Abstract

This paper discusses the cultural challenges that face international management. Different countries all over the world have their particular and unique cultures (Deresky, 2000). This is brought about by the states’ nature setting which is passed on from one generation to another. The diverse cultural practices expose the multinational corporations to face the barrier when it comes to implementation of their set goals in a company. There are three approaches to international management that are applied by MNCs, they include ethnocentric, polycentric, and egocentric. The three approaches set out on how MNCs use various ways in order to ensure proper administration of the mother company to the subsidiary companies. The paper aims at analyzing other factors that influence the process of conducting business abroad.

The paper is broadly divided into four areas, which include introduction, literature review, methodology and procedures, and conclusion. The research has used theoretical information and practical data in order to evaluate the performance of the MNCs, therefore, a conclusion is drawn on the base of the study.

Introduction

The paper deals with the notions of international management and culture. International management is a practice of engaging in a cross border relationship with international companies and countries to enhance the processes of business globalization (Deresky, 2000). Over the years, there have been rapid developments considering the flow of information and communication in the business sector all over the world. Varied cultural practices in different aspects of life have complicated the process of international management’s implementation.

Osgood (2010) defined culture as a way of living of a group, collection, tribe or nation of people. The social institutions such as family, religion, education, business entities and the government are provided for the backbone of the cultural diversity. The multinational corporations face the challenge of management when it comes to defining goals of the industry, risk attitude, employees and capacity to curtail unprofitable operations from one country to another.

The challenge of cultural diversity can be developed through the approaches of international management applied by the MNCs. There are three basic approaches used by different institutions in order to ensure efficiency in the companies that are involved in business from different corners of the world (Madura, 2003). They are ethnocentric, geocentric, and polycentric approaches. These approaches have disadvantages and advantages when it comes to application. The research that has been done all over the world shows that no one approaches is dominant to the other.

Ethnocentric Approach

Ethnocentric approach provides the management of subsidiary companies’ business processes from head-quarters in the mother country. The practice and style of administration are replicated in different countries in which the company operates (Deresky, 2000). This approach of international management makes the company be administered with a lot of ease because of the established structures. The mother company has the capacity to monitor the subsidiary company overseas. On the other hand, this form of approach is not effectively applicable to some countries. Different countries have different setting in terms of the governance, culture, and beliefs. The style of administration from one country is completely different from another country in another part of the world. A good example of a MNC that applies this form of approach is the Starbuck Inc. in the USA.

Polycentric Approach

Applying to this form of management, the international company considers the country, where it runs business, in terms of cultural peculiarities, language, and work ethic. This makes a company to staff its workforce by means of the foreign country. It assumes that native people of the area understand the system of locality better (Hodgetts, 1997). This form of approach is suitable for developing economies unlike the developed ones. It becomes easier to connect with the people in the locality very fast; however, the staff may lack competence and sufficient knowledge that is required for the business and hinders the fast growth of the company (Madura, 2003).

Geocentric Approach

This approach requires that an individual who is most competent to be referred to the management position regardless his or her origins. The theory is based on the assumption that business problems are the same all over the world.  Therefore, the competent managers are able to solve them without the factor of their country originality. This approach makes the company to employ the best personnel to execute the functions of the company. On the other hand, it makes a grave assumption of culture and familiarity with different systems of governance in different countries (Hodgetts, 1997). The employed managers face problems when it comes to implementation of their duties.

Assessing the Global Environment

The assessment of the global environment is very important factor for international management. Managers need know with a higher certainty the environment in which they are to invest. Most of the managers are risk averse and would like to invest in areas that are risk free (Osgood, 2010). They also need to explore the business opportunities in a country for the benefit of their company.

Empirical Study

International management is relatively a new phenomenon as a result of globalization of corporations. Among major challenges facing international management is the cultural diversity of different countries globally (Madura, 2003). Among the issues discussed in international management are corporate social responsibility, corporate governance, and international ethics. Organizations involved in international transactions and operations experience the greatest impact of the cultural diversity (Deresky, 2000). The complexity of culture affects corporations depending on the level of activities they are involved in internationally. As a result, managers have incorporated cultural management both for local and international companies as a way to ensure that the effects of culture diversity are minimized.

In America cultural diversity is real. The country is occupied by different people from different parts of the world.  The bar graph below shows the distribution of the cultures in the USA.

The most valuable components of international management are cross-cultural management and strategic management (Hodgetts, 2003). The evolutionary theories of international management indicate cultural challenges that are incremental issues in management.  Cultural effect on corporations is not predominant as the company sets operations in international markets. However, as the international effect deepens the cultural challenge also increases. The impact of culture results from both external and internal pressures (Hodgetts, 1997). As such, the internal issues result from an increase in the company’s scope that influences employment of more employees, the company becomes more complex, and there is a huge diversity among employees.

