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  1. 1. Cross Cultural Configuration in International Business OrganizationINTRODUCTIONAnthropologists and sociologists define culture as “Ways of Living “, built up by a groupof human beings, which are transmitted from one generation to another. A culture actsout its ways of living in the context of social institutions, including family, educational,religious, governmental, and business institutions. Culture includes both conscious andunconscious values, ideas, attitudes, and symbols that shape human behavior and that aretransmitted from one generation to the next.In addition to agreeing that culture is learned, not innate, most anthropologists share twoadditional views. First, all facets of culture are interrelated: Influence or change oneaspect of a culture and everything else is affected. Second, because it is shared by themembers of a group, culture defines the boundaries between different groups.Culture is like an iceberg. Its visible part is the objective part, which comprises of eyecontact, greetings, clothing, food, initiative, volume, and time consciousness. But thebigger part which is hidden under the sea that is the subjective part which comprises ofvalues, feelings, assumptions, authority roles, concept of truth, motivations, etc is the onewhich needs to be understood in international business because that determines how anorganization has to operate.Would a management rather pilot the company through an ocean full of icebergs wherethe tops are still visible or where someone has cut them off at sea level? The answer isobvious, yet many times we navigate in an ocean of people who are culturally different,but we do not recognize those differences. And hence the need to configure internationalbusiness culturally because it forms the core of all operations. HOW CULTURE EFFECTS POLITICAL, ECONOMIC AND LEGAL ENVIRONMENTSTo understand what affect culture can have on political, economic and legal policies of acountry and be a deterrent for any global organization to be successful in this country,and example of Saudi Arabia is worth quoting.Saudi Arabia has super modern cities, but its strict Islamic religious convictions andancient social customs, on which its laws and customs depend, often clash with moderneconomic and technical realities. Global companies have had mixed success in SaudiArabia, due in large part to how well they understood and adopted creatively to Saudicustoms.
  2. 2. Saudi Arabia’s mixing of religion with state and business can be understood by exampleslike an importer halted sales of the children’s game Pokemon because the game mightencourage the un-Islamic practice of gambling, a franchiser was forced to remove theface under the crown in Starbuck’s logo because Saudi authorities felt the public displayof a woman’s face was religiously immoral. Some companies understood this in advanceand modified accordingly. McDonald’s dim their lights, close their doors, stop attendingto customers during the five times per day that men are called to pray, Saudi ArabianAirlines convert the rear of its planes to create space for prayer areas.Country’s behavior towards women is also very paradoxical. On the one hand, womennow outnumber men; they constitute only 7 percent of workforce that too only teachersand doctors. They cannot study law, architecture or engineering, cannot drive, have tocover themselves from head to toe, cannot deal with male customers or officials. Inkeeping with these customs and traditions, Saudi American Bank established branches forand staffed only by women. Pizza Hut installed two dining rooms-one for single men andother for families. Many departmental stores have separate floors for men and womenwith all the products.Even when Saudi Arabia prohibits fashion magazine and movies, designer’s brands fromParis have been selling designer collection, jewellery; make up etc to wealthy men andwomen. This shows the accuracy of segmenting, targeting and positioning.Cultural affect on economic environment can be seen by that fact that about 60% ofSaudi private workforce is foreign, even when their own unemployment rate is about30%. When their per capita was high, they hired workers from outside. Now when theirliving standards have fallen, their attitude towards work is impending the governmentsteps to replace foreign workers. Saudi Arabian culture can also be seen in their legalsanction like religious patrols may hit women if they show any hair in public,government carries out beheadings and hand-severances in public for crimes whichwould not be considered offences elsewhere, hence global companies need to be carefulabout such situations.Even their financial policies are governed by their culture. Charging of interest and thepurchase of accident insurance are not allowed under strict Islamic interpretations of theKoran. Saudi government gave interest-free loans for mortgages when they were awashedwith oil money. But now borrowers have to wait for 10 years to get a loan. Accidentinsurance was prohibited, as they are preordained acts of God and not accidents. Lessonfor multinational to be learnt is that undertaking business dealing with the banks orfinancial institutions could be catastrophic.The way they do business is again a revelation. Meetings happen at cafes over chitchat.Homes are viewed as private and no social gatherings are arranged at home to cementbusiness. On the other hand, they donot regard business discussions as private. Inspite ofcontrasts and paradoxes, foreign companies have been finding ways to be highlysuccessful in Saudi Arabia. In addition, some companies have developed specific
