Institutionalism and Culture in Strategies of Multinational Firms: The Case of Johnson Controls Inc.

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The aim of this paper is to analyze both internal and external aspects that may pose a risk to the operations of the subsidiaries of the multinational Johnson Controls Inc. in U.S. and Mexico from the point of view based on institutions; the main
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  © 2012. José G. Vargas-Hernández. This is a research/review paper, distributed under the terms of the Creative Commons  Attribution-Noncommercial 3.0 Unported License http://creativecommons.org/licenses/by-nc/3.0/), permitting all non-commercial use, distribution, and reproduction in any medium, provided the srcinal work is properly cited. Global Journal of Management and Business Research Volume 12 Issue 19 Version 1.0 Year 2012 Type: Double Blind Peer Reviewed International Research Journal Publisher: Global Journals Inc. (USA) Online ISSN: 2249-4588  & Print ISSN: 0975-5853   Institutionalism and Culture in Strategies of Multinational Firms: The Case of Johnson Controls Inc. By José G. Vargas-Hernández   Universidad de Guadalajara  Abstract -   The aim of this paper is to analyze both internal and external aspects that may pose a risk to the operations of the subsidiaries of the multinational Johnson Controls Inc. in U.S. and Mexico from the point of view based on institutions; the main challengeto initiate the investigation is do have some impact in the culmination of the goals both of workers and of the same organization?, how to influence the institutions in the organizational environment, for the decommissioning of some branch/subsidiary. The method used was Analytics to evaluate all the information obtained from the company and thus achieve the objectives required for this research, applied the theory based on the vision of institutions in multinational companies. For results of the analysis, we first had to get to know the real development of multinational enterprises, and then focus on the enterprise objective Johnson Controls Inc. Keywords : Institutionalism, Johnson Controls Inc., multinational firm, theory based on the institutionalism.   GJMBR-B Classification : FOR Code : 150312 JEL Code : L30, L25 InstitutionalismandCultureinStrategiesofMultinationalFirmsTheCaseofJohnsonControlsInc.  Strictly as per the compliance and regulations of:  Institutionalism and Culture in Strategies of Multinational Firms: The Case of Johnson Controls Inc. José G. Vargas-Hernández   ©2012 Global Journals Inc. (US) 1   G  l o  b a  l   J o u r n a  l  o  f   M a n a g e m e n  t  a n  d  B u s  i n e s s   R e s e a r c  h  V o  l u m e  X  I  I   I s s u e  X  I  X  V e r s  i o n  I   2  0  1  2    Y e a r Abstract- The aim of this paper is to analyze both internal and external aspects that may pose a risk to the operations of the subsidiaries of the multinational Johnson Controls Inc. in U.S. and Mexico from the point of view based on institutions; the main challengeto initiate the investigation is do have some impact in the culmination of the goals both of workers and of the same organization?, how to influence the institutions in the organizational environment, for the decommissioning of some branch/subsidiary. Themethod used was Analytics to evaluate all the information obtained from the company and thus achieve the objectives required for this research, applied the theory based on the vision of institutions in multinational companies. For results of the analysis,we first had to get to know the real development of multinational enterprises, and then focus on the enterprise objective Johnson Controls Inc. Resumen- El objetivo de este trabajo es analizar los aspectos tanto internos como externos que representan unriesgo en la operación para la multinacional Johnson Controls en sus filiales en Estados Unidos y México desde el punto de vista basado en instituciones; el principal cuestionamiento que se hace para iniciar la investigación es ¿se tiene alguna repercusión en la culminación de los objetivos tanto de los trabajadores como de la misma organización?, ¿cómo influyen las instituciones en el ambiente organizacional, para el cierre definitivo de alguna sucursal/filial?. El método que se utilizó fue el analítico para evaluar toda la información obtenida de la empresa y así obtener los objetivos requeridos para esta investigación, se aplicó la teoría basada en la visión de las instituciones en empresas multinacionales. Para resultados del análisis, primero se tuvo que conocer el verdadero desarrollo de empresas multinacionales, y después enfocarse en la empresa objetivo Johnson Controls Inc. Palabras clave:Institucionalismo Johnson Controls Inc. firmasmultinacionales teoría basada en el institucionalismo. Keywords : Institutionalism, Johnson Controls Inc., multinational firm, theory based on the institutionalism. I. I ntroduction he aimof this paperis to analyze theinternal and externalissuesthat pose a riskin the operationfor the multinationalJohnsonControls Inc.in its subsidiariesin the United Statesand Mexicofrom the pointofviewbased oninstitutions. Also to analyze  Author : Lic. Zayda Anahí Naranjo Martínez, Centro Universitario de Ciencias Económicas Administrativas, Universidad de Guadalajara Periférico Norte 799 Edif. G201-7, Núcleo Universitario Los Belenes Zapopan, Jalisco, 45100, México. E-mail : jvargas2006@gmail.com,  jgvh0811@yahoo.com, josevargas@cucea.udg.mx  whether this point of viewhas any impactat the heightof the aimsof both workersand thesame