Analysis Of Changing Global Economic Scenarios Commerce Essay

Published: Last Edited:

This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.

With the changing global economic scenario companies often decide to expand into new and hitherto unexplored places. For an organization, expanding is not a very simple task. It is a complex job involving many decision making processes. Furthermore, all these decisions and policies have to be framed keeping in mind the needs of the new environment they are entering. Thus, culture of the new place then becomes a deciding factor. It has been observed over the years that organizations successfully adapting to the new environments have succeeded or at the least not failed due to failure in adapting to the new culture. But, the organizations which have not been responsive have invariably failed. Such is the importance of culture for an organization's performance. Among many theories attempting to understand and analyze cultural dimensions across dimensions, those propounded by Hofstede and Schwartz hold an important place. In the present paper, we shall analyze and compare both the theories. In the second part, we shall see the applicability of the same in organizations. The study aims to clear the ambiguity about when and where to apply these theories. The following paragraphs describe Hofstede's and Schwartz's theories in brief.

Hofstede's Cultural Dimensions:

In order to be successful in various countries it is extremely crucial for organizations to observe and understand their respective cultures. In Hofstede's words, "Differences in ethics reflect cultural variations" (Hofstede 1991). Hofstede, through his theory helps in understanding culture through understanding the various dimensions of culture. According to him, culture is the "collective programming of the mind". What sets humans apart from computers, he says, is the quality of straying from the standard programmed behavior. He goes on to say that human beings have a set of mental programs peculiar to each individual and that they do not reveal these to other individuals. It is these programs that set the individuals apart and define their personalities. In his theory, Hofstede, has described five dimensions of culture. They are described below.

Power Index (pdi) is the first dimension of culture. It represents the acceptability of the less powerful members of the society of the fact that power is distributed unequally in the society. Hofstede says that although power and inequality form the basis of and are characteristic of every human society, they exist in varying degrees and forms in various societies. In order for the international organizations to understand this, it is very important for them to visit the places and study the cultures. For instance, while people in Sri Lanka and Africa are more apt for the power index, the Americans are mush less so. Individualism (IDV), according to Hofstede is the second dimension. This aspect refers to the tendency of human beings to look only after themselves or their immediate families (Hofstede 1980, 1991). Western countries are known to be more prone to this aspect. Collectivist culture, in contrast is known to be the opposite of individualistic culture, it is individualistic dimension reversed according to Hofstede. It is a culture where people are markedly more dependent on fellow beings and society and more emphasis is laid on thoroughly believing and practicing religion. People scoring more in collectivist culture score less in individualistic one and vice versa. The attribution of duties and roles to ales and females in a society is the third dimension viz Masculinity. If the society rests more power with the males it is termed as a masculine society, as the term suggests and feminine if is the opposite. Again, feminine society is the reverse of masculine society, so the society can either me masculine or feminine based upon the amount of power it attributes to each group. A prediction o the general behavior of the society can be made based upon the observation of its feminine or masculine behavior as there are striking differences between the working pattern and manners of men and women. While men are known to be more aggressive, risk-taking and aggressive in their behavior, women prefer to be more meticulous, co-operative and toned down their work.

The fourth dimension is Uncertainty avoidance. This represents the society's forbearance towards uncertainty and haziness. Those societies are termed as 'flexible' who do not take a lot of steps to avoid uncertainty and ambiguity indicating that they would be more open to changes in contrast to those who would act rigorously to shun changes. This feature is very much useful in predicting a particular region for businesses to grow. The fifth and last dimension put forth by Hofstede is Confucian, named after the Chinese philosopher named Confucius. This dimension was used to compare the orientation of people from 23 countries of the world. Short term and long term orientations were tested with certain values attached with each orientation. People with short term orientation were believed to be more tilted towards accomplishing social obligations and respecting tradition among other things. Groups that were long tern oriented laid more importance on values like perseverance and frugality.

Hofstede's theory proved to be significant in analyzing and understanding the culture of a place in more ways than one. A country's culture can be examined from various angles using Hofstede's theory by studying the type of people and type of society and its readiness to adapt to changes. The theory is based on assumption which more often than not, falls true. It was a set of questionnaires submitted by students and was taken from authentic sources, for instance, IBM employees (Stephan Dahl-2001).

