The Definitions, the Ways of Measuring and the Implications to International Marketers of Cultural Distance - Research Paper Example

I. Introduction This paper aims to explore the definitions of cultural distance, the ways of measuring cultural distance and the implications of cultural distance to international marketers. By looking at various academic literature about how cultural distance has been defined, disputed, and evolved during the years, a more comprehensive understanding of the concept, at least by its essence is achieved. Also, with the emergence of different frameworks to measure cultural distance, three frameworks have been examined and analysed. Examples in the real world as regards the use of culture distance in the international business arena is looked into. With all these, future implications for international marketers are determined. II. Cultural distance and ways of measuring it A. Definition of cultural distance With the onset of globalization and companies expanding their reach to the world, foreign expansion does not come without any consideration (Craig & Douglas 2006). Aside from the size of the geographical market, one of the factors the managers look into when considering foreign expansion is the culture between the host country and the home country (Solberg 2008). The major assumption that has been going around is that, when a company decides to enter another market, one of the considerations is its ability to bring its set of norms and values, which has been developed mainly in the home country, to the target country (Yaprak 2008). If the company has an easier time setting up a subsidiary and establishing a set of norms in a target country, it is considered very much beneficial to the company (Cho & Padmanabhan 2005). However, although there are countries with a lot of similarities, major differences still suffice. This differences in norms between the parent company and the subsidiary company are due to many factors, one of which is the difference in cultures of the target country and the country where the parent company has originated. But what is culture? According to Hofstede, culture is defined as “the collective programming of the mind which distinguish members of one human group from another (Lung-Tan 2006, 437). Culture is defined by Morgan as “a phenomenon with clearly defined attributes … often reduced to a set of discrete variables … that can be documented and manipulated in an instrumental way (Shenkar, Luo & Yeheskel 2008).” According to Williams, “the concept of culture at the national level uses cultural values to represent the socially shared abstract ideas of what is good, right, and desirable in a society (Sousa & Bradley 2008).” The difference in national cultures, per these definitions, is coined as culture distance. Dow & Larimo (2009), in an effort to more clearly define cultural distance, provides a definition of the concept which is the differences in national cultural dimensions based on an earlier work of Geert Hofstedes (1980). According to Sousa & Bradley, cultural distance is the “degree to which cultural values in one country are different from those in another country (2008, 471).” Cultural distance, more specifically defined by Barkema, Shenkar, Vemeulen & Bell in 1997, is a concept “which represents the sum of factors creating, on the one hand, a need for knowledge, and on the other hand, barriers to knowledge flow and hence also for other flows between the home and the target countries (Cho & Padmanabhan 2005). Although there has been a variety of definitions for cultural distance among academics, the essence of cultural distance include determining how similar or how different two cultures are on a national level. Cultural distance between a home country and a host country is usually used as reference to the performance of the firm in another country, the success of a foreign entry, and in most issues in international trade. The major assumption is that the closer the culture distance between two countries, the more successful the entering firm—the adjustments that the parent firm will make is less when it comes to adapting to the local environment of the host country, where a subsidiary is located. B. Difference with psychic distance Cultural distance and psychic distance has long been used interchangeably in various international business research literatures. Psychic distance has gained popularity before the concept of cultural distance has been popularized. But these two concepts are not the same. Cultural distance tries to look at the differences and similarities between two cultures on a national level (Chapman et al. 2008). Psychic distance on the other hand, looks at the differences and similarities between two cultures as perceived by the individual (Sousa & Bradley 2006). For cultural distance, the subjective notion of the individual as regards the similarities and differences is discarded because these similarities and differences are measured on a more objective way—through cues that defines some dimensions of the culture, not by relying on the perception of the individual (Sousa & Bradley 2006). This is the main difference between the two. C. Ways of measurement The measurement of cultural distance has been found a useful determinant for choices of country for foreign expansion (Brouthers & Eliot Brouthers 2001). Over the years, several frameworks have emerged, trying to measure the similarities and differences between the home country and the host country in order to determine