Cross-Cultural Differences Affecting International Trade in Context of IKEAs Business in China - Essay Example

The case study of IKEA (Swedish Company) in China Table of Contents 1.Introduction 2 1.1.Overview of IKEA 3 2.Relationship between Culture and Business 3 3.Cross Cultural Models and Concepts 4 3.1.Cultural Dimensions Model of Trompenaars and Hampden-Turner 4 3.2.Cultural Dimensions Model of Hofstede 7 4.Difference between Swedish and Chinese Culture 8 5.Expatriate Managers and Multicultural Awareness 10 6.Requirements for Working in Multicultural Teams and Developing Intercultural Relationships 12 7.Conclusion 14 8.Reference 16 1. Introduction Cultural diversity has a great impact on the emerging trade and business. The international trade may be defined as the effect of globalization. Therefore, there is a very close link between the globalization and cultural diversity. A society consists of several factors like community, economy, political, legal etc. These factors reflect the core culture of a society as culture plays very important role in developing such factors. Globalization and international trade has brought the concept of cross-culture in a society. In last few decades, the organisational cultures and management objectives have been shifted to modern concepts from the traditional one. The corporations decide to enter into new country to capture the new market and in this process they primarily focus cross cultural factors for building multicultural teams. However, they have to face several difficulties due to mismatch of organisation culture and social culture (Rajagopal, 2007, p.8). This paper will attempt to analyse distinct features of cross cultural differences affecting international trade in context of IKEA’s business in China. To offer basic understandings and interpretations of cross cultural difference, some relevant models and concepts will be critically analysed and discussed. This paper will also include the basic difference of Swedish and Chinese cultures. Role of expatriate managers in managing multi-national corporations will also be discussed. Finally, the paper will end by summing up the entire discussions and findings. 1.1. Overview of IKEA IKEA is a privately-owned global furniture company. It is a Sweden-based company and founded by Ingvar Kamprad who started to sell matches at the age of seven during 1920. During 1940-1950, he entered into the furniture business and the business experienced a rapid growth within a short span of time (IKEA-a, 2010). Currently, it offers large varieties of furniture for domestic and commercial purposes. It also provides furniture for children (IKEA-b, 2010). IKEA has expanded its business in the global market and it is present in the entire Europe, North America, Middle East and Asia pacific regions. The business idea of IKEA focuses on its core value, product range, low price and betterment of everyday life of its valuable consumers (IKEA-c, 2010). 2. Relationship between Culture and Business Business and culture are inter-related with other and hence, before presenting critical analysis of cross culture, expatriate management and multicultural operations. The national culture is the prime factor that affects the culture of an organisation and its behaviour. Organisational behaviour is influenced by human nature and it is an effect of various cultural dimensions. Luthans defined the organisational behaviour as “the rest of interaction and interdependency between formal organisation and the human variable” (Reddy, 2004, p.3). The PESTLE analysis of business environment explains that external macro-economic factors play very important role in developing the entire trade and business of an economy. Culture is the main determinants for influencing these macro-economic factors like political, legal, economic etc. For example, the Saudi Arabia is one of the most modern countries in the world with extra-ordinary infrastructural facilities. However, this entire economy is influenced by the strict Islamic beliefs and the multi-national companies in this country experience different cultural environment and mixed success (Chopra, 2005). Gillis has identified that multi-national corporations (MNC) are influenced by cultures diversities in two ways. Firstly, many MNCs follow their own indigenous culture and they reflect it through their operations in different countries e.g. Japanese corporations. Secondly, MNCs also accept the culture of their host country to bring efficiency in its global operations e.g. EU corporations (Gillis, 2006, p.42). 3. Cross Cultural Models and Concepts Many scholars and researchers have attempted to explain the importance of cultural diversity for international trade. These cultural dimension models are helpful in understanding the major differences between two different cultures. This assists the MNCs in developing necessary marketing and sustainable strategies for their international operations (Cherunilam, 2007, p.75). In respects, the two cross dimensional models are very crucial i.e. Trompenaars’ and Hampden-Turner’s seven dimension model and five cultural dimension model of Hofstede. These models are discussed below explaining its features, strengths and weaknesses. 