Module 04: Critical Thinking ( Euro Disneyland)

International Management

Culture, Strategy, and Behavior

Fred Luthans | Jonathan P. Doh

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R Chapter 4

THE MEANINGS AND DIMENSIONS OF CULTURE

The World of International Management

Culture Clashes in Cross-Border Mergers and Acquisitions

I n one of the largest cross-border deals ever proposed, Belgian-Brazilian beverage giant ABInBev offered US$104.2  billion to acquire British-owned SABMiller. Both companies have multiple investments and brands in every major beer market in the world. The merger brings ABInBev’s brands of Budweiser, Busch, Corona, and Stella Artois together with SABMiller’s brands of Miller, Foster, Grolsch, Peroni, Castle, and Carlton, resulting in the largest beverage company on the globe. The combined company will account for 30 percent of beer sales worldwide and 60 percent of sales in the U.S. market. In late 2015, SABMiller’s shareholders agreed to the terms of the deal.1

Mergers and acquisitions are among the most challenging strategic moves by companies seeking to grow their markets and reap hoped-for efficiencies. Many cross-border mergers and acquisitions have failed or experienced extreme difficulties in the face of cultural differences that manifest in communica- tion, work policies, compensation systems, and other aspects of strategy and operations. These cultural differences can be aggravated by geographic, institutional, and psychological distance. With operations spanning the globe, and leadership teams in both Latin America and Europe, the combined ABInBev and SABMiller company will need to address the interests of its culturally diverse constituencies. Although both SABMiller and ABInBev have recent, extensive experience with cross-border mergers and acquisitions, neither company has been involved in a deal this large. How can this integrated company fully realize the benefits of combining peo- ple, production, and brands from diverse cultures? Will ABInBev be able to achieve its aggressive sales goal of US$100 billion annually by 2020? Looking at some past cross-border mergers, both successful and failed, may provide some insight.

DuPont in Denmark When DuPont, the U.S.-based giant chemicals company, set out to acquire Danisco, a Danish producer of food ingredients, shareholders in Denmark initially voiced skepticism and disapproval. To better understand the concerns of the Danish investment community, DuPont sent executives to Copenhagen.2  Gaining

A major challenge of doing business internationally is to respond and adapt effectively to different cultures. Such adap- tation requires an understanding of cultural diversity, percep- tions, stereotypes, and values. In recent years, a great deal of research has been conducted on cultural dimensions and atti- tudes, and the findings have proved useful in providing inte- grative profiles of international cultures. However, a word of caution must be given when discussing these country profiles. It must be remembered that stereotypes and overgeneraliza- tions should be avoided; there are always individual differ- ences and even subcultures within every country. This chapter examines the meaning of culture as it applies to international management, reviews some of the value differences and similarities of various national groups, studies important dimensions of culture and their impact on behavior, and examines country clusters. The specific objec- tives of this chapter are

1. DEFINE the term culture, and discuss some of the compar- ative ways of differentiating cultures.

2. DESCRIBE the concept of cultural values, and relate some of the international differences, similarities, and changes occurring in terms of both work and managerial values.

3. IDENTIFY the major dimensions of culture relevant to work settings, and discuss their effects on behavior in an international environment.

4. DISCUSS the value of country cluster analysis and relational orientations in developing effective international management practices.

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that would dictate a unified approach to planning, information exchange, communication, and decision making. Executives believed that a unified company culture—part American, part German—would lead to a better working relationship between employees and result in improved fiscal results for the com- pany. After just a few months, however, continued cultural dif- ficulty led executives to conclude that imposing a single culture on its diverse workforce was a short-sighted strategy. Engineers between the two companies continued to disagree over quality and design, and personality conflicts persisted. Americans found Germans to have an “attitude,” while Ger- mans found Americans to be “chaotic.”8

In response to these failures, Daimler-Chrysler took a more drastic approach to altering its operations. Rather than attempting to impose the Daimler culture on Chrysler employ- ees, individual business groups were permitted to adopt whichever culture worked best for them. Essentially, two cul- tures were allowed to persist at the merged company—those of American Chrysler and of German Daimler. Though this strategy worked well for groups that were located solely in the United States or Germany, business divisions that spanned both countries continued to face challenges. Communication was often misinterpreted, and the approach to staffing was questioned by executives on both sides.9

After a decade of struggle, the merger was ultimately reversed. Daimler sold nearly its entire stake in Chrysler to an American private equity group for a fraction of its original invest- ment, and Chrylser entered bankruptcy proceedings just two years later. Roland Klein, former manager of corporate commu- nications at the merged Daimler-Chrysler, remarked that “Maybe we should have had a cultural specialist to counsel us. But we wanted to achieve the integration without outside help.”10

ABInBev’s Past Experiences In many ways, ABInBev’s own history may provide the best example of a previously successful cross-border merger. In 2008, Belgian-Brazilian-based InBev acquired U.S.-based Anheuser Busch, creating the world’s largest brewing company. InBev first bid $65 per share for Anheuser Bush, which was initially rejected. The final price agreed to was $70 per share. With oper- ations on every continent, the newly combined company had to quickly adapt to diverse national and organizational culture back- grounds. InBev’s organizational culture, heavily influenced by AmBev, was described as “a work atmosphere reminiscent of an athletic locker room . . . a culture that includes ferocious cost

an  understanding of the cultural and business perspectives of those shareholders through face-to-face, in-person meetings, DuPont executives were able to determine that their original offer was seen as offensively low. In response, DuPont adjusted its offer, resulting in a 92 percent approval rate from Danisco’s shareholders. Dupont’s CEO claims, “These face-to-face conver- sations were critical for the actions we took next, and, ultimately, for the successful outcome of the deal.”3

After the deal was complete, DuPont made culture a strong focus of itsintegration efforts by first hosting a “Welcome Week” with presentations to all employees about the new combined firm, adjusted to local communication styles. After this week- long celebration, designed to encourage excitement and positive thinking, the company gauged successes and failures using reg- ular pulse surveys. These surveys “created a heat map of poten- tial geographic locations where there might be confusion or miscommunication.”4  Anticipating and measuring potential places of difficulty allowed managers to address issues as quickly and transparently as possible, easing the integration pro- cess. DuPont’s CEO reflected on the successful acquisition of Danisco, saying, “If we didn’t execute and integrate well, and if we didn’t get synergies quickly, it wouldn’t be a victory.”5

DuPont’s careful, level-headed due diligence, strong com- munication, and appreciation for Danisco’s corporate and national cultures ultimately helped the firm evaluate the poten- tial success of a combined business venture and avoided deal- ending cultural conflicts. Forming the right deal and designing an integration process with the goal of maximizing the value of the deal provided the merging companies with the tools necessary to optimize their combined value and avoid the pit- falls of cultural miscommunications.6

The Daimler-Chrysler Debacle Looking at failed cross-border mergers can lend some valuable insight as well. One classic case is that of Daimler-Chrysler, two companies that came together in a US$36 billion acquisi- tion that faced severe challenges from the start. Although it was hailed as a historic “merger of equals,” enthusiasm dis- solved in the face of cultural and personality clashes.7  From the onset, German executives were uncomfortable with the lack of protocol and loose structure at Chrysler. Conversely, the American managers felt that their German bosses were too formal and lacked any flexibility. In its first attempt to resolve these issues, top leaders at the company quickly worked to establish firm-wide processes

124 Part 2 The Role of Culture

Our opening discussion in “The World of International Management” shows how culture can have a great impact on mergers. For some companies, like DuPont and ABInBev, early recognition of differences led to more successful company integration. National cultural characteristics can strengthen, empower, and enrich management effectiveness and success. MNCs that are aware of the potential positives and negatives of different cultural characteristics will be better equipped to manage under both smooth and trying times and environments.

■ The Nature of Culture The word culture comes from the Latin cultura, which is related to cult or worship. In its broadest sense, the term refers to the result of human interaction.16  For the purposes of the study of international management, culture is acquired knowledge that people use to interpret experience and generate social behavior.17  This knowledge forms values, creates attitudes, and influences behavior. Most scholars of culture would agree on the following characteristics of culture:

1. Learned. Culture is not inherited or biologically based; it is acquired by learning and experience.

2. Shared. People as members of a group, organization, or society share culture; it is not specific to single individuals.

3. Transgenerational. Culture is cumulative, passed down from one generation to the next.

4. Symbolic. Culture is based on the human capacity to symbolize or use one thing to represent another.

5. Patterned. Culture has structure and is integrated; a change in one part will bring changes in another.

6. Adaptive. Culture is based on the human capacity to change or adapt, as opposed to the more genetically driven adaptive process of animals.18

culture Acquired knowledge that people use to interpret experience and generate social behavior. This knowledge forms values, creates attitudes, and influences behavior.

