5.1. introduction...zubair hassan (2013): international social cultural environment. international...

International Business (MOD001055) Chapter 5: International socio-cultural environment Zubair Hassan (2013): International social cultural environment. International Business

Notes compiled by Zubair [email protected] or [email protected] 1

5.1. Introduction

This chapter covers one major components of learning objectives/outcomes that are

likely to examine via coursework or examination. This chapter will enable students to

build their knowledge on external influences on international business, such as the

social and cultural frameworks.

This chapter will cover the following topics:

National cultural characteristics

Cultural impacts on international business

National, organisational and occupational cultures

Strategies for developing intercultural competence

5.2. National cultural characteristics

Wall et al (2010, p.172) argued that national culture is determined by mainly two

factors. They are religious background, and ecological factors.

5.2.1. Religious background

While underlying values and assumptions of all world religions may share

some common features, there are arguably some important differences.

Different religions take different views of work, savings, and material goods.

An understanding of religious beliefs will help the international manager

understand why companies from certain cultures are more competitive than

companies from other cultures. It also helps us understand why some

countries develop more slowly than others do. Knowing how religion affects

business practices is especially important in countries with a religious form

of government such as Iran.

5.2.2. Ecological factors

The environment may also play a part in the development of cultural

characteristics. It is often been argued that harsh and ‘unfriendly’ climates

and poor agricultural conditions can, over time and across generations, result

in people who are hardworking, resilient, patient, tough and aggressive.

Tayeb (2000, cited in Wall et al, 2010, p. 172) illustrated an example of the

Arian tribes who, thousands of years ago, migrated from central Asia to India

and Iran. Those who settled in India found a fertile land with plenty of water

and rivers and relatively mild climate. Those who settle in Iran faced harsh

variable seasons, salt deserts and very few rivers. Tayeb suggested that it is



hardly an accident that Hindusim and Buddism took in India, religions noted

for their non-violence and passivity. By contrast, those from the same ethnic

Arian tribes who settled under the harsh ecological conditions of Iran become

aggressive, fought other nations and built up the Persian Empire, which ruled

over a vast area for centuries.

5.2.3. High and Low context culture- Hall (1976)

Edward Hall’s low-context, high-context approach categorizes individuals

(and societies) in terms of how they communicate and what is required in

order to successfully communicate in a given society.

In a low-context culture, the words used by the speaker explicitly convey the

speaker’s message to the listener. In low-context cultures, behavior and beliefs

may need to be spelled out clearly, and the society in question is very rule

oriented. In terms of national societies, the United States has historically been

the example of the low-context approach to communication. In low-context

cultures, the information content in advertising should be higher than that in

high-context cultures.

The second societal grouping is the high-context culture. In these groups, the

context in which a conversation occurs is just as important as the words that

are actually spoken. Some examples of high-context cultures include family

gatherings, small religious congregations, or a party with friends. On a

national level, prior studies have shown that the citizens of Japan and France

typically exhibit behavior that is closer to the high-context approach

Table 5.1: High context and Low context culture

High context cultures Low context culture

Define personality more in terms of

the group than the individual

Are more individualistic than

group-oriented

Tend to have a high sensory

involvement (low boundaries in terms

of personal space)

Tend to have a low sensory

involvement (high boundaries in

terms of personal space)

Initiate and receive more bodily

contact when talking

Convey more information via

explicit codes which do not rely

so heavily on non-verbal

language

Are polychromic-time does not have

totally linear aspects so that

punctuality and scheduling have low

priority

Are monochromic –time is

viewed in more linear terms

involving punctuality and tight

scheduling

Source: Wall et al (2010, p.173).



5.2.4. Dimensions of national culture- Hofstede (1980)

Hofstede identified four important dimensions of national culture, namely

individualism, power distance, uncertainty avoidance, and

masculinity/femininity, to which later he added a fifth dimension: long-term

orientation.

