&G’s Kenyan subsidiary is structured in a way that allows it to offer global benefits within this market. It also has the meaning that this subsidiary’s corporate structure is further characterised by a sense of integrity and relevancy to consumers just as the structure used in the US (P&G 2016). As a consequence, this serves to confirm that in 2016, an international firm’s home country culture and institutions still have an implication to its internal organization.

Further, the internal organization of this firm has been systematized to encompass the firm, its structure, and its people. This systematization has been focussed on winning the market through the use of the firm’s brands and products which have been developed to ensure that they create value for the consumers as well as touch and improve lives of people all over the world on a daily basis (Ambos, Ambos & Birkinshaw 2016). This insinuates a country of origin influence and consequently home country culture and institutions influence on P&G’s internal organization. This is evidenced by the fact that P&G Kenya has also gone ahead to systematize itself as being made up of the firm, its structure, and people. Thus, its main marketing strategy has placed a significant amount of focus on winning the market by using the strengths that are found in its brands and products throughout the country (Pompper 2015). Thus, in many Kenyan homes the use of P&G’s brands such as Ariel and Always has come about as a consequence of these brands being regarded as the very best in the market, enabling the company to gain a competitive advantage over its competitors such as Unilever. Thus, the fact that P&G makes use of the same strategy to win its markets demonstrates that, as recent as 2016, an international firm’s home country culture and institutions continue to have an implication to its internal organization.

To further be able to adequately address the question of whether an international firm’s home country culture and institutions still have an implication to its internal organization, gaining an understanding of the human resource (HR) practices of subsidiaries can shed light on this. HR practices will be essential in determining the extent of influence of P&G on its Kenyan subsidiary (Berry et al. 2015). Given the fact that P&G operates in a developing country like Kenya, there was concern in relation to allowing the firm to operate independently without any control from the home country. Therefore, the variables of institutional and cultural characteristics have formed the distinctiveness of the HR models that are used in this firm’s Kenyan branch (Sparrow 2010). For instance, there is strong evidence as to how the home country exerts a distinctive influence in the manner that labour is managed in the subsidiary. To illustrate this, it is essential to examine the staffing process that is used by P&G. This firm utilizes an ethnocentric staffing strategy. In this regard, the firm has filled the most significant positions in its Kenyan subsidiary with expatriates. These are also usually referred to as home country nationals. The reason for doing this is embedded in the notion that these expatriates will best implement the policies of the home country as well its organizational structure (Veselá & Zich 2015). This is further evidenced by the fact that American firms tend to be more ethnocentric in nature. Consequently, this goes on to show that an international firm’s home country culture and institutions still have an implication to its internal organization.

Foreign Entry Strategy

The question as to whether an international firm’s home country culture and institutions still have any implications to its foreign entry strategy remains unclear. To be able to answer this question adequately, it is essential to examine how P&G as an international firm manages foreign exchange risks as well as its entry mode and internationalization strategies.

Foreign exchange risks are common for many international firms. In this regard, these are the risks that are brought about by changes in exchange rates in various financial transactions that these firms are involved in. P&G, as an international firm with diverse offerings, is exposed to various financial risks like changes in interest rates, rates of currency exchange fluctuations, and changes in the prices of commodities. As a firm, P&G has developed various mechanisms for managing the foreign exchange risks that it is exposed to. One way that it does this is by choosing to enter into various financial transactions that include hedging activities, which also applies in its Kenyan sub-branch. Therefore, the firm usually formally designates and documents various qualifying instruments as hedges of underlying risks that it has been exposed to (Fong, Lee & Du 2014). Therefore, the application of transaction exposure management practice by P&G among its subsidiaries, including those in Kenya, demonstrates that the country of origin may affect the level of business that is applied transaction exposure management to a large extent. Accordingly, in 2016, an international firm’s home country culture and institutions still have an implication to its foreign entry strategy.

Foreign market entry modes refer to the channels which organizations use to gain entry into new international markets. For P&G, its entry strategy has mainly involved using its home country culture and institutions in the introductory stages of its product life cycle. This has proven to be the quickest entry method into the foreign market given that it is operating in a developing economy (Abraham & Patro 2014). The use of the home country influence has made it possible for the firm to successfully penetrate the market and position its products in a much quicker way as compared to the use of the brand strategy as a method of market penetration. Further, Kenya, as a consequence of being a developing country, has proven to be useful in determining P&G’s entry mode into this market. This is supported by the notion that, as consumers come into contact with product offerings from other countries, they make comparison and develop a product image (Veselá & Zich 2015). This has led to a firm’s home country culture and institutions to become related to the product image. For many Kenyan consumers, the made in the US image has to a large extent influenced their decisions to make purchases of certain commodities. P&G has taken advantage of this product image to introduce many of its products to the Kenyan markets. This has proven to not only be an easy method of penetrating this market, but also a cost-effective one as the company need not invest in any form of advertising and branding (Berry et al. 2015). This illustrates that an international firm’s home country culture and institutions still to a large extent have implications to its foreign entry strategy in 2016, as in the case of P&G.