Going Forward Companies from the same cultural clusters inherently understand one another’s values, expectations of leadership, and communi- cation styles better than people from different cultural clusters would. With diligent planning and education of their workforce, two firms from different organizational and national cultural back- grounds, such as SABMiller and ABInBev, can still find success through mergers or acquisitions. Although companies from differ- ent geographic regions would not have an “inherent understand- ing,” it is possible to replicate it through employee training and strong leadership, as past mergers at DuPont and ABInBev dem- onstrated. Managers and executives at a newly merged company should educate its employees on the cultural differences of the two joining firms, putting the combined company in a position to leverage the merger as an opportunity to create a new corporate culture that emphasizes elements and values common to both companies’ national cultures while preserving, where necessary, attributes of the distinct cultures of each. Despite diversity among its British, Belgian, Brazilian, and American roots, cultural commonalities and understanding may help to propel the SABMiller and ABInBev merger forward. The companies certainly face challenges ahead, but, as demon- strated by past successes, proper management and careful planning can maximize their chances for long-term success. 

cutting and lucrative incentive-based compensation programs.”11

In contrast to this, Anheuser-Busch was known as a family- friendly company founded in St. Louis in the 1800s with strong emphasis on community involvement. Anheuser-Busch “won numerous awards for its philanthropy, diversity, community involvement, and employer of choice. The company was known for luxurious executive offices and lots of perks, with six planes and two helicopters to transport its employees.”12

It was clear to leadership that these two distinct cultures— one very competitive and low cost, the other inclusive with many expensive corporate reward systems—would create conflicts in regards to communication, informal relationships between employees, employee satisfaction, and mentorship.13  In response, ABInBev formulated an integration plan that, among other actions, led to the creation of a new board of directors for the combined company, which included the current directors of the InBev board, the Anheuser-Busch president and CEO, as well as one other current or former director of the Anheuser-Busch board. The management team consisted of executives from both companies’ current leadership teams.14 Ultimately, the ABInBev merger was a financial success, with EBITDA rising from 23 per- cent to 38 percent in the three years following the deal. Despite initial cultural clashes, this merger succeeded due to the recogni- tion and education of these differences and the international management experience of the company’s leaders.15

Chapter 4 The Meanings and Dimensions of Culture 125

Because different cultures exist in the world, an understanding of the impact of culture on behavior is critical to the study of international management.19 If international managers do not know something about the cultures of the countries they deal with, the results can be quite disastrous. For example, a partner in one of New York’s leading private banking firms tells the following story:

I traveled nine thousand miles to meet a client and arrived with my foot in my mouth. Deter- mined to do things right, I’d memorized the names of the key men I was to see in Singapore. No easy job, inasmuch as the names all came in threes. So, of course, I couldn’t resist showing off that I’d done my homework. I began by addressing top man Lo Win Hao with plenty of well-placed Mr. Hao’s—sprinkled the rest of my remarks with a Mr. Chee this and a Mr. Woon that. Great show. Until a note was passed to me from one man I’d met before, in New York. Bad news. “Too friendly too soon, Mr. Long,” it said. Where diffidence is next to godliness, there I was, calling a room of VIPs, in effect, Mr. Ed and Mr. Charlie. I’d remembered every- body’s name—but forgot that in Chinese the surname comes first and the given name last.20

■ Cultural Diversity There are many ways of examining cultural differences and their impact on international management. Culture can affect technology transfer, managerial attitudes, managerial ideol- ogy, and even business-government relations. Perhaps most important, culture affects how people think and behave. Table 4–1, for example, compares the most important cultural values of the United States, Japan, and Arab countries. A close look at this table shows a great deal of difference among these three cultures. Culture affects a host of business-related activities, even including the common handshake. Here are some contrasting examples:

Culture Type of Handshake United States Firm Asian Gentle (shaking hands is unfamiliar and uncomfortable for some;

the exception is the Korean, who usually has a firm handshake) British Soft French Light and quick (not offered to superiors); repeated on arrival and departure German Brusque and firm; repeated on arrival and departure Latin American Moderate grasp; repeated frequently Middle Eastern Gentle; repeated frequently South Africa Light/soft; long and involved

Source: Lillian H. Chaney and Jeanette S. Martin, Intercultural Business Communication  (Englewood Cliffs, NJ: Prentice Hall, 1995), p. 115.

Table 4–1 Priorities of Cultural Values: United States, Japan, and Arab Countries

United States Japan Arab Countries

1. Freedom 1. Belonging 1. Family security 2. Independence 2. Group harmony 2. Family harmony 3. Self-reliance 3. Collectiveness 3. Parental guidance 4. Equality 4. Age/seniority 4. Age 5. Individualism 5. Group consensus 5. Authority 6. Competition 6. Cooperation 6. Compromise 7. Efficiency 7. Quality 7. Devotion 8. Time 8. Patience 8. Patience 9. Directness 9. Indirectness 9. Indirectness 10. Openness 10. Go-between 10. Hospitality

Note: “1” represents the most important cultural value, “10” the least. Source: Adapted from information found in F. Elashmawi and Philip R. Harris, Multicultural Management  (Houston: Gulf Publishing, 1993), p. 63.

126 Part 2 The Role of Culture

In overall terms, the cultural impact on international management is reflected by basic beliefs and behaviors. Here are some specific examples where the culture of a society can directly affect management approaches:

∙ Centralized vs. decentralized decision making. In some societies, top manag- ers make all important organizational decisions. In others, these decisions are diffused throughout the enterprise, and middle- and lower-level managers actively participate in, and make, key decisions.

∙ Safety vs. risk. In some societies, organizational decision makers are risk-averse and have great difficulty with conditions of uncertainty. In others, risk taking is encouraged and decision making under uncertainty is common.

∙ Individual vs. group rewards. In some countries, personnel who do outstand- ing work are given individual rewards in the form of bonuses and commis- sions. In others, cultural norms require group rewards, and individual rewards are frowned on.

∙ Informal vs. formal procedures. In some societies, much is accomplished through informal means. In others, formal procedures are set forth and followed rigidly.

∙ High vs. low organizational loyalty. In some societies, people identify very strongly with their organization or employer. In others, people identify with their occupational group, such as engineer or mechanic.

∙ Cooperation vs. competition. Some societies encourage cooperation between their people. Others encourage competition between their people.

∙ Short-term vs. long-term horizons. Some cultures focus most heavily on short-term horizons, such as short-range goals of profit and efficiency. Others are more interested in long-range goals, such as market share and technological development.

∙ Stability vs. innovation. The culture of some countries encourages stability and resistance to change. The culture of others puts high value on innovation and change.

These cultural differences influence the way that international management should be conducted. 

Another way of depicting cultural diversity is through visually separating its com- ponents. Figure 4–1 provides an example by using concentric circles. The outer ring consists of the explicit artifacts and products of the culture. This level is observable and consists of such things as language, food, buildings, and art. The middle ring contains the norms and values of the society. These can be both formal and informal, and they are designed to help people understand how they should behave. The inner circle contains the implicit, basic assumptions that govern behavior. By understanding these assump- tions, members of a culture are able to organize themselves in a way that helps them increase the effectiveness of their problem-solving processes and interact well with each other. In explaining the nature of the inner circle, Trompenaars and Hampden-Turner have noted that

[t]he best way to test if something is a basic assumption is when the [situation] provokes confusion or irritation. You might, for example, observe that some Japanese bow deeper than others. . . . If you ask why they do it the answer might be that they don’t know but that the other person does it too (norm) or that they want to show respect for authority (value). A typical Dutch question that might follow is: “Why do you respect authority?” The most likely Japanese reaction would be either puzzlement or a smile (which might be hiding their irritation). When you question basic assumptions you are asking questions that have never been asked before. It might lead others to deeper insights, but it also might provoke annoyance. Try in the USA or the Netherlands to raise the question of why people are equal and you will see what we mean.21

Chapter 4 The Meanings and Dimensions of Culture 127

The explicit artifacts and products of the society

The norms and values that guide the society

The implicit, basic assumptions

that guide people’s behavior

Figure 4–1 A Model of Culture

Source: Adapted from Fons Trompenaars and Charles Hampden-Turner, Riding the Waves of Culture: Understanding Diversity in Global Business, 2nd ed. (New York: McGraw-Hill, 1998).

A supplemental way of understanding cultural differences is to compare culture as a normal distribution, as in Figure 4–2, and then to examine it in terms of stereo- typing, as in Figure 4–3. Chinese culture and American culture, for example, have quite different norms and values. So the normal distribution curves for the two cul- tures have only limited overlap. However, when one looks at the tail-ends of the two curves, it is possible to identify stereotypical views held by members of one culture about the other. The stereotypes are often exaggerated and used by members of one culture in describing the other, thus helping reinforce the differences between the two while reducing the likelihood of achieving cooperation and communication. This is one reason why an understanding of national culture is so important in the study of international management.

French culture U.S. culture

Source: Revised and adapted from various sources, including Fons Trompenaars and Charles Hampden-Turner, Riding the Waves of Culture: Understanding Diversity in Global Business, 2nd ed. (New York: McGraw-Hill, 1998), p. 25.

Figure 4–2 Comparing Cultures as Overlapping Normal Distributions

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■ Values in Culture A major dimension in the study of culture is values. Values are basic convictions that people have regarding what is right and wrong, good and bad, and important and unim- portant. These values are learned from the culture in which the individual is reared, and they help direct the person’s behavior. Differences in cultural values often result in varying management practices. 

