Do_Strategies_Stay_the_Same_or_Do_They_Need_to_Be_Altered_in_Some_Way_

MULTINATIONAL ENTERPRISES: DO STRATEGIES STAY THE SAME OR ARE THEY ALTERED IN SOME WAY' Keywords Culture, Strategy, 5 Dimensions, Cross Cultural Management Abstract This paper attempts to address the question: How important is it, if at all for corporate strategies to be altered in some way, so as to fit in with their chosen host country' The paper will consider issues concerned with crossing of national borders and Hofstede’s 5 dimensions: measurement of national cultural traits, in relation to multinationals. Introduction National economies are becoming involved in a single global economy, to which big organisations are operating across national boundaries, providing world-wide markets and positioning production wherever it looks/is most cost-effective to do so. “The world economy is steadily internationalising. Between 1980 and 1991, annual world exports doubled to a total value of $3,500 billion (International Monetary Fund).”1 This increase in internationalisation has lead to an increase in the number of competing multinational enterprises (MNE’s). “A Multinational Enterprise (MNE) is a company which undertakes productive activities outside the country in which they are incorporated.”2 Therefore, they are organisations considering the market and production localities anywhere in the world. Thus, there is a need to develop an understanding into the reasons behind the increases in international economic activity. A question must be asked: Have the successful MNE’s today used original organisational strategies in aiding them to cross national borders' Or have they adapted this in some way, in order to fit in with their chosen host country' Crossing National Borders. It can be seen that when companies are competing on home ground, and in the home market, a stable environment, the primary focus of management is towards the competitive and technological factors in order to maintain a competitive advantage over rival firms i.e. determine success. When such an organisation moves abroad entering into the international market, they need to become aware of the differences, which are present throughout. Having the knowledge that such differences are present can lead to success in the new markets coming from a number of factors, which remain in the background when competing within home market’s. “ Nations can vary with regard to consumer behaviour, language, legal systems, technological, infrastructure, business culture, education systems, labour relations, political ideology, distribution structures and fiscal regime, to name just a few.”3 A combination of factors which the organsisation, should perhaps consider, can be easily just as important in the new market place as the competitive factors involved, due to: 1. Economic Factors: Foreign environments differing from the home market, respective to that which an organsiation is accustomed to operating in, e.g. the size of the total market for organisations products/services and the degree of saturation within the market etc. 2. Cultural Factors: The way in which the foreign environment is supplying their market will differ in consumer tastes, buying habits, allocation of consumer resources determined by what the environment /organisation is accustomed to 3. Political Factors: The government’s philosophy in the new country may differ from that of the home country. As a result, attitudes toward businesses, along with the rules, constraints etc to which the organsiation will operate differ Multinational enterprises need to take the above factors into consideration, before international markets are entered, otherwise problems could arise with the success of the organisation within the new world. Issues linked to Cross Cultural Management “Management practices in a country are culturally dependent and what works in one country, does not necessarily work in another.”4 Hofstede (1980, 1984) is one of the most significant cross-cultural researchers, in the area of management. He is distinctively known for his five dimensions of measuring cultural traits. Developed in the 1970’s these were based around tests carried out on IBM managers across 50 different countries, which related to their work on ethics and values. His work is said to be able to put a measurable aspect on different cultural traits, which are present throughout different countries. The approach is based on the identification of fundamental differences in the behaviour of a country and the way people in different countries perceive and interpret the world. Hofstede was looking to illustrate how countries individually have their own cultural characteristics and management styles, which become unique to them and how these styles are, compared to the various management techniques that are used throughout the rest of the world. Hofstede created this theory, as a way of showing what he thought to be true. He believed: “There is something in all countries called ‘management’, but its meaning differs to a larger or smaller extent from one country to the other, and it takes considerable historical and cultural insight into local conditions to understand its processes, philosophies and problems.”5 He also looked at “How can we expect one country’s theories of management to apply abroad.”6 due to his thinking that the word ‘management’ has so much meaning, and that “management is not a phenomenon that can be isolated from other processes taking place in society.”7 Here he concluded that management interacts with a number of different happenings in different environments: the workplace, in the family, at school, in government and its politics. It was then determined by Hofstede that “theories of management always had to be interdisciplinary, but if we cross national borders they should become more interdisciplinary than ever.”8 Hofstede - 5 Dimensions Culture plays an important role in Hofstede’s theory, to the extent that he believes that through his research, 5 dimensions of national cultural differences have been devised. Culture has been defined by many in many different ways. Kluckhorn (1951a: 86,5) sees