The Performance Of Global Firms Commerce Essay

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The purpose of this paper is to analyze the influence of culture on international business management and to examine the effect it has on global firms. With the world economy becoming globalized it has intensified international relations and measures for bridging the gaps of an imperative cultural dimension. Global firms deciding to expand their business must modify their management style through international business management considering the cardinal cultural factor. There are a number of factors that manipulate the culture of a country which will be examined. These factors are not known when pursuing new business opportunities and new building business relationships. Hence, global businesses run into serious performance problems with respect to cultural issues. It is critical that they conduct a full review of the country's cultural context and the findings integrated into the firm's business processes and strategy.


The phenomenon of globalization has integrated national economies into an international economy through trade via movements in foreign direct investment, human capital, companies, and services. This process have resulted in major changes in the landscape of how firms and organizations involve themselves in the globalised market pertaining to economical, technological and social aspects Amboni and Meyer (1999). Hence, a reduction in transportation cost, communication technology and the increase in interaction between countries are encouraging more firms to enter into the arena of international business. These global firms are involved in commercial activities in many countries and are compelled to adapt to the country's laws, governmental policies, consumer tastes and preferences and habits. These are components are an expression of a country's culture which global firms are often unaware of when pursuing new business opportunities. One of greatest challenge faced by global firms that operate in the international market is addressing the issue of cultural differences. The impact of culture on international business management is explored and the effects it has on the performance on global firms.

What is Culture?

The definition of culture stems from a number of undisputed perceptions by various authors. However, culture can be defined as a collective programming of minds that differentiates the members of a human group from another, Hofstede (1984).Griffin and Pustay (1999) present culture as a collection of values, beliefs, behaviors, habits and attitudes that differentiate societies. Furthermore, Ferraro defines culture as "everything that people have, think and do as members of their society". With these different perceptions in culture it can be conceive that social groups play an important role in the designation of the identity of a group of people or country.

A cultural system of a country is a general agreement among people about what is important and is disseminated through manifestations, such as arts, habits, language, music, taste, literature, values and customs principles associated with behavior of social groups. Hence, it is important for global firms to analysis these elements to unravel the complexity of culture.

The patterns of behavior in culture can be learned meaning that individuals born into a culture subsequently learn how to behave within their society. There is a transmittance of culture from members of reference groups or society with other members through the process of living and experiencing the social environment. Therefore, persons belonging to a particular culture adapt to a system of values, which have developed over past generations.

According to Griffin and Pustay (1999) cite an assortment of six elements that maps the culture of a country are as follows communication, attitudes, social structure, religion, language and values. International business activities being conducted by firms or organizations find themselves being affected which either one or a number of the elements listed. The interaction of these six elements forms the culture of a location that global firms will have to acclimatize.

In all societies there is social structure which demarcates the function of individuals, social stratification and social mobility. The first aspect of social structure is the role that family has to play in society. The families' structure in some countries, such as the United States, the families consist of largely nuclear family and in other cultures in the Arab region its is extended. In some countries the societies are divided up into clans according to their ancestors.

Cultures in the modern times have changed in relative to the emergence of individual opposed to the group. In the United States, the societies are centered in individualism whereas in Israel and Japan the societies are based in collective and group work. In countries with individualist culture, people do not feel major responsibilities over the work of a colleague or over the performance of the group, Rosenzweig (1994). However, in collectivist cultures, people are inclined to work harder once they have a sense of belonging to a group attempting to satisfy collective expectations.

Societies are diverse with respect to their social stratification. For example, the caste system in India where it affects the way people communicate with each other and the level of social mobility. In contrast, in countries where social stratification is not as important communication is free and also social mobility.

An important element of culture is language. Language is used as a way of signaling identity with one cultural group and difference from others. Even among speakers of one language several different ways of using the language exist, and each is used to signal affiliation with particular subgroups within a larger culture. A country that has more than one language indicates that the country's population is diverse. However, countries that have the same language do not mean that they have the same culture. Griffin and Pustay (1999) states that linguistic ties create important competitive advantages through the ability to communicate, which is very important in conducting business transactions.

Another element present in this context is communication. Communication between people from different cultural groups is a function of the dissimilarity between the cultures, rules or self concepts. Culture is a socialization process that influences ones self concept or the way we relate to objects, other persons and places. The extent of the difference in self object relationships between members of two cultural groups depends on the uniqueness of the individual's socialization process. In order to understand the total spectrum of communication among cultures the following factors are considered language, non-verbal communication, perceived values, self concepts and ethnocentrism. Variations in human expressions such as facial expressions, personal distance, sense of time and gestures are unique in cultures. Hence, intercultural variations in values, religion, politics, economy and social relationships consist of only a few of these diversities that affect communication.