The impact of cultural diversity is evident in the coordination of the activities of the international corporations (Hodgetts, 2003). The external cultural diversity is rooted in the international environment. This relates to host countries, the influence of international professional bodies and institutions, home countries. According to EPRG concept, there are various cultural dilemmas that led to the evolution of management mindset. The strategies applicable to the cultural management depend on the position of the company considering whether the corporation is global, multinational, international or transnational. As a result, there are corporate culture, organizational and national cultures. The corporate culture is superior to organizational and national culture. The cultural diversity in any host country impacts both organizational design of running a corporation and all strategies used by the management. The pressure on the company necessitates it to take necessary measures to minimize the effects of the cultural diversity. The table below shows ethnic fractionalization and cultural diversity in different countries.

Ethnic fraction

Cultural fraction

Guatemala

0.493

0.493

Venezuela

0.483

0.02

Nicaragua

0.402

0.095

Dominican

0.387

0

Argentina

0.255

0

Costa Rica

0.238

0.078

Uruguay

0.218

0

Cuba

0.213

0.02

Elsalvador

0.198

0.18

Honduras

0.185

0.167

Jamaica

0.166

0.027

Paraguay

0.132

0.039

Haiti

0.095

0

Geert Hofstede (1997) developed methods which were able to detect and measure some components of the cultural system that affected behavior in the working environment. According to his research that was conducted between two year period, 1968 and 1972 with 116000 questionnaires, there are four main areas in which the cultures of different countries differ. They include the uncertainty, power distance, masculinity, and individualism. They are collectively referred to cultural dimensions (Hodgetts, 1997). The power distance is when the less powerful in the society feels that the power is distributed unequally. Uncertainty avoidance is the condition in which individuals are risk averse, they avoid situations when they are uncertain with the outcome (Madura, 2003). The individualism according to Griffin and Pasta is the act of thinking about oneself and the members of the immediate inner circle. The individuals are selfish, and they eager to see their interests come first without considering the space of the counterparts (Deresky, 2000).  The masculinity is the type of individuals who are goal oriented. They are aggressive and would not stop at mere defeat or just give up when they fail once or twice.

The global leadership is the capability of operating with a degree of efficiency in a global environment with respect to other people’s culture (Hodgetts, 2003). In today’s world, there is a high mobility of capital, ideas, people, concepts and products in the world market. There is a need to have a synchronized system that is able to manage all these developments so that business may not influence the environment negatively and bring more harm (Deresky, 2000). Efficient styles of management that have the capacity of managing different cultures should be put in place in order to ensure that economic growth and stability are enhanced in the environment.

Research Questions

  1. What cultural challenges does international management face?
  2. How do MNCs over the cultural diversity during their operations in different countries?

Methodology

The cultural diversity amongst different countries in the world has brought hindrance in the business sphere.  The studies that have been conducted in various countries show that most of the international businesses face the similar change of the cultural diversity.

There are four areas in which the methodology below uses to find out the various challenges that international management undergoes. The table considers that there are cross cultural interactions between people from all over the world (Hodgetts, 2003). These forms of interaction to some extent are not applicable depending on the locality and cultural practices.

Title

Culture

Type of Study

Approach methodological issue

Similarity

Ethnocentric Research

studying the second culture

replication in foreign cultures of domestic management studies

search for similarity

it is possible to use home country strategy for subsidiary countries

Polycentric Research

studying many cultures

individual studies of organizations in specific foreign cultures

search for difference

the way  managers conduct business processes

Comparative Research

studies contrasting many cultures

involves comparing organizations in many foreign cultures

search for both similarity and difference

comparison on how different

cultures operate

Geocentric

Research

international management studies

studies of multinational organizations

search for similarity

operation of MNCs

Ethnocentric research determines when it is possible for a home country to use the strategy that is applied in the domestic country. The geocentric research shows whether skilled labor is needed no matter where it comes from. The mother company assumes that there are common problems in the business world, and all that is required is skilled and competent personnel. The polycentric research requires the mother company to consider the cultures of other people before venturing any investment (Madura, 2003).

Procedure

The study involves the use of secondary information on sourcing data that are required. There was an extensive, conducted study. The various companies’ management systems were observed to determine their management structures and the challenges that they face to their oversea companies (Deresky, 2000). Financial statements were used as a tool of analysis of the company’s performance to the mother company. The financial statements, which are used for this purpose, include the income statement, the statement of financial position, and the cash-flow (Hodgetts, 1997). A comparative analysis on the performance of these companies is then analyzed.

