Culture and multinational

management
• Culture helps people to become attached to
their society
• It tells us who we are and to what group we
belong
• Culture pervades most areas of our lives
determining for example how we should
dress? What we should eat etc.
• Culture is defined as the pervasive and shared
beliefs, norms and values that guides every
day lives of a group.
• These beliefs, values and norms are expressed
to the current group members and passes on
to the future group members through cultural
rituals, stories and symbols.
• The key components of this definition are:-
1. Culture is pervasive in the society
2. There are two types of cultures
a. Front stage of culture
b. Back stage of culture
3. Cultural values norms, beliefs must be shared
by a group of people.
• For a multinational manager, the importance
of understanding and dealing with cultural
differences is unavoidable.
• To succeed cross- culturally multinational
managers must learn as much as they can
about the important cultural norms, values
and beliefs of the society in which they work.
 Levels of culture in multinational
management

NATIONAL CULTURE

BUSINESS CULTURE

ORGANIZATIONAL OCCUPATIONAL
CULTURE CULTURE

MULTINATIONAL
MANAGEMENT
 National culture
• It is the dominant culture within the political boundaries of
the nation.
• Most business takes place within the political boundaries of
the nation.
• Such a dominant culture has the greatest effect on
international business because the dominant national culture
not only influences the language of business transactions but
also the nature and types of laws that govern the business.
• All major social institutions-religious beliefs, education,
family, politics, law and economics are closely related with
one’s national culture.
 Business culture
• Multinational managers are more concerned with
business culture.
• The concern of manager mainly is on how they conduct
the business.
• The cultural difference in business etiquette represents
norms, values and beliefs that pertain to all aspects of
doing business in a culture.
• Business cultures tell people the correct acceptable
ways of doing business in a society.
• Each national culture produces its own business culture.
Occupational and organizational culture

• Different occupational groups such as

lawyers, accountants etc have different
cultures called occupational culture.
• These are the norms, values and beliefs and
the expected ways of behaving for people in
the same occupational group.
• A multinational manager cannot ignore
differences in occupational culture.
• Organizational culture is defined as the set of
important understanding(often understated)
that the members of a community share in
common.
• Example:- The employees of HP share a similar
culture.
Cultural differences and basic values-two diagnostic
models to aid the multinational manager

• Multinational managers face a complex array of

cultures that challenge their ability to manage.
• There are two important models which help you
to manage your business successfully.
• Geert Hofstedes Model, introduced in 1980.
• It was also called as Hofstede Model of National
Culture.
• He developed this model based on difference in
values and beliefs regarding work goals.
• The second model is more recent one created
by Fons Trompenaar.
• His model of culture is called 7-D cultural
model.
 Hofstede’s model of national culture

