Abstract
Global cultural difference is a major concern for companies operating in the global market. In this research paper, the focus was to investigate these differences, the impact on international companies, and determine how they can overcome them. The researcher collected information from books and reliable online journals to explain how culture in the business environment varies from one country to another.
It was established western culture is different from that in the East, Middle East, and African region. The culture embraced by people in a given region defines how employees relate with one another at work and the manner in which customers made decisions in the market. As such, it is crucial for a firm to understand cultural beliefs and practices in the host country and align its operations accordingly. The goal should always be to streamline its operations, internal environment, and products with the expectations and beliefs of the local population. The strategy-culture matrix was identified as a tool that a firm can use to align its internal environment with cultural forces in the local market.
Introduction
The emerging technologies have created a global business environment where companies can no longer rely on their domestic market to sustain their operational needs. According to Todorov and Smallbone (2014), technologies in the fields of communication and transport have made it easy for firms to explore foreign markets as one of the best ways of expanding the market share. Many foreign companies, especially from Europe, China, Japan, and Australia have made entry into the local American market. The move has made competition in various sectors of the economy stiffer than it was about one century ago.
The best way through which the local companies can deal with this new threat is to consider exploring new markets. The Asian and European markets offer huge potential for growth for these local companies. India and Africa are also becoming attractive foreign markets because of the huge population and their economic growth. Burton (2014) warns that although the foreign market has a huge potential for multinational companies, global cultural differences are still a major concern.
Cultural values and practices define the buying behavior of customers in a given market. When an American company tries to use principles and policies, which are popular in the United States in a foreign market such as Saudi Arabia, it is likely that it will face various operational challenges. Understanding these cultural differences is important for enhancing success for a firm operating in the international market. In this research paper, the focus is to investigate global cultural differences and to determine how multinational corporations can deal with them.
Cultural Differences in the Global Marketplace
When a firm is operating in an international market, one of the primary concerns is to manage cultural differences that exist from one region to another. Western culture has been popularized across the world, especially through the film industry. However, Hartmann and Vachon (2017) observe that despite these efforts and the growing global interconnectedness facilitated by improved transport and telecommunication networks, cultural differences still exist.
Successful multinational corporations have learned the differences and developed effective strategies for managing them. In this section, it is necessary to look at some of the major cultures that may have a significant impact on the operations of a business.
The Western Culture
Different socio-political and economic forces have influenced western culture over the past several years. The relationship is one of the cultural issues that a firm needs to understand. According to Hays-Thomas (2017), in most western countries, employees tend to focus more on their work and specific objectives instead of building close relationships with one another. It is common to find cases where workers have limited personal knowledge about their colleagues whom they share with offices because that is not their primary concern.
The individualistic approach to life in western culture is significantly different from relationships in other parts of the world. In a business environment, the focus of the top management unit should be to define the roles of every employee and the manner in which they need to work together, not necessarily as close friends, but as a member of a team focused on achieving specific goals.
Criticism is a common practice in western culture as it is viewed as a way of enabling team members to improve on their skills. Peer reviews are common in large organizations as a way of identifying and rewarding talents. Hays-Thomas (2017) explains that this culture has been inculcated among members of this society in a way that they are always objective in such endeavors. The focus in such reviews is to identify and state in clear terms a colleague’s strengths and weaknesses as a way of honing their skills.
Burton (2014) also notes that in many western countries, employees tend to question instructions given to them to ensure that they are in line with the vision, mission, and values of the organization. In such an environment, the top management must make an effort to engage junior employees, especially when introducing new concepts and policies.
In the marketplace, customers also have a unique culture that is significantly different from that of many countries around the world. According to Burton (2014), most western economies have enjoyed long periods of economic progress. In countries such as the United States, the United Kingdom, Canada, Germany, and France, the unemployment rate is very low. As such, there is a sense of certainty for the future among shoppers.
They know that they can spend their current income having the surety that their future income is not compromised. The majority rely on their pension plans as their main savings upon their retirement. This culture, coupled with high per capita, makes the society very attractive for the business environment. The high purchasing power of customers in this market and their tendency to spend most of their earnings make Western Europe and North America the most attractive global market for multinational companies.
The Eastern Culture
When discussing the cultural differences in the international business environment, the western culture is often contrasted with the eastern culture, especially that of China and Japan. The two countries are the second and third largest economies in the world, with China having a large population of about 1.4 billion people. In terms of relationships, the eastern culture values long-term bonds over strict professional relationships.
