Challenges Faced By The Multinational Companies Business Essay

Multinational companies are faced with the challenge of developing their operations in a constantly changing environment. Companies, in order to be successful, will have to go through a deep analysis to determine what their capabilities and weak areas are before going international. But this just the first stage of a very long journey of understanding the processes that create value and how the company integrates these processes in order to succeed in a foreign market.

The main motive of multinational companies is to avoid the saturation point or to increase the product life cycle. Today when the world is getting smaller and all the nations are getting close to each other it is very important for every growing organization to eye the foreign markets and increase its exporting and importing capabilities.

But problems occur when these multinational firms start operating in different countries and are surrounded by number of issues which create obstacles in their progress. Then let it be the government rules and regulations, the culture of that country or the working environment. Different countries have different approaches towards the business world.

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When companies go global, the governing personals have to be very adaptable in order to cooperate well with the native people or the market. Multinational company’s crucial step is to deploy suitable products and well trained personals in foreign countries. Companies set up research and development offices in these markets initially before entering these countries to study the market and culture of the people there.

The complexities of the issues faced by the companies need to be addressed so that the impact within the organisation is minimised. However the organisations need to be sensitive with their environment in a way that their strategic behaviour finds a harmonizing point between the local and the international environment and the organisation itself. The particular issues between the cross cultural management and personal administration is that is has been building up on its importance since multinational companies are bound to face different issues as they operate in foreign markets.

CULTURAL THEORY:

Organizations function diversely in different countries. They prepare policies for every country in which they plan to expand their business. In terms of cultural analysis, there are two main studies that can be referred as relevant in knowing culture environment of other country. First is Hofstede (2001) tells about the cultural differences through a deep evaluation of social and cultural dimensions. On the other hand the study of Trompenaars et al (1997) focuses not only on a much descriptive analysis of what are the cultural elements in societies but also links these cultural aspects to the business environments providing awareness on how to deal with inter cultural communication in business relation.

HOFSTEDE:

“Undoubtedly, the most significant cross-cultural study of work -related values is the one carried out by Hofstede’s”- Bhagat and Mcquaid (1982).

3 October 1928, Gerard Hendrik Hofstede was born. He was a student of national and organizational cultures. Hofstede effort commenced in 1980 . His research had 116,000 questionnaires taken by 60,000 people around 50 nations. From his research he provided four dimensions .Fifth dimension (Long/Short term orientation) was added after a strong study by Hofstede and Bond (Hofstede 1991b; Hofstede and Bond 1984; Hofstede and Bond 1988).

HOFSTEDE’S FIVE CULTURAL DIMENSIONS:

a) POWER DISTANCE INDEX (PDI):

PDI can be defined as a difference between nations on the bases of hierarchy and relationships. Nations who are falling high on power distance scale follow hierarchy way in there organization. Staff has to wait for a green signal from their officials. Parity is negligible and here is a large gap between the poor and the wealthy people. Students give respect to the teachers even after school hours. While, nations with low power distance believes in equality .Relationships and working in a team is significant for them. Powerful people try to be friendly with others .They don’t misuse their power.

High Power Distance Low

MAL ARA MEX IND FRA ITA JPN SPA ARG US GER UK DEN ISR AUT

b) INDIVIDUALISM (IDV):

In this dimension individualism is opposite to collectivism. Nations having individualistic traits look after their immediate family. They believe in “I have done this”. On the collectivist side people maintain relationship with their extended family as well. “We have done this” is their trait. In collectivist people give importance to group achievements and group rights. Unlike collectivist, in individualistic countries people need privacy and time is precious to them. Collectivist love to work in harmony.

Individualism Collectivism

AUL US UK CAN FRA GER SPA JPN MEX ITA KOR SIN

c) MASCULINITY (MAS):

Countries that are more masculine are task oriented and they look for result. While countries with low masculine are more affectionate and male/female is at par level .Discrimination is nil in these countries while in masculine, male dominates all over. MAS countries are more competitive in comparison to the other. Unlike femininity (small and slow), masculine countries look for fast and big achievements. Masculine traits are success, individual achievement, competition, material love and power.