• Hofstede used 5 dimensions of basic cultural

values model.
1) Power distance-it means expectations
regarding equality among people.
2) Uncertainty avoidance- they are typical
reactions to situations considered different
and dangerous.
3) Individualism-the relationship between the
individual and group in the society.
4) Masculinity- expectations regarding gender
roles
5) Long-term orientation- a basic orientation
towards time.
 Power distance
• It focuses on:
a) The norms that tells superiors how much they
can determine the behaviour of subordinates.
b) The values and beliefs that distinguish
superiors and subordinates as fundamentally
different kinds of people.
c) High power distance countries have the
following beliefs:
• Inequality is good
• Everyone has a place in the organization
• Most people should depend on the leader
d) The powerful are entitled to have privileges
e) The powerful should not hide their power.
Latin America, Latin Europe and Asian countries
demonstrate high power distance.
 Uncertainty avoidance
• This related to norms, values and beliefs
regarding tolerance for ambiguity.
• In some countries/cultures risky situations
create stress and upset the people
• Consequently people avoid behaviors such as
changing jobs.
• High uncertainty avoidance countries have
norms and beliefs such as:-
• Conflicts should be avoided
• Deviant people and ideas should not be tolerated
• Laws are very important and they should be
followed
• Experts and authorities are usually correct
• Consensus is not important
• Generally business cultures in countries high
on uncertainty avoidance have management
systems and processes that make
organizations and employees dependable and
predictable.
• Latin Europe and Latin American countries
have high uncertainty avoidance.
 Individualism and collectivism
• The values, norms and beliefs associated with
individualism focuses on relationship between
individual and group.
• Individualistic cultures view people as unique.
• People are valued for their own achievements and
status
• Collectivist cultures view people largely through the
groups such as family, social class, organization,
team, take precedence over the individual.
• Countries high on individualism exhibit the
following norms, beliefs, values:
• People are responsible for themselves
• Individual achievement is ideal
• People need not emotionally be dependent on
group or organization.
• In contrast the collectivist countries exhibit
following norms or values, beliefs etc:
• One’s identity is based on your group
membership
• Group decision making is best
• Group protects individuals
• Countries like US, Europe, Canada exhibit
individualism
• Asian countries exhibit collectivism
 Masculinity
• Different cultural expectations for women
occur in all societies.
• Masculinity represents the overall tendency of
a culture to support the traditional masculine
orientation.
• High masculinity countries have norms, values
and beliefs such as:
• Gender roles should be clearly defined and
distinguished.
• Men are dominant in nature
• Macho ism is good
• Men should be decisive
• Work takes priority over family
• Success and money are more important
 Long-term orientation
• Western cultures tend to have short term orientations.
• Managers in such cultures believe in logically
analyzing the situations and following it up with a
solid game plan.
• In contrast eastern cultures rank high on long-term
orientation.
• Synthesis does not search for correct answers or
strategy.
• They come out with practical solutions.
 7-D Cultural Model
7 dimensions are:
1. Universalism and Particularism
The choice of dealing with other people based on rules
or based on personal relationships
2. Collectivism Vs Individualism
Focus on group membership vs individual characteristics
3. Neutral Vs Effective
The range of feelings outwardly expressed in the society.
4. Diffused vs Specific
The types of involvement the people have with each other ranging
from all aspects of life to specific components
5. Achievement vs ascription
Assignment of status in the society based on performance vs
assignment based on heritage
6. Past, Present, Future or a Mixture
The orientation of the society to the past, present or future or a
combination of the three.
7. ‘Control of’ Vs ‘Accommodation with’ nature
Nature viewed as something to be controlled vs nature viewed as
something to be accepted.
 Cultural values
• There exists fundamental differences in cultural value
among countries.
• The most useful information on how cultural values
influence various types of business and market
behaviours comes from work done by Greet Hofstede.
• By studying 90,000 people in 66 countries he found
out that cultures of nations studied differed among 4
primary dimensions and the various business and
consumer behaviour patterns can be closely linked to
these 4 primary dimensions.
• The Hofstede’s approach has been widely and
successfully applied to international
marketing.
• Research evidence indicates that the 4 cultural
dimensions can be used to classify countries
into groups that will respond in a similar way
in business and market contexts.
 The 4 dimensions are
• Individualism Vs Collective Index
• Power Distance Index (PDI)
• Uncertainty Avoidance Index(UAI)
• Masculinity Vs Feminality Index
• Besides, the knowledge of cultural values, the
marketer should also know to appreciate how
cultures change and accept or reject new ideas.
• Because the marketer is usually trying to
introduce something completely new or
improve something already in use, how culture
changes and the manner in which resistance to
change occurs should be thoroughly
understood by manager/marketer.
Problems caused by cultural difference

I. One major problem facing MNCs is that they

attempt to manage across cultures just the way
they do in their home country.
• Globalization is given greater attention than
national responsiveness.
• However, in recent years under strategic
international management, this globalization
imperative has began to be de-emphasised and
the need for local focus has gained importance.
A number of factors help this new strategy

