Cross-Cultural Management - Essay Example

Cross-Cultural Management: Literature Review and Analysis In our previous assessment we examined the challenges presented by managing a culturally-diverse workforce in the context of the cultural environment of the UAE (Thekkepat, 2011). Cultures are manifested in differences among people such as ethnicity, religious beliefs, language, and even individual differences such as age, gender, and physical abilities (Kundu & Turan, 1999). That understanding the cultural diversity these attributes represent is critical to management is virtually universally recognised and demonstrated time and again in research studies (Mejias et al., 1996). This paper examines the underlying theoretical and conceptual bases of cultural diversity and management. The research literature can be divided into two broad general categories: Cross-Cultural Theory, and Theory of International Business. These two classifications are reviewed in turn through some of the research conducted in these areas; following that, a discussion of the implications of the ideas revealed by the literature for management of diverse workforces is presented. What is Culture? A very basic definition of culture is “the collective programming of the mind which distinguishes the members of one category of people from another,” with the idea of ‘category of people’ giving the definition a wide application. “Culture” can be seen in any group different in some way from another, such as national or ethnic groups, age or gender groups, religious groups, or groups based on businesses, occupations, or professions. (Hofstede, 1994, p. 1) Another way to define culture is as a kind of information-processing system. The “collective programming” is represented by a general ideological framework of the situation that people are in whether it is an entire country, a business enterprise, or some other sort of group. (Mitchell, et al., 2000, p. 979; Leung, et al., 2005, p. 360) This framework is flexible, and can adapt to changes in its environment. This is called the dynamic view of culture, and is reflected in the idea that new cultures can add to it or it can in turn assimilate new cultures, depending on the circumstances. (Leung, et al., 2005, p. 360, 366) These concepts are fundamental parts of cross-cultural theories. Cross-Cultural Theory There are a number of theories and models which describe cross-cultural interactions. Three of the best-known, and most clearly-explained, are Cross-Cultural Adaptation Theory, Social Cognition Theory, and Cultural Value Dimensions; these are examined in this section. Cross-Cultural Adaptation Theory Cross-Cultural Adaptation Theory is “conceived as a process of dynamic unfolding of the natural human tendency to struggle for an internal equilibrium in the face of often adversarial environmental conditions.” (Kim, 2009, p. 2) In other words, the theory describes the way in which people from one culture find a way to “get along” effectively in a different culture. The factors through which cross-cultural adaptation occur can be studied as individual components, which is partly what Social Cognition Theory, described in the following section, does. However, a better way to look at cross-cultural adaptation is to look at the whole person, since it is considered a truism that the entire being of the person is affected by immersion in a new culture. (Leung, et al., 2005, p. 369; Haslberger, 2005, p.86) Cross-Cultural Adaptation Theory is a good example of culture as a system for processing information, because it depends on the communications skills of both the host and guest cultures. (Kim, 2009, p. 2) There are some universal communications that do help the process; for example, some basic facial expression - happiness, surprise, fear, anger, contempt, disgust, and sadness – are considered common to all people, regardless of culture, and instantly recognisable. (Russell, 1994, p. 102) But cultural communication not only involves these and other obvious cues to culture such as history, language, and social conventions, but also deeper concepts such as ethical orientation and ideology. (Ralston, et al., 2006, p. 103) How well the host culture communicate all these things to people from outside the culture and how well those people understand them, i.e. their ability to identify similarities and differences from their own cultural framework, determines the degree of adaptation. Social Cognition Theory Social Cognition Theory states that the behaviours and actions of an individual are guided by two pairs of factors; the first pair is cognition and motivation, and the second pair is the person and the circumstances. (Mitchell, et al., 2000, p. 975) These factors not only guide how a person responds to and assimilates a different culture, but also play an important role in motivation in a work context. (Gelfand, et al., 2007, p. 482) In a work setting, temporary focus on a common factor, even if it is culturally different for individuals, can improve cognition and reduce communications differences. (Leung, et al., 2005, p. 371) The two pairs of behaviour-guiding factors work within a framework of three components, frames, schemas, and scripts. (Leung, et al., 2005, pp. 366) Frames constitute the environment, and comprise the person and circumstances pair of behaviour-guiding factors. Schemas are knowledge frameworks which people use to interpret information, and include the cognition behaviour-guiding factor. Scripts are related to action and time sequence, and include the motivation behaviour-guiding factor. (Leung, et al., 2005, p. 367) The way these factors all work together can be shown in an example of a “venture creation decision,” i.e. a typical business relationship in which people from two different cultures come together to start some sort