The Ways that Culture Influences International Business - Coursework Example

The ways that culture influеnсеs intеrnаtiоnаl businеss Introduction Culture is defined as a system of notions that are deeply entrenched within a society and is depicted in the conduct of people and organisations (McDermott and O’Dell, 2001, cited by Lucas [2006, pp. 261-262]). In the business world, one of the challenges that international firms face is enabling employees from diverse cultural backgrounds to work together effectively. Many global companies employ workers from different countries to work either in their home-based operations or in the international subsidiaries of these companies. Employees working in countries other than their own may face challenges attributed cultural shock, which may hinder their effectiveness in their assignments. Because of this, multinational enterprises (MNEs) need to put in place measures to ensure that their employment of workers from diverse cultures across the world does not adversely affect their effectiveness. Rather, managers of these companies have to utilise the cultural differences among the different employees to enhance their diversity and effectiveness. This paper discusses how culture influences international business and the managerial implication of this influence to multinational enterprises. To achieve this, the paper applies various examples to illustrate the gist of the subject. Ways in which culture influences international business As the world becomes increasingly globalised, firms are setting up subsidiaries the world over to take advantage of unique or available expertise and differentials in labour costs, as well as to get increased access to markets around the globe (Argote et al. 2000, cited by Boh, Nguyen and Xu 2013, p. 29). So as to work seamlessly across borders, MNEs have identified knowledge as a strategic resource and are aggressively making an effort to transfer knowledge effectively across borders (Boh, Nguyen & Xu 2013, p. 29). This is because various studies have indicated that successful knowledge transfer can create a competitive advantage for companies (Argote & Ingram, 2000; Szulanski, 1996 – cited by Boh, Nguyen and Xu 2013, p. 29). As well, Haghirian (2003, p. 2) asserts that multinational corporations (MNCs) gain great competitive advantage by managing the flow of knowledge between their subsidiaries. Nonetheless, there are significant challenges to achieving successful knowledge transfer (Boh, Nguyen & Xu 2013, p. 29). According to Cooper, Doucet and Pratt (2005, p. 3), differences in cultural orientations may result in divergent perceptions of appropriate behaviour, which negatively affects relationships within MNCs. In particular, Cooper, Doucet and Pratt (2005, p. 3) argue that many researchers have pointed out that culturally inappropriate behaviours often result into conflict in international business. The influence of culture on international business starts right from the time an organisation decides to recruit personnel internationally. Organisations may adopt inappropriate recruitment procedures by not considering the culture of the country from which they are targeting potential employees. As well, potential recruits may not present themselves in a manner that shows their skills and abilities as required by the employers because of these cultural differences. For instance, the eminent Dutch psychologist, culture expert, and management researcher Geert Hofstede, during the early days of his career, applied and interviewed without success for an engineering job with an American firm. Afterwards, he wrote about distinctive cross-cultural misunderstandings that arise when American managers interrogate Dutch recruits and the other way round. In Cultures and Organizations: Software of the Mind, Intellectual Cooperation and its Importance for Survival (1991) and which he later cited in Culture’s Consequences (2001), Hofstede notes that to Dutch employers’ eyes, American job applicants oversell themselves (Hofstede 201, p. 315). That is, when Americans are applying for jobs they word their CVs with superlatives that mention every degree, award, grade and membership to show their excellent qualities. In addition, Hofstede noted that during the interviews, Americans try to behave assertively, promising things that they are very unlikely to accomplish – such as learning the local language within a short time. On the other hand, Hofstede that argued that to American employers, Dutch job applicants undersell themselves (Hofstede 201, p. 315). They write reserved and typically short CVs, with the hope that the interviewer will find out more about them by asking how good they really are. Hofstede also argues that Dutch job applicants are very careful not to