Global Business Cultural Analysis: Italy - Research Paper Example

 Global business cultural analysis- Italy INTRODUCTION Culture is a prismatic phenomenon that has been pondered over in detail throughout history, and a variety of study is available on culture and its consequences. The renowned Webster’s dictionary defines culture as: “The totality of socially transmitted behavior patterns, arts, beliefs, institutions, and all other products of human work and thought typical of a population or community at a given time.” (NPS, 2005) It might appear to the naked eye that the culture of two nations on earth are similar, while in nature and characteristics they are actually diametrically opposite, such is the case when two cultures of the “West” are taken into account, the Italians and the English, both the cultures dwell under the western umbrella however when studies to the roots, below the surface, they are extremely different. Hence the challenge for a global businessman is to identify these differences and thereby taking the differences and similarities into account in designing and developing the structure of the venture, in order to optimize the returns gained, by reducing the consequences of cultural differences to the greatest extent possible. Steve Carter (Carter, 1997, 65) claims that culture is, alongside the economic factors, a subsequently significant environmental variable which requires massive attention at the global business level. This paper aims to analyze how the culture of the Italian region affects the business being conducted there, with regards to the global market, and it moves on to explain how and why cultural integration becomes an important element for US businesses to operate in the Italian region. CULTURAL DIMENSIONS AND ELEMENTS Cultural dimensions of any nation need to be analyzed before any investment is made in order to successfully operate in the region. Geert Hofstede is the seminal author with regards to defining the cultural dimensions present in a country. He claims that despite the human ‘feeling’ that deep inside all humans tend to be the same, we have to accept the fact that they are not, hence if one supposes that they can simply enter the markets of another nation and make decisions in accordance with their home-country’s cultural specifications, then the probability of reaching a bad decision is highly likely (Hofstede, 2009). He indentified five major elements in the society which define the dimensions of culture of any society (Hofstede. G; Hofstede. G J and Minkov, 2010): Power Distance Index (PDI) Individualism (IDV) Masculinity (MAS) Uncertainty Avoidance Index (UAI) Long-Term Orientation (LTO) Power Distance Index (PDI) This index measures the extent to which the less powerful members of the society, be it business or family, are willing to accept and also expect the power division in the institution to be unequal. PDI is a representation of the inequality, on a quantitative scale, however it is bottom-up and is not applicable vice versa. It thereby tends to state that the inequality in a society is not only endorsed by the leaders, but the followers also play a contributive part. Power and Inequality are substantially important facts pertaining to a society, and anybody who tends to operate at a global level must understand that generally all societies are unequal, however the level of inequality varies from region to region, thereby affecting the organizational structure and planning respectively. Individualism (IDV) This factor can also be measures with regards to its polar opposite ‘collectivism’ in a society, which refers to the extent or degree to which the individuals in a society are integrated or united in the form of groups, or in other words ‘collective entities’. On one extreme, the highly individualistic society entails that individuals are more concerned with their own selves, and to some extent the immediate family. In such societies the bonds and ties between people tend to be loose, and therefore they are only expected to be accountable and responsible for themselves. Whereas, on the collectivist end, the people tend to be integrated into groups and cohesive ties from the time of their birth, it includes extended families, kinship ties, tribes etc. These associations protect each other for reciprocation of the same loyalty. This also extends to all nations of the world. Masculinity (MAS) Masculinity, and its counterpart ‘femininity’ pertain to the allocation of roles to the genders, this again is another fundamental measure for cultural study, as many business decisions and solutions are dependant on it. It was observed in an IBM study that the women’s values around the globe have lesser variance as compared to men. While on the contrary, men’s values are observed to vary between the masculinity features of assertiveness and competitiveness, and the femininity features of modesty and care. Thereby, declaring the assertive side to be ‘masculine’ and the modest side to be ‘feminine’. Uncertainty Avoidance Index (UAI) This is one of the most relevant factors for a global business, since it deals with the level of tolerance in a society towards uncertainty and ambiguity; it therefore indicates the extent