of new commercial arrangement. (Mitchell, et al., 2000) The frame is the overall situation: a business objective sought by different people, who bring their own cultural values to the relationship. The schema is the knowledge-processing mechanisms the people each use, but is moderated by the common factor of the business objective. The scripts are the actions, in a temporal order, which each person interprets from his own knowledge-processing schema. These scripts exist in three different forms: arrangement scripts, which describe how people understand the resources, assets, and relationships each has to make the venture proceed; willingness scripts describe motivation and openness to new ideas each person has; and ability scripts describe the capabilities, skills, and norms each person has to put the components of the other two scripts to work. (Mitchell, et al., 2000, p. 977) The more in common in any of these areas between the people involved, the more easily a positive decision can be reached. It is important to realise, however, that these are all interconnected and do not work in one direction only; for example, understanding developed from the ability scripts in a situation can alter the way an individual processes information. This is one example of how culture under Social Cognition Theory is considered dynamic, rather than a static set of conditions. (Gelfand, et al., 2007) Cultural Value Dimensions Cultural Value Dimensions are a synthesis by a corporate law expert, Amir N. Licht, of the work by two well-known scholars, Geert Hofstede and Shalom Schwartz. (Licht, 2001, pp. 173-174) Licht notes that both Hofstede and Schwartz have developed frameworks of cultural indicators that are bipolar; in other words, the descriptive characteristic of the culture represents a range between two extremes. Schwartz’s three dimensions are (Licht, 2001, p. 174): Embeddedness/Autonomy – “Embeddedness” describes a desire to maintain the status quo and restrain action in favour of group harmony. “Autonomy” describes individual freedom of action. Hierarchy/Egalitarianism – “Hierarchy” describes an emphasis being placed on obeying unequal (though legitimately so) roles. “Egalitarianism” describes voluntarily placing the welfare of others over one’s own. Mastery/Harmony – “Mastery” means altering the environment to suit oneself; “Harmony” means adapting to fit within the environment. Hofstede’s Cultural Dimensions consist of five dimensions: Power-Distance, Individualism, Masculinity, Uncertainty Avoidance, and Long-Term Orientation. (Hofstede, 2001) Licht, however, selects only the first four of these, and then finds through research analysis that Power-Distance and Individualism can be combined into one. (Licht, 2001, pp. 173, 178) The synthesis of the two theories into one comes from the differences in the way each measures the various dimensions; Schwartz assigns specific values, while Hofstede’s dimensions are descriptive and comparative. (Licht, 2001, p. 175) Thus the Cultural Value Dimensions framework can be used to develop a general description of the cultural environment according to Hofstede’s dimensions, with Schwartz’s dimensions providing a specific measure of each. The use of the Cultural Value Dimensions by Licht is applied to the analysis and development of corporate governance systems. The rationale for this is that most of an individual’s cultural orientation is developed through socialisation, or his exposure to institutions within the culture; individuals within the institutions – such as a corporation – in turn have an effect on the cultural character of the institution. (Licht, 2001, p. 186) The Cultural Value Dimensions demonstrates the dynamic nature of culture, and how it can apply to international business. International Business Theories Cross-cultural theories are recognised as being a critical component of international business studies, and are reflected in theories underlying international business in a number of ways. Grosse and Behrman (1992) assert that the fundamental theory of international business is bargaining theory, which focuses on the interaction of parties with different assets, interests and abilities in a negotiating relationship. (Grosse & Behrman, 1992, p. 3) Since these factors are all determined in some way by culture, cross-cultural theory enhances bargaining theory. Cultural Dimensions in Accounting Practises Just as Cultural Value Dimensions can be applied to overall corporate governance, cultural dimensions can be applied to particular professions or business areas. One example is accounting, where international differences in practises can be determined from differences in cultures (Gray, 1988, p. 8): Professionalism vs. Statutory Control – Accounting practises in some cultures are guided more by professional, peer group self-regulation, while others are controlled more by legal and regulatory requirements. Uniformity vs. Flexibility – This dimension describes the degree to which accounting is practised as a consistent, uniform discipline as opposed to flexibility depending on the circumstances of individual companies or situations being accepted. Conservatism vs. Optimism – This corresponds to the Uncertainty Avoidance dimension of Hofstede (1994 & 2001), and is a description of risk acceptance or avoidance. Secrecy vs. Transparency – This dimension describes a cultural preference for confidentiality, limiting information about a business to stakeholders, versus an orientation towards openness and public accountability. While this example is accounting, it is easy to see how the same sort of framework could be applied to many other disciplines. Each of the dimensions represents a range of orientations between two extremes, or is “bi-polar”. (Licht, 2001) Determining where a particular discipline, such as