Background of the Coca-Cola Company and its operations in China
The entry mode of the coca Coca-Cola Company in international market- China
The problem of cultural differences in Coca-Cola company management in China
Effect of culture and local language on Coca-Cola operation in China
International business management is becoming an indispensable concept because many firms are choosing to expand business operations across the globe. Because of differences in cultural traditions, managing at the global level has proved to be a considerable challenge to managing organizations at the international level. This paper has thus explored the problem of cultural barriers in international management by basing on the case of Coca-Cola company operations in China. Aspects of culture, which have been given attentions in the paper, include language barriers and differences in business culture between different states in which a firm operates. The paper has come up with several findings. The first finding is that culture is one of the major impediments in international management considering the case of managing subsidiaries. In addition, it has been found out that firms are attempting eliminate cultural barriers in managing business at the global level.
International Business Management
According to Fisher, Hughes, Griffin & Pustay (2006) firms are striving to gain competitive advantage due to the prevailing competition in economies. Business managers are seeking to expand the operational capacity of firms so that firms can have expansive bases to support their operations to be competitive than the rivals. One way of expanding business operations of firms has been through the search and penetration of firms into new markets Accord (Fisher, Hughes, Griffin & Pustay (2006). Many firms have expanded their operations into several countries where they control production activities in more than just their country of origin (Treven, 2006). However, as companies strive to export their operations to different regions; they are faced by several managerial challenges arising from the difference in the business environment. Loi and Yang (2009) ascertain that cultural differences results in minimal job satisfaction by expatriate staffs. Coca-Cola is one of the most known business firms because of its wide presence globally. This paper discusses the cultural problems of management that the operation of Coca-Cola in China. The paper gives an overview of how the Coca-Cola Company sustains management in China. The paper also looks into detail aspect of culture including differences in business principles that affects the management of the firm in China.
Background of the Coca-Cola Company and its operations in China
Coca-Cola is the largest beverage producer in the world. As of the end of the year 2011, the company was reported to have bottling plants in approximately 200 countries across the globe. The Coca-Cola Company has operated in China for approximately eight decades. The company first opened a plant in China in the year 1927, but the firms were not remarkably successful. The lack of success of the earlier plants was attributed to problems of managing in a foreign culture. The company’s mother plant is located in Atlanta, United States where business is based on capitalistic modes of management. By then, China was still operating on communistic modalities of operation and hence the company could not confer to that mode of management. As an aspect of globalization continued to gain roots in the economic world, China was forced to reopen its policies paving the way for compatibility and entry of more new firms in China. Coca-Cola has taken advantage of these developments to re-enter the country. Serious operations of Coca-Cola in China began in the year 1979 with the opening of a bottling plant in the capital of China, Beijing (Zweifel, 2002).
As it is today, the company has managed to sustain its operation in China with 35 bottling plants having been opened across the country so far. This does not mean that the company is operating smoothly in the country. There are many hatches of management, which keep interfering with the operation of Coca-Cola in China. Most of the problems facing the company are related to differences in human resource practices and differenced in business management culture between the United States and China. The problem of management of the Coca-Cola Company in China is just but one of the examples of the problems that are faced in the management of subsidiary firms of multinational corporations. Cultural barriers have been found to impede different aspect of management for multinational firms because systems of management in foreign countries combine with cultural barriers to impede operations of Subsidiaries (Coca-Cola Website 2012).
The entry mode of the coca Coca-Cola Company in the international market- China
Fisher, Hughes, Griffin & Pustay (2006) observe that the opening of and running of business at the international level as entails a lot of operations which further complicate the efficiency and effectiveness of managing subsidiaries. Firms often find it challenge to set up and set rolling business at the international level because they have to battle with the problem of cultural differences at the initial stages of management (Zekiri and Angelova, 2011). This is what Coca-Cola encountered during its first attempt of establishing and running a business in China. It is worth to note that as long as the internationalization of business is one of the ways of establishing competitive advantage, managing business at that level is quite daunting. This resonates from high costs of transactions that accompany other factors of management (European Conference on Knowledge Management, Harorimana and Watkins, 2008).
