104291000 the Factors That Influence How Decisions Are Made in Cross Cultural Management Contexts

7/29/2019 104291000 the Factors That Influence How Decisions Are Made in Cross Cultural Management Contexts

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TABLEOF CONTENTS

Table of Contents ................................................................................................... 1

Introduction ............................................................................................................ 2

Ethics ..................................................................................................................... 2

Innovation .............................................................................................................. 4

The role of women in MNCs ................................................................................... 5

Culture ................................................................................................................... 6

Hofstedes five dimensions .................................................................................. 7

Criticism of Hofstedes approach ......................................................................... 8

Competencies in MNCs .......................................................................................... 9

The role of Industry, Professional and Regional Cultures ....................................... 10Conclusion ............................................................................................................ 11

Bibliography ......................................................................................................... 13

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INTRODUCTION

A multinational company (MNC) is a relatively recent phenomenon whose

activities spread across many countries1. Management are faced with many issues

because of its geographical dispersion. This essay will discuss the factors that

management must take into account when planning and managing the activities of

an organization. Having regard to these issues will ensure that management can

run an organization without interference from stakeholders. It will also enable

management to utilize its assets in the most effective way to gain competitive

advantage in the global market.

ETHICS

Multinational companies have grown so large that in some cases their

power is capable of overshadowing local governments2. Because of this there has

been a surge of ethical demands by nongovernmental organisations (NGOs),

customers and the law. Customers are unwilling to purchase products from

MNCs with reputations of ill treating their workers or the environment. There has

also been a surge in ethically orientated investment funds which will avoid

investing in unethical MNCs3 .

There are several important issues which should be addressed when

developing strategies and managing company activities. A common way to do this

1

Gooderham & Nordhaug (2003, p. 22).2 Gooderham & Nordhaug (2003, p. 336).3 Gooderham &Nordhaug (2003, p. 337.

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is by adopting a code of conduct4 which is where a MNC sets its own ethical

standards and responsibilities5. Employee relations include adequate

compensation, non-discrimination, human rights and the MNCs stance towards

child labour. Political relations include protection of the environment and

problems with corruption. These issues should all be dealt with by a code of

conduct.

To ensure that management incorporate the code of conduct when making

decisions, monitoring of the implementation of the code is often ongoing. This can

be done the company itself, by external consultants hired by the MNC or

independent monitoring by NGOs6.

Another important aspect of having regard to ethical behaviour when

making management decisions is voluntary initiatives such as UN Global Compact.

This focuses on human rights, the environment and corruption. The initiative also

brings MNCs together, sharing information and best practices7. It opens up

communication channels with the possibility of potential partners in future

projects.

Finally, investing in ethical behavior can help MNCs reach new untapped

markets. Many believe that the worlds poorest do not have the disposable income

to be a profitable market to sell products. However their aggregate buying power

is high. The poor know that they will not be able to afford to purchase a home and

they therefore allow themselves to purchase luxurious products such as television

4 Gooderham & Nordhaug (2003, p. 346).5Cetindamar & Husoy (2007).

6 Gooderham & Nordhaug (2003, p. 131).7 Cetindamar & Husoy (2007).

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sets. Investing in the poorest countries will satisfy ethical demands and bring

enormous business benefits8.

Incorporating ethics into management decision making in MNCs can

improve the profitability of the organisation, ease the ability to enter new foreign

markets, increases the potential of finance opportunities and opens up new

networking opportunities9 .

INNOVATION

The growth in worldwide competition has made innovation the most

important factor in a MNCs survival10 . A MNC needs to be able to introduce new

concepts in line with customer demand ahead of its competitors. Global teams are

often established to drive innovation. An issue for management when managing

activities of a MNC is to ensure that the global teams that produce new ideas are

able to effectively communicate and collaborate with each other.

In international research and development, a major obstacle in

communication is geographical distance. Global Teams should have at hand a

variety of Information and Communication Technology (ICT) to effectively

8

Prahalad & Hammond (2002).9 Cetindamar & Husoy (2007).10Letaief, Favier & Le Coat (2007).

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communicate knowledge and ideas. Another difficulty is that the nature of

innovation requires tacit knowledge and face to face interaction in order to be

successful. To ensure that the corporation remains at the forefront of innovation,

management should organise face to face meetings wherever possible. In global

teams there can also be lack of trust and communication barriers due to language

and culture. Face to face meetings can help overcome trust issues. Structures

and support mechanisms should be introduced to ensure information and

knowledge is transferred as quickly as possible11.

Another aspect that affects management decisions when building

organisation with regard to innovation is what countries to choose in which to set

up subsidiaries. Management will want to set up in countries that are

technologically advanced12. Local subsidiaries can be an effective way to tap into

host country technology and knowledge and utilize these to ensure competitive

advantage in the global market. Management should promote knowledge

spillovers, for example by collaborating with local universities and entering

technology transfer agreements13.

THEROLEOFWOMENIN MNCS

Currently only 12-15% of international managers are female. The reasons

for this include cultural barriers and organisational policies. With shortages in

international managers that may affect the effective implementation of

strategies14, the decision to actively promote female participation in international

management is an important strategic factor for managers in cross national

contexts.