Figure 5.1: Hofstede’s five dimensions of culture

Source: Wall et al (2010, p.174)

Individualism Collectivist

The interests of

the group take

precedence

Individualist

The interests of

the individual

take precedence Relative importance of the

interests of the individual

versus the interest of the

group

Uncertainty avoidance

Small power

distance

Individual assess

authority in view of

its perceived

rightness or their

own personal

interest

Large Power

distance

Authority is

inherent in one’s

position within a

hierarchy

Power distance

The appropriateness of

power/authority within

organisation

Strong uncertainty

avoidance

Prefer structure and a

consistent routine

Weak uncertainty

avoidence

Positive response

to change and new

opportunities

Masculinity/Femininity

An emotional response to

uncertainty and change

Masculinity

Value material

possessions,

money, and

assertiveness

(Aggressive goal

behaviour)

Femininity

Value social

relevance, quality

of life, and the

welfare of others

(Passive goal

behaviour)

What motivates people to

achieve different goals

Long-term orientation

The extent to which

members of a culture

adopt a long-term or a

short-term outlook on

work and life

Long-term

outlook

Value

dedication, hard

work and self-

image

Short-term

outlook

Places less

emphasis on

hard work



5.2.5. Impacts of different cultural dimensions at workplace

Hofstede’s cultural dimensions were used to analyse the impact of cultural

differences at workplace (Wall et al, 2010, p.176).

Cultural dimension Impact at the workplace

Individualist

Same value standards apply to all: Universalism

Other people seen as potential resources

Task prevails over relationship

Calculative model of employer-employee

relationship

Collectivist

Value standards differ for in-group and out-

groups: particularism

Other people seen as members of their group

Relationship prevails over task

Moral model of employer-employee relationship

Large power distance

Hierarchy reflects on existential inequality of roles

Subordinates expect to be told what to do

Ideal boss is a benevolent autocrat (good father)

Small power distance

Hierarchy means an inequality of roles,

established for convenience

Subordinates expect to be consulted

Ideal boss is a resourceful democrat

Weak uncertainty

avoidance

Dislike rules, written or unwritten

Less formalisation and standardisation

Readiness to accept changes

Strong uncertainty

avoidance

Emotional need for rules, written or unwritten

More formalisation and standardisation

Reluctance to accept change

Masculinity (aggressive

goal behavior)

Assertiveness appreciated

Oversell yourself

Stress on careers

Decisiveness

Femininity (passive

goal behavior)

Assertiveness ridiculed

Undersell yourself

Stress on life quality

Intuition



5.2.6. Other models used to determine national culture

Trompenaars, and subsequently writing with Hamden-Turner, follows a

functional approach in which the premise is that culture can systematically

cause differences in behaviour between people from different countries.

Trompenaars’ basic premise is that an understanding of the underlying values

of different cultures leads to greater respect for diverse ways of operating and

to the desire and skills for reconciling cultural differences to achieve business

performance.

1. Universalism v particularism:

In universal cultures ‘rules’ are favoured over ‘relationships’.

Contractual agreements are considered of the utmost importance,

and logical, rational analytical thinking and professionalism are of

great importance

In particularist cultures there are greater obligations to friendship

and kinship and these are maintained through personalism, saving

‘face’ and paternalism

2. Individualism v communitarianism

Consideration of groups versus individuals. Cultures, for a variety of

reasons, either tend to value self-orientation or group orientation. This can

affect the decision-making process and the extent to which authority

resides in an individual to make decisions. This can have a profound effect

on working practice with widespread consultation favoured by a common

orientation culture. There is a danger, for example, that this might be

perceived as procrastination by those from an individualistic background.

It is this type of understanding that can help support the development of

co-operative relationships inside and between organisations where one or

both individuals are inexperienced in working with multi cultural teams.

3. Achieving or ascribing:

In achieving societies the emphasis is on esteem related to

past achievements n ascribing societies achievement is a more collective affair

and organisations in these societies often justify a large

power distance so that things get done

4. Neutral versus emotional (affective)

This reflects the range of emotions that people are able to express openly.