Values in Transition Do values change over time? Past research indicates that personal value systems are relatively stable and do not change rapidly.22 However, changes are taking place in man- agerial values as a result of both culture and technology. A good example is provided by examining the effects of the U.S. environment on the cultural values of Japanese managers working for Japanese firms in the United States. Researchers, focusing attention on such key organizational values as lifetime employment, formal authority, group orientation, seniority, and paternalism, found that

1. Lifetime employment is widely accepted in Japanese culture, but the stateside Japanese managers did not believe that unconditional tenure in one organiza- tion was of major importance. They did believe, however, that job security was important.

2. Formal authority, obedience, and conformance to hierarchic position are very important in Japan, but the stateside managers did not perceive obedience and conformity to be very important and rejected the idea that one should not question a superior. However, they did support the concept of formal authority.

3. Group orientation, cooperation, conformity, and compromise are important organizational values in Japan. The stateside managers supported these values but also believed it was important to be an individual, thus maintaining a balance between a group and a personal orientation.

values Basic convictions that people have regarding what is right and wrong, good and bad, and important and unimportant.

French culture

How the Americans see the French:

• arrogant • flamboyant • hierarchical • emotional

How the French see the Americans:

U.S. culture

• naive • aggressive • unprincipled • workaholic

Source: Revised and adapted from various sources, including Fons Trompenaars and Charles Hampden-Turner, Riding the Waves of Culture: Understanding Diversity in Global Business, 2nd ed. (New York: McGraw-Hill, 1998), p. 23.

Figure 4–3 Stereotyping from the Cultural Extremes

Chapter 4 The Meanings and Dimensions of Culture 129

4. In Japan, organizational personnel often are rewarded based on seniority, not merit. Support for this value was directly influenced by the length of time the Japanese managers had been in the United States. The longer they had been there, the lower their support for this value.

5. Paternalism, often measured by a manager’s involvement in both personal and off-the-job problems of subordinates, is very important in Japan. Stateside Japanese managers disagreed, and this resistance was positively associated with the number of years they had been in the United States.23

There is increasing evidence that individualism in Japan is on the rise, indicating that Japanese values are changing—and not just among managers outside the country. The country’s long economic slump has convinced many Japanese that they cannot rely on the large corporations or the government to ensure their future. They have to do it for themselves. As a result, today a growing number of Japanese are starting to embrace what is being called the “era of personal responsibility.” Instead of denouncing indi- vidualism as a threat to society, they are proposing it as a necessary solution to many of the country’s economic ills. A vice chair of the nation’s largest business lobby summed up this thinking at the opening of a recent conference on economic change when he said, “By establishing personal responsibility, we must return dynamism to the economy and revitalize society.”24  This thinking is supported by past research, which reveals that a culture with a strong entrepreneurial orientation is important to global competitiveness, especially in the small business sector of an economy. This current trend may well be helpful to the Japanese economy in helping it meet foreign competition at home.25

Other countries, such as China, have more recently undergone a transition of val- ues. As discussed in Chapter 2, China is moving away from a collectivist culture, and it appears as though even China is not sure what cultural values it will adhere to. Confu- cianism was worshipped for over 2,000 years, but the powerful messages through Con- fucius’s teachings were overshadowed in a world where profit became a priority. Now, Confucianism is slowly gaining popularity once again, emphasizing respect for authority, concern for others, balance, harmony, and overall order. While this may provide sanctu- ary for some, it poses problems within the government because it will have to prove its worthiness to remain in power. As long as China maintains economic momentum, despite its recent slowdown, hope for a unified culture may be on the horizon.26

■ Cultural Dimensions Understanding the cultural context of a society, and being able to respond and react appropriately to cultural differences, is becoming increasingly important as the global environment becomes more interconnected. Over the past several decades, researchers have attempted to provide a composite picture of culture by examining its subparts, or dimensions.

Hofstede In 1980, Dutch researcher Geert Hofstede identified four original, and later two addi- tional, dimensions of culture that help explain how and why people from various cultures behave as they do.27  His initial data were gathered from two questionnaire surveys with over 116,000 respondents from over 70 different countries around the world—making it the largest organizationally based study ever conducted. The individuals in these studies all worked in the local subsidiaries of IBM. As a result, Hofstede’s research has been sometimes criticized because of its focus on just one company; however, samples for cross-national comparison need not be representative, as long as they are functionally equivalent. Because they are so similar in respects other than nationality (their employers, their kind of work, and—for matched occupations—their level of education), employees of multinational companies like IBM form attractive sources of information for comparing

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national traits. The only thing that can account for systematic and consistent differences between national groups within such a homogeneous multinational population is nation- ality itself—the national environment in which people were brought up before they joined this employer. Comparing IBM subsidiaries therefore shows national culture differences with unusual clarity.28 Despite being first published nearly 40 years ago, Hofstede’s mas- sive study continues to be a focal point for additional research, including the most recent GLOBE project, discussed at the end of this chapter.

The original four dimensions that Hofstede examined were (1) power distance, (2)  uncertainty avoidance, (3) individualism, and (4) masculinity.29 Further research by Hofstede led to the recent identification of the fifth and sixth cultural dimensions: (5) time orientation, identified in 1988, and (6) indulgence versus restraint, identified in 2010.30

Power Distance Power distance is “the extent to which less powerful members of institutions and organizations accept that power is distributed unequally.”31  Countries in  which people blindly obey the orders of their superiors have high power distance. In many societies, lower-level employees tend to follow orders as a matter of procedure. In societies with high power distance, however, strict obedience is found even at the upper levels; examples include Mexico, South Korea, and India. For example, a senior Indian executive with a PhD from a prestigious U.S. university related the following story:

What is most important for me and my department is not what I do or achieve for the company, but whether the [owner’s] favor is bestowed on me. . . . This I have achieved by saying “yes” to everything [the owner] says or does. . . . To contradict him is to look for another job. . . . I left my freedom of thought in Boston.32

The effect of this dimension can be measured in a number of ways. For exam- ple, organizations in low-power-distance countries generally will be decentralized and have flatter organization structures. These organizations also will have a smaller pro- portion of supervisory personnel, and the lower strata of the workforce often will consist of highly qualified people. By contrast, organizations in high-power-distance countries will tend to be centralized and have tall organization structures. Organiza- tions in high-power-distance countries will have a large proportion of supervisory personnel, and the people at the lower levels of the structure often will have low job qualifications. This latter structure encourages and promotes inequality between people at different levels.33

Uncertainty Avoidance Uncertainty avoidance is “the extent to which people feel threatened by ambiguous situations and have created beliefs and institutions that try to avoid these.”34 Countries populated with people who do not like uncertainty tend to have a high need for security and a strong belief in experts and their knowledge; examples include Germany, Japan, and Spain. Cultures with low uncertainty avoidance have people who are more willing to accept that risks are associated with the unknown and that life must go on in spite of this. Examples include Denmark and Great Britain.

The effect of this dimension can be measured in a number of ways. Countries with high-uncertainty-avoidance cultures have a great deal of structuring of organizational activities, more written rules, less risk taking by managers, lower labor turnover, and less ambitious employees.

Low-uncertainty-avoidance societies have organization settings with less structur- ing of activities, fewer written rules, more risk taking by managers, higher labor turnover, and more ambitious employees. The organization encourages personnel to use their own initiative and assume responsibility for their actions.

Individualism We discussed individualism and collectivism in Chapter 2 in reference to political systems. Individualism is the tendency of people to look after themselves and their immediate family only.35 Hofstede measured this cultural difference on a bipolar continuum with individualism at one end and collectivism at the other. Collectivism is

GLOBE (Global Leadership and Organizational Behavior Effectiveness) A multicountry study and evaluation of cultural attributes and leadership behaviors among more than 17,000 managers from 951 organizations in 62 countries.

power distance The extent to which less powerful members of institutions and organizations accept that power is distributed unequally.

uncertainty avoidance The extent to which people feel threatened by ambiguous situations and have created beliefs and institutions that try to avoid these.

individualism The political philosophy that people should be free to pursue economic and political endeavors without constraint (Chapter 2); the tendency of people to look after themselves and their immediate family only (Chapter 4).

collectivism The political philosophy that views the needs or goals of society as a whole as more important than individual desires (Chapter 2); the tendency of people to belong to groups or collectives and to look after each other in exchange for loyalty (Chapter 4).

Chapter 4 The Meanings and Dimensions of Culture 131

the tendency of people to belong to groups or collectives and to look after each other in exchange for loyalty.36

Like the effects of the other cultural dimensions, the effects of individualism and collectivism can be measured in a number of different ways.37  Hofstede found that wealthy countries have higher individualism scores and poorer countries higher collectivism scores (see Table 4–2  for the 74 countries used in Figure 4–4 and sub- sequent figures). Note that in Figure 4–4, the United States, Canada, Australia, France, and the United Kingdom, among others, have high individualism and high GNP. Con- versely, China, Mexico, and a number of South American countries have low indi- vidualism (high collectivism) and low GNP. Countries with high individualism also tend to have greater support for the Protestant work ethic, greater individual initiative, and promotions based on market value. Countries with low individualism tend to have less support for the Protestant work ethic, less individual initiative, and promotions based on seniority.

