International Organizational Behavior
As globalization makes it easy for companies to expand their markets across countries, leading companies in developed and emerging markets try to grow their businesses across national boundaries and create global multinational corporations (MNCs). Generally, MNCs evolve over three phases.
Table of Contents
In the first phase, companies have a multi-domestic strategy when they initially try to expand beyond their domestic market by having operations in terms of production and/or marketing in foreign markets.
As they succeed in this phase, they emerge as a multinational corporation with operations in several countries, each country contributing significantly to the revenue and profit of the MNC. In the final phase, companies become truly global where their primary market of focus is the world economy itself.
As companies evolve through these phases and establish themselves as truly global MNCs, they need to decide on some important strategic directions. For example, as companies expand across borders, should they develop separate products for each market?
Should they produce across all countries the same standard product with which they achieved success in the domestic market? Should they give freedom to managers to devise their own strategies in each country?
Researchers have identified that companies tend to adopt one of the three production strategies—multi-domestic, global, and transnational—while operating as MNCs. Those following the multi-domestic strategy produce such products that are tailor-made to the needs of each country.
While following the global strategy, companies produce and market standard products across all parts of the world. When they adopt the transnational strategy, they try to achieve both local responsiveness and global efficiency by tailoring standard products to meet the needs of different countries.
The differences between the three production strategies are given in Table
| Production Strategy | Global Revenues | Cultural sensitivity | Cultural perspective |
|---|---|---|---|
| Multi-domestic | Marginal | Somewhat important | Ethnocentric |
| Multinational | Important | Important | Polycentric |
| Transnational or Global | Dominant | Critically important | Geocentric |
In terms of cultural perspective, as mentioned in Table 12.1, companies are also required to expand their cultural mindset when evolving into global corporations. There are three terms that describe different types of cultural mindsets or predispositions, viz. ethnocentric, polycentric, and geocentric.
Ethnocentric
The belief that one’s culture is superior to others. This attitude may prevail in companies that concentrate all authority and power in the hands of their executives in headquarters in the home country.
Foreign subsidiaries may not have much autonomy and their key positions are managed by executives from the company headquarters. This culture may prevail in the multi-domestic type of companies.
Polycentric
As companies evolve into global corporations, their cultural sensitivity increases. While making important strategic decisions, they take into account cultural factors. The polycentric predisposition represents a philosophy of management that consciously recognizes the culture of the host country.
The company following this philosophy makes such strategic decisions that are tailored to suit the culture of the host country.
Geocentric
As companies become transnational, their market becomes global and they are required to formulate global strategies where cultural differences become critically important. The geocentric philosophy of management involves the integration of global systems for decision-making.
The cultural mindset or predisposition can impact every aspect of the strategies and operations of companies. Cultural factors play a very significant role in the way a global corporation is structured internationally and the type and nature of products it manufactures and sells.
To understand, how cultural sensitivity can play a major role in the operation of a global corporation, let’s take the example of McDonald’s. It has around 32,000 restaurants in 122 countries with the highest number in the USA.
However, its restaurants in Europe contribute more revenue than its USA restaurants. The tremendous success of McDonald’s in its international markets is attributed to the way it has adapted itself to the cultural differences in the various foreign locations of its restaurants.
McDonald’s does not offer the same menu in all countries where it operates. In each country, its menu is different and tailored to the needs of local customers. While formulating country-specific menus, McDonald’s gives great importance to the distinct cultural attributes of different countries.
The table illustrates how culture has played a major role in McDonald’s menu offering in its international operations.
| Country | Cultural aspect | McDonald’s response |
|---|---|---|
| Europe | Health consciousness | The menu features salads, fruits, carrots, etc |
| Israel | Kosher law | All meats served are 100% kosher. No dairy product is served. Restaurants are closed on Saturdays and on religious holidays. |
| Brazil | Business meals | Promotes afternoon meal at midday. |
| Egypt | Cleanliness | An open-door policy invites customers to visit the kitchen. Employees should wash their hands with disinfectant soap every 30 minutes. |
| India | Vegetarian | 70% of the menu caters to domestic taste with the introduction of products like veg meals, viz. McPuff and McVeggie |
Cultural Differences and Similarities
Culture can be defined as the acquired knowledge consisting of values, attitudes, and behaviors that people use to interpret experience and generate social behavior. Some important characteristics of culture are: it is learned, shared, trans-generational, symbolic, patterned, and adaptive (Luthans, 2018).
It is the culture of an organization that determines important choices like centralization vs. decentralization, individual vs. group emphasis, informal vs. formal structure, high vs. low organizational loyalty, co-operation vs. competition, etc.
As companies evolve into global corporations, it is necessary for their executives to understand the primary ways in which cultures around the world differ. As companies within a country differ in terms of their organizational culture, nations too differ culturally.
National cultures may differ in terms of values, beliefs, attitudes, behaviors, art, law, morals, customs, and, the way of life, adopted by individuals and communities in their respective societies. Culture includes patterns of learned behavior that are handed down from one generation to the next through the means of language and symbols.
Cultural beliefs and values are shared by almost all members of a given social group and these are expected to shape the behavior and perception of the individuals of that group.
Though the basic and eternal values like truth, honesty, compassion, etc., may be common and universal across all societies and their cultures, there could be differences in other values, norms, and beliefs that define unique cultural orientations of societies.
Researchers say cultural diversity arises on the basis of the answers arrived at by society over the years to tackle its basic and common social problems.
First, there are basic human problems like how we decide to clothe, feed, and house the people in society, and how we decide to distribute justice, education, health, etc., across the members of the society. Each society arrives at its own answers to these questions in the process of its evolution with the passage of time.