This could have a considerable impact upon the way in which products are

promoted, and how relationships are established with customers and the

organisations in which they operate.

5. Specific versus diffuse

Reflects how people will adjust their behaviour in different settings

(specific). However, diffuse reflects the consistency of a person’s

relationships regardless of their situation. This has implications for



managing staff, that is ‘once the boss, always the boss’, as opposed to

specific where ‘the boss is the boss in work and friend out of work’.

6. Perceptions of time

This reflects different attitudes to time:

Synchronic and circular attitudes allow parallel activities and are

less concerned with punctuality

In a ‘sequential culture’ the focus is on rational efficiency and time

is viewed in a more linear fashion

7. High context and low context

High context behaviour will have a form of ritual behaviour in

everyday life. Priorities, status, and so on will be important.

Low context will see little in the way of ritual behaviour and

can generally cope with a number of events happening at any

one time.

Further attempts at categorisation have clustered individual countries into

groupings based on observed shared characteristics and affinities. For

example, Ronen and Shenkar (1985) created a set of clusters based on an

analysis of four key characteristics:

the importance of work goals,

job satisfaction,

the impact of managerial and organisational variables,

work roles and interpersonal orientations.

5.3. Cultural impact on international business

The cultural dimensions explained above may have some implication on international

business. In here we will use Hosfstede cultural dimensions and its implication on

international business.

5.3.1. Power distance:

MNCs operating in high power distance societies will often have to hire

managers who can show their leadership qualities. Employees are more

deferential to their supervisors and will expect more explicit directions about

what needs to get done. Managers are therefore expected to show their

position in the company. Consider the experience of a US vice president, who

was meeting with vice presidents from the Indian affiliate of the company.

When the US vice president entered the room, she saw a room in disarray. She

asked for help from one of the Indian executives to arrange the chairs but was

ignored. Later the Indian told her that he couldn’t believe that she was moving



chairs when she could have delegated this task to the office staff. The Indian

executive couldn’t believe that she was engaging in a task that was perceived

as below her skills. Because of the Indian culture’s high power distance, those

at the executive level of the organization are expected to behave accordingly.

MNCs also often find that they need to send older employees when

negotiating with their counterparts in high power distance societies. Age

tends to be equated with wisdom and experience. Consider Exxon Mobil’s

experience when they sent some of their employees from Angola and Russia

for cross-cultural training in Canada. Both Angolans and Russians equated

age with authority, a characteristic of high power distance societies. Exxon

Mobil had to train these workers to accept that younger employees may

sometimes have authority.

Power distance can also have important implications for decision making in

international negotiations. Hurn argues that decision-making authority often

resides with those who have more authority and seniority in the organization.

Japanese negotiators will often have to report back to more senior individuals

(more senior managers or government figures) to get approval for

authorization of a decision. This can be frustrating to individuals from more

Anglo cultures who may be ready to make decisions autonomously.

5.3.2. Uncertainty avoidance

Uncertainty avoidance suggests that the MNC is well advised to provide

structure and order if they operate in societies with high uncertainty

avoidance. Managers should give clear and explicit directions to

subordinates. Such clear instructions make subordinates less anxious, since

subordinates know exactly what is expected of them. This reduces ambiguity

regarding job expectations. The boss tells workers exactly what to do.

Similarly, organizations in these cultures have many written rules and

procedures. Like the situation produced by the task-directed leader, extensive

rules and procedures tell employees exactly what the organization expects of

them. Consequently, employees believe that these rules should not be broken.