  3. 3. practices in response to Saudi conditions and have later benefited from them in theirhome countries.The above example of one particular culture reinforces the importance of cross-culturalconfiguration in international business. This brings us to the need to modify the globalcompany’s marketing, management, finances, and human resources systems in order togel them with the cultural requirements. ISSUES TO BE CONSIDEREDI. INTERCULTURAL MANAGEMENTIntercultural management is an emerging but increasingly vital area of investigation. It isof particular interest to global managers who work for multinational corporations that arelocated in different countries. Essentially it concerns itself with the management ofworkforces functioning in culturally different operating contexts.Diversity can arise because of variations in ethnicity and nationality, variations incorporate culture, gender differences, etc.In practice, several of these diverse elements may exist simultaneously in globalorganizations. Hence intercultural management is also about accommodating a range ofstructural and behavioral dimensions that address different facets of organizationalfunctioning.The challenge ahead now, as in the past, is to nurture cultures within organizations thatpromote corporate excellence. Therefore, managers need to develop the flexibility andopenness necessary to transit from one cultural context to another.Intercultural management issues: 1. Team management- organizations today have to constitute multicultural teams having members who bring different competencies into organizational decision- making process. However, they have to be facilitated to communicate while engaged in decision-making exercises in ways that are acceptable to team members. 2. Leadership- in a multicultural organization transformational leader (Tichy and Devanna, 1997) would be most appropriate. He or she enables ordinary individual belonging to different cultures to do extraordinary things. 3. Organizational Structure- in intercultural management, a learning structure is well suited. Such a structure enables the organization to pursue a global strategy while simultaneously customizing strategies based on the cultural requirements. 4. Core values- the two aspects pertaining to the core values of a transnational corporation. First concerns the process of selection of core values and second relates to how these values are disseminated. These values should include respect for all human beings, and a basic people orientation. The overall philosophy
  4. 4. should be one of liberalization and a belief that there is always something to be learnt from association with other people. 5. Communications- this requires sensitivity to language differences. Bringing diverse managers together to participate in cross-cultural sensitivity programmes can enhance appreciation of different communication patterns. 6. Conflict resolution- global companies have to take into account that conflicts could arise simply because so much diversity exists. Conflict resolution in an intercultural context would require skill in being able to describe conflicts in unambiguous terms Implementation issues in intercultural management implicitly assume that culture can be learnt, or culture can be cultivated. Transnational corporations should try to achieve some measure of global convergence through the following implementation issues: 1. Commitment by managers- all perspectives on intercultural management are united in their opinion that organizational culture should support the accommodation of diversity. Ultimately, implementing and supporting the norms of intercultural management is the responsibility of all managers. 2. Management styles of working- the styles of working used by managers need to be compatible with the implementation of intercultural management. Generally speaking, even the style of working should be modified as per the culture of the host country. The onus should be to make people feel at ease providing inputs regardless of their position in the hierarchy or cultural background. 3. Nationalism- can strong national identities inhibit the application of the global convergence perspective? Hence, intercultural management should embrace cultural relativism, or a belief that there can be more than one way of getting things done.The accelerated pace by which intercultural management is being practiced worldwidehas been greatly facilitated by turn of the century modes of communication. Theadvancements in telecommunication, transportation are facilitating managers to findcommonalities, express their differences and work through them.II. FINANCEThe apparently inexorable trend towards opening up of national economies and financialmarkets and their integration into a gigantic global marketplace had led to corporations toseriously view their financial management internationally. Extensive debates wereconducted in various international forums on the subject of a new architecture for theglobal financial system. While everyone agreed that the system needed closer monitoringand some built in safeguards against systemic crisis, what form the safeguards shouldtake remained an open question.
