Importance of Recognising Culture in Business

CONTENTS

INTRODUCTION …………………………………………………………………3

SECTION 1…………………………………………………………………………..3

WHAT IS CULTURE?……………………………………………………….3

WHY DOES CULTURE MATTER?……………………………………….5

HOFSTEDE’S CULTURAL DIMENSIONS …………………………………6

LIMITATIONS OF HOFSTEDE’S SURVEY………………………………..8

SECTION 2……………………………………………………………………….…10

FAILURE OF DAIMLER CHRYSLER MERGER…………….……………10

BACKGROUND OF THE MERGER…………………………………………10

THE CLASH OF NATIONAL CULTURE……………………………………11

THE CLASH OF ORGANIZATIONAL CULTURE……………………….12

CONCLUSION……………………………………………………………………..14

REFERENCES………………………………………………………………….……15

INTRODUCTION

   In the growing age of socialization and technology, globalisation cannot be ignored. It is necessary to put on your running shoes and participate in the race of global business. Today’s economy becomes more and more affected by the continuously rising globalization. (MITTERMAIR; KNOUREK, 2006). Due to the internationalization of the markets, businesses face fiercer competition, rising cost pressures and the necessity to adapt business processes at a multinational level. On these grounds, more and more cross-border Mergers & Acquisitions (M&As) can be observed. Cultural norms play a large part in interpersonal relationships at work. When you grow up in a certain culture, you take the behavioural norms of your society for granted, and you don’t have to think about your reactions, preferences and feelings, provided that you don’t deviate too much from the central tendency in your society. However, when you step into a foreign culture, things suddenly seem different, and you don’t want to cause offense. By using Hofstede’s Cultural Dimensions as a starting point, you can evaluate your approach, your decisions, and your actions, based on a general sense of how people in a particular society might think and react. Of course, everybody is unique, and no society is uniform, but you can use this model to make the unknown less intimidating, avoid making mistakes, and to provide a much-needed confidence boost when you’re working in an unfamiliar country.

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    This essay provides the basic understanding of culture, the layers of culture, explains Hofstede’s model, critically analyses it and also explains with example how Hofstede’s model can be practically used. It also explains the explains the example with Organisational culture inventory complex. Hofstede’s dimensions are the most discussed and is used as a road map by many when cross border business attempts are made. However, is it right to fully trust the model? Is the model valid? Does it provide all the measures to be taken before entering a cross border merger? All these questions will be answered by the end of this essay.

 

WHAT IS CULTURE?

    Recognising and understanding cultural differences is of utmost importance for the success of business across cross-border countries or even parts of the same country. Culture is defined as the pattern of shared basic assumptions learned by a group as it solved its problems of external adaption and internal integration, which has worked well enough to be considered valid and, therefore, to be taught to new members as the correct way to perceive, think and feel in relation to those problems (Edgar Schein). As defined earlier culture is a shared set of beliefs that are shared between a group of people that determines the way of solving a problem (Trompenaars, 2000). There are various layers of culture i.e., some aspects of culture are clearly visible to an outsider while some aspects of culture are deep-rooted and it takes effort from an outsider to see them. These layers can be demonstrated with the help of the diagram as shown below.

 

 

                                                    Figure: layers of culture

    The layers of culture can be explained with the help of an analogy of a trekker climbing the tallest mountain where the level of oxygen represents the visibility of the layer. The foot of the mountain represents ARTIFACTS AND PRODUCTS which is the outermost layer of culture that is visible to an outsider and any person willing to see it just like the abundance amount of oxygen present at the foot of it. This is the layer of explicit culture and is the observable reality of the language, food, architecture, houses, monuments, agriculture, shrines, markets, fashions and art (Trompenaars,2000). Explicit culture reflects the deeper levels of culture.

         The middle layer of culture is the NORMS AND VALUES represented at the average height of the mountain. The oxygen level is moderate which indicates that the visibility to an outsider is moderately low. Norms are the mutual sense a group has of what is “right” and “wrong” (Trompenaars,2000). Norms can develop on a formal level as written laws, and on an informal level as social control. Values, on the other hand, determine the definition of “good” and “bad”. It takes shared meanings of norms and values that are stable and salient for a groups cultural tradition to be developed and elaborated.