5.3.3. Individualism

Individualism has important implications for international business. In

countries with low individualism, MNCs will find that employees are hired

and promoted mostly on the basis of association with a larger group such as a

university or high school. In such societies, emphasis is placed on loyalty,

seniority and age. As mentioned earlier, MNCs operating in more

collectivistic societies need to appreciate the importance of the larger social



group. Consider Procter & Gamble’s Canada subsidiary and their effort to

understand diversity in their workforce. Because of the emphasis on the group

and group harmony, they realized that in more collectivist cultures it is

necessary to reward groups rather than individuals in some cases. If they were

to reward individuals within a team, they would potentially create conflict

among the team members.

5.3.4. Masculinity/Femininity

Many of the Anglo countries such as the US and the UK have high levels of

masculinity. This suggests that MNCs operating in these countries will

encounter employees who see work as very important in their lives. In these

societies, people tend to work very long hours and recognition on the job is

seen as an important motivator. The Exhibit also shows that many of the

Nordic societies such as Sweden, Denmark and Norway have low levels of

masculinity. In these societies, people tend to work less and take longer

vacations. MNCs operating in these countries should expect a workforce that

is less dedicated to work and more focused on quality of life. Consider France,

for instance, where employees typically get around 40 days off compared to

only 15 in the US. Many French employers actually offer company-owned

ski cabins or beach houses as benefits to motivate employees. Such practices

are consistent with the emphasis on quality of life in France because of the

low levels of masculinity.

Low levels of masculinity have also been implied to mean less inequality

between genders regarding occupations. In more masculine societies, jobs are

clearly defined by gender and some jobs are automatically reserved for males.

However, in less masculine societies, occupations tend to be less gender-

based. Low levels of masculinity are also perceived to be associated with a

better work environment for women.



5.4. Doing business in Confucian societies: the importance of guanxi

(connection)

Confucius lived from 551-478 BC and societies influenced by his thinking include

China, Hong Kong, Taiwan, Japan and Korea (Wall et al, 2010, p.183). In these

societies ‘who you know is more important that what you know’. These connections

are known in China as guanxi, in Japan they are known as kankei, and in Korea as

kwankye.

According to Wall et al (2010, p.183) the following characteristics were found in

societies that are influenced by Confucianism:

Disdain for international law

Strong bonds on the basis of blood

Ancestral village and school and military ties

A clear demarcation between members of the in versus out-groups

An ability to grasp the interdependent relationship situations

A tendency to view matters from long-term perspective

The word guanxi contain two characters that make up the term ‘gate/pass’ or ‘to

connect’. Thus guanxi refers to the establishment of a connection between independent

individuals to enable a bilateral flow of personnel or social transaction. Both parties

must derive benefit from the transaction to ensure the continuation of such relationship.

5.4.1. How does networking differ in the West compare to Confucian societies

How does this differ from ‘networking’ in the West? Yeung and Tung (1996, p. 55-57)

analyse these differences along six dimensions:

Motives: role obligation versus self-interest:

One basic tenet of Confucianism stresses the importance of an individual's

place in the hierarchy of social relationships: individuals are part of a system of

interdependent relationships, not isolated entities. The system includes five

types of relationships: ruler-subject, father-son, husband-wife, brother-brother,

and friend-friend. A person's fulfillment of the responsibilities of a given role

ensures the smooth functioning of society. In the West, however, the primary

influence on human behavior is self-interest. This dissimilarity between the two

cultures has led to the development of very different attitudes about

reciprocation.



Reciprocation: self –loss versus self-gain

Confucianism encourages each individual to become a yi-ren (righteous

person). To become a yi-ren, a person must repay favors and increase the value

of the favor given. The Chinese saying, "If someone pays you an honor of a

linear foot, you should reciprocate by honoring the giver with ten linear foot,"

captures the essence of this principle. According to Peter M. Blau's social

exchange theory, while there is also unequal reciprocity in Western social

transactions, the tilt of disadvantage is directed at the other party, not the self.

