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It can be said that MNE's are organizations that interact with employees, customers, business partners and suppliers from different national cultures (Lasserre, 2008). People working in MNE's, have an opportunity to explore contrasting culture. Every nation and organizations have distinct political, social and economic environment. Different countries have different outlook towards the business. Companies should study intensively about the background of a country before entering that market. Especially some nations like India or Pakistan are highly culturally influenced, so there has to be a wise policy before making a move.
Example: Culture of Middle East countries is very diverse in accordance to western countries. In Arab countries affection is kept private. They have a conservative attitude, it shows in their way of dressing. Complimenting a lady is not a good idea in Arab and conversing you should be on a safer side by maintaining distance .Alcohol and pork is prohibited (Islam).Arab business management believes in harmony ,if any outsider try to force them in a business then refusal of deal is expected from them.
Therefore, a cultural difference in language, traditions and belief, way of living, education, creates a dilemma for organization in expanding their business. Differences force them to prepare new strategies, keeping in mind new culture and people response. For managers it will be easy to make strategies for their own culture but for other country it is a difficult task, sometimes leads to failure. As per Day (2006) "there are two types of cultural influences first is culture itself and second is legal environment (political, sociological and legal)".A value in the organization is affected by change in culture.
Culture can be defined as the underlying value framework that guides an individual's behavior. According to Torrington & Hall (1995) 'It is characteristic spirit and belief demonstrated by the values and norms that are shared by people. A broader definition of culture include 'shared pattern of behavior' (Mead, 1953) or 'system of shared meaning or understanding' (Geerts, 1983). It can be seen all these definitions have a common concept that culture is "shared". Hofstede as cited by Hortum & Muller (1989) states that culture is a collection of mental programming of people in an environment. It is clear that culture is not defined by an individual, but a group of people who are exposed to same life style and education. Culture is less tangible and more difficult to measure.
Greet Hofstede's research helps in identifying and getting an insight into other cultures which when followed by MNE's help them in being more effective in interacting with people of different countries. Hofstede's dimension shows how world is divided into several diverse groups which place them in different culture". The five dimensions of Hofstede's are:
Power Distance Index (PDI):
Higher the power distance, higher the degree of inequality. Countries having high power are more centralized and staff waits for the answers from their heads. Organization adopts hierarchy and autocratic way of dealing things. Low power countries believe in team work. Building of relationship is important to them weather inside an organization or with their collaborated partnersC:\Users\Capt Rizvi\Desktop\Fullscreen capture 1232010 54313 AM.bmp.jpg
Individualism nations are more interested in benefit of oneself. Self-winning and self-reliance explain their traits. Social interest is not given preference. "I" is a word for them. While for collectivist nations "We" is the word. They love their extended families and respect people of every age with different cultures. Such kind of a group believes in harmony and a good relationship with others
E.g.: Fig1 shows Australians and Venezuelans are opposite to each other in PDI and IDV. While Australians individualistic (IDV high) and democratic (PDI low), Venezuelans are collectivist and believers in formal authority (Hofstede, 1980)
Long Term Orientation (LTO):
Countries with long orientation are afraid to introduce change because they believe in future .They give more importance to education and training. Traditions are valuable to them and given importance. Countries falling low, are more towards equality and are highly creative. They love to welcome change and don't value tradition.
In masculine culture, males and females value assertiveness, ambition and competitions. While femininity countries have modesty, respect and a caring value. Masculinity group have a male power, their male and female working way is different and market is ruled by male force while in femininity nations female and male are at par .Both work hard and female do what male can do.
Uncertainty Avoidance Index (UA):
High in uncertainty level, nations avoid uncertain situations by having laws and regulations, safety and security measures. Nations avoid differences and they are very emotional too. Staff remains loyal to their organization and work with them for long. Countries low in uncertainty level has more tolerance level. They love to meet different people and welcome differences. Risk taking and handling unexpected situations are accepted.
E.g.: Fig 1 shows Australia and Venezuela not far from each other and having almost similar MAS and UAI. Suggesting that both cultures are dominated by males than by females. However Venezuelan doesn't take risk and avoid uncertainties. Hence we can say looking at the Hofstede of both countries that manager from Australia and Venezuela might face in dealing with each other might involve individualism and power differences. An Australian would act alone and treat others as equals while Venezuelan might seek support among members and then impose decisions on subordinates. (Johansson, 2009).
According to Lasserre (2008) the effect of cultural differences of MNE's are pervasive, all the aspect of corporate life is impacted by culture. Six aspects of MNE's are particularly influenced by cultural differences.
Marketing and Customer communication
Partnerships, Mergers & Acquisitions
Multi Cultural teams
Discussing the effect of culture on marketing and customer communication of MNE's.
Global Marketing and MNE's
The main task of any MNE's marketing manager is to understand customers' needs. A global marketer cannot overlook the fact that people in Hong Kong, India and Egypt are different, despite the growth of global travel services, global media networks, global hotel chains and global product offerings because marketing is a people- oriented function (Johansson, 2009)
It can be said that due to differences in culture, it becomes difficult for marketers to predict customer reactions and understand consumer behavior across countries for marketing a global product. Around the world customer have various needs, different economic constraints, divergence in choice criteria and moreover are influenced by different social norms and beliefs. To overcome the difficulty of culture factor, many marketers target segments in foreign countries that belong to the same ethnic and religious groups that are targeted at home country. Export expansion occurs into countries where a manager feels that the culture is similar. We can see the affect of culture on the way a company operates in a country. Thus culture not only sets new limits on the opportunities for buyers and sellers, it also determines their goals, preferences and aspirations (Johansson, 2009)
The main characteristics which MNE's marketers are attempting these days is standardization, through globalization, of all elements of the marketing mix as much as possible to target consumers having similar needs across the world. By standardizing their products, MNE's can capture economies of scale, reduced unit of product/services, reduced inventories, administration and logistics, reduced marketing expenditure. Four categories of product depending on consumer needs across the world are given by Lasserre (2008)
Global Standardization: Global (similar needs) customer demand and high volume of production E.g. Microprocessors, Consumer electronics, Chemicals etc.
