Module Tutors Dr Lakmini Kannangara Dr Muhammad Burhan Malinda R Mudiyanselage Module Code: MBB7007M Module Title: Global Business Strategy Assignment Number: 1 Assignment Title: Essay Word Count: 3839 First...
moreModule Tutors
Dr Lakmini Kannangara
Dr Muhammad Burhan
Malinda R Mudiyanselage
Module Code:
MBB7007M
Module Title:
Global Business Strategy
Assignment Number:
1
Assignment Title:
Essay
Word Count:
3839
First Attempt/Re-sit/Deferred/Extension granted
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THE INFLUENCE OF CULTURAL INSTITUTIONS, GOVERNMENT REGULATION AND LOCAL MARKET CONDITIONS ON GLOBAL BUSINESS STRATEGY: A COMPARATIVE ANALYSIS OF STARBUCKS AND MCDONALD’S IN CHINA, INDIA AND FRANCE
INTRODUCTION
Globalisation has had a major impact on the global business environment by increasing the level of interdependence of economies, markets and political systems between countries (Dicken, 2015). Globalisation, however, has not led to the formation of a fully global marketplace as is often claimed, but rather to the strategic complexity that multinational corporations have to deal with. The current landscape of firms is set in a very diverse host country environment with different cultural institutions, regulatory frameworks, geopolitical tensions, and economies. Economic nationalism and digital sovereignty policies coupled with supply chain disruptions, have also compelled multinational companies to accommodate strategies based on host country interests instead of a standardised set of business models. Today, globalisation is more one of increasing institutional divergence than of complete market convergence and of growing fragmentation in international business environments. Contemporary international business is also increasingly shaped by deglobalisation, geopolitical fragmentation and stronger state intervention in markets. These developments have increased pressures on multinational corporations to restructure supply chains, strengthen local embeddedness and adapt more carefully to national political and regulatory priorities.
As a result, multinational corporations are increasingly facing pressures to integrate with the global economy and demands to be responsive locally and institutionalised (Bartlett et al., 2024). Consumer behaviour and decisions regarding market entry and operational structure are highly influenced by the host nation contexts. Cultural institutions influence buying habits and social norms, and the government influences business activities through labour laws, foreign investment laws and market controls (Hofstede, Minkov and Hofstede, 2010). Moreover, local market conditions like digitalisation, competition, and expansion of the middle class have an impact on how firms plan their product positioning and devise competitive strategies (Whittington et al., 2020).
This essay explores how cultural institutions, government policy and local market conditions influence the global business plans of Starbucks and McDonald's in China, India and France, and then critically analyses and evaluates their business plans. It suggests that the secret of the long-term competitive success of multinational corporations is neither to standardise the firm globally, nor to be a 100% local company, but to integrate the firm globally while adapting, being embedded and responsive to the host country contexts.
THEORETICAL PERSPECTIVES
Global Business Strategy
Global business strategy is a management approach that guides the organisation to maintain a global presence, gain long-term competitive advantage, and react to the various market conditions (Bartlett et al., 2024). Globalisation has increased economic integration while forcing multinational corporations to balance global efficiency with local adaptation (Dicken, 2015). This creates strategic dilemmas, as firms must balance efficiency with local adaptation. Global business strategy is thus a combination of global integration and adaptation to host country context.
There are two strategies identified by Bartlett and Ghoshal (1989) - global and multi-domestic and transnational. A global approach is all about standardisation, centralisation and cost effectiveness. To benefit from economies of scale and lower costs, firms want to have consistent branding, operations and products in markets (Hill, 2023). Examples of this can be seen in the Starbucks and McDonald's brands and systems, in their global presence.
But a high degree of standardisation can also lead to constraints as consumer preferences and institutions and cultures vary greatly from country to country. Bartlett and Ghoshal (1989) thus theorise that multinationals, too, are under pressure to be locally responsive. A multi-domestic strategy gives the subsidiaries more autonomy to tailor the products and operations to the local conditions. This is especially crucial in the food and beverage sector where cultural and religious beliefs have a significant impact on consumer behaviour. In India, for instance, McDonald's added vegetarian menu items and Starbucks introduced tea drinks in China to make it more palatable in the country.
Bartlett and Ghoshal (1989) also believe that a transnational approach is the most effective but also the most challenging approach, as it is both efficient and responsive to local conditions. This is consistent with the integration-responsiveness approach of Prahalad and Doz (1987) which posits that MNCs must manage cost pressures and institutional/cultural responsiveness.
However, it has been argued that the international business model presents a picture of international business which is too simplistic to represent reality. Localisation can enhance legitimacy and acceptance by consumers, but it can also lead to higher costs and less consistency worldwide. Other trends in today's global business, such as deglobalisation, geopolitical fragmentation and a growing role of state in markets also play a role in shaping the business. Firms are now functioning in politically divided markets that are economically integrated, according to Dicken (2015). This means that multi-national companies like Starbucks and McDonald's have to adjust their business plans to the changing political, institutional, and cultural surroundings in host countries all the time.
Hofstede’s Cultural Dimensions
Consumer behaviour, communication and purchasing pattern are different in different countries and it's a cultural difference that plays a vital role in international business strategy. Hofstede's cultural dimensions theory is about the impact of national cultures on organisational behaviour and management practices (Hofstede, Minkov and Hofstede, 2010). Some of the important dimensions that are applicable to both Starbucks and McDonald's are collectivism versus individualism, and uncertainty avoidance and power distance.
Collective society is the general profile of China, which is characterised by the high value that is given to social relations, to family relations and to group experiences (Beugelsdijk and Welzel, 2018). As a result, the strategies put in place by multinational corporations often focus on social involvement and community moments. Although Starbucks' stores in China are designed to be high-end places for meeting and group interaction, its marketing in China is sometimes directed towards family and convenience offerings for groups. These strategies illustrate the impact of collectivist values on customer experience and branding strategy.
France is a country with a relatively high uncertainty avoidance, favouring quality, predictability and traditions (Hofstede, Minkov and Hofstede, 2010). Café culture and a strong national food culture exists, and this resistance extends to highly standardised American fast-food models. Starbucks and McDonald's, therefore, adjusted significantly, offering the French a café atmosphere, healthier coffee and food, and adopting locally produced ingredients. The cultural differences show how the expectations of the culture can affect the operational design and positioning of the product.
Power distance is a characteristic of Indian society, which is relatively high and in which hierarchies, authority and social status are important in organisational and social relationships (Khan and Law, 2018). Local legitimacy and institutional relationships are crucial for Starbucks' entry into India. McDonald's also made a number of changes to meet the religious and cultural expectations of Indians, such as eliminating the beef and offering vegetarian options like the McAloo Tikki burger.
Although it has had an impact, Hofstede's framework has been attacked for oversimplifying national cultures and for treating countries as units with homogenous cultures (Jones, 2007). Cultural values also vary across regions, generations and social groups within countries, limiting the assumption that national cultures are completely homogeneous (Meyer and Peng, 2016). However, Hofstede's theory is useful, as it describes the reasons why in culturally diverse markets, multinational companies cannot use a one-size-fits-all approach.
Institutional Theory
Institutional theory is an explanation of how political systems, rules and social expectations in host countries form the institutions of which the organisation is a component (North, 1990). Multinational companies have to become profitable, but they also have to be legitimate by meeting expectations of society and institutional structures. Labour policies, food standards, franchising policies and foreign direct investment (FDI) policies are thus ways in which government can impact on business strategy. Contemporary global business environments demonstrate that states are not only regulators but also active participants in industrial policy,...