Business Cultural Differences between the United States and Europe - Essay Example

Analyzing Business Cultural Differences between US and Europe Insert Insert Grade Insert Analyzing Business Cultural Differences between US and Europe Table of Contents Page Introduction……………………………………………………………………………………….3 Global outlook…………………………………………………………………………………….3 The United States and European cultures………………………………………………………...4 United States…………………………………………………….………………………..4 Europe…………………………………………………………………………………….5 Discussion………………………………………………………………………………………...5 Conclusion……………………………………………………………………………………….10 Bibliography……………………………………………………………………………………..12 Introduction According to Hofstede, culture can be defined as “a system of values and norms that are shared among a group of people and that when taken together constitute a design for living.”(Maitah, n.d, p4). Adam Smith, famously known as the modern economics founder, is quoted in his classical work ‘Wealth of the Nations’ to argue that the pursuit of one’s interests is not basically driven by the need to economic gain. He thus developed the theory of ‘Moral Sentiments’ and acknowledged cultural values that drive the interrelations of people (Hezel, 2009, p 5). Cultural diversity exists between the United States and Europe. Citizens of the two countries differ in culture, beliefs, faith practices and economic inclination. These differences make business management practices in various parts and organizations different. U.S’s proven management systems and practices may not work appropriately in Europe. For instance, a U.S based Multinational Corporation; the effectiveness of her management control system and practices would evidently differ from one country to another or even from one branch with diverse cultural inclination to another in the same country. Therefore, our study intends to compare cultural inclinations of the two countries; the U.S and Europe and understand the implications of the differences to the expansion of a U.S based organization intending to establish a branch in Europe by purchasing an already existing firm in the same line of production. Global Outlook Global trade has tremendously increased in the recent past. This has probed the multinational corporations or individuals who intend to venture into the international trade to learn about international business. Therefore, it is very important to learn and understand the different cultures of the world before enrolling in doing business in foreign countries. This would reduce the risks involved in business transactions. Understanding other countries’ negotiation tactics, greetings, communication styles, body language, meeting and dress, and social events are keys to have good business relationships with other partner countries. For instance, the United States and Europe are nations that regularly interact in business relations. Although they share similarities, the two countries share a lot of differences. The United States and European Cultures United States In the United States, the first impression matters a lot and is basic to the success of every business relationship. The Americans appreciate eye contacts and a firm hand shake with business partners (Bowie, n.d, p.1-12). As a matter of background information, the U.S is a nation of immigrants. She has a vast land of resources. Mobility in the country is not prohibited and the citizens move at will from job to another and from place to another over an entire lifetime. Americans uphold cultural values. The personal interests precede the interests of the group. Independence, fairness and privacy are also taken with high regard. They believe in risk-taking and thus it is always fine to try again after failure. Time and money are equal resources of economic importance. Futuristic thinking is the mode of life where focusing into the future is as good as present planning with hard work as a priority. However, although the Americans have many shared values, they aren’t all the same, but show diversity. Immigrants strive to assimilate to diversity, but still cling on to their heritage. Americans love of competition is great and they hold a win/win approach. They value the use into which information is put as opposed to just amassing information (Anonymous, n.d, p.1-6). Europe For a company or an individual to succeed in doing business in any foreign country, having a viable business proposal is not the only guarantee. For instance, succeeding in an environment such as in Europe that has a vast array of cultural backgrounds, a company is required to have a thorough knowledge of the dominant cultures and styles of business here. There are differences in German and Spanish cultures. The two cultures differ in reception of foreigners, business etiquette and also in personal appearance for different occasions. The French do their business professionally with high regard of politeness and good manners. On the other hand, doing business in Italy requires one to have a very good reference from other already existing Italian companies. In Britain, all personal attributes right from own attire to the style of doing business are relatively conservative. Punctuality is highly esteemed in business relations. When we consider Belgium, the natives are known to be very polite and have a keen sense of time. They are also famous of taking their time before accenting to business partnership or proposals. Finally, the Dutch are known to do business the old way. They are fairly tolerant to other people’s cultures and are broadminded. They also uphold modesty in their business dealings. According to Hamme ( 2010, p1), in order to succeed in business in the Europe, it is necessary that one understands such aspects as discussed above