The success of multinational firms in foreign countries to a significant extent depends on the modes of entry that are used by these firms to establish themselves in the international market. As firms enter new markets, they have to learn the corporate culture that is prevailing in the international market and work on possibilities of adjusting their culture relative to the foreign culture. The international theory has for a long time been used to explain the paths that are taken by firms as they maneuver in international business (Fisher, Hughes, Griffin & Pustay (2006). It is ascertained in theory that companies make several changes to gain full access into the new market (Mead and Andrews, 2009). These changes are meant to ease the adaptability and workability of the country with the foreign corporate culture in the international business arena. The Coca-Cola Company is argued to have used different tactics to gain access into the foreign market. This has not prevented the company from facing challenges that are faced in international business management (European Conference on Knowledge Management, Harorimana and Watkins, 2008).
The Coca-Cola Company ventured fully in China market in the year 1979. This year was phenomenal to international business in China because the country was adopting economic changes to help in improving the economic environment for foreign companies. Amidst entry into the Chinese market, the company faced stiff competition from companies like Pepsi-Cola, which has familiarized with the local business environment in the country. The situation for Coca-Cola was further aggravated by the versatility of the local market environment in China (Chung and Smith, 2007). Coca-Cola is termed as a benchmark in the international market entry and management from assessments that have been done of the joint venture approach that was taken by the company to enter the Chinese market (Weisert, 2001). Other people argue that the success the successful of Coca-Cola entry in China was highly backed by the economic reforms that had been implemented China. Therefore, it can be said with certainty that many factors play out to determine the success of management strategies that are applied in entering the international market. Among these factors are the prevailing business policies in international business destination which shape the general business culture (Mok, Dai and Yeung, 2002).
Chung and Smith (2007) observe that China is a large country that has been attaining accelerated economic growth since the mod of the 20th century. This growth has presented both challenges as well as opportunities to subsidiary firms in the country. Foreign companies often find themselves in a compromising situation because of the cultural gaps in management as well as a problem in conducting business ethics in a foreign environment (Wu, 2008).
The problem of cultural differences in Coca-Cola company management in China
Culture is an ignored yet an important factor in business management. Culture is complex because it involves many things among them language, the general patterns of interaction that are embraced in the country and modes of establishing business and other relations. Culture is an important factor in international management and cannot be ignored by firms that re managing business ventures at the international level. In international management, culture has a more direct impact in management more than the impact in local management. It is difficult for a firm to fit within the foreign culture because of the existence of cultural variations in international business. Being a big country with a large population, has diverse cultures, which make it hard for adaptability by expatriate staffs of the Coca-Cola Company (Chung and Smith, 2007).
This was common in the in the initial stages of entry of the company in China. It is argued that foreigners have to take a longer period in order to comprehend the business culture of China. The Chinese population is argued to have grown within three main philosophies, which totally affected the way they behaved and interacted even in business. These philosophies are Taoism, Confucianism, and Buddhism. Other people considered them religions. Business behavior has and is still being influenced by sub-philosophies emanating from the three main philosophies. Being a company that was born in United States – Western Culture, Coca-Cola finds it hard to follow interactive principles in the culture of China. For instance, Feng Shui is considered the main strategy that is used to advance and attain success in business. This philosophy posits that the fortunes of people are influenced by their environment. Therefore, business transactions or decision making are mostly modeled around this principle. The philosophy of Confucianism has made the Chinese develop a character that makes them believe in themselves more that what they enter into. Chinese people did not believe in entering into business contracts with foreigners but have begun doing so because of globalization and the realization of the benefits of international business. While most companies prefer taking a corporate approach in contacting business, this case cannot be easily applied to China.
Multinationals operating in China including the Coca-Cola company are forced to take a people inclined approach of conducting business instead of the corporate approach. This makes it complicated for the multinationals because of different aspects of culture like language, which has to be totally understood facilitating personalized business deals. The other philosophy or principle, which affects management of business in China is guanxi, which entails the exchange of favors in business. Therefore, the expansion of business in the country is significantly affected by this (Wu, 2008).
Effect of culture and local language on Coca-Cola operation in China
One of the important factors of management at the international level is communication thence language. Businesses that are operating internationally are supposed to factor in this component in international management. Firms find it hard to adapt to the local language in cases where firms are using expatriate staffs to manage firms in foreign countries. Welch, Welch and Piekkari (2001) observe that language can be a substantial barrier for human resource management for subsidiary firms in cases, where there is a difference in language between parent companies and the country where subsidiaries are located. The case for Coca-Cola company operation in China is no exception because of the vast lingual gap between United States, where the parent company is located and China where the company has subsidiaries (Coca Cola Company 2010). Companies are bound to fail if thy find it difficult or they take long to adapt to the new language spoken in the foreign country.
