Cultural Variables in MNCs
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The international business literature highlights the importance of global integration and the increasing interfaces, which exist between people, nations and cultures within the modern multi-national corporation (MNC). Managing a MNC requires a management of differences with local distinctiveness increasingly positioned as a point for competitive differentiation (Hartmann, Feisel and Schober, 2010). The pressure for global integration and local responsiveness as highlighted in the work of Rosenzweig (2006) requires MNCs to successfully balance both cultural and institutional variables. This report, draws on research in order to critically evaluate three cultural variables and three institutional variables which are positioned in this essay as having the power to influence managerial and employee behaviour within MNCs. Research into MNCs often positions them as being complex and multi-layered in nature (Scherer, Palazzo and Seidl, 2013). MNCs face growing challenges in managing the complexity of interactions and thus, this requires firms to understand dimensions of employee and managerial behaviour and both are influenced by cultural and institutional variables (Meyer, Mudambi and Narula, 2011). This essay begins with a consideration of cultural variables of importance to MNCs.
Culture is defined by Hofstede (1980, p. 12) as: 'Not a characteristic of individuals; it encompasses a number of people who were conditioned by the same education and life experience. When we speak of the culture of a group, a tribe, a geographical region, a national minority, or a nation, culture refers to the collective mental programming that is different from that of other groups, tribes, regions, minorities or majorities, or nations'.
Broadly speaking, culture refers to the collective mental programming of individuals and this influences the way in which managers and employees behave within the firm. One cultural variable of importance is national culture and in particular as highlighted in the work of Hofstede (1980) five dimensions of culture should be considered: power distance, uncertainty avoidance, individualism/collectivism, masculinity/femininity and short-long-term orientation. Managerial and employee behaviour within MNCs is inherently influenced by cultural dynamics with employees being a product of the culture they exist within. Two cultural elements in particular require consideration, power distance is a cultural dimension, which refers to 'the extent that individuals accept differences between people as legitimate and expected'. If the population has a high power distance, then this reflects a focus on hierarchical power and differences in status. Employees from this culture would be accepting of different managerial groups and taking lead from those above them. This naturally influences employee behaviour with employees in a high power distance culture able to accept instruction from managers (Farh, Hackett and Liang, 2007). Farh, Hackett and Liang (2007) evidence this by arguing that power distance impacts upon levels of perceived organisational support and the outcome of employee relationships within the firm. Hofstede (1980) also highlighted the importance of individualism/collectivism and the need to understand the extent to which individuals focus on individual needs or the needs of the group. This is a cultural variable, which impacts upon behaviour within the firm. Further, an additional complexity lies in the international operations of the MNC and a firm will have to deal with different cultures. For example, India is viewed as a collectivist culture compared to the UK, which is more individualistic in nature. This will have natural implications on employee behaviour and the management of relationships within the firm.
A second cultural variable refers to cross cultural differences across employees within the MNC. It is important that MNCs are able to develop cross-cultural teams in a manner, which enhances the ability of the firm to integrate innovative thinking with the competitive orientation of the firm. Managers within MNCs have to be able to avoid cultural misunderstandings and adopt a level of cultural sensitivity. Haas and Cummings (2014) argue that due to the multi-layered nature of MNCs there is a need to focus upon person-based differences. The development of cross-cultural teams is often highlighted as being an important condition of competitive performance (Caligiuri and Lundby, 2015). Barner-Rasmussen et al (2013) position cultural skills as a resource, which maximizes organisational human capital. In order to maximize the effective positioning of human capital, managers have to be able to understand the role culture plays in creating an underlying, strong link amongst individuals (Schein, 2012).
A third cultural variable of consideration is the study of organisational culture (Schein, 2012). Organisational culture refers to the shared values and the inherent norms which exist within the firm (Schein, 2012). Pothukuchi et al (2002) argued that organisational culture could have a negative impact on international business and on the actions of MNCs. Considered to be a mechanism of differentiation; organisational culture is positioned as overseeing and supporting employee behaviour within the MNC. Due to the multi-layered nature of the MNC, Al-Husan, Al-Hussan and Perkins (2014) argue that there is a need to have multilevel human resource management systems in place in order to support different employee groups. This does however raise a challenge with regards to the promotion of consistency while at the same time differentiating on the basis of culture. This is a particular challenge for the MNC where a global, brand image is required amongst the dynamic determinants of employee behaviour within the firm. Sofka et al (2014) argue that for an effective organisational culture to result, MNCs have to be able to focus upon value creation.
Cultural variables are a soft consideration, which ultimately have the power to affect employee behaviour within MNCs. Difficulty lies in the intangible nature and the difficulty associated with the measurement of organisational culture (Baird, Hu and Reeve, 2011). Thus, while cultural variables notably are considered to impact upon MNCs and the wider realm of international business, it is difficult to precisely account for difference and this is largely tied up within the power of individuals within the firm. It is important however to utilize frameworks such as those provided by Hofstede (1980) to move towards a more detailed appreciation of culture (Hofstede, 2011).
