Main Areas of International Business Where Knowledge of Culture is Crucial for Business Success - Term Paper Example

Table of Contents Executive Summary.............................................................................................................3 Multinational business and importance of cultural awareness........................................3 Culture and International Business Strategic Management Cultural differences.....................................................................................................4 Management competencies and cross-cultural communication and negotiation..................................................................................................................5 Culture and International Human Resource Management Leadership..................................................................................................................6 Decision making.........................................................................................................7 Diversity management................................................................................................7 Expatriation management..........................................................................................7 Motivation...................................................................................................................8 Culture and International Business Economics................................................................8 Crises in multinational businesses......................................................................................9 Conclusion...........................................................................................................................10 References............................................................................................................................11 Executive Summary Globalization has changed the pace and space of businesses. It has marked a revolution in the traditional business practices and forms of management. In this realm, a topic that has gained increasing prominence in the last few years and attracted the attention of research scholars is cross cultural studies. When businesses operate globally, they have to account for varying attitudes, personalities and behaviours. Strategies, policies and plans of multinational organizations can go awfully wrong if cross cultural knowledge is not addressed. It sets the base for alignment between strategic and operational management, two-way communication system and complete percolation of organizational goals to individual employee goals. Key to success in multinational business lies in the modelling of business practices according to respective needs, expectations and perceptions and thus, proper awareness of culture is imperative. The entire expansion efforts of organizations rest on this basic premise. This paper is an endeavour to highlight the importance of cultural studies in multinational business and which areas are impacted by this function. Not only human resources and strategic management, but also the choice of entry and investment location decisions are also guided and facilitated by cultural awareness which this paper tries to address. With the help of theories propounded by renowned researchers in the respective field, insights have been developed to understand their implications in the practical scenario. Multinational business and importance of cultural awareness Multinational word in itself denotes diversity in the form of values, beliefs, identities, strategies, procedures, innovation, management and others. Individual performances and behaviours cumulate in organizational performance and manipulation of individual organizational behavior results in global business diversity. When an organization operates on a global platform, its success is measured superficially from its tactics, strategies, market share captured and gaining competitive edge. But the major driver of success in international business is actually a sound knowledge of cultural variations and compatibility across different markets. Organizational behavior is attributed to individual personality traits exhibited by employees as a result of their upbringing, shared values, their space conception, inter-relationships and activities. Across cultures, these dimensions variate to a large extent giving way to different viewpoints and acceptance notions which are essential to be understood in the context of multinational business. Cultural studies serve as a guide to assess these behaviours and respond to them in the desired manner. Culture and International Business Strategic Management Strategic management is a function of business determining the internal and external forces and strengths to chalk out suitable plans and policies. In case of international business when the space and forces of external threats, innovation and out-of-the-box business solutions is widespread, awareness of culture of respective nations and markets help understand the expectations and perceptions of different entities involved- employees, customers and stakeholders. Cultural differences As propounded by Geert Hofstede (Thomas 2003:50), countries vary form each other on the basis of five aspects namely power distance, individualism, uncertainty avoidance, masculinity and long term orientation. Interactions between individuals, societies, businesses and nations are attributed to these dimensions manifested in variations and these give rise to cultural differences. Other eminent researchers like Schwartz, Trompenaars and Kluckhohn and Strodbeck have analyzed differences in cross-cultural context on the basis of relationships, time and spatial perspective