Cross Cultural Issues in International Business - Term Paper Example

 «Cross Cultural Issues in International Business» Table of Contents Introduction – Page 3 Problems with Foreign Integration- Page 3 Comparison of the American and European Culture: Page 4 Differences and problems- Page 5 Geert Hofstede’s Dimensions of Culture- Page 7 Solutions- Page 8 Conclusion- Page 10 Appendix: Personal Experience- Page 11 INTRODUCTION The move into the international arena is a strategic decision which is backed by the need to change, an aim to attain a larger market share, increasing the competitive edge of the company, reducing costs for economies of scale, or be the market leader etc. The international market provides an evolutionary platform to a business to take it to a higher level. One of the widely used ways of expansion into the global market is Merger and Acquisition (M&A), as is the case in this study wherein a USA based company is considering taking over a foreign European company operating in the same sector, in order to expand its scale of operations. The most crucial aspect of a foreign takeover is cross cultural integration problems, because when two organizations merge together to create a single entity it becomes extremely difficult to overcome the barriers which exist due to cultural differences, and hence converting them into synergies becomes a challenge, which cannot be fulfilled unless and until both the merging organizations understand and respect the other culture, and therefore shun their ethnocentrisms and adapt to the concept of cultural relativism (Gugin). PROBLEMS WITH FOREIGN INTEGRATION In contemporary times, the business world has become an increasingly connected smaller place, and one of the central aims of any corporation is ‘going global’, and thus crossing national and even continental boundaries in order to become a transnational business. This growing phenomenon of globalization has led to mergers and acquisitions, and requires practicing of international public relations, and understanding other cultures and acquiring culture specific knowledge to provide a congenial atmosphere to work in for the employees. There has been rapid growth in the cross-cultural integration aspect, however despite this dramatic hike in the M&A activity on the global scale, it has not necessarily translated into financial success, and aims remain unmet (Napier, 1993). It can be extremely surprising how different people of other cultures react to a similar problem, therefore going into foreign countries and making decisions on the basis of one’s own culture can prove to be detrimental for the success of a business, and would also raise conflicts and attract negative criticism from the people/employees of the foreign nation. The behavior of people in certain situations might be strikingly different, for example when negotiations take place in a Western nation such as the United States of America, the negotiators shake hands in order to signify that the deal has been finalized and mutual understanding has been reached, while in the Middle Eastern counterparts, the negotiators tend to shake hands at the beginning of a deal in order to state that negotiations have begun, and the deal needs to be finalized, this contradictory behaviors in both places can lead to a transfer of wrong messages through acts if the dealers are unaware of the specific cultural norms of the respective country they are dealing with. COMPARISON OF THE AMERICAN AND EUROPEAN CULTURES This paper focuses on the acquisition of a European (German) manufacturing firm by an American manufacturing firm, therefore both companies are located in the secondary sector, the motive of integration is thus the desire to expand to a larger scale and cross continental boundaries. The acquisition/merger helps each company individually with regards to the internal deficiencies they have, thus collaboration would result in an amalgamation of knowledge and skills and therefore a greater pool of knowledge to operate from. An acquisition would bring about financial stability as the resources of both companies are combined, some of the offices and equipment would be redundant since both companies are in the same business and hence reorganization of equipment and workforce would be undertaken, costs would reduce as a result, such as a reduction in labor costs (especially white collar jobs). Differences and Problems However, despite all the advantages presented by the collaboration, there remain many issues which need to be overcome in order to operate successfully; these are barriers to success due to cultural differences of the two continents. The two companies would have their own corporate history, such as museum of pictures and milestones achieved, hence letting go of it would not be easy for any, and since the US firm is taking over the German firm, hence it is the latter which would have to compromise, this would be unacceptable to many of the German officials, who would oppose the action, leading to conflicts. The corporate cultures of the two companies would also be dramatically different, since they are based on different national cultures, such as taking the example of German company, Mercedes-Benz workers are accustomed to taking numerous beer brakes in a day, and such a practice can not be allowed under American standards, since their belief is that it can lead to alcohol related accidents and also result in legal liabilities, and thus it would be difficult cooperate with such a diametrically opposite culture, and one of the party would have to give up their practices. Similarly, the German corporate culture is very formal, they respect posts and the hierarchy within the organization, their decision making processes are well structured and the employees follow a complete dress code i.e. suits and ties, along with addressing other members with proper names and displaying a respect of titles, while on the contrary, the Americans focus on breaking the formal barriers which exist between the lines of hierarchy in order to promote innovation, hence they favor the creation of cross functional teams which favor open collars, and hence no strict dress code, they have free forms of discussion unlike the German well structured ones, and they have the liberty to address their company members with casual names (German-Way, 1999). This would lead to a problem when defining the revised corporate culture, the Germans might not approve the informal culture of the Americans while the Americans might not be willing to adapt to the very formal culture of the Germans. Similarly, with regards to sexual harassment issues, the Americans are very conservative and tend to have strict laws pertaining to such issues, while Germans barely make such matters a flashpoint of discord in the company, therefore when making the