Globalisation and the International Agenda - Literature review Example

Globalization and Cross-Cultural Management Table of Contents Introduction 3 Globalization 3 Impact of Globalization 4 Cross Cultural Management and its Challenges 5 Hofstede’s Model 5 Figure: Cultural differences in USA and China based on Hofstede’s Model. 8 Trompenaars’ Model 8 Cross- Cultural Communication 10 Conclusion 10 Reference 11 Bibliography 13 Introduction Globalization is defined as the establishment of interconnection between several nations and cultures, in order to bring people from different cultures together (Gerhart, 2008). The globalization has allowed companies to shift their business overseas and build strong relationship with the host countries. As a result of the globalization, the companies have been benefited largely on the grounds of business expansion and profitability. The companies can now outsource their operations and extend their supply chain overseas in order to leverage low cost of production and better quality raw materials and services (WHO, 2014). The topic of globalization has been chosen for this study to focus on the impact of globalization on cross cultural management. This paper will help the firms to identify the cross-cultural issues and will help to manage them in a proactive way. Overseas operations come at a cost of cross-cultural management. Different nations have different cultures, which vary greatly from one another. Thus before operating in a foreign land, a company must ensure that its business operations are compatible in the new cultural and social environment (Gerhart, 2008). This paper discusses on the topic of globalization and cross cultural challenges faced by the by the companies and how the managers overcome this challenge to operate successfully in a foreign land. The study also includes the several theoretical models to identify the cultural differences and its effects in business operations. Globalization Although globalization has been defined in several perspectives, but the key element is same in all the definition, which is “interdependence”. The concept of interdependence has changed the notion of singular independent national entity to an interconnected network of nations who can depend on each other in commencing business operations (Abeles, 2001). As a result, it has suppressed the national boundaries which once posed as great barriers to overseas business activities. Lall (2004) analysed this statement in the light of changing political scenarios. In his study he mentioned that globalization has encouraged the relaxation in FDI rules in several countries. As a result the companies can now easily shift their business operation in foreign countries. Smeral, (2008) further added that the process of Globalization has been boosted by the global technological advancement. Improved internet communication and efficient logistic systems has enabled a smooth and hassle free international communication. As a result the companies can easily move to overseas business activities, with lesser operating costs. Thus, it can be stated that Globalization has led to easier overseas expansion of companies, which results is greater revenue generation and penetration in to a wider customer base. Globalization has also improved the economy in a global perspective. According to the data provided by United Nations, the per capita GDP of developing and transitional economies countries has increased at a rate of 5.1 percent and 7.5 percent per year respectively, since 2002. Globalization has increased the overall rate of export and import activities. These foreign trade activities are closely related to the global GDP growth (United Nations, 2008). The impact of Globalization can be summed up in the following section. Impact of Globalization Every nation seeks to have an efficient and stable market economy. Hill (2009) opined that the Global Market is defined as the merger of independent national markets into a singular entity. He further explained that globalization is development and expansion of this Global Market place. The United Nations Organizations (UNO), World Trade Organization (WTO), and the International Monetary Fund (IMF) are regulating the international trade relationships in a way that promotes further expansion of the global market. Lee and Vivarelli (2006) explained that a company can leverage the concept of comparative advantage to improve their overseas trade and FDI, owing to the abundance of low cost skilled labour in the developing countries. The inward FDI activities in the companies of the developing countries have put positive effect in the employment in that region. Several new supply chains and distribution channels have been created which has directly improved the economy of the nation (Lall, 2004). The improved economy in turn helps the companies to commence its business in a more efficient manner. The impact of Globalization is not always on the brighter side. WHO (2014), described that too much financial liberalization on FDI activities will cause job displacement from developed countries. As a result it will deteriorate the condition of the labour market, which in turn will reduce the momentum of work force of the companies. Too much interdependence in the global market network will eventually reduce the freedom of operation of the companies of the developing countries. As a result, the business operations and the labour market will be gradually engulfed by the powerful players in the network. Cross Cultural Management and its Challenges Every nation possesses its own cultural and social customs. The values and believes vary significantly across cultures. While commencing a business operation in a foreign land a company faces several challenges. The most difficult challenge is cross cultural communication. must get familiar with the culture of the host country. Gullestrup (2002) mentioned that from the point of view of an organization, there exist several communication barriers which need to be removed before a proper communication can be made. These barriers are mostly based on differences in cultural trends, language, work environment, organizational structure and organizational behaviour. These factors are also responsible for framing the business processes and trade policies of the host country. The cultural differences have been thoroughly studied by the several theoretical models. In this section the Hofstede’s model and Trompenaar’s model have been discussed. Hofstede’s Model The Hofstede’s model describes a culture based on six parameters, Power Distance, Individualism, Masculinity, Uncertainty Avoidance, Pragmatism and Indulgence (Geert-Hofstede, 2014). Power Distance: Power distance explains how economic and authoritative power is distributed in the society. It also measures the society’s acceptance for the inequality in distribution of power and how they manage this inequality. The countries in which the power distance index is high, the people accept the presence of hierarchical order and their individual position in that hierarchy. Every individual holds a particular position set by the higher authority, which is not questioned any further (Soares, Farhangmehr and Shoham, 2006). On the other hand, equalization of power is preferred in cultures that are low on Power Distance Index. The hierarchies are mostly passive and authoritative leadership style is very rare. Individuals often protest whenever they find inequality and biased practices (Geert-Hofstede, 2014). The managers of a company must design their leadership style based on this index, as countries low on Power Distance will not tolerate an authoritative leadership style, which will eventually cause dispute in the work place. Thus the managers should choose the leadership style based on the mentality of the workers. Individualism: Cultures which are high on individualism are mostly self-centred and prioritize their own self interest over others. This dimension is characterized by loose social integration and lack of team play. People only care about self and immediate families. They are not attached to the society and do not expect any social support (Geert-Hofstede, 2014). In this case the managers motivate the employees based on individual rewards and by granting them with certain decision making authority. On the other hand, the countries which are low on individualism (collectivist) are characterized by high social integration. People in the society take care of each other and share responsibilities and outcomes. Individuals are supported by their extended families, who keep strong relationships with each other. Thus in this case to motivate the employees, the manager encourages team build up and addresses the team as a whole, rather than individuals. (Soares, Farhangmehr and Shoham, 2006). Masculinity: This dimension highlights a cultures momentum for achievement and its pursuit for rewards and success. High Masculinity indicates high competiveness in a society, where every individual thrive to surpass its neighbour. So the managers maintain a competitive environment in the workplace so as to drive the employees to yield a higher output. On the other hand, low masculinity indicates less competiveness, where people are satisfied with what they have; they lack the hunger to achieve more (Geert-Hofstede, 2014). In this case, the managers create a controlled environment where the employees can work without any mental pressure and with all the required resources. Uncertainty Avoidance: This dimension measures a culture’s practices to control the future. Cultures which are high on uncertainty avoidance follow pre defined rules and regulations strictly and they also believe that future can be controlled by taking calculated risks. Law enforcement is based on written rules, where individual situation is not considered. People believe that every situation can be judged in absolute terms of “good” or “bad” (Matthews and Thakkar, 2012). In this case the managers must ensure that all the rules and regulations of the host country are followed properly, failing to abide by the laws may cause severe penalty to the company. On the other hand countries which are low on this dimension tend to judge incidents based on situations. They believe that every incident is unique and thus judgment based on absolute terms is irrelevant (Soares, Farhangmehr and Shoham, 2006). So in this case the managers can focus on the issues at hand without having to worry about the laws. Pragmatism: Cultures high on pragmatism tend to show a homeostatic approach which allows them to adopt new changes in their culture. People tend to be conscious on saving money for the future and are more calculative before spending money for leisure purposes. Whereas, Normative (low on pragmatism) cultures avoid having changes in their society and often stick to their traditional background (Geert-Hofstede, 2014). This factor will help the managers decide whether or not they should launch an innovative product in a particular country. Countries high on Pragmatism will easily adopt a new idea of a product or service; on the other hand countries low on pragmatism will be sceptical to adopt a new idea (Soares, Farhangmehr and Shoham, 2006). Indulgence: This dimension describes the degree to which a society is open to fulfilling their impulses and desires. Cultures high on Indulgence tend to spend more on leisure activities. Whereas, people who are less indulgent are mostly pessimistic in nature and consider leisure as a waste of time and money (Geert-Hofstede, 2014). The managers can use this dimension to predict the popularity of the goods or services, which are associated with leisure activities. Furthermore, the managers can also judge the workaholic nature of the employees with low