Masculinity Femininity

JPN MEX GER UK US ARA FRA KOR POR CHC DEN SWE

d) UNCERTAINTY AVOIDANCE INDEX (UAI):

Countries falling strongly on uncertainty avoidance are threatened to face unexpected situations, so they try to avoid it by practicing certain rules and regulations. To them surprising situation is dangerous. Countries falling in this dimension are countries with an old history .New innovative suggestion and principals are difficult to be applied in this group. Low uncertainty avoidance nations welcome different (ambiguous) situations because they love to take risky steps .Unwanted situations is exciting for them. Informal rules are adopted all over. Basically countries in these dimensions are young and ready to face risk and innovations are looked by them.

High Uncertainty Avoidance Low

GRE JPN FRA KOR ARA GER AUL CAN US UK IND DEN SIN

e) LONG / SHORT TERM ORIENTATION (LTO):

Nations with long orientation look for their future goal. Success of tomorrow is important to them.” You are never a loser until you quit trying”, is their trait. They believe in vigorous growth and hard work. A Respect for the status is duly given and they have a sense of shame. While, short term nations have a respect to traditions and national pride. Stabilization is their trait. They aim for quick outcome (result). Future is not kept in mind. Status doesn’t carry any value in their group. They keep their reputation good, avoid being disapproved.

Long Term Orientation Short Term

CHI HK JPN TAI VIE BRA IND US CAN UK E/W AFR

TROMPENAAR:

Fons Trompenaar is an author of cross cultural communication and he is a Dutch. His writing includes many books on culture .Trompenaar created a dimension which shed light on people of different environments and how they behave and interact in their daily life.

TROMPENAAR’S FIVE CULTURAL DIMENSIONS:

a) UNIVERSALISM vs. PARTICULARISM:

This dimension emphasize on rules and relationships. In universalism, rules given significance and they applied on everyone. Every individual follow rules and contracts. Rules are meant to tell the truth. While particularism gives importance to relationships .Deals are made on friendships .They believe in flexibility on agreements. And they closely examine the situation to know the truth.

Vs.

UNIVERSALISTIC

PARTICULARISTIC

PARTICULARISTIC

1. Singapore

2. Spain

3. Japan

UNIVERSALISTIC

1. US

2. Germany

3. Sweden

Figure: Shows countries falling in universalistic and particularistic dimension

b) INDIVIDUALISM vs. COLLECTIVISM:

Individualistic nations love being recognised single. They believe in word “I”. Group doesn’t matter them .Privacy is what they need .They love to work independently .Self benefit is what they look for. Their relationship with others is negligible. While collectivism, believes in teamwork. They believe in “we”. They are attached to their colleagues, family members and friends. Interdependence is found in them. Benefit of group they practice.

Vs.

INDIVIDUALISM

COLLECTIVISM

COLLECTIVISM

1. Japan

2. Italy

3. Mexico

INDIVIDUALISM

1. US

2. UK

3. Australia

Figure: Shows countries falling in individualism and collectivism dimensions.

c) NEUTRAL vs. AFFECTIVE RELATIONSHIPS:

Neutral groups keep their emotions inside and they don’t reveal what they thinking. Revelation of their emotions leads to tension on their face. They remain reserved and cool .Sometimes their emotions explode out. Affective people on the other hand are very much emotional. They reveal their emotions by verbal and non-verbal way. They remain transparent. Anger, happiness is clear visible. They react to the situation there only.

NEUTRAL

Vs.

AFFECTIVE

NEUTRAL

1. Japan

2. UK

3. Germany

AFFECTIVE

1. China

2. Italy

3. Spain

Figure: Shows countries with neutral and affective cultures

d) SPECIFIC vs. DIFFUSE RELATIONSHIPS:

People falling in specific dimensions keep their personal and work life away .Their private life is private and when socials then they are open. They look for direct communication. In diffuse, people private lives have number of people in it. There is no difference between private and work life. Common person is needed In between stranger and manager for an introduction in order to do a business.

SPECIFIC

Vs.

