This essay examines the ways in which cultures and cultural influences influence the conduct of international business.
Whilst many corporate business enterprises, starting from the days of the East India Company in the 17th century, have spread their operations beyond their national boundaries, the last three decades have witnessed an explosion in international trade and activity (Dunning, 2001, p 14). Whilst such international activity has been facilitated by economic liberalisation in the developing economies, the removal of barriers to movement of people, goods and finance, enormous advances in communication technology and globalisation, it has been led by the multinational corporations (Dunning, 2001, p 14).
MNCs have utilised the huge business opportunities that have emerged in recent years to increase their operations enormously across the globe. MNCs now account for more than 33% of global output and more than 67% of global trade (Johnson & Turner, 2003, p 48). Whilst multinational organisations are exploiting these contemporary international business opportunities, they are required to deal with the people of different nations and cultures to achieve their economic and business objectives (Johnson & Turner, 2003, p 48). Such tasks are likely to be extremely challenging because of the differences in the local and national cultures of the different areas and regions in which international business takes place and in which multinational companies operate (Johnson & Turner, 2003, p 48).
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Tesco, the leading foods retailer of the UK, has in recent years expanded its operations outside Britain and has established retailing operations in numerous countries (Tesco.com, 2011, p 1-2). Tesco's local and international managers have to work in significantly different cultural environments in these different locations. Such differences can influence their interaction with customers, local suppliers, bureaucrats and government officials. It is important for organisational employees to recognise cultural differences, take account of such differences in their plans and operations and use such differences for organisational advantage (Michael, 1997, p 46).
Geertz Hofstede and Fons Trompenaars have conducted extensive research on national cultures, the reasons for differences in national cultures and the many ways wherein such differences shape and influence the operations of local and international business organisations (Hofstede, 1997, p 7) (Trompenaars & Hampden-Turner, 1997, p 11). This essay examines the role of national cultures with the use of the frameworks provided by Hofstede and Trompenaars to determine the ways in which such cultures influence and shape the actions and responses of business corporations.
Overview of National Cultures and their Implications
Culture represents an ambiguous and descriptive term for the way of life and functioning of specific organisations, peoples, states, regions and even nations (Hall, 1990, p 32). Whilst they include factors like the ways in which humans interact with each other, and the ways in which they talk, think, pray and dress, they can in the broader sense be considered to be the accumulation of various elements like beliefs, values, attitudes, knowledge and experience that are acquired by people over long time periods by means of collective and individual effort (Hall, 1990, p 32). Such cultures consist of tacit and explicit behavioural patterns that are obtained and transmitted through various symbols (Hall, 1990, p 32). Whilst culture can be defined in various ways, they are represented at different levels of depth by factors like values, which form their essence and are represented by rituals, heroes and symbols (Hall, 1990, p 32).
Theories of National Cultures
Greetz Hofstede, the well know Swedish anthropologist and cultural expert studied data on persons from numerous countries in the late 1960s and the early 1970s and thereafter formulated an advanced model of national cultures with four specific features, i.e. (a) individualism as opposed to collectivism, (b) masculinity vis-a-vis femininity, (c) power distance and (d) uncertainty avoidance to facilitate the differentiation of the cultures of various regions, states and nations. He thereafter introduced another dimension based on confusion principles that concern short v long-term orientation. Hofstede as well as others have over the years conducted a number of studies that by and large validate the relevance of these different dimensions for the assessment of national cultures (Hofstede, 2001, p 21).
Individualism constitutes the extent to which the people of specific societies are likely to integrate within groups (Hofstede, 2001, p 21). Individualist societies are characterised by far looser and relaxed times between individuals than collectivist societies. Such societies have individuals who by and large take care of their own selves and their families (Hofstede, 2001, p 21). Collectivist societies on the other hand are characterised by the presence of strong and integrated groups that demand loyalty from members and provide sustenance, support and protection in return (Hofstede, 2001, p 21). Masculine societies are characterised by assertive social environments that foster competitiveness and even aggression in people whereas feminine societies are known to be more gentle and caring (Hofstede, 2001, p 21). Uncertainty avoidance relates the tolerance level of societies for uncertainty and also represents the level to which their members feel comfortable with strictness in laws, rules and regulations (Hofstede, 2001, p 21). Societies with high uncertainty indices are open to various opinions and do not bar different philosophies, religions and streams of thought to exist side by side (Hofstede, 2001, p 21). Long term orientation, which stems from the dynamism of confusions places stress on long term ideals like virtue and perseverance, whilst people belonging to cultures that have short term orientation are more concerned with social obligations and status (Hofstede, 2001, p 21).
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Trompenaars, another Swedish anthropologist and a peer of Hofstede described culture by way of seven dimensions, (i) particularism v universalism, (ii) collectivism v individualism, (iii) emotional v neutral, (iv) ascription v achievement, (v) diffuse v specific, (vi) different attitudes towards time (vii) various perspectives towards environment (Trompenaars & Hampden-Turner, 1997, p 15). Whilst there are significant similarities between Hofstede's and Trompenaars elaboration of national cultures, Trompenaars does explore a number of additional features like exhibition of emotions, accountability, the requirement to prove oneself to achieve status, internal v external control and the capacity to simultaneously do different things (Trompenaars & Hampden-Turner, 1997, p 15).
