Contents
Introduction 2
Definitions of Culture 2
Cultural Similarities 3
Cultural Diversities 3
Measurement of culture 3
Power Distance 4
Uncertainty Avoidance 5
Individualism/Collectivism 5
Masculinity/Femininity 5
Empirical Evidence for Cultural Diversity 6
Economic Benefits 7
Strategic Alliances/Joint Ventures 8
Leadership 9
Learning 10
Marketing 11
Ethics/Social 11
Bibliography 13
Introduction:
In order to counter the arguments put forward by Palich and Gomez-Mejia regarding cultural diversity it is important to define the main issues in the debate. In order to address the issues, it is essential to begin by defining what is meant by culture in this context. On establishing what is meant by culture, (particularly in relation to business), a brief overview will then be provided on the differences between cultural similarities and cultural diversities, this will take into account the different methods used to measure culture, including Hofstede's model, finally, a review of the literature will be undertaken to ascertain if cultural diversity is beneficial in global firms.
Definitions of Culture
Culture is the acquired knowledge people use to interpret experience and generate behaviour (Spradley, 1980) take from "Social Responsibility in the Market: Fair Trade of cultural products" by (Littrell and Dickson, 1999). Culture encompasses a group's ideology, as well as its normative behaviours and its physical environment, artefacts and technology. As applied to business, the study of organisational culture offers insights into a firm's unique character. Organisational culture evolves as a group learns to solve problems and conduct business (Schein, 1985). Often initiated by a strong founder, a firm's culture perpetuates itself through the telling of company stories, daily rituals, hiring practices, training, rewards, and marketing decisions (Kotter and Heskett, 1992).
According to (Rugman and Hodgetts, 2000) Organisational culture that people use to interpret experience and to generate social behaviour. Culture is shared by members of a group , organisation, or society. Through culture we form values and attitudes that shape our individual and group behaviour. Culture is learned through both education and experience. Culture is also passed from one generation to another, so it is enduring. At the same time cultures constantly undergo change as people adapt to new environments.
Having defined culture, a brief outline will now be provided explaining what is meant by cultural similarities and cultural diversities..
Cultural Similarities
What is Cultural similarities? Cultural similarities are best described as cultures that are closely associated with each other for example in terms of language, existing beliefs, government structures and social pasterns. The Western world (Europe and the USA in particular) are viewed with "free trade"; wealth; and communications are on line at a touch of a button. Asian countries are still perceived as the old 'slave trade countries' where people are reluctant to challenge authority and feel obliged to do what they are told by their superiors ' the caste system in India operates in such a manner'. Although Africa is a huge continent the similarities of the different nations in terms of tribal activity; and keeping strong family ties is apparent throughout the region. In Europe, the growing acceptance of the 'Euro' as the common currency will surely adopt widespread 'similarity' trends such as purchasing.
Cultural Diversities
In terms of global firms, 'the great divide' between business countries is Relationship-Focus versus Deal-Focus. On the one hand you have the Relationship-Focused, formal Monochromic Reserved natures of Japan, South Korea and Singapore and on the other, you have the Deal-Focused, Informal Monochromic and Moderately expressive USA. (Gesteland, 1999). In general, diversity covers many areas such as religion, music, arts, manners, and attitude.
Measurement of culture
"Over the past thirty years there has been a substantial effort theorising and research devoted to cultural difference, much of which has attempted to reduce the bewildering variety of its manifestations to a small set of central variables. These central variables are usually related to deep culture. The first widely considered such set, put forward anthropologists by Kluckhohn and Strodtbeck (1991) identified the following five core variables corresponding to the solutions to basic problems which they argued are faced by humankind:
* What is the relationship of the individual to others (relational orientation).
* What is the temporal focus of human life (time orientation).
* What is the modality of human activity (activity orientation).
* What is a human being's relation to nature(person-nature orientation).
* What is the character of innate human nature (human-nature orientation).
(Guirdham, 1999)."