1) The need to address diverse worldwide

standards
2) The importance of differentiating products
for local markets
3) The need to become an insider rather than
relying on export policies
4) The need to give subsidiaries more authority
to respond to local conditions
II. Another major challenge dealing with cross
cultural problems is that of overcoming
parochialism and simplification.
• Parochialism is the tendency to view the world
through ones own eyes and perspectives.
• Simplification is the process of exhibiting the
same orientation towards different cultural
group.
III. Another problem is that of doing things in the same
way in foreign markets as they are done in domestic
markets.
• Research shows that in some cases this approach can
be effective.
• However, effective cross cultural management more
commonly requires approaches different than those
used at home.
• One area where this is evident is in Human Resource
management.
• Doing business in various parts of the world requires
recognition and understanding of cultural differences.
• Some these differences revolve around the importance,
the society assigns to time, status, control of decision
making, personal accomplishment and work itself.
• These types of cultural differences help to explain why
effective managers in Russia or China often are quite
different from those in France.
• A successful managerial style in USA will not be ideal in
Arab countries.
 Developing a multinational Team
or
Building a multinational business team

• Multi cultural diverse teams have a great deal

of potential to either be very effective or very
ineffective.
• Diverse groups are more powerful than single
cultural groups
• Having such a diverse group can hurt the
organization, but if managed effectively they
can be the best.
Guidelines for managing diverse groups

1) Understanding the conditions for effectiveness

Multicultural teams are most effective when they
face tasks requiring innovativeness.
They are far less effective when charged/assigned
with routine task.
In achieving the greatest amount of effectiveness
from diverse teams the activities must be
determined from the stages of team
development.
• Example:- In the entry stage, the focus would
be on building trust and developing team
cohesion.
• Germans, Americans and Swizz sped little time
on getting to know each other. This contrasts
sharply with individuals from Latin America
and Middle East, where a great deal of initial
time is spent on getting to know each other.
• In the work stage of development, attention
may be directed more towards describing and
analyzing the problem or the task that has
been assigned.
• This task is fairly easy for managers of
multicultural teams because they can draw on
diversity of members in generating ideas.
• In the action stage the focus shifts to decision
making and implementation.
• This can be a difficult stage because it requires
consensus among members.
2) Using proper Guidelines
Besides some overall conditions, a number of
specific guidelines for managing, culturally diverse
groups have been identified.
They are:-
i) Team members must be selected for their task
related abilities. If task is routine homogeneous
membership is preferred. But if tasks are
innovation then multi cultural membership is best.
ii) Team members must be recognized and prepared to
deal with their differences.
iii) Because members of diverse team tend to have
difficultly on agreeing on their purpose, the team
leader must help the group to identify and define its
overall goal.
iv) Members must have equal power so that everyone
can participate in their process. It is important that
all the members must have mutual respect for each
other.
v) Managers must give teams a feed back on
their process and output. This feedback helps
members to see themselves as a team and it
teaches them to value and celebrate their
diversity; recognize contribution made by
individual members and trust the collective
judgment of the group.
These guidelines can be useful in helping leaders
to manage culturally diverse teams effectively.
 Managing international negotiations
• Negotiation is the process of bargaining with
one or more parties to arrive at a solution that
is acceptable to all parties.
• Negotiation often follows accessing political
risks and can be used as an approach to conflict
management.
• If the risk is worth it then the MNCs must
negotiate with the host country to secure the
best possible arrangements.
• The MNCs and the host country will discuss
the investment which the MNC is prepared to
make in return of certain guarantee and
concession.
• The initial range of topics include the critical
area such as hiring practices direct financial
investment(FDI) , taxes, ownership and
control.
• Negotiation is also used in creating joint
ventures with local firms after the firm is
operating.
• additional areas of negotiation include
expansion of facilities, use of local managers,
import or export of materials and finished
goods and recapture of profits.
 The negotiation process
1) Planning
Planning starts with the negotiators identifying
those objectives they would like to attain.
They then explore the option of reaching these
objectives.
Consideration is to be given to common areas
between the party.
 Other major areas include:-
i) Setting the limit on single point objectives
ii) Dividing issues into long term and short term
considerations
iii) Determining the sequence to discuss the
various issues.
2. Impersonal relationship building
• This is second phase of negotiation process
and it involves getting to know the people.
• Some countries give a lot of attention to this
phase.
• In many other countries like United States
they give little attention to this phase.
 3. Exchange task related information