culture as: “Consisting in patterned ways of thinking, feeling and reacting, acquired and transmitted mainly by symbols, constituting the distinctive achievements of human groups, including their embodiments in artifacts; the essential core of culture consists of traditional (i.e. historically derived and selected) ideas and especially their attached values.”9 This links to what Hofstede understood, by culture in relation to his research, resulting in his 5 dimensions. He saw this as “Management is getting things done through (other) people.”10 Therefore, for this to be achieved, an understanding into knowing the ‘things’ to be done and knowing the people who have to do them is needed. Thus, the understanding of people means an understanding of their background, leading to predictions into present and future behaviour is needed. It is presumed by many that your background provides you with a certain culture. Therefore, as Hofstede stated “the word ‘culture’ is used here in the sense of ‘the collective programming of the mind which distinguishes the members of one category of people from another’.”11 The 5 dimensions can be used, to help make some predictions into how different societies operate and how their management prefers to work with different theories. The First Dimension – Power Distance: This concentrates on the degree of tolerance of inequality in wealth and power between people and their society’s. It shows that people and societies see inequality as normal and desirable, due to the expectations that power will be distributed unequally (Large Power Distance), to inequality being something to avoid as much as possible (Small Power Distance). The Second Dimension – Individualism: The way in which individuals in a country prefer to be seen and act as individuals rather than that of being part of a group. On the side of Individualist, we can see the linkages in society between individuals being unrestricted and the Collectivist side sees the societies to which people are integrated into as strong, organised groups to which people should remain and be protected by. The Third Dimension – Masculinity versus Femininity: This refers to the way roles are distributed between the sexes, which in turn becomes a fundamental issue within society to which solutions need to be found. Values like success, competition, intelligence, assertiveness and performance in lots of societies are stereotyped and associated into the role of men, while the values linked to women concentrate on more humane values, such as, maintenance of warm personal relationships, care, loving, service and friendship. Roles of women also differ from that of men’s from country to country. The Forth Dimension – Uncertainty Avoidance: This should be understood as referring to the willingness of an individual towards bearing a risk or the risk profile of an organisation regarding it strategy. The elements involved in the making of this dimension include organisational and managerial in character. The more uncertainty avoiding a culture tends to be, the less attractive is the achievements due to organisational risks of integrating foreign management into a parent organisation. The Fifth Dimension – Long Term versus Short Term Orientation: Value’s related to long term orientation are known as thrift and perseverance i.e. future orientated, compared to those values associated with shorttermism; the fulfilling of social obligations and respect for tradition which seem very focused on the past and present. Hofstede’s Findings – With regard to his 5 Dimensions As a result of Hofstede’s research the 5 Dimensions were not necessarily exhaustive and they do not seem to represent the final word on dimensions regarding national culture. Their impact on the structure and functioning of organisations has lead to power distance and uncertainty avoidance being identified as the two main dimensions of organisational structure. Hofstede used this to develop his research to indicate what type of organisation and country fit into different categories. This was demonstrated using four categories: Category 1: This is linked to countries where organisations operate like a family or through personal bureaucracy. Organisations are said to have weak uncertainty avoidance along with large power distance and includes such countries as, South Africa, India etc. Within the organisation management act as father figures, with duty of care and loyalty being more important to them than other forms of discipline or formal management structures. Category 2: This has developed to be the largest of the four categories. Organisations here have large power distance and Small Uncertainty Avoidance, countries include Japan, France, Belgium and Southern Europe. The organisational type within this tends to be those who are controlled by a hierarchy system, with a number of regulations and rules that must be followed by all employees. Category 3: Organisations here are described as running like well-oiled machines, with small uncertainty avoidance and large power distance. This category includes countries such as Finland, Germany and Israel. These countries operating within a bureaucratic environment tend to follow well-defined plans. Category 4: This category includes 11 countries and is determined by small power distance along with weak uncertainty avoidance. Countries include United States of America, Britain and Denmark to name just a few. They are said to be very individualistic and universalistic, and rely on ad hoc solutions to problems. (These are also illustrated in Appendix 1) As stated earlier after Hofstede’s research and identification of the 5 dimensions, he placed each country into one of four categories, as described above. There have been many researchers who have critisms with regard to Hofstedes work and those who have used his framework as a development tool to more theories. Michael Hoppe (1980’s) validated his research, but this reading leads to the belief that every country within an individual category is very similar to one another when in fact a lot more differences than similarities exist. Many multinationals operate in