The deepest layer of culture BASIC ASSUMPTIONS represented by the mountain peak is the most difficult to reach by a normal person and just like the level of oxygen is low the visibility is also low to a foreigner. This layer of culture is formed by the underlying assumptions and has to be inferred by a person. It takes an outsiders personal effort yet difficult to understand this layer.

WHY DOES CULTURE MATTER?

     Culture is man-made, confirmed by others, conventionalised and passed on for younger people or newcomers to learn (Trompenaars,2000). Just like how a baby learns to talk or eat or drink by looking at and learning from others cultural values are imbibed into an individual from a younger age. Even if some actions such as breathing comes involuntarily to a baby majority of its actions are driven by values learnt from its parents or a close group of elders. Furthermore, values are acquired through social group interactions at school or work. As culture directs our actions with the growing rate of globalisation it is important to acknowledge the cultural differences and understand them. Culture is the “software of the mind” (Hofstede, 2010) i.e. it determines the behaviour and expectations of an individual. A person’s pattern of thinking can be closely correlated to the thinking of the social group around him with culture as its foundation or first step. Hence, understanding the culture will increase the percentage of success when cross-country business ventures are considered. This does not mean that all the people of a particular culture think alike, stereotypes do not exist The human behaviour of a particular culture can be considered as a normal distribution with a majority of the people lying at the middle and a few outliers. (Trompenaars,2000).

HOFSTEDE’S CULTURAL DIMENSIONS

      Professor Geert Hofstede conducted one of the most comprehensive studies on national values, introducing the dimension paradigm. The study was conducted within the IBM organization in 56 countries in 1970 (Hofstede,2010). His survey study has provided us with an insight into other countries and cultures, especially with respect to effective interactions between people. He identified 4 dimensions in the beginning and later went on to add 2 more dimensions derived from other surveys (Hofstede,2010). Hofstede’s identified dimensions such as power distance, individualism vs collectivism, masculinity vs femininity and uncertainty avoidance while he adopted long-term vs short-term dimension from the Chinese value survey and indulgence vs restraint from the world value survey.

                Figure: Country scores of Hofstede’s dimensions 

                                                                               (source: Hofstede Insights)

     The figure above can be used to explain the dimensions of culture as stated by Professor Geert Hofstede. Countries are given scores from 1-100 relatively and are represented on a scale from 1-100. The higher a country’s score the stronger the value is in the respective country and vice versa.

     Power distance as defined by Professor Hofstede “the extent to which the less powerful members of institutions and organizations within a country expect and accept that power is distributed unequally “ (Hofstede et al,2010). Countries with high power distance like Russia or Malaysia have more centralized organizations, more complex hierarchies, large gaps in compensation, authority and respect. While the low power distance like Germany have flatter organizations and the employees are considered almost as equals.

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     Individualism versus collectivism refers to the strength of the ties that people have to others within their community and is defined as “Individualism pertains to societies in which the ties between individuals are loose: everyone is expected to look after him- or herself and his or her immediate family. Collectivism as its opposite pertains to societies in which people from birth onward are integrated into strong, cohesive in-groups, which throughout people’s lifetime continue to protect them in exchange for unquestioning loyalty.” (Hofstede et al, 2010). As indicated in the figure above United states score high on individualism which emphasises that high value is placed on people’s time and their need for privacy and freedom. The people of these countries enjoy challenges and an expectation of individual reward for hard work. Ideologies of individual freedom prevail over ideologies of equality (Hofstede et al, 2010). Whereas the collectivist countries like Russia work for intrinsic rewards and maintaining harmony among group members overrides other moral issues. Ideologies of equality prevail over ideologies of individual freedom. (Hofstede et al, 2010)

     Masculinity versus femininity dimension refers to the distribution of roles between men and women and is defined as “A society is called masculine when emotional gender roles are clearly distinct: men are supposed to be assertive, tough, and focused on material success, whereas women are supposed to be more modest, tender, and concerned with the quality of life. A society is called feminine when emotional gender roles overlap: both men and women are supposed to be modest, tender, and concerned with the quality of life.” (Hofstede et al, 2010). Masculine countries such as Japan have strong egos-feelings of pride and importance are attributed to status while money and achievement are important. Their work goals include earnings, Recognition, advancement and challenge (Hofstede et al, 2010). Whereas the feminine countries like Russia are more relationship oriented and focus more on the quality of life. Their work goals include manageability, employment security, desirability and co-operation. (Hofstede et al, 2010).