Time orientation; Long-term versus short-term perspective

Strategic management thought in East Asia includes an understanding of the

relationship between situations and time. This perspective stems from the East

Asian belief that duality and contradictions (yin/yang) are inherent in all aspects

of life. Members of Confucian societies assume the interdependence of events,

and understand all social interactions within the context of a long-term balance

sheet. In the words of one executive, "Every guanxi relationship is regarded as

'stock' to be put away in times of abundance and plenty. The 'stock' will then be

at their disposal in times of need and trouble." The debit and credit sides of this

balance sheet are never in equilibrium, since such a status often means the end

of a guanxi relationship. Guanxi is maintained and reinforced through

continuous, long-term association and interaction.

In contrast, social transactions in the West are usually seen as isolated

occurrences. The objective is to maintain balance in each transaction, with great

emphasis placed on immediate gains from the interaction.

Power differentiation: Xia versus power

Another basic tenet of Confucianism is xia, a term that carries the same

connotations as "knight" in the Western world. In striving to become a

"righteous individual," each person must become a knight, and attempt to right

the wrongs of the world. Thus, those in positions of power and authority must

assist the disadvantaged. In return, the former gains face and a good reputation.

This perspective on the appropriate relationship between the strong and the

weak explains, in part, why the Chinese often feel that investors from

industrialized countries should make concessions to help developing nations.

While social conscience may be strong in the West, the powerful are under no

obligation to assist those who are disadvantaged



Nature of power: personal power versus institutional authority

Under Confucianism, governance by ethics (li zhi) is preferred over governance

by law (fa zhi). This accounts for the general aversion to law and litigation in

Confucian societies. The disregard for institutional law means that those who

occupy positions of authority (ren zhi) have power of influence.

Emphasis on personal power promotes the practice of guanxi, since an

individual (rather than institutional authority) defines what is permissible in a

given context at a particular time. According to Lee Kuan Yew, founding father

of the Republic of Singapore, the Chinese use guanxi "to make up for the lack

of the rule of law and transparency in rules and regulations." For example, the

Chinese authorities forced McDonald's to relocate in Beijing to accommodate

real estate development by Hong Kong billionaire Li Ka Shing. The latter is

well-connected to high-ranking officials in China.

In contrast, Western society relies primarily on institutional law to ensure

smooth and orderly progress.

Sanction: Shame versus Guilt

In Confucian societies, the primary deterrent against immoral or illegal

behavior is shame. Two factors have contributed to this: (1) the absence of

indigenous religions such as Judaism and Christianity, and (2) the emphasis on

"face" and "face-saving."

While the latter principle is important in all countries, both are essential in

Confucian societies. Face implies more than reputation. There is a Chinese

saying that "Face is like the bark of a tree; without its bark, the tree dies."

People who have lost face in Confucian societies are more than social outcasts:

a loss of face brings shame not only to individuals, but also to family members.

Because of this shame, the family members are unable to function in society.

In Confucian societies, face is contextual; it can be given and taken away only

within the broader context of social interactions. Thus, to maintain guanxi,

extra care must be taken in the acquisition and maintenance of face, generally

referred to as "face works."

The West, under the influence of Judeo-Christianity, operates primarily on the

basis of guilt. Because of an internalized understanding of sin, individuals feel

guilty if their behavior deviates from the cultural standards of morality.



5.4.2. Effective ways of cultivating Guanxi

Yeung and Tung (1996, p.61-63) reported the result of their survey of executive

who identified the following activities as being crucial for cultivating (building)

guanxi:

Group identification

Group identification can be of two types: ascribed and achieved. The two most

common forms of ascribed guanxi bases are kinship and locality. Kinship refers

to members of a person's immediate and extended families. As Gordon C. Chu

and Yanan Ju report from their research, an overwhelming majority of the

respondents (70.9 percent) stated that they would offer help to a relative rather

than a friend. Locality refers to the ancestral village or province. Many overseas

Chinese who may not have visited their ancestral village still feel a strong

affinity to others whose forefathers are also from that locality. Locality is

believed to be the most important guanxi base in Chinese politics

Achieved guanxi, on the other hand, is based on common or shared experience,

such as going to the same school, serving in the same military unit, or working

in the same organization or organizational unit.