different countries as well as different lines of business, therefore different organisational cultures. Hofstede placed 11 countries into category one, taking into consideration its characteristics, does this mean countries placed in this category, have the exact cultural characteristics as one another' With this in mind, it cannot be, as no two countries are identical to each other. It is evident that all countries have different cultures and no two countries whether operating in the same home markets operate the same. So how has Hofstede been able to say that countries can be categorised like this' Similarities are their in terms of hierarchy structures and operational procedures, but if they are examined thoroughly you will find they are not identical. More recent research (Lessem & Nuebauer 1994) around this point also came to the same conclusions. With regard to Hofstede’s findings, it can be seen that if an organisation were to stay within the same category, but cross-national borders and enter new markets, the transition would prove a lot easier due to the similarities existing in the way that organisations operate in different countries. (One dimension that a company would not have to adapt to). However even though shared values and norms will exist, changes have to be made, as mentioned earlier no two countries are ever identical, therefore organisations need to be adaptable or show some willing into changing one or all five of the dimensions. If an organisation decided to locate to another country outside of their category – this would mean as identified be Hofstede that no cultural similarities exist between the countries, thus all dimensions would have to be altered to ensure efficient operation. Therefore according to Hofstede and his research a company’s management style would need to be altered, in order to fit in with that of the contrasting style of the host country. Conclusion During the completion of this assignment it has become evident that culturally the world is becoming more similar however, for the foreseeable future very substantial differences between different national cultures will clearly continue. Understanding this and getting to grips with these and developing upon the effective understanding of different norms values and assumptions are therefore prerequisites for doing business successfully in different places. In relation to Hofstedes 5 dimensions, it has been identified that there are similarities in existence between countries in relation to operations, also the extent to which the dimensions need to be altered all comes down to how a company operates and how staff are accustomed to operating in relation to its cross border alternative. In answer to the initial question an organisation would need to adapt their corporate strategy in order to compete on the foreign market. Culture, political, environmental, economic and social policies globally are constantly changing. Consumers have more choice and are increasingly becoming more educated towards this. It would be sacrilege not to review strategies, or to make changes accordingly. References 1 Whittington, R. (2000) What Is Strategy And Does It Matter' London: International Thomson Business Press, p.99. 2 Reader, A. (1999) The Internationalization Of The Firm. Second Edition, London: International Thomson Business Press, p.65. 3 de Wit, B. Meyer, R. (1998) Strategy: Process, Content, Context. Second Edition London: International Thomson Business Press, p.719. 4 Reader, A. (1999) The Internationalization Of The Firm. Second Edition London: International Thomson Business Press, p.387. 5 – 8 de Wit, B. Meyer, R. (1998) Strategy: Process, Content, Context. Second Edition London: International Thomson Business Press, p.58 - 59. 9 Hofstede, G. (1980) Culture’s Consequences: International differences in work-related values London: Sage Publications, p.25. 10 Reader, A. (1999) The Internationalization Of The Firm. Second Edition, London: International Thomson Business Press, p.381. 11 Reader, A. (1999) The Internationalization Of The Firm. Second Edition, London: International Thomson Business Press, p.381. Appendix 1. Four Combinations of Power Distance and Uncertainty Avoidance 4) (1) Small Power Distance Large Power Distance Weak Uncertainty Avoidance Weak Uncertainty Avoidance Countries: Anglo, Scandinavian Countries: Southeast Asian Netherlands Organisation Type: Implicitly Organisational Type: Personal Structured Bureaucracy Implicit model of org: Market Implicit model of org: Family 3) (2) Small Power Distance Large Power Distance Strong Uncertainty Avoidance Strong Uncertainty Avoidance Countries: German – speaking, Countries: Latin, Mediterranean, Finland, Israel Islamic, Japan & Some other Asian Organisation Type: Workflow Organisational Type: Full Bureaucracy Bureaucracy Implicit model of org: Well-oiled Implicit model of org: Pyramid Machine Hofstede, G. (1980) Culture’s Consequences: International differences in work-related values London: Sage Publications, p.319. Bibliography Whittington, R. (2000) What Is Strategy And Does It Matter' London: International Thomson Business Press. Reader, A. (1999) The Internationalization Of The Firm. Second Edition, London: International Thomson Business Press. de Wit, B. Meyer, R. (1998) Strategy: Process, Content, Context. Second Edition London: International Thomson Business Press. Hofstede, G. (1980) Culture’s Consequences: International differences in work-related values London: Sage Publications. Taylor, S. (1999) Employee Resourcing London: People and Organisations, Institute Of Personnel And Development. Robuck. & Simmons. (1989) International Business And Multinational Enterprises. Fourth Edition: International Edition London: Irwin. Ansoff, H I. (1984) Implanting Strategic Management. London: Prentice Hall International Daniels, J D, Ragebaugh, L H. (1998) International Business: Environments And Operations. Eighth Edition, Harlow, England: Addison Wesley Business Policy & Strategy “MULTINATIONAL ENTERPRISES: DO STRATEGIES STAY THE SAME OR DO THEY NEED TO BE ALTERED IN SOME WAY'” NAME: STUDENT NO: MODULE CODE: DATE: SEMINAR TUTOR: