The Increasing Globalisation Of The World Economy Commerce Essay

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'Culture only recently relatively begun to figure proximately in theories of economic development and it can historical accounts of different nation's industrialisation process' (Lewis, Fitzgerald, Harvey 1996)

Max Weber was undoubtedly among the first to look at the relationship between culture and development, in books such as 'The Protestant Ethic and the Sprit of Capitalism' (1956). He proposed a set of values and attitudes associated with Protestant Ethic which included success, thrift, hard work, honestly, rationality and austerity that had become the base of achievement and material progress. Over the years culture has been discussed by many theorists debating whether culture is influential or not. Hofstede (1997) classified the cross-cultural research on the five national dimensions. 5D-models can appear to describe personality structure well in a wide variety of culture, and it can be universal. Whereas his findings can not be given all the credit as it is quite tricky to compare the national culture among the countries such as China and Germany, Japan and the US. Since these can be influenced by not only national culture but also others factors such as level of economic development, number of supporting institutions and their linkages, late/early development status and the role of the government. Even within same culture origin for most East Asian countries, culture has developed quite differently in its own ways. One form of culture cannot simply transfer to another and guarantee success. Therefore, this essay will analysis and evaluate the Hofstede's five dimensions of national cultural values and find out the new importance implications for managing across borders.

Hofstede's conception of national culture dimension

Hofstede (1997), who conducted a cultural study, classified culture into two categories. One is a narrow sensed culture which is the result of sophistication of mind such as education or literature, whilst the other is wider sensed culture which is used by social/anthropological area such as feeling, action and all types of thought. The latter is a part of "mental program" which is a concept of cultural dimensions (Hofstede & Hofstede, 2005, p2). It suggests that culture as "collective programming of the mind; it manifests itself not only in values, but in more superficial ways: in symbols, heroes, and rituals" (Hofstede, 2005).

He designed the construct of 'cultural dimensions' to understand if culture really does determine success, how the value systems are different across-nationalities and to make comparisons between cultures and to cluster cultures according to behavioural characteristics (Hofstede, 1997).

Hofstede has conducted analyses on national culture in 1980, 1997 and 2001 with original data derived from the employees of an international company, IBM, survey between 1967 and 1973 (Hofstede, 1997). He argued that cultures, especially national cultures, are extremely stable over time such as "Stability can be explained from the reinforcement of culture patterns by the institutions that themselves are products of the dominant cultural value system" (Hofstede, 2001, p.34). Hofstede's 5-D models were verified with many-sided views relevant to marketing in various researches and it has provided insights for characteristics of effective promotional activities for managing across border as it was based on an enormous data base with scores for 85 countries. It described that power distance, uncertainty avoidance, individualism/collectivism, masculinity/femininity and long-term/short-term orientation (Hofstede, 2001).

First of all, power distance refers the members of a society tend to accept and expect the existence of inequality and that power is distributed unequally (de Burca et al., 2004). In low power distance societies such as the American, members of the organisation demand justification for relatively power inequalities (Usunier & Lee, 2006). It means that authority has a negative connotation as people focus on the equality in rights and opportunity in the workplace. In the US, superior and subordinate are basically equal as it is spelled out in contractual terms. The meaning of the high power distance societies, there is a separation between superiors and subordinates. The real power tends to be concentrated at the top naturally (Usunier & Lee, 2006). For instance, India sees hierarchy as natural as breathing.

Secondly, uncertainty avoidance refers to the dimension related to the degree that people feel uncomfortable in uncertain, ambiguous, risky, or undefined situations (Hofstede, 2001). Cultures with strong uncertainty avoidance indicates that people are tend to be more active, aggressive, emotional and intolerant as opposed to cultures with weak uncertainty avoidance where they tend to have a more relaxed, contemplative, unemotional and tolerant attitude towards the future (de Burca et al., 2004). For instance, low uncertainty avoidance countries, such as the USA, risk-taking and conflict in an organisation is regarded as positively, and they have strong achievement motivation and expect to promote a higher position by criteria other than seniority (Hofstede, 2005).

Thirdly, individualism, versus collectivism can be regarded as the relationship between an individual and another member of society. Individualism is the idea that people are supposed to look after their own interests or those of their immediate families or groups (de Burca et al., 2004). Membership of a group in collectivistic countries guarantees the individual a status and puts the individual into a network to look after people like a family and defend their interests (de Burca et al., 2004). In exchange for this the group expects permanent loyalty, sense of duty and promotion of its members (de Burca et al., 2004).

