Examination of table 1 and 2 suggests there is a significant cultural and institutional distance and differences between the South Korean and Danish cultures. Hence, the successful transfer of strategic organizational practices between them is challenging, as the effectiveness of transfer depends on the adoption of formal and informal rules and procedures, and on institutionalizing these rules and procedures in the subsidiary (Oliver & Wilkinson, 1992). South Korea has a very traditional culture, steered towards collectivism and their institutions can be characterized by highly hierarchical and centralized systems of making key decisions.
Seniority drives the authoritarian relationship between upper and lower levels of management and employees. South Korean decisions tend to be influenced more by reference groups than the Danish whose culture tends to be steered toward individualism. Building trust and relationships is also a key factor for doing business and establishing rapport to establish a successful business relationship for South Koreans while People from Denmark tend to focus on self-reliance, competition and emotional distance from in-groups. South Korea is ranked 40th on the Corruption Perceptions Index 2008.
The index includes 180 countries, where the country ranked as number 1 has less corruption. In 2008 South Korea has a 5. 1 confidence rating on the scale where 10 indicates a highly clean country and 1 a highly corrupt one. Denmark is ranked 1st (least corrupt country) with a 9. 1 confidence rating (Transparency international, 2009). There are typically four types of strategies pursued by MNC’s. The choice of strategy is largely influenced by pressures for cost reduction and pressure for local responsiveness. Fig 1 shows a matrix plot of advisable strategy based on organisational objective and market conditions.
Consumer behaviour towards energy consumption is basically universal worldwide and various government regulations in the energy industries show little variation from country to country. However, fierce competition exists between energy companies. This coupled with low switching cost for consumers, make for considerable high cost pressure. The high cost pressure and low pressure for local responsiveness makes a global standardisation strategy the ideal choice for Conako. This will allow Conako practise a centralized management style: often centralized decision making, administrative control system, standardization, international committees;.
Major functions such as production, marketing, and R;D will be concentrated in few favorable locations. It is pertinent that the right structure to achieve organisational objective through the global standardisation strategy is put in place. An adaptation of a worldwide product divisional structure is advised. Each division is self contained and responsible for its value creation. Headquarters is responsible for the overall strategic development and financial control. There can be many arguments for centralisation / decentralisation of decision making responsibilities, but the fact is in practise no absoluteness.
We advise a mix of centralisation and decentralisation. The decisions about location of R;D, production and marketing will be centralised at the headquarters. This will allow for coordination, consistency of decision making with organisational strategy and avoid duplication of activities. Some marketing and sales decisions will be decentralised and local country managers will be responsible. This will allow for flexibility and responsiveness. This structure helps maximize location and experience curve economies.
It also facilitates transfer of core competencies, knowledge and simultaneous implementation of new developments. The success of this structure depends on the degree of coordination. A mix of both formal and informal integrating mechanisms is advised to enhance coordination. Formal integrating mechanisms such as: direct contact between managers and liaison roles when necessary. Knowledge and management networks between country managers will also enhance transfer of core competencies. MNC’s often use incentives to reward employee’s appropriate behaviours and they are normally tied to performance / output.
Based on the company objective, strategy and organisational structure chosen, a mix of Bureaucratic, personal and output controls will be advisable. Each control system has its strengths and weaknesses. The high need for coordination and sensitive nature of the Denmark subsidiary dictates the need for a formal, clear and documented control mechanism (Bureaucratic control). However, the disadvantage of this is a lack of personal touch which is provided in the personal control. A mix of both personal and bureaucratic controls is thus advisable.
The personal control may also offer a means for managers to inspire their subordinates. The output control will serve as a driver for employees to improve efficiency and productivity, leading ultimately to increased productivity for the MNC. Employees could be rewarded with incentives such as bonuses. The choice of location of FDI is a complex decision which involves the consideration of various factors. While the analysis adopted are not exhaustive, to a large extent they have sufficiently justified the decision taken considering the fact that the data relied upon were researched by independent reputable organisations.
In addition these unrelated organisations gave similar results in their rankings. Even though it might be argued that cultural differences have not been fully explained by available research, reliance on empirically derived cultural dimensions for analysis would guarantee better decision making than subjective judgements. To this end the use of the organisational and control systems advised (which are based on acceptable standard business practices) in conjunction with the choice of location would ensure the desired objectives are achieved.