Key role in international business management

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The purpose of this essay is to explain how national culture differences play a key role in international business management. Cross cultural failures happen most often in alliances, mergers, acquisitions and joint ventures. Statistics tell us that more than half of attended mergers and acquisition fail. (Zweiffel, 2003)

Obviously, the cultural aspects and national specificities impact at the same time the behaviour of the customers, of the Management, of the employees, and the business overall. Through examples, BMW and Rover, Siemens, Pharmacia and Upjohn we will explain how cultural typologies and frameworks (Hofstede, Trompenaars and Globe) may help managers to avoid problem occurring from cultural differences of business, and analyse the limits and weaknesses of these frameworks.

National and Business Culture:

It is important to outline the impact of the particular characteristics of individuals or groups influenced by the culture of a specific region. Hofstede and Moon said that "National culture provides an implicit theory relating to behavioural expectations in a variety of situations, including communication" (Hofstede & Bond, 1988; Moon, 1996). Following this affirmation, we have to consider different impacts. The first one address the face to face (communication, negotiations, meeting), the second one, the relationship company to company (Contracts, Alliances, JVs and M&A) and the last, the company to the customers (Product specificity, consumers, marketing…). These characteristics are driven by two complementary levels, psychological and institutional.

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Let us start our discussion with some few definitions of culture to understand what business and national culture means.

Authors have different approach to define Culture.

Hofstede present Culture as the whole of value for a group of citizens and "the collective programming of the mind that distinguishes the members of one group or category of people from another" (Hofstede, 2001, p9) For Trompenaars, it is the way in which a whole of individuals solve the problems… it is also the context in which the events occur. Mead considers culture as the distinct way in which various social groups answer to similar situations. For her, "the culture of the organization reflects at the same time the national culture and the values transmitted by the shareholders or Management". (Mead, 1962)

In that condition, we have to take in account three categories of organisation:

The Multinational Organisation presents in several countries, but where we find a native culture, which is dominant for the most of its leaders. Secondly, a Company formed by a Merging of two partners from different nationalities and cultures, Merging and Acquisition or Joint venture. And the international organisation, because it has no specific national culture, the leaders are coming from each subsidiary's country.

Another aspect of international business that managers need to address is the relationship with international buyers and suppliers. (Company to customer)

Then, we can distinguish two ways of international management:

  1. The culture of the company prevails on the national cultures, through the standards and guidelines delivered by the headquarters.
  2. The respect of the national cultures is carried out by the freedom, authorized by the general headquarter, to reflect, in each country, its own values;

Now, to continue further our analysis, it is interesting to understand how Hofstede and Trompenaars typologies and frameworks work and may help managers in leading cross-cultural business contexts and potentially avoid cultural clashes.

Typologies and Frameworks

Hostede's studies are collected from a well known large multinational firm (IBM) within subsidiaries located in 70 countries. The results of this analysis have contributed to a better understanding of the cultural differences between countries. Hofstede's results are categorised in four dimensions on which country's cultures differ: Individualism and collectivism, Power distance, Uncertainty avoidance, and Masculinity - femininity. (p137) (Appendix 1)

The evaluation of each dimension permits to position and compare countries and put in place some maps.

Hofstede's power distance against individualism - 1983

Trompenaars and Hampden-Turner, on the other hand, classified cultures along a mix of behavioural and value patterns. Their research focuses on cultural dimensions of business culture. Trompennars and HT identify seven dimensions of which some can be regarded as nearly identical to hofstede's: Universalism/particularism, individualism/collectivism, Neutral/emotional, Specific/diffuse, achievement, times and environment. (p139) (Appendix 2)

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In the last decades, the Global Leadership and Organisational Behaviour Effectiveness (GLOBE) researchers have built across 62 countries, and 3 industries (telecommunication, food, Banking), a classification of the countries, based on Hofstede and Trompenaars research, with nine key cultural dimension: Assertiveness, future orientation, gender differentiation, uncertainty avoidance, power distance, institutional collectivism, in group collectivism, performance orientation, and humane orientation. (p140) (Appendix 3)

Some tools, based on these different researches, compare the countries together. It is the case for the Global integrator spider graph proposed by Thomas D Zweifel with 8 key cultural dimensions. You can map two countries' culture onto each other, and then you can easily perceive similarities and discrepancies.