  5. 5. Today along with the growth in trade, cross border capital flows, and in particular, directsinvestments have also grown enormously. The world is witnessing the emergence ofmassive MNC’s with production facilities spread across the world. Rightly said by Singeret al (1991) “it is just possible that within the next generation about 400 to 500 of thesecorporations will own about two thirds of fixed assets of the world economy”. Such asenormous growth in international trade and investment would not have been possiblewithout the simultaneous growth and increased sophistication of the internationalmonetary and financial system. Adequate growth in international reserves, that is meansof payment in international transactions, an elaborate network of banks and otherfinancial institutions to provide credit, various forms of guarantees and insurance,innovative risk management products, a sophisticated payments system, and an efficientmechanism for dealing with short-term imbalances are all prerequisites for a healthygrowth in trade. The market presents the finance manager with a bewildering menu offunding techniques, investment vehicles, risk management products and speculativeopportunities. Financial engineering is no more a fancy jargon but a reality. For thosewho are willing to master its complexities, the market provides endless opportunities forcreative financial management, for the unwary, it is a minefield.Financial considerations also depend on a lot of factors like relationship between businessand the providers of capital, the political and economic ties with other countries, the levelof inflation, level of a country’s economic development, etc. But the country’s prevailingculture also plays a major role in financial decisions. As per Hofstede’s culturaldimension of Uncertainty Avoidance which refers to the extent to which culturessocialize their members to accept ambiguous situations and tolerate uncertaintydetermines how risk avert they are. Cultures with high uncertainty avoidance place apremium on job security, career patterns, retirement benefits and so on. Loweruncertainty avoidance cultures have a greater readiness to take risks and less emotionalresistance to change.Companies entering new countries might face different accounting standards, credibilityfor the currency of both the countries, risk and capital budgeting, attitude towards variousfinancing decisions, financial structure, attitude towards maintaining cash balances,attitude towards taxation, raising loans, investment options, managing foreign exchangerisk and many more such financial issues have some cultural influences which any globalcompany needs to understand.III. MARKETINGCultural differences have the most impact on the marketing strategy of a global company.This is the offer, which the company enters with and hence it should completely gel withcultural beliefs of the nation. Modifications to be made because of cultural implicationswould range from changing the product or service altogether depending on the socialstructure, language, religion, traditions, education, etc of the host-country to themarketing communication strategy. For eg, hamburger do not sell in Islamic countries,frozen foods is not consumed in many countries, cheese chips are not accepted in China.These countries have different tastes and preferences, consumption habits, lifestyle
  6. 6. choices, values etc that requires multinational firms to modify their offering in differentcountries.Consideration has to be given to their sensitivity towards pricing also. Even on the factwhether the market in that country is competitive or the MNC would have a monopoly,the prices would get determined. The demand elasticity of products for the consumerwould also play an important role in pricing decision. Distribution channel and relationwith supply chain partners is also important consideration in international marketing. Forcertain products consumers have a set mindset for a particular channel that should beused. Hence the company needs to consider.But the most important part of marketing that will have the most impact of culturaldifferences is advertising or communication with the consumer. Advertising not onlyincludes developing the ads, but the font, the language, the colors, packaging, logo,symbols, positioning but also the media which it uses. All these elements need to becarefully studied with respect to the cultural beliefs of the host-country. To modifyadvertising strategy to overcome cultural barriers it is important to develop cross-culturalliteracy. It should use local input, such as local advertising agency, in developingmarketing message. Firms can experiment with capturing some benefits of globalstandardization while recognizing differences in countries’ cultural and legalenvironments.IV. HRMManaging human resource effectively and integrating their activities to achieve globaladvantage, is a challenge to the leadership of these global companies. Finally it boilsdown to the philosophies and systems they use to manage people. Of all the environmentslike political, legal, technological, the one that effects human resource management is thecultural environment which comprises communication, religion, values, ideologies,education and social structure.Companies can choose between creating codes of conduct for employees throughout theworld to make certain that standards of ethical and legal behavior are known andunderstood, thereby portraying their responsiveness to the host country’s environment,eg-Xerox. On the other hand companies try to ensure that company values are reinforcedalong with recognizing the need for adapting to local cultures like PepsiCo.For their staffing requirements, organizations can either send people from its homecountry termed as expatriates or home country nationals, or hire host-country nationals orthird country nationals, natives of a country apart from host and home country.The recruitment and selection procedures could be either based on merit or family ties,social status, language depending on the culture of the host country, as the firm has toabide by the government regulations. Even employee’s gender composition would alsodepend on the attitude of the host country towards women employment. Manyorganizations have been using transnational teams that are composed of members ofmultiple nationalities working on projects that span multiple countries. The fundamental