Fourthly, masculinity versus femininity is concerned with the distribution of emotional roles between the genders in a society (Hofstede, 2001). Masculine cultures stand for a societal preference for competition such as material success, earning money, showing off possessions, caring little for others and assertiveness (de Burca et al., 2004). Societies with high masculine indicate that individuals can strive aggressively to advance their careers by performing well and gaining recognition form their superiors. By contrast, feminine cultures stress a tendency to place relationships with people above money, to preserve quality of life, nurturing roles, interdependence between people and caring for the weak (de Burca et al., 2004, in Usunier & Lee, 2006).

Finally, long-term versus short-term orientation focuses on the degree the society member's ability to accept delayed gratification of their material, social, emotional needs and long-term devotion to traditional (Hofstede, 2001). A strong long-term orientation index refers to the values of long-term commitments and respect for tradition and it is related to collectivism as it plays such a strong role in people's lives. On the other hand, short-term oriented cultures are focused on a sense of security and stability, a protection of one's reputation, a respect for tradition and a reciprocation of greetings and favours, it means that the countries does not reinforce the traditional orientation. This concept was originally labelled 'Confucian dynamic' as it included the value of Confusion philosophy (Hofstede, 2005). Hofstede believed that cultures having the long-term orientation reflect the "values of thrift, persistence and perseverance, concern for proper ways of doing things, building market share, respect for tradition, fulfilling social obligations and a focus on causing others to gain rather than loose face in business dealing" (de Burca et al., 2004, p.84).

Table 1 Cultural Values Index


Power distance

Uncertainty Avoidance



Long-term orientation






















Great Britain

























































Source: Hofstede, Geert., "Cultures and Organisations: Software of the Mind",

New York: McGraw-Hill, 1997

Hofstede argued power distance and uncertainty avoidance are most effectible cultural constructs business structure since "power distance primarily influences superior-subordinate relationships, and uncertainty avoidance primarily influences the amount and type of rules in place" (1998). He supported that the types of business organizations which should be most common in particular countries are depending on the culture values (2005). For instance, countries characterized by relatively high power distance and strong uncertainty avoidance would tend to favour organizations run on fully bureaucratic lines. The reason is explicit formal rules are more likely to prescribe behaviour, and power and authority tend to depend upon the position held rather than upon personal characteristics (Roberts, C., Weetman, P. and Gordon P., 2005, p.182). In Hofstede's research, the US, the UK and Australia characterized by relatively small power distance and weak uncertainty avoidance, organizations should tend to be at least implicitly modelled upon the market place. Therefore, he tried to explain the importance of the cultural dimension as it can affect the firm's leadership, motivation and innovation.

Firstly, "Leadership style would be particularly affected by individualism and power distance" (Roberts, C., Weetman, P. and Gordon P., 2005, p.181). If a country is highly individualistic, then leadership styles would tend to be based upon the satisfaction of personal needs, individual self-interest would feature strongly and personal relationships and loyalties would have relatively little relevance. But in collectivist societies, leadership seem to be more of a group phenomenon. However, leaders would be successful only if they emphasize the group, not as an individual, and employee welfare would be relatively more important.

Secondly, motivation is also affected by culture values. Individualism versus collectivism and masculinity versus femininity seem to be particularly important in this issue. If a country has strong individualism culture value, they tend to motivate individual to make more effort to contribute to the business goal, an individual will be more likely be the hero of the organization. However, a nation with highly collectivism culture values would much prefer to motivate the majority of their employees to contribute to the business.

Finally, values of uncertainty acceptance, individualism and low power distance were associated with the rates of innovation. "Innovation requires a tolerance of risk and change, therefore, an acceptance of uncertainty appears to be necessary; Individualism seems to be important, perhaps because of its association with autonomy, independence, and freedom; lack of power distance appears important, perhaps reflecting the role that tolerance of change in the social order and distribution of power play in the innovation process" (Tsang, 2002, p. 82).

Evaluation and Criticism of Hofstede's national cultural research

The cultural perspectives have many criticisms as it is very simplistic generalising individual cultural preferences by inference from Hofstede's country scores. For instance, the Greeks have a high uncertainty avoidance score, which is 100, does not mean that every individual Greek shares that quality. An individual's cultural preference cannot be predicted from the country scores. Hofstede's findings can never fully predict human behaviours as an individual's preference may be very like, or very different from, the scores for a group.