The Global integrator spider graph - Thomas D Zweifel (2003)

From theories to practice

The international automotive industry in permanent evolution, trying to adapt the products to the market needs, and looking for growing their market share and trying to find solution to reduce cost to gain in profitability, gives us a lot of example of international merging and acquisitions which are all potential Culture clashes.

In the beginning of the 90's, BMW a German company took over Rover from British Aerospace in the United Kingdom. The aim of BMW was to extend its portfolio, and especially with the front wheel drive and four wheels drive technologies (The Economist, 1998). In another hand, Rover was a more volume oriented manufacturer (BMW a niche player), and gave in the same time the opportunity to BMW to spread Fuel and CO2 legislation efficiency to more cars. UK labour rate costs were 60% less than Germany's one. (Mr. Robert Kloss senior finance controller for BMW/Rover)

Rover group was making profits, and particularly known for the quality of its products. Both companies were symbols of national pride and certainly embedded in their own culture.

The strategy of BMW's management was to transfer its own management style to Rover in the UK and the merger was executed rapidly.

  • Now, going further to identify what's gone wrong:

If we refer to articles and various analysts studies, it appears that "the transition from a native board and directors to a German was difficult to accept by some stakeholders" (Zweifel 2002). The lack of communication and the velocity of merging are noticed.

What are the main information, that our national culture Typologies and frameworks are giving us regarding Germany and UK?

In Hofstede's researches, UK appears more individualist compared to Germany, with higher uncertainty avoidance.

Trompenaars shows a high level of particularism. Another aspect addressed by its studies is the culture embodied in national institution. It shows that UK is more in pluralism, equality influence than Germany. Germans are identified as Hierarchy, command control that not fit with UK's culture. The World War 2 was still present in the minds.

Societal and emotional aspects are intensified due to the high levels of changes and uncertainty associated with the transaction.

The culture clash has probably exacerbated the difficulties encountered by BMW during the merging. If we address these few dimensions, it underlines that BMW leaders made key mistakes especially in the speed of integration, in management style approach and communication, and overall having ignored national cultural difference.

In that case, Theories and Framework could have help BMW's leaders to anticipate such cultural difficulties.

It is interesting to see now, how the change of management cultural style could have an impact, even without any merging or Cross border business. We will discuss about Siemens, a German multinational enterprise, in the electronic industry.

In the early 2000, Mr Klaus Kleinfled (German) was named CEO of Siemens in Germany, after a long period managing in the US. He was at General Electrics a major competitor for Siemens, and CEO for the US Siemens Branch.

With branches in 190 countries and its market position, the company has long been respected for its engineering capabilities but derided for its sluggishness.

To gain in productivity, Kleinfled has tried to implement the US management style, changing organisation, cutting costs, and in the subsidiaries that not reach their objectives, the managers were resigned…

Many internal surveys have shown a decrease of employee and management welfare and morale. "His tactics have made him a target for German resentment of globalization and the perceived heartlessness of US-style management methods". (Businessweek, 2007)

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Looking at the national cultural dimension frameworks, we will try to explain the origin of the problems faced by the CEO.

In this discussion, we will assume that Kleinfled even if a German native; he was culturally influenced by the US.

If we compare Germany to the US, it appears clearly that Germans are less comfortable with risk and uncertainty and highly resistant to change than Americans, associated with a national culture of collectivism, represented by the high power of workers councils.

In the essential aspects of the management, the US style doesn't fit at all with the German Culture and it can explain the most of the problems encountered in Siemens and by Kleinfled.

This case put in evidence the need to address differences in enterprise cultures, whether they are geographic, functional or corporate.

To continue our progression, we will discuss around the Pharmacia and Upjohn merging, reported by Alan Rugman (p130).

In 1995, the Sweden's Pharmacia and the US based Upjohn have decided to merge. The two research centred-companies have merged to become one of the largest MNE in the pharmaceutical industry.

Internally, the executives struggled to resolve the culture clash with offices in US; Sweden; and Italy. Finally Pharmacia & Upjohn decided to create a new Headquarter in New Jersey, and closed its other offices, exacerbating misunderstandings and battles between the American, British, Italian and Swedish executives…

In this case, and if we refer to national characteristics, we can understand better what happened.