     The Uncertainty avoidance index dimension refers to how well people can cope with anxiety and is defined as “the extent to which the members of a culture feel threatened by ambiguous or unknown situations.” (Hofstede et al, 2010).  The countries such as Russia that score high on this dimension are more conservative rigid and structured, unless the danger of failure requires a more flexible attitude.          They are expressive and allowed to show anger, if necessary. The low uncertainty avoidance countries like United states are more open to change or innovation, more inclined to open-ended learning or decision making and less sense of urgency.

     Long-term versus short term orientation dimension refers to the time horizon the people of a society display and is defined as “long-term orientation stands for the fostering of virtues oriented toward future rewards—in particular, per- severance and thrift. Its opposite pole, short-term orientation, stands for the fostering of virtues related to the past and present—in particular, respect for tradition, preservation of “face,” and fulfilling social obligations.” (Hofstede et al,2010). Countries like Japan who are long term oriented depend on perseverance, sustained efforts towards slow results whereas short term countries like United States expect efforts to produce quick results. (Hofstede et al,2010).  Short-term is putting importance on success during a quarterly basis, with quick results being rewarded. In long-term cultures, business is about patience and playing the long game, avoiding short-term gains that lead to long-term losses.

     Indulgence versus Restraint dimension allow or encourage relatively free gratification of people’s own drives and emotions, such as enjoying life and having fun. It is defined as “Indulgence stands for a tendency to allow relatively free gratification of basic and natural human desires related to enjoying life and having fun” (Hofstede et al, 2010). Highly indulgent countries like United States are optimistic, focus on personal happiness and give importance to freedom of speech whereas the high restraint countries are pessimistic, more controlled and rigid.

LIMITATIONS OF HOFSTEDE’S SURVEY

     Professor Geert Hofstede conducted a survey to measure the cultural differences across different countries with the help of IBM employees. His work has been useful to acknowledge that cultural differences play an important part while cross border business is to be carried out successfully and Hofstede’s work on culture is the most widely cited in existence (Bond 2002). regardless of my appreciation to his effort and thought I choose to disagree that the culture of a nation as a whole can be scored.

     Many people followed professor Hofstede and researched about the same topics like Trompenaars (1993), Hall’s (1976), House et al (2004) but came to a slightly different conclusion with respect to the number of dimensions like Trompenaars came up with 7 dimensions (Trompenaars,1993),  Chinese value survey came up with 4 (Hofstede, 2010) This proves that culture has more dimensions and that it depends on the questionnaire to determine the number of dimensions which can be supported by the adoption of the last two dimensions from other surveys. As Hofstede surveyed only 66 countries there is a lack of data with respect to the other countries. Moreover different organisations in the same country have different cultures and cultures can be subdivided as macro culture, sub culture, micro culture etc(Bicket,2018).

