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A critical analysis of how culture affects international business management, with specific reference to culture in the HSBC and Dell companies International business is the result of gradual evolution of Globalization. As the development of international business, Multinational Corporations (MNCs) emerge. The term Multinational Corporation refers to business corporations that have two or more companies in different countries with one of the countries being the host country. (Baumueller, 2007) Culture involves habits, beliefs, values, laws, ways of life and work.
Further, culture is the artificial part of the environment. (Phatak, Bhagat, Kashlak, 2005a) Recently, culture shock has been a severe problem in international business management. MNCs have to face the problems of cultural conflict which occurs in different countries. Cultural differences in international business are one of the crucial challenges which MNCs have to face and overcome. Moreover, the companies’ culture not only affects the brand image, it is also connected with the management of employees, the sale of the product and the satisfaction of the customers.
Management styles need to be adaptable in order to mesh with the cultural elements in diverse areas. This essay will analyse the important position of culture in international management. This analysis will consist of four aspects. Firstly, this essay will analyse the problems of cultural conflict in the MNCs. Secondly, it will analyse the success of HSBC bank in cultural management. Thirdly, it will analyse the failure of cultural management of Dell computer company in China in its initial years. Finally, it will offer solutions for the cultural conflict.
The problems of cultural conflict in the MNCs In 1982, Peters and Waterman (cited in Kelly, 2009a) indicated that culture is merely concerned with the marketplace, it is not important for management. However, Ahlstrom and Bruton (2010a) argue that a series of issues are brought about by the cultural differences in the MNCs, such as the misconstruction between managers due to the language obstacles which cause a divergency in decision making. It is commonly acknowledged that culture is becoming a significant problem during the cross-cultural management as the development of MNCs.
Moreover, cultural conflict in the MNCs derives from the different cultures interacting in different surroundings. It is mainly reflected on the aspects of communication, customs, law, policy and employees’ reward and punishment. Communication is an essential factor in international business management. (Deresky, 2008a) It can be suggested that communication affects whether or not it is successful to negotiate with clients or to cooperate amongst employees. The meaning of words can be distorted when two people from different countries communicate using a common foreign language.
Some mistakes are difficult to avoid because the same words have different meanings in another country. For instance, the Bran Buds cereal means burned farmer in Sweden, which causes Kellogg to assign a new name for it. (Wild, Wild, Han, 2008a) In addition to language, nonverbal communication is also affected by different cultures. Not every motion has the same significance in different countries. For instance, most Europeans express their satisfactions or praises by thumbs up, whereas it means an impolite gesture in Greece. (Hill, 2001)
It can be suggested that it is important to be acquainted with the local custom before a MNC develops the target market in one area. Local custom is closely related with development of MNCs. For instance, the Indians do not normally eat beef. However, McDonalds had made a mistake in using oil with a beef extract for frying. The severe damage to its brand was averted by McDonald’s rapid dealing with the issue. (Phatak, Bhagat, Kashlak, 2005b) Furthermore, according to Wild, Wild and Han (2008b) climate also has a far-reaching effect on custom aspects in addition to food and clothes.
Nevertheless, Brinkman, Hoffman and Oppenheim (2008) compare that many companies’ executives are unaware of the climate’s impact on the business. It is commonly acknowledged that the change of climate will influence people’s emotion on work. Thus, research of the local custom which are in favor of the development of the companies are required for MNCs. Another cultural conflict is related with local law and policy. Ahlstrom and Bruton (2010b) state that the law plays an essential role as enterprises establish the corporations in a country, and the political risk also has a dramatic effect.
Therefore, it is suggested that MNCs need to understand the local law and policy before they invest in one country. Whether one project can be implemented is controlled by the law, and the host country’s policy also affects the development of the company. For instance, Google had to compromise with China on controlling some websites in 2006 as some information was restricted by the Chinese government. (Sluizer, 2010) Coping with the employees’ reward and punishment problems are difficult for the manager. Adekola and Sergi (2007a) demonstrate that it alters from culture to culture when disposing the reward and punishment.
For instance, the USA is accustomed to giving reward through promotion. On the other hand, some countries give prizes or food instead. Wild, Wild and Han (2008c) report that individual praise should be caution to the Vietnamese because it will cause an individual to be awkward if only one person obtains the prize. Consequently, how to treat the employee will depend on culture which forms the employee’s value. The success of HSBC bank in cultural management The world famous bank HSBC is an example of successful cultural management. As the world’s local bank, HSBC aims to respect the local position, national framework, and business and social context of each country in which we operate. ” (HSBC, 2004) It is suggested that “the world’s local bank” expresses culture of HSBC to both realize the global economy and deliver the local knowledge in management. HSBC Holdings plc (2008) states that HSBC tries to raise the brand value which exemplifies its culture by conveying its brand promise to the customers and its staff. It can be acknowledged that HSBC highly considers the role of culture in business management.