Schwartz's Value Inventory:

Shalom Schwartz's approach towards the value inventory was a contrasting one. He worked out the Schwartz Value Inventory (svi) in order to figure out the cultural discrepancies in various societies. Schwartz (1992, 1994), instead of noting the favored outcomes, inquired about how the respondents felt about 57 different values. The responses were analyzed to see which ones of these people think were the "guiding principles of life". Schwartz's theory was based on individual level analysis in contrast to other theories like the one propounded by Hofstede. This theory, therefore, embarks on a different route from other cultural theories. It can be said with certainty that Schwartz's theory renders a more refined analysis than other theories like Hofstede theory which does not make a distinction between the individual level and the cultural level. The theory characteristically draws a differentiation between value types and value dimensions.

Also, making the theory more reliable, Schwartz based his theory on data collected from people spread over 63 countries. A total of 10 distinct value types were derived. At an individual level analysis, these value types were power, achievement, hedonism, stimulation, self-direction, universalism, benevolence, tradition, conformity and security. In the following paragraph an attempt has been made to explain in brief what Schwartz aimed to explain through these value types.

Various Individual value types by themselves represented one distinct value and jointly represented a "joint idea". Values falling under the category of the power value type symbolize those individuals who lay more importance on status or stature in society and/or influence over resources and people. As it is clearly evident, this analysis is more individual analysis than a group one. People laying more importance on success and appreciation are the ones who would have a high ranking in the achievement dimension. Pleasure and self-gratification id represented by the value type of Hedonism.. Again it is somewhat similar to individualism. It can be seen that a few value types coincide with the ones put forth by Hofstede. We can see that a number of value types match with the same dimension of Hofstede's theory. Benevolence value type represents inclination towards others' welfare and Universalism value type embodies regard for social justice and forbearance. Value type tradition represents regard for customs and traditions while Conformity value type represents compliance. Security, which is the last value type represents protection and accord in society and for oneself (Schwartz, 2001).

In addition to the above ten value types, Schwartz had put forth a few more important cultural value types. These were


Intellectual Autonomy

Affective Autonomy



Similarities and discrepancies in the theories:

Although both Hofstede and Schwartz put forth their theories with the same aim, it cannot be said that both the theories are the same. To point out the differences between the two theories, there are several important discrepancies that can be observed between the two. Firstly, it is very apparent that Schwartz has made both individual level and cultural level analysis while Hofstede, like many other theorists has not made the distinction between the two. This point of difference is the most evident one between the two theories. Secondly, While Hofstede has put forth only five dimensions for cultural analysis, Schwartz, making his theory much more qualitative, went much further and put forth seventeen dimensions. This renders Schwartz's theory as a more apt one for in-depth analysis into the area in question. Also, while Hofstede's used data collected only from IBM employees for basing his theory, Schwartz's theory was based on responses to overall 57 core vales from all its respondents and the results were then analyzed in order to formulate a theory. Although both Hofstede and Schwartz attempted to differentiate between value types and value dimensions, Schwartz gained an upper hand in this respect as the distinction was much more clearer in his theory. Pointing out the similarities between the two theories, it can be said that one value dimension i.e. egalitarian commitment versus hierarchy of Schwartz's theory is comparable with individualism/collectivism of Hofstede's theory.

Part II:

Market Segmentation & The Theories:

In order for an organization to be successful in its ventures, Market Segmentation and targeting are crucial activities. In the present international market scenario where numerous firms are going global and expanding into new places, they need to segment their markets very carefully which means that the market is split into smaller and convenient units. The practice of market segmentation helps organizations a great deal in understanding the needs and demands of their markets in a more comprehensive way. Understanding their customer's needs and acting accordingly would translate into the organization getting a fair market share which in turn helps the organization gain a standing in the market against other firms. These facts clearly indicate the crucial role played by market segmentation activity. In the following paragraph we shall see how the Hofstede's and Schwartz's help in segmenting markets.

First, let us take up Hofstede's theory and see how it helps to understand markets and segment them. The markets can be analyzed by giving them points on each of the five dimensions mentioned in the theory. The markets having an inclination towards one of the opposing dimensions is then concluded to have that value .When Hofstede's theory was used to analyze the United Kingdom, it was found that the country's culture was less of a collective one and more of an individualistic one. After the values are attributed, they are given meanings and conclusions are drawn. For example, being a society which values individualism more than collectivism, it is understood that the people give more value to individual status and standing rather than the happiness of the larger group. Hence, the decision is taken by the organization to provide services and goods which enhance the self esteem and power of the individuals in the society. If that is not viable then the customer, at the least, is given the feeling of independence to promote a sense of belonging for the product or service offered. As Hofstede's theory provides a comprehensive and simple analysis of the market's values it becomes very easy for the organization to take decisions about the market. In the following paragraph we will see if and how chart's theory can be used.