Alter-casting

Since the majority of non-Chinese investors are not related to the Chinese by

blood and locality, most have to rely on the second mechanism, altercasting, for

establishing guanxi. Altercasting refers to the establishment of guanxi between

two individuals who have no ascribed commonalty. The objective of alter-

casting is to rearrange the targeted person's social network in such a way as to

involve the individual who wishes to be included in it. An effective way of

attaining this goal is to use an intermediary who is a mutual friend of both

parties. The intermediary can vouch for the behavior and sincerity of either

party. According to Victor Fung, chairman of Prudential Asia, a Hong Kong

investment bank, "If you are being considered for a new partnership, a personal

reference from a respected member of the Chinese business community is worth

more than any amount of money you could throw on the table."

Since guanxi is a gate that can be open or shut, it needs to be propped wide once

opened; otherwise, it can slam shut again. There are essentially four strategies

for maintaining guanxi relationships: tendering favors, nurturing long-term

mutual benefits, cultivating personal relationships, and cultivating trust.



Tendering favors

Given the instrumental nature of guanxi, one way to establish relations is to

offer immediate rewards. Gift-giving, entertainment at lavish banquets,

questionable payments, overseas trips, and sponsoring and supporting the

children of Chinese officials at universities abroad are common. Many

respondents perceived this to be the quickest way to build guanxi relations in

China. According to Yang, when a gift has been received or a request for a

favor has been granted, there is a "symbolic breaking down of the boundaries

between persons." In fact, one respondent indicated that "no guanxi can be built

without meat and wine." This refers to the practice of throwing lavish banquets

accompanied by expensive gifts.

Nurturing long-term mutual benefits

There are two essential components to this strategy: long-term and mutual

interests. The intent of this approach is to create an interdependence between the

two parties in the relationship so that there will be a great cost to either side in

severing such ties. As Lucian W. Pye puts it, "Each can tax the other and expect

automatic special considerations." This interdependence increases over time.

The primary goal of the foreign investor is to attain business success in China;

the principal gains for the Chinese partner are the acquisition of materialistic

rewards and/or enhancement of a political career. Those officials who are able

to attract foreign investment--which contributes substantially to employment

and development of infrastructure--will have a better chance of advancing their

political careers.

Cultivating personal relationships

Many of the respondents felt that since short-and long-term gains can be

duplicated by others, guanxi relations that are premised exclusively on material

benefits can be fragile. Consequently, to maintain guanxi relationships, many

feel that it is important to develop a personal relationship with the partner that

cannot be readily imitated by others. "Personal" implies something specific to

the two parties in the relationship, such as sharing inner feelings or personal

secrets. To build an intimate relationship with the Chinese, most respondents

indicated that sincerity and frankness were absolutely essential. To do this, one

must acquire an in-depth knowledge of the Chinese business associate and know

what appeals to his or her personal needs. One-half of the companies

interviewed in this study felt that this strategy is less feasible in present-day

China because of the strong emphasis on utilitarian gains.



Cultivating trust

Almost 85 percent of the companies included in the study of Yeung and Tung

(1996) indicated that trust was an essential condition for building and

maintaining guanxi relationships. Without trust, many felt that it was virtually

impossible to build guanxi. According to one executive, "Trust is very

important in China because it is a relation-based society." Many interviewees

adopted the following two mottoes for cultivating trust: "Deliver what you have

promised" and "don't cheat." Another effective way of building trust is to learn

the Chinese culture, including its language. Many Chinese reason that if

investors genuinely fry to understand the Chinese culture, they should not be

considered outsiders.

5.5. National, organisational and occupational cultures

Wall et al (2010, p.188) illustrated the aspects of national, organisational and

occupational culture as follows:

National culture Corporate culture Occupational culture

An individual ‘s orientation

towards:

A particular company’s: A given occupation’s:

Universalism vs.

