Corporate culture and cultural diversity

EUR167 International Business Management

“Culture is one of the most challenging elements of the international marketplace. … Two schools of thought exist in the business world on how to deal with cultural diversity. One is that business is business the world around. … The other school proposes that companies must tailor business to individual cultures.” (Czinkota et al., 2009, p83). Discuss.

International business contact and cross-border company activities are not only trends these days, but were also detectable in the past century. “The British East- India Company” or the French “Compagnie des Isles de l’Amérique” are examples for trading companies existing in the 17th century that organized exchange of goods on a worldwide scale. Today this internationalisation of organizational economic activity occurs not only sporadic, but is part of the daily work of many businesses. The reason is the proceeding economical globalization since the 60th resulting from increasing international ties between national economies and the resulting cross- border actions and bondings of companies (Blom & Meier, 2002, p. 1). The motives of the enterprises for that development are multisided: higher expectation of profits, higher demand and bigger markets abroad, nationalism or foreign restrictions, securing the supply of raw materials, lower production cost and diversification (Eberhart, 2001, p. 109). However, the question arises is, if culture or cultural differences have influence on international operations of companies (Meckl, 2006, p. 265).

On the one hand generalists say that techniques and concepts of management are universal and applicable in every culture area and therefore no specific cultural influences exist, the so called ‘culture-free-thesis’. The culturists, that represent the ‘Culture-bound-Thesis’, on the other hand say, that principles and operation of management are linked to culture and it is not possible to transcribe it to other cultures (Kutschker & Schmid, 2006, p. 778). Although the ‘hard’ elements of business studies, like for example cost accounting or financing, are rather reckoned as part of the universalism theory and ‘soft’ elements like concepts of leading or motivation get closer connected all over the world, the ‘Culture-bond-thesis’ is still seen as the correct one (Kutschker & Schmid, 2006, p. 778). That means, differences in national and cultural conditions have to be analyzed, assessed and measures to be taken. In order to understand cultures you can use, besides a descriptive approach, an analytic dimension approach like culture studies of Hofstede. (Meckl, 2006, p. 265)

Hofstede’s book “culture’s consequences”, published in 1980, is the one of the most fundamental piece of work in comparing cross-cultural research. With its large-scale study among employees of International Business Machines Corporation (IBM) from 1967 to 1973 in 72 countries worldwide Hofstede has provided a pioneering empirical study on classification of different cultures. His classification of cultures on the basis of first 4, then 5 dimensions (power distance, individualism, masculinity, uncertainty avoidance and short-term) versus long-term orientation has a decisive influence not only on academic cross-cultural comparative research of the last 20 years (Kutschker & Schmid, 2006, p. 716) but also on the practical management and leadership practices used in multinational corporations or even to cross-cultural intersections of smaller companies in an increasingly globalized world.

Hofstede's study aimed to prove that corporate culture could not be the same in all branches, because you can’t fade out the local culture. For him, culture is a "collective mental programming" that people of a nation or a region have in common.

Power distance index - PDI

The PDI specifies how far less powerful individuals accept and expect an unequal distribution of power. High power distance means that power is unevenly distributed, low power distance describes power as distributed more equally.

Individualism and collectivism - IDV In societies with a high IDV index the rights of the individuals such as self- determination, ‘I-feeling’ and self-responsibility, are better protected. On the other hand in a collectivist culture with a low IDV index the integration in any type of networks dominates. For such a culture the ‘we-feeling’ is much more characteristic.

Masculinity versus Femininity - MAS

As feminine values Hofstede considers caring, cooperation and humility. Masculine values are however competitive readiness and self-esteem. A high MAS index shows a dominance of "typical male" values, a low MAS index is a dominance "typically female" values. The IBM-study showed that the division of the two attributes was found in every culture. But in "masculine" societies the differences were more pronounced. In fact women were more competitive, but it applied to man in a much greater extent. "Masculinity" and "femininity" thus says a lot about the distance, the extent of the "gap" between men and women and their values.

Uncertainty Avoidance Index - UAI

This index evaluates the level of willingness to take risks and to live without direct securities. Cultures with a high UAI-index, that try to avoid insecurity, distinguish oneself by many laid down laws, policies and security measures. The people are more emotional and driven by an inner nervous energy. Cultures that accept the uncertainty are tolerant, have fewer rules that can also be changed in a case of doubt and are relativists. The members are phlegmatic, and don’t expect from their environment to show emotions.

Long-term-orientation - LTO

This index, which was introduced late by Hofstede, indicates how large the time planning horizon is in a society. Values of members of an organization that are the long-term orientated: thrift, perseverance. Values of members of an organization that are the short-term orientated: flexibility, egoism. Hofstede experienced primarily methodological criticisms, which were quite justified. However, this did not alter the fact that Hofstede was able to empirically demonstrate that the impact of national culture must not be disregarded. In the international project management and leadership of international teams, the strategic management cannot ignore the inter-cultural context. In addition, Hofstede's study provides an important foundation for many cultural studies, general studies and more recently for business operation (Müller & Kornmeier, 2002).

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