The most striking feature of Schwartz theory is that it has both cultural and individual level analysis and both of these can be used as an effective tool for analyzing and segmenting markets. The cultural dimension, on one hand, can be used on a broader scale to understand and analyze the culture of the market by giving points on each value type. Subsequently, the market can then be divided further into more convenient units and then the individual level analysis can be used in the area to find out the individual perceptions. As a final step, both the cultural and individual analysis can merged to find out a more refined value orientation of the area. This finer analysis would go a long way in helping the organization make more fruitful conclusion about the market.

Having understood in detail what the premises of both the theories are and process of analyzing used in both theories, I personally find the Hofstede theory to be more pragmatic having stated that it has a more broader concept. In other words, it is much more closer to what an organization would demand for understanding its markets. Schwartz's theory makes the process much more complicated. It requires the organization to analyze the market twice and then merge the results of both analysis to finally get a picture of the market values. This is a very cumbersome process consuming additional time and cost. Moreover, more stress is laid on the individual level analysis and can instead be used as a tool to analyze behavior. A better way to analyze the markets would then be to get a picture of value inclinations of the market on the five dimensions put forth by Hofstede and then in the next stage conduct an individual analysis using Schwartz's theory. Although doing so may result may result in increased expenses o both time and resources, organizations requiring a finer analysis of their market may use this method.

Consumer Behavior & the Theories:

When it comes to winning a market share, understanding consumer behavior becomes inevitable. It is a chain process. If the organization wants to succeed it has to win a significant market share and in order to do so it has to satisfy its customers and the customers will only be satisfied if they are given what they truly want and need. "Target Marketing" therefore comes into play. It has been observed often that companies spend huge amounts on marketing and advertisement campaigns which sometimes fail to catch the attention of a lot of customers. In such a case their extensive investment on advertising and marketing goes in vain. Hence it is extremely important to identify people who need the products and advertise it to them.

Both Hofstede and Schwartz helped us in analyzing and understanding consumer behavior. Let us look at Hofstede's work first. Culture and consumer behavior are more often than not intricately linked. Culture invariably goes a long way in deterring the behavior and likes and dislikes of the consumers. For instance, a person from a culture prohibiting the consumption of meat will not have a demand for meat at all. There are a few shortfalls in analyzing consumer behavior through this theory. Firstly, it only helps in making assumptions and does not go a long way in predicting exactly how a consumer would behave in a particular environment as there are extraneous variables interfering with the behavior and decisions of the individuals. The theory lays a lot of importance only on culture, but, it ignores the fact that there a lot more factors affecting behavior of consumers. It can therefore be said that the theory does not have a comprehensive approach towards understanding consumer behavior.

Looking at Schwartz's theory, it is evident that it is much more individual oriented and proves to be more helpful in understanding consumer behavior. Further, the behavior of consumers in a particular region can be predicted with much more accuracy using this theory as it nearly nullifies the problem related to unpredictable variables in understanding consumer behavior. Schwartz's theory lays much more importance on individual level analysis than Hofstede's theory which makes it much more refined and suited for predicting consumer behavior as it has many more areas covered for analysis than Hofstede's theory. The theory is extremely reliable for organizations to base their decisions upon.

In conclusion, it can be said with certainty that Schwartz's theory goes a long way in predicting consumer behavior than Hofstede's theory taking into account numerous factors mentioned above.


1: Stephan Dahl, 2001- Intercultural Research- The current state of knowledge, Middlesex University Business School.

2: Schwartz, S. H. (1992). Universals in the Content and Structure of Values: Theoretical Advances and Empirical Tests in 20 Countries. Advances in Experimental Social Psychology. M. Zanna. San Diego, Academic Press.

3: Hofstede, G. 1991. Cultures and Organizations: Software of the Mind, London: McGraw-Hill Book Company.

4:Hofstede, G. and Michael H. Bond. 1984. "Hofstede's Culture Dimensions: An Independent Validation Using Rokeach's Value Survey." Journal

of Cross-Cultural Psychology 15(4): 417-433.

5: Hofstede, G. 1980. Culture's Consequences: International Differences in Work-Related Values, Beverly Hills, CA: Sage.

6: Hofstede Geert-2001-. Culture's Consequences, Comparing Values, Behaviors, Institutions, and Organizations Across Nations Thousand Oaks CA: Sage Publications, 2001