Masculinity Masculinity is defined by Hofstede as “a situation in which the dom- inant values in society are success, money, and things.”38  Hofstede measured this

masculinity A cultural characteristic in which the dominant values in society are success, money, and things.

Table 4–2 Countries and Regions Used in Hofstede’s Research

Arabic-speaking Ecuador Panama countries (Egypt, Estonia Peru Iraq, Kuwait, Finland Philippines Lebanon, Libya, France Poland Saudi Arabia, Germany Portugal United Arab Great Britain Romania Emirates) Greece Russia Argentina Guatemala Salvador Australia Hong Kong Serbia Austria (China) Singapore Bangladesh Hungary Slovakia Belgium Flemish India Slovenia (Dutch speaking) Indonesia South Africa Belgium Walloon Iran Spain (French speaking) Ireland Suriname Brazil Israel Sweden Bulgaria Italy Switzerland French Canada Quebec Jamaica Switzerland German Canada total Japan Taiwan Chile Korea (South) Thailand China Luxembourg Trinidad Colombia Malaysia Turkey Costa Rica Malta United States Croatia Mexico Uruguay Czech Republic Morocco Venezuela Denmark Netherlands Vietnam East Africa New Zealand West Africa (Ethiopia, Kenya, Norway (Ghana, Nigeria, Tanzania, Zambia) Pakistan Sierra Leone)

Source: From G. Hofstede and G. J. Hofstede, Cultures and Organizations: Software of the Mind, 2nd ed. (New York: McGraw-Hill, 2005).

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dimension on a continuum ranging from masculinity to femininity. Contrary to some stereotypes and connotations, femininity is the term used by Hofstede to describe “a situation in which the dominant values in society are caring for others and the quality of life.”39

Countries with a high masculinity index, such as the Germanic countries, place great importance on earnings, recognition, advancement, and challenge. Individuals are encouraged to be independent decision makers, and achievement is defined in terms of recognition and wealth. The workplace is often characterized by high job stress, and many managers believe that their employees dislike work and must be kept under some degree of control. The school system is geared toward encouraging high performance. Young men expect to have careers, and those who do not often view themselves as failures. Historically, fewer women hold higher-level jobs, although this is changing. The school system is geared toward encouraging high performance.

femininity A cultural characteristic in which the dominant values in society are caring for others and the quality of life.

Source: Original graphic by Ben Littell under supervision of Professor Jonathan Doh based on data from The World Bank and from G. Hofstede and G. J. Hofstede, Cultures and Organizations: Software of the Mind, 2nd ed. (New York: McGraw-Hill, 2005).

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Canada⬥

Belgium⬥

France⬥

Italy⬥ Japan⬥

South Korea⬥

Saudi Arabia⬥

Chile⬥ Venezuela⬥ Argentina⬥

India⬥ Nepal⬥

Indonesia⬥

China⬥ Thailand⬥

Spain⬥

United Kingdom ⬥

Figure 4–4 GDP per Capita in 2015 versus Individualism

Chapter 4 The Meanings and Dimensions of Culture 133

Countries with a low masculinity index (Hofstede’s femininity dimension), such as Norway, tend to place great importance on cooperation, a friendly atmosphere, and employ- ment security. Individuals are encouraged to be group decision makers, and achievement is defined in terms of layman contacts and the living environment. The workplace tends to be characterized by low stress, and managers give their employees more credit for being respon- sible and allow them more freedom. Culturally, this group prefers small-scale enterprises, and they place greater importance on conservation of the environment. The school system is designed to teach social adaptation. Some young men and women want careers; others do not. Many women hold higher-level jobs and do not find it necessary to be assertive.

Time Orientation Originally called Confucian Work Dynamism, time orientation is defined by Hofstede as “dealing with society’s search for virtue.” Long-term-oriented societies tend to focus on the future. They have the ability to adapt their traditions when conditions change, have a tendency to save and invest for the future, and focus on achiev- ing long-term results. Short-term-oriented cultures focus more on the past and present than on the future. These societies have a deep respect for tradition, focus on achieving quick results, and do not tend to save for the future.40 Hofstede’s original time orientation research only included 23 countries, leading to some criticism. However, in 2010, the research was expanded to include 93 countries.  Table 4–3  highlights ten differences between long- and short-term-oriented cultures.

Asian cultures primarily exhibit long-term orientation. Countries with a high long- term orientation index include China, Japan, and Indonesia (see Figure 4–5). In these cultures, individuals are persistent, thrifty with their money, and highly adaptable to unexpected circumstances. Relationships tend to be ordered by status, which can affect the way that situations are handled. Additionally, people in long-term-oriented cultures are more likely to believe that there are multiple truths to issues that arise, rather than just one, absolute answer.

Table 4–3 Ten Differences between Short- and Long-Term- Oriented Societies

Short-Term Orientation Long-Term Orientation

Most important events in life occurred in  the past or take place now

Most important events in life will occur in  the future

Personal steadiness and stability: a good person is always the same

A good person adapts to the circumstances

There are universal guidelines about what are good and evil

What are good and evil depend on the circumstances

Traditions are sacrosanct Traditions are adaptable to changed circumstances

Family life is guided by imperatives Family life is guided by shared tasks Supposed to be proud of one’s country Trying to learn from other countries Service to others is an important goal Thrift and perseverance are important

goals Social spending and consumption Large savings quote, funds available

for investment Students attribute success and failure to luck

Students attribute success to effort and failure to lack of effort

Slow or no economic growth of poor countries

Fast economic growth of countries up until a level of prosperity

Source: From G. Hofstede, “Dimensionalizing Cultures: The Hofstede Model in Context,” Online Readings in Psychology and Culture, Unit 2 (2011),  http://scholarworks.gvsu.edu/orpc/vol2/iss1/8/.

134 Part 2 The Role of Culture

Spain, the USA, and the UK were identified as having a low long-term orientation index (Hofstede’s short-term orientation). Individuals in short-term-oriented societies believe in absolutes (good and evil), value stability and leisure time, and spend money more freely. Traditional approaches are respected, and feedback cycles tend to be short. Gift giving and greetings are shared and reciprocated.41

Indulgence versus Restraint Based on research related to relative happiness around the world, Hofstede’s most recent dimension measures the freedom to satisfy one’s nat- ural needs and desires within a society. Indulgent societies encourage instant gratification of natural human needs, while restrained cultures regulate and control behavior based on social norms.42 The research leading to the identification of this sixth dimension included participants from 93 countries.  Table 4–4  highlights ten differences between indulgent and restrained cultures.

Countries that show a high indulgence index tend to be located in the Americas and Western Europe, including the USA, Australia, Mexico, and Chile (see Figure 4–6). Freely able to satisfy their basic human desires, individuals in these societies tend to live in the moment. They participate in more sports and activities, express happiness freely, and view themselves as being in control of their own destiny. Freedom of speech is considered vital, and smaller police forces are commonplace. People in indulgent cultures tend to view friendships as important, have less moral discipline, and exhibit a more extroverted, positive personality.

Countries that show a low indulgence index (Hofstede’s dimension of high restraint) tend to be located in Asia and Eastern Europe, including Egypt, Russia, India, and China. In these societies, individuals participate in fewer activities and sports, express less happiness, and believe that their own destiny is not in their control. Main- taining order is seen as vital, resulting in larger police forces and less crime. People tend to value work ethic over friendships, exhibit introverted personalities, and follow a stricter moral discipline.43

Figure 4–5 Countries with Very High Long-Term and Short-Term Orientation Scores

High Short-Term

High Long-Term

Note: Country rankings were completed using Geert Hofstede’s Long-Term Orientation (LTO) scores.  High Short-Term refers to countries with scores less than 35 and  High Long-Term refers to countries with scores greater than 60.

Source: Original graphic by Ben Littell under supervision of Professor Jonathan Doh based on data from Geert Hofstede, “Dimensionalizing Cultures: The Hofstede Model in Context,” Online Readings in Psychology and Culture, Unit 2 (2011), http://scholarworks.gvsu.edu/orpc/vol2/iss1/8/.

Chapter 4 The Meanings and Dimensions of Culture 135

Table 4–4 Ten Differences between Indulgent and Restrained Societies

Indulgent Restrained

Higher percentage of people declar- ing themselves very happy

Fewer very happy people

A perception of personal life control A perception of helplessness: what happens to me is not my own doing

Freedom of speech seen as important Freedom of speech is not a primary concern

Higher importance of leisure Lower importance of leisure More likely to remember positive emotions

Less likely to remember positive emotions

In countries with educated popula- tions, higher birthrates

In countries with educated populations, lower birthrates

More people actively involved in sports

Fewer people actively involved in sports

In countries with enough food, higher percentages of obese people

In countries with enough food, fewer obese people

In wealthy countries, lenient sexual norms

In wealthy countries, stricter sexual norms

Maintaining order in the nation is not given a high priority

Higher number of police officers per 100,000 population

Source: From Geert Hofstede, “Dimensionalizing Cultures: The Hofstede Model in Context,” Online Readings in Psychology and Culture, Unit 2 (2011),  http://scholarworks.gvsu.edu/orpc/vol2/iss1/8/.

