The Importance of National and Corporate Culture on International Management


Term Paper (Advanced seminar), 2012
11 Pages, Grade: 1,3

Excerpt

Table of Content

Introduction

Main Part
The importance of national culture on international management
The importance of corporate culture on international management
A new attempt: national and corporate culture interact

Conclusion

References

Introduction

In 2010 Wal-Mart Inc. has been the world’s top retailer with revenues of US$ mil 405,046 (Deloite 2011). However, they have never managed to establish Wal-Mart Germany since they have entered the market in late 1997. They left the market with huge losses in 2006 (Arndts, Andreas/Knorr, Andreas 2003, p. 13).

“In Germany, analysts say, Wal-Mart never got traction in a market characterized by unrelenting price competition, well-established discounters and the cultural resistance of German shoppers to hypermarkets, which sell fresh vegetables a few aisles away from lawn mowers (Landler 2006: 1).”

Ultimately, Wal-Mart’s inability to understand and adapt to the national culture “exposing their profound lack of intercultural competence and management skills (Arndts, Andreas/Knorr, Andreas 2003: 21)” had been the most cogent reason for their failure in the German market.

Decisions within a firm are influenced by internal (e.g. strategy) and external factors (e.g. activities of competitors). One major example of an external factor which significantly influences the decision making process is culture (Mead / Andrews 2009, pp. 4f.).

Particularly in times of globalization nearly every firm deals with expanding into foreign markets and culture barriers. This is just one example where misperceptions and misunderstandings between business partners of different countries lead to significant market failures. The consideration of culture in international management is inevitable (Ahlstrom / Bruton 2010, p. 28).

However this leads international management to a dispute between national and corporate culture: Which one has more impact on successful international business?

The most common definition of culture in general is “the collective programming of the human mind that distinguishes the members of one human group from those of another. Culture in this sense is a system of collectively held values (Hofstede 1981: 24).”

“National culture is the dominant one which prevails within the boundaries of a country (Aswathappa 2010: 199)” and consists of eight major areas which are education, language, law, politics, religion, social organization, technology and material culture and values and attitudes (Iqbal 2010, p. 3).

Corporate culture (also called organizational culture) is determined as “a system of symbols, traditions, habits, values and organizational behavior shared by the company's members (Valeriu/Georgiana 2009: 1).” New employees adapt the aspects of the culture during the socialization process. It enables them to identify with the firm and forms a strong bond between the employees (Aswathappa 2010, p. 171-174).

Main Part

As outlined in the introduction culture strongly influences a firm entering a foreign market and can determine the firm’s success. If the firm is too different from the national culture, it may not find a customer base and local employees may struggle working in the firm. However, if it adapts too much of the national culture, the essentials of the firm’s corporate culture may get lost. It may become indistinguishable from competitors or the management between the various branches becomes a hurdle. Thus the discussion about the importance of national versus corporate culture is clearly significant.

The importance of national culture on international management

“There are currently over 160 independent countries in the world, hundreds of major ethnic groups, and even greater diversity of cultures, and at least 3,000 spoken languages (Adekola / Sergi 2007: 201).”

According to Javed Iqbal, managers often move to foreign countries in order to manage the establishment of a new branch and in order to lead the firm’s international expansion. There they often experience a culture shock. However, he claims that these managers need to get acquainted with the new national culture and apply this knowledge in their management practices in order to ensure successful international business (Iqbal 2010, pp.1f). This is called comparative management which “aims at: i.e., increasing the understanding of principles, theories, and practices in the realm of management in countries other than of one’s own in order to run the international businesses smoothly and effectively (Iqbal 2010: 1-2).”

Moreover Iqbal explains the importance of comparative management through its “interdisciplinary in nature and several fields of humanities and social sciences [affecting] it. […] [All] these influences make management of one country different from another (Iqbal 2010: 2).” The knowledge about potential problems between the entering firm and the national culture is an important aspect which reduces the risk of management failure (Iqbal 2010, p. 2).

Furthermore Iqbal argues that the complete system of the national culture with its eight major areas (education, language, law, politics, religion, social organization, technology and material culture and values and attitudes) has greater impact on international business than the sum of its parts and hence it is necessary to understand the whole (Iqbal 2010, p. 4).

“Sufficient knowledge of the subject of comparative management, respect for alien cultures and feelings of empathy towards local people in a foreign land are important steps in becoming an effective manager in international milieu (Iqbal 2010: 7).”

Apart from that, many case studies prove how important national culture is. An additional example to Wal-Mart is Pizza Hut which wanted to expand into the Chinese market. However, top management was told that eating Pizza is against the Chinese culture since they cannot digest cheese and tomatoes. Despite this, they adjusted their recipes by reducing cheese and adding local toppings in order to meet the customers’ taste (Ahlstrom / Bruton 2010, p. 37).

The importance of corporate culture on international management

According to Aswathappa corporate culture can have positive and negative effects on the organization (Aswathappa 2010, p. 176).

As stated in the definition culture forms people to a group and thus due to corporate culture people of an organization feel part of a group. Therefore they want to contribute to the firm’s success and act according to the organization’s values. If this may once not be the case, “managers and peers try to intervene and initiate corrective actions (Aswathappa 2010: 177).” Consequently corporate culture functions as a control mechanism.

Besides, such unity encourages innovation and creativity which gives the firm a competitive advantage on the market.

But more than that, employees can identify with the organization and commit themselves to it. They like working in the firm which is an example of an intrinsic reward and consequently leads to satisfaction and greater motivation (Aswathappa 2010, pp. 176f.).

[...]

Excerpt out of 11 pages

Details

Title
The Importance of National and Corporate Culture on International Management
College
Berlin School of Economics and Law
Course
Work Business and Society
Grade
1,3
Author
Year
2012
Pages
11
Catalog Number
V300251
ISBN (eBook)
9783656965633
ISBN (Book)
9783656965640
File size
635 KB
Language
English
Tags
International Management, International Business, Culture, Influence of Culture, Corporate Culture, Internationalization, International Strategy
Quote paper
Eva Schruff (Author), 2012, The Importance of National and Corporate Culture on International Management, Munich, GRIN Verlag, https://www.grin.com/document/300251

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