Managing Challenges of Cross Cultural Differences in International Business - Essay Example

1. Introduction Decades ago, the level of cross-cultural business dealings were limited to import-export transactions. But with the rapid phase of globalisation, growth in Free Trade and the relaxation of Foreign-Direct-Investment policies of many of the previously closed economies, today’s business executives are required to deal with counterparts from different countries on a regular basis. These cross-cultural business relationships require a high level of awareness and sensitivity to the diverse national cultures. While many companies may attempt at setting up International Joint Ventures (IJV’s), many do not progress even further than the negotiation process, mainly due to the challenges in managing cross-cultural differences impacting business dealings. Creations International Inc. a US based multimedia company plans to enter the Indian and Japanese markets through an IJV option and this report aims at evaluating cultural similarities and differences in the three countries and evaluate associated predominant features in the business and management styles which are unique to each culture. 2. Overview of National Culture & Cross Cultural Differences Culture is a key factor in gaining an insight in to how people behave in different countries, their preferences, attitudes, values and beliefs (Cundiff & Hilger 1988). Their can be implicit and explicit elements of culture embodied in rituals, symbols, gestures, traditions and mannerisms which results in diversity in communication and interaction process within a cross cultural setting (Trompenaar, F. & Hamden-Turner, C. 1998). It is therefore important to understand the underlying national cultures which shape each nation’s interrelations including business dealings (Ohmae, K. 1982). As per Hofstede, culture is “collective programming of the mind which distinguishes the members of one human group from another” (Hofstede, G. 1984. Page 21). While there are various models and theories, which attempts to explain cross cultural differences, some well established explanations of national culture can be found in Fons Trompenaar & Charles Hampden-Turner’s model of Seven Dimensions of Culture; Geert Hofstede’s Indices of Work Related Values and The theory of Silent Languages of Culture proposed by Hall. 3. Overview of the Countries in Context United States Of America As a forerunner in business and trade, political affairs and social change, United States of America is a country which has a diverse and multicultural social environment.Driven by cultural values such as innovation, independence and individualism, (Hill 2003) American society allowes for social mobility depicted by the “American Dream.” Amrica is with low power distance, low uncertinity avoidence and mid range in masculinity while being the hiesst scorer in Hofstede’s indices where individuality is concerned (Hofstede 2001). Japan Rising from the ashes of Wald War II distruction, Japan is today one of the most successful nations in terms of economic development. Despite its economic development, Japanese culture firmly hinges upon its customs and heritages dating back to its ancient history. Japanese culture is one of uniformity and they are protective of their society with an unwillingness to accommodate foriegners (Ford & Honeycutt 1992). This is reflected in the beauracratic red tape and Japanese forign policies which makes business dealings in Japan a tedious task for foreign firms. Japan has world highest scores in masculinity and uncertainity avoidence while having mid range power distance and low individualism scores (Hofstede 2001) India Having practiced closed economic policies until late 1980;s the country embraced open economic policies in 1990s and has steadily gained prominence in the global market place with its large market size as well as production capacities (Hill 2003). Although the Indian society traditionally took a nationalistic stance towards foreign imports and foreign investments, the trends have reversed today. India has a collectivistic culture and high power distance and hierarchy is observed in organisational settings (Weiss 2001). India’s work related scores indicate high power distance; low uncertainty avoidance and individualism while mid range score of masculinity (Hofstede 2001). 4. Analysis of Cross Cultural Similarities & Differences While there may exist certain cultural similarities between nations, the implications it carries for business may vary. The analysis focuses on identifying cultural similarities and differences, which exists between USA, Japan and India. 