The next major work undertaken on culture was carried out by a Dutch researcher Geert Hofstede. The Hofstede framework grew from a study of one company's worldwide personnel. More than 110,000 people working in IBM subsidiaries in 50 countries and 3 regions responded to a 32-item questionnaire which was repeated twice between 1967-1973.
From the results of his research he proposed the following four value dimensions:
* Power Distance
* Uncertainty Avoidance
* Individualism/Collectivism
* Masculinity/Femininity
A further dimension of Long-term v Short-term was added in the 1990's.
Power Distance
This is the level of acceptance by a society of the unequal distribution of power in institutions. In the workplace, inequalities in power are normal, as evidenced in hierarchical boss-subordinate relationships. However, the extent to which subordinates accept unequal power is socially determined.
Uncertainty Avoidance
This refers to the extent to which people in a society feel threatened by ambiguous situations. Countries with a high level of uncertainty avoidance (such as Japan, Portugal, and Greece) tend to have strict laws and procedures to which their people adhere closely, and there is a strong sense of nationalism.
Individualism/Collectivism
This refers to the tendency of people to look after themselves and their immediate family only and neglect the needs of society. In countries that prize individualism (such as the United States, Great Britain, and Australia), democracy, individual initiative, and achievement are highly valued; the relationship of the individual to organisations is one of independence on an emotional level, if not on an economic level. In countries such as Pakistan and Panama, where low individualism prevails-that is, where collectivism predominates-one finds tight social frameworks, emotional dependence on belonging to "the organisation," and a strong belief in group decisions. ...
This is a preview of the whole essay
This refers to the tendency of people to look after themselves and their immediate family only and neglect the needs of society. In countries that prize individualism (such as the United States, Great Britain, and Australia), democracy, individual initiative, and achievement are highly valued; the relationship of the individual to organisations is one of independence on an emotional level, if not on an economic level. In countries such as Pakistan and Panama, where low individualism prevails-that is, where collectivism predominates-one finds tight social frameworks, emotional dependence on belonging to "the organisation," and a strong belief in group decisions.
Masculinity/Femininity
This refers to the degree of traditionally "masculine" values-assertiveness, materialism, and a lack of concern for others-that prevail in a society. In comparison, femininity emphasizes "Feminine" values-a concern for others, for relationships, and for the quality of life.
Listed overleaf in Fig 1 is a representative sample of countries and how they were analysed under Hofstede.
Fig 1
Hofstede's Ten-Country Comparison on Cultural Dimensions
Power Individualism Masculinity Uncertainty Distance Avoidance
United States 40L 91H 62H 46L
Germany 35L 67H 66H 65M
Japan 54M 46M 95H 92H
France 68H 71H 43M 86H
Netherlands 38L 80H 14L 53M
Hong Kong 68H 25L 57H 29L
Indonesia 78H 14L 46M 48M
West Africa 77H 20L 46M 54M
Russia 95H 50M 40L 90H
China 80H 20L 50M 60M
Abstract from Geert Hofstede "Cultural Constraints in Management Theories"
H=top third, M=medium third, L= bottom third among 53 total countries studied for the first four dimensions.
Empirical Evidence for Cultural Diversity
Having completed a detailed review of the literature available on cultural diversity, the material ranged from "The influence of cultural diversity on end-of-life care and decisions" (Werth Blevins and Toussaint, 2002), to "East meets East and East meets West: The case of Sino-Japanese and Sino-West joint ventures in China" (Li, Karakowsky and Lam, 2002). However, the overwhelming proportion of the material centred around the following six areas outlined below. The remainder of this article will be spent on detailing the arguments for cultural diversity from the various writers and attempting to extract the key strands.
