Cross Cultural Configuration in International Business

Organization

INTRODUCTION
Anthropologists and sociologists define culture as Ways of Living , built up by a group
of human beings, which are transmitted from one generation to another. A culture acts
out its ways of living in the context of social institutions, including family, educational,
religious, governmental, and business institutions. Culture includes both conscious and
unconscious values, ideas, attitudes, and symbols that shape human behavior and that are
transmitted from one generation to the next.
In addition to agreeing that culture is learned, not innate, most anthropologists share two
additional views. First, all facets of culture are interrelated: Influence or change one
aspect of a culture and everything else is affected. Second, because it is shared by the
members of a group, culture defines the boundaries between different groups.
Culture is like an iceberg. Its visible part is the objective part, which comprises of eye
contact, greetings, clothing, food, initiative, volume, and time consciousness. But the
bigger part which is hidden under the sea that is the subjective part which comprises of
values, feelings, assumptions, authority roles, concept of truth, motivations, etc is the one
which needs to be understood in international business because that determines how an
organization has to operate.
Would a management rather pilot the company through an ocean full of icebergs where
the tops are still visible or where someone has cut them off at sea level? The answer is
obvious, yet many times we navigate in an ocean of people who are culturally different,
but we do not recognize those differences. And hence the need to configure international
business culturally because it forms the core of all operations.
HOW CULTURE EFFECTS POLITICAL, ECONOMIC AND LEGAL
ENVIRONMENTS
To understand what affect culture can have on political, economic and legal policies of a
country and be a deterrent for any global organization to be successful in this country,
and example of Saudi Arabia is worth quoting.
Saudi Arabia has super modern cities, but its strict Islamic religious convictions and
ancient social customs, on which its laws and customs depend, often clash with modern
economic and technical realities. Global companies have had mixed success in Saudi
Arabia, due in large part to how well they understood and adopted creatively to Saudi
customs.

Saudi Arabias mixing of religion with state and business can be understood by examples
like an importer halted sales of the childrens game Pokemon because the game might
encourage the un-Islamic practice of gambling, a franchiser was forced to remove the
face under the crown in Starbucks logo because Saudi authorities felt the public display
of a womans face was religiously immoral. Some companies understood this in advance
and modified accordingly. McDonalds dim their lights, close their doors, stop attending
to customers during the five times per day that men are called to pray, Saudi Arabian
Airlines convert the rear of its planes to create space for prayer areas.
Countrys behavior towards women is also very paradoxical. On the one hand, women
now outnumber men; they constitute only 7 percent of workforce that too only teachers
and doctors. They cannot study law, architecture or engineering, cannot drive, have to
cover themselves from head to toe, cannot deal with male customers or officials. In
keeping with these customs and traditions, Saudi American Bank established branches for
and staffed only by women. Pizza Hut installed two dining rooms-one for single men and
other for families. Many departmental stores have separate floors for men and women
with all the products.
Even when Saudi Arabia prohibits fashion magazine and movies, designers brands from
Paris have been selling designer collection, jewellery; make up etc to wealthy men and
women. This shows the accuracy of segmenting, targeting and positioning.
Cultural affect on economic environment can be seen by that fact that about 60% of
Saudi private workforce is foreign, even when their own unemployment rate is about
30%. When their per capita was high, they hired workers from outside. Now when their
living standards have fallen, their attitude towards work is impending the government
steps to replace foreign workers. Saudi Arabian culture can also be seen in their legal
sanction like religious patrols may hit women if they show any hair in public,
government carries out beheadings and hand-severances in public for crimes which
would not be considered offences elsewhere, hence global companies need to be careful
about such situations.
Even their financial policies are governed by their culture. Charging of interest and the
purchase of accident insurance are not allowed under strict Islamic interpretations of the
Koran. Saudi government gave interest-free loans for mortgages when they were awashed
with oil money. But now borrowers have to wait for 10 years to get a loan. Accident
insurance was prohibited, as they are preordained acts of God and not accidents. Lesson
for multinational to be learnt is that undertaking business dealing with the banks or
financial institutions could be catastrophic.
The way they do business is again a revelation. Meetings happen at cafes over chitchat.
Homes are viewed as private and no social gatherings are arranged at home to cement
business. On the other hand, they donot regard business discussions as private. Inspite of
contrasts and paradoxes, foreign companies have been finding ways to be highly
successful in Saudi Arabia. In addition, some companies have developed specific