The communal approach of undertaking tasks in the workplace is common in these countries because of the belief that the fate of one individual is tied to that of others. There is the perception that an individual can only realize sustainable progress if people around them are also successful. In such an environment, employees tend to support fellow workers to improve the overall performance of the organization. This communal culture is also reflected in their pattern of spending. An individual would avoid purchasing an expensive product to enable them to share the little resources among family members (Todorov & Smallbone, 2014). Such cultural practices are not common in western culture.
Criticism is not a common practice in the eastern culture, especially when it is directed towards those in top managerial positions. Authority is expected to flow from top to bottom, with junior employees expected to follow instructions given by the supervisors without question. Heesen (2015) explains that there is always a perception that those at the top are more knowledgeable and experienced than their junior officers.
Any form of criticism from a junior officer is seen as a deliberate attempt to challenge the system. An individual can face serious consequences if they criticize the decision made by a senior officer. In the chain of command in this environment, instructions would always flow from top to bottom and not vice versa. Junior employees can only make suggestions when they realize that the current system can be improved when certain measures are taken. The suggestion should be made in a way that would not be viewed as a direct challenge or criticism to the authority.
According to Hays-Thomas (2017), one of the most desirable cultural practices of the eastern countries is punctuality. Most of these employees do not find it strange reporting to work at seven in the morning and leaving at seven in the evening. In Japan specifically, employees can comfortably work for 12-14 hours a day without questioning the authority at the firm. The practice is significantly different from that in the United States where employees strictly work for 8 hours a day unless there is a good reason for them to work overtime, which must be paid.
In such an environment, the operational needs of a firm, especially during peak periods when workers are expected to deal with greater responsibilities, a multinational corporation can take advantage of this culture in Japan. However, Burton (2014) warns that in an environment where junior officers do not question the decisions and actions of their superiors, top managers should be careful enough not to make mistakes. Any wrong decision by the general manager may not be questioned, and that may have devastating consequences on the firm.
Buyer behavior in the eastern countries is significantly different from that of the west. According to Earley and Mosakowski (2016), a unique culture of saving exists in China that is not common in North America and Western Europe.
Unemployment and underemployment are some of the major concerns among people in this region. The sense of uncertainty, fearing what the future holds tends to make these people prefer savings to unnecessary expenditure. It means that customers are more careful when planning their purchases in these countries. They avoid unnecessary expenditure and opt for cheaper products to help them increase their savings. An American company planning to operate in this country must understand these unique needs. Walmart has been successful in China because it offers its customers relatively cheap products compared with other supermarkets in the country (Todorov & Smallbone, 2014). Such strategies can help a firm achieve the desired level of growth.
The Arabic Culture
The Arab countries have become economically relevant over the past few decades. Holbeche (2017) explains that before the discovery of oil, countries in the Middle East and North Africa region did not make economic sense to most of the multinational corporations. Although a few such as Morocco and Libya had discovered gold and other precious metals, most of the region was an arid land, with the population surviving on basic needs.
However, the discovery of oil has changed the fortunes of these countries. Countries such as the Kingdom of Saudi Arabia and the United Arab Emirates have been registering rapid economic growth. Qatar has one of the highest GDP per capita in the world, almost twice that of the United States. The city of Dubai has also become one of the leading global tourist destination and business hubs. It means that an international corporation cannot ignore this market because of its huge potential. Figure 1 below shows the size of the economy of some of the countries in this region.
The ability of a firm to achieve success in this region depends on its willingness to understand and embrace the local culture. Hays-Thomas (2017) argues that the community values close, personal, and long-term relationships over strict professional relationships. People feel that they need to work as a unit, basic on their Islamic principles. A foreign firm will need to integrate this practice into its organizational culture.
Holz (2016) observes that criticism is not common, especially when it is directed towards those in leadership. Politically, there is the perception that those in leadership have divine blessings, and as such, their authority should not be questioned. Such beliefs are reflected in the workplace environment where subordinates rarely question those in managerial positions. Dawson and Andriopoulos (2014) explain that there has been an effort to redefine the culture that limits creativity among junior employees. The events following the Arab Spring may liberalize the political environment in the region and create a belief that junior officers have the capacity to question how they are governed. However, foreign currently companies have to learn to operate under the current cultural practices.
The class system is another common cultural practice that is common in some of the countries in the MENA region. Some members of the society are considered to belong to the royal class. In Saudi Arabia, the royal family is highly respected and they have high purchasing power. When a firm considers operating in this market, it is important to understand this niche in the market, especially when dealing with luxury products.
