International Business Environment: Essay

This is an essay I wrote for the subject International Business Environment in July 2010. Although not directly China related, it outlines some of the elements necessary for success in an international business environment. The assignment was:

“Blunders made in international operations can be attributed to a lack of cultural sensitivity” (Deresky 2008: 90).

Discuss this statement with reference to the affect of culture on managers in at least two of the following areas; communication, decision-making, negotiation, human resource management and ethics. Illustrate your answer with at least one organisational example and reference to academic research.

This essay will discuss the issues that could be encountered in a company’s international operations and the importance of manager’s awareness and sensitivity to cultural differences. First, it will look at the situation managers in overseas offices are affected, how to get placements like these right and outline some of the pitfalls of such assignments. Next, the essay will discuss some of the situations that occurred in an international merger due to the cultural differences. Before concluding, the essay will provide the reader with suggestions on how managers can gain cultural sensitivity, avoid blunders and ultimately, become more successful in international operations.

The external environment becomes a cultural factor for a company that operates in a foreign market. Managers representing a company in other parts of the world face difficulties due to the physical distance, time differences and most importantly, to align their business unit with the overall strategies and goals of the mother company considering the potential cultural differences (Dickie & Soldan, 2008).

Many international businesses send senior managers or executives to manage the overseas operations. Others employ a person locally to run their overseas operations. Both of these methods have advantages and disadvantages. The advantage of sending a manager from the mother-company is that he or she will have strong knowledge of the mother-company’s culture, people and products while the disadvantage is his or her lack of insight to the regulations, language and culture in the new country. Likewise, employing a local managers in the foreign country could raise issues in that he or she would have less insight to the mother-company’s internal culture, people and products while having better insight of the local market, its culture, language and regulations. In either case, managers on both sides will have to have the sensitivity and ability to bridge the cultural differences between their locations (Dickie & Soldan, 2008).

Clouse & Watkins (2009) outline three principles for getting an overseas assignment right. The first is to assure that the person being relocated has his or her family issues taken care of. Secondly, when starting the job in the new location, build internal openness and credibility with the local staff by focusing on the good things and avoid exclusively looking at the stuff that is wrong. Third, Clouse & Watkins (2009) suggest that the expat manager sends a clear message on compliance to what is legal and appropriate. This author believes that the third principle can easily be a trap and could create some managerial blunders if not properly understood and communicated with a large scope of cultural sensitivity.

Further, blunders due to parochialism and ethnocentrism are often seen when businesses from developed countries have business interests in less developed markets where they try to impose their operation methods based on their strong belief in the correctness of their own culture (Ahlstrom & Bruton, 2010). On the other side if the cultural adaptation scale is when international businesses let the country managers go ahead and do as the locals do. This polycentric approach can be quite useful but could sometimes also lead to problems. For example, if a manager from the home country is becoming too localized and starts adopting methods or values different from the mother company such as bribery or status of women and minorities (Ahlstrom & Bruton, 2010).

Interestingly, Horwitz, Anderssen, Bezuidenhout, Cohen, Kirsten, Mosoeunyane, Smith, Thole, & Van Heerden (2002) found in their study that geographic or language differences are not the most damaging obstacles to a good operation but rather the differences in business culture.

A good example of cultural sensitivity is the image that HSBC wish to portray in their advertisement campaign: “The world’s local bank” (HSBC, 2010). In one advertisement it shows pictures of grasshoppers and how differently they can be perceived in different cultures. The image HSBC aim to portray is that, while being a global bank, they possess understanding and are able to meet any local needs. Through this advertisement, HSBC does not only convey a message of being sensitive to a local culture but also promotes and aligns the same concept to it’s 300,000 worldwide employees.

The essay, having discussed how managers in international operations are affected by culture, will now look at what transpired at the merger of two automakers from different countries and point out some of the cultural issues that their managers faced in the areas of communication, human resource management and decision-making.

The merger between the German company Daimler-Benz and the American company Chrysler was a high profile $36 billion merger of two large automakers that was made official in 1998 and lasted nine years before the board reached the decision to spin off the Chrysler division due to the merger’s poor performance (Badrtalei, 2007).

Although it was conveyed as a merger, the de facto status was that it was a takeover from Daimler-Benz (Brown, 2003) as the domicile of the new company was in Germany, the name of the new company was DaimlerChrsyler with Daimler being mentioned first and the board of directors were shortly after the merger consisting mostly of Daimler-Benz people (Vlasic & Stertz, 2000). This false communication caused resentment and low moral among the American employees and in a period of two years after the merger, the American company had experienced mass departure of its talents (Vlasic & Stertz, 2000). This false communication clearly had an adverse affect on the American operations as shown by the departure of talent.

Once the merger had gone through, the American side found themselves facing further cultural issues when having to adhere to, the seemingly mundane issue of air-travel where Daimler-Benz senior management flew first-class while only top executives at Chrysler did so. This human-resource management issue became a major source of conflict that took more than six months to resolve (Muller, 1999). This short example shows the importance of equal and fair treatment of staff and could be categorized under what Brockner (2010) describes as the importance of consistency and transparency in policies and decision-making. By failing this, the affect contributed further to lowered moral amongst the American management.