The study shows that different companies have different performances in constituent countries where they operate. There are various factors that are attributed to the different indexes of performances in these countries. They include the cultural diversity in different countries, forms of governance, management skills, different infrastructure systems, and poor coordination from the home country.

Cultural Diversity

Different countries have different ways of living. There are different peoples and languages that they use. This is a hindrance to the effective performance of the multinational companies that have subsidiary companies. A case study in the USA and Japan on Coca Cola Company reveals that people in these two countries have different tastes and preferences brought about by the diverse cultures. The consumption of drinks in these two countries is different and hence the company’s performances in them. This is all attributed to the cultural differences.

Forms of Governance

There are different forms of government systems in countries. These governments have differed in the way of administration (Deresky, 2000). This affects the multinational companies because they will have to abide to the rules and laws of that country. This affects the multinational companies if they were not initially involved in the system of governance in the overseas country they are operating. Taking a comparative case of the USA and Russia for many years they have practiced capitalism and communism respectively. A MNC working in the USA will definitively experience problems in Russia. This is because these two systems of governance operate contrary to one another.

Management Skills

The management skills are vital for any success of the business. Managers mobilize and provide an efficient platform for growth and success of the company. The multinational companies require managers who have managerial skills in order to run the business (Hodgetts, 1997). The challenge that arises to these multinational companies is that they lack the managerial knowhow from the managers that they hire. It depends on the approach that the firm applies in order to execute the duties of administration (Deresky, 2000).

Infrastructure in Different Countries

Well-developed infrastructures in a country provide a sufficient platform for the development of the multinational companies. The companies that run business in developed countries exhibit a smooth growth and higher returns to companies comparing to that which conduct business in developing countries (Hodgetts, 2003). This deficit is brought about by the availability and accessibility of the infrastructures in these countries. A good case is the huge development of IT industry in the USA comparing to Africa. The USA has well developed infrastructures that lay the base for development of this industry. There is a positive relationship between growth and sustainability of the multinational companies and country’s infrastructure. The majority of the multinational companies prefer to invest their resources both technical knowhow and finances in areas with well developed infrastructures. In these areas, the marginal social benefit exceeds the marginal social costs (Hodgetts, 2003).

Poor Co-Ordination from the Home Country

The mother company has a responsibility to control that subsidiary companies remain competitive and going concern to the country that they operate in. This is not always the case, the mother country loses a grip with its subsidiary companies, and it is not able to control constituent companies. The management between these two companies becomes differentiated with time, and it might reach a point that they act differently as if they are separate and distinct companies. A good example is the Toyota Company that traces its originality in Japan. The company has overgrown over year, and it has acquired niche in the world market as one of the biggest companies in the sphere of manufacturing cars. Most of these subsidiary companies are separate and distinct from their mother country. They operate from different platforms of administration and operations.

Significance of the Study

The study on the cultural challenges which face international management is a key component that hinders for the growth and establishment of the international management. The countries in the world have different cultural practices that are based on the ethnicity, race, and tribalism. The multinational companies, therefore, face the challenge of acclimatizing with the indigenous people and cultures of different places. It becomes hard for managers to use their skills and knowledge that they have acquired in the establishment of an efficient multinational company that operates similarly over the world (Osgood, 2010).

People from different places of the world have different tastes and preferences. Managers of these multinational companies face a lot of challenges in trying to instill a culture that people never had when they set up a business in an area that is totally different from the home country. They face resistance from the local people who may at times refuse to buy products of the company. This leads to loss of revenue and hence loss to the company. The mother company on behalf of subsidiary one is affected indirectly.

The results of the study are analyzed in order to know the relationship between the cultures of different communities and companies’ performances in different countries of the world.  The cultural challenge is analyzed through some other challenges that also affect international management; they include the system of governance, forms of governance, infrastructure, managerial skills, and infrastructure's availability.

Conclusion

The cultural diversity and behavior play an important role in the determination of the international management’s success. Different countries have different cultures and practices. The onset of multinational companies in different countries comes with the challenge of culture.  The administrators of these companies may have little knowledge about the people that they are to interact within these countries. It becomes very hard for the multinational companies to conduct their business in oversea companies.

There are three different approaches that are involved in the international management. They include ethnocentric, polycentric, and geocentric approaches (Osgood, 2010). Applying to the ethnocentric approach, the MNCs replicate the form of administration in the home country to the subsidiary companies. They assume different cultures in different countries. The polycentric approach is sensitive to the cultural diversity, and it considers using the staffs in the local country because they understand the system better. The geocentric approach provides the use of experts regardless their country of origin.

The research revealed that cultural diversity in the world is one of the major hindrances to conduct business of the MNCs. The challenge is complex because of tastes and preferences of consumers and costumers.

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