DIFFUSE

DIFFUSE

1. China

2. Russia

3. Spain

SPECIFIC

1. France

2. US

3. UK

Figure: Shows countries of specific and diffuse traits

e) ACHIEVEMENT vs. ASCRIPTION:

In achievement, accomplishments are made in order to gain status. Seniors head in office are given respect throughout due to the knowledge and experience they have. Status change according to time as person accomplish more and more. In a culture with ascribed status, people given title based on their gender, birth and wealth. They have not given according to their accomplishment.

Vs.

ASCRIPTION

ACHIEVEMENT

ACHIEVEMENT

1. US

2. Germany

3. Mexico

ASCRIPTION

1. China

2. Russia

3. Spain

Figure: Shows countries having achievement and ascription culture.

PROS AND CONS OF THE THEORIES:

HOFSTEDE:

PROS:

Hofstede’s model helped people in day to day life.Hofstede’s model helped organisation, to expand their business on an international level without facing any cultural hindrances. Example: examines difference in attitudes and behaviour (Alden, Hoyer, and Lee 1993), used in advertising (McCarty and hattwick 1992; Gregory and Munch 1997;), international brand strategies (Roth and Martin 1995).While for some Hofstede’s model is rigorous and relevant because the time it was made there was little approach in culture and businesses on international was very low (Sondergaard 1994)

CONS:

Researchers said this it is not accurate and relevant. While most says that Hofstede’s model did not paid attention on community .According to Hofstede all domestic nations have homogenous society. But some countries are group of ethnic units (Nasif et al 1991; Redpath 1997).While as per McSweeney (2000), “Analysing through nations is not proper because it is not necessary bounded by border “.Some says it is out dated while other says four dimensions did not give sufficient information.

TROMPENAAR:

PROS:

Trompenaars model gave a tool to staff who works on international assignments and projects .Easy to understand culture of the other country is made easy by them which led others to understand cross-cultures. Their research showed that, way of doing business is different among all the countries.

CONS:

Their research failed to recognise the personal characteristics on behaviour and forget to provide recommendations. As per other authors, “the border is diminishing and world should be seen as a single unit “.

HOFSTEDE AND TROMPENAAR THEORY:

CORRELATION

Hofstede’s and Trompenaars individualism and collectivism are identical in orientation. In Trompenaars model, how and where status and team work given importance shows link to Hofstede’s power distance dimension but not wholly because Hofstede’s power distance cover other issues as well .Trompenaars universalism /particularism can be taken as Hofstede’s uncertainty avoidance and collectivist/individualistic dimension because in these dimension they discussed about how nations differ in giving preference to rules than relationships.

Even researches done with the help of Hofstede’s and Trompenaars model showed similarity in their result .Example: Japan and India is collectivist they lie low in individualism index while UK, US are entirely individualistic countries.

CONTRARY

Contrast between Hofstede’s and Trompenaars can be seen in there result of research. Example: Unlike in Hofstede’s model, Mexico and Spain are individualistic according to Trompenaars model. Germany has hierarchical culture according to Trompenaars dimension while Hofstede’s says it’s low in power distance.

Hofstede’s has four dimensions to explain culture differences, while Trompenaars and Hampden have extra dimensions.

Hofstede’s results becoming out of date.1960s -1970s results are not the same for today because culture change over time.

According to James Cambridge, “Hofstede’s reach is more on analysis, but restricted as well while Trompenaars and Hampden Turner are broader in their approach. Hofstede’s measures on the variables of cultures, while Trompenaars involved in a method for cultural creation”.

PRACTICE OF THEORIES:

The theories have been applied in every scope from organization to national, from the interpersonal to education and in health checks.

HOFSTEDE:

a) ITIM INTERNATIONAL:

Company is expert in national and organizational culture. They help personnel to get to know-how different environment. They provide training and consultancy to the management .Their approach is based on Hofstede’s model. As per ITIM international, “our structure is not only based on Hofstede’s, model but are the only consultancy and training which he supports”.

b) CROSS-CULTURAL TOURIST BEHAVIOUR:

Money and Crotts applied uncertainty avoidance in knowing tourist behavior and concluded that Germans are low in uncertainty avoidance while Japanese tourists are high on sample. When tourists from Germany and Japan visit USA, they behave differently. Japanese engages in avoiding risky move by knowing pre-trip information, travel in big groups, short stay and visit few destinations in USA in comparison to Germans.