  7. 7. task in forming transnational team is assembling the right group of people who can worktogether effectively to accomplish the goals of the team.Companies today are looking towards not just managers but global managers who areequipped to run global business. The attributes that are desired are: 1. Ability to seize strategic opportunities 2. Ability to manage highly decentralized organization 3. Awareness of global issues 4. Sensitivity to issues of diversity 5. Competence in interpersonal relations 6. Skill in building communityBut because perfect managers are rare to be found, hence the importance of intensivetraining to create global managers out of just managers. An organization that makes aconcerted effort to ensure that its employees understand and respect cultural differenceswill realize the impact of its effort on its sales costs and productivity.Global organization need to take care of some essential elements of T&D programs likelanguage training, cultural training, assessing and tracking career development, trainingmethods.We have seen that individuals take up new assignments abroad to acquire skills andexperience that will make them more valuable to their companies. But unfortunately, it isvery difficult to evaluate their performance. The issues that arise are as to who willappraise, the home country management who made the assignment or the host countrymanagement for whom he is working.As we all understand, some cultures give more importance to monetary compensationwhere others may desire social acceptance, job security, respect, and power more thanmoney. In general, guiding philosophy for designing pay systems might be “thinkglobally and act locally”. Executives should normally try to create a pay plan thatsupports the overall strategic intent of the organization but provides enough flexibility tocustomize particular policies and programs to meet the needs of employees in specificlocations. Even government regulations on the compensation have to be adhered to.Differences exist not only in the collective bargaining and negotiations but also in thepolitical and legal conditions of two countries. Different country will have differences inthe role that union play in an organization. These unions are generally aligned withpolitical parties, religious parties; hence managers need to work on their relationship withthe union. These unions may use political pressure in the collective bargaining processwhere manager might feel handicapped if he does not have knowledge about the workingof such systems there. Labor participation in management is another issue, which is moredetermined by culture than anything else.MANAGING DIVERSITY OF WORKFORCE“Diversity is the variation of social and cultural identities among people existing togetherin an defined employment or market setting”. Today, in most countries there are a
  8. 8. significant amount of individuals who are from different cultures so managers are facedwith a multicultural work force in all their offices across the world. Because all of thenare culturally distinct, many problems like misperception, misinterpretation,misevaluation, miscommunication, ambiguity, and confusion are bound to rise.By managing diversity, it means its effects and implementing behaviors, work practicesand policies that respond to them in an effective way. Managers can achieve this byproviding cross-cultural training to the employees, developing cross-cultural appreciationand most importantly reinforcing such strong corporate culture which subsides thecultural differences. Because the teams differ in culture they can be put to suchassignments, which requires them to be different and yet together for accomplishing thetask.Each of the above differences makes managing HR in an international context morechallenging. But the crux of the issue in designing HR systems and strategy is notchoosing one approach that will meet all the demands of international business. Instead,organizations facing global competition must balance multiple approaches and make theirpolicies flexible enough to accommodate differences across national borders.V. CROSS-CULTURAL NEGOTIATIONSIn a world in which cross-cultural joint ventures and alliances are essential, problems ofethics and trust will loom large. How is it possible to achieve a balance between thenecessary and the contingent in business ethics, or in other words to allow for flexibilitybetween a strong corporate ethic and the need to adapt to difficult local conditions? Andhow can we learn to build a lasting trust relationship with people from a different culture?How can managers going to the negotiating table be prepared for the very different stylesthey will face? It is not merely a question of setting bargaining ranges, toning downconfrontational styles, or following pre-established rules. That is sufficient for making adeal, but not for setting up a permanent alliance. It is essential to grasp the deep structures- religious, social, ethnic and ethical - which influence the way the opposite party willreason, the way they will react to different presentational styles, what they expect andhow they listen.This requires a level of genuine understanding, which goes beyond rapidly acquiredskills. Because culture affects negotiator’s strategies for using influence and information,the issues to be negotiated, negotiator’s interests and priorities, as well as the social,economic, legal and cultural environment in which negotiations are conducted.At this point special reference should be made to Geert Hofstede’s cultural dimensionsmodel. These dimensions can be very handy for multinational corporations in negotiatingand finalizing deals with various competing and complementing parties. The followingare the dimensions:Individualism/Collective Index (IDV) – the Individualism/Collective Index refers to thepreference of behavior that promotes one’ self-interest.