laws for the amalgamated company it would be a problem to define regulations which meet the expectations of both parties, since laws would be implemented throughout the organization. Another major issue can arise at the social front, the lifestyles of the Germans and the Americans are very different, while Americans tend to embrace higher salaries, Germans focus more on larger expense budgets, this could lead to a conflict while relocating employees, and devising a pay-scale. The Germans also focus on having meeting of long durations and with lots of paperwork and big reports, while the Americans have short meetings with few paper while focusing on the creativity rather than the paperwork, this can lead to problems while conducting meetings within the new organization. Furthermore, the Germans and Americans differ with regards to creativity, while the Americans try to impress media and grab attention with attractive press kits, the Germans have more formal and plain white press kits usually which declare their taste for formality and discipline, hence when new products, campaigns, advertisements, press kits and other creativity inspired decision needs to be taken, it would lead to a clash between both cultures. With passing time, communication within an organization plays an important role to keep the company integrated, the Americans promote a very creative spirit within their organization, and hence they do not have authoritative cultures which create uneasiness and formality between boss and employees, whereas the Germans have an entirely opposite formal style of leadership, which is authoritative and strict, it could also lead to employees leaving the organization if they face a change in the leadership style, hence the leadership style which should be implemented throughout the organization is a strategic issue which could spell either success or disaster for the integration between the two companies. Another major issue is the labor discontent and de-motivation, when the American firm would take over its German counterpart, the morale of the employees who are emotionally attached to the company would deteriorate, they would not be excited and inspired to work, they would have the feeling of being owned by a foreign company, and thus their national spirit might intervene in their work efforts, and thus they might want to quit their jobs, as according to Abraham Maslow self esteem is one of the major needs of an employee in his hierarchy of needs, thus it can not be overlooked (Golitsinski, 2000, 9–26). Geert Hofstede’s Dimensions of Culture According to Hofstede, culture of any nation can be identified with respect to five dimensions present in it, which are explained below with regards to the American and European cultural dimensions (Cebuc and Iosif, 2008, 5-11): The Power Distance Index (PDI) - which measures that how easily people at lower levels in the organizations in a nation accept that the people at higher level have a greater authority, and that power distribution is unequal. The Americans tend to be at a lower level of PDI than the European firms, since they promote integrity and a more democratic and friendly atmosphere, while the Europeans prefer strictly formal and authoritative culture. Individualism (IDV)- refers to the mindset of the people in nation, whether they take the ‘I’ stance and consider themselves to be responsible for what they do and take care of themselves, against the ‘We’ wherein people have a collectivist stance that they take care of their group and tend to be more deeply involved in social connections. In USA, the IDV index is relatively higher than Europe, and thus it affects the working environment of an integrated organization. Masculinity (MAS) - this index measures whether the organization culture is more assertive and competitive i.e. it has masculine qualities, or is it more caring and modest i.e. feminine qualities. The USA and European companies lie on almost the same level in this index, since they tend to have both qualities, and give preference to one over the other when needed. Uncertainty Avoidance Index (UAI)- it relates to the adaptability of people of an organization to uncertain situations, and how they react to unforeseen circumstances, the cultures which avoid uncertainty tend to have very strict laws and rules in order to minimize any ambiguity, they are not open and tolerant to other cultures. The European nations have a high UAI while Americans tend to be ore Uncertainty Accepting people. Long Term Orientation (LTO) - this is a philosophical phenomenon which is very subjective to the individuals, thus it can not be measured effectively with regards to overall nations. SOLUTIONS As is the problem with software, disasters could occur if people of an organization are operating at different cultural codes, hence interaction and integration is valid and must. Therefore the US Company should initially hire a cross-culture consultant in order to identify areas which need to be revised and devise laws and policies which are conducive to the people of both nations. The management style must not be greatly skewed towards either nation, but must converge together to a point of mutual consent, which is very difficult to attain, but deliberative effort could make it possible. The leadership style should be authoritative when strategic decisions are to be implemented since it is visionary, but should be democratic with regards to innovation and creativity and when the company requires team efforts (Goleman, 2000); this would also balance the PDI. With regards to an organizational structure, the company can adapt a functional structure, since at this point the company’s aim is expansion, and thus innovation would come about in a functional structure, in order to please the Germans, the company can maintain its formal code of conduct when dealing in strategic matters, while operational code could be more casual to please both parties (Organizational Structure, 2008). The rules and regulations could also be tightened slightly to avoid any legal obligations, this aspect is ignored in Germany, but initiating it would also respond to the UAI which is high in European nations. Apart from these, the cross-cultural team should help the Human Resource Department to undertake training, this would equip employees with the required knowledge and thus prevent mistakes and misunderstandings, it will help workers adapt to the revised corporate culture, this would motivate workers and they would put in more effort. Since communication is a critical connecting factor, activities should be initiated which uplift teamwork spirit and try to minimize conflicts by imparting cultural knowledge to the employees, this could be done by highlighting the positives of a culture and creating awareness of the differences in order to maintain