• In this part of negotiation process each group

sets forth its position on critical issues.
• These positions often change later in the
negotiations.
• At this point the participants are trying to find
out what the other party wants and it is
willing to give up.
 4.Persuation
• This step of negotiation is considered as most
important.
• No side wants to give away more than it has to
but each side knows that without giving some
concession it is unlikely to reach a final
agreement. The success of persuasion
depends upon:-
1) How well the parties understand each other’s
position?
2) The ability of each to identify areas of
similarity and differences
3) The ability to create new options
4) The willingness to work towards the solution.
 5. Agreement
• It is the final phase in negotiations and it is the
process of granting concessions and coming out
with final agreement.
• Sometimes this phase is carried out as a piece
meal
• People from US like to negotiate in piece meal
manner
• Asians and Russians tend to negotiate everything
on final agreement.
 Assignment work
• If a company new to international arena was
negotiating an agreement with a potential
partner in an overseas country; what basic
steps should it be prepared to implement?
Identify and describe them? (Steps in
negotiation process)
• Using Hofstede’s 4 cultural dimensions as a
point of reference, what are some of the main
cultural differences between USA and France?
Cultural differences affecting negotiations

• In negotiating effectively, it is important to

have a sound understanding of the other
side’s culture. This includes consideration of
areas such as communication patterns, time
orientation and social behaviours.
• A number of useful steps can help in this
process. They are:-
• Do not identify the counterpart’s home culture
too quickly. Common cues example, name,
physical appearance, language, accent,
language) may be unreliable. The counter part
probably belongs to more than one culture.
• Beware of Western bias toward ‘doing’. In Arab,
Asian and Latin groups, ways of being (eg:
smell), feeling, thinking and talking can shape
relationship more powerfully than doing.
• Try to counteract the tendency to formulate
simple, consistent, stable images.
• Do not assume that all aspects of culture are
equally significant.
example:- In Japan, consulting all relevant
parties to a decision is more important than
presenting a gift.
• Recognize that norms for interactions involving
outsiders may differ from those for interactions
between compatriots.
• Do not overestimate your familiarity with your
counterpart’s culture.
• Example:- An American studying Japanese wrote
New Year wishes to Japanese Contacts in basic
Japanese characters, but omitted one character. As a
result, the message became “Dead man,
Congratulations”
• American believe it is important to be factual and
objective.
• Moreover, they have the authority to bind the
party to an agreement. So if the right deal is
struck they resolve the matter very quickly.
• This is why the deadlines are very important to
the Americans.
• The Arabs on the contrary can tend to use an
emotional appeal in their negotiations.
 Negotiation Tactics
• A number of specific tactics are used in
international negotiations
1. Location
• It relates to ‘ where the negotiations should
take place?’ If the matter is very important;
then most businesses will choose a neutral
site. A number of benefits can be derived
from using a neutral site:
i) Each party has a limited access to its home
office for receiving a great deal of negotiating
information and advise and thus gaining
advantage on the other.
ii) The cost of staying at the site is quite high, so
both sides have an incentive to conclude their
negotiations as early as possible.
iii) Most negotiators do not like to return home
with nothing to show.
 2. Time Limit
• Time limits are an important negotiation tactic
where one party is under a time constraint.
• This is particularly true when this party had
agreed to meet at the home site of another
party.
• Example:- US negotiators who go to London to
discuss a JV with a British firm often will have
a scheduled flight to return.
• Once their host find out how long these
individuals intend to stay, the British can plan
their strategy accordingly.
• The real negotiations are likely to begin until close
to the time that the American must leave.
• The British know that their guest will be anxious
to strike some type of deal before returning
home, so the Americans are at a disadvantage.
• Time limits can be used tactically even if the
negotiators meet at a neutral site.
• Example:- Most Americans like to be a home
with their families for Thanksgiving, Christmas
and New year.
• Negotiations held right before these days put
Americans at a disadvantage; because the other
party knows when the Americans would like to
leave.
 3. Buyer-seller relations
• Americans believe in being objective and
trading favors. When the negotiations are
over, Americans walk away with what they
have received from the other party, they
expect the other party to do the same. This is
not the way negotiators in many other
countries think, however.
• For example:- the Japanese believe that the
buyers should get most of what they want. On
the other hand sellers should also betaken
care of through reciprocal favors.
• The Brazilians think differently. They feel that
whether they are buyer or seller, they should
come on top.
 4. Negotiation Tactics
• The negotiators adopt different postures during
negotiations to achieve their objectives.
• This includes verbal and non-verbal behavior.
• They also indulge in dirty tactics and exhibition of
extreme behavior to gain advantage over the
other side.
• A careful negotiator should clearly understand
and the purpose behind these behaviors and
tactics and formulate strategies to counter them.
 a) Verbal behavior
• It relates to use of promises, threats, rewards etc with a
view to influence the other party into the negotiations
• Promise
• Threat
• Recommendation
• Warning
• Reward
• Punishment
• Question/command
• Rejection
 b) Non-verbal behavior
• It includes silent periods
• Facial staring
• Touching the other during the conversation
• Conversational overlap
 c) The dirty tricks
• It refers to the unfair, deceitful or unethical
tactics used by negotiators to win in their
negotiations.
• Deliberate deception(deliberately
misrepresenting the facts)
• Stalling (To drag or delay the negotiations)
• Escalating authority (agreeing to the deal but
claiming that higher authority should accept)
• Good cop-bad cop(give and take)
• Poverty appeal
• Appealing to friendship(using friendship and
trying to get concession)
• One should restrain from using dirty tricks during
negotiation. When the party uses dirty tricks
further negotiations should be stopped because
no trust can be placed on such person who
resorts to dirty tricks.
 d) Extreme behavior
• Another tactic used by negotiators is to make
extreme offers or requests.
• Example:- when a contract is expected to yield USD
20 million; the initial demand may be made for
USD 80 million. Although it may be seen that such
extreme behavior will require non-stop negotiation
process as researches have proven otherwise;
extreme behavior to shown to produce better
result to the parties exhibiting such behavior.
• The success may be due to the psychological
pressure put on the other party.
• The aggressive behavior is also an indication
of the strength of the party.
 Approaches to Negotiation
• There are two approaches to international
business negotiation.
• Competitive negotiation Approach
• Problem solving negotiation approach
 Competitive approach:

