Cross-Cultural Management, Theory of Business Alliance Formation - Speech or Presentation Example

Cross-Cultural Management: Literature Review and Analysis (Presentation) Introduction Managers in a cross-cultural work environment can see the characteristics of different cultures – ethnicity, belief systems, languages, ways of relating to others, and even simpler things like food, styles of dress, and music. But successfully managing a culturally-diverse workforce requires a deeper understanding of the fundamental components of culture and how they interact. This is the key takeaway from the article reviewed for this presentation, “Multicultural workforce requires multicultural leadership,” which was an interview of Farid A. Muna and Ziad A. Zennie of Meirc Training and Consulting and authors of a new book, Developing Multicultural Leaders: The journey to leadership success. This presentation will explore ways to understand fundamentals of culture in the context of cultural theories. Presentation Outline In this presentation, I will first give a definition of culture; then the interactions of culture described by Cross-Cultural Theory will be presented. How these theories are reflected in the understanding of International Business Theory will be explained, and then finally, some implications for managers will be discussed. Defining Culture Culture can be defined as “the collective programming of the mind which distinguishes the members of one category of people from another.” (Hofstede, 1994) A “category of people” can be any sort of group which can be defined and distinguished from other groups, such as the people of an entire country, a particular ethnic or religious group, or a business group such as the staff of a particular company, or people engaged in the same sort of trade or industry. The “collective programming” represents a sort of information-processing system; the aspects of the culture determine how the people of that culture understand outside information, communicate with other people, and form opinions. (Mitchell, et al., 2000; Leung, et al., 2005) Cross-Cultural Theories There are three cross-cultural theories which are important to the understanding of how to manage diverse workforces, because these three theories are reflected in concepts of international business. They are: Cross-Cultural Adaptation Theory – Describes how people adjust to “get along” with a new culture and function effectively. (Kim, 2009) As the person becomes immersed in the new culture, how well he communicates and can relate the characteristics of the new culture to his own determines how well he fits in. What helps this process is that some communication – such as facial expressions that signal basic emotions like happiness, anger, sadness, confusion, etc. – are universal. (Russell, 1994) Cross-Cultural Adaptation is a dynamic process; as the person and the new culture communicate and learn from one another, they both change, so that after a period of time neither is quite the same as they were at their first interaction. 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 & motivation, and the second pair is the person & the circumstances. (Mitchell, et al., 2000) The first pair describes how the person communicates and processes knowledge and what he focuses on; the second pair describes the person’s cultural and personal background and the situation he is in. These two pairs of characteristics work within a framework with three parts (Leung, et al., 2005): Frames describe the environment, such as a work situation. The person & circumstances determine the frame. Schemas describe the knowledge framework; this could be, for example, the kind of language spoken or the knowledge that is common to a specific discipline – for instance, medicine or engineering. Cognition determines the schema. Scripts are particular actions and time sequences – “who does what & when”. Motivation and objectives determine the script. How much of these various factors people from different cultures have in common determines how easily they will interact successfully. Cultural Value Dimensions – Identifies different “bi-polar” dimensions; developed from the work of Geert Hofstede and Shalom Schwartz. (Licht, 2001) A bi-polar dimension is one that has two extremes; for example, Hofstede’s dimension of “Individualism” actually describes a range of cultural characteristics from “completely individualistic” to “completely collective.” In reality, cultures’ Individualism descriptions would fall somewhere in between those two extremes; the United States, for example, is considered more individualistic than China, but neither is completely one or the other. This idea of “existing between two extremes” is important, because CVD identifies a starting point of characteristics between two cultures in an interaction. But, most cultural orientation is developed through socialisation – a person in a new culture will take in characteristics of that new culture, while the new culture learns and adapts to him; this is the same idea of dynamic culture expressed in Cross-Cultural Adaptation. As the person and the culture adjust to each other, the CVD’s will move, if only a little bit, along the scale between the bi-polar extremes. Theories of International Business Because international business is made up of interactions between entities – whether those are individuals, business groups, or even entire countries – the main concept underlying international business theory is Bargaining Theory. Not only are cross-cultural theories reflected in bargaining theory, but they are seen in other concepts and theories of international business. For example, cultural dimensions can be identified in differences in accounting practises in different cultures. Cultural dimensions and Social Cognition Theory can also be seen in the Theory of Business Alliance Formation. Bargaining Theory Bargaining Theory is a very simple idea that looks at every interaction between two parties as a kind of negotiation. (Grosse & Behrman, 1992) The interaction of the parties is in turn determined by the different assets, abilities, and interests each brings to the relationship. All these things, of course, are factors that are either products of or are at least affected by culture. Therefore, cross-cultural theories are very relevant to bargaining theory. Example: Cultural Dimensions in different international accounting practices (NOTE: To save time, move through this slide quickly.) Cultural dimensions of entire cultures can be seen in the practise of