to which the members of a particular community are attuned to feeling comfortable or otherwise in a situation of uncertainty and unforeseeable circumstances. The unstructured scenarios are not usual; they are surprising and novel, and hence unknown to the people facing them. The cultures which avoid uncertainty, and are aversive to unstructured situations, tend to have strict rules and regulations, they have in place laws and other safety and security measures which control and minimize such situations to the maximum extent possible. People of such nations are more emotional and sensitive, and they are more motivated by their inner nervous energies. On the contrary, the uncertainty accepting cultures are more tolerant with regards to differing opinions; hence they have fewer rules and laws which try to control the uncertain situations. People dwelling in such regions are not expected to express their emotions and are more phlegmatic and contemplative. Long-Term Orientation (LTO) This is the fifth dimension which was discovered later by a study conducted on a sample of Chinese students, and it aimed to measure the virtue regardless of the truth. The LTO refers to the values and qualities of the people in a society, a highly LTO society incorporates values such as thrift and perseverance, while on the opposite side, a low LTO society, or a Short-term orientated society is associated with values such as respect for tradition, fulfillment of social duties and obligations, and protecting one’s reputation in the society. The philosophy of this index is rooted in Confucianism; however societies without a Confucian heritage also are subject to its affects. MAJOR ELEMENTS AND DIMENSIONS OF CULTURE IN ITALY Italians have always supported a conventional form of hierarchical structure, they believe that the way of communication must be equal however, but it must not ignore the respect and veneration for the posts held by people in the hierarchy. Their hierarchical structure is developed in accordance with the traditional SpA model, which is categorized into three major forms- the Board of Directors, the Board of Statutory auditors, and the registered auditor or the auditing firm etc. An Italian society lays great emphasis on posts and statuses, and thus it must be kept in mind before conducting business in Italy that one must introduce themselves with certain titles in order to attain reverence in Italian business society. Their PDI score as nearly 45%, hence showing the great extent of acceptance of inequality by the lower posts holding officials, but the Italians ensure communication equality (Moran. T; Harris. P R and Moran. S V, 2007, 562-572; Hofstede, 2009; UHY International Limited, 2010; World Business Culture, 2011). . Italians are naturally very individualistic in nature, and this is also substantiated by their high IDV score, about 80%. However, individualism here does not imply independence, it entails that they prefer to be recognized as individual entities rather than part of a group or association. Italians are very family-centered and relationship oriented, hence they tend to be extremely social and hate being alone, thereby having a lot of associations with groups and gatherings; however this does not change their preference of having individual identities. This urge for distinctness is visible through their attitude and behavior while communicating, for every Italian seeks for a turn to put forth his/her views on a subject, they would ignore any repetition of content as long as they get to speak, in order to hold up their individuality. Therefore, they are often perceived to be difficult to manage and work as a team. With regards to the Masculinity index, the Italians fall in the highly MAS zone, this could be attributed to their historical inclination towards being a male-dominated society, though the women in contemporary Italy are becoming increasingly involved in business and have attained prominence, they must not let go of their feminine side, they must not imitate men and yet also display strength and determination. Italians are highly competitive, pertaining to their way of dressing up and their lifestyle, they focus excessively on appearance and presentation, for Italians the appearance and presentation can make or break their business, acts such as arriving drunk at work, or looking slovenly, being unprepared for presentations and giving an impression that you haven’t put in effort into your work would make Italians perceive you as a careless person, and thus they would avoid doing business with you. However, this competitiveness is foregone when Italians have to choose between business and relationships; they focus on the development of Long term orientations rather than short term personal gains, even if they are losing out in the former orientation. Furthermore, Italy is regarded as a risk averse nation, they do not accept risky and uncertain situations with open arms, hence they try to ignore uncertain situations for as long as they have to, and for this reason they rank high in the UAI. In order to curb any development towards unstructured circumstances, the Italians have created and enacted thousands of laws to control the situations, they