International Management: Effect of Regional and National Culture on MNCs
Culture refers to the institutions, folklore, history, customs, beliefs and traditions shared by a group of people. People who belong to the same religion, nationality, language or ethnic group share a common culture (University of Kansas, 2013). Organizational culture refers to the customs, assumptions, beliefs, values, procedures and policies that govern the way an organization is run and managed (University of Kansas, 2013). MNCs operate in different countries, and therefore, encounter diverse, distant cultures in their international operations. Cross-cultural relations are inevitable and MNCs have to develop organizational cultures that can effectively manage such relationships, so as to establish good relations both within and without the organization (Rozkwitalska, 2013).
The Effect of the Parent Country’s Culture
It has been found that the operations of MNCs’ subsidiaries are largely influenced by the culture of the parent company (George, 2011). MNCs are known for diffusing cultural values across borders. Taking for instance, a MNC headquartered in Paris, France, but with subsidiaries in India, Germany and Australia; the organizational culture of the subsidiaries will heavily incorporate elements of the French culture. However, in as much as this may be so, the MNC still has a duty to engineer change in the systems of employment in the host countries, as well as to maintain its own competitive position (George, 2011). This it can only achieve by varying its practices to suit different cultures. The effect of national and regional culture on the international operations of MNCs, as enumerated in the subsequent sections of this text, arises from this particular aspect.
The Effect of National and Regional Cultures on MNCs
The cultural practices of people in host countries affect the organizational culture of MNCs in a variety of ways. I will dwell on four of these; the leadership style, human resource practices, language, and management. The focus of this text is to show how the above organizational practices are influenced by the cultural practices of the people of India, Germany and Australia.
The Effect on the Style of Management
There are four cultural predispositions that MNCs tend to adapt, with regard to the management of cross-cultures. These are geocentricism, polycentricism, and ethnocentricism (George, 2011). Ethnocentricism perceives one’s culture and beliefs as superior, and does not allow for the appreciation of cultural diversity (George, 2011). Polycentricism, on the other hand, is the tendency to appreciate the cultures of others, and view them as equal to one’s own. Geocentricism pushes for cosmopolitan arrangements. It involves accepting the best, regardless of its origin (George, 2011).
France is known for the stratification of the society into classes. Managers are perceived as belonging to a higher class of individuals, who achieved that particular status by attending the best schools and educational facilities (Hofstede, 1992). They, therefore, deserve honor from the rest of the society. The French culture, in this regard, exhibits ethnocentricism. Germany, India and Australia are known to possess high numbers of technical institutions and qualified individuals (George, 2011). Managers are, therefore, not considered cultural heroes in these host countries, which would advocate more for societal equality (Hofstede, 1992).
In order to succeed in the three host countries, therefore, the France-headquartered MNC has to, to a large extent; give up the ethnocentric style of management associated with the French culture, and take up the more inclusive geocentric and polycentric styles.
The Effect on Human Resource Practices
Human resource practices, for instance performance management, compensation, development and training, and employee hiring are largely culture-specific, and highly differ from country to country (Rozkwitalska, 2013). These variations are brought about by differences in social institutions, factor conditions and business culture, which collectively determine the business environment (Rozkwitalska, 2013).
Social institutions include the family, the economy, religion, the state, and education (Hofstede, 1992). These institutions determine the culture of business. Educational systems and the family play a significant role in the development of cultural values (Rozkwitalska, 2013). The state has a duty of reflecting these societal values. MNCs have to develop human resource practices that are in line with these values. In India, for instance, it is a requirement that businesses take up affirmative action (Rozkwitalska, 2013).
Factor endowments vary from one country to another, and so do the rules governing these endowments. Germany, for instance, is known to possess one of the world’s largest pools of highly qualified workers (Hofstede, 1992). German workers are also the highest paid in the world.
All these factors largely influence a business’ industrial relations, compensation, training, employee selection, etc. MNCs operating in these host countries have to follow the host country’s hiring practices, performance appraisal decisions, training and development needs, etc., since failing to do so amounts to offending the norms of the local culture (Rozkwitalska, 2013).
Training facilities may, for instance, be less relevant in India and Germany, which have a large number of technical institutions and trained personnel (Hofstede, 1992). Australia and Germany, unlike India (where union leadership is seen as a suitable path to management), have tight labor laws, which govern factors such as employee compensation, dismissal, etc. (Hofstede, 1992). MNCs have to take into consideration all these human-resource related factors when designing their organizational cultures.
The Effect on Leadership Style
Successful MNC leadership requires an adjustment of leadership styles, to fit different cultural contexts and situations (George, 2011). This entails fine-tuning leadership skills and practices to meet culture-specific needs. A study by GLOBE revealed that certain leader attributes, such as charisma, autonomy, participative skills and self-protectiveness are culture-specific (George, 2011). It was found that, contrary to the French, who expect their leaders to be fully appreciative of, and always have preference for the French culture; Australians, Indians and Germans prefer participative and diversity-appreciating leaders (George 2011). Local cultures, therefore, have a significant influence on leadership traits and behavior, especially if the leader is seeking to energize and drive for results, as is the case with MNCs (George, 2011).
Effect on Language
The fact that most MNCs choose to adopt one language as their corporate language proves that local languages in host countries have an impact on organizational culture (Rozkwitalska, 2013). MNCs are largely multi-cultural, and the success of their operational activities is heavily dependent on the effectiveness of cross-cultural communication (Rozkwitalska, 2013). Asian languages, such as Hindu, differ from most northern European and Scandinavian languages such as English and German. This is because the latter are considered low-context, and the former high-context languages (Rozkwitalska, 2013). A corporate language, once adopted, becomes part of the organizational culture, as it binds a company’s employees together.
It is evident that the national and regional culture significantly influences organizational culture. Local cultures have an effect on literally all aspects of business operations. Global businesses such as MNCs, therefore, have to take into consideration the cultural practices and beliefs of the host country’s people, in designing the organization culture of subsidiaries. In so doing, MNCs will be in a position to engineer change in the systems of employment in their host countries, as well as maintain their own competitive positions.
George, O.J., 2011. Impact of Culture on the Transfer of Management Practices in Former British Colonies. Bloomington, IN: Xlibris Corporation.
Hofstede, G., 1992. Cultural Constraints in Management Theories. Academy of Management, 7 (1), pp. 81-94.
Rozkwitalska, M., 2013. Effective Cross-Cultural Relationships in Multi-National Corporations: Foreign Subsidiaries’ Viewpoint. Academia. Available at http://www.academia.edu/3732624/Effective_cross-cultural_relationships_in_multinational_corporations._Foreign_subsidiaries_viewpoint [Accessed 8 Jan 2014].
University of Kansas., 2014. Section 7: Building Culturally Competent Organizations. University of Kansas. Available at http://ctb.ku.edu/en//tablecontents/sub_section_main_1176.htm [Accessed 8 Jan 2014].
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