Within the context of some cultures interpersonal relations are of great importance. Interpersonal communication in Japanese and American cultures differs, according to Naotsuka and Sakamoto (1981). In Japan most interactional occasions call for the ritualistic use of explicit statements of politeness, while there is a comparative lack of formalities in the United States. These differences are due to a Japanese emphasis on mutual dependency, self depreciation, and use of mutual apology as a social lubricant to conversation. In the United States people have a tendency to be more mutually independent, self asserting and likely to employ confrontation as a lubricant for social interaction.

Religion is another significant element in most societies. The impact that religion has on the business world differs among countries. It has considerable influence on the type of judicial system employed, the homogeneity of the religious beliefs and their tolerance with other religions. This has considerable influence on the type of products that consumers purchase, products that are legal and seasonality of some purchases. There are some religious restrictions which may be imposed on persons which affects their capacity for work and availability.

What are some of the cultural challenges facing global firms?

Global firms are being challenged by the cultural differences among countries and the people with whom they have business relations. Hill (2001) emphasizes that international business is different from domestic business, precisely because countries and societies are different. For global firms to be successful in an inter-connected world they must be able to compete effectively in diverse and multicultural environments. Hence, international business activities are at the forefront of dealing with the many and complex cross cultural challenges of operating in a global environment. Companies see themselves more and more challenged by the cultural differences among countries and the people with whom they have business relations. Hill (2001) emphasizes that international business is different from domestic business, precisely because countries and societies are different

Global firms must manage diverse workplaces, appeal to a wide range of diverse and increasingly demanding customers and consumers in the marketplace, manage international supply and distribution chains and business partnerships, and maintain relationships with governmental authorities and community groups from every country where they do business. The ability to manage this diversity is increasingly recognized by companies as a business imperative. Global firms need to create a diverse and inclusive workplace that can determine the company's ability to attract, retain and motivate the best talent, helping to ensure that each person can contribute his or her skills, knowledge and perspective to the success of the business.

Firms must have the capacity to recognize and respond to the diverse and changing needs of customers in the marketplace which is fundamental to the creativity and flexibility that fuel innovation, ensuring continued demand for a company's products and services. Furthermore, global firms in foreign countries must have the ability to manage the critical relationships with government authorities and local communities is necessary to ensure that the company has a "license to operate" in diverse markets around the world. The failure to recognize, respect and effectively reflect cultural differences in the workplace, the marketplace or the community. As a result, cross-cultural understanding is at a premium for many businesses.

Conflicts are exacerbated when potentially negotiable disputes over resources or political control are exacerbated by "identity politics". The rise in this type of "identity conflict" can also be seen at a broader, international level. This is in part as a reaction to globalization itself, and it potentially undermines an open global business environment. For example, during each period of heightened conflict in the Middle East, such as in Occupied Palestine Territory and Iraq, there have been repeated calls by Muslim consumer groups in countries around the world for boycotts of the products of US- and Europe-based companies, as a protest against the United States and other governments' foreign policy in the region.

A business operates best in an environment of social stability. Heightened tensions along cultural, religious or ethnic lines, like most conflict, is bad for business. Such tensions can increase uncertainty, impede operations, limit growth opportunities and intensify risk and its associated costs. Moreover, when a society is in conflict, a company's reputation and ability to operate can quickly be undermined if the company is seen to identify with or favor one group to the exclusion of others - among its employees, consumers or other stakeholders.

In an attempt to gain knowledge about collective values in foreign societies Hofstede's Model of Cultural Dimensions can be used as it would help in getting firms to learn collective values in an attempt to be more tolerant of cultural differences. This model was developed as a result of cross cultural research in international management that identifies values as foundations to predict behavior in foreign societies. Managers can become knowledgeable of value patterns that may implore them to be effective leaders, building successful foreign relationships and launch major marketing projects. Application of this model in international business management is invaluable as it would allow a deeper understanding of the fundamental forces that mould behavior in a society.

Hofstede's Model of Cultural Dimensions

Hofstede developed his culture dimensions from examining work-related values in employees of 116,000 IBM mangers from 72 countries during the 1970s. He created a comparative profile of cultural differences related to management activities. It provides a relatively general framework for analysis and the framework can be applied to many everyday intercultural encounters. It is particularly useful, as it reduces the complexities of culture and its interactions into four relatively easily understood cultural dimensions. The four dimensions are: power distance, individualism /collectivism, masculinity/femininity (gender roles) and uncertainty avoidance.