have a high number of corporate laws and startup steps which make it cumbersome to set up a new business in Italy especially of a foreign origin. Their business setups follow a very conventional procedure, and they also comprise of legal and statutory parts in an organization for the purpose of handling unstructured situations. Italians are of a deductive nature when it comes to private life, however when business dealings come into questions, they tend to be extremely practical, with lots of strategic planning, thus substantiating their high UAI score. Furthermore, Italians are aware of the fact that the system might not work at any given time, therefore they have developed an art of handling situations, which they try to avoid at maximum, but when facing an uncertain situation, they handle it with deliberate care and creatively create a solution, this is a quality of the Italians because it helps them to overcome their high UAI ranking. As mentioned earlier, Italians are very fond of developing relationships, which they mix in with their commerce life; hence they developed traditional and well-knitted networks which revolve around casual relationships. Italians tend to bring friends and family into their business network where they can, in order to increase trust and develop close ties within the business sphere. They are very friendly and greet each other in an informal way; they would extend handshakes into hugs and often kiss on the cheek. Italians do not focus on privacy and thus have very limited private space, thereby engaging in lengthy conversations in which they can discuss trivial to complicated issues regardless of the level of secrecy required. Italians are very expressive with their opinions and emotions, and hence would speak out almost anything. However, Italians tend to remain silent where silence is required, and would rather say what the next person wants to hear in order to please them; this is a cultural tendency of the Italians (Moran. T; Harris. P R and Moran. S V, 2007, 562-572; Hofstede, 2009; UHY International Limited, 2010; World Business Culture, 2011). INCORPORATION OF ELEMENTS AND DIMENSIONS OF ITALIAN CULTURE IN LOCAL BUSINESS Italy is a nation geared towards family orientation, and the historical roots are deeply embedded in the family structure of governance of an organization, that is they value relationships and ties, which is also evident in their world of commerce. However, with increasing internationalization and the move towards modernization, as the Italian doors open towards the global market, the business community has become aware of the fact that it has to adapt to changes. They have integrated the traditional culture of Italy in their business in such a way that it does not become an obstacle in the path towards development; however, improvement is still required. Italians are competitive in their lives, hence when this competition, along with the Italian passion for art and creativity is incorporated into the business; the local business becomes innovative, competitive and efficient. Growth and competitiveness can also be achieved through mergers and acquisitions, which can be established through family ties and linkages, thereby making use of the nature of Italian culture to expand the business and strengthening the family orientation further in the business life (Giovanni, 2008, 35). Italians tend to conduct business with people they already know, because of uncertainty and lack of trust in others, and because they have a high reliance on their family and friendship ties. Businesses are usually family oriented, and there is loyalty towards family, and all reciprocate this favor. Italians have a taste for appearance and lifestyle, therefore they dress well, arrive on time, prepare for presentations before hand, and inform for meetings in advance, and they judge others on basis of appearance and presentation. Italians concentrate on hierarchy, therefore they meet people at top posts of other organizations, and during meetings they exchange business cards which mentions their titles and family. Meetings are lengthy, and the communication is usually loud and expressive, the presentations are visually appealing since Italians are attracted by art and creativity. Speed and deadlines are not an important factor in Italy, since decisions are taken on a consultative business and outside the formal decorum, others in the social network are consulted due to trust and value of the Italian culture, and thus the proposals are analyzed in great detail. Italians exchange gifts in business; however company logos must not be used since that increases formality, and hence more casual gifts such as a good bottle of wine, chocolates, and flowers are exchanged (Expatfocus, 2011). COMPARISON OF US AND ITALIAN CULTURE AND BUSINESS The Hofstede Analysis Comparison The United States of America is one of the most globalized nations of the world; it is easy to compare the culture and business of the US with Italy due to the great quantity of research data and analysis available on these regions. Proceeding with the initial comparison of the two nations, the Hofstede analysis- Geert Hofstede’s analysis identifies that the American nation has a