and even the very own nature of the person itself which gets reflected in his/her activities (Thomas 2003:59). Cultural differences may lead to complete failure of even the most powerful brands and products known worldwide. Wal-Mart, while registering success in Mexico and Canada had to encounter serious troubles owing to match diverse customer and supplier preferences in Japan and South Korea. Thus, a mismatch between organizational home culture and host country culture resulted in complete back out of operations of a company which is known for its global innovation. An organization plans its strategies and policies keeping in mind the perceptions and expectations of its customers and employees. Since these expectations and perceptions change across cultures, implications of strategic management also changes. Thus, addressing cross-cultural differences in multinational business can help organizations better conduct need assessment and provide for better business practices. Management competencies and cross-cultural communication and negotiation Not only behavioural traits but also culture demonstrates different communication styles altogether. Managers in international business have to communicate and negotiate with global managers where knowledge of etiquettes and customs of specific nations matter a lot. Nations are categorized into high-context and low context nations (Thomas 2003: 116) whereby some believe in explicit form of communication while others in implicit. An American manager who is accustomed of elaborate interactions and task oriented business culture is likely to face impediments while operating in Chinese business culture which is marked by relationship-oriented and more of non-verbal style of communication. Thus, cultural studies help managers develop abilities to negotiate and convince the business community of other nations by understanding their traditions and customs which is a crucial factor for business success. As for example, business giants namely Coca-cola, McDonalds and Google have to step out of the Korean market due to lack of local culture knowledge despite a plethora of business opportunities in the Korean market (Jung 2006). These players concentrated on their global standards without customizing them to meet Korean specific demands and as a result failed in this growing market. Culture and International Human Resource Management Human resources are considered to be the assets of a business and this is not without reasons. It is the human resources who handle and manage each and every function of the organization- be it marketing, production and manufacturing, finance or information technology. Human resources are actually the driver of all other functions. Culture is also refinement of traits, values, beliefs and norms demonstrated by a group of people. Thus it also entails an understanding of human nature and behavior which leads to its highest influence on human resources of a business in multinational context. It is the people and their attitude which changes across nations because strategies, plans and policies are non-living. It is the humans who execute these policies and thus, understanding humans at large is necessary to understand the degree of success of strategies in those cultures. Leadership Leadership is the art of influencing followers either through charisma or inherent leadership traits. It entails direction, mentoring, problem solving and decision making. Different leadership styles namely authoritative and participative have different acceptance levels across nations. Some economies accept leaders with relationship approach while others regard leadership style intact of position and authority. Thus, knowledge of achievement and ascription factors in cultural differences will help managers adopt the suitable leadership style. Decision making Decision making is an ongoing process in business environment. Both operational and strategic decisions have to be taken on a regular basis in multinational business context. Economies either favour team oriented decision making style or individual focused one. Thus, cultural knowledge here determines the communication and negotiation style to be followed while arriving at decisions across diverse cultures (Thomas 2003: 92). This knowledge will help avoid chances of conflicts in the decision making process. Diversity management Diversity management is a new topic which has actually emerged from the concept of globalization. With organizations registering their presence across nations, they workforce is turning diverse in the set of values, beliefs, opinions, behaviours, expectations and even needs of employees. Without an understanding of individual culture characteristics which shape up these attributes, organizations cannot give justice to the expectations of their individual employees. Cultural knowledge is the key to managing workforce diversity and propagating the consistency and uniformity of business culture. Expatriation management Expatriation is specifically applicable to multinational business settings where business executives are send to foreign assignments as a component of expansion plans. This gives rise to adjustability and sound mental and physical health of the executive in order to strike out a balance between home and host country culture. With the help of cultural knowledge here, organizations can well prepare the executives in advance by imparting them communication, negotiation and other training which will assist them in their foreign assignment. This raises the level of enthusiasm and motivation in executives and makes them ready to accept the assignment. Motivation Motivation and reward programs in organizations revolve around status, money, incentives, family