accounting, falls along each range in different cultures helps to explain how and why practises are done and makes cross-cultural management of them possible. Theory of Business Alliance Formation The Theory of Business Alliance Formation addresses external relationships of firms, and is based on four other theories: transaction costs theory, which measures the decision of firms to enter an alliance based on its assessment of its transaction costs to do so; agency theory, which holds that firms measure efficiency gains or losses from alliances against conflicts of interest with partner firms; relational contracting, which considers trust between firms as a determinant of alliances; and resource-dependence, which considers trust in a different way, in terms of the resources each partner needs from the other in order for an alliance to be formed. (Sheth & Parvatiyar, 1992, pp. 72-73) The comprehensive Theory of Business Alliance Formation takes into consideration all these factors, but separates “trust” as a distinct component and adds an “uncertainty” factor. Uncertainty is related to risk assessment and risk-sharing, and trust is related to objectives and self-interest of the parties in the alliance. (Sheth & Parvatiyar, 1992, p. 84) The relationship of this theory to other cross-cultural theories is quite obvious. The uncertainty factor is very similar to the Uncertainty Avoidance Index of Hofstede and the Conservatism vs. Optimism dimension of Schwartz. (Gray, 1988, p. 8; Hofstede, 1994, p. 8) And since “trust” and “uncertainty” are difficult to quantify, they are represented in business alliance formation theory as two indicators: Party (competitors or non-competitors) and Purpose (strategic or operational). (Sheth & Parvatiyar, 1992, pp. 81, 84) This conceptual arrangement is very similar to the second of the two pairs of factors in Social Cognition Theory, person and circumstances. (Mitchell, et al., 2000, p. 975) Implications for Managing Across Cultures The most significant lesson from research into cultural and international business relationships is that cultural exchange is a dynamic process. People from different cultures bring their own cultural foundations to the relationship or organisation, and the institution formed as a result in turn affects the individual cultures. Another important lesson, which should come as a relief to managers facing the challenge of managing a culturally-diverse workforce, is that there are some common foundations on which to build an understanding of culture. Communication of basic emotions, for example, is the same for all people regardless of culture. (Russell, 1994, p. 102) There are also fundamental commonalities in cultures in management and motivation factors. All cultures appear to have the same basic motivating needs for achievement and competence, although the component factors that result in those may differ. Positive feedback is valued in all cultures more highly than negative feedback. And all cultures have a sense of the “psychological contract” between individual and organisation, an understanding that each has mutual responsibilities, although the nature of the relationship and individual perspectives on it certainly vary from culture to culture. (Gelfand, et al., 2007, pp. 482-486) Where variables exist, the variables of culture can be organised into comparative descriptions, such as the Cultural Dimensions (Hofstede, 1994 & 2001), making them easier to understand relative to a familiar culture. Managers should be cautioned, however, from being tempted to let the identification of common, pan-cultural characteristics and the organisation of cultural variables into different frameworks lead them to make too many generalisations about diverse workforces. Even in one culture, there can be variations among the orientations of the people. For example, business people from the northern part of Viet Nam have, paradoxically given the strong Communist influence in that part of the country, a more individualistic, Western outlook than their counterparts in the South. (Pillai, et al., 1999, pp. 771-773) And because cultural engagement is a dynamic process, any cross-cultural relationship will over time change the parties involved; thus, the approach taken at the beginning of the relationship evolves as the relationship leads the people to assimilate aspects of each others’ culture. (Kim, 2009) And finally, the manager should remember that no matter what his own cultural outlook towards the separation of work and personal aspects of one’s life, cultural interaction is a fully-immersive process. (Leung, et al., 2005; Haslberger, 2005) Even if one’s own culture compartmentalises the two, such as is normal for Western cultures, every part of the cultural background has an effect on the business relationship. Striving to fully understand all aspects of a host culture – and in turn, being able to effectively communicate aspects of his own culture – regardless of the apparent application to the business relationship will only help to improve the manager’s ability to successfully work with a diverse group of people. References Gelfand, M.J., Erez, M., and Aycan, Z., 2007. Cross-Cultural Organizational Behavior. Annual Review of Psychology, 58, 479-514. Gray, S.J., 1988. Towards a Theory of Cultural Influence on the Development of Accounting Systems Internationally. Abacus, 24(1), pp. 1-15. Grosse, R., and Behrman, J.N., 1992. Theory in international business. Transnational Corporations, I(1), pp. 93-126. Haslberger, A., 2005. Facets and dimensions of cross-cultural adaptation: refining the tools. Personnel Review, 34(1), pp. 85-109. Hofstede, G., 1994. The Business of International Business is Culture. International Business Review, (3)1, pp. 1-14. Hofstede, G., 2001. 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