Internationalization strategies are the range of options available to firms operating outside their countries of origin. P&G as an international firm makes use of the global internationalization strategy in an attempt to spread to different parts of the world. It is through this global internationalization strategy that the company has been able to also establish itself in Kenya. Consequently, due to the use of the global strategy, the American firm has opted to sacrifice responsiveness to the local requirements within the Kenyan market. This has been done with the intent of placing a larger emphasis on efficiency instead (Godey et al. 2012). It is evident from this that this internationalization strategy used by P&G is the opposite the multi-domestic strategy which tends to sacrifice efficiency and instead favours responsiveness to the local requirements. While it applies this strategy in Kenya, there are some minor modifications that are carried out on some products within the Kenyan market. However, in most instances, this firm mainly stresses the need to gain economies of scale by ensuring that it is offering almost the same products within the Kenyan market. This has the implication that the P&G products that are sold in Kenya and those that are sold in the US are essentially the same. This can be attested by the firm’s flagship laundry brand of Ariel (Dudovskiy 2012). While the brand exists in various forms in the US, including the liquid form, in Kenya it exists mainly in powder form. Another P&G brand that has acquired a large Kenyan market share is the feminine hygiene product Always. This has led to P&G using the same coordinated images and branding that it uses in all its markets. This further implies that for this firm, there is generally a single corporate office that is responsible for this global strategy (Rezvani et al. 2012). In this case, the corporate office for P&G is located at its head office in the US. From the assessment of the internalization strategy used by P&G, it is apparent that the home country culture and institutions affect how the firms operates in its international market given that it does not respond to the local requirements of the Kenyan market. Therefore, from this observation, it can be concluded that an international firm’s home country culture and institutions presently continue to have implications on its foreign entry strategy.

Analysis of the National Competitive Advantage Using the Porter Diamond Model

In order to further gain an understanding of the implications of an international firm’s country culture and institutions, carrying out an analysis of the national competitive advantage of the selected firm using the porter diamond level will be necessary. This model is able to assess this national competitiveness based on the characteristics of the home country (Bakan & Doğan 2012). This is critical because the characteristics of the home country play a fundamental role in providing pertinent details in the international competitiveness of the firm. In doing so, it is able to adequately assert the quality of the home country environment, which to a large extent is able to influence the degree of success of the company in other markets. This implies that the extent of success of P&G in the Kenyan market will be influenced by the home country environment and, therefore, P&G in the US.

In assessing the national competitive advantage of P&G in relation to factor conditions, its basic factors, which in this case make reference to natural resources, have a low mobility. However, this is not problematic given that while these factors are essential in creating the necessary ground for international competitiveness, they cannot turn into real value creation without advanced factors (Bakan & Doğan 2012). For P&G, the fact that it is from an advanced economy means that it endowed with advanced factors. This is evidenced by its possession of advanced factors like human, capital, and knowledge resources.

In further analyzing the national competitive advantage of this firm in relation to the element of demand conditions, it is essential to assess the factors such as early home demand, market size, and market growth and sophistication (Bakan & Doğan 2012). In this regard, the evidence shows that for P&G, the sophisticated home market buyers have exerted a significant amount of pressure on the firm’s innovativeness. This has caused it to innovate much faster and create a more advanced product as compared to foreign competitors. This offers an explanation as to why many of this firm’s products in Kenya are similar to those in the US.

An analysis of the element of related and supporting industries in relation to P&G reveals that the local supporting industries of this firm are quite competitive. This has led the firm to enjoy more cost-effective and innovative inputs. This has further been strengthened by the firm’s suppliers who are also strong global competitors.

In analyzing the porter diamond model as it relates to the model of firm strategy, structure, and rivalry, this looks into how the firm is organized and managed, as well as its major objectives (Bakan & Doğan 2012). In this regard, for P&G it is apparent that the presence of a strong rivalry in the home base has emerged as significant to its competitive ability. It has created the necessary pressure for it to remain innovative as a way of maintaining and upgrading competitiveness.