1.This approach views negotiation as a win-lose

situation.
2.The negotiators believe that their
responsibility is to extract maximum benefits
for their company from the deal irrespective
of the effect on the other party.
3. Negotiation begins with very high initial
demands.
4. Negotiators use dirty tricks, pressure and tactics
to secure their win. They look for weakness in
the opponent.
5. They reveal as little as possible about their own
firm.
• The offer made is highly favorable to their firm.
• Concessions are made only when inescapable,
that too slowly.
• A little is thought about building a long-term
relationship between the parties.
• As a result once they feel triumphant and the other
becomes a loser; each side develops a negative
attitude towards each other.
• The negotiators with competitive approach will sign
the agreement only when it is advantageous to their
firm.
6. This approach is not suitable for long term
relationship between parties.
 Problem solving approach
• This approach believes in win-win situation.
• The negotiation process is seen as a mutually
satisfactory ground that is beneficial for the
interest on both sides.
• Negotiators are open minded and they are
prepared to overcome cross cultural barriers.
• They give information to and seek information
from the other party.
• The offer made is reasonable and is firm.
• Dirty tricks are not resorted to.
• In the interest of maintaining long term cordial
relationship.
• Agreements are signed when they are
mutually beneficial.
 Conclusion
• Problem solving approach is better out of the
two approaches as it tends to strengthen long-
term relationship.
• However, culture may push other negotiators
to adopt competitive approach
• American managers believe in competitive
approach.
• Japanese believe in problem solving approach.
 Important questions
• What do you understand by international negotiation?
• Explain the steps involved in international business
negotiations?
• What are the aspects you will consider while
negotiating with the Japanese and Americans?
• What are the desirable and undesirable tactics of
negotiation?
• Compare the two approaches of international
business negotiation.