practices in response to Saudi conditions and have later benefited from them in their
home countries.
The above example of one particular culture reinforces the importance of cross-cultural
configuration in international business. This brings us to the need to modify the global
companys marketing, management, finances, and human resources systems in order to
gel them with the cultural requirements.
ISSUES TO BE CONSIDERED
I. INTERCULTURAL MANAGEMENT
Intercultural management is an emerging but increasingly vital area of investigation. It is
of particular interest to global managers who work for multinational corporations that are
located in different countries. Essentially it concerns itself with the management of
workforces functioning in culturally different operating contexts.
Diversity can arise because of variations in ethnicity and nationality, variations in
corporate culture, gender differences, etc.
In practice, several of these diverse elements may exist simultaneously in global
organizations. Hence intercultural management is also about accommodating a range of
structural and behavioral dimensions that address different facets of organizational
functioning.
The challenge ahead now, as in the past, is to nurture cultures within organizations that
promote corporate excellence. Therefore, managers need to develop the flexibility and
openness necessary to transit from one cultural context to another.
Intercultural management issues:
1. Team management- organizations today have to constitute multicultural teams
having members who bring different competencies into organizational decisionmaking process. However, they have to be facilitated to communicate while
engaged in decision-making exercises in ways that are acceptable to team
members.
2. Leadership- in a multicultural organization transformational leader (Tichy and
Devanna, 1997) would be most appropriate. He or she enables ordinary individual
belonging to different cultures to do extraordinary things.
3. Organizational Structure- in intercultural management, a learning structure is
well suited. Such a structure enables the organization to pursue a global strategy
while simultaneously customizing strategies based on the cultural requirements.
4. Core values- the two aspects pertaining to the core values of a transnational
corporation. First concerns the process of selection of core values and second
relates to how these values are disseminated. These values should include respect
for all human beings, and a basic people orientation. The overall philosophy

should be one of liberalization and a belief that there is always something to be

learnt from association with other people.
5. Communications- this requires sensitivity to language differences. Bringing
diverse managers together to participate in cross-cultural sensitivity programmes
can enhance appreciation of different communication patterns.
6. Conflict resolution- global companies have to take into account that conflicts
could arise simply because so much diversity exists. Conflict resolution in an
intercultural context would require skill in being able to describe conflicts in
unambiguous terms

Implementation issues in intercultural management implicitly assume that culture can

be learnt, or culture can be cultivated. Transnational corporations should try to
achieve some measure of global convergence through the following implementation
issues:
1. Commitment by managers- all perspectives on intercultural management are
united in their opinion that organizational culture should support the
accommodation of diversity. Ultimately, implementing and supporting the norms
of intercultural management is the responsibility of all managers.
2. Management styles of working- the styles of working used by managers need to
be compatible with the implementation of intercultural management. Generally
speaking, even the style of working should be modified as per the culture of the
host country. The onus should be to make people feel at ease providing inputs
regardless of their position in the hierarchy or cultural background.
3. Nationalism- can strong national identities inhibit the application of the global
convergence perspective? Hence, intercultural management should embrace
cultural relativism, or a belief that there can be more than one way of getting
things done.
The accelerated pace by which intercultural management is being practiced worldwide
has been greatly facilitated by turn of the century modes of communication. The
advancements in telecommunication, transportation are facilitating managers to find
commonalities, express their differences and work through them.
II. FINANCE
The apparently inexorable trend towards opening up of national economies and financial
markets and their integration into a gigantic global marketplace had led to corporations to
seriously view their financial management internationally. Extensive debates were
conducted in various international forums on the subject of a new architecture for the
global financial system. While everyone agreed that the system needed closer monitoring
and some built in safeguards against systemic crisis, what form the safeguards should
take remained an open question.