There are problems to solve them there could be several alternatives. Each society may decide to opt for a particular alternative in accordance with the environmental forces over a period of time. In this way, society decides its own values, preferences, customs, and lifestyle which are handed down from one generation to the next.
Let us take some dimensions of culture and see how nations can vary on them and how management philosophies could also change in accordance with them. Consider the nature of people.
Countries like the USA have a cultural orientation that asserts that people are a mix of good and evil, and change is possible. Such a cultural orientation would translate into a management philosophy that believes in selection, training, and development.
On the other hand, if the cultural orientation asserts that all people are intrinsically good, the HR philosophy would endeavor to treat people equally and give greater importance to training and development than selection and fitment.
Another major cultural aspect is the relationship of an individual with other people. In highly individualistic societies like that of the USA, companies would promote achievement orientation and individual decision-making.
On the other hand, collectivistic cultures, like Japan, China, and India, would give more importance to team achievements and group decisions. There are several other important cultural dimensions on which people, societies, and nations vary from each other.
The table gives six important basic cultural variations.
| Cultural dimension / Orientation | Three important variations |
|---|---|
| Nature of people | Good, a Mixture of good and evil, Evil |
| Relationship with nature | Dominant, Harmony, Subjugation |
| Relationships with other people | Hierarchical, Collectivistic, Individualistic |
| Modality of human activity | Doing, Becoming, Being |
| Temporal focus of human activity | Future, Present, Past |
| Conception of space | Private, Mixed, Public |
Cultural differences across countries and societies might be of more interest to anthropologists than management theorists. Why should national cultures matter for organizations that have perfected their own culture over the years in accordance with their management philosophies?
In reality, national cultures can have a major impact on organizational cultures and it is necessary to study them in detail.
For example, consider the following questions. All these questions require an in-depth study of the cultures of different societies and nations, and the impact they can make on management philosophies and strategies:
- Can we formulate leadership theories, practices, and behaviors that can be universally applied to all cultures? Should these basic tenets be changed to suit different cultures?
- Is there a different set of leadership values and practices for each different culture?
- Is it possible or advisable to have a uniform organizational culture across the subsidiaries of a global corporation?
- For global corporations spread across countries, how much will the impact of national culture be on their organizational culture?
- If a parent organization considers its culture as its competitive strength, why should it not use the same strength across all its subsidiaries in several countries?
We will study some important research work on the above questions in the section ‘12.3 Hofstede Cultural Dimensions’.
While formulating strategies for international forays and creating the organizational culture, researchers suggest that companies keep in mind the following principles:
- The culture of every organization will invariably reflect some assumptions and values of its national home culture.
- When making forays abroad, organizations should remember that their own culture, howsoever they may be successful in their home country, need not necessarily be better or worse than the cultures prevailing in the organizations of the other countries.
- Organizations should explicitly acknowledge cultural differences between societies and countries in which they operate and take active steps towards utilizing them in their management strategies.
- Foreign subsidiaries of a global organization may have their own culture for managing the people following a culture that is different from that of the host country.
However, they must not consider their culture intrinsically better or worse than the culture of the host country. The idea should be to build a more effective culture that takes into account the host country’s culture. - Promoting cross-cultural learning and finding out creative and effective ways of managing people through this learning should be encouraged.
Behavior Across Countries
Culture in terms of living style and customs varies across the countries in the world. But do these cultural differences also impact organizational behavior? How much do social cultures affect work behavior in organizations?
Is it not possible that organizations have their own culture that is distinct from that of society in accordance with their leadership style and corporate goals? These questions have led researchers to study the relationship between national and organizational cultures.
For a long, the pioneers of management science in the United States, where many theories of management and organizational behavior originated, assumed that their research findings on successful leadership style and work behavior are applicable across the world.
Only when globalization led companies to go beyond their national boundaries, did they realize that even organizational cultures like national cultures vary across countries around the world.
Andre Laurent, a professor at INSEAD, conducted a study with regard to work culture behaviors. He surveyed managers from nine West European countries, the United States, and three Asian countries.
He took some 60 common work situations and asked the managers surveyed to respond with their approaches. The result showed a distinctly different pattern for managers in each of these countries.
For many questions related to work behavior like task orientation, the role of managers, etc., the answers were totally different between the countries that are individual-oriented like the USA, and the countries that are more relationship-oriented like Japan and Latin American countries.
Consider the example of Swedish vs Italians with respect to task relationship. For the statement “In order to have efficient work relationships it is often necessary to bypass the hierarchical line”, most Swedish managers provided an affirmative answer.
They did not see any problem in going directly to the person who is most likely to have the expertise. This was in contrast with the work philosophy of Italians who believed in a relationship-oriented culture.
They considered bypassing the hierarchy an act of in-subordination reflective of a poorly designed organization. Similarly, Laurent found that there is little agreement across cultures on the nature of the managerial role.
For the statement “It is important for managers to have at hand precise answers to most questions their subordinates may raise about their work”, the answers were completely divergent between the US and French managers.
While the US managers believed that the role of a manager is problem-solving, the French managers believed that the role of managers is to act like an expert. While a US manager is expected to facilitate problem-solving by helping the subordinates, the French manager is required to provide readymade expert answers.
Apart from the impact of national cultures on organizational culture in terms of organizational behavior and management philosophies, there is another important dimension in which cultural variations can have a major impact. This pertains to business communication.
This is especially true for business people who move across cultures and for cross-cultural business deals. The term culture shock is used to indicate the phenomenon experienced by business persons when they move to other countries on foreign assignments.
The culture prevailing in the new country might require too many adjustments in a relatively short period of time that challenges the business people’s frames of reference to such an extent that their sense of self may come into question.
The culture shock may also cause psychological disorientation resulting from a breakdown in an expatriate’s selective perception and effective interpretation systems. This is especially so when even small things like the nature of the handshake denote different things to different people.