Power distance - Human equalities

Power distance is defined by Hofstede as "the extent to which the less powerful members of institutions and organizations within a country expect and accept that power is distributed unequally". The dimension of power distance values hierarchical status and authority in society. Inequalities among people occur low level members of society accept subordinate status and are expected to conform by superior members of society. Conversely, in high power distance nations inequalities among people are considered desirable, there is greater reliance by the less powerful on those who hold power, centralization is more normal, and subordinates are likely to be separated from their bosses by wide differentials in salary, privileges and status symbols.

Individualism/collectivism - Behavioral patterns towards the group

Individualism pertains to societies in which the ties between individuals separate where everyone is expected to look after their self and immediate family and foregoes the overall need of society. In societies such as in the United Kingdom, United States and Australia individualism is more important, with a lower emphasis on loyalty and protection. In contrast, collectivism pertains to societies in which people are integrated into cohesive groups and have a loyalty to that group. A culture that stems from individualism focuses on individual autonomy, achievement and innovation such as Japan, India and China. In strong collectivist countries there tends to be greater expectations of the employer's obligations towards the employee and their families.

Uncertainty avoidance - The need for structure

Uncertainty is the extent to which the members of a culture feel threatened by uncertain or unknown situations. In societies where there is a need for structure it is because there is a fear of uncertainty. This measure also relates to a society's philosophical and religious beliefs in absolute truth. A country such as the United Kingdom is characterized by weak uncertainty meaning they do not perceive something different to be dangerous. Conversely, in strong uncertainty avoidance people will seek to reduce uncertainty and limit risk by imposing rules and systems to bring about order and coherence. This may be seen in organizations employing a pyramidal organizational structure structure where there is a need for rules and dependence.

Masculinity/femininity - Gender Issues

Masculinity/femininity dimension pertains to societies in which social gender roles are clearly distinct and where social gender roles overlap in societies. In a masculine society such as the United Kingdom, there is a division of labor where the more assertive, decisive and competitive tasks are given to men. There is also a stress on academic success and achievement in careers. However, in a feminine value oriented society such as France (according to Hofstede) focus is on relationships, compromise, life skills and social performance. There is little emphasis on competitive dominance.

With the rise in global business, many people are working with, or managing, individuals and groups from cultures other than their own. Hofstede is keen to emphasise that the "dimensions" are not a prescription or formula but merely a concept or framework. They equip us with an analytical tool to help us understand intercultural differences. For example, the practical experience of many multinationals in building international teams can be explained in terms of Hofstede's framework.

Relationship of Cultural Dimensions

Hofstede's work has provided a framework for understanding cultural differences.

If a country has a `high feminine index' it suggests that people in that country characteristically value having a good working relationship with their supervisor and with their co-workers, living somewhere they and their family want to live and having job security.

The Hofstede's framework is useful in identifying cultural patterns of a country but these do not work independently of each other. For example a country that scores high on power distance will score low on individualism, consequently high on individualism scores low on power distance.

An examination of all possible outcomes with each cultural dimension was simplified by Hofstede's model by mapping clusters that group societies with relatively persuasive cultural similarities against countries. In these indexes the four dimensions represents a continuum while societies fall toward the high or low ends of scales, some with extremes. It must be noted that these clusters represent mere generalizations.

This framework is used to determine the suitability of certain management techniques for various countries or to make comparisons between countries to understand cultural differences in various areas of management.

Limitations to Hofstede's Model

There are two main limitations of Hofstede's Model. The first limitation is that the study was done from the view point of Western civilization including the research methods used for collecting data. The surveys that were conducted involved value judgments and terms that would have conveyed different means across the cultures examined. Some of these instruments consist of words, meanings, terms and interpretations in the generic wording of surveys.

Hofstede's work on value systems did not consider the sub cultural differences in counties but assigned predetermined clusters of national identities to countries. Hofstede's study assumes the domestic population is a homogenous whole. However, most nations consist of groups of ethnic units. A number of countries had problems of conflicting results in the analysis such as China and India, due to generic makeup of multiple cultures integrated into the society. Further, problems were encountered when studying ethnic groups, a clear indication of cultural aspects were indistinct since large numbers have migrated to other counties.