* Economic Benefits
* Strategic Alliances / Joint Ventures
* Leadership
* Learning
* Marketing
* Ethics
Economic Benefits
Economic benefits and success depends on cultural understanding of relationships with investors, customers, employees, governments and communities (Stern, 2001). Based on a recent survey of 108 multinational enterprise sub units operating in China, it is found that the intensity and diversity of host country experience is an important factor of sub unit performance. Global firms operating with cultural diversity keeps the money rolling in from consolidation of markets, rigorous efforts to reduce costs and improve management and distribution and a forward looking approach to growing sales. Ireland's economic success is largely due to many large multinational organisations such as Dell, Intel, Boston Scientific, Xerox, Hewlett Packard, Warner Lambert - all global firms dealing with cultural diversity that have established factories in Ireland, (Gretchen, 2001; Hanigan and Mangan, 2001). Hundreds of mid-size companies with smaller bureaucracies place 5 key lessons on their success in dealing with cultural diversity in the rapidly evolving global market. 1. Keep focused 2. Stay lean 3. Apply technologies and ideas globally. 4. Use foreigners to manage offshore units. 5. Design products that solve customer's problems (Baker et al., 1993). The successful implementation of social initiatives as part of 'Cultural framing' is a key success for global firms (Harvard Grenville et al., 2003), along with ongoing product development as a competitive advantage (Industry week, 2002). There is now a growing consumer desire to buy and use products in international markets (Wood et al.,1999) and to use cultural diversity as a means to build long term, exceptional value client relationships (Stumpf and Longman, 2000). Automobile plants that have transferred from Japan to the USA. and had to modify for the local market have been able to achieve productivity and quality levels similar to plants in Japan (Pil F.K. and Macduffie, 1999).
IMPLICATIONS: From the evidence here it s clear that there are common benefits to be gained from cultural diversity, see the case of Japanese auto plants in North America. However, these are dependent on cultural understanding of relationships with the key players. What is being said is, that unless there is a knowledge of how relationships work in different areas, benefits will not be reaped. Another point being made here is that success breeds success. In the case of the large multinationals setting up in Ireland the determining factor of their success was that they had already achieved success as global enterprises. It is also well worth bearing in mind the five key lessons from Baker et. al. 1993 especially lesson four about foreigners to manage offshore units, this is borne out by the survey of 108 multinational enterprises. Finally, as pointed by Wood et al there is an increasing desire among consumers to buy and use products in international markets, which can only lead to increased diversity.
Strategic Alliances/Joint Ventures
Europe's leading engineering companies are those of strategic alliances such as Rolls-Royce, Daimler-Benz, and BMW in supplying aero engines to the worlds airlines. Again despite cultural diversity, "collaborative ventures" have played an important part in helping those global firms to build market share within this highly competitive market. The strategic alliance and case study of BMW/Rolls-Royce illustrates their successful competitive strategy (Smith D.J.; Smith D.J. 1997). Strategic alliances encourages cross-cultural networking, through economic, sectoral and social dimensions (Zeffane, 1995) while (Salvatore and Sasson, 2002) argue that leveraging knowledge management across strategic alliances creates the foundation for a successful partnership.
Successful joint ventures include M.Sorrell/CIA Group (Reid, 1997) and that of Andersen Consulting Managing Partner Brian Wilson's recent project in China, where successful joint ventures take between 5 to 10 years to work well. Cultural diversity issues are dealt with in the context that foreign firms should have managerial control of joint ventures; and speak with local professionals in order to enter the market place (Management Review, August 1995).
IMPLICATIONS: Here we have two distinct types of organisation structure the Strategic Alliance and the Joint Venture. Before drawing conclusions from the above evidence it is important to give a brief description of the two structures. A Strategic Alliance is a relationship whereby two or more entities cooperate (but do not form a separate company) to achieve the strategic goals of each. A Joint Venture is where a separate company is created and jointly owned by two or more independent entities to achieve a business objective. It is clear from the above evidence that both structures benefit from cultural diversity in the case of the airline alliance with the motor manufacturer it has been beneficial building market share with the added spin-offs of cross-cultural networking and social ties. In the joint venture example there was also benefits, however, the caveat needs to be added that it takes time for them to work well.