Implications of National Cultures for Business Organisations
The frameworks provided by Hofstede and Trompenaars, whilst similar and different in certain aspects, drive home the point that the cultures of different states, regions and even nations are likely to be shaped by individual features and are different from each other. Apart from the features described by Trompenaars and Hofstede, national cultures are also strongly influenced by religious beliefs and practices, especially in regions where religions play dominant roles in society (Rao, 2001, p 9). Multinational enterprises, whilst originating and having their home offices and operations in specific countries operate in numerous countries with very different cultures (Rao, 2001, p 9). Fast food chains like McDonalds and KFC, for example operate eating establishments in numerous countries that are inhabited by people with very different culinary histories, environments, attitudes and taste (McDonalds.com, 2011, p 1-2). Whilst beef is an important element of McDonald's offerings in the western countries and in the Middle East, it also operates in India where beef is prohibited on religious grounds to practically 85% of the local population (McDonalds.com, 2011, p 1-2).
Whilst McDonald's adjusts its menus in order to accommodate an oblige local food preferences within its overall policy of providing standardised, assembly line food in fixed restaurant frameworks, the influence of national culture on the operations of business organisations often extent into other realms of activity. Cultural factors play very important roles on organisational attitudes towards handling of local staff, dealing with local businessmen and suppliers, conducting advertising and marketing campaigns and liaising with local governmental and regulatory authorities (Rao, 2001, p 13). The attitudes of organisational employees of specific regions or states are likely to be significantly influenced by the level of individualism and power distance in societies (Rao, 2001, p 13). Members of societies with high levels of individualism and low power distance are unlikely to respond positively to authoritarian and command and control HR policies, even as members of collectivist and high power distance societies may actually like to be told what to do and function effectively in authoritarian and hierarchical organisations (Luo, 1999, p 36). MNCs have to adapt their organisational HR policies in line with local cultural factors to optimise the performance of their staff (Luo, 1999, p 36).
Cultural factors also play an important role in advertising and marketing strategies. Whilst much of advertising in the western countries is open and liberal in nature, especially in the use and depiction of women, such advertising strategies are likely to be inappropriate and ineffective in conservative societies like those of the Middle East and the North African states (Johnson & Turner, 2003, p 53). Advertisements that are considered to be normal and routine in the west can draw intense criticism and censure and prove to be ineffective and even harmful to organisational interests if used in conservative states that are dominated by religions (Johnson & Turner, 2003, p 53).
Such cultural differences also play very important roles in the conduct of business negotiations (Hofstede, 2001, p 36). Many states, especially those with high power distance, provide women with far lesser authority in areas of business and business operations are consequently dominated in such regions and countries by men (Hofstede, 2001, p 36). It could thus be difficult for female executives of multinational enterprises to initiate and conduct discussions in such environments and with organisations whose cultures and working are dominated by men (Hofstede, 2001, p 36). It is also normal for organisations in collectivist societies to place great emphasis on informal relationships and networks with friends and relatives for the taking of business decisions and forming of business alliances (Hofstede, 2001, p 36). Executives of multinational organisations may often feel confused and ill at ease in such surroundings, where business decisions are influenced by various factors that appear to be unrelated and extraneous to the business at hand (Hofstede, 2001, p 36).
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Multinational organisations and other companies who engage in international business operations constantly face such cultural challenges in their international functioning. The executives of such companies are not only required to adapt to local conditions, markets and cultures but also ensure that their actions are inconsonance with local cultural factors (Halepete, et al, 2008, p 702). The failure to do so can adversely affect their operations in various ways and could lead to marketing and operational failures. With international operations involving substantial outlays in terms of finances and effort, the failure to pay attention to local cultural factors could result in significant organisational losses (Halepete, et al, 2008, p 702). Walmart, the biggest global retailer, had to famously close down its operations in countries like Germany and South Koreas because of its failure to understand the implications of local cultures (Halepete, et al, 2008, p 702).
"In May 2006, Wal-Mart retreated from Korea by selling its 16 stores to a major local discount chain, Shinsegae Co., at U.S.$882 million, and exited from Germany in July 2006. Wal-Mart's stores in Korea lost approximately $10 million in 2005 on sales of $720 million" (Kim, 2008, p 345)
Contemporary MNCs pay significant attention to issues of culture and counter cultural challenges through various means like forming alliances with local businesses, using managers with substantial international experience and providing substantial training and orientation to managers to cope with such cultural challenges (Halepete, et al, 2008, p 703).
This short essay takes up the investigation of the role and impact of national culture in the functioning of business firms with international operations. It has been firmly established by numerous studies and research that the cultures of regions, states and nations tent to be unique and different from each other in various ways. Such differences in cultures are reflected in the attitudes, perceptions and behaviours of the members of these cultures and influence their buying, purchasing and consumption decisions.
The managements of MNCs need to seriously take account of these differences in cultural traits and plan for them in the formulation of business strategies and plans, especially in areas of marketing and dealing with local employees, business people and partners and governmental and regulatory authorities. The failure to do so may well lead to the occurrence of organisational failure and the incurrence of significant business losses. The failures of Wal-Mart in two very important overseas markets show that even efficient and otherwise successful business organisations are likely to make significant errors in reading the implications of local cultural traits and in their formulation of business strategy. Senior managements of international business organisations are required to increase their focus on understanding cultural implications in the conduct of their business in order to truly exploit the enormous global business opportunities that are available in contemporary times.