Subsequently, HSBC’s success in cultural management will be analysed in three aspects. Firstly, one of the crucial strategies of HSBC is to advocate localization. They provide numerous working positions for local talent, and this strategy is beneficial in helping HSBC to adapt to the local culture. Brooks, Weatherston and Wilkinson (2004a) summarize that the local employees are easy to blend into the task because of being familiar with local conditions. It is acknowledged that it is difficult to work in new surroundings and dispose of culture shock for expatriates.
Therefore, the strategy of localization preserves the company’s stability and its superiority will emerge in long-term development. Secondly, HSBC maintains a concordant relationship between expatriates and local employees. Toh and DeNisi (2005) describe that expatriates usually obtain a better treatment than local employees in most MNCs, which causes an unfair feeling among the employees and affects the atmosphere of work surroundings. However, it is commonly acknowledged that HSBC actively attempts to reduce the tensional relationship between local employees and expatriates.
It offers the same treatment to the employees who are from different countries and encourages exchange of culture between employees. Cultural exchange through which employees are acquainted with different notions and values is beneficial in helping to adapt to the local surroundings for expatriates. Finally, HSBC attaches importance to the employees’ degree of satisfaction and carries out surveys for the employees. HSBC holdings plc (2007) has reported that HSBC, through their annual survey, assesses the utility of culture as a means of advancing their standard.
It is suggested that HSBC pays considerable attention to the feedback from employees since the service of the employees is tightly connected with the customers’ satisfaction. A special team is set up for the analysis of the employees’ problems and tries to solve the problems through communication with them. Compared with 2007, the employee engagement was improved in 2008 from the result of staff survey. (HSBC holding plc, 2009a) Consequently, the employees will devote themselves to the work owing to their gratefulness to the corporation because HSBC obtains the trust of employees by respect and improvement for them.
The failure of cultural management of Dell computer company in China in its initial years Dell is a famous computer company of America. However, it can be argued that its cultural management is full of controversial comments. Dell’s culture is not concerned with its employees, it merely pursues the low cost, high profit and pragmatism for its company. Although Mead and Andrews (2009) discuss that culture is not a key factor for the management. On the other hand, HSBC Holdings plc (2009b) asserts that rules and regulations will not be adequate if the culture of company operates in an unreasonable way.
It can be suggested that culture is vital for the company. Nevertheless, Dell adopts the same model which its culture succeeds in America to exploit the market in China. Dell inc. (2009a) reports that to neglect the differences of Chinese culture is a crucial problem. The result of neglecting the effect of different cultures on international business brought about its failure in China in the initial years. Dell’s culture engenders a rigid atmosphere in the office. The employees lack communication amongst each other. Dell (2010) indicates that they reward their employees depending on performance.
It is suggested that Dell tries to motivate people by personal achievement. This causes an intense relationship between employees due to the pressure of the competition which is from excessively concentrating on the topping performance. Moreover, some mistakes are made when they evaluate employees by the final data of assignment. It merely emphasizes the data and ignores other elements, which leads to the substantial lost of outstanding employees. Adekola and Sergi (2007b) explain that harmonious interpersonal relationships and effective communication between employees make corporations achieve their targets more efficiently.
Compared with HSBC, Dell appears to take no notice of the relationships between staff due to its specific organization culture. It can be argued that Dell neglects the differences in work ethics between Chinese and American. According to The Urchins (2010) American work ethic is to extract more working time from employees and less paid for them. It is commonly acknowledged that American employees have accepted the work ethic of intense work status, the work pattern and the pressure of performance. However, it is not practicable for Chinese employees who are not able to accept this kind of work ethic in a short time.
Moreover, Tang (2006) reports that Dell takes the staff as a machine, and concern for emotion is inadequate to staff in Dell’s culture. Consequently, it will lose the loyalty of employees in a long-term running of the company. It can be argued that Dell neglects the consumption custom of Chinese. Dell adopts a direct sale model through which it can reduce the cost. However, this kind of sale model was hardly ever accepted by most Chinese at that time. Most cities of China were still in their developing stage. The credit consumption was in the initial stage in most rural areas.
Dell inc. (2009b) reports that fewer consumers are accustomed to purchasing on the internet and it was similar with the credit card used. It is suggested that the way of Chinese consumption affects the sale of Dell computers directly. Therefore, the importance of culture was not considered by Dell, which led to its initial failure in China. Solutions for the cultural conflict From two different outcomes of the two companies, it is acknowledged that culture plays a significant role in international business management.