include on their CVs details that they are not absolutely sure they can fulfil, and hence they do not want to be perceived as braggarts. Similarly, job applicants in many Asian countries where significant weight is put on modesty will avoid disclosing too much information about themselves for fear of appearing too boastful and immodest (Ardichvili et al. 2006, p. 99). Since American interviewers know how to read between the lines when handling American interviews and CVs, Hofstede notes that they tend to mark down the information provided. On the contrary, Dutch interviewers, used to how Dutch applicants present themselves, tend to upgrade the information provided in CVs or during interviews (Hofstede 201, p. 315). This misunderstanding could probably be the reason why Hofstede was not successful when he applied for a job with an American firm because as a Dutch he probably stated the qualifications and achievements he was sure of, but the American interviewers could have construed the short details to mean a shortfall in his ability. This shows how misunderstandings regarding people’s different cultural background could cost international businesses important talents that could be instrumental in boosting their operational effectiveness. That is, a foreign employee may be perceived as being ineffective just because he or she behaves in a manner that is different from the rest of the employees – who may have shared cultural backgrounds. If MNEs fail to recruit and maintain good talent merely because of these misunderstandings, they are likely to lose their global competiveness. Culture also plays an important role when it comes to MNEs making their investment decisions. D’Souza and Peretiatko (2005, p. 17) cite Shane (1992) who posited that the cultural trait of individualism is a significant preference element for foreign direct investment (FDI) over exports because people from individualistic societies were found to be more opportunistic and perceived exporting as encompassing higher transaction costs which they attempted to lower through FDI. This explains the reason why US MNCs prefer to invest in Australia rather than Japan and South Korea as noted by D’Souza and Peretiatko (2005, p. 25). Although this could also be due to the historical links between the US and Australia, D’Souza and Peretiatko (2005, p. 25) found that Australia shares a similar culture to US based MNCs, hence its preferred investment choice in comparison with Asian nations. This can be explained by the fact that based on the individualism index the US and Australia have closely related values (91 and 90 respectively) while other nations like Japan and South Korea have lower value values at 46 and 18 respectively. See table 1. Table 1: Hofstede’s dimension of culture index Country Power distance Individualism Uncertainty avoidance Masculinity Long-term orientation United States 40 91 46 62 29 Australia 36 90 51 61 31 Indonesia 78 14 48 46 - Japan 54 46 92 95 80 Malaysia 104 26 36 50 - Philippines 94 32 44 64 19 Singapore 74 20 8 48 48 South Korea 60 18 85 39 75 Thailand 64 20 64 34 56 Source: D’Souza and Peretiatko (2005, p. 19) Based on D’Souza and Peretiatko’s (2005) assertion that individualism affects how MNCs make decisions on which countries to invest in, it evident that culture is an important aspect of international business. Hence, as D’Souza and Peretiatko (2005, p. 14) emphasise, culture should not be viewed as a secondary consideration to location advantage but should be appreciated as a fundamental factor in the selection of an investment destination. At the outset of this discussion it was noted that knowledge transfer is an essential factor that determines the success of MNEs. But according to Boh, Nguyen and Xu (2013, p. 29) and Lucas (2006, p. 277), cultural differences may create obstacles that either impede or do away with the prospect of effective knowledge transfer. In particular, Boh, Nguyen and Xu (2013, p. 30) are of the view that transferring knowledge can be especially difficult when the originator of the knowledge and the recipient do not share common cultural norms, beliefs and assumptions. Chen, Sun and McQueen (2010, p. 229) also note that whereas knowledge transfer may be problematic between sections of an organisation that has a shared cultural context, transferring knowledge between offices of an organisation situated in different nations and diverse cultures may pose an even bigger challenge. A good example of such challenges is in the Chinese market where both Carrefour and Walmart (famous global retail chains) have failed to extend their oligopolistic dominance in China (Chuang et al. 2011, pp. 443). The problem is that while China is characterised by the guanxi culture where reputation is relationship based, meaning