Particularism

Analyzing vs. integrating

Individualism vs.

communitarianism

Inner –directedness vs.

outer-directedness

Time as sequence vs.

time as synchronization

Achieved status vs.

ascribed status

Equality vs. hierarchy

Values

Ritual

Heros

Symbols

NB: Corporate culture can

also refer to the values,

systems and practices which

influence the corporate

behavior of all firms in a

country

Analytical paradigm

Work norms and

practices

Code of ethics

Jargon



5.6. Strategies for developing intercultural competences

Research studies such as Brett et al (2006) and Snow et al (1996) has shown that the

development of healthy group process must take into account at least five major

factors reflecting different elements of national and corporate culture:

1. The degree of similarity among the cultural norms of the individuals on the team

2. The extent of which such norms are manifested in the groups

3. The level of fluency in the common language used by the teams

4. The communication styles and expectation of what constitutes effective group

behavior

5. The management style of the team leader

Fedor and Whether (1996, p.48-50) have outlined an eight stage process that can help

to create a culturally responsive joint-venture alliances, assuming, of course that those

involved have already accepted the strategic imperatives of such an alliance.

Eight stage process for cultural compatibility

Corporate Culture Profiles. The process of creating a CRA begins with each partner

identifying its own cultural profile. Company culture is defined as the unique set of

beliefs and methods of problem solving it has found to be successful. These beliefs

and methods create a cultural identity that serves two distinct but vital purposes; it

helps the firm (1) adapt to its external environment--what we refer to as its "basic

strategy"--and (2) organize its internal processes so that people can concentrate the

bulk of their energies on competing successfully in the market--what we call the

firm's "internal management system."

Cultural Incompatibility Identification. Negotiating teams compare profiles and

identify areas of cultural compatibility and incompatibility, which often reveal

ambiguities and inconsistencies that should not be ignored. In fact, these profiles may

uncover areas where neither company has developed strongly held preferences,

leaving ample room for IA development without the strong cultural influences of the

parent companies.

Development of a Joint Business Purpose. Teams agree on the nature of the business

opportunity by reaching consensus about the purpose and key business objectives of

the IA--objectives such as desired rates of return, market shares, and sales/income

growth rates, and time targets. This process ensures that both parties will uncover the

areas in which the partners converge or diverge in their expectations for the IA, and

will provide the critical first step towards a definition of the IA's culture.



Operational Independence. The desired degree of operational independence should

be identified next. The degree of independence reflects the tradeoffs between

cooperating with a partner to maximize the IA's success and revealing information

that might make the other party a more formidable competitor. Referring back to

Exhibit 4, the greater the competitive risks (the lower position on the vertical axis),

the more the other partner will want to control the flow of information from the

parent to the IA.

Structural Choice. The legal structure for the IA that best supports the desired culture

needs to be formed carefully. A wide variety of structural choices are available,

ranging from open-ended joint ventures, with varying ownership splits, to time-

specific technology sharing contracts. Just as the IA culture must support the partners'

strategic intent, the legal structure must support the type of CRA chosen for the IA.

The choice of the legal structure for the IA is often driven by deep-seated cultural

preferences for control by the partners. American-based partners often gain operating

control by choosing a structure that gives them the final say in significant decisions,

typically secured through majority ownership. This control orientation can create

obstacles in the design of the IA and in the development of the mutual trust, normally

needed for successful cooperation.

Management Systems Agreement. Will the management systems be unique to the

IA? Or will operations depend on one of the partners for critical functional services

such as sales and marketing?

Colgate-Palmolive retained control of the U.S.-based IA it had with Kao by

conducting all the sales and marketing of Kao's hair care product through Colgate's

people and departments in New York. Colgate brand managers assigned to the JV

conducted market research and developed advertising without changing their offices,

ad agency contacts, administrative support systems, or other Col-gate-based behavior

patterns. Kao's shampoo was also sold and distributed through Colgate's existing sales

force. In this case, the IA was forced to adopt the sales and marketing culture of the

dominant partner.