specific professions, such as accounting. (Gray, 1988) In accounting, differences between the way in which it is done in one culture or another can be defined by similar ‘bi-polar’ dimensions: Professionalism vs. Statutory Control – Do accountants in a particular culture prefer peer or association regulation, or do they prefer actual legal regulation and government oversight? This reflects the culture’s Power-Distance Dimension. (Hofstede, 1994) Uniformity vs. Flexibility – Does the practise of accounting adhere to strict rules and procedures, or does it allow for flexibility depending on circumstances in a particular situation? This dimension could be compared to the cultural dimension of Individualism. Conservatism vs. Optimism – Are accountants creative risk-takers, or are they conservative in their approach? This corresponds to the Uncertainty Avoidance dimension. Secrecy vs. Transparency – Is the practise of accounting in a particular culture open, with information being made available freely, or do accountants practise discretion and only share information with ‘need to know’ parties? This is also similar to the Power-Distance dimension. Theory of Business Alliance Formation The Theory of Business Alliance Formation deals with relationships between firms, and is based on four other theories: transaction costs theory, which measures the decision of firms to enter an alliance based on the firm’s judgment of the costs of doing so; agency theory, which says that firms compare conflicting interests with potential partners against the gain or loss of their own efficiency that might come about as a result of a partnership; relational contracting, which quite simply measures the level of trust between firms as a factor in partnerships; and resource-dependence, which states that firms decide on alliances based on what resources they can gain from their potential partner. (Sheth & Parvatiyar, 1992) Another factor added to these four is uncertainty, which is a judgment on the part of both firms of their own comfort with risk-taking as well as what they perceive the other firm’s risk attitude is. Because things like “trust” and “uncertainty” are hard to measure, cross-cultural theory helps by providing a conceptual framework for understanding these factors: Trust can be measured (in a relative way) by identifying the “People” – whether the firms are competitors or non-competitors. Uncertainty can be measured by “Purpose” – whether the goal of the partnership for each partner is strategic or operational. These ideas – People and Purpose – are just variations of the two pairs of factors found in Social Cognition Theory. Implications for Managers Fortunately, there are some universal characteristics that managers can use as a starting point in effectively working with diverse cultures. Communication of basic emotions, for example, is the same for all people regardless of culture. (Russell, 1994) All cultures appear to have the same basic motivating needs for achievement and competence. And all cultures have a sense of the “psychological contract” between individual and organisation, an understanding that each has mutual responsibilities. (Gelfand, et al., 2007) BUT... Culture is a dynamic process, and the interaction between people of different cultures adds to each, and changes the cultural relationship as time goes on. Good communication – not only in being able to pass along knowledge, but in being able to gather and understand knowledge – is essential for a manager to be able to recognise this changing relationship. And it is important for the manager not to generalise too much for a group from a particular culture. Because cultural interaction ultimately involves individuals and their entire personality, there can be variations from one person to another. Again, good communication is vital to being able to successfully manage different people. The Authors Say: “Multicultural leadership encourages an inclusive and adaptable style that cultivates the ability to bring out the best in our diverse workforce and to fashion a sense of community with people from many parts of the globe.” In order to become a multicultural leader, the manager must understand the fundamental parts of culture and how these interact with other cultures. Understanding cross-cultural theory concepts and applying them to ideas in International Business can help to achieve this understanding. Summary Culture can be thought of as an information-processing and communications framework; people understand and interact with the world around them according to the tools they are given by their culture. Different characteristics of culture can be described by various cultural dimensions and broad factors, which are then reflected in interactions in a business environment. Therefore, understanding the basic concepts explained by cross-cultural theories will give the manager a good background to understand why the people in his culturally-diverse work group act and respond to one another the way they do, and how to interact with them in an effective way. 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. Hofstede, G., 1994. The Business of International Business is Culture. International Business Review, (3)1, pp. 1-14. Kim, Y.Y., 2009. Theory Reflections: Cross-Cultural Adaptation Theory. (online). NAFSA – Association of International Educators. Available from: http://www.nafsa.org/_/File/_/ theory_connections_crosscultural.pdf. Leung, K., Bhagat, R.S., Buchan, N.R., Erez, M., and Gibson, C.B., 2005. Culture and international business: recent advances and their implications for future research. Journal of International Business Studies, 36, 357–378. Licht, A.N., 2001. The Mother of All Path Dependencies: Toward a Cross-Cultural Theory of Corporate Governance Systems. Delaware Journal of Corporate Law, 26, pp. 147-209. Mitchell, R.K., Smith, B., Seawright, K.W., and Morse, E.A., 2000. Cross-Cultural Cognitions and the Venture Creation Decision. Academy of Management Journal, 43(5), pp. 974-993. Ralston D.A., Terpstra-Tong, J., Maignan, I., Napier, N.K., and Nguyen, V.T., 2006. Vietnam: a cross-cultural comparison of upward influence ethics. Journal of International Management, 12. pp. 85-105. Russell, J.A., 1994. Is There Universal Recognition of Emotion From Facial Expression? A Review of the Cross-Cultural Studies. Psychological Bulletin, 115(1): 102-141. Sheth, J.N., and Parvatiyar, A., 1992. Towards a Theory of Business Alliance Formation. Scandinavian International Business Review, 1(3), pp. 71-87. Read More