Cross-cultural Management - Case Study Example

Cross-cultural Management Name Course Lecture Date Introduction The challenge of cross-cultural management has seen many of the world’s most prolific multinationals fail in internationalization attempts. The failure of Wal-Mart to make it’s South Korean investment a success is discussed as an example of failure due to poor cross-cultural management practices. Wal-Mart and Carrefour imported western marketing strategies to South Korea instead of developing marketing strategies suited to the Korean context. Consequently, the two giant retailers failed as they could not cater for the country’s tastes and preferences. This paper analyzes the reasons for the failure of expatriate manager to perform exceptionally in international markets. It notes that the differences in culture pose serious challenges to the management of employee and customer relationships. Communication is a major issue as managers are required to effectively communicate with people of different English language skills. In these contexts, the manager is tasked with ensuring that his staff understands him and he also understands them. This paper also discusses the preference of different management styles in different cultural environments. It also discussed the influence of culture on the behaviors, perceptions and dispositions of a country’s nationals. It also gives an example of how uncertainty avoidance influences the perception of the relationship between price and quality in US and South Korean culture. Wal-Mart in South Korea In 2006, World largest retailer Wal-Mart announced it was withdrawing from the South Korean market. Wal-Mart announced it would be selling its 16 outlet to local retailer Shinsege after recording a loss of US $9.9 billion (Sung-Hun 2006). Earlier, French retailer Carrefour had withdrawn from the South Korean market unable to deal with the demands of South Korean consumers. The two retailers consist of a growing list of Multinationals whose multicultural management strategies have failed in South Korea. Most of these businesses have been accused of not understanding the culture and behavior of the Korean people. Nokia, Google and Nestle were among multinationals whose operations in South Korea failed to impress (Sung-Hun 2006). According to one analyst, the multinationals fail to understand the tastes and preferences of the South Korean people. Therefore most industries in South Korea continue to be dominated by local businesses. E-Mart part of the Shinsegae store and market chain remains the leading retailer in South Korea (Sung-Hun, 2006). So what went wrong for Tesco and Carrefour? According to Steenkamp (2001), failure to understand and adapt to local tastes and preferences were the main factors leading to the two retailer’s failure in South Korea. In contrast, Tesco operations in South Korea are extremely successful as the firm has excelled in cross-cultural management. Instead of using expatriates, Tesco South Korea has relies on local managers who have an understanding of local culture, tastes and preferences (Sung-Hun, 2006). In effect, Tesco South Korea is the British retailer’s biggest success in overseas operations and accounts for a third of Tesco’s overseas sales. Wal-Mart and Carrefour’s failure in the South Korean Market can be linked to poor cross-cultural management practices. According to Sung-Hun (2006), the two stores concentrated in electronics, clothing and dry foods, instead of food and beverages the main attraction for South Korean shoppers. He argues that two retailers marketing strategies were distinctly western and were not suited for the South Korean market. Wal-Mart and Carrefour also failed to adopt store formats preferred by locals. They retained simple store designs they had successfully used in western markets. In contrast, local retailers invested in eye-catching store displays and employed clerks to hawk goods and attract customer attention through hand-clapping (Sung-Hun 2006). With their poor understanding of South Korean culture, the two retailers could not understand why such marketing strategies were necessary. Consequently, local retailers continued to dominate the market as they had what the customers wanted in a store atmosphere that attracted them. However, Wal-mart and Carrefour were not the only one facing cross-cultural management challenges in the South Korean market. Nokia then the leading cell phone maker was unable to make a foothold in the South Korean market (Sung-Hun 2006). Nestle had also failed to convince South Koreans to purchase its flagship baby formula milk. These firms could have succeeded if they had taken the time and effort to understand cross-cultural challenges and issues of operating in South-East Asian countries and Korea in particular. Cross-cultural management challenges According to Moran, Harris and Moran (2011), management in cross-cultural environment faces two broad challenges; managing customer preferences and tastes, and managing employee relationships. Many multinational organizations have established operations in the culturally diverse Southeast Asia region (Warner 2014). This situation means western managers (expatriates) have to be sent to manage the organization’s operation in a diverse environment. However, expatriate managers face huge challenges in the new cultural environment (Ward & Rana-Deuba, 2000). Often the task of managing in a multicultural environment is so challenging that expatriate managers ask for reassignment. Littrell and Salas (2005) report that half of expatriates return prior to completing their assignments. In addition, more than half of those who stay do not perform as well as they performed in management roles back at home. El-Kahal (2001) suggest cross cultural training for expatriates prior to their appointment for roles in Southeast Asian operations. Expatriates would be better managers if they were competent in communication in cross-cultural settings. Moran, Harris and Moran (2011) argue that effective communication is a fundamental factor for the success of management in multicultural settings. Both verbal and non-verbal communication in the organization must reflect the cultural environment. Success in multicultural setting can be achieved by making sure employees communicate effectively with each other. Multinational organization must understand their workforce is homogenous and thus intercultural elements must be taken into consideration in the organization’s communication. For example, direct communication should not be used as this may lead to losing face (Fang, 2003). Expatriate managers must ensure their communication is understood and they also understand when their subordinates are communicating with them. Cultural issues and Challenges in managing in Southeast Asia Many aspects of culture are different in Western and Southeast Asian cultures. Cultural differences can be noted in country values, norms, behavior, fashion, architecture, art and food (Hofstede 1984). Etiquette is an important aspect of culture that expatriates in Southeast Asia must understand. In particular, the etiquette of exchanging business cards is considerably different in Asian context (El-Kahal 2001). Asians consider business cards to be essential in establishing and maintaining business relationships. Language is also an important cross-cultural management issue in Southeast Asian countries. Although communication in English is common in business contexts English