This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.
Culture is the shared values, practices, and beliefs of the people in an organisation. Culture refers to "ways of living", which distinguish one group of people from another group. Culture can be of two types national and corporate culture. When a firm goes international it must be able to integrate its organisational culture with the national culture of the host country to be successful there.
Cross-cultural barriers can cause hindrance to a firm trying to internationalise, thus to overcome this, firms must try and adjust themselves according to the national culture of the country and should follow a polycentric approach rather than an ethnocentric approach.
Hofstede's Cultural Typology
Hofstede's Cultural typology highlights the differences between countries based on certain cultural dimensions. These dimensions can be categorised into Power Distance, Uncertainty Avoidance, Individualism/Collectivism and Masculinity/Femininity.
· Power Distance is the extent to which hierarchical differences are accepted in society and articulated in term of deference to higher and lower social and decision levels in firms.
• Uncertainty Avoidance is the extent to which uncertainty, ambiguous, unclear and unstructured situations are tolerated in a society.
• Individualism/Collectivism is the extent to which individuals in a society are integrated into groups.
• Masculinity/Femininity is the extent to which traditional masculine values, like aggressiveness and assertiveness, are valued.
These dimensions help us compare and understand cross-cultural differences in behaviour.
Hofstede's dimensions have been criticised for its: limited ability to extend the dominant values present within a multinational to represent cultural values of
a country (Hunt, 1983; Robinson, 1983; Triandis, 1982; Banai, 1982; Schooler, 1983), insufficient precision in definition across categories (Chow et al, 1999, Schwartz, 1992), and limited scope in methodology and measurement (Yeh, 1988; Dorfman and Howell, 1988; Roberts and Boyciligiller,1984; and Robinson, 1983).
The extent to which products and services need to be adapted according to the culture-specific needs of different national markets is known as environmental sensitivity. Environmental sensitive products are easily affected by market conditions, technology, economic, social and cultural conditions whereas these hardly have an influence on insensitive products. Sensitivity of products can be determined by the level of product adaptation and environmental sensitivity. The higher the level of product adaptability and sensitivity, the more sensitive will the product.
DUNNING'S ECLECTIC FRAMEWORK
Agarwal and Ramaswami (1992, pp.3) state, "a firm is expected to choose the entry mode that offers the highest risk-adjusted return on investment." John Dunning's Eclectic Framework was formed to understand how international corporations decide on their specific international entry modes. According to him the specific entry mode is selected on the basis of three criterias which are as follows:-
Ownership or Firm Specific Advantages
Ownership advantages refer to those intangible assets which can easily be transferred within an organisation at a low cost and are exclusive to the company. For an organisation to be successful internationally, it must have advantage that overshadows their costs of operating internationally.
The three types of advantages that a firm can have are monopolistic and technological advantages or economies of large size.
Location Advantage or Country Specific Advantage
Location Advantages refer to country specific advantages which influence a company to carry out operations in that country. It refers to resource commitment issues, the availability and cost of resources. The location advantages hold a very important role while selecting a country to carry out operations in. They can be classified into economic, political and social or cultural advantages.
Internalization advantages is concerned with reducing transaction and coordination costs. It refers to the advantages which a company gets by transferring its ownership across national boundaries within its own firm.
The limitations of the theory are that it is not a dynamic theory as it neglects the factors and business environment around the decision maker and competitors. The theory only hold true in case of large firms and companies are going international irrespective of the benefits of the three variables.
The Internationalisation Process of Firms
The development of organisations through acquisition, integration, the use of knowledge about global markets and operations, and increasing commitments to foreign markets constitute the internationalisation process. This process can be explained with the help of the innovation-adoption inspired internationalisation models (Andersen 1993; Bikey and Tease,1997; Cavusgil, 1980) and the Uppsala process model (Johanson and Vahlne1998,1990; Johanson and Wiedersheim Paul,1975; Welch and Luostarinen, 1998). These two models are based on a behavioural approach where internationalisation is seen as
The Uppsala Model has given emphasis to learning, for example the internationalisation process of a firm could be a smoother process for it, if it was familiar with the foreign countires national-culture. It has also tried to identify paths of locational learning.
The model is based on the concept that increased market knowledge will lead to increased market commitment and vice versa.