Essential Differences between the German and American Business Culture

Table of contents

1 Introduction

2 Current trade relations between Germany and the U.S

3 The understanding of culture
3.1 Hofstede's cultural dimensions theory
3.2 Hall’s cultural factors

4 Relevant differences for the German and American business culture and business relation
4.1 Attitude towards individual- and group work
4.2 Incentives for performance
4.3 Relation to workplace
4.4 Equality and strong hierarchy
4.5 Action focused approach and result orientation
4.6 Contact orientation

5 Further impacts
5.1 Employment and labor regulations
5.2 Health insurance

6 Conclusion

I. References

1 Introduction

Nowadays business is run globally and does not know any barriers. Trade and access to new markets are expanding, international mergers and acquisitions or joint ventures are increasing, business relations are getting strongly interconnected worldwide. Therefore, managers have to take into account national and international regulations. Employees of multinational companies work in various countries for a certain period, students go abroad as interns in order to gain work and intercultural experiences. Countries all over the world are involved in business issues, including the differences regarding cultures, societies, and the way of doing business, that creates not only opportunities but represents challenges as well. Through globalization business faces many workplace related cultural differences. The companies are well prepared with quantities of facts and numbers, nevertheless often the “soft factors” are neglected, which contain cultural and organizational behavior. Even between highly similar countries the risk of misunderstanding is still high in business relations, often due to the so called “similarity trap”.¹ This means that at the surface no obvious differences are noticed, they only appear after a deeper look on each culture. This holds especially for Germany and the U.S. The only notable difference seems to be the language, which is not a further problem, as most American likewise German businessmen share the opinion that Germans are well acquainted with the English language.² This lack of awareness of the existing cultural differences often leads to unexpected problems that can cause important damages in the involved companies. The interactions between German and American businesses are developing rapidly and have become indispensable for each country. For doing successful business, it is necessary to understand what culture is about and why it is important to be aware of the variety of manner to communicate. The following work reveals the differences between German and American business cultures and shows the social background, which marks every culture. Above, the working environment should be taken into account, including the current trade situation, labor laws and insurance system.

2 Current trade relations between Germany and the U.S.

At the beginning, a brief overview of the trade relations between Germany and the U.S. is provided. Germany is the largest national economy in Europe and records a high trade surplus, making it to an outstanding capital exporter globally. The economy of the United States is the world's largest single national economy. For the U.S., Germany is the most important trading partner in the European Union, while the U.S. is the most significant non-European trading partner for Germany. 29,5 % of the EU-exports to the U.S. were accounted by Germany.³ Measured by the total amount of the bilateral trade of the U.S., Germany occupies the fifth place, after Canada, China, Mexico and Japan.⁴ For Germany, the U.S. is, in terms of export, the second largest trading partner, right after France. It reaches a total value of 86,8 billion euros.⁵ The deliveries from the U.S. to Germany record 50,6 billion euros. Accordingly, the U.S. achieves the fourth place in Germany on the position of the most important countries of supply, after the Netherlands, China and France. In addition, foreign direct investment (FDI) from the American trade partner plays a major role, as the U.S. is the largest non-European investor in Germany.4 This cooperation promotes not only economic growth, but also job creation. American companies are important employers for Germany and vice versa. American firms secure around 600.000 jobs in Germany. Also German firms employ over half-a-million American workers.⁶ Similar figures apply for the U.S.⁷ Around 800.000 German employees work in the U.S. These strong trade and investment relations reveal the importance of managing successfully the interactions between both trade partners. The awareness of business cultures contributes to the mutual understanding plus mutual benefit and improves the business relationship of Germany and the U.S.

3 The understanding of culture

There are many different ways to describe and to define culture, but one of the most spread understandings of culture is illustrated through the iceberg metaphor.⁸ Here culture is compared to an iceberg divided in three parts. First the visible part of the iceberg represent the observable part of a culture such as manners, customs, history, clothes, food, architecture, language or negotiation style. Second, the part just under the water represents the non-observable parts of a culture, for example, beliefs, knowledge, norms and values such as gender role or equality. This part determines the reason behind the visible behavior. Third, the deepest part of the iceberg represents the unconscious basic assumptions for example the understanding of time and space or the relation between human beings and nature, which is usually taken for granted. Culture is communicated in and through the society as well as the environment by which it is surrounded and passed along from one generation to the next through learning.⁹ It affects the way of life by the pattern of the surrounding society of how to act, perceive, feel or think about what is acceptable, fair, workable, right or wrong. As culture is a part of everyone and seems to be natural for every individual, it is important to be well aware of the own culture to identify the differences and similarities with other cultures. This knowledge increases the ability to cope with misunderstandings. In order to identify cultural characteristics. some tools are commonly used such as Hofstede's cultural dimensions or Hall´s definition of culture.