11 Von Zedwitz, Gassmann & Boutellier (2004).12

Singh (2007).13 Singh (2007).14 Linehan & Scullion (2008).

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In some cultures such as Saudi Arabia women are seen as subordinate to

men15. They do not receive the same education and are often expected to

discontinue working after getting married. Even in Western countries where

gender equality is set out in the law, there still exists a glass ceiling and inequality

based on gender16. Managers in MNCs should try wherever possible to address

this issue by providing equal pay and education opportunities for women.

There can also be organisational barriers preventing the opportunity for

promotion of women. These include lack of networking opportunities and access

to mentors17

. Mentors are senior level employees that support lower level

employees and provide opportunities for career progression. They are important

at international level because they provide a point of contact from home when

international managers are abroad. Networking is the development of alliances

and exchange of tacit knowledge. This is also important when international

managers are working abroad without family and friends. Networking provides

contacts that can help in promotions to international management positions.

Females are just as capable of succeeding in international management

positions as men. To address shortages of international managers, it is important

for managers to manage organisations in such a way as to promote the

participation of females in these positions.

CULTURE

Culture refers to the values and expectations of a group of people18. It is

important for managers to ascertain the culture of the host country and adapt the

organization. One way to manage the organisation in one country may not be

15 Gooderham & Nordhaug (2003, p. 345).16

Gooderham & Nordhaug (2003, p. 345).17 Linehan & Scullion (2008).18 Gooderham & Nordhaug (2003, p. 131).

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appropriate in another. When managing the operations in a particular subsidiary

an approach needs to be developed in line with cultural values to ensure greater

cooperation and participation of employees as well as ease of dealings with local

firms and national institutions.

HOFSTEDESFIVEDIMENSIONS

Researchers such as Hofstede have attempted to classify culture using five

dimensions. The first dimension is power distance. This indicates the extent to

which a culture accepts inequality in a group. If there is a small power distance,

for example in Ireland, employees will expect a democratic system where they are

consulted regarding decisions affecting the management of operations or the

building of strategies. In countries such as China there is a large power distance.

Managers in power act like autocrats and are not expected to consult employees

in decision making.

The second dimension is individualism-collectivism. This refers to the

extent to which individuals prefer to take care of themselves or else prefer to be

part of a group. In countries with high individualism, employees like to be

rewarded based on their own performance19. Countries that are highly collective

expect that everybody receives the same reward20.

The third dimension of Hofstedes research is uncertainty avoidance. This is the

extent to which society avoids uncertainty and risk. Management need to address

their management decisions in countries with high uncertainty avoidance by

ensuring career stability and having formal rules and systems.

The fourth dimension is defined as masculinity-femininity. A masculine culture

finds money and success as important factors. A feminine culture is more

19 Kirkman, Lowe & Gibson (2006).20 Kirkman, Lowe & Gibson ( 2006) at 295.

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concerned with quality of life. When building and managing organisations regard

needs to be had to the factors that employees find most important.

The fifth dimension is defined as long versus short term orientation. This refers to

the extent to which people will sacrifice their current welfare for long term

benefits. This can affect management decisions when setting long term

strategies. If these strategies negatively affect employees that will not forego

their current welfare, then the strategies will meet resistance on implementation.

CRITICISMOFHOFSTEDESAPPROACH

There has been criticism of Hofstedes approach. One criticism is that

Hofstedes research is based on a narrow range of the population. The research

was founded on the responses from questionnaires of IBM employees. These

employees are mainly recruited from middle class and do not take account of the

values of the unemployed, retired or students21.

It has also been criticised because it is not possible to place the values of a

culture into five simple categories22. In addition there can be many cultural

variations within a country23. There is a belief that One cannot derive the

normative ideals of a culture from the average of individual responses24.

Regardless of these criticisms it has been widely accepted because of the

clarity it brings to managers when devising strategies and managing operations in

cross national contexts25. The average of individual responses does give

managers a general tendency on what values a particular country has. It would be

beneficial for managers to carry out their own questionnaires in each subsidiary to

21Mc Sweeney (2002).22Kirkman, Lowe & Gibson (2006, p. 286).23

Sivakumar & Nakata (2001).24Schwartz (1992, p. 51).25Kirkman, Lowe &Gibson (2006, p. 286)

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find out the general culture and shape strategies and activities around these

ideals.

COMPETENCIESIN MNCS

With competition increased globally MNCs need to ensure that they retain a

competitive advantage at all times. It is difficult to be able to do this with

technology with the constant pace of development26. The focus therefore turns to

the development of human capital to ensure organisational success. In particular,

the promotion of knowledge creation should be borne in mind in the decision

making of international managers.

Employee competencies can be split into four categories. The first category

consists of meta-competencies. These are broad skills that can be applied to any

task, such as literary skills, ability to work on a team and analytical skills27. The

second category is Intra-Organisational MNC Competencies. Competencies are

specific to the MNC including knowledge about the history of the organisation and

its products, and also of the strategy and goals of the organisation and its

networks28. The third category refers to intra organisational subsidiary

competencies. These are similar to the second category but differ in that they are

limited to one subsidiary. Examples include knowledge of that subsidiaries history

and culture29

.