     The notion of ‘culture’ has multiple definitions (Kroeber &Kluckholm,1952; Bock,1999). Sometimes it is applied exclusively or “recordable’’ (Lukacs,1971).  Alternatively it can be applied as ‘subjective” or implicitly as used by Professor Hofstede ( McSweeney,2002). Nation culture has been characterised as the core by Hofstede, on the contrary it can be treated as ‘complete’ (McSweeney,2002). Within the wider literature, the causal status of culture varies from being a supremely independent variable, the superordinate power in society to0, at the other extreme, a mere epiphenomenon, a powerless superstructure (Archer, 1989; Alexander & Seidman, 1990) . It is possible to assume the existence of national culture but without attributing significant and unique, indeed any, social patterning effects to such cultures. However, Hofstede (1991) credits strong, often absolute, causality to national cultures (e.g. p. 170). Essentially he endorses national cultural determinism. (McSweeney,2002) National culture as measured by Hofstede is the average culture of the entire nation and cannot be used blindly. We need to acknowledge the fact that culture is territorially unique (McSweeney,2002). For example India is a diverse country with each state having a different culture but as measured by Hofstede it is the average of 29 states with a few dominant states. The survey provides a statistical average of heterogeneous components (McSweeney,2002). L.Schmitz disproved Hofstede’s claim that his dimensions are applicable not only in a high number of nations, but also among all subsamples within these nations (Schmitz,2014).A problem with methodological simplicity is the question of the researcher’s background, that is, research tends to be from only one discipline, a better foundation is for multi-disciplinary approach (sociology, psychology, political science, economics, anthropology, etc.) (Nasif et al. 1991, 83-84). The number of representatives from some nations are very low or minimal which does injustice to the score of national culture. In 15 countries (Chile, Columbia, Greece, Hong Kong, Iran, Ireland, Israel, New Zealand, Pakistan, Peru, Philippines, Singapore, Taiwan, Thailand and Turkey) the numbers were less than 200. The first survey in Pakistan was of 37 IBM employees, the second of 70 employees (Hofstede, 1980). The only surveys in Hong Kong and Singapore were of 88, 71 and 58 respondents respectively (Hofstede, 1980 as cited by McSweeney,2002).  In a survey conducted by L.Schmitz to check the validity of Hofstede’s claim that his dimensions are applicable not only in a high number of nations, but also among all subsamples within these nations, was disproved by Schmitz. (Schmitz,2014).

SECTION 2:

FAILURE OF DAIMLER CHRYSLER MERGER

BACKGROUND OF THE MERGER

     Daimler-Benz, the well established German car manufacturer was founded in 1926.the name Daimler-Benz stands for German high quality and precision products. They represent cars of the luxury sector. Despite its success in the German and European countries Daimler-Benz market share of the U.S American was less than 1(Hollman et al,2010). Chrysler on the other hand, used to be a well-established and firmly positioned organization in the U.S. American market. Chrysler succeeded in producing car models that responded to the American demand for adventurousness and pioneering. (FINKELSTEIN, 2002). In the year 1997, Chrysler’s market shares of the U.S. American car industry equalled about 23%. (Hollman et al,2010) But in the mid 90’s time became hard for the car industry and Daimler-Benz and Chrysler decided to merge to overcome the challenges imposed due to overcapacities, a strengthened position of clients and rising environmental consciousness. Therefore, from the point  of view of Daimler-Benz it could also strengthen its position in the US market.() On May 7 , 1998 the two chief executives Robert J. Eaton, CEO of the Chrysler Corporation at times, and Jürgen E. Schrempp, former CEO of Daimler-Benz, announced the merger of the two car producers. The DaimlerChrysler AG was founded and became the world’s third biggest car manufacturer, only defeated by Ford and General Motors in terms of yearly revenues and market share (The economist 1998). The merger of the two carmakers was considered a ‘merger of equals’(The Economist,1998).

 

 

 

THE CLASH OF NATIONAL CULTURE

                           Figure: Country scores of Hofstede’s dimensions 

                                                                               (source:Hofstede Insights)

      Even though the companies were optimistic about the success of the merger, it was harder than they thought despite their common goals and background. Decision making at Daimler-Benz, for example, was approached very methodical; at Chrysler on the other hand, creativity in the decision making process was asked for and strongly encouraged (Hollman et al,2010). Furthermore, the German and Americans employees resulted to be very different in their working methods: very long or even endless reports and discussions versus reports based on the minimum necessary. The Americans preferred the trial- and-error-method to come to a solution and that is why they thought to be very chaotic and disorganized, because the Germans favoured to develop detailed plans and the precise implementation of these plans.  This point proves the high uncertainty avoidance of Germany and low uncertainty avoidance of US. Among Chrysler’s values you find efficiency, empowerment of the employees and equal rights among all staff; Daimler-Benz’ culture is more based on authority, bureaucracy and centralized decision making (Hollman et al,2010). This proves the high individualistic score of US and the relatively collectivistic behaviour of Germany. The American managers received very generous pay packages that were disapproved of by their German counterparts. This amounted to problems, particularly when an American manager was transferred to Germany, for example, and gained twice as much as his new supervisor. (DUTTA, 2001) . This was not acceptable as Germany has a lower power distance and hierarchy is to be respected. Chrysler’s management backs on flat hierarchies, which causes incomprehension among the Germans that are known for their pronounced hierarchies and their top-down-management proving the power distance difference (Hollman et al,2010). Furthermore, the German and Americans employees resulted to be very different in their working methods: very long or even endless reports and discussions versus reports based on the minimum necessary. The Americans preferred the trial- and-error-method to come to a solution and that is why they thought to be very chaotic and disorganized, because the Germans favoured to develop tailed plans and the precise implementation of these plans (Hollman et al,2010).