organizationas the companypresentsorganizationalcommunication problemsbecause of the diversityof cultures thathave in theirhumanresources. Thus, subcultures are identified as parts of the multinational firms, eachone with congruent systems of assumptions and values, although opposite cultural patterns.Note that theseproblemsarenotat all branches, andseeks to determinewhichfactoris the onehaving the mostinfluence onthis eventoccurs.The issueof multinationalshas ahigher powerofinfluence andattractthe sameproblemsof these organizationsbecausethe largerthe companythe greater thecommunication and organizationalconflicts. II. B  ackground It is thought that a multinational firmmust be both effective and efficient company in every way, as it does achieve competition in the economic globalization processes in which everybody lives today. Therefore, always it is believed that a company as big as Johnson Controls Inc. should work perfectly in either the organization or in the production area, but it does not usually asks about why these companies come to close their plants? Or what is it really failed? Do you have a social factor that may influence the decision to close? To answer these questions, it must first focus with what kind of human resources the company has to understand the type of organizational culture diversity that has Johnson Controls and whether it influences the communication barriers faced by the company.Multinational companies (Encyclopedia of Economics, 2009) were born after World War II when private direct investment in third countries began to be associated with the expansion of big business and the creation of subsidiaries; this was aimed for spatial diversification and establishment of an extension of the diversifying strategy sector, only to reduce risks and uncertainties that enterprises always carry.The multinational firm developed rapidly in the United States during the 1950sand 1960s while were developed agreements or inter-enterprise collaboration and the processes of horizontal and vertical integration multiplied. These companies are of type H with highly T  diversifying strategy sector, only to reduce risks and uncertainties that enterprises always carry. The multinational firm developed rapidly in the United States during the 1950sand 1960s while were developed agreements or inter-enterprise collaboration and the processes of horizontal and vertical integration multiplied. These companies are of type H with highly decentralized structures that invest heavily in direct investment. Although the term is relatively recent, multinationals are economic organizations that have been the basis of the capitalist system from its srcins as they have always been in constant change and growth, adapting to historical variations of both the economy and the market. The term multinational (Encyclopedia of Economics, 2009) or transnational refers to that firm which has companies with operations in several countries. Each multinational firm has its own power of decision and control but is regularly monitored by the headquarters at the home country. The headquarters may be registered in one country and be just part of foreign ownership. At the same time, the multinational firm has the ownership, management and control of productive assets in more than one country depending on what its needs. Multinational companies install their different manufacturing processes, marketing or provisioning, as well as having a functional capacity, decentralized management by objectives or divisional organization. Multinational firms are also the paradigmatic institutions of the capitalist system, its symbol since they are the main representatives of globalization. Globalization (Beck, 2008) is the continued expansion of the market; consequently, the multinational firm is an adaptation of a current business to the same global expansion. The organizational structure of multinational firms, as sustained by Hymer(1972),is about the distribution of economic activity worldwide. This means that the activity of multinationals are divided into different processes like any company, just for the sake of transacting in a world market, and have the appropriate organization for success as desired. Therefore, in this theory Hymer (1972) reveals the inadequacy and imperfection of market transactions as the reason for the internal growth of the firm, or a combination of economy of scales and comparative advantages of the coordination of production through internal hierarchies vs. coordination of the entire market. III.   H ow to H  andle the I nstitutionalism in the R  enowned M ultinational C ompany J ohnson C ontrols I nc.  Institutionalism and evolutionary economics approaches consider firms as dynamic economic agents of economic and social institutional networks. The theory based on institutions suggests that companies make their strategic choices based on the interaction between institutions and the organization, seeking institutional legitimacy regarding the normative, policy and regulatory systems of the country. This perspective has emerged in recent years as one of the most appropriate theoretical frameworks for analyzing strategic decisions of companies from developed economies (Peng, 2010). However, in certain destinations, multinational firms face institutional barriers higher than those faced by companies from other countries. The theory of the multinational firm handles items of a vision based on the institutionalism of business strategies (Peng, 2010) It had been mentioned about how companies when facing strong