To reduce cultural conflict, some solutions are required for the MNCs. Firstly, MNCs need to distinguish the differences of cultures and train their managers and employees to increase the awareness of cross-cultural business. Mead and Andrews (2009) discuss that the results of different cultural analysis are of prime importance to the staff to acclimatize themselves to new surroundings. For instance, MNCs should provide the basic law of the new country to avoid false decision making. Moreover, caution should be kept in choosing training approaches.
Brooks, Weatherston and Wilkinson (2004b) demonstrate that the better way that is preferred by the trainees is to tell them what to do in the new surroundings. For instance, the way of training through discussing is not popular for Chinese who are anxious with losing face when they respond incorrectly. Secondly, the strategy of localization can eliminate cultural differences and is beneficial to the development of the company. Haier (2008) asserts that utilization of local funds and human resources are critical factors for international business.
It can be suggested that localization boosts the corporation to blend into the local culture and decrease the cost on research of culture and training. For instance, Dell has failed in some aspects of culture, whereas its localization strategy has succeeded in minimizing the cost and accelerating to occupy local market. (Deresky, 2008b) It is acknowledged that most MNCs have discovered the benefit of localization strategy, through which MNCs do not need to worry about the problem of adaptive faculty of local custom. Thirdly, it is necessary for MNCs to integrate different cultures.
Vanto Group (2009) describes that cultural integration is to reduce the differences of cultures and to generate a new culture which is effective for MNCs. It can be suggested that MNCs require a new culture which can be accepted by most staff to alleviate cultural conflict. Cultural integration is also a syncretic process of different cultures. Tayeb (2003) discusses that cultural integration which is consisted of splendid portions of different cultures is able to intensify the effective management and staff’s work efficiency.
Thus, MNCs need to implement strategy of cultural integration for their prosperous development. Finally, MNCs should utilize cultural diversity to work for the corporations. A study by Orlando in 2000 (cited in Kelly, 2009b) stated that cultural diversity could enhance the value and competitiveness for MNCs. Although Hofstede (no date) indicates that “Culture is more often a source of conflict than of synergy. Cultural differences are a nuisance at best and often a disaster”. Nevertheless, it can be commonly acknowledged that culture is vital for corporations and the merit of cultural diversity should not be neglected.
MNCs acquire adequate opinions and new culture system from different cultures, which can guide the employees to absorb new predominant culture for their task. For instance, Human Resources Leader (2010) reports that IBM computer corporation carries out a research on the cultural awareness through analysing different cultures of their staff. They provide the manager with crucial information of the research to negotiate business with different cultures’ clients. In conclusion, as a variety of cultural issues emerge during international business management, the significance of culture has been highlighted.
It can be acknowledged that culture is bound up with international business management. This essay has analysed the effects of culture in the MNCs by discussing the issue of cultural conflict in international business, HSBC’s reasonable cultural management, Dell neglecting the impact of culture and the solutions for cultural conflict. In light of the comparison of the differences in cultural management in HSBC and Dell companies, it can be suggested that attitudes toward culture determine the success of MNCs in international business.
The experience from which business is succeeded in the host country may be not valid in international business management because of the effects of different cultures. It is necessary to put emphasis on cultural management for corporations in international business. As the cultural issues emerge, MNCs need to enhance competence of staff to cope with new emergency which happen in the international environment. Globalization offers both chances and challenges for the development of MNCs. Cross-cultural management has been a trend for resolving the problem of cultural conflict.
Thus, MNCs should combine the strategies of cultural training, localization and cultural integration with analysis of different cultures. It will generate a new culture system for MNCs to reduce or eliminate cultural conflict. It will also increase the value of the corporation and promote the economic growth for the MNCs. List of references 1. Adekola, A. & Sergi, B. S. (2007) Global business management: A cross-cultural perspective. Aldershot: Ashgate. 2. Ahlstrom, D. & Bruton G. D. (2010) International management: strategy and culture in the emerging world. London: Cengage Learning. 3. Baumueller, M. 2007) Managing cultural diversity: An empirical examination of cultural networks and organizational strctures as governance mechanisms in multinational corporations. Bern: Peter Lang. 4. Brinkman, M. W. & Hoffman, N. & Oppenheim J. M. (2008) How climate change could affect corporate valuations. [Online] Available at: http://www. mckinseyquarterly. com/How_climate_change_could_affect_corporate_valuations_2223 [Accessed 6/11/10] 5. Brooks, I. & Weatherston, J. & Wilkinson, G. (2004) The international business environment. Harlow: Financial Times Prentice Hall 6. Dell (2010) Key attributes of our culture.