What Cultural Challenges Do Multinational Corporations Face with People Management - Literature review Example

WHAT CULTURAL CHALLENGES DO MULTINATIONAL CORPORATIONS FACE WITH PEOPLE MANAGEMENT IN SOME OVERSEAS LOCATIONS? Table of Contents Table of Contents 2 Introduction 3 Cross Cultural Competence for People Management 3 Barriers to Cross Cultural relationship 6 High and Low Context Communication 8 The HRM role in effective Cross Cultural competence development 10 Conclusion 12 Introduction The business for multinationals are stretched across national borders, in different distinct cultures that has major effects on the organizational culture. The managers of such multinational business need to learn to deal with people from different cultures for effective business operations. However, the barriers faced in the foreign markets, especially the Chinese market as an example is illustrated to differentiate from US or UK or western cultures. The essay would deal in identifying the various cross-cultural barriers regarding people management issues and use models and theories from literature sources to recommend solutions. Cross Cultural Competence for People Management Multinational business invests in various economies for developing foreign markets for their products and services. Various subsidiaries and affiliates operate for them in overseas locations that engage employees from different cultures, negotiate with foreign suppliers, works in different demography. Future HR Trends (2015) suggests that the barriers of communication come from various cultural influence and behavior of people with different identity. Further, Fink and Mayrhofer (2009) observed that the culture influence people’s way of thinking and influence behavior resulting in difference of views among the people in business from different cultures. The HRM studies the people’s behavior in a group and develop strategies and organizational structure to suite them. For culture, the idea prevailing among the management thinkers is the assumption about how a given set of people behaves in a particular situation, think, act and feel. However, Voigt et al. (2013) identified two different set of cultures as organizational and national culture, which are different and comes from distinct values and practice. Tang and Koveos (2008) argued that the parent nation’s culture often remains in multicultural businesses and gets challenged by the subordinate firm’s national culture as the perception is that the foreign culture of the parent company is forced on them. Therefore, Van Driel and Gabrenya (2012) opined that the managers of the business need to accommodate the values from every culture to avoid poor performance due to unsatisfactory organizational culture. In this context, Hofstede’s Cultural dimension theory is analyzed to understand the various aspects of culture that the business managers take into consideration while developing the organizational culture. The model is used to develop cross cultural communication and execution styles that vary from one culture to another. Hofstede’s Cultural Dimensions (Source: Waterstraat, 2001; pp. 38) Each of the elements of the model suggests a trait that is distinct from one culture to another (Hofstede, 1991). Low and High power distance: The limit of acceptability of the strict hierarchy where one performs as per superior’s instruction would suggest the power distance, more accepted to hierarchy the higher is power distance as culture and nation. An individual in low power distance culture would feel free to consult with superiors in hierarchy and the distribution of power is all across the organization. Therefore the emotional distance between the people in hierarch is eased out and coordination and consultation becomes easier. However, for the cultures with higher power distance, the individuals accept the centralization of power and the dependence is considerably low from subordinate to superior. A strict hierarch, lesser interaction between superior and subordinate are traits of such power distance. Individualism and Collectivism: The limit of acceptance of other members would determine individualism or collectivism, more the team acceptance the more collective the culture. The individualistic cultures give more stress on individual achievements and rights, whereas the collective cultures act as a group with common interest and mutual care. The trait of individual and nearest family interest would be another. However, the collective culture has individuals who work as a part of a cohesive group, extended family and show unquestioned loyalty to the group. Uncertainty avoidance: The level to which a society avoids uncertain events or ambiguity demonstrates the uncertainty avoidance of the culture. Uncertainty avoidance tends to make people be more emotional, avoid unknown or unusual circumstances and proceed with step by step changes. The societies with low uncertainty avoidance accepts changes and feel comfortable with unstructured situations, shows pragmatism and tolerant to changes. Masculinity and Femininity: The distribution of emotional roles among the two genders suggests the masculinity or femininity of a culture. A Masculine culture tends to give competitiveness, assertiveness, materialism, ambition, power more value. The feminine, on the other hand, cultures values relationship and quality of life. Gender roles are more dramatic and less fluid in masculine cultures. Men and women have same values for caring and modesty in a feminine culture. Long term and short term orientation: The long term culture tends to have futuristic priorities thus savings for futuristic gains are seen. However the short term societies are more towards a present event oriented. The short term society views events as repetition of past and future is assumed to be the extension of present. Hofstede’s model allows the comparison of various cultures on a scale of 1 to 120, where 1 stands for lowest while 120 is the highest score. Using the same model, the business may infer the patterns of culture behavior shared by a group and reflected in their social interactions (Mazzanti, 2002). In international business, the overlapping cultures and subcultures are demonstrated based upon regional influences. Welch and Welch (2008) observed that the interpersonal interaction may be effected in a complex way since they may complement