Today along with the growth in trade, cross border capital flows, and in particular, directs
investments have also grown enormously. The world is witnessing the emergence of
massive MNCs with production facilities spread across the world. Rightly said by Singer
et al (1991) it is just possible that within the next generation about 400 to 500 of these
corporations will own about two thirds of fixed assets of the world economy. Such as
enormous growth in international trade and investment would not have been possible
without the simultaneous growth and increased sophistication of the international
monetary and financial system. Adequate growth in international reserves, that is means
of payment in international transactions, an elaborate network of banks and other
financial institutions to provide credit, various forms of guarantees and insurance,
innovative risk management products, a sophisticated payments system, and an efficient
mechanism for dealing with short-term imbalances are all prerequisites for a healthy
growth in trade. The market presents the finance manager with a bewildering menu of
funding techniques, investment vehicles, risk management products and speculative
opportunities. Financial engineering is no more a fancy jargon but a reality. For those
who are willing to master its complexities, the market provides endless opportunities for
creative financial management, for the unwary, it is a minefield.
Financial considerations also depend on a lot of factors like relationship between business
and the providers of capital, the political and economic ties with other countries, the level
of inflation, level of a countrys economic development, etc. But the countrys prevailing
culture also plays a major role in financial decisions. As per Hofstedes cultural
dimension of Uncertainty Avoidance which refers to the extent to which cultures
socialize their members to accept ambiguous situations and tolerate uncertainty
determines how risk avert they are. Cultures with high uncertainty avoidance place a
premium on job security, career patterns, retirement benefits and so on. Lower
uncertainty avoidance cultures have a greater readiness to take risks and less emotional
resistance to change.
Companies entering new countries might face different accounting standards, credibility
for the currency of both the countries, risk and capital budgeting, attitude towards various
financing decisions, financial structure, attitude towards maintaining cash balances,
attitude towards taxation, raising loans, investment options, managing foreign exchange
risk and many more such financial issues have some cultural influences which any global
company needs to understand.
III. MARKETING
Cultural differences have the most impact on the marketing strategy of a global company.
This is the offer, which the company enters with and hence it should completely gel with
cultural beliefs of the nation. Modifications to be made because of cultural implications
would range from changing the product or service altogether depending on the social
structure, language, religion, traditions, education, etc of the host-country to the
marketing communication strategy. For eg, hamburger do not sell in Islamic countries,
frozen foods is not consumed in many countries, cheese chips are not accepted in China.
These countries have different tastes and preferences, consumption habits, lifestyle

choices, values etc that requires multinational firms to modify their offering in different
countries.
Consideration has to be given to their sensitivity towards pricing also. Even on the fact
whether the market in that country is competitive or the MNC would have a monopoly,
the prices would get determined. The demand elasticity of products for the consumer
would also play an important role in pricing decision. Distribution channel and relation
with supply chain partners is also important consideration in international marketing. For
certain products consumers have a set mindset for a particular channel that should be
used. Hence the company needs to consider.
But the most important part of marketing that will have the most impact of cultural
differences is advertising or communication with the consumer. Advertising not only
includes developing the ads, but the font, the language, the colors, packaging, logo,
symbols, positioning but also the media which it uses. All these elements need to be
carefully studied with respect to the cultural beliefs of the host-country. To modify
advertising strategy to overcome cultural barriers it is important to develop cross-cultural
literacy. It should use local input, such as local advertising agency, in developing
marketing message. Firms can experiment with capturing some benefits of global
standardization while recognizing differences in countries cultural and legal
environments.
IV. HRM
Managing human resource effectively and integrating their activities to achieve global
advantage, is a challenge to the leadership of these global companies. Finally it boils
down to the philosophies and systems they use to manage people. Of all the environments
like political, legal, technological, the one that effects human resource management is the
cultural environment which comprises communication, religion, values, ideologies,
education and social structure.
Companies can choose between creating codes of conduct for employees throughout the
world to make certain that standards of ethical and legal behavior are known and
understood, thereby portraying their responsiveness to the host countrys environment,
eg-Xerox. On the other hand companies try to ensure that company values are reinforced
along with recognizing the need for adapting to local cultures like PepsiCo.
For their staffing requirements, organizations can either send people from its home
country termed as expatriates or home country nationals, or hire host-country nationals or
third country nationals, natives of a country apart from host and home country.
The recruitment and selection procedures could be either based on merit or family ties,
social status, language depending on the culture of the host country, as the firm has to
abide by the government regulations. Even employees gender composition would also
depend on the attitude of the host country towards women employment. Many
organizations have been using transnational teams that are composed of members of
multiple nationalities working on projects that span multiple countries. The fundamental