international competition have to implement different strategies are needed, so it has to be in every place where is to become consolidated, as it not only takes into account the state and society, but all possible factors that may influence the success of it and implement appropriate strategies. References to the theory of strategy based on empirical research on a number of Asian countries (Scott, 1995, p. 146), considers four substantive areas: 1) strategies for providers, 2) business strategies, 3) diversification strategies, and 4) growth strategies. All this just to get an understanding of the theories with a view based on the institutions of the business strategy, in order to achieve that a company has the right strategies to make the right decisions, and then it should consider these areas substantive as described above. Now it could be questioned what are the institutions? Institutions are simply the rules of the game, i.e. they are limitations designed to shape human interactions (Scott, 1995, p. 33). In addition there is a reference to the institutional framework of how to provide stability and meaning to social behavior. A representative figure of the theories of institutionalism is Douglass North, who has its antecedents in American institutionalism in the early decades of the last century.  As such, it should be noted that between these two intellectual movements there is neither clear evolutionary sequence of ideas, nor between them and neo institutional approaches that are spoken today (North, 1990). The transaction costs were developed by Coase (1937), The transaction costs refer to rationalize why multinationals prefer to reduce their transaction or negotiation costs (Coase, 1937) at the expense of employing workers not as focused or experienced in the area needed to achieve the desired goals for the company. It is usually much easier to hire employees from different countries who do not require the corresponding salary to the level of preparation that employees have, just for the need to work. Then, actually boasts the least value of their work. Institutionalism and Culture in Strategies of Multinational Firms: The Case of Johnson Controls Inc.   G  l o  b a  l   J o u r n a  l  o  f   M a n a g e m e n  t a n  d  B u s  i n e s s   R e s e a r c  h  V o  l u m e  X  I  I   I s s u e  X  I  X  V e r s  i o n  I 2    2  0  1  2   e a r  Y   2 ©Global Journals Inc. (US)©2012 Gll ()   An application of ideas based on the interpretation of the phenomenon of multi-nationalization of firms has been made by McManus (1972) and Rugman (1981). This theoretical framework is leading to analyze that the existence of transaction costs is the key for multinational companies to stabilize the foreign subsidiaries. Multinational firms operate directly under the central control (vertical integration) as opposed to operating through the market. This situation results in that workers are discouraged by Johnson Controls through all the existing communication barriers and also by the devaluation of labor. The multinational firm based on its home country try to minimize these costs as much as possible in their affiliates operating abroad in other host countries, but without considering the consequences that could have the company by not perfectly monitoring these contracts. Nowadays, it dominates the view that the multinational firm operates primarily the ownership of knowledge and information. Economies of scale encourage concentration of global production in a few locations and discourage multinational operations. Knowledge, however, is an asset easily transferable internationally and this favors the multi-nationalization. a)    Organizational structure In his research on the administration of large U.S. firms, Chandler (1961) identify three levels of work, three levels of decision-making and three levels of policies. Level III, the minimum, refers to the administration of the daily operations of the company. Level II is responsible for the coordination of managers working in Level III. The I-level functions of top management and senior management are targeting and planning. This level sets down the framework within which low levels operate. Then the flow of communication always fluctuates in these three levels. Therefore, one must be very careful about any barriers arising, as it provides inadequate communication. Making and adequate emphasis on strategies and firm performance are determined by the same organizations and covering institutions, cultures and ethics as they are supported by the 3 pillars: Regulatory, educational and cognitive (Peng, 2010) All this emphasis on institutions is just to reduce the uncertainty given by the markets that are generated to the company or made them by the firm. North (2005) argues that institutions are socially embedded. Institutions generate different scenarios where they face uncertainty in every way. North (2005, 36) tries to explain what the mechanism for achieving a good institution is: Cultural heritage provides a structure of artifacts that not only plays a key role in shaping our decisions as social players, but also provides clues about the dynamic success or failure over time. In essence, the richer the structure of artifacts, the greater is the reduction of uncertainty for decision making. In time, while the richer is the context in terms of providing creative experimentation and competition, the more likely is the survival of a society (North, Understanding the Process of Economic Change, 2005, p. 36). Then to the conclusion that Arellano (2009) comes about regarding