Reading - Passage 3

Reading – Passage 3

You should spend about 20 minutes on Questions 27-40, which are based on Reading Passage 3 below

SHOULD INTERNET MULTINATIONALS HAVE POWERFUL COUNTRY MANAGERS?

In February 2019, an Indian parliamentary panel summoned Jack Dorsey, CEO of Twitter  Inc. to explain what his company planned to do to on the subject of “safeguarding citizens’ rights on social / online news media platforms.” The panel’s disinterest in meeting local top executives of Twitter reflects the larger-than life personas of celebrity CEOs of tech companies, but it also contains a powerful commentary on the perceived policy irrelevance of country managers. This was not always the case.

Traditionally, multinational corporations – of the kind that rose in prominence through mid-twentieth century with key capabilities in manufacturing and in marketing – bestowed significant power and prestige on their country managers, or subsidiary CEOs for specific geographies. In their glory days, country managers performed three critical functions within the multinational organization. These functions, highlighted in a 1992 Harvard Business Review article by Sumantra Ghoshal and Christopher Bartlett were: sensor of local opportunities and threats, builder of local capabilities, and contributor to headquarter strategy.

The history of one of India’s best known and most admired multinational subsidiaries – Hindustan Unilever – provides fascinating insights into these different dimensions of the country manager’s role. Constituted in 1956 from the integration of three Unilever companies in India, Hindustan Unilever (or, Hindustan Lever, as it was then called) quickly gained admiration for its exceptional management under difficult circumstances during India’s post-independence years. Prakash Tandon – Hindustan Unilever’s first Indian Chairman – conceptualized his company not merely as a subsidiary of a multinational, but as a pioneer of meritocratic and professional management in India. Tandon started Hindustan Unilever’s management trainee program which went on to provide generations of capable managers who have not only run Hindustan Unilever and Unilever businesses outside India but have also provided a pool of talent for private and public sector enterprises in India.

Through the 1960s and 1970s, Hindustan Unilever’s indigenous research and development program was crucial in helping the subsidiary management gain the respect of the host government and in persuading the parent corporation to grant them greater autonomy in making strategic choices. One of the best known success stories to emerge out of the research & development unit in India was the development of synthetic ingredients to substitute for (imported) soap-based ingredients in detergents. Hindustan Unilever’s success in this initiative boosted the Government’s import substitution policy in the 1960s and provided leverage to T Thomas, Chairman of Hindustan Unilever in the 1970s, in persuading the Government to allow Unilever to retain a majority stake in the subsidiary. Other multinationals, unable to stand up to the Government, exited the country (for example, Coca Cola) or reduced their stake below controlling levels. Thomas went on to become the first Asian on Unilever’s Board of Directors and India had a voice in shaping Unilever’s strategy ever since. Unilever’s country managers in India have indeed been sensors of local opportunities, builders of local capabilities, and contributors to headquarter strategy.

Today, we have a new generation of internet multinationals like Facebook, Twitter, or Netflix. Even as some of them continue to use the designation of ‘country manager’ for an India-based senior executive, most view the position as unfitting in a world where technology has facilitated centralized decision making out of powerful headquarters. To understand this shift, we need to go back to the 1980s. In those years, a new generation of international management scholars – Prahalad, Ghoshal, Doz, and Bartlett – explained the organizational challenge for the multinational corporation as one defined by the tension between two impulses: the need for global integration, and the need for local responsiveness. The multinational needs global integration in order to develop and deploy an advantage around scale capabilities – in manufacturing, in research & development, and in marketing. The impulse towards global integration emphasizes standardization and centralization and places power in the hands of business heads or product chiefs in headquarters. However, the multinational also experiences an opposite impulse, that of local responsiveness. The multinational needs local responsiveness in order to be relevant to local customers, local intermediaries, local talent, and local governments. The impulse of local responsiveness reduces standardization and centralization across the multinational’s expanse and places power in the hands of country managers located away from headquarters.

Global integration and local responsiveness are contradictory impulses, and it is rare for a multinational to successfully strike a balance between the two. It is more likely that the multinational will trade one off for the other. In many multinationals today, their organization design choices clearly reveal their preference – the impulse for global integration wins over the impulse for local responsiveness and country managers have little ability to make strategic choices in their geographies, or to influence strategy at the headquarters.

The rise of internet multinationals, driven by platform economics and increasing returns to scale has accelerated this relegation of country managers. The capabilities of country managers to sense opportunities are rendered irrelevant by high-powered consumer analytics capabilities at headquarters that no longer need country level intermediaries to access consumer data. At the same time, the country manager’s value addition in building the local organization is increasingly limited as the outsized global brand of the internet multinational needs little local nurturing in order to draw talent. In turn, the inability to add substantial value either in sensing local opportunities or in building the local organization limits the legitimacy provided to the country manager seeking to contribute to headquarter strategy.

Questions 27-29

Choose the correct answer (A,B,C,D)

27.  Global integration places emphasis on:

A.    Giving power to country managers
B.    Local responsiveness
C.    Standardization and centralization
D.    Hiring local talent

28. Hindustan Unilever’s management trainee program was started by:

A.    T Thomas
B.    Prakash Tandon
C.    Sumantra Ghoshal
D.    Christopher Bartlett

29. Which of the following helped Unilever retain a majority stake in their Indian subsidiary?

A.    Integration of three Unilever companies
B.    Development of synthetic ingredients in India to substitute for soap-based ingredients in detergents
C.    Starting a management training program to provide a pool of talent for private and public sector enterprises in India
D.    Appointing T Thomas as Chairman

Questions 30-34

Classify the following features as being true of
A. Global integration
B. Local responsiveness
C. None of the two

30.    Is needed to continue being relevant to customers of a local area
31.    Is being preferred by multinationals today
32.    Gives more power to country managers
33.    The better strategy for multinationals
34.    Gives prominence to centralization

Questions 35-40

Complete the summary below with words taken from the reading passage. Choose NO MORE THAN THREE WORDS for each answer.

Unilever came to India as Hindustan Unilever in the year (35) ____. It showed exemplary management during India’s post-independence years. (36)_____ was the first Indian Chairman of the subsidiary who envisioned the company as having (37) ________ and professional management in India. He also started a (38)_____ program that helped prepare able managers. The company’s (39) ________ program helped the management win the respect of the Indian government and get more (40)_____ in making strategic decisions.

Answer Key