relatively lower PDI as compared to the world average of 55%; this shows that the people there are not willing to accept the inequality and hierarchy in institutions, whereas this index scored considerably higher for Italy. Americans usually refer to each other by their first names, to depict equality, whereas Italians prefer using titles, to show position in hierarchy. This indicates a greater level of equality, thereby a stable culture. The IDV scale is in line with the Italian culture dimensions, for US the IDV scores 43, which makes it one of the seven most individualistic societies of the world, Italy also ranks in these seven nations. Americans tend to be accountable and responsible for themselves only or very close family ties. In an American society, one’s position is determined by one’s achievements and not family ties, similarly Italians prefer to have a unique position, and they work in ties as long as it does not affect their personal identity. On the MAS scale the US scores high, showing that the society is geared towards a male personality characteristic holding society, where the female are also assertive and competitive, the Italian women are becoming increasingly involved in business and social life, however they maintain their feminine persona and do not imitate men as it is not appreciated in the respective region. Furthermore, the US ranks lower than the world average of 65% for the UAI, it stands at 46%, which shows that the country and business there is not risk averse, there are not many rules and regulations and therefore the culture shows that the people are tolerant and accepting towards different views and opinions, they are not afraid of uncertain situations and hence tend to manage if unstructured circumstances arise. However, it must not be ignored that in pragmatic terms, the Italians are more attuned to system failures, therefore despite their aversion for risk, they tend to handle novel situations remarkably, whereas Americans are not prone to system failures, however they do not try to excessively control the situations through laws and regulations. On the LTO index, the US ranks very low at 29, as compared to the world average of 45, this is because the Americans believe in speedy work and meeting obligations and deadlines at their earliest possible time, whereas Italians engage in lengthy consultative practices and analysis of the projects and proposals before reaching a conclusion, hence both nations again differ on this scale (Hofstede, 2009; UHY International Limited, 2010). General Comparison in Business Americans are very open in their remarks, and they do not hesitate in saying ‘no’ or criticizing someone in public, whereas Italians on the contrary cannot bear insult and tend to answer in the affirmative as discusses earlier. Both the Italians and the Americans consider tardiness as a sign of disrespect for the person waiting, and hence they prefer punctuality over late arrivals. One important aspect of the Italian culture is the development of significant relationships, both in private life and at workplace, and these relationships are used as networking ties to gain the maximum advantage for the business, however Americans are not very fond of establishing any personal ties at business and work, they keep their work professional, they have strict and crystal clear distinction between their work life and their social life, meetings are usually formal and short as compared to long Italian meetings which the Americans would consider ‘arguing’, therefore there is not enough time for relationship development. At meeting in a business, Americans tend to shake hands firmly to show sincerity, but they are very particular about their privacy and space therefore they do not prefer any other form of physical contact in a formal setup, which is quite contrary to the Italians who are known to have no ‘secrets’ or ‘privacy’. Furthermore, the Italians consider it a good ritual to exchange gifts, while the Americans usually deny any gift exchanges, and also set rules for the employees of their companies usually to not accept any gifts in formal setups (Gorrill, 2007; Moran. T; Harris. P R and Moran. S V, 2007, 562-572). PROSPECTIVE SECTORS FOR US BUSINESS IN ITALY In the year 2009, Italy has proven itself to be the 18th largest market for US exports; furthermore the aggregate investment made by the United States of America in Italy was accumulated to be $31 billion. US tends to concentrate in areas where it has an advantage and where it can operate at a profit for the country, therefore it invests in the sectors of manufacturing, computer services and software, the energy sector and to some extent the Americans also develops industrial relationships in the aerospace industry and also the automotive sector (BuyUSA.gov, 2011, 2). IMPLICATIONS FOR US BUSINESSES IN ITALY Italy is a market which must not be taken lightly, especially when the culture is so distinct and in contrast with the culture of the United States, the expatriates would be expected to undergo some cultural shock which comes with the settlement into a foreign nation with a different culture that the home culture of the employee. Furthermore, the Italian market provides a strong