task in forming transnational team is assembling the right group of people who can work
together effectively to accomplish the goals of the team.
Companies today are looking towards not just managers but global managers who are
equipped to run global business. The attributes that are desired are:
1. Ability to seize strategic opportunities
2. Ability to manage highly decentralized organization
3. Awareness of global issues
4. Sensitivity to issues of diversity
5. Competence in interpersonal relations
6. Skill in building community
But because perfect managers are rare to be found, hence the importance of intensive
training to create global managers out of just managers. An organization that makes a
concerted effort to ensure that its employees understand and respect cultural differences
will realize the impact of its effort on its sales costs and productivity.
Global organization need to take care of some essential elements of T&D programs like
language training, cultural training, assessing and tracking career development, training
methods.
We have seen that individuals take up new assignments abroad to acquire skills and
experience that will make them more valuable to their companies. But unfortunately, it is
very difficult to evaluate their performance. The issues that arise are as to who will
appraise, the home country management who made the assignment or the host country
management for whom he is working.
As we all understand, some cultures give more importance to monetary compensation
where others may desire social acceptance, job security, respect, and power more than
money. In general, guiding philosophy for designing pay systems might be think
globally and act locally. Executives should normally try to create a pay plan that
supports the overall strategic intent of the organization but provides enough flexibility to
customize particular policies and programs to meet the needs of employees in specific
locations. Even government regulations on the compensation have to be adhered to.
Differences exist not only in the collective bargaining and negotiations but also in the
political and legal conditions of two countries. Different country will have differences in
the role that union play in an organization. These unions are generally aligned with
political parties, religious parties; hence managers need to work on their relationship with
the union. These unions may use political pressure in the collective bargaining process
where manager might feel handicapped if he does not have knowledge about the working
of such systems there. Labor participation in management is another issue, which is more
determined by culture than anything else.
MANAGING DIVERSITY OF WORKFORCE
Diversity is the variation of social and cultural identities among people existing together
in an defined employment or market setting. Today, in most countries there are a