3.1. Cultural Dimensions Model of Trompenaars and Hampden-Turner The cultural dimensional model developed by Trompenaars and Hampden-Turner is known as the ‘Seven Dimensions of Culture’. In order to understand the various cross cultural dimensions affecting international trade, they conducted an extensive research using the surveyed data collected from 3000 international managers of 28 countries. These 3000 respondents (managers) were givens contrasting and dilemma tendencies and their answers were analysed. Finally, they came to conclusion and found seven major dimensions responsible for the cross cultural differences. These seven cultural dimensions shape the specific culture of nation and society. This model has been proved very essential for MNCs and expatriate managers in avoiding cultural conflicts, misguides and misunderstandings. It facilitates the communicational and marketing strategy for product development and spreading product awareness (Gutterman, 2010). These seven specific cultural dimensions are given and discussed below. 1. Universalism and Particularism: The universalistic society tends to focus on general law and rules which is applicable for everyone. Whereas, the particularism is based on flexible rules and regulation and it focuses on human relationship rather that imposed law and regulation. 2. Individualism and Collectivism: This emphasises on the team work spirit of a society. The individualistic society is self-driven and in collectivism society, the decisions are taken after consulting with the entire team members. 3. Achievement and Ascription: It helps to define the status and authority of a particular society. The achievement based societies are more conventional than the ascription oriented society. The ascription based society focuses on ranks, positions and social power. 4. Neutral and Affective: This dimension involves the display of inner feeling or emotions. The naturalistic society believes in not revealing emotions through the verbal communication. Sometimes, this may lead to explode the hidden emotions. In affective societies, people are more transparent and they believe in expressing their felling. 5. Specific and Diffuse: It identifies the decision making and goal developing process of a society. The specific based society clearly understands the various underlying factors that influence their goals and decision making; whereas, people from diffuse based society are confused in setting their goal and long term objectives (Schafer, 2009). 6. Internal and External: Internal and external environment play very crucial role in controlling the people’s behaviour. In external oriented society, people try to live with harmony and adjust themselves as per the external environment. In internal oriented society, the people become dominating and unable to accept the changing environment. 7. Sequential and Synchronic: this is another important factor for the society that identifies people’s attitude toward time. The sequential society believes in planning and sequencing in meeting the deadline. The synchronic based society perceives time as intangible and flexible and people try to meet several objectives at the same time (Gutterman, 2010). The above seven dimensions are useful in understanding the basic reasons for differences between various societies. However, it provides qualitative explanation of these dimensions that may leads to reduce the accuracy of identified cultures. It also does not consider the gender based attitude of a society. 3.2. Cultural Dimensions Model of Hofstede Like Trompenaars’ and Hampden-Turner’s ‘Seven Dimensions of Culture’, Geert Hofstede’s cultural dimensions are very useful for understanding the various parameters of cross cultural differences. In fact, Hofstede’s cultural dimensions are more popular and widely acceptable than the former. Hoftstede conducted a detailed study on cultural dimensions using huge amount of data. His research was based on IBM’s international operations. He used 116,000 questionnaires administrated by IBM employees from nearly 40 countries. His research involved detail study of history, law, sociology, economics and business culture. Ultimately, he found five major dimensions of a society that defines its culture. These five dimensions are “power distance, uncertainty avoidance, individualism, masculinity and long term orientation” (Luger, 2009, p.12-13). These five dimensions can be explained in terms of index that helps to analyse a culture accurately. Each of these is explained below. 1. Power Distance Index (PDI): PDI defines the distribution of the power within a society or institution. The higher PDI indicates the higher unequal division of power in society. It helps to determine the leadership style of a society. 