Culture in International Business Context - Literature review Example

Business Culture in International Business Context Based on Hofstede 1991 culture refers to the collective programming of people’s mind which distinguishes the member’s from one company to the other. Multinational Corporations (MNCs) subsequently institute change in the countries they normally operate. Based on Hofstede, national culture is classified under 5 dimensions namely masculinity, power distance, uncertainty avoidance, individualism and long term orientation (Varma & Budhwar, 2015). Power distance Evaluates the degree in which the less powerful employees accept the power inequality and consider it as normal. However, the power inequality acceptance varies between different cultures in the society (Varma & Budhwar, 2015). Individualism Individualism measures the basic interest sort by the members. In a society which is highly individualistic, the members are mainly concerned with their families’ interests (Varma & Budhwar, 2015). Contrary, members from the collective society seek to achieve more favor and loyalty from their groups. Masculinity It measures the difference in social roles between genders (Varma & Budhwar, 2015). In the highly masculinity societies, the female members mostly seek for non materialistic demands. Collective societies usually have high masculinity. Uncertainty avoidance Uncertainty avoidance measures the unpredictable, unstructured and unclear situations faced by members. A high uncertainty-avoidance society is less aggressive, change intolerant, high security seeking; and vice versa in low uncertainty-avoidance society (Varma & Budhwar, 2015). Long term orientation Long term orientation measures the extent to which members invest and plan for the future. Implications on the Management of the MNCs Through the increase in globalization, there have been growing trends in the multinational and global business endeavors. Globalization as well as the varied cultures in different countries has resulted to the challenge of business competitiveness. Other issues include balancing between the head-quarter and the home based cultures, maintaining performance standards and productive inter-collaboration between units in the operating locations (Varma & Budhwar, 2015). Organizational culture (OC) According to Edgar Schein 1994 OC are the values instituted into a social group which are then passed to new members so as they can feel, see and think in response to problems (Varma & Budhwar, 2015). OC should be perceived as both pluralistic and holistic so as to shape the internal assumptions of the social group. OC is classified under 2 schools of thought where in the first, it’s seen as a variable where it can be introduced and manipulated by the organization. The second school of thought provides that OC is a situation the company finds itself in, caused by the complex and dynamic social interactions by the organization (Varma & Budhwar, 2015). Importance of culture Culture influences employees’ communication, the company’s products, goals and values as well as interactions with its customers and other organizations. Based on the IBS Center Management Research; the Daimler and Chrysler merger was a failure which was primarily caused by the varied cultures and management styles between the two companies. The merger was described as a cultural mismatch whereby, Chrysler valued creativity while Daimler Benz had a methodical decision making process (Varma & Budhwar, 2015).The cultural mismatch was evidently portrayed through the differences in their daily activities. Therefore, the organizational culture plays a major role in regards to its internal and external operations with its stakeholders. Globalization Based on the Organization of Economic Corporation Development (OECD) globalization is the free movement of labor, goods, services and capital for the creation of a single market and the realization of foreign investments (Varma & Budhwar, 2015). Globalization has been described as a social process which promotes political, cultural and political integration between nations. Impact of globalization on employment Disadvantages Globalization has led to inequalities in income distribution between nations. This has particularly benefited the rich nations in terms of foreign direct investments. Majority of the MNCs employ cheap labor from the developing nations so as to maximize on their returns. They pay minimal wages in return for huge profits (Varma & Budhwar, 2015). Vo & Stanton (2011) confirms globalization has widened the wage gap between the unskilled and the skilled workforce. Most of the MNCs remunerate their employees based on their skill level irrespective of their tasks. The educated employees who perform less work are paid handsomely while the unskilled employees are paid peanuts yet they are driving force of the companies. Through the improvements in technologies, globalization poses the challenge of job and income insecurities. The machines are able to perform more tasks at limited timeframes, leading to the shedding of labor and reduction of wages by the MNCs (Vo & Stanton, 2011). Some of the MNCs deplete the scarce resources in regards to their operations. They overuse the natural resources leading to pollution. Some of the MNCs block the natural resources for their selfish convenience; a common example was the Coca Cola case in Latin America. In most of the developing countries, globalization has undermined the standards of living among these nations (Vo & Stanton, 2011). Due to poor wage rates and long working hours, the employees are reduced to outward poverty while the companies