and hiring professional assistance from culture professionals may be necessary. Discussion Culture and the differences remain persistent and pose an array of challenges to the multinational companies. Firms that easily adapt effectively are able to integrate in the cultures within which they operate. In many occasions, they make cultural diversity a source of advantage. Nevertheless, it is also of importance to evaluate similarities in the cultures. Often, we focus much on what separates us and fail to appreciate small commonalities that unite us. Therefore, it is also possible to evaluate the possible positive effects of the diversity that play a major role in uniting the two countries for business (Ghemawat and Reiche n.d, p11). An earlier research conducted by Hofstede found that culture differs in the following aspects; power distance, gender, individual versus collectivism and uncertainty avoidance. Three regions and fifty countries were used in the analysis. However, his taxonomy added another aspect that was used to analyze twenty three nations and this is Confucian dynamism. Hofstede found out that those cultural differences has numerous implications to the effectiveness of a management system in every business in all nations. Countries with cultures regularly referred to as the small power distance countries are associated with participative decision making and decentralization whereas large power countries are normally associated with less participative decision making and centralization. This implies that different control management systems will suit a country on the basis of their mode of decision making. For instance, in a decentralized organization, management remains at low organizational levels while in a centralized system, management control system is at high organizational levels. On the dimension of individualist or collectiveness, individuals tend to act on their best interests in the individualistic cultures. This means that policies are to be designed in such a way that individual interests coincide with organizations interests. On the other hand, management to collectiveness organizations may be prompted to encourage cohesiveness and group work. The policies designed should thus focus on the collective wellbeing to both the organization and the workers as units (Lere and Portz, 2005. p 63). Other countries and regions define themselves as being either masculine or feminine. In feminine cultures, work is considered low in priority to life unlike the case in masculine cultures. On the other hand, assertiveness, material possession and heroism are all basic characteristics of a masculine culture. They believe work is more important to life. Financial rewards are a great motivator in management in masculine culture while vacations and time offs, are key management issues in feminine cultures. There are other countries that have low tolerance to ambiguity and strong uncertainty avoidance. Unfamiliar situations and discomfort are major characteristics of these cultures. Management practices here are then dominated by many formal and informal rules. This limits decision making by managers. Differences are evident in short term orientation cultures and the long term orientation cultures. This explains Confucian dynamism. Profit based measures characterize short tern oriented cultures as they tend to concentrate more on performance. In long term oriented cultures, however, rewards and promotions dominate. There are many factors to consider while designing management control systems for different countries and countries with diverse employee cultures like Europe. These include: a. Cultural differences can affect the effectiveness of the policies employed by a management control system. Policies that are very efficient in the U.S are unlikely to be effective in countries with different cultures such as Europe. b. A company culture ought to be considered while bench marking. This is due to the fact that a culture can adversely affect the effectiveness of any policy employed in a management control system. In responding to cultural differences, a number of studies have been carried out and their findings put forward on the different ways multinational corporations have adopted to overcome the effects of the cultural differences. Some companies have modified their indigenous cultures to reflect and accommodate the subsidiary cultures prevalent in the country of operation. Others have adopted a mechanism where their managers are selected on the basis of compatibility with the new culture. Nevertheless, the following key considerations have to be put forward in order to modify or design a management policy that will suit the diverse cultures. Performance measures may be more important in long-term orientation cultures. These may include market share as well as sales growth. In other cases, non-financial rewards may be more meaningful than financial rewards. a. In many instances, less external incentives are needed in collectivism. b. Policies designed to work in less power countries such as the U.S are little fit to function in high power cultures like in Europe. Relatively more centralized mechanisms are more appropriate. c. In feminine cultures, rewards to target life comfort are relatively more effective than financial rewards as is common practice in the United States. d. In collectivism countries, policies that are relatively more inclined to individual working are less effective as the culture predominantly advocates for collective responsibility. Delegation to individuals is common in the U.S but it might not work in other cultures with different cultural alienation. The findings are clearly portraying a need for any multinational or local company to