4.1 Treatment of Agreements and Legal process This can be assessed within the dimension of Universalism vs. Particularism, where universalism places greater importance upon the rules in the society while the particularism focus on the circumstances involved when making decisions about what is right and wrong (Trompenaars and Hampden-Turner 1998). USA, which is a highly universalistic culture, places greater emphasis upon business contracts, rules and regulations but in contrast, Japan and India which are more particularistic cultures considers circumstances and relationships more in making decisions. Halls language of friendship can also be used in assessing this cross-cultural aspect. The Americans tend to make friends easily and quickly but these are of transient nature. The Japanese tend to take time in forming relationships but their commitment to the relationship is high. Even if disputes arise, Japanese try reconciliation process while Americans resort quickly to litigation process (Weiss 2001). Indians too choose more informal means of resolving issues than litigation but are generally quick in establishing relationships. 4.2 Business Networks This aspect of cross cultural business dealings can be assessed with the Individualism & Collectivism dimension which refers to the degree to which the concern is focused on self or on the group (Trompenaars and Hampden-Turner 1998, Hofstede 2001). USA is ranked as the most indivdualistic culture in the world with a score of 91 while Japan (46), and India (48) (Refer to Appendix I) has a high focus on group (Hofstede 2001). In India, business partnerships are family oriented and people from different states group togather in carrying out businesses. 4.3 Business Negotiations Cross cultural differences which exists during negotiations, communications and agreement and disagreements can be explained by Neutrality vs. Affectivism dimension (Trompenaars and Hampden-Turner 1998) which refers to the degree to which people display their emotions. Japan is a neutral culture with somber mannerisms especially in formal business dealings. Americans, although rather neutral compared to highly affective cultures as Italian or French, can be seen as affective by Japanese counterparts. Indians are more affective where their decisions and arguments are expressed rather openly. Americans are direct in expressing their disagreement (Hall 1963 cited in Weiss 2003). For a comparison between American and Japanese negotiation styles, please refer to Appendix II. When choosing the correct representatives for negotiation delegation cultural dimensions such as Achieved Status vs. Ascribed Status, that assess whether a person’s status in the society is achieved through own effort or whether it was ascribed or inherited (Trompenaars and Hampden-Turner 1998). America is a highly achieved status compared to Japan and India. Social mobility is possible and stratification is less stringent in America compared to India, In an ascribing culture as India or Japan, seniority, age, gender is important in determining the status. Such cultural differences carry implications when choosing the correct representatives for negotiation process. 4.5 Establishing Business Relationships This cross-cultural difference can be assessed through the dimension of Specific vs. Diffused orientation of cultures. The Specific types will have little private space and greater public space. In contrast the Diffused cultures will allow for greater private space (Trompenaars and Hampden-Turner 1998). Americans are more specific compared to Japanese or Indians’ diffused cultures. Japanese and Indian business people wish to get to know people before entering business dealings. Americans on the other hand tend to be more specific and gets down to business directly which they consider is the professional approach to work (Ford & Honeycutt 1992). 4.6 Business Process & Rituals Traditional tea ceremonies of Japanese culture are an expample of the importance placed on process over outcome. Japanese will take a long period in negotiating contracts and visiting sites etc prior to agreeing on matters. This may also have its roots in the high uncertanity avoidence nature of the cultue. American business people will exchance visiting cards only if contact details are required. However in Japan and in India, this is done with much decorum and respect contrary to the Americans who merely place it in wallet and in the back pokets of the trousers. This is sometimes seen as a slighting by Japanese or Indians who pay more ritualistic attention to the visiting card. 4.7. Treatment of Time Cultures such as USA sees time as sequential and places greater importance on punctuality, sequence of operations and speedy actions (Trompenaars and Hampden-Turner 1998). However those culture as Japan and India where time is seen as the backdrop for the “great circle of life” interpret time in secular, seasonal perspective and sees possibility of attending to multi tasks at the same time. Hall’s Silent languages is also in congruence with this view where Americans who may considered time as highly important, may see delays and tedious processes as useless. On the other hand curtness and prompt manners may be interpreted as disrespectful and aggressive by Japanese to a greater and by Indians to a lesser extent. 5. Main Differences in Management Styles There are unique management practices stemming from national cultures and by being aware of and understanding the underlying thinking behind these practices, Creations team of negotiators may avoid misunderstandings and unintended offending of business counterparts which whom they would be dealing in near future. 