Cross-Cultural Management and Its Importance - Essay Example

?Cross-Cultural Management Introduction – CCM and its importance In the past century, arguably one of the most significant economic developments is the proliferation of multinational enterprises (MNEs) and the phenomenal growth of international business. The development and expansion of MNEs are not without their problems, but more than the dilemmas posed by supply chain management, corporate legislation and operational logistics, it is the interplay between the national cultures in the home and host countries and how they impact upon the corporate culture that most concerns the MNE executive (Dunning & Lundan, 2008) . Cross cultural management (CCM) is defined by Soderberg and Holden (2002) as the discipline of international management that focuses on encounters of a cultural nature that occur between homogeneous and well-defined entities (such as between two distinct countries, ethnic groups, races, etc.). It is important to understand CCM In the management of global operations, particularly in the case of MNEs. All aspects of international business – understanding the customers, motivating employees, controlling operational processes, and strategically planning for shareholders – necessitate an understanding of the dynamics between the cultures of home country and host country nationals. CCM remains the central theme in MNE literature on this subject, and will be further examined in this brief study. Culture impacts the behaviour, morale and productivity of individuals at work, and because of this values and patterns of behaviour reflect upon company attitudes and actions. This poses no problems for companies operating domestically, but for globalized business problems are created when people from different cultural backgrounds are required to work together (Ching-Hsiang & Hung-Wen, 2008). For MNEs and even for domestic corporations, there are advantages in having a measure of cultural diversity in the workforce. A workforce is culturally diverse ‘if it is composed of individuals who differ on a characteristic on which they base their own social identity’ (Mazur, 2010, p. 6). A diverse workforce is vital in the present global environment because it currently reflects the changing world and marketplace (p.14). If a company is to grow significantly and prosper into the future, it cannot remain monocultural because doing so would render it irrelevant in an increasing multicultural environment. Furthermore, diversity in an organization enhances the adaptability of its workforce, and organizations characterized by high adaptability have a significant relationship to high performance (Taylor, et al., 2008). CCM is vital to a firm in both the marketing and operational functions. When a firm serves a foreign market, then its products for that market should be compatible with the culture of that country while maintaining the identity of the parent company’s brand. In such cases, workforce diversity provides the firm with the necessary human resources (skills, tastes, and knowledge) needed to design, construct and market the product. Diversity among operations personnel, particularly in the provision of services, will enable the firm to connect more closely with the intended market (Lindholm, 2000). Literature Review There are six perspectives identified by Fontaine after his seven-year study on CCM in Malaysia, based on comparisons made between Britain, a relatively homogeneous culture, and Malaysia, a heterogeneous culture. The first perspective typifies the classical approach which is based on Hofstede’s theory that national cultures are defined by commonly shared values. Fontaine found issue with Hofstede’s discussion of Malaysian culture, which he described as sharing the same cultural values. Fontaine contends to the contrary, and found that Malaysians tended to mould their values and viewpoints according to their ethnicity, and a number of ethnical groups comprised Malaysian society. CCM uses Hofstede as its classical foundation and from thence diverge into the other perspectives. The second perspective pertains to the anthropologist approach. Fontaine draws the distinction between ethnic groups and cultures, and the possibility of two distinct cultural sub-groups contained within one ethnic group. He cites the culturally different but ethnically similar Chinese-educated Malaysian Chinese, and the non-Chinese educated Malaysian Chinese. Adding to the complexity is the tendency for some individuals to move from one ethnic group to another when they find it suitable, and the possession by others of a bicultural identity because of their bilingual ability. Children of parents from different ethnic or cultural backgrounds have the advantage of shifting cultural identities or of embodying both. There are also those who are ‘mixers’ (among people of various cultures) and the ‘non-mixers’. All of these types provide the fine distinctions in diversity that Hofstede’s generalizations overlook. The third perspective is the psychological approach. Observations made between two Malaysian populations found that contextual factors are more relevant in explaining differences in work values than cultural factors. This means that when accounting for the differences in people’s perception of work values, culture is not as determinative as the organizations, groups and individuals comprising the system, and the various disciplines, theories and approaches that influence them. Thus, ‘micro-phenomena are embedded in macro contexts, and macro-phenomena often emerge through the interaction and dynamics of lower-level elements’ (Klein & Koslowski, 2000 cited in Fontaine, 2007, p. 127). This means that there is a confluence of situational and contextual factors which are more explanatory of people’s values than are cultural factors, resulting in the multilevel theory of culture articulated by Chao (2000, cited in Fontaine, 2007, p. 128). The fourth perspective is a refinement of the psychological approach, which focuses on stereotyping. It states that cross-cultural differences initially arise because of ignorance and stereotyping. As intergroup contact increases, developing friendships among them cause the re-evaluation of negative stereotypes. Since stereotyping is a form of cognitive bias, together with group homogeneity bias, ingroup-bias, trait ascription bias, and the belief perseverance effect. Under this perspective, CCM managers function more in the nature of psychological counsellors, whose aim is to break down cognitive bias, promote intergroup friendship, and engender trust. The fifth perspective is the knowledge management approach. This approach is proposed by Holden (2002), founded on the principle that the tacit and explicit knowledge of individuals within the firm is its most important asset. Cross cultural interaction is a never-ending learning