significant amount of individuals who are from different cultures so managers are faced
with a multicultural work force in all their offices across the world. Because all of then
are culturally distinct, many problems like misperception, misinterpretation,
misevaluation, miscommunication, ambiguity, and confusion are bound to rise.
By managing diversity, it means its effects and implementing behaviors, work practices
and policies that respond to them in an effective way. Managers can achieve this by
providing cross-cultural training to the employees, developing cross-cultural appreciation
and most importantly reinforcing such strong corporate culture which subsides the
cultural differences. Because the teams differ in culture they can be put to such
assignments, which requires them to be different and yet together for accomplishing the
task.
Each of the above differences makes managing HR in an international context more
challenging. But the crux of the issue in designing HR systems and strategy is not
choosing one approach that will meet all the demands of international business. Instead,
organizations facing global competition must balance multiple approaches and make their
policies flexible enough to accommodate differences across national borders.
V. CROSS-CULTURAL NEGOTIATIONS
In a world in which cross-cultural joint ventures and alliances are essential, problems of
ethics and trust will loom large. How is it possible to achieve a balance between the
necessary and the contingent in business ethics, or in other words to allow for flexibility
between a strong corporate ethic and the need to adapt to difficult local conditions? And
how can we learn to build a lasting trust relationship with people from a different culture?
How can managers going to the negotiating table be prepared for the very different styles
they will face? It is not merely a question of setting bargaining ranges, toning down
confrontational styles, or following pre-established rules. That is sufficient for making a
deal, but not for setting up a permanent alliance. It is essential to grasp the deep structures
- religious, social, ethnic and ethical - which influence the way the opposite party will
reason, the way they will react to different presentational styles, what they expect and
how they listen.
This requires a level of genuine understanding, which goes beyond rapidly acquired
skills. Because culture affects negotiators strategies for using influence and information,
the issues to be negotiated, negotiators interests and priorities, as well as the social,
economic, legal and cultural environment in which negotiations are conducted.
At this point special reference should be made to Geert Hofstedes cultural dimensions
model. These dimensions can be very handy for multinational corporations in negotiating
and finalizing deals with various competing and complementing parties. The following
are the dimensions:
Individualism/Collective Index (IDV) the Individualism/Collective Index refers to the
preference of behavior that promotes one self-interest.

Power Distance Index (PDI) The power distance index measures the tolerance of
social inequality, that is, power inequality between superiors and subordinates within a
social system.
Uncertainty Avoidance Index (UAI) the uncertainty avoidance index explains the
intolerance of ambiguity and uncertainty among members of a society.
Masculinity/Femininity (MAS) the masculinity/femininity index refers to ones
desire for achievement and entrepreneurial tendencies, and the extent to which the
dominant values in society are masculine.
Based on an understanding of the above dimensions corporations should be able to
formulate a win-win deal for the both the parties concerned. This also requires synergistic
skills, understanding of social and business etiquette, decision making hierarchies,
overcoming objections, understanding opponent team dynamics, values and roles, timing,
avoiding traps, building trust, using the language to influence and persuasion, and last but
not the least advanced probing skills.
VI. PRODUCTION AND OPERATIONS
When a multinational company plans to set up its manufacturing base in a new country,
even then some cultural issues is bound to rise. Issues such as the cultural attitude
towards cost, quality, technology, flexibility, technical training, learning, blue collar
work, co-ordination, materials management, efficiency, innovation, research &
development and many more are of high relevance when a firm decides to start
manufacturing facilities in a country.
All the above factors go a long way in determining whether a multinational would
succeed in using its manufacturing capabilities in that new country or not.
VII. BUSINESS PRACTICES AND CUSTOMS
Business customs are as much a cultural element of a society as is the language. Culture
not only establishes the criteria for day-to-day business behavior but also forms general
patterns of attitude and motivation. Executives are to some extent captives of their cultural heritages and cannot totally escape language, heritage, political and family ties, or
religious backgrounds.
Various studies identify North Americans as individualists, Japanese as consensusoriented and committed to the group, and central and southern Europeans as elitists and
rank conscious. While these descriptions are stereotypical, they illustrate cultural
differences that are often manifested in business behavior and practices.
A lack of empathy for and knowledge of foreign business practices can create insurmountable barriers to successful business relations. Some businesses plot their strategies with the idea that counterparts of other business cultures are similar to their own and
are moved by similar interests, motivations, and goals-that they are "just like us." Even