2. Individualism (IDV): this factor is also mentioned by Trompenaars and Hampden-Turner. It identifies the self-oriented and team-oriented society. This factor also affects the family orientation i.e. nuclear or joint family. Therefore, the organisations can also be defined as a family consisting large group of members. 3. Masculinity (MAS): It involves the categorization of a society based on genders i.e. feminine and masculine. Women and men values are important for developing society’s feature. The women value-based society is more caring and protecting; whereas, the masculine society is more competitive oriented (Geert Hofstede – itim-a, 2009). 4. Uncertainty Avoidance Index (UAI): “This cultural dimension indicates that extensive to which a society feels threatened by uncertain and ambiguous situation and tries to avoid these situations by greater career stability. Establishing more formal rules, not tolerating deviant ideas and behaviour” (Tian, 2004, p.21) 5. Long-Term Orientation (LTO): LTO focuses on long-term and short-term goal of society. The long-term oriented organisation and institutions concentrate on aim to achieve long term success by synchronising and identifying necessary short-term goal. This dimension is influenced by the Confucius teachings that teach to aim for secure future. The above five dimensions are very useful for MNCs in identify the cultural differences. It is easier to compare two cultures using this model. It reflects very necessary areas that a MNC needs to understand for its global operations. It is the popular and effective model as it has negligible weaknesses. 4. Difference between Swedish and Chinese Culture IKEA is a Swedish company and it is also present in the Chinese market. Chinese culture is very much diversified comparing to European countries and hence, the expatriate managers of IKEA in China have to face some difficulties. Currently, IKEA has established its seven stores in different cities of China since 2006 (IKEA-d, 2010). The earlier section has described the reliability of Hofstede’s cultural dimensional model and hence, this model will be used to compare the Swedish and Chinese culture. The following figure and table show difference between the Swedish and Chinese culture in graphically and quantitatively respectively. Figure 1: Comparison between Swedish and Chinese Culture (Source: Geert Hofstede – itim-b, 2009) Table 1: Five Dimensional Scores of Sweden and China (Source: Geert Hofstede – itim-b, 2009) The above figure and model indicate that there are significant differences in Sweden and China. China is more committed to its traditional culture. The distribution of power in China is very unequal and primarily it follows autocratic leadership style. However, being a Communist nation, the individualism in China is lower than Swedish capitalist economy. The family bounding is more important in China. Unlike Sweden, Chinese society shares male values and hence, it can be defined as male dominated society. China scores highest in LTO indicating its steadiness in countering obstacles. This suggests that the influence of traditional Chinese culture on entire society is very crucial. Therefore, a Swedish expatriate manager in China must understand the value of traditional Chinese culture. 5. Expatriate Managers and Multicultural Awareness The difference in cultural dimensions is one the major issues for the MNCs. Generally, the managers from the home countries lead the entire company while entering into a new market. These managers are well aware of the internal and basic value of their companies. However, their main task is to adjust their companies within the new environment. In this process, expatriates managers face certain competitive demands causing their task very difficult. Many MNCs face expatriate failure due to several unwise decisions in choosing the expatriate managers. Primarily, there are five major reasons for such failures and it includes wrong people, wrong reasons, “inadequate preparation”, inadequate foreign support systems” and “inadequate repatriation policies” (Murray State University, n.d.). Therefore, for successful expatriate management, the company and managers, both are responsible. However, after entering into a country, managers must focus on certain areas like cultural awareness, ethical issues, communications and legal factors. In this process, the foremost task is to spread the multicultural awareness within the multinational organization and within its target audiences like customers, employees and other stakeholders. Multicultural awareness “involves a personal awareness of cultural diversity” (Tjale and Villiers, 2004, p.43). A study on American expatriate strategies have revealed that “those who fail to recognize the potential for divergent behavior may find the actions of their superiors and subordinates who come from a different culture to be confusing, and perhaps even frightening” (Ralston et al, 2005). Therefore, it is necessary for expatriate managers to adjust their behaviours as per existing culture of the host country. There are some other factors that should be avoided by expatriate mangers. Generally, people are influenced by their own culture and self characteristics that often leads to develop biased character. Hence, they must avoid “over-generalisation, culture blindness and negative stereotyping” (Tjale and Villiers, 2004, p.45). This section has clearly identified that role of expatriate managers are difficult due to certain major issues. In spite of conflicting situations, they have to manage the organisational commitments as well as social commitments. Often, these two commitments are mismatched in case of a MNC present in culturally diversified country. 