the success of such ventures. Among these include frameworks of Hofstedes, Schwartzs, the GLOBE project, as well as that of Trompenaars. Hofstedes framework measures the cultural distance initially with four dimensions—power distance, individualism-collectivism, uncertainty avoidance, and masculinity-femininity (Kim & Gray 2009, 61). Time orientation, the fifth dimension in the framework has been added later after a subsequent study of Chinese Value Surveys (Kim & Gray 2009, 61). In a survey that has examined the values of around 116,000 IBM workers in 72 countries between 1967 to 1973, the classification of the countries in each of the dimensions is the result of the study. The five dimensions, according to Hofstede represents the cultural values of the country being analysed. In his study, countries are being grouped into clusters depending on specific spectrum for each respective dimension. By looking at his framework, the cultural distance between two countries can be determined by their relative closeness or distance in the respective spectrum. Hofstedes framework, although has been largely used and by far the most popular among the frameworks to determine the cultural distance of countries, it does not mean it is perfect. In attempt to address the limitation of the framework, the GLOBE project, according to Javidan et.al “designed constructs and scales that are more comprehensive, cross-culturally developed, theoretically sound, and empirically verifiable (Kim & Gray 2009, 61). The study has included 951 organisations in three industries—food processing, finance and telecommunications in 62 nations where 17,370 middle managers have participated (Kim & Gray 2009, 61). The GLOBE project has identified nine country-level dimensions: “future orientation, egalitarianism, assertiveness, institutional collectivism, power distance, uncertainty avoidance, performance orientation, and humane orientation according to House et al (Kim & Gray 2009, 61).” The GLOBE project also goes beyond Hofstedes framework by “attempting to capture both the cultures values and the current practices in the society (Magnusson et al. 2008).” Another alternative measurement of cultural distance is presented by Schwartzs framework. In a study of 31 cultural groups in 63 nations, Schwartz has identified “ten individual-level value dimensions, which he later links to the national-level approaches through parallel sets of concepts for the two approaches (Kim & Gray 2009, 61).” With this study, Schwartz has come up with seven country-level value types with three bipolar dimensions: autonomy (intellectual/affective)--embeddedness; egalitarianism-hierarchy; and harmony-mastery (Kim & Gray 2009, 61).” These seven cultural dimensions have originated from 45 individual values which he has thought as somehow part of all cultures (Magnusson et al. 2008). Trompenaars has also offered another framework which can be used to measure cultural distance. According to Magnusson et al., this framework has stemmed from a sociological work of Parson which has resulted in five cultural dimensions (2008). Trompenaars framework however has expanded it to seven cultural dimensions, which he has defined as: “universalism versus particularism; collectivism versus individualism; affective versus neutral relationships; specificity versus diffuseness; achievement versus ascription; orientation towards time; and internal versus external control (Trompenaars 1996, 51).” III. Real-world examples of cultural distance A. Star TV In 1991, Star TV has launched its operations in China (Ghemawat 2001). With the emergence of a new elite in the Asian region, not only will these people be able to afford the services of Star TV, but they are also potential target audience that will pull advertising revenues (Ghemawat 2001). Because most people in the region speak English as the second language, Star TV has expected a huge return on its foreign investment. However, this does not happen and expectations have not been met. Star TV will be able to recoup its investment much longer than it has anticipated. Because the company have not considered greatly the cultural distance between the US and Asia in factors such as language barrier, etc. when it has decided to keep its English programming and does not bother about coming up with local programs to cater to the tastes of the viewers, the company has realised losses instead (Ghemawat 2001). B. Entering China: Ford versus General Motors During the mid 1990s, Ford and General Motors have been looking forward to entering the Chinese market. When Ford had to choose a person to head the operations in China, the option fell to a Midwestern engineer Jim Paulson (Graham & Lam 2003). He has faced huge problems as regards negotiation with the Chinese: substantial product changes, intellectual property regulations, etc. (Graham & Lam 2003). Since Jim Paulson has no knowledge of the Chinese culture as well as barriers in terms of communications, Ford has had a hard time in entering the country. On the other hand, GM has named Shirley Young the person in charge of negotiation in China (Graham & Lam 2003). Young is fluent in Mandarin. Aside from her Chinese background which includes her father being a war hero in China, her stepfather has also served as Chinas ambassador to the US, UK and France (Graham & Lam 2003). By 1997, the negotiations have born some fruits in the form of a new billion-dollar assembly plant in Shanghai to produce 100,000 units of mid-size Buick Regals (Graham & Lam 