  9. 9. Power Distance Index (PDI) – The power distance index measures the tolerance ofsocial inequality, that is, power inequality between superiors and subordinates within asocial system.Uncertainty Avoidance Index (UAI) – the uncertainty avoidance index explains theintolerance of ambiguity and uncertainty among members of a society.Masculinity/Femininity (MAS) – the masculinity/femininity index refers to one’sdesire for achievement and entrepreneurial tendencies, and the extent to which thedominant values in society are “masculine”.Based on an understanding of the above dimensions corporations should be able toformulate a win-win deal for the both the parties concerned. This also requires synergisticskills, understanding of social and business etiquette, decision making hierarchies,overcoming objections, understanding opponent team dynamics, values and roles, timing,avoiding traps, building trust, using the language to influence and persuasion, and last butnot the least advanced probing skills.VI. PRODUCTION AND OPERATIONSWhen a multinational company plans to set up its manufacturing base in a new country,even then some cultural issues is bound to rise. Issues such as the cultural attitudetowards cost, quality, technology, flexibility, technical training, learning, blue collarwork, co-ordination, materials management, efficiency, innovation, research &development and many more are of high relevance when a firm decides to startmanufacturing facilities in a country.All the above factors go a long way in determining whether a multinational wouldsucceed in using its manufacturing capabilities in that new country or not.VII. BUSINESS PRACTICES AND CUSTOMSBusiness customs are as much a cultural element of a society as is the language. Culturenot only establishes the criteria for day-to-day business behavior but also forms generalpatterns of attitude and motivation. Executives are to some extent captives of their cul-tural heritages and cannot totally escape language, heritage, political and family ties, orreligious backgrounds.Various studies identify North Americans as individualists, Japanese as consensus-oriented and committed to the group, and central and southern Europeans as elitists andrank conscious. While these descriptions are stereotypical, they illustrate culturaldifferences that are often manifested in business behavior and practices.A lack of empathy for and knowledge of foreign business practices can create in-surmountable barriers to successful business relations. Some businesses plot their strate-gies with the idea that counterparts of other business cultures are similar to their own andare moved by similar interests, motivations, and goals-that they are "just like us." Even
  10. 10. though they may be just like us in some respects, enough differences exist to causefrustration, miscommunication, and, ultimately, failed business opportunities if they arenot understood and responded to properly.Knowledge of the business culture, management attitudes, and business methods existingin a country and a willingness to accommodate the differences are important to success inan international market. Unless marketers remain flexible in their own attitudes byaccepting differences in basic patterns of thinking, local business tempo, religiouspractices, political structure, and family loyalty, they are hampered, if not prevented,from reaching satisfactory conclusions to business transactions. In such situations,obstacles take many forms, but it is not unusual to have one negotiators businessproposition accepted over anothers simply because "that one understands us."VIII. BUSINESS ETHICSThe moral question of what is right and/or appropriate poses many dilemmas for domes-tic marketers. Even within a country, ethical standards are frequently not defined or al-ways clear. The problem of business ethics is infinitely more complex in the internationalmarketplace because value judgments differ widely among culturally diverse groups.The decision to pay a bribe creates a major conflict between what is ethical and properand what is profitable and sometimes necessary for business. Payoffs are perceived bymany global competitors as a necessary means of accomplishing business goals but insome cultures it is completely prohibited.It would be naive to assume that laws and the resulting penalties alone will put an end tocorruption. Change will come only from more ethically and socially responsible decisionsby both buyers and sellers and governments willing to take a stand.Regardless of where the line of acceptable conduct is drawn, there is no country wherethe people consider it proper for those in position of political power to enrich themselvesthrough illicit agreements at the expense of the best interests of the nation.It would be naive to assume that laws and the resulting penalties alone will put an end tocorruption. Change will come only from more ethically and socially responsible decisionsby both buyers and sellers and governments willing to take a stand.Hence it becomes crucial for the global corporations to appreciate the ethical levelprevalent in the host-country and mould its operations to what is desired there. Theyshould never forget that they are being allowed to do business assuming they would bewilling to gel their way of working with what the culture of the host-country desires.IX. CORPORATE CULTURE- ORGANIZATION AS A MELTING POTAs a kid, I pictured in my mind what happened when I melted chocolate chips, butter andsweetened condensed milk together. When the melting was finished, the pretty yellow