that social capital is used to build business relationships (Chuang et al. 2011, pp. 451; Fan 2011, p. 1; Banfe 2008, p. 5), Walmart in particular tried to introduce its model of centralisation as used in the US where it is headquartered. Thus, as Chuang et al. (2011, pp. 454) posit, both Carrefour and Walmart failed to understand the Chinese business culture which would enable them to efficiently localise and become successful in the Chinese market. According to Hung (2004, p. 267), the Chinese consider the family as the basic unit of the society’s structure and function. Thus, businesses built on the basis of family names are likely to thrive more than foreign ones that lack this collectivistic orientation. This cultural alignment coupled with lack of trust in the US business model (in the case of Walmart) could have limited Walmart’s capacity to capture the Chinese market. As Boh, Nguyen and Xu (2013, p. 30) note, the effectiveness of knowledge transfer from the headquarters of an MNE to the subsidiary relies on the willingness as well as capability of individuals in the subsidiary to take in the knowledge from the headquarters. In a related example, a study conducted in Nigeria by Ekerete (2001, p. 100) indicated that cultural factors exerted varied influences on marketing strategies used by multinational firms operating in the country, and this called for the adoption of specific approaches for particular market situations. Summary of managerial implications of cultural influences From the discussion thus far, it is apparent that culture influences the way MNE managers make decisions relating to different areas of their businesses. This includes recruitment, where to invest, how to invest in a particular country, and whether to employ the company’s country of origin business model or modify it to suit the culture of the country of operation. In most cases, managers fail to understand the culture of other countries and thus find dealing with employees from foreign countries difficult. For instance, Hofstede failed to secure a job with an American company probably because he tried to be modest in his CV – which is not an admirable attribute in the American culture. Similarly, managers of MNCs tend to prefer countries where their companies are likely to encounter little cultural conflict as evidenced by American companies’ preference of Australia as opposed to Asian nations. Further, the cases of Carrefour’s and Walmart’s venture in China show that managers of MNCs must understand the culture of the investment destination if their companies are to succeed in the foreign market as they do at home. Effective knowledge transfer is only possible when the cultures of the company and the foreign country are aligned such that the investment country trusts the MNC. The Carrefour and Walmart cases show that there are costs associated with implementation of localisation in that MNC must recognise areas in which local culture should be accommodated and modify their operations to suit the needs of their target customers (Chuang et al. 2011, p. 445; Sumetzberger 2005, p. 666). This is well illustrated by the study conducted in Nigeria as discussed in the paper. It is thus important for managers to pay attention not only to basic cultural differences between their home country and the host nation, but also to the sub-cultural differences that exist between different societies that share the same religion, language, leadership styles, ethnic traditions and so forth. Chhokar, House and Brodbeck (2007, p. 939) note that there are differences even between countries from the same region such as China, Singapore, Hong Kong and Taiwan and these have to be considered by multinational enterprises as they make investment decisions. Failure to appreciate these cultural differences can result in challenges such as those faced by Carrefour and Walmart in the Chinese market. References Ardichvili, A, Maurer, M, Li, W, Wentling T & Stuedema, R 2006, ‘Cultural influences on knowledge sharing through online communities of practice’, Journal of Knowledge Management, Vol. 10, No. 1, pp. 94-107. Banfe, P L 2008, ‘Connections and connectivity and in China; Guanxi and the explosion of instant messaging - the marriage of relational diads, group membership, and web based communications’, International Business & Economics Research Journal, Vol. 7, No. 12, pp. 1-12, viewed 20 March 2013, Boh, W F, Nguyen, T T & Xu, Y 2013, ‘Knowledge transfer across dissimilar cultures’, Journal of Knowledge Management, Vol. 17 No. 1, pp. 29-46. Chen, J, Sun, P Y T & McQueen, R J 2010, ‘The impact of national cultures on structured knowledge transfer’, Journal of Knowledge Management, Vol. 14 , No. 2 , pp. 228-242. 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