5.1 Commitment orientation One of the key considerations in establisging IJVs would be the degree of commitment to the partnership. American managers tend to take a short term orientation of projects with a greater focus on profitability of ventures in short run in comparison to Japanese counterparts. When dealing with American firms, the expectation should be to demostrate short term profitability. Indian management style too is dominated by such short term orientation where the main attraction of a venture will be the short term profit generation. Japanese firms are more willing to lose money on the short run to establish themselves in a market. “This was the Nissan strategy for the Infiniti automobile in the American market. It was also demonstrated in Toyotas commitment to the Lexus in the U.S., even though the initial sales results were very unfavorable” (Ford & Honeycutt 1992 ). 5.2 Decision Making Styles Decision making function of managers vary widely across nations and in Amrica, the decisions are made quickly and often by singular persons. Contracts are even brought in to the first round of negotiations. They may pressure for a final decision and most likely the Amrican CEOs or negotiators may make decisions on their own during the negotiation process. However in Japan the CEO will rarely make a decision on his own and will take a considerably longer time in entering contractual agreements. Pressiuring for a signature will be seen as offensive and may disrupt the negotiation process (Hill 2003). Indian culture is such that they too tend to make quick decisions which may be reflected in their very low tendency of uncertinity avoidence compared to very high uncertinity avoidence of Japanese (Hofstede 2001). The one man decision making process which exists in Indian culture can also be explained by the high power distance dimension prevelent. 5.3 Gender Bias in Management Considering differences in management styles, its long established that male and female styles of management differs considerably with females bringing in a high level of emotional IQ and consideration of soft aspects of ventures in to the negotiation process in contrast to male counterparts. However, many cultures are still not accepting females in senior managerial roles. While American culture has embraced the emancipation of women since past couple of decades, the changes are few in Japanese and Indian cultures. Japan, which is worlds most masculine society (Hofstede 2001) has very little recognition for women even of the highest caliber. Thus, it is wise to choose male representatives when forming business delegations for Japanese business ventures as well as for Indians. 5.4 Power Distance and Formality levels Different cultures exhibit different degrees of power distance and managerial formality. While Americans and Indians will accommodate and join in with humor and joking during business discussions, Japanese are more somber and frivolousness can be seen as a disrespect. On the other hand business people from USA or India may find the Japanese somberness too cold and take as a sign of indifference. The power distance is high in India where management styles are often autocratic and demanding (Weiss 2001). However in America and Japan where the power distance is low, the management styles range from democratic to group consensus whereby subordinates are allowed to contribute to managerial decisions. 5.5 Structure & Hierarchy It is most important to be aware of the level of structure and hierachy prevailing in the cultures so that unintended offenses are avoided. Few, if any, societies are more structured than Japan (Ford & Honeycutt 1992). In negotiations, the proper hierarchy should be followed and line of command should be observed and kept well informed formally. Otherwise dealing with just one or few in the hierarchy can be deemed as suspicous. In India too greetings are combined with bowing to elderly parties and being sensitive to such cultural practices gain respect from the prospective business parties. 6. Recomendations The following key recommendations are proposed for the Creations’ International Business Development team in view of the above analysed diffferences in business culture and managemnet practices. 6.1 Formation of International Busines Development Team to aid Aims in developong a team of professionals who are aware of and understand the cross cultiral differences and challabnges in handling these differences with due respect and sensitvity. A mix of geneder reprsentaions to be ensured to match with different cultural bias towards gender in business context. 6.2 Drafting of an International HRM policy which will be utilized during dicussions with prospective IJV partners which will involve mainly polycentric or geocentric staffing approach to new IJVs for effective cultural intergration ( Hill 2003). 