experience that adds to the tacit knowledge of the firm, and management must enhance this asset. Managers should therefore approach CCM as change agents who assist units in responding to perceived errors, and who facilitate the sharing of best practices and problem solving across cultural divides (Fontaine, 2007). Another vital theoretical construct is that of executive coaching in a cross-cultural context. Peterson (2007) states that ‘culture is irrelevant in coaching,’ (p. 261), meaning that culture is a social- or group- level phenomenon while coaching is targeted at persons. The challenge facing the coach is to understand the person as an individual without regard to his/her culture, social status, family background, education or profession, and other incidentals surrounding his/her development. Cross-cultural knowledge is not a limit or constraint in coaching, but is a way by which coaching methods may be customized for the individual subject of the coaching process. Rather than obstruct or hinder the coaching process, a comprehension of cultural characteristics and differences may foster a deeper, more effective, level of coaching. Critical Analysis There are both pros and cons in the implementation of CCM perspectives in international business organizations. The classic approach based on Hofstede’s theory is conceptually easy to grasp and for that reason provides a useful framework for viewing cultural differences, however as Fontaine showed it is much to general to adopt in homogeneous societies where ethnicity rather than culture determine individuals’ behaviour, so the use of Hofstede may be misleading for countries like Malaysia. The anthropologist approach is more specific than the classical approach and may be appropriate for societies with strong ethnic divisions, however it allows for a broad variety of distinctions among groups, (e.g. those with more than one ethnicity or shifting ethnicities) that it is difficult to imagine how any general principles may be developed out of it. The third perspective is the psychological approach which, like the anthropologist approach, is more specific and accurate than the classical approach that looks only at cultural groups. However, the psychological approach finds that behaviour is more a result of the context in which individuals perceive their circumstances – an individual dynamic – rather than based on culture which is a group-dynamic. The psychological approach is like the anthropologist approach where the individual’s unique make-up defies his/her typecasting as a member of a group, although the anthropologist approach pertains to an individual’s lineage while the psychological approach refers to his/her psychological perceptions. The tendency to develop stereotypes to distinguish among groups may also negatively influence both these approaches and hinder rather than support a breakdown of these approaches. If the method sought to be applied is to be gauged on effectiveness, the coaching method would probably be most effective because it seeks to modify behaviour from a deeper level within the individual; however, where the number of individuals whose behaviour is to be modified are many, the coaching method may be inefficient to apply to everyone, particularly since there are fewer coaches and managers than there are workers in a large-scale corporation. The knowledge management (KM) approach affords strong advantages. They are focused more on best practices and knowledge sharing, which do not delineate based on culture or ethnicity, but allow individuals of diverse cultures to concentrate what is of common interest among them. It is a constructive, work-centred approach that explores commonalities and esprit de corps among diverse individuals who share the same interests, enables them to improve their work and knowledge, recognizes individuals who contribute to best practices, and benefits the company by enhancing its knowledge base. Conflicts handling Cross Cultural Management (CCM) is a vital tool of all managers with diverse workforces, and most especially expatriate managers of MNEs. They play a vital role in the settling conflicts among individuals from different national or ethnic backgrounds in order for them to work effectively together (Fan & Yongzhi, 2010). Conflict situations arise when the needs, wants or values of two parties clash with one another (McKenna, 1995). Because of this, MNE managers must be equipped with knowledge and training that develop intercultural communication skills, multicultural team building, and cultural sensitivity skills particularly if they function as organizational change leaders, as, pursuant to the KM approach earlier discussed, they are likely to do (Mendenhall, 1987; Ching-Hsiang & Hung-Wen, 2008). Expatriates in particular have a special role in the intercultural dynamic of the MNE (Forster, 2000). It is generally given that MNEs perform better than domestic companies in the host country (Bellak, 2004; Chacar, et al, 2010). Halkos and Tzeremes (2008) assert that this is in part due to the dissemination of the home country’s national culture in the MNEs structure, impacting positively on its corporate performance. A particularly contentious issue among MNEs is the challenge posed by the setting of international benefits and compensation systems across borders wherever the MNE operates (Werner & Ward, 2004). Within domestic corporations, the accepted policy is to allocate equal compensation and benefits for equal work – that is, work of the same type and for the same amount of time. The same does not operate in such a straightforward manner in the case of MNEs. This is because the value of compensation is different given different economic environments (Pittiglio, et al., 2012). While discrepancies in pay across borders, or even between expatriate (who have to leave their homes and families) and local employees, is justified, the fact of their inequality is at times cited as an indication of racial or cultural discrimination (Haile, 2002). The matter of differences in pay policies should be explained to employees across MNE’s organizational structure in order to dispel concerns about discrimination. Conclusion Cross cultural management is vital in the new international business environment. Home and host country dynamics enable the MNEs to enhance their performance, and it is crucial that expatriate managers be properly trained and oriented in cultural sensitivity and cross-cultural management skills. As far as CCM techniques are concerned the knowledge management perspective provides a viable approach to large-scale management, and coaching for targeted management. Finally, issues that engage home and host country employees should be resolved by sound MNE multicultural policies that mutually benefit both the workforce and the companies. 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