Many factors should be considered that age, education, occupation and exposure to other country. Although Hofstede's cultural dimensions have been extensively reviewed by academic scholars, others criticise and make complains to his findings such as Appadurai (as cited in Tayeb, M. H., 2005) argued that "mediascapes" (the flow of image and communication), "ethnoscapes" (the flow of tourists, migrants and foreign students), "ideoscapes" (the flow of political ideas and ideologies), "technoscapes" (the flow of technology and know-how) and "finascapes" (the flow of capital and money) are global flows, which may cause transformations in the nature of societies and change the barriers between culture (p.329). There are some main criticisms as follow:

First of all, Hofstede believed that "the data obtained from within a single MNC dose have the power to uncover the secrets of entire national culture" (Hofstede, G.., 1980, p44). However, the original IBM data is already outdated as it was conducted in the late 1970s. Secondly, one of the strengths of Hofstede's (2001) IBM studies was that the IBM employees assessed in each country were very similar in education and vocational experience (2004), but it also can be the weakness as the possibilities exists that IBM's strong cooperate culture could have weakened the level of the differences between countries as samples consisted solely of IBM executives (de Burca et al., 2004). Finally, some researchers claimed that Hofstede assumes the stability of culture, which is the basic assumption of cultural dimensions' theoretical construct. Hofstede defended the conception of national culture that "cultural dimensions found are assumed to have centuries-old roots" (Hofstede, 2002, p.2). However, Corteel, D. and Le Blanc, G. (2001) argued that, due to ever increasing interactions between cultures and permeability of cultural boundaries, the nature of cultures and their barriers between them has been changed. For instance, the United Nations estimates that the number of people living outside countries of birth worldwide increased from 72 million in 1960 to 175 million in 2000 and according to the Department of Economic and Social Affairs, Population Division, n.d. In the US, there are the largest number of international immigrants, numbering 35 million in 2000, Latin American immigrants are growing rapidly; from 9.9% of the US population in 1990 to 12.5% in 2000 (United States census, 2000, n.d.).

Therefore, changes in immigrant patterns have contributed to the increased intercultural contact (Samovar, L. A. and Porter, R. E., 2000, p5). These changing environments may influence the stability of national culture as it allows countries more frequent contacts among diverse culture. In addition, Britain's and Germany's business characteristics are determined by their culture but this point of view is debatable. Hofstede stated that 'organisations are culture bound' (Hofstede, 1991, p.252) and that organisational forms developed in one country can not be transferred with ease with to another country with the same effectiveness.

Culture is not all the time formulated, it is also changing from the factors such as the state, law, product markets, technology, factory life, organizational and market demands, and urbanization. Cultures can become diluted when countries form a union. For example the European Union has gone from many individual countries to unite as one which has similar laws and regulations as well as culture. People can freely immigrate and transfer their companies further refuting the belief that culture is rigid. Therefore, culture not a conclusive answer to causes of comparative differences in management and national economic success.

The main implications of my analysis for managing across borders

Companies have to interact with their external environment constantly and this interaction has implications for managing across borders and other internal organisational operations as well as their overall business strategies. The multinational companies should not overlook the constituent factors of the environment which are various social, political and economic systems. Such as political regime, government, legal systems, trade unions and so forth.

It is important to note that the huge differences among various nations with regard to these institutions are major factors pushing for achieving competitive advantages across borders. For instance, British firms have a short-term focus and lack attention to training and management development (Lane, 1998). By contrast, numerous studies have explored the transfer of HRM practice from countries such as Japan and Germany where these are seen as a source of competitive advantage.

For Davis and North (1971, p.6) an institutional framework refers to 'the set of fundamental political, social and legal ground rules that establishes the basis for production, exchange and distribution'. Global and regional conventions and agreements such as the International Labour Organisation and the European Union also form a part of external environment. Directives and policies laid out by these institutions are ultimately translated into practices in the workplaces within the countries which are signatories to them.

To Social Agenda of the European Union was cited as an example of a supranational factor which requires managers in member states to incorporate certain employee rights into their multinational companies' practices (Tayeb M. H., 2005). The main implications can be classified into five factors which are helping in understanding the nature of the transfer of practices across borders within MNCs; political economic system, state, economy, legal system and social hierarchy.

A political economic system should be considered importantly, as it shows the significant differences through economic plans via business organisations in developed counties and developing countries. In capitalist economies, market conditions determine to a large extent what rights employees will have (Tayeb, M. H., 2005). By contrast, most developing countries lack an extensive and well-developed national welfare state, as a result social issues such as poverty, unemployment and even ethnic problems can be tackled. For instance, in some capitalist countries, such as Germany, where there is a great emphasis on social market ideology, workers' rights are enshrined in law. Co-determination and workers councils are examples of the ways in which the participation of employees in the management of their workplace is ensured (Lane, 1995).