An example of how communication between the German and American business culture is illustrated by Vlasic & Stertz, (2000) when two German engineers and an American manager where on the same team. When the team floated some ideas the two Germans condemned them repeatedly as immature or stunted or worse, the Germans came across as rude and aggressive to the American manager who failed to realize the Germans ability to make a clear distinction between the merit of an idea and the merit of the person presenting the idea.

The decision-making process was very different between the companies. At Chrysler, top-management had allowed the mid-level management to make more decision on their own without having to wait for executive level approval. At Daimler-Benz, employees would channel their decision requests up to the appropriate level in the hierarchy (Vlasic & Stertz, 2000).  Again, this could an example of how Germans behave differently from Americans when making decisions. Clearly, neither side is correct or incorrect but rather just different.

Having discussed a few examples of the affect of culture in the unsuccessful DaimlerChrysler merger, the essay will now give some examples of how managers can gain cultural sensitivity and become better managers in an international setting.

Brett, Behfar & Kern (2006) suggest that managing across different cultures can be successful if the management choose the right strategy and avoid enforcing single-culture approaches to multicultural situations. Brett et. al., (2006) go on to suggest that multicultural teams, such as in the case of DaimlerChrysler, would have been better off if they had acknowledged their cultural gaps openly and recognized that there could be issues in attitudes towards authority and hierarchy, language barriers in terms of accents and fluency and conflicting norms for decision making.

Many scholars have tried to analyse and categorize different cultures, markets or countries. Among the more famous are the social anthropologists Gert Hofstede and Fons Trumpenaars who proposed dimensions of behavioural preference (Orr and Hauser, 2008; Trompenaars, 1996). The author of this essay believes that their views are stereotyping and simplifying the issues and will not discuss in detail what their ideas or concepts are and will stop short at stating that their work can be useful to illustrate how a culture functions in a way a guide book would help a tourist in a foreign country.

Instead, this author believes, managers facing different cultures should try to acquire cultural competences as proposed by De Anca & Vazquez (2007). These competencies include personal and interpersonal aptitudes, contextual skills, creative and imaginary competencies as well as leadership capacity (De Anca & Vazquez 2007).

To do so, Bennet’s (1993) description of the six stages that people go through in development of cultural competence, from an idiosyncratic view to recognition other’s cultures and finally integrate their knowledge into their framework of behaviour. The six steps are denial, defence, minimisation, acceptance, adaptation and integration (Bennet, 1993). This author believes that only after a person has reached the fourth stage they can be successful in, for example, communication, decision-making and negotiations.

Stephen Green (in Green, Hassan, Immelt, Marks & Meiland, 2003), Group CEO at HSBC, sees the value for managers in gaining international exposure and encourages promising employees to work overseas. Green (in Green et. al., 2003) writes that no one will get to the bank’s top management if they haven’t worked in one or more markets.

Goleman (1998) found in his research that while intelligence, vision, determination and toughness are qualities that are required for leadership success, the truly effective leaders also possess a high degree of emotional intelligence or EQ. EQ, according to Goleman (1998) includes self-awareness, self-regulation, motivation, empathy, and social skills. Earley & Mosakowski (2004) picks up on where Goleman’s emotional intelligence leaves off and outlines what they call cultural intelligence or CQ. CQ encompasses the ability of a person to use his or her senses to register the differences in the interactions between people different from their home culture and putting this into patterns which can then help them to anticipate how people will react next time (Earley & Mosakowski, 2004). Interestingly, the more people are detached from their home culture, the better they will be at detecting and adapt to other cultures.

Smith & Berg (1997) suggests that the differences in, for example, languages, culture, historical sensitivity and background among other manifest themselves as conflicts and opposing beliefs. They posit that the challenge for managers in international operations is to find frameworks that connect them (Smith & Berg, 1997).

This essay looked earlier at the failures of international operations at the carmaker DaimlerChrysler. The successful example of the industry is the Renault-Nissan merger which under the leadership of Carlos Ghosn has thrived. Perhaps this merger between a French and a Japanese automaker has benefited from the cultural sensitivity of Ghosn who is a Brazilian with Lebanese descent, educated in French and able to communicate in five languages (The Economist, 2009). Ghosn attributes the success of the partnership between Renault-Nissan to allowing the two companies to work as two distinct while co-operating entities and that their teams benefit from total transparency and shared sense of purpose which has allowed cross-functional and cross-company teams to discover new synergies (The Economist, 2009).

Having looked at some suggestions for managers to apply in gaining cultural sensitivity and an example of a successful international merger between two vastly different cultures, the essay will now conclude.

Companies operating internationally will face hurdles in aligning their overseas operation to their mother-company and there are challenges in both sending managers overseas and hiring local management. In an example of a failed merger, the essay identified some of the affects that the lack of cultural sensitivity had on the business. To avoid blunders such as these, managers are advised to avoid enforcing single-culture approaches to multicultural situations, acknowledge cultural gaps, promote transparency and shared sense of purpose.

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