October 20, 2012

MB0053 [International Business Management] Set1 Q2

Q.2 What is culture and in the context of international business environment how does it impact international business decisions?

Solution:

Culture is defined as the art and other signs or demonstrations of human customs, civilisation, and the way of life of a specific society or group. Culture determines every aspect that is from birth to death and everything in between it. It is the duty of people to respect other cultures, other than their culture. Research shows that national cultures generally characterise the dominant groups values and practices in society, and not of the marginalised groups, even though the marginalised groups represent a majority or a minority in the society.

Culture is very important to understand international business. Culture is the part of environment, which human has created, it is the total sum of knowledge, arts, beliefs, laws, morals, customs, and other abilities and habits gained by people as part of society.

The following are the four factors that question assumptions regarding the impact of global business in culture:
National cultures are not homogeneous and the impact of globalisation on heterogeneous cultures is not easily predicted.
Culture is not similar to cultural practice.
Globalisation does not characterise a rupture with the past but is a continuation of prior trends.
Globalisation is only one of many processes involved in cultural change.

Culture in an International Business Organisation
Cross cultural management: Cross cultural management is defined as the development and application of knowledge about cultures in the practice of international management, when people involved have diverse cultural identities. 

International managers in senior positions do not have direct interaction that is face-to-face with other culture workforce, but several home based managers handle immigrant groups adjusted into a workforce that offers domestic markets.

The factors to be considered in cross cultural management are:
Cross cultural management skills.
Handling cultural diversity.
Factors controlling group creativity.
Ignoring diversity.

Cross cultural management skills
The ability to demonstrate a series of behaviour is called skill. It is functionally linked to achieving a performance goal.

The most important aspect to qualify as a manager for positions of international responsibility is communication skills. The managers must adapt to other culture and have the ability to lead its members.

The managers cannot expect to force members of other culture to fit into their cultural customs, which is the main assumption of cross cultural skills learning. Any organisation that tries to enforce its behavioural customs on unwilling workers from another culture faces conflict. The manager has to possess the skills linked with the following:
Providing inspiration and appraisal systems.
Establishing and applying formal structures.
Identifying the importance of informal structures.
Formulating and applying plans for modification.
Identifying and solving disagreements.
Handling cultural diversity

Cultural diversity 
Cultural diversity in a work group offers opportunities and difficulties. Economy is benefited when the work groups are managed successfully. The organisations capability to draw, save, and inspire people from diverse cultures can give the organisation spirited advantages in structures of cost, creativity, problem solving, and adjusting to change.

Cultural diversity offers key chances for joint work and co-operative action. Group work is a joint venture where, the production of two or more individuals or groups working in cooperation is larger than the combined production of their individual work. 

Factors controlling group creativity
On complicated problem solving jobs diverse groups do better than identical groups. Diverse groups require time to solve issues of working together. In diverse groups, over time, the work experience helps to overcome gender, racial, and organisational and functional discriminations. But the impact cannot be evaluated and there is always risk in creating a diverse group. A successful group is profitable with respect to quick results and the creation of concern for the future. Negative stereotypes are emphasised if it fails.

Factors related with the industry and company culture are also important. Diverse groups do well when the members:
Assist to make group decisions.
Value the exchange of different points of view.
Respect each others skills and share their own.
Value the chance for cross-cultural learning.

Tolerate uncertainty and try to triumph over the inefficiencies that occur when members of diverse cultures work together.

A diverse group is known to be more creative, where the members are tolerant of differences. The top management level provides its moral and administrative support, and gives time for the group to overcome the usual process difficulties. They also provide diversity training, and the group members are rewarded for their commitment.

Ignore diversity
It may be difficult to manage diversity. It is better to ignore, which is an alternative. The management must:
Ignore cultural diversity within the employees.
Down-play the importance of cultural diversity.

This rejection to identify diversity happens when management:
Fails to have sufficient awareness and skills to identify diversity.
Identifies diversity but does not have the skill to manage the diversity.
Recognises the negative consequences of identifying diversity probably cause greater issues than ignoring it.
Thinks the likely benefits of identifying and managing diversity do not validate the expected expenses.
Identifies that the job provides no chances for drawing advantages from diversity.

Strategies to ignore diversity may be possible when culture groups are given various jobs, and sharing required resources are independent in the workplace. Groups and group members are equally incorporated and work together. In such cases, confusion occurs when the diverse value systems are not identified that are held by different staff groups.

Hofstede’s cultural dimensions
According to Dr. Geert Hofstede, ‘Culture is more often a source of conflict than of synergy. Cultural differences are a trouble and always a disaster.’

Professor Hofstede carried out a detailed study of how values in the workplace are influenced by culture. He worked as a psychologist in IBM from 1967 to 1973. At that time he gathered and analysed data from many people from several countries. Professor Hofstede established a model using the results of the study which identifies four dimensions to differentiate cultures. Later, a fifth dimension called ‘long-term outlook’ was added. 