and resisting competition to the US investors and businesses, since they also have companies of other EU nations operating in the market, the EU nations are offered better packages to undertake business because they are a part of the trade agreement, hence US has to face competition. Italy is not as advanced as the United States, hence the lack of development reflects in the system which fails at certain times, therefore making the regulatory environment in Italy more complicated and lacking clarity and precision as compared to US. As discussed earlier, Italians tend to be tied in family ties, and their businesses are also relationship focuses, therefore they operate in the form of small and medium scale enterprises, which form 90% of the Italian market, hence provision of personal services from fellow Italians are preferred by the people of the nation, thereby giving a hard time to the foreign Americans operating in the region. There are also positive implications for the US, especially in the form of opportunities. Due to EU regulations, new markets open up in Italy, which have no domestic suppliers, hence developing a market gap which could be catered for by the American businesses; hence this is an opportunity for expansion in Italy under EU regulations. The US can succeed in the Italian market by cultivation and maintenance of personal ties, which forms a very fundamental part of the Italian culture, hence searching for the right agent, distributor and partner is significant to success probability, it is not feasible to rely on an agent or distributor from neighboring regions because despite the interference of the EU in the local market, Italy usually maintains its own individual market positioning. The perfect candidate should have existing ties in the Italian market which could be reaped; they must have a substantial know-how of the Italian practices, laws, rules and regulations since it has many state laws in place. The reliance on traditional transaction methods must be adapted, since Italians do not trust the online system due to excessive credit frauds and untrustworthy postal systems (BuyUSA.gov, 2011, 2-3). In the year 2010, the US firms faced major problems while establishing business in the Italian region, this was because of the lengthy and arbitrary way of the common authorities of interpreting and imposing tax laws applicable to the foreign investors, which focused in particular on rules on transfer pricing, of the MNCs (Multi National Corporations)’s dealings with the Italian subsidiaries. In 2010, some United States investors also faced lawsuits; these were brought on them by the local Italian government and at times the independent prosecutors as well, which accused the American businesses of fraudulent transactions between the state bodies and the banks. Furthermore, the online system became a hassle, as the internet content providers continuously fought against the local Italian authorities who held the individual firms responsible for any or all data uploaded on the sites by individuals, on social media websites or community sites, thereby making internet usage another problem. The most cumbersome feature of the entire problematic structure of investment in the Italian region by the US was the lengthy GOI process which had to be undertaken in order to attain visas for the key employees of the business, and on top of all this, the country’s digital infrastructure remained far behind and lagged the efficiency required by the advanced businesses of the US. Hence, despite the openness of the Italian region towards the Foreign Direct Investment (FDI) coming into the nation, these minute details became problematic for businesses to operate, alongside the major differences in the cultural environment which had to be integrated into the business culture in order to succeed and avoid any possible cultural setbacks (BuyUSA.gov, 2011, 96-98). CONCLUSION Italy is a nation with a distinct culture, it is traditionalistic and upholds its legacy and culture despite modernizing its economy, hence in order to compete in the advanced and fast paced world of the 21st century, it must globalize itself in way that it becomes more adaptive towards foreign investments rather than driving them away due to cumbersome procedures. However, this aim of betterment towards incorporating foreign investment must not compromise on the Italian legacy which is rich in traditional values and the historical Italian culture. This paper analyzed significant aspects of cultural dimensions, with the focus being the nation of Italy. The dimensions of culture and different general elements of culture such as communication, ethics, values, attitudes, customs and manners etc., were taken into account. Furthermore, the cultural dimensions were explained in line with the Hofstede analysis, which analyzed the nation of Italy and US on five scales: PDI, IDV, MAS, UAI and LTO. The comparison substantiated that the Italian and American culture are in stark contrast, hence in order for US investors to succeed in the local Italian market, the integration of culture becomes necessary. The cultural integration into business by the locals was also explained, which provided a basis of how the US