Companies will face changing conditions in this fast paced world. If they do not adapt to the changes, they may not survive as is exampled by Research in Motion (RIM), the makers of Blackberry phones (Moran, Abramson, & Moran, 2014). The authors’ purpose with Chapter 4 is to discuss how multinational enterprises (MNE) need to learn and deal with change to be successful in other markets. They point out that RIM had rested on its laurels and did not spend much money on research and development while their competitors, Apple and Android spent more than double. The point here is that they did not learn from the market. Moran, Abramson, and Moran use another example of Ford Motor Company who almost came to ruins due to the same internal focus of believing they can continue to do what made them a large company. For MNEs, the stakes are higher when it comes to learning in another country. There is a lot that goes in to starting up a presence in another country and it takes a geocentric mindset to be successful.
There are three mindsets that exist with MNEs: Ethnocentric, polycentric, and geocentric. According to Moran, Abramson, and Moran (2014), an ethnocentric mindset is one where the organization believes that their way is the only way even in other cultures and that the other cultures are wrong. Polycentric organizations have a presence in another culture and rely on the local hires to handle the business since they know the culture. Geocentric mindsets are “the ones that achieve the most effective and performance enhancing learning” (p. 122). Geocentric mindsets rely on learning about and from the culture through local resources and integrate that into their corporate mindsets of being a profitable organization.
There are a number of internet companies that have tried to be present in China and most have failed. In fact, three major American-based organizations have all pulled out of China after spending billions to break into what some call the largest internet market (Barboza, 2010). E-bay and Yahoo are two major MNEs who tried to break into the Chinese market. Both started strong, but ran into issues that the decided to ignore or not attempt to change. E-bay kept charging fees for listings where a startup from Alibaba, taobao.com did not. E-bay continued to charge, put its Chinese auctions on servers outside of the country, and finally had to pull up stakes and move out of China in 2006 (Barboza, 2010). The largest organization to have issues in China is Google. According to Barboza, Google thought it could ignore the Chinese governments influence on the Internet through censorship as well as other Chinese internet organizations who were providing services Google would not, namely social networking pieces. Baidu, a Chinese-based internet search engine company was well entrenched in the Chinese markets and maintained over 60% market share even after Google came in. Google invested in Baidu and tried to buy them outright but failed because of the strong demand for the social networking offered on Baidu.
Baidu also offered free downloads of pirated music and movies. Google would not which was unfortunate because when this was happening in the early 2000s, downloading music was the number one thing people were doing on the Internet in China (Barboza, 2010). Google continued to face pressures from the government and its censors who would repeatedly block results or attempt to delete them. According to Barboza, when it comes to the Internet and what it can offer, it is very difficult to take over because of the depth of entrenchment in the Chinese culture. The founders of Alibaba and Baidu are national names in China.
E-Bay, Yahoo, and Google failed to adopt the geocentric mindset. They had the business acumen that made them billion dollar organizations, but they lacked the local integration to fully understand the Chinese culture and the government censorship. However, it needs to be said that you cannot just take the culture of another country and integrate it into the existing culture within the organization (Hamel & Prahalad, 1994). This is the equivalent of the ethnocentric mindset of believing your way is the only way and that you will still practice the same methods but throwing in a few cultural references. The organization must adopt a Chinese organizational culture. If Google wanted to take more market share from Baidu, they should have done a little more due diligence on the censorship and, more importantly, learned what the market wants which takes a lot of time and resources. However, in Google’s case, they could have just “Baidued it.”
References
Barboza, D. (2010, January 15). China, where U.S. companies often fail. The New York Times. Retreived from http://www.nytimes.com/2010/01/16/technology/16failure.html?_r=1&pagewanted=all&
Hamel, G. & Prahalad, C. G. (1994). Competing for the future. Boston, MA: Harvard Business School.
Moran, R. T., Abramson, N. R., & Moran, S. V. (2014). Managing cultural differences (9th ed.). New York, NY: Routledge.