3.1 Hofstede's cultural dimensions theory

In the 1980s Geert Hofstede established a concept that explains observed differences between cultures. This theory describes the effects of a society's culture on the values of its members and how these values relate to behavior.¹⁰ It is based on a survey of 116.000 IBM employees worldwide. As a result, four different dimensions occurred: (1) Individualism - collectivism, (2) Power distance, (3) Uncertainty avoidance, (4) Masculinity - femininity. The four dimensions can be compared internationally between cultures by putting together national scores from 1 for the lowest to 120 for the highest.¹¹ (1) Individualism (IDV) vs. collectivism: "The degree to which individuals are integrated into groups".10 In individualistic societies, personal achievements and individual rights dominate. People care mainly for themselves. In collectivist societies, individuals act predominantly as members of a group. People care of each other and remain loyal to their families. Regarding individualism Germany has a score of 67 while U.S. has a much higher score of 91.11 (2) Power distance index (PDI): "Power distance is the extent to which the less powerful members of organizations and institutions (like the family) accept and expect that power is distributed unequally."10 Cultures with low PDI expect and accept power relations that are more consultative or democratic. Both, Germany with 35 and the U.S. with 40 have low scores.11 (3) Uncertainty avoidance index (UAI): "a society's tolerance for uncertainty and ambiguity".10 People in cultures with a high UAI-index try to minimize uncertainty, be careful and desire structure. In contrast, low uncertainty avoidance cultures accept unstructured or changeable situations and try to minimize rules. Germany has a high score of 65, the U.S. a lower score of 46.11 (4) Masculinity (MAS), vs. femininity: "The distribution of emotional roles between the genders".10 Masculine cultures are competitive, assertive and materialistic. Feminine cultures value harmonized relations, solidarity and good working atmosphere. The U.S. (62) is considered as being “masculine”, as they ambitiously strive for success. Germany (66) tends to be a masculine society with feminine undertones. They prefer a good quality of life and to work collectively.11

3.2 Hall’s cultural factors

Hall describes culture through communication; thus as a system for creating, sending, storing and processing information. Culture can be transmitted in the way of how to communicate and it depends on the context. All information which surrounds the event is important for understanding. Hall classifies between a low- and a high context culture with regard to the communication style.¹²

In a low-context culture, the communication style is explicit, linear, direct and verbal. The message is clear, without any importance on the context. Words are straightforward, “no” means no, and “yes” means yes. The priority is transmitting a concrete message. Germany and the U.S. belong to the low-context culture.¹³ Thus Germans are generally known as not smiling, they address straight the mistakes, stay serious and cautious, disagree openly, rarely compliment, over-use of background or detailed information. While the Americans are extremely friendly, messages are not conveyed through gestures, come to the point quickly, show the time stress openly, do not like intermittence, pragmatic and use simple language.

In a high-context culture the communication style is implicit, circular and indirect. The message is coded in non-verbal messages, for example, gestures, tone of voice or eye contact and the circumstances of the communication. For interpreting the information it requires intuition and a deep knowledge of cultural habits. It can be described as feeling focused and relationship-oriented. For example, the Japanese would most likely not reject an American with a straight “no”. Instead, the answer would be “We shall give it some consideration”.¹⁴ The contextual meaning is the equivalent of the German “nein/no”. Native speakers have no obstacles of understanding the high context culture.

According to Hall, time is another important aspect of culture which can separate culture in two types: monochronic- and polychronic cultures.¹⁵ In a monochronic society, people concentrate on one activity at a time. Time is linear and can be divided into segments. A schedule and punctuality are highly important or even sacred. Time is money and therefore has to be used highly efficient. This approaches to the German and U.S. society. The polychronic system is characterized by the simultaneous occurrence of many activities. More emphasis is placed on people and relationships than holding on schedules.