Leadership
A survey of twenty five leading global companies from ABN-AMRO to Unilever came to the conclusion that in order for one to be a successful leader they would have to work outside the regulations and cultural norms of their immediate society (Manardo, 2000). In an international business world with abundant information, managers need to focus on "management alteration" - aversion/alteration, captive/voluntary, and front-of-mind/ back of mind and in doing so will alleviate concerns of cultural diversity while in the process of globalisation (Morrison and Beck, 2000). Global firms can add to their bottom line by being more attentive to "soft organisation factors", such as commitment level of employees, and the quality of leaders, the linkage of which will enhance the art of cultural diversity of both parties to obtaining results (Finnie and Early, 2002). In the global economy, demands from more knowledgeable customers mean global leaders need to manage in the 'knowledge' economy characterised by diversity, complexity and ambiguity (Bares, 2002). (Rodsutti and Swierczek, 1991) this paper identified the key relationships of organizational effectiveness and leadership in southeast Asia. Managers from 1,065 multinational companies based in Thailand and representing 31 different nationalities participated in this study. International leader characteristics and organizational culture are found to determine an appropriate multicultural management style. Executive motivation is strongly influenced by this multicultural management style. Different dimensions of organizational effectiveness, including return on assets, most admired, job satisfaction and personal satisfaction are related to specific aspects of leader characteristics, organizational culture and multicultural management style.
IMPLICATIONS: Again it is clear from the evidence that cultural diversity is beneficial. In fact it is not only beneficial, but is also deemed essential in leadership this is made clear in the survey of twenty-five international companies cited by Manardo. Finnie and Early take this further by stating Global firms should be more attentive to the "soft organisation factors", which enhance cultural diversity resulting in better profits. Another point which becomes apparent is that leaders must be able to manage in a world where consumer knowledge is increasing only by embracing cultural diversity will they be able to meet the demands placed upon them. Finally, Rosdutti and Swierczek , seem to be stating that there is a link between a multicultural management style and executive motivation which if proved positive would be another reason for pursuing cultural diversity.
Learning
It is necessary to gain the appropriate cross-cultural skills and understanding to be effective in international training settings (Kemper, 1998). Taiwan's Integrated Circuit industry did not attempt to challenge the technology leadership in a confrontational manner but rather focused on being a superior quick follower (Chang and Tsai, 2002). Methods that support knowledge diversity should result in increased organisational trust (Zucker, 1986) representing and exchanging ways of knowing should lead to increased knowledge of the firm and successful collaboration with others (Tenkasi, Ramkrishna, and Boland, 1996). Multinational enterprises who tap into a foreign academic knowledge base through collaborative links with higher education institutions have developed a greater organisational capacity for coordinating globally dispersed learning and embedding themselves in local innovation networks (Lam, 2003). Cultural diversity is paying off for multinational firms like General Electric and Citibank. By using India's high pool of low-cost well trained English speaking technicians they are reaping huge financial rewards from increased sales and reduced costs (Kripalani 2002). The influence of offshore production by Japanese multinationals on the domestic skills of low income countries was beneficial in raising the skills level of the countries in which they operated and so reducing the costs of bringing in labour (Head Ries, 2002). Cross-cultural learning benefits multinational enterprises in that it both empowers and taps into the problem-solving skills of a wider range of the multinational enterprise's employees ultimately resulting in benefits in employee attitudes and organisational performance (Milliman, Taylor and Czaplewski, 2002). Previous research has indicated that while large cultural distance may create difficulty at the micro level because of the possibility of misunderstanding and slow adaptation between managers (Black & Mendenhall, 1992; Lincoln et al., 1981), it is beneficial at the macro level for Multinational Enterprises to the extent that it facilitates learning (Ghoshal, 1987; Morosini et al., 1998).