2003). The difference between the two companies is the choice of person who heads the negotiations, who will serve as the middle man amidst the cultural distance between the US and China. C. Motorola Chinas chief executives birthday Motorola China has succeeded in addressing the cultural distance by adapting to the local culture of the Chinese. Because Chinese have a collectivist culture, being in a company means being like in a company—no rights or entitlements are granted to workers, but the element of reciprocity, being at work most of the time (Hampden-Turner 1994). If the “leader gives more than the family deserves, the family tries to return reciprocal benefits (Hampden-Turner 1994).” This has been apparent during the birthday of Motorolas chief executive S K Ko, where her office has been crowded by flowers. The Chinese reciprocates the goodwill of their boss. D. US-based Merrill Lynchs acquisition of UK-based Mercury Asset Management Merrill Lynch has an “informal, fast-paced, aggressive, and entrepreneurial” corporate culture (Earley & Mosakowski 2004).” When the company has acquired the UK-based Mercury Asset Management, cultural distance has been very much apparent. Mercury is know as “a decorous, understated, hierarchical company known for doing business in the manner of an earlier generation (Earley & Mosakowski 2004).” When change has taken place after Merrill has changed the uniform policies in Mercury, the cultural distance has been more apparent. The old uniform of gray or navy pinstripes have been replaced by employees opting for casual dress (Earley & Mosakowski 2004). Some employees of Mercury has viewed the change in policy as “the victory of carelessness over prudence and an attempt by Merrill to impose its identity on Mercury, whose professional dignity would suffer as a result (Earley & Mosakowski 2004).” There is resistance to change; Merrill must have some difficulty arising from the differences in the culture. E. Merriam-Webster: Copyright infringement case in China The Chinese have a long tradition of tolerance for copyright infringement, a social norm rooted in its communist past (Ghemawat 2001). When Merriam-Webster has decided to introduce a bilingual dictionary in the country, the new dictionary has already been started in terms of distribution by the Commercial Press in Shanghai (Ghemawat 2001).. In terms of norms as regards intellectual property rights such strong laws in the US, there is a cultural distance as regards this to the Chinese. The Chinese court which has handled the case asked the press to pay a fine for using the Merriam-Webster seal, but nothing more (Ghemawat 2001).. F. Reciprocity in Asia: Pergau dam agreement In Malaysia, the case of Pergau dam agreement where the aid for the construction of the dam is tied to defence sales, the British have decided that the dam is not a good project because of the perception of corruption (Hampden-Turner 1994). However, from an Asian perspective, they have just put down in agreement, as Westerners always want it to be put into writing what they want in return (Hampden-Turner 1994). The attitudes toward quid pro quo or reciprocity is a major cultural difference between the British and the Malaysian culture. This has caused a severe cultural misunderstanding. IV. Three frameworks for measuring cultural distance A. Hofstedes framework Hofstedes framework has been derived from the study of 117,000 employees in 72 countries during the period of 1967 to 1972 (Orr & Hauser 2008). In this study he has been able to come up with initially four dimensions, that according to him, captures the values in all cultures. These four dimensions include individualism-collectivism, power distance, uncertainty avoidance and masculinity-femininity (Orr & Hauser 2008). The fifth dimension, time orientation results from recent surveys on Chinese values. Although the study has gained accolades and popularity over the years, the limitations of the framework is very much one of the sources of criticisms. According to many academics, one of the weaknesses of the framework is that it is not exhaustive (Dow & Larimo 2009). The questions of the original study are not designed in order to probe the dimensions of the national culture. The dimensions are just developed from the study that Hofstede has conducted, therefore there is a huge potential that this framework does not include all the factors a national culture is comprised in order to capture all the values (Ng et al. 2007). Because the study has been based on asking about values of the respondents, some critics argue that there is a huge potential that the concepts around the values may not be uniform for each respondent, and for each nation. If the concepts that respondents have over a value is different in interpretation from that of the other respondent or nation, there is a huge question of validity. Because the survey has taken place between 1960s and 1970s, there is also a huge chance that values may have changed and the results of the study is already outdated and not appropriate to be used for the current (Drogendjik & Slangen 2006). B. Schwartzs framework In a study of 31 cultural groups in 63 nations, Schwartz has identified “ten individual-level value dimensions, which he later links to the national-level approaches through parallel sets of concepts for the two approaches (Kim & Gray 2009, 61).” With this study, seven cultural dimensions have originated from 45 individual values which he has thought as somehow part of all cultures (Magnusson