welfare and respect. Money can be the motivating factor in one culture while status in the other. Since motivation urges an employee to enhance the performance and output, the importance of motivation in organizations cannot be undermined. Without cultural knowledge, managers cannot decipher which component will drive the motivation level of employees. Nations with collectivist cultures matter group rewards while nations with individualism are more focused on individual incentives (Thomas 2003: 85). Culture and International Business Economics As already discussed above, cultural impact is widespread and financial or economical domain is not separated from the lot. Cultural differences across nations do influence the strategic decisions of multinational firms regarding entering in new markets and most importantly in determining preferred choice of foreign direct investment. It applies both to investing as well as receiving firms. FDI has a great impact on the overall progress of the organization and the nation. The sum total of FDI received from different nations determine the liberalization endeavours going on in the respective market and this denotes growth opportunities for both manufacturing and service firms. In this context, it has been found that nations with low score of uncertainty avoidance and high scores of trust rank higher in investment preferred choices. Value trumping (Bhardwaj, Dietz & Beamish 2007) is a concept which states that in “specific cultural context, certain cultural values may take precedence over others” which results in precedence of uncertainty avoidance trumping over trust in case of FDI inflows. Hofstede defines Uncertainty avoidance as “the extent to which the members of a culture feel threatened by uncertain or unknown situations” (Bhardwaj, Dietz & Beamish 2007). Thus nations scoring high on this dimension are more threat perceptive and thus more sceptical of allowing FDIs. They also exhibit more stringent rules and greater degree of rigidity in allowing multinational firms to enter the market. Anything different from stereotype culture is regarded dangerous by such nations and this perception puts potential investors at risks. There may be supplier, government and even consumer barriers emerging out of this cultural notion. The immediate repercussion of such a cultural trait in FDI involves high operating costs, greater liabilities, stricter host country control, negative competition and even discrimination. Thus, multinational firm seeking markets to enter will search for locations which rank low in uncertainty avoidance. Threat perceptions of markets pose impediments for MNCs and also increase the cost of operations which ultimately reduces the profitability. Nations with low uncertainty avoidance and higher trust are therefore preferred choices for FDI in international business (Bhardwaj, Dietz & Beamish 2007). Crises in multinational businesses The world was exposed to global financial meltdown in 2007 which instantly raised the ethical and managerial responsibilities of businesses in global context. With heavy downsizing, lay offs and rising unemployment, it became all the more difficult for businesses to address the cultural needs in different markets they served. With mounting pressure of adhering to the labour standards, gathering funds to sustain the operations and handling the stress of employees and consumers, businesses fell victims to lost productivity, profitability and some even went bankrupt. Global operations are marked by high risks due to cumulative effect of cultural, political, economical and legal forces. However, point here to note that all other factors are directly or indirectly associated to cultural understanding because whether it is political, legal or economical, any rule or policy will come out of the inherent and shared value system, customs and cultural traits of the economy. Thus, by gaining understanding of culture, businesses can equip themselves in advance of the probable changes anticipated to take place in the global market. Just like FDI inflows, actions related to recovery options and managing global crises are also guided by cultural factors prevailing in the nations. Risk and threat perceptions of nations determine their acceptance possibility towards grants, loans and other techniques. Consequently, businesses have to be agile to correlate the cultural studies with business practices to determine and assess the current as well as future moves of governments and other players in the industry. Conclusion People say businesses are getting complex but it is not businesses actually. It is the attitude, working style and behaviours of people which is getting complex due to increased threats, unknown situations and unpredictable outcomes. As such, it becomes imperative to address the grass root level of hierarchy to manage the complexity. Cross cultural studies play an important role in serving as a base for managers in assessing individual behaviours, setting standards for acceptable behaviours and identifying reasons for variations and unacceptable behaviours. It takes into purview all the factions of management within multinational businesses and thus, the topic is all set to attract more attention of both the business and research community. References 1. Bhardwaj, A, Dietz, J & Beamish, P.W. (2007). Host Country Cultural Influences on Foreign Direct Investment. Management International Review [online] available from [accessed 8 November 2010] 2. Jung S 2006. Big Boys reel from Korean Culture shock [online] available from [accessed 8 November 2010] 3. Thomas D.C 2003. Essentials of International management: A cross-cultural perspective 3rd ed. London: Sage Publications Read More