The rich Arabs are keen on the quality of products they purchase and may not mind paying premium prices. The Islamic culture also defines products that can be popular in the region. Food products considered unholy such as pork cannot be sold in this market. Even when there is a small niche of Christians and non-believers who can purchase these products, the environment may not be friendly for such companies.
Hays-Thomas (2017) reports that cases have been witnessed where extremists attack businesses known to sell products this society considers unacceptable based on their religious principles. Financial institutions are also redefining their products to avoid the concept of interests as it is considered haram (Todorov & Smallbone, 2014). They have come up with Islamic banking concepts to ensure that they align their products with cultural beliefs and practices in the region. Such steps would define the ability of a firm to succeed in the market.
The African Culture
According to Heesen (2015), many multinational corporations because of the perceived low purchasing power have ignored the African market. However, the population growth and economic development in this region have made it necessary for American corporations to consider this market. Nigeria, with more than half the population of the United States (over 190 million people) has a GDP greater than Ireland, Israel, Portugal, Singapore, Malaysia, Denmark, and the Philippines. South African economy is also strong. Figure 2 below shows the projected growth of Africa’s gross domestic product within the next four decades. It is apparent that large companies seeking to achieve growth in the international market cannot ignore this market.
The communal approach to relationship is stronger in Africa than it is in any other part of the world, according to extensive research that was conducted by Campbell and Göritz (2014). The problem is that people tend to favor those who come from their clan or family members when they are in positions of power. The existence of many tribes and the loyalty that people tend to have towards their clans may have a serious impact on the operations of a company.
Hays-Thomas (2017) explains that in some cases, people tend to associate a company with a given tribe based on the person at the helm of leadership. It means that delicate balancing of top leadership would be necessary to give the company a national image. In fact, Heesen (2015) believes that it may be appropriate to have a foreign country national as the chief executive to help deal with the perception of tribal bias. Other top managerial positions such as chief operating officer, chief financial officer, human resource director, and marketing director can be selected from different dominant tribes to help deal with the tribal problem that is common in the region.
Authority lies with the person appointed at the top leadership. Although junior officers are expected to follow instructions given by the top managers, many African countries have made impressive steps towards democratization of the workplace environment. Although criticism may not be as common as it is in western culture, the region is performing better than eastern and Middle East countries (Heesen, 2015).
It is common to find junior employees engaging the top managers whenever they feel that a new policy may fail to achieve the vision and mission of the company. However, Burton (2014) warns that the top management unit should be careful when promoting positive criticism and peer reviews because sometimes it may be used against best-performing candidates to settle personal scores.
The purchasing power of the individual customers may be relatively low, as Mor-Barak (2014) observes, but it is important for a firm to define the market segment. Multinational corporations such as The Coca-Cola Company have achieved great success in the market because of the affordability of their products. However, companies selling high-end products such as Apple Inc. have avoided the market because products such as iPhones and Macintosh computers are relatively expensive.
Hays-Thomas (2017) argues that the majority of customers in the market prioritize price over quality in most of the products they purchase. The practice is influenced more by their purchasing power than cultural practices. As the western countries, most of these African countries are predominantly Christian. It means that American companies may not find the culture prohibitive to their operations. One of the main factors that foreign firms have to be ready to deal with in this region is a growing culture of corruption. According to a recent report by Transparency International, African countries are some of the most corrupt nations in the world.
Nigeria in West Africa, Kenya in East Africa, and South Africa in the southern part of the continent are some of the most attractive markets because of their population and rapidly expanding economy. However, they are some of the most corrupt countries in the world. A foreign firm should be ready to give bribes to top government officials to ensure that they operate without constant interference by government agencies.
Impact of Cultural Differences on the Normal Operations of a Firm
When a firm is planning to explore a foreign market, Mor-Barak (2014) explains that one of the cardinal rules is to ensure that it aligns its corporate and organizational culture with that of the host country. The strategies and concepts that a firm uses in the United States may not work in the Chinese market. In this section, the researcher will look at fundamental challenges associated with global cultural differences for a firm operating in the international market.
Impact on Operational Environment
Global cultural differences have a significant impact on the operational environment of a firm. According to Chin and Trimble (2014), when a firm is considering having an overseas branch, it should first understand the cultural climate of the host country. The impact of this difference may have a significant impact on the operations of a firm. Hays-Thomas (2017) argues that large corporations such as The Coca-Cola Company have developed specific operational procedures that their employees must follow irrespective of the local culture or geographic location.
Once the recipe (the cola syrup) is received from the headquarters, it should be stored in a specific way and processed as per the company specifications to have the final product. It means that cultural practices such as the high prevalence of corruption that may involve compromising on the quality of the product cannot be tolerated in this business environment.