et al. 2008). According to Schwartz, these include “‘conservatism’, ‘intellectual autonomy’, ‘affective autonomy’, ‘hierarchy’, ‘egalitarian commitment’, ‘mastery’, and ‘harmony’ (Orr & Hauser 2008).” Schwartzs framework is considered superior to Hofstedes cultural framework. For one, the study is aimed to probe into values that has been conceptualised for the study—he has boiled down the values he has found into an exhaustive list of 56 values which he has thought to be recognized across all cultures (Ng et al. 2007). In order to probe these values, he has employed systematic sampling among students and teachers in initially 38 countries (Drogendjik & Slangen 2006). Therefore, the results of his study is geared towards finding values that are present across cultures and boiling them down into seven dimensions, which will be used to measure the cultural distance between countries (Shenkar 2001). Also, Schwartzs framework has included data which are gathered more recently than the data that Hofstede has collected, which addresses the concerns for obsolescence (Ng et al. 2007). Although Schwartzs framework is very insightful, some critics argue that this may not be representative of the weakness of this framework lies in that it has not yet been empirically tested to show its applications (Magnusson et al. 2008). C. GLOBE framework In attempt to address the limitation of the framework, the GLOBE project has, according to Javidan et.al “designed constructs and scales that are more comprehensive, cross-culturally developed, theoretically sound, and empirically verifiable (Kim & Gray 2009, 61). The GLOBE project has identified nine country-level dimensions through a study which has included 951 organisations in three industries—food processing, finance and telecommunications in 62 nations where 17,370 middle managers have participated (Kim & Gray 2009, 61). These nine cultural dimensions include “future orientation, egalitarianism, assertiveness, institutional collectivism, power distance, uncertainty avoidance, performance orientation, and humane orientation according to House et al (Kim & Gray 2009, 61).” The GLOBE projects long-term, multi-phased, multi-method research program (Kim & Gray 2009, 61) also includes interviews, focus groups and reviews of existing organizational and cultural theories (Magnusson et al. 2008). The major distinction of the GLOBE project is that it goes beyond Hofstedes framework by “attempting to capture both the cultures values and the current practices in the society (Magnusson et al. 2008).” The GLOBE project has identified that the correlation between values and practices are negative in several dimensions. Although the GLOBE project is a step above Hofstedes framework in order to address the latters limitation, some critics still argue that the GLOBE project like other frameworks are simplistic by nature. The framework, like others tend to discard the complexity of the culture. Also, the GLOBE project, like the Schwartzs, includes an underlying assumption that the organisation which is being analysed is likely to behave according to the national culture of the home country. These have been some of the weaknesses of the framework. V. Implications for international marketers The concept of cultural distance is a very helpful concept which is mostly applicable to international and global marketers. Because of the complexity of the world economy, assessing the culture of a target country is part of the overall feasibility analysis for a certain undertaking, and this is usually under the global cultural analysis part of the study. Recognising that even in the smallest geographic areas there are differences in norms and values, when a company decides to enter a new foreign market, it does so by country—all for the supposed political, economic and technological aspects of conducting business in there. The social and cultural analyses are very important considerations for an international or a global marketer as well for many reasons. Measuring the cultural distance between countries, as apparent in the above analysis is usually a factor in deciding a foreign market to be entered. For one, when all the aspects are favourable—political, economic, technological, to the companys entry to a foreign market but social and cultural, the mode of entry is affected. If the company decides on entering the new market by foreign direct investment, and the cultural distance is high, the entry may have smaller chance of success. Without reference to culture distance, the company will be blind as regards analysing the market and industry in the target country. If ethnocentrism persists in the company where it practices all its norms without regard to the differences in the host country, very costly mistakes will be made. These mistakes can range from off-target communications programs, choosing the wrong people, inefficiency due to organisational misunderstandings when it comes to personnel management, etc. These issues have to be addressed by an international or global marketer aside from the apparent economic benefits and costs of the venture. If the cultural distance is high, this also does not mean that the company can immediately back out of the new market, especially is the opportunities are tremendous. Measuring the cultural distance between the home country if the parent companys culture is grounded on it, and the host country will enable the company to exploit various alternatives. 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