though they may be just like us in some respects, enough differences exist to cause
frustration, miscommunication, and, ultimately, failed business opportunities if they are
not understood and responded to properly.
Knowledge of the business culture, management attitudes, and business methods existing
in a country and a willingness to accommodate the differences are important to success in
an international market. Unless marketers remain flexible in their own attitudes by
accepting differences in basic patterns of thinking, local business tempo, religious
practices, political structure, and family loyalty, they are hampered, if not prevented,
from reaching satisfactory conclusions to business transactions. In such situations,
obstacles take many forms, but it is not unusual to have one negotiator's business
proposition accepted over another's simply because "that one understands us."
VIII. BUSINESS ETHICS
The moral question of what is right and/or appropriate poses many dilemmas for domestic marketers. Even within a country, ethical standards are frequently not defined or always clear. The problem of business ethics is infinitely more complex in the international
marketplace because value judgments differ widely among culturally diverse groups.
The decision to pay a bribe creates a major conflict between what is ethical and proper
and what is profitable and sometimes necessary for business. Payoffs are perceived by
many global competitors as a necessary means of accomplishing business goals but in
some cultures it is completely prohibited.
It would be naive to assume that laws and the resulting penalties alone will put an end to
corruption. Change will come only from more ethically and socially responsible decisions
by both buyers and sellers and governments willing to take a stand.
Regardless of where the line of acceptable conduct is drawn, there is no country where
the people consider it proper for those in position of political power to enrich themselves
through illicit agreements at the expense of the best interests of the nation.
It would be naive to assume that laws and the resulting penalties alone will put an end to
corruption. Change will come only from more ethically and socially responsible decisions
by both buyers and sellers and governments willing to take a stand.
Hence it becomes crucial for the global corporations to appreciate the ethical level
prevalent in the host-country and mould its operations to what is desired there. They
should never forget that they are being allowed to do business assuming they would be
willing to gel their way of working with what the culture of the host-country desires.
IX. CORPORATE CULTURE- ORGANIZATION AS A MELTING POT
As a kid, I pictured in my mind what happened when I melted chocolate chips, butter and
sweetened condensed milk together. When the melting was finished, the pretty yellow

butter and the white milk were nowhere to be seen. Their sacrifice could be tasted, but all
that was visible was the dark brown of the dominant ingredient-the chocolate. As a kid, I
pictured myself to be chocolate and others around me to be different from me and the
ones to sacrifice for my benefit. But it is not the case to be. Even in countries we see
small India, small Chinatown, being created where people who are similar tend to be
together. This is one mistake, which the firm should avoid to commit.
The firms corporate culture should be like a melting pot where employees and partners
with their diverse talent could create a salad bowl, where each one is different but when
they come together, they create synergies, which lead to an excellent work.
The corporate culture should be one to enhance economic performance without loosing
the sight of different cultures which exist within the firm. For this appreciation of the
various cultures is required along with such systems which leverage these differences to
create synergies.
To achieve this transcultural competence has to be imbibed into the organization. It can
be defined as the capacity to integrate seemingly opposed value. Just recognizing
cultural differences is not enough; the need of the hour is to develop transcultural
competencies. The management should have the capability of modifying strategy
according to the specific context of a cross-cultural situation and also, the propensity to
reconcile seemingly opposing value and to bridge these differences. The first requirement
for this change is effective leadership. If the leader can direct the efforts of opposing
values towards one corporate value transcultural competence is achieved.

CONCLUSION
Societies differ because their cultures vary. Their cultures vary because of profound
differences in social structure, religion, language, education, economic philosophy and
political philosophy. Hence the need to modify international business is critical as it has
never been before. For this the management needs to develop cross-cultural literacy
where there is not only a need to appreciate that cultural differences exist, but also to
appreciate what these differences mean for international business. The danger of being ill
informed is so large that it can lead to sudden death of the company in the new country.
Hence companies should do away with ethnocentrism that is the belief in the superiority
of ones own culture and try to understand as much as possible about the culture of the
host nation. Secondly organizations should take cultural understanding as a source of
competitive advantage in international advantage. Cross-cultural knowledge would not
only make them aware of the countries, which can have their most viable competitors but
also tell them where to enter and where not to enter. And finally culture knowledge gives
the firm an adequate idea as to what are the ways of working in that country. Business
ethics and practices need to understand and that can be achieved only through a
comprehensive review of their culture.

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