IMPLICATIONS: From the evidence gathered on cultural diversity with regard to learning, it can be seen that there are rewards in learning for companies that pursue a culturally diverse approach to learning. In the case of the Taiwanese integrated circuit industry the point to take away is that it is not always necessary to be able to keep up with the technology but to be able to take what is there and to improve it. Another thing worth highlighting is that using the learning base of foreign education institutions can be advantageous to the global firm in developing its worldwide learning and enables them to tap into local knowledge pools and so save on the costs of having to bring in key workers with high labour costs this is emphasised by Ghoshal, 1987 and Morosini et al., 1998. Finally, it would seem from Kemper's research that cross-cultural skills is vital for training.
Marketing
French retail group Auchan is reaping high profits from its newly hypermarket in northern Moscow with large queues every day. The reason for their success is due to the perception from the local population that 'Western goods' represent brand quality (Business Week, 2002). Recent research implies multinational advertisers are placing increased importance on national identity by shifting from the centralised approach to local responsiveness (Peebles, Ryans and Vernon, 1997). Asian multinational enterprise's have superior knowledge of the marketing tactics of the countries they are operating compared to 'Westerners' (Yadong, 1999), trans-national investors can gain an edge over their competitors in the Chinese market by building and maintaining their own guanxi network in the country, where guanxi constitutes the most effective and efficient marketing tool (Yadong, 1997). Coordinated regional pricing with the appropriate management of separable channels can better serve multinational companies based on their various needs (Yang, et al, 1998).
IMPLICATIONS: Again we see the value of cultural diversity in the area of marketing from the Yadong article the evidence seems to present the theory that Asian multinationals are much better informed of the marketing tactics of the countries they do business with than 'Western Countries', the reason according to Yadong is to do with Guanxi (social structure), it is his belief that if western multinationals were to adopt this culture style they could gain a competitive advantage over their competitors in the Chinese market.
Another point worth noting here is the French Hypermarket case, which I would describe as reverse diversity culture, because of the perception by the Russians, that the multinationals product was superior to their own.
Ethics/Social
Bentley Hoffman of Honeywell 'the computer conglomerate', states that when companies are drafting codes of ethics they must strike a balance being sensitive to foreign cultures and their own internal sense of right and wrong. Those that do so will reap rewards (Davids, 1999). The need for a comprehensive, cohesive, and universal code of conduct for multinational corporations doing business internationally is paramount as it can help foster business contacts around the world, resulting in a facilitation of trade and an increase in profit (Payne, Raiborn and Askuik, 1997). Levi Strauss have set standards for working conditions in their foreign manufacturing facilities. Richard Woo a Levi company spokesman stated that in so doing it would help them meet their overall mission, which is to achieve responsible commercial success (Cottrill, 1996). Social capital is important for multinational corporations especially in Asian countries like China (guangxi) and Japan (kankei). Multinationals which develop this social structure will gain potential competitive advantages in global markets (Hitt, Ho-uk, and Yucel, 2002). In terms of business ethics, Richard Bay Minerals (RBM), a Rio Tinto subsidiary are pro active by sending out a team of community development workers each day to support community development projects in the adjacent Mnonambi community so fostering good community relations (Kapelus, 2002). (Richter, and Buttery, 2002), argue that the gap between the "haves", and the "have nots", is widening - therefore global firms are obliged to deal with "ethics" in cultural diverse areas.
IMPLICATIONS: Until recently times, ethics has not featured very high in company boardrooms. However, with increasing globalisation, it has begun to move up the agenda's of many multinational companies. From the above evidence, it is clear that those who get it right will help foster business contacts, facilitating trade and increasing profits as stated by Payne et al. Local social networks must be recognised and companies like RBM are fostering good relations by assisting in local development projects in the Mmonambi community, and finally, as Richter states, because of the increase in the economic divide firms will be obliged to deal with the issue.
Conclusions
From the body of evidence available it is clear that there are advantages to be gained from cultural diversity. However, the evidence does not suggest that it can be achieved overnight. In many cases it will take time and money to nurture and develop, but it does show that those multinationals who are prepared to put in the time, effort and money will gain both socially and financially from doing so.
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