The nations are not the proper units of analysis as cultures are not necessarily bounded by borders. In recent research has found that culture is in fact fragmented across group and national lines. Hofstede points out those national identities are the only means in identifying and measuring cultural differences. With, respect to the challenges of this model, international business managers can use it to get an understanding of the various cultures of a country and imbed it into its global management strategy.

What are some of the strategies global firms can adapt to bridge cultural differences?

Intercultural Skills Development for Managers

Global firms attempting to deal with the challenges of diversity, knowledge and understanding of cross cultural issues in the international business environment. The developments of skills are progressively being recognized by companies as critical management capabilities and are crucial in ensuring a bright future for their businesses. Intercultural training is a growing phenomenon, in response to practical business needs internationally, including specialized programs developed with affiliations with leading schools of management.

Building inclusive mindsets

Globalization has resulted in changes in workplace diversity for international firms. International business managers are seeking to achieve a more diverse workplace where there is a fair numerical representation of different groups in society. These groups are targeted to be a part of an inclusive work place where all employees and their diverse perspectives are recognized, valued and respected for contributions to the objective of the organization. Inclusion creates a culture of belonging in which similarities and differences are valued and honored for the improvement of our enterprises, our society and the world.

This seeks to implant in the organizational culture and management customs that will foster an inclusive method of conducting business to become a high performing organization. However, based on the concept of inclusion, management has the prospect of enhancing the role of the company in fostering understanding, respect and cooperative relations across different cultures.



The reality of modern business strategy increasingly blurs the

nationality of multinational enterprises , their products and services ,

and even their work force . Cross-investments , joint ventures , mergers ,

acquisitions and a vast array of inter-corporate alliances have mixed

and matched business organizations and operations across continents . As

a corollary result , cultural components and associations within these

business units also mix and evolve . Globalization and

internationalization increase opportunities for cross-cultural contact

and for cross-cultural misunderstandings . Global competition as well as

the necessity to do business more efficiently abroad has therefore

obligated most firms to become more responsive to culture and have a

global mindset .

A multinational corporation must blend the customary values of a

managerial staff and work force comprising thousands of individuals

drawn from scores of countries with distinctly different cultural

traditions . Link that enterprise to several other similarly challenged

multinational enterprises through strategic alliance arrangements and

the task of managing this multinational , multilingual , multicultural

Tower of Babel comes more clearly into focus . As an expected result ,

cultural challenges emerge from contrasts in the different countries

that a multinational business operations . Strategic alliances raise

issues of how much to adjust or adapt a multinational company 's

traditional business culture to a new national environment , with

resulting impacts on the host country 's culture as well .

As the importance of successfully dealing with cultural diversity has

increased , so has the difficulty . Culturally integrating foreign

operations has truly become the Achilles ' heel of multinational firms .

The increasingly dynamic nature of organizations and the many foreign

environments in which they operate has created a situation so complex

that even highly capable general and functional managers must be given

specialized functional help in dealing with the cultural issues that

impinge on their decisions . The increased cross-border reach of

business , through whatever mode of market entry , requires an enhanced

awareness of and sensitivity to differences in languages , values and

behavioral norms .

The Concept of Culture in the Contemporary International Organization

Culture is a complex concept , open to a variety of definitions and

difficult to pin down precisely . Terpstra and David (as cited in Johnson

and Turner , 2003 , p . 200 ) refer it to as ``a learned , shared ,

compelling , interrelated set of symbols whose meanings provide a set of

orientations for members of a society ' whereas Komin (quoted in Held ,

2000 , p . 68 ) writes of culture as the ``beliefs , customs , practices , techniques , institutions , objects and

artifacts . Cultural analysis can take place at various levels and

across various dimensions . National culture provides a broad context in

which other cultural manifestations , including regional , religious ,

organizational and occupational cultures among others , nest .

Cultural meanings are communicated implicitly among members of the

society . Cultural patterns are deeply ingrained and slow to change in

high-context societies . By definition , culture is a learned phenomenon ,

the outcome of shared experience...

How national cultures affect organisational cultures and the impact of this on the performance of businesses in different countries? As one of the main ways that people interact

across national, cultural and religious

lines, and as a key player in the process of

global economic integration, business has an

important stake and role in fostering positive

cross-cultural relations.

Throughout history, doing business has

been a principal motivation for people to

interact across borders and cultures. Before

people began to travel for leisure in the late

19th century, they travelled primarily in

two capacities - as religious pilgrims and as

commercial traders.

From the ancient trading routes