TROMPENAAR:

a) CROSS-CULTURAL BUSINESS ETHICS:

As per Chris and Peter (2000),”many societies value privacy, honesty, loyalty, etc. but these value differ in interpretation .Different cultures gives different meaning to the same things”. Trompenaars dimension helped to solve this dilemma .They used research and used universalism -particularism scale.

b) WORKING IN KAZAKHSTAN AND RUSSIA:

As per Maral,”French managers was finding it difficult to know-how about the culture of Kazakhstani and Russian .After applying theories French managers found many common points in both the countries cultures with the more high power distance, particularistic and task orientated.

REFERRENCE

1) Alden, Dana L., Wayne D. Hoyer and Chol Lee (1993), “Identifying Global and Culture-Specific Dimensions of Humor in Advertising: A Multinational Analysis,” Journal of Marketing.

2) Bhagat, R.S. and S.J. Mcquaid (1982),”Role of subjective culture in organization: A review and directions for future research. “Journal of Applied Psychology 67(5).

3) Chris J.Moon and Peter Wooliams (2000),”Managing cross cultural business ethics”. Journal of business ethics.

4) Gregory, Gary D. and James M. Munch (1997),”Cultural Values in International Advertising: An Examination of Familial Norms and Roles in Mexico,” Psychology & Marketing.

5) Hofstede, G. (1991b),”Cultures and Organizations: Software of the mind “.London, McGraw-Hill

6) Hofstede, G. and M.H. Bond (1984),”Hofstede’s culture dimensions: An Independent Validation Using Rokeach’s Value Survey”. Journal of Cross cultural Psychology 15(4):417:433

7) Hofstede, G. and M.H. Bond (1988),”The Confucius connection: From Cultural roots to economic growth”. Organizational Dynamics 16(4):5-21

8) Hofstede G. (2001),” Cultural Consequences: Comparing values, behaviors, institutions and organizations across nations”. 2nd Ed. London: Sage publications, Inc.

9) Hampden-turner, C. & Trompenaars, F. (1997),”Response to Geert Hofstede”.International journal on intercultural relations 21, 1,149-159

10) Jamese Cambridge (1998),”still on the crest of a wave”. International Schools Journals XV11, 2, 68-72

11) Mcsweeney, B. (2000),”The Fallacy of national culture identification”.6th interdisciplinary perspectives on accounting conference. Manchester, UK

12) Money BR, Crotts JC (2003),”The effect of uncertainty avoidance on information search, planning, and purchases of international travel vacations”. Tourism management 24(2):191-202

13) Maral Muratbekova-Touron (2002),”Working in Kazakhstan and Russia: Perception of French managers”. International Journal Of human Resource 13:2

14) McCarty, John A. and Patricia M. Hattwick (1992),”Cultural Value Orientations: A Comparison of Magazine Advertisements from the United States and Mexico,” Advances in Consumer Research

15) Nasif, E.G.H.Al -Daeaj, B.Ebrahimi and M.S.Thibodeaux (1991),”Methodological problems in cross-cultural research: An update’. Management international review 31(1):79

16) Roth, Martin S. (1995),”The Effects of Culture and Socioeconomic on the Performance of Global Brand Image Strategies”. Journal of Marketing Research.

17) Redpath, L. (1997),”A comparison of native culture, non-native culture and new management ideology”, Revye Canadienne Des Sciences De l’administration 14(3):327.

18) Sondergaard, M. (1994).”Hofstede’s consequences: A study of reviews, citations and replications”. Organization studies 15(3):447

19) Trompenaars, F. & Hamden -Turner, “C. riding the waves of culture: understanding cultural diversity in business “.Second edition. London: Nicholas Brealey (1997)

20) ITIM International .Available at: http://www.itim.org/about.html

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21) Lerzan Aksoy and Paul N. Bloom,”to trut or not to trust: the effects of cultural orientation and trust toward marketers on the level of consumer deception”.