               Figure: Share prices of Daimler-Benz, Chrysler and DaimlerChrysler

 THE CLASH OF ORGANISATIONAL CULTURE

            The organizational culture of a country can be measured with the help of an organisational culture inventory (OCI) complex. The OCI complex of the two companies is shown as below.

          Blue colour represents the constructive sector, red represents the aggressive destructive sector and green represents the passive destructive sector(Bicket,2018).  United states of America score high on achievement and conventional sectors while Germany scores high on avoidance, oppositional and power sectors, with almost equal scores on the self actualizing, humanistic encouragement, affiliative, approval, dependant, competitive and perfectionistic sectors. Even though major sectors of this OCI model coincide the differences on the other sectors explain the reason for its failure. The scores on this OCI complex indicate that US is more focussed on achieving excellence, disciplined and focussed on outcome. The high scores on conventional behaviour indicates reduced initiative and originality, unquestioned obedience to authority figures and rules (Bicket,2018) which contradicts Hofstede’s high score on indulgence. Germany’s high scores on some sectors indicate that they fear failure, avoid risky situations, detached from people, sarcasm, a need for high power status, influence and narrow thinking (Bicket,2018).. To illustrate an example of high oppositional behaviour a joke at Chrysler was: “How do you pronounce Daimler- Chrysler?” – “Daimler, the “Chrysler” is silent” (Camerer and Weber, 2003, p 401). It shows that the attempt of Daimler to dominate had a negative influence inside the company. Though the companies had more constructive behaviour’s the destructive behaviour overshadowed them and the merger led to a failure. The American organizational model emphasises that the American’s are highly goal oriented which means that they are more interested in the result obtained and not the path taken towards it (Hollman et al,2010). They also value time as they are competitive and individualistic. Obtaining success early ensures them better rewards. Whereas the German organisational model is more risk-averse than the Americans (Hollman et al,2010). They are team oriented and respect authority and hierarchy. The German’s prefer developing a detailed plan and all steps laid out with precision (Hollman et al,2010).

CONCLUSION

             A large number of cross-border M&As fail because of seemingly insurmountable difficulties. And so did as well the merger between the two car manufacturers Daimler-Benz and the Chrysler Corporation. The promising merger failed due to cultural discrepancies that could not be bridged. The failure of this merger was not caused by the fact that it did not make sense to join two successfully operating businesses of the same sector in order to make use of the one company’s strengths to complement the other company’s weaknesses. From a strategic point of view, this merger did make sense (DUTTA, 2001), but the problems that doomed the merger to failure were the opposing and contrary corporate cultures and organizational models, that presented insurmountable obstacles. Inspite of all the research and business models being developed it is also noticed that 83% of mergers were unsuccessful in producing any business benefit as regards to shareholder value (John Kelly,1999). Since there is no right way of doing things we have to acknowledge that cultural differences are present and try to form a third culture that is an amalgamation of the two cultures. Work with harmony and understanding. One particular model or research will not give the perfect solution to the problems faced in business but it can surely be used as a compass to point us at the right directions. Some ways in which the problems can be overcome are, we have to recognise the complex demands of international roles, embrace the uncertainty, challenge the ambiguity inherent in cross-cultural teams (Stephen martin, 2006). We have to adopt techniques like pick the right management team, integrate the project planning, and encourage communication among employees (John Kelly,1999). Diversifying the organisation with employees from various parts of the world will also help with the challenges faced. With the right effort all the challenges can be overcome and can lead to success.

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