High Indulgence

High Restraint

Note: Country rankings were completed using Geert Hofstede’s Indulgence versus Restraint (IVR) scores.  High Indulgence refers to countries with scores greater than 50 and  High Restraint refers to countries with scores less than 25.

Source: Original graphic by Ben Littell under supervision of Professor Jonathan Doh based on data from Geert Hofstede, “Dimensionalizing Cultures: The Hofstede Model in Context,” Online Readings in Psychology and Culture, Unit 2 (2011), http://scholarworks.gvsu.edu/orpc/vol2/iss1/8/.

Figure 4–6 Countries with Very High Indulgence and Restraint Scores

136 Part 2 The Role of Culture

Integrating the Dimensions A description of the four original and two additional dimensions of culture is useful in helping to explain the differences between various countries, and Hofstede’s research has extended beyond this focus and shown how countries can be described in terms of pairs of dimensions. In Hofstede’s and later research, pairings and clusters can provide useful summaries for international managers. It is always best to have an in-depth understanding of the multicultural environment, but the general groupings outline common ground that one can use as a starting point. Figure 4–7, which incorporates power distance and individualism, provides an example.

Upon first examination of the cluster distribution, the data may appear confus- ing. However, they are very useful in depicting what countries appear similar in values and to what extent they differ from other country clusters. The same countries are not always clustered together in subsequent dimension comparisons. This indicates

Figure 4–7 Power Distance versus Individualism

In d

iv id

u al

is m

(I D

V )

in d

iv id

u al

is t

Power Distance (PDI)small large

co lle

ct iv

is t

5

85

75

65

55

45

35

25

15

95 10 30 50 70 90 110

Guatemala Ecuador

Bang lades

h

Pakis tan

Chin a,

Thail and

Japa n

Hong Kong

Singa pore

Mala ysia

Philip pines

India Moro

cco

Arab ctrs

S. Ko rea

Taiw an Vietn

am W A

frica

E Afr ica

Iran

Indon esia

Colombia

Portugal

CroatiaGreece

Slovakia

S. Africa

Israel

Malta

Finland

Ireland France

Austria

Canada total

Canada Quebec

Poland

Hungary

Italy Belgium NI

Belgium Fr Sweden

Germany

Denmark

Switzerland Ge

Switzerland Fr

Norway

Netherlands

Great Britain

United States

New Zealand

Australia

Estonia, Luxembourg Czech Rep.

Spain

Russia

Romania Bulgaria

Slovenia

Serbia

Argentina Suriname

Jamaica Brazil

Salvador

Chile

Uruguay

Mexico

Peru Trinidad

Costa Rica

PanamaVenezuela

slante d

regular Europe and Anglo countries

Asia and Muslim countries

quadrant partition lines

Latin America

Legend

italics

Turke y

⬥

⬥ ⬥

⬥⬥⬥

⬥ ⬥

⬥ ⬥ ⬥

⬥

⬥ ⬥

⬥

⬥ ⬥

⬥⬥

⬥

⬥ ⬥ ⬥ ⬥ ⬥ ⬥

⬥

⬥ ⬥ ⬥

⬥

⬥

⬥ ⬥

⬥ ⬥

⬥ ⬥

⬥ ⬥

⬥

⬥

⬥

⬥

⬥

⬥ ⬥

⬥

⬥ ⬥

⬥

⬥

⬥ ⬥ ⬥

⬥ ⬥

⬥ ⬥

⬥

⬥ ⬥

⬥ ⬥

⬥

⬥ ⬥

⬥

⬥

⬥

⬥ ⬥

Source: From G. Hofstede and G. J. Hofstede, Cultures and Organizations: Software of the Mind, 2nd ed. (New York: McGraw-Hill, 2005).

Chapter 4 The Meanings and Dimensions of Culture 137

that while some beliefs overlap between cultures, it is where they diverge that makes groups unique to manage.

In Figure 4–7, the United States, Australia, Canada, Britain, Denmark, and New Zealand are located in the lower-left-hand quadrant. Americans, for example, have very high individualism and relatively low power distance. They prefer to do things for them- selves and are not upset when others have more power than they do. The other countries, while they may not be a part of the same cluster, share similar values. Conversely, many of the underdeveloped or newly industrialized countries, such as Colombia, Hong Kong, Portugal, and Singapore, are characterized by large power distance and low individual- ism. These nations tend to be collectivist in their approach.

Similarly, Figure 4–8  plots the uncertainty-avoidance index against the power- distance index. Once again, there are clusters of countries. Many of the Anglo nations tend to be in the upper-left-hand quadrant, which is characterized by small power distance

Figure 4–8 Power Distance versus Uncertainty Avoidance

U n

ce rt

a in

ty A

vo id

a n

ce (

U A

I) st

ro n

g

Power Distance (PDI)small large

w e

a k

5

85

95

75

65

55

45

35

25

15

115

105

10 30 50 70 90 110

Guatemala⬥

family

pyramid

market

machine

Chin a

⬥

Thail and⬥

Japa n

⬥

Hong Kong

⬥

Singa pore ⬥

Mala ysia ⬥

Philip pines

⬥

India⬥

Moro cco ⬥

Bang lades

h ⬥

Arab ctrs

⬥

S. Ko rea

⬥

Taiw an

⬥

Viet nam ⬥

W A frica

⬥

E Af rica

⬥

Iran⬥

Indon esia

⬥

Pakis tan ⬥

Colombia ⬥

Portugal⬥

Croatia⬥

Greece⬥

Slovakia ⬥

S. Africa ⬥

Israel⬥

Malta ⬥

Finland ⬥

Ireland ⬥

France⬥

Austria⬥

Canada total ⬥

Canada Quebec⬥

Poland⬥

Hungary⬥

Italy ⬥

Belgium NI⬥

Belgium Fr ⬥

Sweden⬥

Germany⬥

Denmark⬥

Switzerland Ge ⬥

Switzerland Fr ⬥

Ecuador ⬥

Norway ⬥

Netherlands ⬥

Great Britain ⬥

United States ⬥

New Zealand ⬥

Australia⬥

Estonia⬥

Luxembourg ⬥

Czech Rep.⬥

Spain⬥

Russia⬥

Romania⬥

Bulgaria⬥

Slovenia ⬥

Serbia⬥

Argentina ⬥

Suriname ⬥

Jamaica ⬥

Brazil⬥

Salvador ⬥

Chile ⬥

Uruguay⬥

Mexico⬥

Peru ⬥

Trinidad ⬥

Costa Rica ⬥ Panama⬥

Venezuela⬥

slant ed

regular Europe and Anglo countries

Asia and Muslim countries

quadrant partition lines

Latin America

Legend

italics

⬥ Turke

y

Source: From G. Hofstede and G. J. Hofstede, Cultures and Organizations: Software of the Mind, 2nd ed. (New York: McGraw-Hill, 2005).

138 Part 2 The Role of Culture

and weak uncertainty avoidance, while, in contrast, many Latin, Mediterranean, and Asian nations are characterized by high power distance and strong uncertainty avoidance.

The integration of these cultural factors into two-dimensional plots helps illustrate the complexity of understanding culture’s effect on behavior. A number of dimensions are at work, and sometimes they do not all move in the anticipated direction. For exam- ple, at first glance, a nation with high power distance would appear to be low in indi- vidualism, and vice versa, and Hofstede found exactly that (see Figure 4–7). However, low uncertainty avoidance does not always go hand in hand with high masculinity, even though those who are willing to live with uncertainty will want rewards such as money and power and accord low value to the quality of work life and caring for others (see Figure 4–9). Simply put, empirical evidence on the impact of cultural dimensions may differ from commonly held beliefs or stereotypes. Research-based data are needed to determine the full impact of differing cultures.

Figure 4–9 Masculinity versus Uncertainty Avoidance

U n

ce rt

a in

ty A

vo id

a n

ce (

U A

I) st

ro n

g

Masculinity (MAS)feminine masculine

w e

a k

5

85

95

75

65

55

45

35

25

15

115

105

5 25 54 65 85

Guatemala ⬥

Chin a

⬥

Thail and ⬥

Japa n ⬥

Hong Kong

⬥

Singa pore

⬥

Mala ysia

⬥

Philip pines

⬥

India⬥

Moro cco

Bang lades

h ⬥

Arab ctrs,

⬥

S. Ko rea ⬥

Taiw an ⬥

Viet nam

⬥

W A frica ⬥E

Afri ca ⬥

Iran⬥

Indon esia⬥

Pakis tan

⬥

Colombia⬥

Portugal⬥

Croatia ⬥

Greece ⬥

Slovakia (110) ⬥ S. Africa⬥

Israel ⬥

Malta ⬥

Finland ⬥

Ireland⬥

France⬥

Austria⬥

Canada total ⬥

Canada Quebec ⬥

Poland⬥

Hungary⬥

Italy ⬥

Belgium NI ⬥ Belgium Fr

⬥

Sweden⬥

Germany⬥

Denmark⬥

Switzerland Ge⬥

Switzerland Fr⬥

Ecuador⬥

Norway⬥

Netherlands⬥

Great Britain ⬥

United States⬥

New Zealand ⬥

Australia⬥

Estonia ⬥

Luxembourg, Czech Rep.⬥

Spain ⬥

Russia ⬥

Romania ⬥

Bulgaria ⬥

Slovenia ⬥

Serbia⬥

Argentina ⬥

Suriname ⬥

Jamaica⬥

Brazil⬥

Salvador⬥

Chile ⬥

Uruguay⬥

Mexico⬥

Peru ⬥

Trinidad⬥

Costa Rica ⬥

Panama

⬥

Venezuela⬥

slant ed

regular Europe and Anglo countries

Asia and Muslim countries

quadrant partition lines

Latin America

Legend

italics

⬥ Turke

y

Source: From G. Hofstede and G. J. Hofstede, Cultures and Organizations: Software of the Mind, 2nd ed. (New York: McGraw-Hill, 2005).

Chapter 4 The Meanings and Dimensions of Culture 139

The Hofstede cultural dimensions and country clusters are widely recognized and accepted in the study of international management. His work has served as a springboard to numerous recent cultural studies and research projects.

Trompenaars In 1994, another Dutch researcher, Fons Trompenaars, expanded on the research of Hofstede and published the results of his own ten-year study on cultural dimensions.44 He administered research questionnaires to over 15,000 managers from 28 countries and received usable responses from at least 500 in each nation; the 23 countries in his research are presented in Table 4–5. Building heavily on value orientations and the rela- tional orientations of well-known sociologist Talcott Parsons,45 Trompenaars derived five relationship orientations that address the ways in which people deal with each other; these can be considered to be cultural dimensions that are analogous to Hofstede’s dimen- sions. Trompenaars also looked at attitudes toward both time and the environment, and the result of his research is a wealth of information helping explain how cultures differ and offering practical ways in which MNCs can do business in various countries. The following discussion examines each of the five relationship orientations as well as attitudes toward time and the environment.46

Universalism vs. Particularism Universalism is the belief that ideas and practices can be applied everywhere without modification. Particularism is the belief that circum- stances dictate how ideas and practices should be applied. In cultures with high univer- salism, the focus is more on formal rules than on relationships, business contracts are adhered to very closely, and people believe that “a deal is a deal.” In cultures with high

universalism The belief that ideas and practices can be applied everywhere in the world without modification.

particularism The belief that circumstances dictate how ideas and practices should be applied and that something cannot be done the same everywhere.

Table 4–5 Trompenaars’s Country Abbreviations

Abbreviation Country

ARG Argentina AUS Austria BEL Belgium BRZ Brazil CHI China CIS Former Soviet Union CZH Former Czechoslovakia FRA France GER Germany (excluding former East Germany) HK Hong Kong IDO Indonesia ITA Italy JPN Japan MEX Mexico NL Netherlands SIN Singapore SPA Spain SWE Sweden SWI Switzerland THA Thailand UK United Kingdom USA United States VEN Venezuela

140 Part 2 The Role of Culture

particularism, the focus is more on relationships and trust than on formal rules. In a particularist culture, legal contracts often are modified, and as people get to know each other better, they often change the way in which deals are executed. In his early research, Trompenaars found that in countries such as the United States, Australia, Germany, Sweden, and the United Kingdom, there was high universalism, while countries such as Venezuela, the former Soviet Union, Indonesia, and China were high on particularism. Figure 4–10  shows the continuum.

In follow-up research, Trompenaars and Hampden-Turner presented the respon- dents with a dilemma and asked them to make a decision. Here is one of these dilemmas along with the national scores of the respondents:47

You are riding in a car driven by a close friend. He hits a pedestrian. You know he was going at least 35 miles per hour in an area of the city where the maximum allowed speed is 20 miles per hour. There are no witnesses. His lawyer says that if you testify under oath that he was driving 20 miles per hour it may save him from serious consequences. What right has your friend to expect you to protect him?

a. My friend has a definite right as a friend to expect me to testify to the lower figure. b. He has some right as a friend to expect me to testify to the lower figure. c. He has no right as a friend to expect me to testify to the lower figure.

With a high score indicating strong universalism (choice c) and a low score indicat- ing strong particularism (choice a), here is how the different nations scored:

Figure 4–10 Trompenaars’s Relationship Orientations on Cultural Dimensions

Individualism vs. Communitarianism

Individualism

Sin

Communitarianism

ThaJpnIdoFraChiGerHK ItaVenBelSwiBrzSpa NL

Swe Aus

UKArg CIS Mex

CzhUSA

Achievement vs. Ascription

Achievement Ascription

Aus USA Ger Arg Tha Bel Fra Ita Brz

NL HK

Spa Jpn Czh Sin CIS Chi Ido VenSwi UK

Swe Mex

Specific vs. Di�use

Specific Di�use

Aus UK USA Swi

Fra NL Bel Brz Czh Ido Spa Chi VenHK Sin

Swe

CIS Tha

Arg Jpn Mex

Ita Ger

Neutral vs. Emotional

Neutral Emotional

Jpn UK Sin Aus Ido HK Tha Bel Ger

Swe Arg USA

Czh Fra

Spa Ita Ven

CIS Brz Chi Swi NL Mex

Universalism

Universalism vs. Particularism

Particularism

USA Aus Ger Swi

Swe UK NL Czh Ita Bel Brz Fra Jap Sin

Arg Mex Tha HK Chi Ido CIS Ven

Source: Adapted from information found in Fons Trompenaars, Riding the Waves of Culture  (New York: Irwin, 1994); Charles Hampden-Turner and Fons Trompenaars, “A World Turned Upside Down: Doing Business in Asia,” in  Managing Across Cultures: Issues and Perspectives, ed. Pat Joynt and Malcolm Warner (London: International Thomson Business Press, 1996), pp. 275–305.

Chapter 4 The Meanings and Dimensions of Culture 141

Universalism (no right)

Canada 96 United States 95 Germany 90 United Kingdom 90 Netherlands 88 France 68 Japan 67 Singapore 67 Thailand 63 Hong Kong 56 Particularism (some or definite right)

China 48 South Korea 26

As noted earlier, respondents from universalist cultures (e.g., North America and Western Europe) felt that the rules applied regardless of the situation, while respondents from particularist cultures were much more willing to bend the rules and help their friend.

Based on these types of findings, Trompenaars recommends that when individuals from particularist cultures do business in a universalistic culture, they should be prepared for rational, professional arguments and a “let’s get down to business” attitude. Con- versely, when individuals from universalist cultures do business in a particularist environ- ment, they should be prepared for personal meandering or irrelevancies that seem to go nowhere and should not regard personal, get-to-know-you attitudes as mere small talk.

Individualism vs. Communitarianism Individualism and communitarianism are key dimensions in Hofstede’s earlier research. Although Trompenaars derived these two relationships differently than Hofstede does, they still have the same basic meaning, although in his more recent work Trompenaars has used the word communitarianism rather than collectivism. For him, individualism refers to people regarding themselves as individuals, while communitarianism refers to people regarding themselves as part of a group, similar to the political groupings discussed in Chapter 2. As shown in Figure 4–10, the United States, former Czechoslovakia, Argentina, the former Soviet Union (CIS), and Mexico have high individualism.

In his most recent research, Trompenaars posed the following situation. If you were to be promoted, which of the two following issues would you emphasize most: (a) the new group of people with whom you will be working or (b) the greater responsibility of the work you are undertaking and the higher income you will be earning? The following reports the scores associated with the individualism of option b—greater responsibility and more money.48

communitarianism Refers to people regarding themselves as part of a group.

Individualism (emphasis on larger responsibili- ties and more income)

Canada 77 Thailand 71 United Kingdom 69 United States 67 Netherlands 64 France 61 Japan 61 China 54 Singapore 50 Hong Kong 47 Communitarianism (emphasis on the new group of people)

Malaysia 38 Korea 32

142 Part 2 The Role of Culture

These findings are somewhat different from those presented in Figure 4–10  and show that cultural changes may be occurring more rapidly than many people realize. For example, findings show Thailand very high on individualism (possibly indicating an increasing entrepreneurial spirit/cultural value), whereas the Thais were found to be low on individualism a few years before, as shown in Figure 4–10. At the same time, it is important to remember that there are major differences between people in high- individualism societies and those in high-communitarianism societies. The former stress personal and individual matters; the latter value group-related issues. Negotiations in cultures with high individualism typically are made on the spot by a representative, peo- ple ideally achieve things alone, and they assume a great deal of personal responsibility. In cultures with high communitarianism, decisions typically are referred to committees, people ideally achieve things in groups, and they jointly assume responsibility.

Trompenaars recommends that when people from cultures with high individualism deal with those from communitarianistic cultures, they should have patience for the time taken to consent and to consult, and they should aim to build lasting relationships. When people from cultures with high communitarianism deal with those from individualistic cultures, they should be prepared to make quick decisions and commit their organization to these decisions. Also, communitarianists dealing with individualists should realize that the reason they are dealing with only one negotiator (as opposed to a group) is that this person is respected by his or her organization and has its authority and esteem.