6.3 Carrying out special training programs for developong netotiation skills of the International Business Development team so that language handling skills in both verbal and non verble form are imparted to the negotitation delegation along with thorough breifings of each business cultue with which the team will come in to contact with during international business promotion. 6.4 Establishing in advance the level of compromise and adjustments that will be made by the Aims team in making business negotiations a success, so that there are no ambiguities among the team members during the negotiation process. 7. Conclusion While effects of globalisation and developments in communication systems have facilitated cross cultural dealings, the success and continuity of these business relationships depends largely upon how the cultural diversity is understood and managed. Such cultural deviances tend to create issues and obstacles in establishing business relationships, which can be avoided or minimized by being aware of and respectful of the cultural uniqueness of prospective business partners. While most IJVs are successful in aspects of technological transfer, the failures are observed in managing the soft aspects of organisations involving managing people, which need sensitivity to cross cultural differences. It is therefore necessary to ensure that companies utilize correct policies as poly or geo centric staffing to promote greater understanding of host nation’s culture and business practices. References Cundiff, E. & Hilger, M. T. ( 1988) Marketing in the International Environment, 2nd ed. Englewood Cliffs, N.J.: Prentice-Hall, Inc. Ford, J.B. & Honeycutt, E. D. Jr. (1992) Japanese national culture as a basis for understanding Japanese business practices [online]. Available from: http://www.findarticles.com/p/articles/mi_m1038/is_n6_v35/ai_13246882 [04.03.2005] Hofstede, G. (2001) Cultures Consequence: Comparing Values, Behaviors, Institutions, and Organisations across nations. London: Sage Publications Ltd. Hall, E. T. (1963) Silent Languages. Greenwich: Fawcette Publications. Ohmae, K. (1982) The Mind of the Strategist. Middlesex: Penguin Books Ltd. Trompenaar, F. & Hamden-Turner, C. (1998) Riding the Wave of Culture: Understanding Diversity in Global Business. 2nd ed. New York: McGraw Hill Companies. Weiss, J.W. (2001) Organisational Behavior & Change, 2nd ed. Ohio: South-Western Collage Publishing. Hill, C.W.L. International Business. (2003). 4th ed. New York: McGraw-Hill. Appendix I Table 1 – Work Related Values for 20 Selected Countries Country Power Distance Uncertainty Avoidance Individualism Masculinity Argentina 49 86 46 56 Australia 36 51 90 61 Brazil 69 76 38 49 Canada 39 48 80 52 Denmark 18 23 74 16 France 68 86 71 43 Germany 35 65 67 66 Great Britain 35 35 89 66 Indonesia 78 48 14 46 India 77 40 48 56 Israel 13 81 54 47 Japan 54 92 46 95 Mexico 81 82 30 69 Netherlands 38 53 80 14 Panama 95 86 41 44 Spain 57 86 51 42 Sweden 31 29 71 5 Thailand 64 64 20 34 Turkey 66 85 37 45 United States 40 46 91 62 Adapted from: Culture’s Consequences, Beverly Hills: Sage 1980. Appendix II Table 2 – Negotiation Styles from a Cross Cultural Perspective Dimension North American Japanese 1 Emotional sensitivity not highly valued. Straightforward or impersonal dealings. Emotional sensitivity highly valued Hiding of emotions. 2 Litigation; not as much as conciliation. Subtle power plays; Conciliation. 3 Lack of commitment to employer; breaking of ties by either if necessary. Loyalty to employer; employer takes care of employees. 4 Teamwork provides input to a decision maker. Group decision making by consensus. 5 Decisions made on a cost-benefit basis; face saving does not matter. Face-saving crucial; decisions often made on basis of saving someone from embarrassment. 6 Decision makers influenced by special interests but often not considered ethical. Decision makers openly influenced by special interests. 7 Argumentative when right or wrong, but impersonal. Not argumentative; quiet when right. 8 Great importance given to documentation as evidentiary proof. What is down in writing must be accurate, valid. 9 Methodically organized decision making. Step-by-Step approach to decision making. 10 Profit motive or good of individual ultimate aim. Good of group is ultimate aim. 11 Decision making impersonal; avoid involvement, conflicts of interests. Cultivate a good emotional social setting for decision making; get to know decision makers Source: Weiss, J.W. (2001) Organisational Behavior & Change, 2nd ed. Ohio: South-Western Collage Publishing. p16. Managing Challenges of Cross Cultural Differences in International Business Name : Course Title : Date : Table Of Content Content Page 1. Introduction 01 2. Overview of National Culture & Cross Cultural Differences 01 3. Overview of the Countries in Context 02 4. Analysis of Cross Cultural Similarities & Differences 03 5. Main Differences in Management Styles 06 6. Recomendations 09 7. Conclusion 10 References 11 Appendix I – Work Related Values for 20 Selected Countries 12 Appendix II – Negotiation Styles from a Cross Cultural Perspective 13 Read More