Implications of Culture on the Management of MNEs - Coursework Example

Implications of culture on the management of MNE’s (Name) (Institution) (Module) (Course) (Instructor’s Name) (Date of submission) Introduction Globalization has seen the growth of multination corporations at an alarming rate. Small enterprises are expanding and exploring new markets in foreign countries. As they move into these new markets, they carry along with them their organizational cultures which are founded on national cultures of their home countries which more often than not differ with the national culture of the new markets. Some organizations fail to acknowledge the huge role culture plays in the success of MNEs. Adidam, Gajre and Kejriwal (2009) say that, “The causes of business failure internationally are rarely financial, economic or technical. Failure arises from serious errors and misjudgment concerning the social, cultural, and political environment of the international countries” (p.667). Many multinationals have embarked on what Firoz, Magrabi, and Kim (2002) call “thinking globally and managing culturally.” The success of MNEs such as Nike, HP, Toyota and Sony among others lies in their ability to adapt to local market needs and culture. A fundamental determinant in succeeding in a new market is the ability to adapt to the local culture. This paper seeks to highlight the influence culture has on the managerial level for MNEs drawing support from a number of published sources and also giving examples of real life MNEs depicting how culture has shaped their operations. What is culture? Culture is a complex term from any discipline’s perspective. Hofstede, one of the renowned scholars of culture matters in management defines culture as “the collective programming of the mind, which distinguishes the members of one human group from another. “ (Lu, 2006, p. 192). Hofstede studies on IBM gave rise to four main dimensions of culture namely, power distance, uncertainty avoidance, individualism and masculinity. Other dimensions such as dynamism (long and short time orientation) were added. Layman English defines culture as a people’s unique way of doing things (Mor-Barak 2005; Firoz, Magrrabi, & Kim 2002). The contemporary perception by many managers is that cultural diversity has to do with language difference which is too narrow to be effective in managing cultural differences (Mor-Barak 2005). Hofstede (1997) as cited by Mor-Barak (2005) says that culture is the software of the mind in that it separates one group of people from the other without necessarily showing the physical differences. This ‘software’ does not however exclusively determine the behavior of people but rather delineate anticipations and expectations and behavior within a specified social context. Culture determines how managers and employees in general perceive a problem and develop solutions to the problem. In support of this are social anthropologists’ views that societies face the same problems only that solutions and answers to these problems differ. Therefore, organizations cannot run away from culture but can only manage it for their own benefit (Firoz, Magrrabi, & Kim 2002). Hofstede’s cultural dimension As aforementioned, the Geert Hofstede cultural dimensions model identifies a number of cultural parameters critical in managing organizations on the global stage (Soares, Farhangmehr & Shoham 2007). Collectivism Vs Individualism This dimension measures the probability of groupthink approach to common problems. Cultures that are more collectivist are prone to groupthink as opposed to highly individualized societies (Reus & Bruce 2009). For management, this would imply wider composition of teams in collectivist cultures to eliminate groupthink approach in management. Power Distance This dimension measures how much the least powerful members of the society are willing to be controlled by the more powerful people. Where power distance is high, there are low levels of empowerment and the society expects a vertical organizational structure governed by strict rules and regulations. Locke and Siteman (2002) highlight the troubles that faced Nike operations in Thailand, China and Vietnam as a result of high power distance in the countries. The management in these countries exploited employees who could not voice their complaints. This affected Nike’s public image negatively. Uncertainty avoidance This index measures the extent to which a society is wiling to venture into the unknown. This implies that a society with a high uncertainty avoidance index is less receptive to change as opposed to a society with lower index. Time orientation (long or short) This index measures where the society is oriented towards meritocracy or preservation of culture. A society that has short term orientation is characterized by respect for culture and fulfilling social obligations guided by the religion, culture etc while a long term oriented society is characterised by rewarding and recognising meritocracy such as education and professionalism. Quality Vs Quantity of life This index is highly linked with time orientation. It measures whether a society is more interested in material wealth or non material wealth. A short term oriented society hence values fulfilling one’s social obligations than attaining material wealth. This implies that the firms operations in such a country will be closely judged through their products and corporate social responsibility projects more than their ability to make profits and deliver returns to investors. Other parameters of culture The implication of culture on management is also depicted through other cotemporary issues in management such as communication in the workplace, knowledge management and sharing, marketing, networking and organizational structures. Communication in an organization Communication is an integral part of management as it determines how authority flows from the top to the bottom and how managerial decisions are made and implemented. Communication is also a function of culture. Stahl et al (2009) write that the cultural background of the sender and receiver of the message determines greatly how the message is interpreted and understood. According to Brock et al (2008), effective organizational communication must therefore acknowledge any cultural differences apart from language that may exist between the sender and receiver of the message. Reus and Bruce (2008) concur and say that cross-cultural communication maybe hindered by non verbal communication methods and body language and even lead to misinterpretation of information. Schachaf (2008) takes another position by addressing the benefits of cultural diversity. He writes that MNE’s benefit widely from cultural diversity in the decision making process given the different approaches to a common problem. Nonetheless, the author acknowledges that communication suffes greatly. This implies that MNEs operating for example in Asia cannot be assured of effective communication in their Asian operations by only learning Asian languages or hiring translators (Brock, et al 2008). There is need to learn the different cultures of the Asian people for effective communication. Lu (2006) takes discusses the very important issue of American MNEs venturing in the Chinese markt. He says the huge cultural distance between America and China has resulted to higher rate of failure of American MNE’s in China and Asia as a result of cultural misfit. The management styles they use do not fit the Chinese and Asian cultures. The author thus proposes the Culpan and Kucukemiroglu (1993) management model which identifies six management style each suitable for a specific cultural dimension. These are 1) supervision style, 2) decision making style, 3) communication pattern, 4) control mechanism, 5) paternalistic orientation and 6) interdepartmental relations. For instance, the communication pattern and decision making pattern would be most suitable in countries with low power distance index such as the US, UK and Australia while the control mechanism and supervision style would fit best countries with high power distance index such as China, India and Saudi Arabia (Soares, Minoo & Aviv 2007). Denison and Schlue (n.d.) explain how Henkel, a German MNE has ventured into extensive surveys seeking to understand its employees in order to cultivate cohesiveness. According to Henkels management, the success of the firm is rooted in understanding its employees and markets given their cultural diversity. This way, the firm has created a dynamic corporate culture responsive to different cultures. Knowledge management and sharing Knowledge is viewed as a key component of innovation and creativity in organizations as it enables them to develop new products and news ways of accomplishing work processes (Tellis, Jaideep & Rajesh 2009). There are two major categories of knowledge, explicit and implicit knowledge. Fontaine (2007) differentiates the two by saying that explicit knowledge is knowledge that one is aware of and can tell while implicit/tacit knowledge is what one knows but cannot tell. Exploitation and availability of tacit knowledge requires additional strategies. Dalkir (2005) says that such knowledge is only made explicit through metaphors and analogies during social interactions other than in the workplace. This implies that, for organizations to make use of tacit knowledge, it has to be externalized first. However, individuals have to make tacit knowledge explicit for use by organizations. This is faced by a few problems. First, individuals are not even aware that they possess tacit knowledge. Secondly, many individuals do not have the personal motivation to share tacit knowledge and thirdly individuals are not ready to lose their competitive advantage gained out of possessing the knowledge (Fontaine 2007). Therefore, organizations operating in cultural environments that discourage knowledge sharing have to establish more involving social environments in the workplace to encourage knowledge sharing. Competitive intelligence is one branch of knowledge management that is greatly shaped by culture. Adidam, Gajre and Kejriwal (2009) discuss this issue at length in the context of culture. They say that “Managers need to understand the cultural context of best practices, both at the source and at the target, in order to overcome these challenges and facilitate the transfer process.” They continue to that “The challenges inherent in cross-cultural transfer (of knowledge) may actually diminish competitiveness, instead of enhancing it” (667). This implies that understanding the culture of the people in new countries and markets comes before entering the new markets. For many organizations, they are forced to train their expatriates in the new countries about the local cultures. This leads to added costs of expanding into new markets and operating on the multinational level. HP case Early in 2001, HP China rolled out an expansive KM system to assist the innovation machinery of the firm. The introduction of the KM system followed the common top-down approach of introducing the KMS version in use at headquarters to foreign firms, in this case, HP China. However, the Chief Knowledge Officer at HP China, Gao Jianhua, had foreseen the problem posed by this method in other firms. He thus opted for a harmonized approach in appreciation of the Chinese culture. However, this new customized approach did no last long as it collapsed after just more than two years (Lu & Leung 2006). The new system was based on knowledge documentation; information relevant to management and development of the firm was organized in files which all employees could access. This information was standardized in the belief that it would increase efficiency and facilitate easy knowledge transmission. A code of work behavior was developed for all levels and all employees. All employees were trained on the new code of behavior at the workplace. A new set of rules and regulations that corresponded with the new code of behavior was also set up (Lu & Leung 2006). To encourage tacit knowledge sharing a book