Neutral vs. Emotional A neutral culture is one in which emotions are held in check. As seen in Figure 4–10, both Japan and the United Kingdom are high-neutral cultures. People in these countries try not to show their feelings; they act stoically and maintain their composure. An emotional culture is one in which emotions are openly and natu- rally expressed. People in emotional cultures often smile a great deal, talk loudly when they are excited, and greet each other with a great deal of enthusiasm. Mexico, the Netherlands, and Switzerland are examples of high emotional cultures.

Trompenaars recommends that when individuals from emotional cultures do busi- ness in neutral cultures, they should put as much as they can on paper and submit it to the other side. They should realize that lack of emotion does not mean a lack of inter- est or boredom, but rather that people from neutral cultures do not like to show their hand. Conversely, when those from neutral cultures do business in emotional cultures, they should not be put off stride when the other side creates scenes or grows animated and boisterous, and they should try to respond warmly to the emotional affections of the other group.

Specific vs. Diffuse A specific culture is one in which individuals have a large pub- lic space they readily let others enter and share and a small private space they guard closely and share with only close friends and associates. A diffuse culture is one in which public space and private space are similar in size and individuals guard their public space carefully because entry into public space affords entry into private space as well. As shown in Figure 4–10, Austria, the United Kingdom, the United States, and Switzerland all are specific cultures, while Venezuela, China, and Spain are diffuse cultures. In specific cultures, people often are invited into a person’s open, public space; individuals in these cultures often are open and extroverted; and there is a strong separa- tion of work and private life. In diffuse cultures, people are not quickly invited into a person’s open, public space because once they are in, there is easy entry into the private space as well. Individuals in these cultures often appear to be indirect and introverted, and work and private life often are closely linked.

An example of these specific and diffuse cultural dimensions is provided by the United States and Germany. A U.S. professor, such as Robert Smith, PhD, generally would be called “Doctor Smith” by students when at his U.S. university. When shop- ping, however, he might be referred to by the store clerk as “Bob,” and when golfing, Bob might just be one of the guys, even to a golf partner who happens to be a

neutral culture A culture in which emotions are held in check.

emotional culture A culture in which emotions are expressed openly and naturally.

specific culture A culture in which individuals have a large public space they readily share with others and a small private space they guard closely and share with only close friends and associates.

diffuse culture A culture in which public space and private space are similar in size and individuals guard their public space carefully because entry into public space affords entry into private space as well.

Chapter 4 The Meanings and Dimensions of Culture 143

graduate student in his department. The reason for these changes in status is that, with the specific U.S. cultural values, people have large public spaces and often conduct themselves differently depending on their public role. In high-diffuse cultures, on the other hand, a person’s public life and private life often are similar. Therefore, in Germany, Herr Professor Doktor Schmidt would be referred to that way at the uni- versity, local market, and bowling alley—and even his wife might address him for- mally in public. A great deal of formality is maintained, often giving the impression that Germans are stuffy or aloof.

Trompenaars recommends that when those from specific cultures do business in diffuse cultures, they should respect a person’s title, age, and background connections, and they should not get impatient when people are being indirect or circuitous. Con- versely, when individuals from diffuse cultures do business in specific cultures, they should try to get to the point and be efficient, learn to structure meetings with the judi- cious use of agendas, and not use their titles or acknowledge achievements or skills that are irrelevant to the issues being discussed.

Achievement vs. Ascription An achievement culture is one in which people are accorded status based on how well they perform their functions. An ascription culture is one in which status is attributed based on who or what a person is. Achievement cultures give high status to high achievers, such as the company’s number-one salesper- son or the medical researcher who has found a cure for a rare form of bone cancer. Ascription cultures accord status based on age, gender, or social connections. For ex- ample, in an ascription culture, a person who has been with the company for 40 years may be listened to carefully because of the respect that others have for the individual’s age and longevity with the firm, and an individual who has friends in high places may be afforded status because of whom she knows. As shown in Figure 4–10, Austria, the United States, Switzerland, and the United Kingdom are achievement cultures, while Venezuela, Indonesia, and China are ascription cultures.

Trompenaars recommends that when individuals from achievement cultures do business in ascription cultures, they should make sure that their group has older, senior, and formal position holders who can impress the other side, and they should respect the status and influence of their counterparts in the other group. Conversely, he recommends that when individuals from ascription cultures do business in achievement cultures, they should make sure that their group has sufficient data, technical advisers, and knowledge- able people to convince the other group that they are proficient, and they should respect the knowledge and information of their counterparts on the other team.

Time Aside from the five relationship orientations, another major cultural difference is the way in which people deal with the concept of time. Trompenaars has identified two different approaches: sequential and synchronous. In cultures where sequential ap- proaches are prevalent, people tend to do only one activity at a time, keep appointments strictly, and show a strong preference for following plans as they are laid out and not deviating from them. In cultures where synchronous approaches are common, people tend to do more than one activity at a time, appointments are approximate and may be changed at a moment’s notice, and schedules generally are subordinate to relationships. People in synchronous-time cultures often will stop what they are doing to meet and greet individuals coming into their office.

A good contrast is provided by the United States, Mexico, and France. In the United States, people tend to be guided by sequential-time orientation and thus set a schedule and stick to it. Mexicans operate under more of a synchronous-time orientation and thus tend to be much more flexible, often building slack into their schedules to allow for interruptions. The French are similar to the Mexicans and, when making plans, often determine the objectives they want to accomplish but leave open the timing and other factors that are beyond their control; this way, they can adjust and modify their approach as they go along. As Trompenaars noted, “For the French and Mexicans, what was

achievement culture A culture in which people are accorded status based on how well they perform their functions.

ascription culture A culture in which status is attributed based on who or what a person is.

144 Part 2 The Role of Culture

important was that they get to the end, not the particular path or sequence by which that end was reached.”49

Another interesting time-related contrast is the degree to which cultures are past- or present-oriented as opposed to future-oriented. In countries such as the United States, Italy, and Germany, the future is more important than the past or the present. In countries such as Venezuela, Indonesia, and Spain, the present is most important. In France and Belgium, all three time periods are of approximately equal importance. Because different emphases are given to different time periods, adjusting to these cultural differences can create challenges.

Trompenaars recommends that when doing business with future-oriented cultures, effective international managers should emphasize the opportunities and limitless scope that any agreement can have, agree to specific deadlines for getting things done, and be aware of the core competence or continuity that the other party intends to carry with it into the future. When doing business with past- or present-oriented cultures, he recom- mends that managers emphasize the history and tradition of the culture, find out whether internal relationships will sanction the types of changes that need to be made, and agree to future meetings in principle but fix no deadlines for completions.

The Environment Trompenaars also examined the ways in which people deal with their environment. Specific attention should be given to whether they believe in control- ling outcomes (inner-directed) or letting things take their own course (outer-directed). One of the things he asked managers to do was choose between the following statements:

1. What happens to me is my own doing. 2. Sometimes I feel that I do not have enough control over the directions my life

is taking.

Managers who believe in controlling their own environment would opt for the first choice; those who believe that they are controlled by their environment and cannot do much about it would opt for the second.

Here is an example by country of the sample respondents who believe that what happens to them is their own doing:50

United States 89% Switzerland 84% Australia 81% Belgium 76% Indonesia 73% Hong Kong 69% Greece 63% Singapore 58% Japan 56% China 35%

In the United States, managers feel strongly that they are masters of their own fate. This helps account for their dominant attitude (sometimes bordering on aggressiveness) toward the environment and discomfort when things seem to get out of control. Many Asian cultures do not share these views. They believe that things move in waves or natural shifts and one must “go with the flow,” so a flexible attitude, characterized by a willingness to compromise and maintain harmony with nature, is important.

Trompenaars recommends that when dealing with those from cultures that believe in dominating the environment, it is important to play hardball, test the resilience of the opponent, win some objectives, and always lose from time to time. For example, repre- sentatives of the U.S. government have repeatedly urged Japanese automobile companies to purchase more component parts from U.S. suppliers to partially offset the large volume

Chapter 4 The Meanings and Dimensions of Culture 145

of U.S. imports of finished autos from Japan. Instead of enacting trade barriers, the United States was asking for a quid pro quo. When dealing with those from cultures that believe in letting things take their natural course, it is important to be persistent and polite, maintain good relationships with the other party, and try to win together and lose apart.

■ Integrating Culture and Management: The GLOBE Project

Most recently, the GLOBE (Global Leadership and Organizational Behavior Effective- ness) research program reflects an additional approach to measuring cultural differences. Conceived in 1991, the GLOBE project is an ongoing research project, currently consist- ing of three major interrelated phases. GLOBE extends and integrates the previous anal- yses of cultural attributes and variables published by Hofstede and Trompenaars. The three completed GLOBE phases explore the various elements of the dynamic relationship between the culture and organizational behavior.51

At the heart of phases one and two, first published in 2004 and 2007, is the study and evaluation of nine different cultural attributes using middle managers from 951 organizations in 62 countries.52,53 A team of 170 scholars worked together to survey over 17,000 managers in three industries: financial services, food processing, and telecom- munications. When developing the measures and conducting the analysis, they also used archival measures of country economic prosperity and of the physical and psychological well-being of the cultures studied. Countries were selected so that every major geo- graphic location in the world was represented. Additional countries, including those with unique types of political and economic systems, were selected to create a complete and comprehensive database upon which to build the analysis.54 This research has been con- sidered among the most sophisticated in the field to date, and a collaboration of the work of Hofstede and GLOBE researchers could provide an influential outlook on the major factors characterizing global cultures.55

While phases one and two focus on middle management, phase three, first published in 2012, examines the interactions of culture and leadership in upper-level management positions. More than 1,000 CEOs, and more than 5,000 of their direct reports, were sur- veyed by 40 researchers across 24 countries. To provide compatibility across all phases of the GLOBE project, 17 of the 24 countries surveyed in phase three were also included in the initial study performed for phases one and two.56  A further explanation of phase three, which deals primarily with leadership, occurs in Chapter 13. Table 4–6 also provides an overview of the purposes and results of the different phases.