investors should also move in line with the local Italians in order to succeed in the Italian market. Therefore, it is not impossible for a business to operate in another nation on a global level if it takes into account the cultural perspective, and rightfully applies the concept of cultural integration to the organization. References Carter. S (1997) Global Agricultural Marketing Management (Marketing and Agribusinesses Texts 3). Rome, Italy. Food and Agricultural Organization of the United Nations. Steve Carter is a renowned FAO project director, who taught marketing at various universities around the globe, and worked as a consultant in developing countries around the world. This text’s central theme is agribusiness, however each chapter has a distinct objective, and chapter 3 analyzes ‘the cultural environment’ with regards to different anthropological approaches, including Maslow and Geert Hofstede, thereby critically analyzing numerous elements and dimensions of culture with regards to business and marketing. It describes culture as being an ‘environmental uncontrollable’ and illuminates various approaches to culture and its constituent elements. NPS (2005) What is Culture?. Retrieved April 13, 2011 from < http://www.nps.gov/archive/cagr/kids%20corner/fun%20facts/Culture/What%20is%20Culture.htm> Hofstede. G (2009) Geert Hofstede- Cultural Dimensions. Retrieved April 13, 2011 from < http://www.geert-hofstede.com/> Hofstede. G; Hofstede. G J and Minkov. M (2010) Cultures and Organization: Software for the mind- 3rd Edition. United States of America. Geert Hofstede BV. Geert Hofstede is a Dutch academic, known for exploring alternative sources of cultural study and pioneering research on national and organizational cultures, thereby critically analyzing empirical data, and has worked long periods in industry, namely IBM. The third edition explains jargon language with a glossary, making it easier to understand. His main focus is on four dimensions of work related issues associated with national culture, and the scores in Italy have been analyzed for this paper (taken from his official website). The work reflects slight European bias due to author’s own cultural affinity; however the extensive analysis has been accepted by various authors, including S. Carter above, due to its reliable cross-cultural study, however specific country examples he made use of may not be applicable today but are still highly validated. Moran. T; Harris. P R and Moran. S V (2007) Managing cultural differences: global leadership strategies for the 21st century- 7th Edition. United States of America. Butterworth Heinemann UHY International Limited (2010) Doing Business in Italy. Retrieved April 8th 2010 from . UHY Ltd is the leading business advisory, consulting and accountancy networks, it is a global entity hence it provides in depth analysis pertaining to cross-border business effectiveness. This report was published in 2010 with specific focus on Italy, with regards to conducting business there, and the business environment. Since it’s a global firm, there is limited or no bias, due to the base being very extensive. World Business Culture (2011) Doing Business in Italy. Retrieved April 8th 2010 from . This is a UK based e-publishing website which provides consultancy services and analyzes different aspects of business related phenomenon in countries worldwide. Its main focus is the provision of country specific and comprehensive description of business culture. The study related to the Italian business cultural dimensions have been incorporated in this study. Giovanni. M (2008) ‘Culture and Management in Italy: Tradition, Modernization, New Challenges’, In Eduardo Davel, Jean-Pierre Dupuis, et Jean-François Chanlat (Eds.) ‘Gestion en contexte interculturel : approches, problé-matiques, pratiques et plongées’, Québec, Presse de l’Université Laval et Télé-université (UQAM) Expatfocus (2011) Italy- Business Culture. Retrieved April 13, 2011 from < http://www.expatfocus.com/expatriate-italy-business-culture> UHY International Limited (2010) Doing business in the United States. Retrieved April 8th 2010 from . This is another report published by UHY focusing on the United States in 2010, providing in depth analysis about doing business in the respective country. It is used in this paper for a detailed comparison pertaining to impact of culture in the business sector of both countries under examination. Gorrill. J R (2007) ‘Doing Business in the United States of America | US Social and Business Culture’. CIA World Fact Book 2007. Retrieved April 13, 2011 from < http://www.communicaid.com/access/pdf/library/culture/doing-business-in/Doing%20Business%20in%20the%20USA.pdf> BuyUSA.gov (2011) Doing Business in Italy: 2011 Country Commercial Guide for U.S. Companies. U.S. and Foreign Commercial Service and U.S. Department of Justice. Retrieved April 8th 2011 from . This is an official government website of the United States of America providing customized solutions to compete in the business sector abroad, the main focus of this page being the Italian region. It is a state export promotion website hence it can be assumed to be biased, and can have an overestimation of positive outcomes. Read More