Aligned to the multi-layered nature of the MNC, culture can also be viewed as having different layers (Steenkamp, 2001). National culture as reviewed in the work of Hofstede (1980: 2011) is one layer but it must be appreciated alongside other elements of culture including more microelements including organisational culture. The study of culture and its impact on international business requires a greater exploration of how different elements of culture interact.
Managerial and employee behaviour is also influenced by a number of institutional variables. This essay discusses three institutional variables in particular: political, religious and economic. Each institution affects firms differently dependent upon the country of operation. Morgan, Kristensen and Whitley (2001) argue that a multinational firm must be able to organize across institutional devices and this requires an understanding of different economic, political and religious considerations. While increased attention has been directed towards the value of standardized approaches, in reality, adaptation is considered to be the most effective way to deal with different dynamics in the external environment (Teece, 2009).
The political environment is widely considered to influence the environment within which MNCs operate. Luo (2004) highlights the importance of developing a platform built on co-operation between the MNC and the host government. An inclusive, integrated partnership is often positioned as being the most effective platform from which to build relationships. Present within a particular political institution, individuals will align to a particular political identity. A political institution such as the leadership of the Conservative government in the UK has the power to influence the way in which employees and managers behave. Largely, the influence on behaviour is fuelled by regulation and the design of policies and practices. Any new regulation implemented will have a natural effect on behaviour within the firm. Difficulties however arise when change is resisted within the firm and this can often arise through a collection of individuals promoting the status quo within the firm (Hayes, 2007). Offering a different viewpoint to that of Luo (2004), Heikkilä, Brewster and Mattila (2014) argue that while largely political institutions affect the larger operation of the MNC, what is needed is a more micro exploration as to how political conflicts can influence employee behaviour. They, in particular, argue that political conflicts within a given country or amongst individuals within the firm can result in inherent challenges related to the overall effectiveness of human resource management within the firm. From a critical perspective, the work of Heikkilä, Brewster and Mattila (2014) highlights the importance of both a macro and micro exploration of the political institution. Too often the political institution is viewed as having a higher-level influence on the firm.
A consideration of religion is needed within any MNC. An internalized look at an individual is needed in order to understand and then manage individuals at work (Hollway, 1991). An analysis of employee behaviour promotes an understanding of individuals and, importantly what makes up that individual. Lund Dean, Fornaciari and McGee (2003) explore the influence of religion on employee behaviour and argue that religion plays a core role in influencing employee behaviour and should therefore be given more consideration than it currently is across the academic community. More specifically, McGhee and Grant (2008) explore the link between religion and work and argue that individual's behaviours interpret their own individual actions through a religious lens. Increasingly, attention has been directed towards the links, which exist between the religious orientation of an individual and their ethical behaviour in the workplace. Playing an important role in the global economy, increased attention is directed towards the brand image of MNCs and their responsibility to the wider community. Religion as an institution thus becomes important to consider how this influences the way in which individuals interpret decisions and perhaps behave in an ethical manner due to their religious affiliations. Another consideration related to religion refers to the prominence of diversity and, in particular the levels of diversity MNCs have to deal with. The modern day MNC must be able to manage this diversity and use it to their advantage by promoting difference across the firm within cross-cultural teams.
A final institutional variable considered is the role of the economic institution in influencing employee and managerial behaviour. The economic institution captures all institutions that are a player in the economy. This includes everything from competitors, consumers to those providing financial services. Focusing upon one specific economic institution, this essay argues that it is important to focus upon manufacturers and how this particular economic institution influences employee and managerial behaviour. In a global market, which is often positioned as being highly, dynamic and adaptable, there is a need for firms to understand how the actions of manufacturers will influence the behaviour of individuals within the firm. For example, any changes in manufacturing resulting in a change of process within the firm would have a natural influence on employee behaviour and importantly the way in which managers approach change within the firm (Hayes, 2007). Managers need to be closely aligned to manufacturers they are working with and use this to guide an integrated approach to behaviour. Within the economic setting, any economic institution has the power to influence the objectives and future of the firm. A focus on the sustainable future of the firm is required to ensure that if changes in the market exist for example changes to demand and supply, managers must be able to adapt in a timely manner. Economic institutions are thus often positioned as driving flexible and adaptable decision making from managers (Liu, 2009).
In conclusion, research into MNCs suggests that they are complex and multi-layered in nature. The role and prominence of MNCs requires attention to be directed towards the individuals, which make up the actions of the firm. As discussed in the essay a number of cultural and institutional variables can be identified as having an influence on the way in which employees and managers behave. A running theme throughout the discussion is the importance of balancing micro level considerations with a higher-level understanding of macro phenomenon. This therefore promotes the need to conduct research at multiple levels within the firm most notably starting with individual employees.
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