The following are the five cultural dimensions:
• Power Distance Index (PDI) – This focuses on the level of equality or inequality, between individuals in the nation’s society. A country with high power distance ranking depicts that inequality of power and wealth has been allowed to grow within the society. These societies follow caste system that does not allow large upward mobility of its people. A country with low power distance ranking depicts the society and de-emphasises the differences between its people’s power and wealth. In these societies equality and opportunity is stressed for everyone.
• Individualism – This dimension focuses on the extent to which the society reinforces individual or collective achievement and interpersonal relationships. A high individualism ranking depicts that individuality and individual rights are dominant within the society. Individuals in these societies form a larger number of looser relationships. A low individualism ranking characterises societies of a more collective nature with close links between individuals. These cultures support extended families and collectives where everyone takes responsibility for fellow members of their group.
• Masculinity – This focuses on the extent to which the society supports or discourages the traditional masculine work role model of male achievement, power, and control. A country with high masculinity ranking shows the country experiences high level of gender differentiation. In these cultures, men dominate a major part of the society and power structure, with women being controlled and dominated by men. A country with low masculinity ranking shows the country, having a low level of differentiation and discrimination between genders. In low masculinity cultures, women are treated equal to men in all aspects of the society.
• Uncertainty Avoidance Index (UAI) – This focuses on the degree of tolerance for uncertainty and ambiguity within the society that is unstructured situations. A country with high uncertainty avoidance ranking shows that the country has low tolerance for uncertainty and ambiguity. A rule-oriented society that incorporates rules, regulations, laws, and controls is created to minimise the amount of uncertainty. A country with low uncertainty avoidance ranking shows that the country has less concern about ambiguity and uncertainty and has high tolerance for a variety of opinions. A society which is less rule-oriented, readily agrees to changes, and takes greater risks reflects a low uncertainty avoidance ranking.
• Long-Term Orientation (LTO) – Describes the range at which a society illustrates a pragmatic future oriented perspective instead of a conventional historic or short term point of view. The Asian countries are scoring high on this dimension. These countries have a long term orientation, believe in many truths, accept change easily, and have thrift for investment. Cultures recording little on this dimension, trust in absolute truth is conventional and traditional. They have a small term orientation and a concern for stability. Many western cultures score considerably low on this dimension.

In India, PDI is the highest Hofstede dimension for culture with a rank of 77, LTO dimension rank is 61, and masculinity dimension rank is 62.

Every society has its own unique culture. Culture must not be imposed on individuals of different culture. For example, the Cadbury Kraft Acquisition, 2009 was a landmark international deal, in which a U.S. based company Kraft acquired the British chocolate giant, Cadbury which were in complete extremes in terms of culture. Let us discuss the major cultural elements that are related to business.

Cultural differences affect the success or failure of multinational firms in many ways. The company must modify the product to meet the demand of the customers in a specific location and use different marketing strategy to advertise their product to the customers. Adaptations must be made to the product where there is demand or the message must be advertised by the company.

The following are the factors which a company must consider while dealing with international business: 
• The consumers across the world do not use same products. This is due to varied preferences and tastes. Before manufacturing any product, the organisation has to be aware of the customer choice or preferences.
• The organisation must manage and motivate people with broad different cultural values and attitudes. Hence the management style, practices, and systems must be modified.
• The organisation must identify candidates and train them to work in other countries as the cultural and corporate environment differs. The training may include language training, corporate training, training them on the technology and so on, which help the candidate to work in a foreign environment.
• The organisation must consider the concept of international business and construct guidelines that help them to take business decisions, and perform activities as they are different in different nations. The following are the two main tasks that a company must perform: 
° Product differentiation and marketing – As there are differences in consumer tastes and preferences across nations; product differentiation has become business strategy all over the world. The kinds of products and services that consumers can afford are determined by the level of per capita income. For example, in underdeveloped countries, the demand for luxury products is limited. 
° Manage employees – It is said that employees in Japan were normally not satisfied with their work as compared with employees of North America and European countries; however the production levels stayed high. To motivate employees in North America, they have come up with models. These models show that there is a relation between job satisfaction and production. This study showed the fact that it is tough for Japanese workers to change jobs. While this trend is changing, the fact that job turnover among Japanese workers is still lower than the American workers is true. Also, even if a worker can go to another Japanese entity, they know that the management style and practices will be quite alike to those found in their present firm. Thus, even if Japanese workers were not satisfied with the specific aspects of their work, they know that the conditions may not change considerably at another place. As such, discontent might not impact their level of production.

The following are the three mega trends in world cultures:
• The reverse culture influence on modern Western cultures from growing economies, particularly those with an ancient cultural heritage.
• The trend is Asia centric and not European or American centric, because of the growing economic and political power of China, India, South Korea, and Japan and also the ASEAN.
• The increased diversity within cultures and geographies.

The following are the necessary implications in international business:
• Avoid self reference criterion such as, one’s own upbringing, values and viewpoints.
• Follow a philosophical viewpoint that considers that many perspectives of a single observation or phenomenon can be true.
• Discover and identify global segments and global niche markets, as national markets are diverse with growing mobility of products, people, capital, and culture.
• Grow the total share market by innovating affordable products and services, and making them accessible so that, they are affordable for even subsistence level consumers rather than fighting for market share.
• Organise global enterprises around global centres of excellence.

Cultural elements that relate business
The most important cultural components of a country which relate business transactions are:
• Language.
• Religion.
• Conflicting attitudes.

Cross cultural management is defined as the development and application of knowledge about cultures in the practice of international management, when people involved have diverse cultural identities.

International managers in senior positions do not have direct interaction that is face-to-face with other culture workforce, but several home based managers handle immigrant groups adjusted into a workforce that offers domestic markets.

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