If we compare Sweden to US, we find that US culture has a higher power distance, individualistic and performance oriented. Sweden has high uncertainty avoidance, high values of relationship and quality of life (feminism), and these values don't fit with the other countries, which are more masculinity.

By opposition with Italians, Swedes are less group collectivism. Italian are less achievement oriented than Americans and more emotional…

All this major cultural difference seems not have been anticipated by the management before the merging decision, it has certainly conducted to the failure…

Limits and Weaknesses of the Stereotypical national culture characteristics:

Going deeper in the various classifications, those are mainly laid of Hofstede's studies, we can identify any particularities.

  1. The social and the institutional are defined as consequences of national culture. It doesn't take in account the diversity of the population that may lead national differences. "Hofstede's model is closed to the idea that values might be, or might also be, the consequences of the social/institutional" (Whitley, 1992)
  2. It appears that each individual of a nation is identifiable as a micro group, against heterogeneity. In fact, Hofstede in 1991 has tried to introduce the average and central view in his culture definition.
  3. The national culture influence the questionnaire submitted to the survey and the questionnaire response. It consists on considering the micro group as uniform…
  4. The approach of classifying a national culture through a questionnaire makes some philosophical questions. Can we reduce the national culture and a national history to 32 statements and define the differences of the countries through the different responses analysis?
  5. The difference between national territory and national culture is not as strict. If we think about Belgium (Wallon / Duch), Spain or Switzerland, we can easily perceive cultural differences starting by the language used.

In fine, the redundancies of characteristics like lower distance and Femisnism for e.g. make the analysis difficult.

Conclusion:

Following this essay we have discussed around the characteristics dimensions of the national culture in a Business context. Through specific and known cases, Rover and BMW, Siemens, and Pharmacia and Upjohn, we referred to Hofstede, Trompenaars, and GLOBE researches, and their stereotypes classification, to understand if these theories may help leaders to take opportune decisions in international Business context and avoid the Cultural clashes they have faced.

It is obvious, in a Business context, that the time is the enemy and leaders use to prioritise the financial aspects instead of understanding the Corporate Culture and Human implications. But, failing to conduct a rigorous cultural assessment up front might be considered as a source of cultural clash that may conduce to fail in the business objective…

We have seen that a M&A, JV, international Business organisations can only work efficiently if it its members share the same values. It creates an invisible cement that permit to work effectively.

It seems that to succeed in MNE environment, the leaders coming from the dominant culture especially in acquisition, need to adapt themselves or be bicultural to limit the culture risks from a workplace prospective. In subsidiaries, just the interface leaders with the headquarters need to be bicultural. In international organisation, the problem is more complex as no culture prevails the others. The only way to succeed may be to create an organisational sub culture based on the activity, like corporatism, instead of a National culture identity.

Reference and Bibiography:

Mead, M. National character in S. Tax (Ed.) Anthropology today, Chicago: University of Chicago Press, 1962.

Zweifel, T.D. Culture Clash: Managing the Global High-Performance Team, Swiss Consulting Group, Inc., 2002

Griffith D.A., Journal of World Business, vol. 37, Dpt of Marketing, college of Business BUSAD C402g, University of Hawaii, Honolulu, USA, p256-265, 2002

Moon, D. G Concepts of culture: implications for intercultural communication research. Communication Quarterly, 44(1): 70-81,1996

Hofstede, G.and Bond, M. Culture's consequences: International differences in work-related values. Berverly Hills, CA: Sage, 1988

Cardel G. M., Søderberg, A. and Torp J. E., Cultural dimensions of international mergers and acquisitions, De Gruyter studies in organization vol. 85, Ed. Walter de Gruyter, 1998

Whitley, R. The social construction of organizations and markets: the comparative analysis of business recipes, Ed. M. Reed and M. Hughes, Rethinking Organization, 1992.

Ewing, J., Siemens' Culture Clash, CEO Kleinfeld is making changes, and enemies-including within the ranks, Businessweek, http://www.businessweek.com/magazine/content/07_05/b4019058.htm, January 29th, 2007, accessed on January the 16th, 2010