SDA Professor of Strategic and Entrepreneurial Management
In the previous post we spoke a lot about differences related to doing business abroad. Different language, culture, economic and industrial structures, legal environment – all these barriers are forcing companies to the adaptation of their business models.
Research shows, however, that successful economic adaptation is not all. In our strategy courses we keep on arguing that companies are competing with their people rather than with products: “Management is about human beings”, said Peter Drucker. And people across the globe are managed with similar principles even if with different practices: “What managers do in West Germany, in Britain, in the United States, in Japan, or in Brazil is exactly the same. How they do it may be quite different.” Attention to people and society, people directly or indirectly linked to the company, is becoming crucial in achieving the sustainability of foreign operations, in particularly in emerging markets.
The strategic role of Social Adaptation
A multinational corporation entering a foreign market is rarely seen as a friendly institution by local incumbents: the arrival of a new market player “from outside” is often carrying a more or less explicit connotation of competitive “invasion”, potentially ruthless exploitation of local clients or unfair tactics against local competitors. Multinationals are often – rightly or wrongly – accused of profit-hunting behaviors, social thoughtlessness, unethical labor practices, disregard towards environmental issues, in particular in cases of Western multinationals doing business in emerging markets.
New studies demonstrate that the economic returns of doing business abroad depend not only on the firm’s abilities to adapt their business models, taking into account the peculiar characteristics of local markets and local clients. The multinationals’ business and economic resilience on foreign markets is increasingly reliant on the attention given by managers and owners to the social adaptation.
Social adaptation in the emerging markets landscape can be particularly delicate. Most of the emerging markets open their frontiers to welcome foreign capital in moments of institutional transition, when the legal systems are changing and generating institutional voids (gaps between laws and their implementation), making decisions on socially sensitive matters particularly tricky. Stakeholders in the emerging markets often seem weak. The apparent impunity due to fragile legal and stakeholder systems may provoke irresponsive attitude by managers leading the local subsidiary of Western multinationals.
Putting Stakeholders at the core
As emerging markets start gaining their economic and business strength, the social expectations increase and often unprepared multinationals start facing challenges from increasingly belligerent stakeholders.
A recent study (Zhao, Park, Zhou, “MNC Strategy and social adaptation in emerging markets”) on the social adaptation categorises four types of stakeholders any multinational should take care of in an emerging market: (1) regulatory and government bodies, (2) informal supervisors (such as media and non-profit organizations, (3) local players that are potentially directly influenced by the company (local employees, clients and community residents), (4) “standard setters” (industry or category associations, third-party “raters”).
The study statistically confirms the risk of social crises run by early entrants to emerging markets and suggests that companies should approach the issue of social adaptation by mapping stakeholders and by prioritising them by their potential influence and also as sources of social tensions and crises. Interestingly, the study also statistically proved that business success in an emerging market should not be considered a panacea to cure potential social misdeeds: rapidly growing subsidiaries of multinationals in China were more subject to social conflicts than their less successful peers.
The awakening stakeholders starts to represent important challenges to multinationals operating in the emerging markets. In 2011 ConocoPhillips was obligated to pay 21 Chinese fisherman over the oil spill in Bohai Bay. Multinationals continue facing labor-related incidents in India and in other emerging markets.
Detoxifying global leadership
Interestingly, also the quest for happiness of common people as the ultimate goal of managers and leaders is coming from the emerging markets. A group of Indian researchers on leadership, Dr. Pritam Singh, Dr. Asha Bhandarker and Dr. Snigdha Rai, recently published a book “The Leadership Odyssey” about the need for modern managers to move from “darkness to light”, from toxic leadership driven by ambition, greed and “willingness to go to any extent to maximize their wealth at the expense of all stakeholders” to virtuousness that combines the focus on business with equally important concern for the well-being of people. Based on their coaching experience with many CEOs and quantitative research results, the researchers conclude that while many modern managers dangerously oscillate between toxic leadership and virtuous leadership, there is a strong deficit of management tools and societal value systems to guide them in their daily decisions. Toxic leaders are arrogant, blaming others, self-opinionated and close-minded, creating insecurity among people, manipulative, unreliable, abusive and ill-tempered.
Virtuous leaders are humble, empowering, respectful about the dignity of others, providing the sense of direction, good listeners, approachable, ethical, honest, dynamic and radiating positive energy. The study describes the frequency of toxic and virtuous leaders across industries and age groups, and depicts the first most important steps that all managers have to make in their journey towards “illuminated” leadership: stop living “mechanically” and in “autopilot” mode, start reflecting about how their minds daily suppress many uncomfortable truths and aim to achieve a holistic health of all the four areas of selves: physical, emotional, intellectual and spiritual. The results of this statistical analysis of leadership profiles conducted in India with Indian CEOs and top managers seem paradoxically global, despite all the swords broken in favour of cross-cultural differences in leadership styles.
Most of previous posts of this column traditionally concluded with a series of recommendations of how to deal with a variety of differences and barriers managers have to deal with when crossing the borders of their domestic markets. This time I would like to leave the patient readers with a quote from Buddha cited in The Leadership Odyssey book that provides with a common global answer to most of managerial dilemmas related to social adaptation, be it on the domestic or on a far-away markets: “Hold to the truth within yourselves as to the only lamp”.