rake billions. The social phenomenon has widened the gap between the developed and the developing countries. The developed nations achieve outrageous GDPs and per capita incomes, leaving the developing nations to be continuously dependent on donations (Vo & Stanton, 2011). Advantages Vo & Stanton (2011) adds globalization has necessitated the creation of jobs among different nations. It has led to creation of industries in less developed nations leading to employments which support the livelihoods of the locals. It has led to developments of the hosts’ countries due to the technological and knowledge transfer. The hosts’ countries especially the developing nations are able to benefit economically as well as technically, due to the realization of new skills, products and services. It further promotes industrialization in the host countries. Globalization generates tax and foreign incomes for the host nations. The governments are able to realize tax duties and incomes through its business regulating policies (Vo & Stanton, 2011). The governments can further regulate the fiscal policies depending on the global economy. Convergence and divergence In terms of convergence, the MNCs can influence the hosts’ subsidiaries operations so as to conform to their intended purpose. However, divergence can occur in nations which have dominant cultures, causing the MNCs to adapt to the prevailing conditions. In most situations, globalization destroys cultures. Some of the MNCs like the renowned Coca Cola Company has infringed its employees in other nations. In the Latin America, the MNC was linked with the pollution of the environment contrary to the communities’ norms (Vo & Stanton, 2011). Performance management Based on Briscoe and Claus 2008 performance management (PM) is the process whereby organizations formulate goals, stipulate performance standards, evaluate performance, provide feedback, training, development needs and rewards for the employees. Performance Appraisal (PA) is the HRM function which is concerned with the completion of the employees’ annual reports regarding their performance by the line management, during an appraisal interview. Elements of PM Induction and socialization: PM is concerned with the acceptance process of the employees. Reinforcement of the performance standards: Under PM the companies thrive to set single and standardized systems which reflect the companies’ management practices and cultures. Review and appraising performance: PM also evaluates the employees assignments based on their performance (Vo & Stanton, 2011). Element of PA Performance review: PA is concerned basically with the evaluation of employees’ performance against the predetermined targets by their immediate superior for control purposes. Hofstede basic propositions Power distance: the principle provides that people are able to accept authority and status variances between them and their superiors. Collectivism and individualism: it stipulates that people identify themselves with the groups they belong or perceive themselves as unique individuals. Masculinity and femininity: refer to the value for competitiveness, assertiveness, success and money; being greater than life and gender equality. Uncertainty avoidance: provides that rules, hierarchies, life and procedures are unpredictable hence making them unavoidable (Vo & Stanton, 2011). Comparison between PA and PM Performance management (PM) is larger than Performance Appraisal (PA), is more holistic, further, it’s a more integrated approach. PM approach is rare and the fundamental management of employees’ performance solely depends on PA for objectives setting and the annual control (Vo & Stanton, 2011). The value of PM PM is known as the pillar for the management of human capital. It is believed that a third of employees and below, suggest that PM increases performance. Based on the employees’ satisfaction surveys, PM is ranked the lowest (Vo & Stanton, 2011). However, PM is helpful in evaluation and interpretation of the companies’ roles. Type of PA Behavioral assessment: evaluation of employees’ performance based on their general conduct. Output based assessment: employees are appraised based on their quantifiable data (Vo & Stanton, 2011). Key elements of PA Measurement: the assessment of performance in reference to the set objectives and targets. Feedback: provision of information to employees based on their progress and performance. Positive reinforcement: emphasizing on exemplary performance and giving constructive criticism on what is to be improved. Exchange of views: involve the open exchange of opinions so as employees can realize their career aspirations. Agreement: the joint understanding of the parties on how to overcome the raised issues to improve performance (Vo & Stanton, 2011). International differences Performance criteria: PM poses challenges in regards to task related competencies, cultures and PA elements. PA methods: Low power distance and high power distance usually require distinct assessment and appraisal techniques. Performance feedback: whether it is individual or collective system, feedback challenges usually occur in reference to the provision of either confrontational or non confrontational feedbacks (Vo & Stanton, 2011). Reference list Varma, A. & Budhwar, P. (2015). International Human Resource management. New York: Routledge. Vo, A., & Stanton, P. (2011). The transfer of HRM policies and practices to a transitional business system: the case of performance management practices in the US and Japanese MNEs operating in Vietnam. International Journal of Human Resource Management, 22(17), 3513-3527. Read More