6. Requirements for Working in Multicultural Teams and Developing Intercultural Relationships The increasing number of MNCs employees and their activities raise the importance of global multicultural teams. The members of multinational teams belong to different diversified culture and they have very little knowledge about the culture of host country. The mismatch of their culture and host country’s culture leads to affect their “understanding, interpretations, and way or responding to various situations (Chen, 2006, p327). However, Brannen and Salk (2000) have verified through their research that the cultural diversity may not affect multicultural team’s performance (Halverson and Tirmizi, 2008, p.7). In order to enhance the multicultural teams’ performance for its business in China, the management of IKEA can follow a model. Aqeel Tirmizi has developed a model that includes crucial factors affecting teams’ performance. The following figure portrays this model. Figure 2: Multicultural Team Effectiveness Model (Source: Halverson and Tirmizi, 2008, p.10) The above model is very effective and it shows the method of creating high performances. For effective performances, the societal and institutional, organisational, team factors are vital. Besides, the team has to identify the major criteria of teams’ effectiveness like learning and satisfaction. Developing a set of objectives is also very important for enhancing the accuracy of performance. In this respect, Gibson has focused on four primary objectives for multicultural teams. These are given below. Understand the team composition by focusing on culture. Deal with the challenges in heterogeneous versus homogenous teams. Indentify the teams’ internal strengths and weaknesses and external opportunities and threats. “Gain teamwork expertise by working in teams and analyzing their own experience in those teams” (Gibson, 2004). According to Chua and Morris, there are five key measures that must be considered for better team performances and intercultural relationships. These are inter and intra cultural relationships, new ideas sharing, capability of inter-culture, trust and control variables (Chua and Morris, 2009). Cupach and Imahori (1993) identified three primary phases for developing intercultural relationship. The first phase is to find the similarities of communication by trial and error method. The second phase involves the recognition of the convergence and acceptable identity. The third phase is about the renegotiate the identities. “Competent intercultural interlocutors use their narrowly defined but emerging relational identify from the second phase as the basis for renegotiating their separate cultural identities” (Gudykunst, 2005, p.18). 7. Conclusion The increasing international trade have raised the importance of understandings and management of cross cultural aspects. This paper have analysed some models and theories of cross cultural dimensions and multicultural team performance. IKEA is leading global furniture company and being a European organisation it faces various challenges in its global operations. This paper has focused on its operation in China which has very different culture from European nations. IKEA must identify major cultural dimensions of China using Hofstede’s 5 dimension model. This paper has also shown major differences between the Swedish and Chinese culture. It has indicated that traditional Chinese culture has a very curial role and it influence the MNCs present in China. The role of expatriate mangers in managing the multicultural awareness is quite tough due to cultural diversity. However, in this respect, organisations and expatriate managers should focus on developing efficient multicultural teams and intercultural relationships. They must identify cultural diversity for developing effective communication system and trust within the host country. 8. Reference Chen, Y. R. 2006. National culture and groups. Emerald Group Publishing. Cherunilam, F. 2007. International business: text and cases. 4th Edition. PHI Learning Pvt. Ltd. Chua, R. Y. J. and Morris, M. W. 2009. Innovation Communication in Multicultural Networks: Deficits in Inter-cultural Capability and Affect-based Trust as Barriers to New Idea Sharing in Inter-Cultural Relationships. [Pdf]. Available at: http://www.hbs.edu/research/pdf/09-130.pdf. 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