Process Standardization: Global (similar needs) customer demand and low volume of production E.g. Fast Foods (McDonald's), Hotels, Cement etc.
Local Adaptations: Products and services tailored according to local needs E.g. Food, Consulting Services etc.
Modular Standardization: Local needs and high volume production E.g. Automobiles, IT Systems etc.
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We can argue that product and services which a MNE is developing to sell in foreign country must be recognized and identified before the design, and it should fulfill the need and taste of local people. A global entrant in local culture should recognize that the entry is not necessarily welcomed, as the company might not be able to adapt its strategy according to the culture. Supporting the argument by Porter (1990) as cited by Alashban et al (2002) that a firm's conduct is influenced by factors like religion, language, education, technology, and the economy. If a firm is entering into new country with different language then there is a chance that brand name may mean or connote something different, therefore company should adapt according to the country.
Though there are success stories like McDonald's, Coca-Cola and Marriott, but manager should always consider the potential of backlash (Johansson, 2009).There are famous anecdotes where firms failed in adapting itself according to the culture. Lego, the Danish toy maker, without any form of testing, analyzing and observing consumer preferences, behavior and choice criteria decided to use the same sales promotional format in Japan which they had successfully used in the US and several other foreign markets. The result was Lego faced massive failure in Japan. Marketers of Lego learnt that global sales promotion cannot be adapted for all the countries due to differences in culture (Kashani, 1989; Mesdag, 2000).
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Explaining the failure of Lego in Japan by Hofstede's dimensions. Japan has low uncertainty avoidance (UA) as compared to United States which has high uncertainty avoidance (Fig 3). When a new product is introduced like Lego in Japan, people are faced with uncertainty about the product (Lee et al, 2007) which is described as Product Uncertainty (PU). They reported that new innovative product is accepted easily in less UA culture. This fits with United States whose UAI= 44 while UAI of Japan is 98. UA is an important dimension of national culture (Steenkamp, 2001) It is difficult to penetrate in a market with high UA as people exhibit lower tolerance to uncertainty which they can face by trying new product(Hofstede,1991)( Lee et al, 2007).The effect of new product on both consumer evaluations and choice depends on uncertainty avoidance (UA) - a cultural dimension related to anxiety, rule orientation, security needs and deference to experts.
People get directly influenced by culture when it comes to their behavior, what they will do and what they can do. This interpretation is very useful for managers. It gives insight into how managers should decide and not what the decision should be. It can be said that culture has an effect on implementation and execution of strategies of MNE's rather than their formulation (Johansson, 2009). Culture influences manager's effectiveness in implementing and managing local business. There are implications for in the way manager should treat subordinates and other people (Brake et al, 1994; Becker, 2000)
Managers in their everyday experience interact with employees from different level and background in foreign countries. Culture creates different managerial style considered appropriate according to different countries (Harris and Moran, 1987; Terpstra and David. 1991; and Barsoux and Lawrence, 1991). Johansson (2009) gave comparison between companies from the "Triad" i.e. North America, Japan and Europe. Analyzing the culture by Hofstede's dimensions. European countries are divided into Northern Europe (Scandinavia, Finland and the Netherlands) and continental Europe (the rest, except Great Britain). Great Britain is included with North American countries because of individualism and low power distance.C:\Users\Capt Rizvi\Desktop\Fullscreen capture 1232010 60632 AM.bmp.jpg
Hence, the differences given in Fig 4 above explain the behavior of managers in MNE's. Japanese travel in groups as it has low individualism (IDV) score according to Hofstede, moreover they are carefully prepared for meeting protocols, listen well and take time in decision making which can be explained by high PDI and high UA as Japanese avoid risk and uncertainties by preparing themselves well in advance to face situations. Western Managers (USA, Great Britain) can be expected to take responsibilities on their own, being individually more confident and trusting their ability to take problem solve supported by high UAI, high MAS and low UA score if Hofstede's dimensions.
Cultural differences suggest that managers should have different leadership skills when managing subordinates and staff in overseas as compared to home. Managers from high context culture will be sensitive to non verbal cues, even if no word is spoken individuals communicate, these non verbal communication might be ignored by low context employees. Therefore a manager from high context culture will find it difficult to adjust in a low context culture which is ignored by low context cultures. Managers from high context culture pay attention to detail, omissions and nuisances. While a manager from low context culture like USA are not sensitive to nuisance, and intentions are expressed verbally. (Johansson, 2009)
To avoid cultural clashes, MNE's offer workshops and briefing to their managers about the new culture they will encounter before their departure to foreign country. These days companies make it sure that their employees' development programs have multinational groups and employees from different cultural backgrounds . This way companies help managers to get cultural training and help them in managing different people having varying beliefs, traditions, tastes and cultural values.