communication skills are not fully developed in many Asian nations (Neupert et al 2005). For example, the Thailand education system pays little attention to the development of English communication skills. It is important for a manager to understand and consider the level of English communication skills that his staff has (El-Kahal 2001). Developing soft skills in cross-cultural understanding and international communication is critical for the success of managers who will increasingly seek marketing opportunities for their organization in Southeast Asian countries (Hofstede 1984). In addition, these skills are critical in successfully managing the multicultural teams that characterize multinational workforces in Asian countries. Being sensitive to cross cultural issues and expectation is a significant factor that underlines success in multicultural management. One of the significant issues in organizational management in Southeast Asia is the high power distance and centralization of management power (Hofstede 1984). In contrast, power distance in western countries is lower and employees and their managers are almost at par. While Asian values on power-distance are showing increasing congruence with western ones, major changes on the centralization of power are faced with great resistance (El-Kahal 2001). In Asia, many employees expect to carry out the orders and directives of those in a higher position in the organizational hierarchy (Hofstede 1984). Employees are not supposed to question what they are ordered to do. In addition, employee will rarely take personal initiatives and will always await the orders of their superiors before undertaking a task. The treatment of power distance and respect for power hierarchy means that western leadership styles are likely to be ineffective in South East Asia. However, in Southeast Asia, feedback to superiors is avoided as people try to avoid becoming embarrassed . While participative leadership is best suited for western working places, a directive approach is preferred in South Eastern Asia (Rhein 2014). Participative leadership allows employees to give feedback on managerial decision. Unfortunately, Southeast Asians culture does not involve subordinates in decision making and they are unlikely to offer valuable contribution to management decisions. Dealing with Southeast Asian consumers The failure of expatriate managers in Southeast Asian management contexts has also been associated with their inability to understand customer behavior. The managers of Carrefour and Wal-mart were unable to discern the tastes and preferences of South Korean consumers. Suri, Manchanda and Kohli (2002) argue that perception of the relationship between price and quality are different in the USA and in South Korea. They argue that the perceived relationship between price and product quality in the United States and South Korea is a function of different uncertainty avoidance levels in the two countries. According to Monroe (2003) cultural context impact the process of evaluating price information. US consumers feel more uncertain when they encounter a product with a discounted price. They are worried that the discount represents lower quality. Suri, Anderson and Kotlov (2004) argues that price discounts increase the uncertainty and anxiety of a consumer towards the quality of a product. In contrast, fixed price items have a greater reassurance about the quality of the product and the consumer anxiety and uncertainty is kept low. However, the feeling of uncertainty and anxiety associated with pricing information differs from culture to culture (Hofstede, 1991). The behaviors, dispositions and perceptions of people is greatly influenced by their culture. Differences in culture are largely noted in four cultural dimensions namely: power distance, individualism/collectivism, and masculinity/femininity and uncertainty avoidance (Hofstede 1984). The uncertainty avoidance dimension deals with uncertainty inherent in social and economic process. Uncertainty avoidance is defined as “the degree to which people prefer structured over unstructured situations” (Hofstede 1980). Southeast Asian individuals score high on uncertainty avoidance while Westerners score low on the same dimension. For example, consumers in South Korea with an uncertainty avoidance score of 0.85 are likely to develop high anxiety and nervous energy when making purchase decision. In contrast, Americans who score 0.46 on this dimension are more likely not to avoid uncertainty (Hofstede 1991). These differences influence the processing of fixed and discounted pricing information processing in the two groups of nationals. In the USA, fixed price items are perceived to be higher in value and quality in contrast to discounted items. American process product attributes of fixed price items less thoroughly as they perceive the fixed price to be an indicator of quality. In contrast, South Korean high uncertainty avoidance culture means consumers process product attributes of fixed priced items more thoroughly. Koreans therefore prefer discounted prices over fixed prices. Failure to note such preferences could affect the marketing strategies on American companies like Wal-mart who might use the fixed pricing strategies that have been successful at home (Steenkamp 2001). However, preferences for discounted prices are not the only cultural specific preferences that are unique to Koreans. Multinational managers also need to understand other cultural dimensions of Southeast Asian culture to successfully manage in this region. Cross-cultural training has been suggested as one of the strategies to impart expatriate managers with the skills to manage in multicultural contexts (Rhein 2014). Cross-cultural training focuses on ensuring manager acquire the necessary cognitive, behavioral and affective competency to manage in cross-cultural contexts. Manager need to acquire empathy with people of different cultures to be able to act and think appropriately in cross-cultural contexts (Hofstede 1984). In addition, cross-cultural training can help expatriates understand national behavior through the process of attribution. Attribution helps eliminate misunderstanding and communication gaps due to different perceptions of events. Attribution training would assist expatriates judge behavior and motivation for behavior from the perspective of local culture. According to Rhein (2014) manager can only learn local perspectives by learning Hofstede’s cultural dimensions of their host country. Conclusion The successful management of a multinational venture depends heavily on the management cultural competence of the local national culture. Failure to consider cultural aspects in the operation can be catastrophic as seen in the case of Wal-Mart and Carrefour in South Korea. The two organizations failed to consider aspect of South Korean culture while developing their marketing strategies. Consequently, they were unable to sustain profitable operations in the Southeast Asian country. This paper suggests cross-cultural management practices related to employees and customers that could have enhanced the chances of success of the two retailers in their South Korean operations. References Bottom of Form El-Kahal, S 2001, Business in the Asia Pacific, OUP Catalogue, London Fang, T 2003, A critique of Hofstede’s fifth national culture dimension. International journal of cross cultural management, 3(3), 347-368. 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