Staffing the IA. The selection of the managing director and key senior officers merits

executive attention, because corporate cultures are embodied in the values and beliefs

of the people who work in them. As Edgar Schein, in Organizational Leadership and

Culture, says " . . . one could argue that the only thing of real importance that leaders

do is to create and manage culture." If the IA leaders are both the creators and carriers

of culture, the choice of who to lead the IA is important in its own right. Additionally,



discussions about the human specifications and job descriptions will reveal deep

insights into how the partners view the IA and its operations. Issues to be considered

include: Do the partners agree on their management and staffing responsibilities

during the operation of the IA? Are these understandings consistent with the

objectives and operational independence of the IA? Are these people to be liaisons

with the "home office," or are they to be hands-on managers in a decentralized

operation?

Assessing IA Demands on Parent Company Cultures. In those alliances that

continue to depend on the parent companies for critical services, the demands of the

IA may require changes in the culture-based practices of the parent.

Brett et al (2006, p.88-91) compress this eight-stage process into four key ‘strategies’

team managers might use to enhance the effectiveness of multicultural teams:

Adaptation: Some teams find ways to work with or around the challenges they

face, adapting practices or attitudes without making changes to the group's

membership or assignments. Adaptation works when team members are willing to

acknowledge and name their cultural differences and to assume responsibility for

figuring out how to live with them. It's often the best possible approach to a

problem, because it typically involves less managerial time than other strategies;

and because team members participate in solving the problem themselves, they

learn from the process. When team members have this mind-set, they can be

creative about protecting their own substantive differences while acceding to the

processes of others.

Structural intervention. A structural intervention is a deliberate reorganization

or reassignment designed to reduce interpersonal friction or to remove a source of

conflict for one or more groups. This approach can be extremely effective when

obvious subgroups demarcate the team (for example, headquarters versus national

subsidiaries) or if team members are proud, defensive, threatened, or clinging to

negative stereotypes of one another.

Managerial intervention. When a manager behaves like an arbitrator or a judge,

making a final decision without team involvement, neither the manager nor the

team gains much insight into why the team has stalemated. But it is possible for

team members to use managerial intervention effectively to sort out problems.

Exit. Possibly because many of the teams we studied were project based, we

found that leaving the team was an infrequent strategy for managing challenges.



In short-term situations, unhappy team members often just waited out the project.

When teams were permanent, producing products or services, the exit of one or

more members was a strategy of last resort, but it was used – either voluntarily or

after a formal request from management. Exit was likely when emotions were

running high and too much face had been lost on both sides to salvage the

situation

Reference list

Ajami, R.A., Cool, K., Goddard, G.J., Khambata, D and Sharpe, M.E. (2006). International

Business: Theory and Practice, (2nd

Edition). pp. 3-19. M.E. Sharpe, Inc.

Brett, J, Behfar, K, Kern, M C (2006). Managing multi-cultural teams. Harvard business

review, 84(11), pp.

Cullen, J.B., and Parboteeah, K.P. (2010). International Business: Strategy and Multinational

Company, pp. 3-33. Routledge, 270 Madison Ave, New York, NY 10016

Fedor, Kenneth J., Werther Jr., William B (1996). The Fourth Dimension: Creating

Culturally Responsive International Alliances. Organizational Dynamics, 25( 2),

pp.39-53

Katsioloudes, M.I. and Hadjidakis, S. (2007). International Business: A global perspective.

Butterworth-Heinemann /Elsevier

Wall, S., Minocha, S., and Rees, B. (2010). International Business, (3rd

Edition), pp.1-36.

Prentice Hall, Financial Times. (RECOMMENDED READING)

Yeung, Irene Y. M.; Tung, Rosalie L. (1996). Achieving business success in

Confucian societies: The importance of Guanxi (Connections). Organizational

Dynamics, 25(2), pp. 54-65

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