The degree of intervention of governments in companies' internal and external activities varies from one country to another. Capitalist democracies generally keep the level of intervention to the absolute minimum required for the smooth running of the country. British companies can easily set up plants in the US and American firms in the UK as they can in their respective home countries as they are similar in culture and wealth. However, many third world countries are still reluctant to open their doors fully and without restriction to foreign investors.

As a result, there are limited opportunities for the business firms in these countries to learn from their foreign counterparts. However, from the case of Germany, government intervention can lead to economic success by legalising cartels, allowing organisations to maintain high prices at home, which keep lower prices abroad, making them more competitive. Factors that are responsible for Germany's growth are Inter-firm linkage, banks, skilled labour, industrial apprenticeship and a higher education standard (Hannah, L., 1991).

Also the differences of economic development can determine the patterns of the nations. In less economically developed nations, where the economy is predominantly based on agriculture and the vast majority of people line in rural areas, can be regarded as that the industrialised sector. This is relatively small and the level of education and professional expertise is low. In addition, even in economically advanced nations the power of employees can vary from time to time depending on the state of economy. For instance, when the economy is booming and unemployment is low, employees have the power to influence over their pay and working condition. On the other hand, in economic recession, people may be willing to accept less than ideal conditions in order to hold on to their current job. For instance, the recession in Asia in the late 1990s provided opportunities to the foreign companies to enter the Asian markets at a reduced cost (Economist, 1998).

A country's legal system can influence organisational activities as industrial relations are through the laws and regulations such as the UK minimum wage. All nations regulate business activities to some degree and companies as well as individuals are subject to the laws of the country in which they operate. Health and safety, maternity and paternity leave, statutory minimum wage, physical working conditions, protection of the employees against dust and noise pollution, pension and medical provisions, childcare facilities are governed by laws and regulations in many countries. There is a great emphasis on social market ideology; workers' rights are enshrined in law since the German mode is very much influenced by the government's regulations.

Industrial relations legislation exerts the most powerful external influence on the internal affairs of companies, for this reason various interest groups such as trade unions and employers' associations tend to make this the subject of their focus. In some countries like Germany certain employee rights such as union membership and representation on various levels of decision making and co-determination, are enshrined in the law. In the UK, by contrast, the unions' right to be recognised was until the late 1990s left to the management's goodwill and even since 1998, when a minimum wage law came into effect, the vote of a majority of employees is required before the management consents to recognise trade unions in the company (Tayeb, M. H., 2005).

Finally, the degree of rigidity of social structure and the relationships between the various social strata can be reflected in managing across work organisations. In some countries like India there is a parallel hierarchy based on the caste system. It means that social differentiation is entrenched in a society varies among nations. In some societies there is a marked rigid hierarchy in terms of power, wealth and opportunities. In others this is less the case. For example, in Sweden, and other Scandinavian countries, there is not visible class differentiation as in the United Kingdom. People certainly do not think of themselves as members of one class or other. Although there are incomes, occupational and educational differences among people, the gap between the various layers of the society such as the country's taxation policies and welfare system, is much smaller than that in many other advanced countries. Their workplace management also reflects that management-employee relationship, for instance, is based on non-discrimination and equality of opportunity (Tayeb M. H., 2005).


Whilst I agree that Hofstede's findings are well developed as this works better theoretically it is quantitative research. One problem with Hofstede's findings are that it was only investigated in one organization, IBM, and may be difficult to apply to other types of companies, i.e. small business. Also, the method of research is limited to get the reliable results as employees can not obligate to be honest and it can not show the whole countries traits.

The most debatable a critique, which is from the Hofstede research, is unified the culture when managing across borders. It can be asked how Hofstede can unify the different regions as one? For example, in the UK, there are consist of Wales, Scotland, Northern Ireland and England. Also, the example of immigration can be problematic. In addition, Hofstede's research can not represent an individual's cultural preference as it is hard to predict from the country scores. Moreover, by comparing different style of companies and even in group people can be diverse as they depend on what they believe and company's ethics. And culture changes; it can modify by factors such as the state, law, product markets, technology, factory life, organizational and market demands, and urbanization.

Overall I agree with Hofstede's survey but to ensure the successful management across borders I believe it needs to be updated for 2010 and including different size companies and level of employees.