The theories of Hofstede and Hall are very often used as a framework for international management or cross-cultural communication. In the following findings those cultural characteristics will also be noticeable and can be interconnected.

4 Relevant differences for the German and American business culture and business relation

In the following sections observed characteristics and patterns of the German and American group norms are described. These kinds of behavior or values are shaped by each nation’s culture and flow into each business culture. It is to mention to appreciate those “typical national patterns” with caution. The countries or societies and their business cultures can be generalized. However, in the end it depends particularly on every individual person.

4.1 Attitude towards individual- and group work

The American culture can be explained by the historical terms of being the land of freedom and opportunity and the American way of life as expression of pursuit of happiness.¹⁶ Therefore Americans are strongly characterized as individuals, as they love their freedom and rely on own strength and capability.¹⁷ American citizens are convinced that they can determine their own destiny and path of life. Privileges as well as chance or luck have little or no influence on success. Each individual is responsible for its own achievements regarding the own abilities, experience and performance.¹⁸ They tend to be self-sufficient, highly self-confident, pro-active and with such self-identity the success of each individual is more important than a group success. The country is full of optimism and heavy emphasized by the rag-to-riches myth.¹⁹ Americans hold the belief that the opportunity for prosperity and success, as well an upward social mobility can be achieved through hard work, virtue, and individual initiative. In the business culture great value is attached to the right to self-actualization, individual decisions and autonomy as well as authority independence. This explains why it is highly acknowledged and commendable when someone has become wealthy as a result of individual achievement and endurance. Furthering the own interest and particular business is primary.²⁰ Americans are conducted by the motivation of being self-reliant and build their own opinions as individuals. Yet, the opinion of other persons and their own right of self-determination are respected. Furthermore, the competitive and individualistic mentality supports the ideology of a free market, which is popular in the U.S. Any governmental interference in economy are deprecated and recognized critically.²¹ Most feared is any proposal or regulation of communization. From the American perspective, Europe is too socialistic and has a negative reputation. The majority, particularly Republicans, is more relying on capitalism, entrepreneurs and free enterprises, which is also the prevailing economic system. The negative attitude against any state force is recognizable in many ways. For example, the upcoming health program “the Patient Protection and Affordable Care Act” or the so called “ObamaCare” faces resistance, as it is often compared to communism or even slavery. However, the younger generation tends to be more positive towards the cooperation with the government.

In contrast, Germans prefer a kind of “we” society; meaning they identify themselves mostly in a group and place solidarity as a high value.²² An extended family can achieve better results through cooperative work. A joint effort is intended. The desire to avoid uncertainty and to comply with structure leads to colleagueship. Success or salary is important, yet quality of life and work relations are more appreciated.²³ The strong sense of group welfare harmonizes also with the social market economy in Germany. The government, industry and trade unions are combined well together and outline the mutual benefits.²⁴ Germans rely on state interventions as the mixed economy system provides good working conditions, social welfare and public services. General consensus enables a general welfare.

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¹ Schmidt (2004), URL: p.2

² Schmidt (2004), URL: p.4

³ Manager magazin online (2013), URL; Destatis (2013), URL

⁴ Destatis (2014), URL

⁵ Bmwi (2014), URL

⁶ U.S. Department of State (2013), URL

⁷ RGIT (2013), URL

⁸ Schmidt (2001), p.15 , Stahl et al. (1999), pp.15-16

⁹ BusinessDictionary (2014), URL

¹⁰ Wikipedia (2014), URL

¹¹ Schmidt (2001), p.16-19

¹² Schmidt (2001), p.19-20

¹³ Schmidt (2001), pp.92-95

¹⁴ Schmidt (2001), p.20

¹⁵ Schmidt (2001), p.20-21

¹⁶ Schmidt (2001), pp. 26-27, Stahl et al. (1999), pp.47-52

¹⁷ Schmidt (2001), p. 30-30

¹⁸ Stahl et al. (1999), pp.75-79

¹⁹ Vogler (2007), URL

²⁰ Schmidt (2001), p.109

²¹ Schmidt (2001), pp.57-58

²² Schmidt (2004), URL

²³ Schmidt (2004), URL

²⁴ Schmidt (2001), pp.57, 62