Language barrier has been argued to be one of the factors that inhibit the success of multinational companies upon entry into new or foreign business environments. Coca-Cola prefers to use expatriate assignees in international markets and the same applies to its operations in China. These expatriates use the mother languages in transacting business. The dependence on local languages limits the ability of the expatriate managers to communicate with the local staffs working in the firms (Thomas, 1998). Human resource management pays a lot of emphasis on close and open communication to build positive working relations firms. International human resource management experts are ascertaining that achieving open communication in international firms is not an easy exercise due to the language barrier (Welch, Welch and Piekkari, 2005). The problem of language in expatriate management is being sorted in different ways by foreign companies in international markets. One of the means that are used by the Coca-Cola Company to solve the problem of language constraint in international management is the minimization of using expatriate staffs in subsidiary management. Coca-Cola has been shifting from dependency on using expatriate workers in managing subsidiaries because of the high rate of expatriate failure in international business administration assignments (Harzing and Pinnington, 2009).
Thomas (1998) noted that the high rate of expatriate failure is linked to many factors among them difficulty to adapting to the foreign culture in destinations where subsidiaries are located. Expatriate workers also increase the cost of management in foreign destinations. Costs of sustaining the foreign staffs in foreign countries are argued to be unusually high. This is because a lot of resources are used in conducting activities to aid these staffs to adapt to a foreign environment and foreign business cultures. In many cases, full adaptation of expatriate workers in international companies working in foreign lands is rarely achieved. Expatriate staffs are deemed to have remarkably little knowledge on how local business environment of foreign countries are structured. Therefore, they take a lot of time learning and adopting to management practices used in these countries at the expense of implementing real business practices (Shay and Baack, 2004). Though it is argued that international business practices are becoming more harmonized because of globalization, it will take a little longer to attain real harmonization (Le´vy, 2007).
Fragmentation of business cultures is argued to continue dominating international business (Huang and Evert, 2003). The other action that is being taken by the Coca-Cola Company in eliminating cultural barriers to subsidiary management in China is training. The company takes time to prepare staffs for international assignments by training them on the culture of foreign countries where the firm is doing business. However, this aspect of international business management enhancement is argued to be ineffective (Berger, 1998). Coca-Cola prefers to use a similar model of business management in all its subsidiaries (Harzing and Feely, 2008).
Harzing and Feely, 2008 observe that many firms are thinking of the possibility of merging these to practices, which entails the use of few expatriate managers combined with local managers. The assumption is that these two sets of managers will learn from each other to propel business. Nonetheless, conflicts are bound to be inherent is such cases (Peltokorpi, 2010).
Numbers of local staffs who work for international firms operating in China have been increasing with the increase in the number of international firms operating in the country. The number of expatriate staffs has also been increasing but at a much lower rate. This indicates the efforts of firms to breach cultural hindrances in doing in managing firms in China. This trend is as represented in the graph below.
The graph of composition of staffs in foreign subsidiaries in China
Many firms are opting to expand business operations resulting in the growth of international business. Managing business in the international market is not a straightforward exercise because of management barriers. Cultural differences have been found to be one of the major hindrances of managing business internationally. The barriers include language difference as well as differences in modes of managing business. These hinder the management of Coca-Cola Company in China. The Coca-Cola Company is attempting eliminate this hindrance by taking a dual approach in managing its firms in China.
Managing business at the international level is quite complicated because of many hindrances, cultural gap being one of them. Firms have continuously learn to adopt to foresees cultures for successful business operations failure of which they find it quite hard to run business in overseas destinations.
International business remains important to firms that want to remain competitive in business; therefore firms have to pick on efficient entry models in order to be sustainable in international markets.
In order to be adaptive to foreign culture of foreign business destinations, Coca-Cola has to embrace learning by combining few expatriates with local staffs instead of heavily relying on expatriate staffs.
As coca cola thinks of entering other new markets internationally, it has to factor in the problem of culture and apply international business culture training in its human resource activities.
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