The Coca-Cola drink should have the same taste whether it is sold in the United States, China, the United Arab Emirates, or South Africa. It means that these employees should be taken through some form of training to equip them with the relevant skills needed to deliver the desired output. They must also learn about company principles and policies, especially when it comes to quality assurance and meeting company needs. It would cost this firm to take its workers through regular training to enable them to overcome cultural practices the company considers less desirable or counterproductive. In China, production companies often prioritize quantity over quality of products.
Burton (2014) blames this culture on economic forces in the country. For a long time, the majority of the Chinese were poor. As such, companies compromised on the quality of the products to ensure that their prices were affordable to the masses. Overcoming such a culture would require companies such as Apple Inc. to train their employees to overcome this perception and to appreciate the need to produce high-quality goods.
Impact on Sales and Marketing
The challenges associated with cultural differences not only affect the internal environment within which a firm operates but also the external environment as well. Mor-Barak (2014) explains that the marketing strategies popular in the United States may not work in some foreign countries. In the west, the color red is associated with love. The same color is associated with good luck in China and a symbol of communism or the blood of workers in Russia (Campbell & Göritz, 2014). One should be careful when using this color in different countries because it is possible that the audience can easily misinterpret the intended meaning.
The marketing unit of such a new company would have to conduct extensive research to understand the meaning of different colors, symbols, and words to avoid inconveniences. Victoria’s Secret uses provocatively dressed women to promote its lingerie. However, such images are considered unacceptable in some of the Arab countries where the dress code for women is expected to meet specific standards. Such a company would have to find a different strategy for promoting its products in the market. It is more costly to develop television commercials for each market than would be the case if only one commercial is used in the global market.
Managing Global Cultural Differences for Multinational Corporations
The emerging technologies and the increasing interconnectedness of different countries around the world will finally help harmonize global cultural gaps that have existed for centuries. In the meantime, companies have to define ways of operating in the global market. According to Hays-Thomas (2017), the Strategy-Culture matrix can help a firm to overcome these challenges. The tool identifies four matrices (strategic options) that a firm can choose to deal with the issue. In the first quadrant, the firm is faced with a strong culture such as that deeply entrenched in people’s religious beliefs. It may not be possible to convince them otherwise.
The only option is for the firm to change its operational strategies and sometimes the products it offers in the market. The goal, in this case, would be to manage the change as the firm tries to align its operational environment with that of the external market forces.
In the second quadrant, the firm will be dealing with a moderate culture. In this context, a firm can reinforce its organizational culture among its workers or promote the local culture depending on the desires of the company. For instance, an American company operating in Japan can reinforce the culture of working for long hours because it will have direct financial benefits for the company (Chin & Trimble, 2014). In the third quadrant, the firm will be dealing with a weak culture. The company can easily influence local workers to abandon the culture if the appropriate strategy is used. As such, the focus is to change the strategy in a way that would influence employees and customers to embrace a given behavior that is beneficial to the company.
The last quadrant is a case where a firm is faced with a moderate culture in the environment. It is advisable that such a firm should find a way of managing the culture. The strategy involves operating in a way that the company does not challenge the existing cultural practices but at the same time tries to ensure that its current organizational culture is not significantly influenced by external forces. The model goes beyond Hofstede’s Cultural Dimensions Theory shown in appendix 1 by narrowing down on specific ways of responding to cultural diversity in a global market context. Figure 3 below summarizes the information in the four quadrants.
Training is another strategy that a firm can use to overcome challenges associated with change management. According to Todorov and Smallbone (2014), when a firm is faced with a situation where it has to deviate significantly from its organizational culture, it may be necessary to take its employees through training. Employees from the parent country would need to understand the local culture and the manner in which it affects their operational activities. On the other hand, host country nationals would need to be trained to enable them to understand the vision, mission, and values of the company. They should also know how the firm could realize its vision in the local market.
Conclusion
Multinational corporations must be ready to deal with challenges associated with global cultural differences. As shown in this paper, cultural practices in western countries are significantly different from those in China, Japan, the Middle East, and African countries. The success of a firm in the global market is defined by its ability to align its internal environment with that of the host country.
It means that an American company must understand the culture of the host country and redefine its organizational culture in a way that meets the expectations of the locals. The management of a multinational corporation can use the strategy-culture matrix to define the most appropriate way of responding to cultural differences in the foreign market. It is also important for such a firm to embrace the culture of change in its operations.
References
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Appendix 1: Hofstede’s Cultural Dimensions Theory