  11. 11. butter and the white milk were nowhere to be seen. Their sacrifice could be tasted, but allthat was visible was the dark brown of the dominant ingredient-the chocolate. As a kid, Ipictured myself to be chocolate and others around me to be different from me and theones to sacrifice for my benefit. But it is not the case to be. Even in countries we see“small India”, “small Chinatown”, being created where people who are similar tend to betogether. This is one mistake, which the firm should avoid to commit.The firm’s corporate culture should be like a melting pot where employees and partnerswith their diverse talent could create a “salad bowl”, where each one is different but whenthey come together, they create synergies, which lead to an excellent work.The corporate culture should be one to enhance economic performance without loosingthe sight of different cultures which exist within the firm. For this appreciation of thevarious cultures is required along with such systems which leverage these differences tocreate synergies.To achieve this transcultural competence has to be imbibed into the organization. It canbe defined as “the capacity to integrate seemingly opposed value”. Just recognizingcultural differences is not enough; the need of the hour is to develop transculturalcompetencies. The management should have the capability of modifying strategyaccording to the specific context of a cross-cultural situation and also, the propensity toreconcile seemingly opposing value and to bridge these differences. The first requirementfor this change is effective leadership. If the leader can direct the efforts of opposingvalues towards one corporate value transcultural competence is achieved.CONCLUSIONSocieties differ because their cultures vary. Their cultures vary because of profounddifferences in social structure, religion, language, education, economic philosophy andpolitical philosophy. Hence the need to modify international business is critical as it hasnever been before. For this the management needs to develop cross-cultural literacywhere there is not only a need to appreciate that cultural differences exist, but also toappreciate what these differences mean for international business. The danger of being illinformed is so large that it can lead to sudden death of the company in the new country.Hence companies should do away with ethnocentrism that is the belief in the superiorityof one’s own culture and try to understand as much as possible about the culture of thehost nation. Secondly organizations should take cultural understanding as a source ofcompetitive advantage in international advantage. Cross-cultural knowledge would notonly make them aware of the countries, which can have their most viable competitors butalso tell them where to enter and where not to enter. And finally culture knowledge givesthe firm an adequate idea as to what are the ways of working in that country. Businessethics and practices need to understand and that can be achieved only through acomprehensive review of their culture.
  12. 12. REFERENCES: 1. International Business, Competing in the global marketplace-Charles W.L.Hill (Tata McGraw Hill Publishing). 2. International Business, Environments and Operations- John D.Daniels, Lee H. Radebaugh and Daniel P. Sullivan (Pearson Education). 3. International Financial Management- P.G.Apte (Tata McGraw Hill) 4. Multinational Finance- Adrian Buckley (Prentice Hall) 5. International Management, Managing across borders and cultures- Helen Deresky (Prentice Hall) 6. Intercultural Management- Nina Jacob (Kogan Page) 7. Business Ethics, concepts and cases-Manuel G. Velasquez (Pearson Education) 8. Ethics in Organization- David Murray (Crest Publishing) 9. International Marketing: Warren Keegan (Pearson Education) 10. International Marketing (Analysis & Strategy): Sak Onkvisit & John J Shaw (Pearson Education) 11. Corporate culture and Performance- John P.Kotter 12. Corporate cultures-Terrence E.Deal 13. Countries and concepts: Politics, Geography and Culture-Michael G.Roskin 14. Creating the Multicultural Organization: A Strategy for Capturing the Power of Diversity-Taylor Cox