The element in the Porter diamond model of government can also to an extent influence the competitive nature of this firm. This is as a result of the fact that the government has the ability to influence each of the five elements in Porter’s diamond level (Bakan & Doğan 2012). In this case, the US government has the power to influence the key production factors, shape the demand in the domestic market, and fuel competition among firms. For P&G this has always worked positively, given that the government’s main aim is to ensure that its firms are doing well both at home and internationally.

Chance as the final element of the Porter diamond model refers to those random events and happenings that are beyond the control of P&G as a firm. These events are quite essential when it comes to the creation of international competitiveness. This is because of the discontinuities that are created by chance (Bakan & Doğan 2012). However, it is essential to note that it may create a competitive position or a loss for a firm. P&G has been praised for coming up with new ideas first, which in some instances has been a result of some random events. Most of these ideas have thus been started in the US as the home country, which has cemented the position of P&G in the US as a market leader.

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Application of Conclusions Made

In order to ascertain whether the conclusions reached earlier that an international firm’s home country and institutions do not have any implications to its CSR, have an implication to its internal organization, and have an implication to its foreign entry strategy applies to all firms from the same home country; this paper utilizes the Johnson & Johnson company. In this case, an analysis of the CSR, internal organization, and the foreign entry strategy of this company will be conducted.

An analysis of the firm’s CSR activities reveals that this firm’s CSR is heavily integrated into its business strategy. This is evidenced by the developed credo that provides a set of guiding principles for the firm (Johnson & Johnson 2016b). This has served the function of ensuring that the company remains committed to meeting the needs of all its stakeholders. That includes its customers, shareholders, employees, and communities where it operates. Some of its major CSR activities have been focused on preserving the environment by looking into the issue of carbon emission and the healthy future launch 2015 (Johnson & Johnson 2016a). Therefore, for Johnson & Johnson, the CSR policy is used throughout its businesses. The CSR policy which is rooted in the firm’s core values of quality, reliability, and trust, while to an extent is guided by international standards, is applied in all its subsidiaries. In this case, the conclusion with regard to whether an international firm’s home country culture and institutions still have implications to its CSR differs from that of P&G. That is, in relation to Johnson & Johnson, an international firm’s home country culture and institutions have an implication to its CSR.

With regard to the influence of the home country culture and institutions to its internal organization, there has been a significant amount of country of origin effect. In this regard, the manner in which the firm has been structured as well as how it runs its operations and activities has been greatly influenced by its home country. For instance, with regard to the organization’s internal organization as it relates to its strategic framework, the foundation of this firm was based on its credo and aspirations (Johnson & Johnson 2016c). The firm’s strategic principles are broadly based in human health care, people and values, decentralized management approach, and management for the long term. This strategic framework has been duplicated throughout the subsidiaries of this firm, including those operating in Kenya. This substantiates the notion that in 2016 an international firm’s home country culture and institutions still have an implication to its internal organization.

Johnson & Johnson confirms that as recent as 2016, an international firm’s home country culture and institutions have an implication on the foreign entry strategy of a firm. Therefore, in relation to managing its foreign exchange risks, this firm has adopted a strategy that is similar to P&G’s. That is, Johnson & Johnson applies a number of hedging activities which also applies to its international businesses. The use of these strategies has been largely influenced by home country decisions (Abraham & Patro 2014). With regard, to its foreign market entry mode, just as in the case of P&G, the entry strategy that has been used by the company has involved using the influence of the home country in the introductory stages of its products into the international market. Within the Kenyan market, just as is the case with P&G, the company also makes use of the made in the US factor to gain entry into this market. The assumption is that goods associated with manufacturing in the US are of superior quality (Veselá & Zich 2015). Further, with regard to the internationalization strategy adopted by this company, the firm also makes use of the global internationalization strategy. In this case, it places a lesser emphasis on local market responsiveness and focuses more on efficiency. Once again, this goes on to illustrate that the home country culture and institutions have an implication on its foreign entry strategy.

The above analysis shows that the implication of an international firm’s home country culture and institutions on its CSR, internal organization and foreign entry strategy is not a standardized aspect. In this regard, this has the meaning that the country of origin effect on these aspects differs from one firm to another as demonstrated by P&G and Johnson and Johnson.

Conclusion

In conclusion, it can be said that the process of globalization, as represented by the internationalization of firms, such as P&G, has to an extent assumed a kind of convergence of cultural, political, and economic aspects of life. This offers an explanation as to why an international firm’s home country culture and institutions still have an implication to its CSR, internal organization, and foreign entry strategy. An assessment of these aspects as enabled by P&G has also gone on to demonstrate that a number of aspects of operations of a subsidiary are usually embedded in the structures and preferences of the home country. At the same time, this is not always the case as demonstrated by the fact that there are some aspects that are not influenced by the home country.

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