reading association consisting of over seventy groups was formed. Members of each group were supposed to read books relevant to the occupational knowledge and recommend some to their group members. This aimed at developing a common base of knowledge among group members that would also encourage sharing of organizational knowledge and information (Lu & Leung 2006). This idea contrasted the Chinese national culture of protecting and hoarding information (Firoz, Magrrabi & Kim, 2002). There is a common belief that one’s expertise at certain things should not be shared which is the reason why the management at HP sought to induce sharing of professional knowledge among workers by first introducing them to sharing of information pertaining to books in an informal setting. Burrow, Drummon and Martison (2005) say that “Consistent with their cultural traditions, the Chinese favor informal and implicit forms of communication, preferring to transfer knowledge through interpersonal contact rather than through formal and/or written means” (p 75). As such, all manufacturing firms operating in China will be faced with the challenge of employees not wiling to share information. The functioning of any KM system is highly dependent on the cultural environment. Organizations have the option of investing heavily in IT to support KM or create a culture of information sharing. Given that China has computer literacy and a culture that glorifies information and knowledge hoarding, organizations are forced to adopt a two-pronged approach based on creating a KM friendly environment by encouraging knowledge sharing and also emphasizing on IT skills (Tong & Mitra, 2009; Vanhocker 2004). Burrows, Drummon and Martison (2005) observe that highly performing companies in China such as Lenovo have developed unique knowledge sharing cultures within their organizations in order to facilitate knowledge sharing. Unfortunately, implementing such as culture is not an easy task. A number of authors argue that organizational culture is derived from national culture (Burrows et al 2005; Tong & Amitra 2009) implying that introducing a knowledge sharing organizational culture will receive resistance from many quarters. Conclusion Organizations that chose to ignore cultural issues in international markets choose failure. In the case of China, it is apparent that the country differs very much from the western culture both at the business level and the social level. Organizations need to implement ways to manage cultural differences from their home country to the target country. However, it is apparent that organizations cannot embark on changing the culture of a people in a new country by virtue of being their employees. It is the role of the management to devise ways and strategies of directing and utilizing the diverse cultures in a beneficial way. References Adidam, T, Gajre, S. & Kejriwal, S 2009, ‘Cross-cultural competitive intelligence strategies’, Marketing Intelligence & PlanningI’, vol. 27, no. 5, pp. 666-680. Brock, D, Oded S, Amir S & Ilene S 2008, ‘National culture and expatriate deployment’, Journal of International Business Studies, vol. 39, no. 2, pp.1293–1309. Burrows, B, Drummon, D & Martison, M 2005, ‘Knowledge management in China’, Communications of the ACM, vol. 48, no. 4, pp. 73-76. Denison, D & Rolf S n.d., Managing corporate culture at Henkel: Applying the Denison organizational culture survey, viewed 3rd December 2011, http://www.denisonconsulting.com/dc/Portals/0/Docs/Case_Henkel.pdf Firoz, N, Ahmad M & Ki K 2002, ‘Think globally manage culturally’, International Journal of Commerce and Management, vol. 12, no. 3/4, pp.32-50. Fontaine, R 2007, ‘Cross-cultural management: six perspectives’, Cross Cultural Management; an International Journal, vol. 14, no. 2, pp. 125-135. Leung, K, Rabi B, Nancy B, Miriam E & Cristina G 2005, ‘Culture and international business: recent advances and their implications for future research’, Journal of International Business Studies, vol. 36, no. 4, pp. 357–378 Locke, R & Siteman, M 2002, The promise and perils of globalization: the case of Nike. MIT. Sloan school of management, viewed 3rd December 2011, http://mitsloan.mit.edu/50th/pdf/nikepaper.pdf Lu, Lung-Tan 2006, ‘The influence of cultural factors on international human resource Issues and international joint venture performance’, Journal of American Academy of Business, vol. 10, no. 1, pp. 192-102 Lu, L & Leung, K 2006, Challenges to KM at Hewlett Packard China, viewed 3rd December 2011, http://findarticles.com/p/articles/mi_qa5362/is_200603/ai_n21390989/?tag=content;col1 Mor-Barak, F 2005, Managing diversity: Toward a globally inclusive workplace, New York: Sage. Peng, Mike 2004, ‘Identifying the big question in international business research’, Journal of international business studies, vol. 35, no. 4, pp. 99-108. Reus, Taco & Bruce L 2009, ’The double-edged sword of cultural distance in international acquisitions’, Journal of International Business Studies, vol. 40, no.3, pp. 1298–1316. Shachaf, P 2008, ‘Cultural diversity and information and communication technology impacts on global virtual teams: An exploratory study’, Information and Management, vol. 45, no. 2, pp. 131-142. Soares, A, Minoo F, & Aviv S 2007, ‘Hofstede's dimensions of culture in international marketing studies’, Journal of Business Research, vol. 60, no. 2, pp. 277–284. Stahl, G, Martha M, Andreas V & Karsten J, 2009, ‘Unraveling the effects of cultural diversity in teams: A meta-analysis of research on multicultural work groups’, Journal of International Business Studies, vol, 5. no. 11, pp. 1–20. Tong, J. & Mitra, A. (2009). Chinese cultural influences on knowledge management practice. Journal of knowledge management. vol. 13 no. 2 2009, pp. 49-62, Tellis, G, Jaideep P & Rajesh K 2009, ‘Radical innovation across nations: the preeminence of corporate culture’, Journal of Marketing, vol. 73, no. 6, pp. 3–23 Vanhocker, R 2004, Guanxi networks in China: How to be the spider, not the fly. The China Business Review, vol. 31, no. 3, pp. 48-53. Read More