consciousness. Cross-cultural teams should set up counseling to help people of both nations to integrate with each other and maintain a cohesive environment. In the case of expatriate relocation, the staff needs to understand the history, culture, norms, traditions, social etiquettes etc., before reaching the foreign nation to avoid culture shock. The cross-cultural experts must be present at the meetings to help avoid misunderstandings communication breakdowns. An International Public Relations department should be setup to make the advertisements and all forms of displays sensitive to the cultural atmosphere, and prevent any damage to the brand image of the company, and also avoiding negative criticism from the employees (Payne, 2010). Language barriers must be broken, therefore training should be provided to the employees to learn the other language, and hence make communication possible, 44% Germans know English, thus a positive sign for the company, however German lessons should also be imparted to give the European employees a sense of belonging in the company, and hence boost their morale (Cebuc and Iosif, 2008, 29). CONCLUSION Cross-cultural integration is a major phenomenon behind failing international mergers, as companies differ on cultural grounds, hence making it increasingly difficult for managers to reach a decision which is acceptable to both parties. US and European nations have their own similarities and differences, hence by merging the strengths and overcoming the weaknesses of each party, the merged company can become successful. However, the expertise of a cross-consultant must be utilized in order to bridge the gap between the two nations, since a cross-consultant is equipped with the experience, knowledge and objectivity to minimize conflicts arising from differences and help strike a balance. APPENDIX PERSONAL EXPERIENCE Multi-cultural team, as the name itself suggests, comprises of members from different cultural backgrounds, and therefore the norms and practices vary within the team. My experience of working in a multi-cultural team in a course project in my university made me realize that the most crucial factor which in determining your relationship with your peers is effective communication, since it is the interaction passing through communication means and style which leads to either success or failure in integrating a team. A team leader can take certain steps to ensure cohesiveness, and to develop bonds within the team which shall make the working environment more comfortable and suitable to individuals who differ on various grounds. According to my experience, there are two main points which must not be overlooked when working in a multicultural group: One must acknowledge that there are major differences in the communication style, whether due to geographical, ethnical, or racial variations, understanding this is the most important step which a leader must take in order to avoid any misunderstandings The prerequisite of working in a multicultural team is tolerance and patience, and giving up one’s own ethnocentrism to become more adaptive to cultural relativism and gel in with people of different culture. Successful integration is not possible if one looks down or degrades other cultures in one’s mind, since actions represent the mindset of a person, the dissent towards other cultures would be visible in speech and behavior. A team can not function without patience, hence having this ability would save the entire team from suffering a lot of tension and hassle Apart from these most important points which must be remembered, there also exist other minor efforts which can also translate into success for a multicultural team. It is important to remember that people in the group might not be speaking in their native language, hence slight errors in pronunciation should be ignored, and the accent in which others speak must not be made fun of. The communication process should be open, and should allow for other ways and styles of communication, and one must not expect others to converse or communicate in the same way as them, having a preconceived set of notions would render communication meaningless. Communication reflects a person, thus as it is self-reflective, one should be able to determine his flaws in the way he communicates, and try to avoid making contributions to communication difficulties prevalent in the group, when each member undertakes this personal responsibility, the group would prosper as a whole. Everyone in the group must be given a chance to speak; therefore taking turns to speak might break barriers which are present as some members might be shy because they belong to a different cultural background. It must be understood that in a multicultural team, harsh statements must not be used, thus instead of using authoritative language which would make the other person feel inferior, one should use a softer tone and respect the differences of the others. According to my experience, an attempt by any member to impose his superiority over others would result in dissent and conflict, and therefore would affect the outcome of the group, hence no one must feel that they are superior to the others, and should be on an equal footing, this would not relegate any member to a lower position and hence would help the team to use its dynamics in a positive manner, since everyone has some skill and talent which can contribute to the overall result, thus healthy interaction should be promoted, rather than letting cultural diversity become a barrier. References Cebuc. G and Iosif. L-C (2008)CULTURAL DIVERSITY IN THE EUROPEAN BUSINESS ENVIRONMENT EU-US COMPARISON. Romanian Economic and Business Review, 3, 1, 18-33 German-Way (1997) Cultural Differences: The USA and Germany. Accessed November 23rd 2010 from http://www.german-way.com/germany-usa-cultural-comparisons.html Goleman. D (2000) ‘Leadership that gets results’. Harvard Business Review, March-April 2000. Accessed November 23rd 2010 from http://www.coachiates.com/leadersip.htm Golitsinski. S (2000) ‘A Study of the DailmlerChrysler Merger Portrayal in U.S. and European Media’. 48C:291 Project in Communication Studies. Accessed November 23rd 2010 from http://www.lordofthewebs.com/communication/dailmlerChrysler.pdf Napier. N K (1993) Implementing international mergers and acquisitions. Accessed on November 23rd 2010 from http://www.allbusiness.com/buying-exiting-businesses/mergers-acquisitions/417441-1.html Organizational Structure (2008) Organizational Structure Types and Design Strategy. Accessed November 23rd 2010 from http://organizationalstructure.net/ Payne. N (2010) Cross Cultural solutions for international business. Accessed November 23rd from http://www.kwintessential.co.uk/cultural-services/articles/cross-cultural-solutions-international-business.html Read More