consider cultural background of the employees as well as the management in policy making mechanisms as not all policies, having been proved effective in one place, must be effective elsewhere. The real estate industry in the world has continuously faced a lot of set setbacks in the recent past and to many of the investors in the sector this is very familiar. However, this trend is worrying and especially in Europe. This is due to the liquidity crises looming the world economy currently. Investors are only focusing on Inertia as the only coping mechanism even as they await and hope that the environment would soon be favourable. Nevertheless, many forecasters speculate a possible recession this year and a decreasing financial supply to the sector from banks. This in effect is seen to have serious long-term implications in future prospects in Europe in the real estate sector (Anonymous 2012, p1). Another issue of concern is the security aspect of the business environment in Europe. Europe ranks high in possible terror attack by the radical Islamic terrorists. This is especially so to those that intends to cause attacks directed to the United States citizens. The U.S is known to have had good relations in trade with the Europe and such any effort to harm the country would well work by targeting trade relations between the two trading partners. However, Transatlantic Counter terrorism cooperation has had strong foundation from the past terrorist attacks in Europe. Therefore, there have been collective efforts to combat the looming threats and hence any effort that would avert any such terror attack designed for Europe based American company is worth investing in (Mix, 2008, pi) From our analysis, we have identified the difference in cultural inclinations to be the major problem that the real estate corporation based in the United States of America may face in the efforts to adopt the company that they have bought in Europe. Other relatively minor issue that may equally be of importance to consider as the assimilation of the two companies is underway is security prospects in Europe and the management practices to be adopted and the trade policies governing the operations of the former company. Many management policies that are well designed to fit the working environment in U.S may need restructuring in order for them to fit in Europe. The working environment as well as the employees may equally change. This is because our company may need to retain the already employed workforce. Different approaches can be adopted to cope with the problems as a well as in making the ventures work. For instance, our study has established that Europe has a very wide array of cultures. Therefore, any company intending to do business in Europe has a mandatory task of examining her practices in comparison to the native ones. According to Maitah (n.d, p11), there are some common roots of cultures in Europe. These include the dominance of the effects of the Roman Empire, Christianity effects on consumer behaviour, and the religion background and the knowledge and heritage of the Greek culture. A culture has great effects on consumer behaviour, local demand and buying decisions. This will therefore influence managerial decisions and the nature of business negotiations. This study therefore recommends cultural sensitivity, hard work and quality standards be maintained at a higher level in order to overcome competition. Conclusion In conclusion, cultural difference, though relatively difficult to observe and measure, have been seen to be very important pertaining to human interactions. The failure to acknowledge the role played by culture in business world today can lead to business failure. An understanding of the deeper-level assumptions that explain why a certain culture upholds citation practices is of paramount importance and as such the U.S Company has to undertake a very thorough investigation whenever a peculiar behaviour in the market is noted (Ghemawat and Reiche, n.d, p.1-2). We recommend that the company hires advisory services from cultural professionals in Europe in order to have a better understanding of the new business environment. Neyer and Harzing in their research “The Impact of Culture on Interactions” found out those persons who are sensitive to and acknowledge other persons culture are always successful. Cross cultural behavior is worth noting in business interactions. This would enable individuals to engage in business enabling behavior and in enhancing mutual considerateness towards each other (Neyer and Harzing, 2008, p12-13). Bibliography Anonymous, 2012. Emerging Trends in Real Estate Europe, accessed on 4th December 2012 Anonymous n.d, overcoming Cross-Cultural Challenges, accessed on 4th December 2012 Bowie, A. n.d, The Effect of Culture on Business Relationships, [accessed on 4th December 2012] Available through: Ghemawat, P and Reiche, S n.d, National Cultural Differences and Multinational Business.Globalization Note Series, accessed on 4th December 2012 Hamme, J 2010, European Business Culture: Cultural awareness, accessed on 4th December 2012 < http://www.johanvanhamme.com/archives/european-business-culture > Hezel, FX 2009, The Role of Culture in Economic Development, accessed on 4th December 2012 Lere, JC and Portz, K 2005, ‘Management Control Systems in a Global Economy.’ The CPA Journal, Sep 2005; 75, 9. Maitah, M n.d, How Culture Affects Your Business, accessed on 4th December 2012 Mix, DE 2008, ‘The United States and Europe: Current Issues.’ Congressional research services, accessed on 4th December 2012 Neyer, A K and Harzing, A 2008, The Impact of Culture on Interactions: Five Lessons Learned from the European Commission, accessed on 4th December 2012 Read More