indulgence, and they will be able to assign work load based on individual preference (Matthews and Thakkar, 2012). Figure: Cultural differences in USA and China based on Hofstede’s Model. Trompenaars’ Model Fons Trompenaars defined the cultural difference based on seven contrasting characters (Babel Group, 2011). Each of them has been highlighted in the table below. Universalism Particularism Judgement based on absolute terms. All situations are assessed by “good” or “bad” Situation based Approach is absent. E.g. USA, Germany, Australia, etc. Judgement based on situations. Relationships are prioritized over rules and regulations. E.g. African and Asian countries Individualism Collectivism Emphasis on free will and decision making. Self- centred mentality An individual is solely responsible for his actions and outcomes. E.g. UK, USA, Australia, etc. Emphasis on team work. Highly integrated society. Responsibilities and outcomes are shared by team members. E.g. Asian, Arabic and African cultures. Neutral Emotional All decisions are based on calculations, rules and regulations. Contacts and agreements are prioritized over personal sentiments. E.g. UK, Germany, Sweden, etc. Decision making is based on emotions and personal relations. Business partners thrive to develop close relation with each other. E.g. France, Spain, Poland, etc. Specific Diffuse Professional life is prioritized over personal life. E.g., Germany, UK, USA, etc. Individual spend equal time and give equal dedication to personal relationships and professional life. E.g. Russia, India, China, etc. Achievement Ascription Judgement of an individual is based on his achievements and skill sets. E.g. Australia, USA, UK, etc. Judgement is based on the individual’s family background, social influence, etc. E.g. Japan, Italy, etc. Sequential Time Synchronous Time Activities are arranged in a particular time frame. Focus on one activity at a time. Time is perceived as distinct entity broken in past, present and future. E.g. China, Russia, etc. Tendency to perform multi tasking. Perception of time to be an interwoven entity. E.g. USA, UK, etc. Inner Direction Outer Direction Individuals believe that environment can be controlled based on proper planning and calculation. Encourage constructive argument Enjoys personal space in work environment E.g. Germany, USA, etc. External environment is perceived as an uncontrollable entity. Individuals prefer to work under given boundaries and avoid pushing their limits. E.g. Saudi Arabia, China, etc. Source: (Gutterman, 2010; Babel Group, 2011) The Trompenaars’ model shares a lot of similarities with the Hofstede’s model. However, some factors of Trompenaars’ model like Sequential and Synchronous time, Neutral and Emotional is absent in the Hofstede’s model. These characters can be used by the managers to manage its work force. The Sequential and Synchronous time helps the managers to identify employees who are efficient in multitasking; this will help the mangers to make proper work distribution based on individual skill sets. The Neutral and Emotional aspect will help the managers to build good business relations based on the mentality of their business partners. Cross- Cultural Communication Establishment of a balanced interdependence in the global market network is the key to adopting Globalization. However, a successful overseas business operation is not possible without a proper cross cultural communication. A company from the home country willing to shift its business in another nation must identify the cultural gaps carefully (Gullestrup, 2002). A proper communication is possible only when two business entities with different cultural backgrounds share a common ground of knowledge and interest. Moreover, home company must treat the host country’s culture with respect and should abide by the local regulations. Globalization is successful to bring business development only when the countries present in the global market network follow a common business culture and respect each other’s social practices. FDI activities often fail, when the firms fail to communicate with the local suppliers and the local labour force. Thus it can be stated that cross cultural communication is a vital factor in establishing a good business relationship in the global market environment (Matthews and Thakkar, 2012). Conclusion Globalization is acting as the current driving force in the global business environment. It has not only improved the economies of several nations but also changed the way we look at overseas trading and communication. Although globalization has brought different cultures in close proximity, but at the same time it has also created the challenge of cross cultural management. A successful overseas business operation is only possible when the companies are able to overcome the barrier of cultural difference and communicate with common business environment. It can be rightly stated that incompatibility of the organizational culture with the culture of the host country will eventually lead to a dysfunctional management system. Therefore, in order to leverage the advantages of globalization, the business firms must ensure that they follow a proper cross cultural management system. Reference Abeles, T.P., 2001. The Impact of Globalization. On the Horizon, 9(2), pp. 2-4. Babel Group, 2011. Seven Dimensions of Culture. [online] Available at:< http://www.babelgroup.co.uk/uimages/File/babel_the_7_dimensions_of_culture.pdf >[ Accessed 3 December 2014] Ekmekçioğlu, E., 2012. The Effects of Globalization on World Income Inequality. International Journal of Academic Research in Business and Social Sciences , 2(4), pp.140-144 Geert-Hofstede, 2014. Organisational Culture & Change Management. [online] Available at: [Accessed 3 December 2014] Gerhart, B. 2008. Cross Cultural Management Research. 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