Culture and International Business
Does culture still matter in International Business and Management? As global competition is getting tougher, more and more companies are being “forced” to engage in international business if they are to survive. Companies depend on a variety of factors, such as a high level of administrative competence from their managers in order to achieve success. One factor that is frequently being referred to as a critical success factor is cross-cultural literacy. This means that there is an increasingly need for business people to understand how cultural differences across and within nations can influence the way business is practiced.
On the other hand, many may argue that, because of the Globalization Phenomena, differences between nations are getting smaller or even disappearing because of the raise of a global culture. Supporters of this idea probably share the same view as Levitt (1983) who claimed that “effective global strategy is all about product standardization”. He also believed that a unified world marketplace would be created and that localizing the marketing mix would be unnecessary.
Consequently, if Levitt were right, this would probably suggest that cultural differences would not really have any consequences for international business and management anymore. It is possible to agree with Levitt to some extent about product standardization when it comes to markets for industrial goods and materials that serve a universal need the world over. However, this does not mean that because a firm has adopted standardization strategy, people working in the different subsidiaries share the same social culture, norms and practices.
That is true even in firms that have a strong corporate culture. Hofstede proves this in his famous research about cultural differences with IBM employees in several different nations. To illustrate how culture still matters, I will be discussing some challenges managers meet in international business because of lack of cross-cultural literacy, including HRM issues and failed mergers. A current HRM problem is the high rate of expatriate failures. Researches suggest that the inabilityof expatriate managers to adjust to foreign postings seems to be caused by a lack of cultural skills on the part of the managers being transferred (Hill 2011). That been said, good training for expatriate managers should include cultural, language and practical training to reduce the chances of having them “coming home” earlier because they didn? t adjust the new country. Another HRM issue regarding culture and international business is how to compensate CEOs and manufacturing workers in different countries. Should they be paid according to the local standards or on a global basis?
In the article “The Impact of National Culture on CEO compensation and Salary Gaps Between CEOs and Manufacturing workers”, Tor Grenness analyses different hypothesis where one of his conclusions was that salary gaps had a positive correlation with the level of power distance (dimension measured by Hofstede) in a country. Still according to Grenness, this type of findings show that companies ought to be sensitive to the expectations and intricacies resulted from the differences in culture based practices when it comes to reward and remuneration.
For instance, in a country that scores low in power distance, manufacturing workers may not accept large salary gaps between them and the CEOs. Cross-borders acquisitions also have a high failure rate. Lack of cross-cultural understanding between the companies is often the main reason for many of the problems that may arise after an acquisition. Cultural clashes often result in high management turnover, probably because employees from different units often have different expectations and different “ways of doing things”.
Moreover, differences in management philosophy and company culture can slow down integration of operations causing substantial loss of time and money. A good example of how managers can underestimate the importance of cultural differences was the failed merger of the two telecommunications service operators Telia and Telenor in 1999. They were from neighbor countries that, looking from the outside, seem to have very similar cultures. The fact that the merger only lasted two months proved that there may be more differences between Norwegian and Swedish culture than most people could think of,specially when it comes to management practices and organizational culture. When these two companies, being from so “similar” countries, failed because of cultural differences, we can imagine how difficult it is to succeed in doing business and managing on “the other side” of the planet if managers lack cross-cultural literacy. The GLOBE project, which developed a study for identifying more cross-cultural leadership theory, concluded their empirical research by suggesting, in other words, that culture still matters in international business and management.
In fact, cross-cultural literacy can be seen not only as a critical success factor, but also as a competitive advantage in many situations. It is possible to observe some convergence in tastes and preferences across nations when it comes to music, food, clothes and technology. However, in accordance with the GLOBE findings, we can say that it would be foolish of one to assume that because people eat at McDonalds all over the world, they will accept “any” kind of management practices in their workplace without any resistance.
It can be concluded that, even if globalization can be leading to some convergence in some cultural aspects across nations, we are still far from having a so-called “global culture”, especially in terms of management philosophies and international business. That does not mean that it is impossible to transfer or to change organization culture, or that cultural values are static. They do change, but it takes more time than many can afford to wait for. Until then, it can be wise to invest in management developing programs that include cultural differences before sending managers abroad.
In fact, culture may now matter more than ever before. References Book: Hill, Charles W. L.. 2011. International business: Competing in the Global Marketplace. 8th ed. McGraw-Hill/Irwin Articles: Javidan, Dorfman, de Luque and House. In the Eye of the Beholder: Cross Cultural Lessons in Leadership from Project GLOBE. 2011. Tony Fang, Camilla Fridh, Sara Schultzberg. 2004. Why did the Telia–Telenor merger fail? http://www. tonyfang. se/images/tf-images/journals/FangEtAl(2004)WhydidtheTelia-Telenormergerfail. pdf Tor Grenness. The Impact of National Culture on CEO Compensations and Salary Gaps Between CEOs and Manufacturing Workers. 2011.