or conflict a certain pattern of behavior. Fostering mutual relationships between units of the multinational business, for a cross cultural relationship building, is imperative. Barriers to Cross Cultural relationship Interpersonal relationship between the employees and managers may get affected due to cultural differences in a multi cultured organization setting. The barriers can be culturally embedded barriers where the people are molded in their respective national cultures. These may give rise to hindrances like culture distance, culture shock, stereotyping, prejudices and national ethnocentrism. Richardson and Smith (2007) observed that the culture distance impacts the management of foreign business units and human interactions in multinational businesses (MNC). Kanama (2011) suggested that the cultural difference can act as a positive influence if the challenges are handled properly. Further, the cultural shock reflects the inability to adapt to a foreign land or culture decreasing the individual effectiveness, reflecting frustration and develop negative image about a foreign culture and people hampering cross cultural interactions. The cultural stereotyping is also observed where the predisposition of a culture is inferred as the cultural trait for all belonging to similar cultural backgrounds. Similarly, self perception about a particular culture or cultural auto-stereotyping impacts the attitude towards other cultures as well. Stereotyping may affect the quality of interpersonal relationships that leads to prejudice (Waterstraat, 2001). Ethnocentrism reflects certain cultural group’s sense of superiority over others, creating the gap between people. Organizational barriers due to cross cultural interactions may occur in interpersonal relationships of an MNC. Martinsons and Westwood (1997) suggested the ‘headquarter egocentrism’ as the major MNC mindset bias, at times institutional bias, that effect the inter-organization communication and relations. This predisposition have few designs like communication patterns, recruitment practices, organizational structures and culture that concerns of MNC. Jordan (2002) commented that the ‘ethnocentric predispositions’ shows very less proactive approach towards its foreign partners, subsidiaries or units creating the biggest barrier in any cultural competency. Further, the level of international experience for a business would determine how effectively it can overcome the challenges with effective use of its experiences and knowledge. The culture gaps between two set of people from different culture in the same organization can reduce appropriateness of actions and behavior. The individual barrier in any communication stays, as the characteristic of inter-relation communication varies from person to person. He and Liu (2010) opined that the cross cultural behavior is enhanced with increased exposure to multi cultural relationships. Cultural Intelligence or the competency of behaving in the most desired way in a certain culture foreign is learned through exposure to different cultures (Akbarov and Muhiddinova, 2015). Hence, the lack of it creates communication and relationship barriers across cultures. Nevertheless, the individual characteristics are determined by age, education, family status and may affect cross cultural relationships. Baskerville and Pries-Heje (2010) suggested that the MNCs needs to adjust their degree of control and give autonomy and delegated authority with socialization, multi-cultural team formation, adapt to HRM practices to be cross-culturally successful. High and Low Context Communication Context of communication on the preferential messages commonly used in certain cultures, unique to it, determines the level. The high context cultures people are inter-dependent on one another. The low context cultures are individualistic, alienation or less frequent interactions occur between individuals. Aycan et al. (1999) suggested that the characteristics of high context cultures are that message is passed fast, economically and efficiently. On the contrary low context communications are lesser in content and are vague about event, value, characteristics that are less relied upon for a deal. The cultures with different context of communication have to be identified by the management of a business for strategic planning of communications. The communication of multinational corporations can be viewed from two distinct parts as management style and employee behavior. Here the superior or the decision making authority implies management style and the context of employees or the subordinate implies staff behavior. The gap among the positions tends to create the barriers in the process of communication, reducing its affectivity. The organizational communication links the people in business process therefore the business puts the effort in having channels of communication build affectivity. The Chinese society is viewed as high power distance oriented culture where the subordinate’s view or perspective is not given much of a glance. On the contrary, the US or UK society have lower power distance where the individual rights and opinions are given much value. Therefore the leadership styles from these cultures would have the tint of the cultural backgrounds suggesting the management style of centralized or decentralized organizational culture. Academia.edu (2015) suggests that the decision making in the organizations with a deeply rooted US or UK cultured firm would not depend on individual decisions but rather stand on a rational and impersonal set of rules with well defined purpose. In the same way, the staff behavior forms a big part in cross cultural businesses as they are the most crucial asset of the business. The staff brings the business knowledge, skills, experiences needed by the business to prosper. Claus and Hand (2009) viewed the education as the most important value for a staff and the skill sets the wages for an individual. The wages is considered as the most vital reason for the employer employee relations and the greatest motivator for the employees. Thus the well educated and well skilled staffs are expected to get more remuneration, however the parity needs to be similar for the MNC to be standardized across all cultures. The language is another major barrier where the cultural interactions fail to achieve any significant breakthrough. Hajjar (2009) opined that the culture and language are inter-related with each other and have influence on people’s ways and behavior. Formal and informal communications are two distinct business communication ways. The formal communication is scheduled in advance with arranged participants; preset agenda and role of participants are clear where formal language and communication tools are used. Therefore the structure and functional characteristics of a communication determines its formality. Kaissi et al. 2007 suggested that the formal communication tends to be used for relatively routine transactions like coordination detail laying, budget communications, etc are few to name. The HRM role in effective Cross Cultural competence development The human resources management of an MNC organization aims at building a strong cross cultural competence among all individuals of the organization. Jain and Singh (2014) suggested that the development of a foreign subsidiary needs careful planning of manpower so that the most skilled individual is send for the support and functional knowledge sharing. This develops local skills and gives the business a long term solution with right investments. Again the right man for the right job is needed who have the basic knowledge of the business environment in a foreign land. The communication channel development and percolation of message has to be done for a specific foreign unit for all business related information sharing. The effect of wages slab selection needs parity where the subsidiary unit’s wages are to be competent with its exchange rates. This gives the same value to employees of similar level for all units, minimizing chances of cultural bias. Transfer of cross cultural knowledge among all the organizational members is the other role of HRM. Developing employee communication skills where the functional terminologies are used with exposure to international standards and development are the job of HRM. Cultural knowledge aids in developing a culture that attracts local employees. Training and making the values of the organization being practiced by the managers gives the culture to flourish further. The effective outcome is a structured organizational culture that is agreeable to all and in which the most efficient processes can be operated. Newman and Nollen (1996) suggested that the cross cultural competence is becoming a priority for the businesses as the future days of business would need a multi-location presence to fulfill all its needs of manpower, innovation, growth, stability like long term aspects. A case of China can be taken to compare with the US economy. The nation is the second largest economy with 10% average annual growth for last 30 years (Salavrakos, 2010). The economy has attracted various international investors towards itself. However, the cultural aspects of Chinese economy are very different to that of US. A Study from US Pacific Rim International Inc suggests that the five biggest challenges that a business from the US or UK culture would face are: Red tape: The rule of law suggests that a company needs to fulfill certain requirements that may go on for months. This is due to political and bureaucratic administration that has inconsistent application of laws designed to create barriers for new entrants. Thus the business may need to have a team of staffs just to do the paper work in such a culture. Communications: The cultural difference between the two nations faces the challenge of language barrier. Thus an efficient person or team dedicated towards the communication of business ideas is needed for business operations. Human Resource: The US culture is individualistic while Chinese businesses are those where the culture of subordination and hierarchy exists. Each individual in the Chinese culture have an individual role defined whereas the western counterparts are more accustomed to taking own decisions and initiatives. Alike US processes, the Chinese team needs to be divided into groups with supervisors to monitor and instruct them. Business Culture development: The model of working in the US does not work well in China due to the huge cultural difference. The HR builds the culture in accordance to the culture existing in the Chinese state. The development of relationships is the key to achieve such a cross cultural liaison. The relationships are developed in more informal settings in China while the Western concepts of dealing via formal meetings do not succeed there. Conclusion The various cultural aspect of a nation is considered while developing a business plan for that nation. Hofstede’s model suggests that various cultural elements of a specific culture determine the way that an individual behaves or reacts to a particular event, based upon the background. Today the business is going multinational to keep its growth and stability intact in the global market. The interaction of various business elements to produce a cost effective and qualitatively superior product determines the location preference. The competing brands in the global market seek for the location advantage to develop its set up in foreign land. Without the harmony of manpower and process, the business venture would waste the investments of business. Thus the harmony of the process is achieved by engaging the good traits of both the cultures and practices them all across. The models used are different based upon the Hofstede scores for different cultures while the wages structures and remunerations are to be kept standardized for the employees of both economies. The role that HR plays in such an integration of cultural aspects to develop a suitable organizational behavior, is imperative for cultural competence development. Reference List Academia.edu, 2015. Effective cross-cultural relationships in multinational corporations Foreign subsidiaries viewpoint. [online] Available at [Accessed 3 March 2015] Akbarov, A. and Muhiddinova, H., 2015. Interconnection and Interrelation Features of Words and Their Importance in Compiling Second Language Dictionaries. Journal of Foreign Language Teaching and Applied Linguistics, 2(2), pp. 112-119 Aycan, Z., Kanungo, R. and Sinha, J., 1999. Organizational Culture and Human Resource Management Practices: The Model of Culture Fit. Journal of Cross-Cultural Psychology, 30(4), pp.501-526. 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