The final category refers to standard technical competencies. Examples

include the general ability to use a computer that can be applied in many

industries. A sub category is technical MNC competencies, which comprises of

26 Gooderham & Nordhaug (2003, p. 221).27

Gooderham & Nordhaug (2003, p. 223).28 Gooderham & Nordhaug (2003, p. 224).29 Gooderham & Nordhaug (2003, p. 224).

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skills to operate MNC specific IT. A further sub category is subsidiary unique

technical competencies which can be used for subsidiary specific tasks30 .

It is essential for the success of a MNC to ensure that these competencies

are created and maintained by employees. Nonaka and Takeuchi developed a

model of knowledge creation that managers should incorporate into their decision

making. The most important feature is that knowledge is transferred through the

interactions of employees31. To enhance and develop employee competencies,

managers should incorporate job rotation, mentor programmes and other methods

of ensuring the values and goals of the MNC are known to all employees.

THEROLEOF INDUSTRY, PROFESSIONALAND REGIONAL CULTURES

The type of industry the MNC is operating in should be taken into account

when making management decisions in cross national situations. For example in

the IT industry there is a focus on technology rather than marketing, whereas the

opposite would apply in the retailing industry. Also in retailing the risk of any

decision is low, whereas in the science industry risk assessments would have to be

undertaken before any decision is made.

Professional cultures must also be borne in mind when making management

decisions. There may be rules to be adhered to when advertising products and

services. There may also be codes of conduct to follow.

Regional cultures are important to take into account when managing a

corporations activities. Socio-economic factors such as the education system of a

country have to be addressed. Qualification standards differ from country to

country and managers must be able to translate the standards required to the

30 Gooderham & Nordhaug (2003, p. 224).31 Gooderham & Nordhaug (2003, p. 230).

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host country when establishing subsidiaries there32. Another issue is that

countries require certain mandatory qualifications in order to obtain a

management position. For example in the USA an MBA is required, whereas in the

UK there are no requirements33. Having managers without the necessary

qualifications may cause difficulty when dealing with the institutions and other

firms of the host state.

Another factor to be taken into account with regard to regional cultures is

the institutional framework of the host country. Managers must ensure

compliance with legal requirements such as the minimum wage and other

employee rights when managing the organisation.

CONCLUSION

It is clear that there are a number of issues that must be addressed when

managing the operations of a cross national organisation. Due to its size, MNCs

are subject to ethical demands by its stakeholders. Profits will be affected if

certain ethical standards are not met. Given the lack of international managers

currently available to implement the strategies of MNCs, managers need to

ensure that the MNCs policies and practices promote the participation of women

in international positions. With the global increase in competition, managers must

ensure the development of its main source of competitive advantage, human

capital, is at the forefront of all management decisions. Managers must also have

regard to innovation in its decision making, ensuring the proper systems and

communication channels are available from global teams.

Culture is another very important factor in the decision making in cross

national contexts. To effectively manage employees and operate without difficulty

32 Gooderham & Nordhaug (2003, p. 94).33 Gooderham & Nordhaug (2003, p. 95).

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in a host country, it is important to manage activities in accordance with what

values are most important to the culture of the host country.

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BIBLIOGRAPHY

Gooderham, P.N. and Nordhaug, O. (2003) International Management: crosscultural challenges, Oxford, Blackwell.

Prahalad, C.K. & Hammond, A. (2002) Serving the Worlds Poor, ProfitablyHarvard Business Review, September.

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Cetindamar, D. & Husoy, K. (2007) Corporate Social Responsibility Practices andEnvironmentally Responsible Behaviour: The Case of the United Nations GlobalCompact,Journal of Business Ethics, p 163-176.

Von Zedwitz, M., Gassmann, O., & Boutellier, R. (2004) Organising global R&D:

challenges and dilemmas,Journal of International Management,

10, 21-49.

Singh, J. (2007) Asymmetry of knowledge spillovers between MNCs and hostcountry firms,Journal of International Business Studies, 38(5), 764-786.

Linehan, M and Scullion, H ( 2008) The Development of Female Global Managers :The Role of Mentoring and Networking,Journal of Business Ethics, 18 : 29-40.

Kirkman, B.L , Lowe, K.B and Gibson, C.B. ( 2006) A quarter century of culturesconsequences : a review of empirical research incorporating Hofstedes culturalvalues framework,Journal of International Business Studies, 37 (3 ) : 285 320.

Mc Sweeney, B ( 2002) Hofstedes model of national cultural differences and theirconsequences : a triumph of faith a failure of analysis, Human Relations, 55 (1) :89-118.

Letaief R., Favier, M., and Le Coat, F., (2007) Creativity and the creation process

in global virtual teams: Case study of the intercultural virtual project,

Management and Avenirp 182-200.

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104291000 the Factors That Influence How Decisions Are Made in Cross Cultural Management Contexts