what is needed for a good institution, is that a country's cultural heritage and how it provides a set of beliefs, tools and institutions define our role as players on the social scene. The more rich than this, the lower the uncertainty, which generates a kind of experimentation and creative competition (Arellano, 2009), which creates some chance for survival in society. Institutions become good because they generate fair and loyal competition and experimentation, enabling long-term deal with the uncertainties that come to emerge. Therefore, it is evaluated the potential of institutions in developed countries such as Johnson Controls to create some context and cultural factors as they do to develop the competence and adequate experimentation and testing for each country, making the consolidation and adaption according to their interests. It is questionable to wonder if it really the institutions can be designed or are effects of interactions. As mentioned by North (2005), the institutions are difficult to control rationally, making difficult to know in advance how society can react, as these are organized by a group of people in a particular generation. The institutions are related to a direct form of power, which is competition. Thus, when a multinational corporation at the time of wanting to build and consolidate its position in a specific market, generates strong competition. There are evidences that some competitors will be better prepared and better able to adapt to a local environment and dominate that market as the weight that gives the experience gives the multinational firms a certain comparative advantages. Competition leads to the inequality of capabilities, opportunities, skills, intelligence, all to achieve differentiation. One of the disadvantages that may result being a multinational firm is the diversity of all these factors of local differentiation. At the time of adding diversification which is counted in human resources can become abysmal and of concern, or may have the opposite effect, depending directly from the company. This outcome depends either from the characteristics of people in the place where such branch is located or simply the ethical challenges available to each person to carry out the objectives of the multinational firm (Table 1). Institutionalism and Culture in Strategies of Multinational Firms: The Case of Johnson Controls Inc. ©2012 Global Journals Inc. (US) 3   G  l o  b a  l   J o u r n a  l  o  f   M a n a g e m e n  t  a n  d  B u s  i n e s s   R e s e a r c  h  V o  l u m e  X  I  I   I s s u e  X  I  X  V e r s  i o n  I   2  0  1  2    Y e a r  Table 1 :   Branches and plants of Johnson Controls. Region/CountryPlants United States and CanadaHeadquarters in Milwaukee.Technology Centers in Plymouth and Milwaukee.Seven integrated plantsFour distribution centersSouth AmericaTechnology Center in Sorocaba2 Plants3 Centers of distribution in Brazil, Argentina and VenezuelaMéxicoHeadquarters in MonterreyTechnology Center in Monterrey5 plants inEuropeHeadquarters in HanoverTechnology Center in Hanover8 Plants Asia3 plants in South Korea (Kumi)China (Shangai)India (Amara RajaSales offices in Japan Source : (Johnson-Controls, 2010), Sucursales, johnson controls. Obtenido http://www.johnsoncontrols.es/content/es/es/sobre_la_empresa/nuestra_empresa/premios_y_reconocimientos.html So the institution is not only a result of any set of interactions, but also a product of competition for power among the factors that are necessary for decision making over time, allowing them to go on with an advantage over others. But given time, the atmosphere is so flawed that it cannot really do that the workers become loyal to the company. Therefore, this atmosphere affects the acceptance of responsibility of employees (Peng, 2010) and conformed to social capital. Putnam (1993) conducted an empirical study that refers to the degree of trust in any given society, and it also influences the process of making decisions. Thus, it is important to know what kind of employees are integrated into the company and focused on the mission, vision and objectives of the multinational firm, but a really decisive factor is the drama of development of the people due to lack of trust. Much of trust enhancement depends on social work to local societies conducted by business. Strategic planning and building trust are needed to make the proper observance of the multinational firm Johnson Controls Inc. and get to know the reasons for which the company has successes or failures. IV.   I mplications of C ulture in S trategy of M ultinational F irms  Culture is defined from the point of view of different perspectives (Jenks, 1993; Stohl, 2001; Ting-Toomey, 1999). “Culture is a set of values shared by a group of people frequently used to distinguish one group from another.” (Gibson & Gibbs, p.284). “Culture is the set of deep level values associated with societal effectiveness, shared by an identifiable group of people” (Gibson & Gibbs, p. 474). Culture is “a history of experiences and concomitant expectations that shape their encounters” (Gibson & Gibss, p. 37). Culture is “broadly defined as characteristic ways of thinking, Institutionalism and Culture in Strategies of Multinational Firms: The Case of Johnson Controls Inc.   G  l o  b a  l   J o u r n a  l  o  f   M a n a g e m e n  t a n  d  B u s  i n e s s   R e s e a r c  h  V o  l u m e  X  I  I   I s s u e  X  I  X  V e r s  i o n  I 2    2  0  1  2   e a r  Y   4 ©Global Journals Inc. (US)©2012 Gll ()
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