Table 4–6 GLOBE Cultural Variable Results

Variable Highest Ranking Medium Ranking Lowest Ranking

Assertiveness Spain, U.S. Egypt, Ireland Sweden, New Zealand

Future orientation Denmark, Canada Slovenia, Egypt Russia, Argentina

Gender differentiation South Korea, Egypt Italy, Brazil Sweden, Denmark

Uncertainty avoidance Austria, Denmark Israel, U.S. Russia, Hungary

Power distance Russia, Spain England, France Denmark, Netherlands

Collectivism/societal Denmark, Singapore Hong Kong, U.S. Greece, Hungary

In-group collectivism Egypt, China England, France Denmark, Netherlands

Performance orientation U.S., Taiwan Sweden, Israel Russia, Argentina

Humane orientation Indonesia, Egypt Hong Kong, Sweden Germany, Spain

Source: From Mansour Javidan, Peter W. Dorfman, Mary Sully de Luque, and Robert J. House, “In the Eye of the Beholder: Cross Cultural Lessons in Leadership from Project GLOBE,” Academy of Management Perspectives  20, no. 1 (2006), p. 76.

146 Part 2 The Role of Culture

The GLOBE study is interesting because its nine constructs were defined, concep- tualized, and operationalized by a multicultural team of over 100 researchers. In addition, the data in each country were collected by investigators who were either natives of the cultures studied or had extensive knowledge and experience in those cultures.

Culture and Management GLOBE researchers adhere to the belief that certain attributes that distinguish one culture from others can be used to predict the most suitable, effective, and acceptable organiza- tional and leader practices within that culture. In addition, they contend that societal culture has a direct impact on organizational culture and that leader acceptance stems from tying leader attributes and behaviors to subordinate norms.57

The GLOBE project set out to answer many fundamental questions about cultural variables shaping leadership and organizational processes. The meta-goal of GLOBE was to develop an empirically based theory to describe, understand, and predict the impact of specific cultural variables on leadership and organizational processes and the effective- ness of these processes. Overall, GLOBE hopes to provide a global standard guideline that allows managers to focus on local specialization. Specific objectives include answer- ing these fundamental questions:58

• Are there leader behaviors, attributes, and organizational practices that are universally accepted and effective across cultures?

• Are there leader behaviors, attributes, and organizational practices that are accepted and effective in only some cultures?

• How do attributes of societal and organizational cultures affect the kinds of leader behaviors and organizational practices that are accepted and effective?

• What is the effect of violating cultural norms that are relevant to leadership and organizational practices?

• What is the relative standing of each of the cultures studied on each of the nine core dimensions of culture?

• Can the universal and culture-specific aspects of leader behaviors, attributes, and organizational practices be explained in terms of an underlying theory that accounts for systematic differences across cultures?

GLOBE’s Cultural Dimensions Phase one of the GLOBE project identified the nine cultural dimensions:59

1. Uncertainty avoidance is defined as the extent to which members of an organi- zation or society strive to avoid uncertainty by reliance on social norms, rituals, and bureaucratic practices to alleviate the unpredictability of future events.

2. Power distance is defined as the degree to which members of an organization or society expect and agree that power should be unequally shared.

3. Collectivism I: Societal collectivism refers to the degree to which organiza- tional and societal institutional practices encourage and reward collective dis- tribution of resources and collective action.

4. Collectivism II: In-group collectivism refers to the degree to which individuals express pride, loyalty, and cohesiveness in their organizations or families.

5. Gender egalitarianism is defined as the extent to which an organization or a society minimizes gender role differences and gender discrimination.

6. Assertiveness is defined as the degree to which individuals in organizations or societies are assertive, confrontational, and aggressive in social relationships.

7. Future orientation is defined as the degree to which individuals in organiza- tions or societies engage in future-oriented behaviors such as planning, invest- ing in the future, and delaying gratification.

Chapter 4 The Meanings and Dimensions of Culture 147

8. Performance orientation refers to the extent to which an organization or soci- ety encourages and rewards group members for performance improvement and excellence.

9. Humane orientation is defined as the degree to which individuals in organiza- tions or societies encourage and reward individuals for being fair, altruistic, friendly, generous, caring, and kind to others.

The first six dimensions have their origins in Hofstede’s cultural dimensions (see Figure 4-11). The collectivism I dimension measures societal emphasis on col- lectivism; low scores reflect individualistic emphasis and high scores reflect collec- tivistic emphasis by means of laws, social programs, or institutional practices. The collectivism II scale measures in-group (family or organization) collectivism such as pride in and loyalty to family or organization and family or organizational cohesive- ness. In lieu of Hofstede’s masculinity dimension, the GLOBE researchers developed the two dimensions they labeled gender egalitarianism and assertiveness. The dimen- sion of future orientation is similar to Hofstede’s time orientation dimension. Future orientation also has some origin in past research, as does performance orientation and humane orientation.60 These measures are therefore integrative and combine a number of insights from previous studies.

A unique contribution of the GLOBE project is the identification of both values, which represent how people think things should be, and practices, which represent how things actually are. For example, GLOBE researchers found that China exhibits a high level of power distance in practice (a score of 5.02) despite the fact that the Chinese people desire a lower level of power distance (a score of 3.01) in their culture.  Fig- ure  4-12  shows the differences in values and practices within Brazil. Recently, further analysis has been conducted with regard to corporate social responsibility (CSR), a topic discussed in detail in Chapter 3.61

GLOBE Country Analysis The initial results of the GLOBE analysis are presented in Table 4–7. The GLOBE analysis corresponds generally with those of Hofstede and Trompenaars, although with some variations resulting from the variable definitions and methodology. Hofstede cri- tiqued the GLOBE analysis, pointing out key differences between the research methods;

Figure 4–11 Comparing the Cultural Dimension Research: Geert Hofstede and the GLOBE Project 

Geert Hofstede Dutch researcher

GLOBE Project 170 researchers

1980 (updated in 1988 & 2010) 2004 (Phase 1 – cultural dimensions)

Hofstede and the GLOBE Project: Comparing the Research

Scholars

Date Completed

Identified Dimensions

Sample

Collectivism I Collectivism II Power Distance Uncertainty Avoidance Gender Egalitarianism Assertiveness Future Orientation Performance Orientation Humane Orientation

Managers from 951 companies ~17,000 participants > 60 countries

Individualism

Power Distance Uncertainty Avoidance

Masculinity

Time Orientation (1988)

Indulgence (2010)

IBM employees ~116,000 participants

> 70 countries

Source: Original graphic by Ben Littell under supervision of Professor Jonathan Doh based on data from G. Hofstede and G. J. Hofstede, Cultures and Organizations: Software of the Mind, 2nd ed. (New York: McGraw-Hill, 2005), and the GLOBE project research.

148 Part 2 The Role of Culture

Figure 4–12 Comparing Values and Practices in Brazil

Assertiveness

Institutional Collectivism

In-Group CollectivismPower Distance

Performance Orientation Future Orientation

Gender EgalitarianismHumane Orientation

Uncertainty Avoidance

0 1

2

3

4

5

6

7

PracticeValues

Source: Original graphic by Ben Littell under supervision of Professor Jonathan Doh based on data from the GLOBE project research.

Hofstede was the sole researcher and writer of his findings, while GLOBE consisted of a team of perspectives; Hofstede focused on one institution and surveyed employees, while GLOBE interviewed managers across many corporations; and so on. The disparity of the terminology between these two, coupled with the complex research, makes it challenging to compare and fully reconcile these two approches.62  Other assessments have pointed out that Hofstede may have provided an introduction into the psychology of culture, but further research is necessary in this changing world. The GLOBE analy- sis is sometimes seen as complicated, but so are cultures and perceptions. An in-depth understanding of all facets of culture is difficult, if not impossible, to attain, but GLOBE provides a current comprehensive overview of general stereotypes that can be further analyzed for greater insight.63,64

We will explore additional implications of the GLOBE findings as they relate to cross-cultural perspectives in Chapter 5  and managerial leadership in Chapter 13.

The World of International Management—Revisited This chapter’s opening discussion of the successes and failures of cross-border mergers by DuPont, ABInBev, and Chrysler illustrates the importance of culture and how cultural differences may contribute to global management challenges. Cultural distance can influ- ence both positively and negatively how decisions are made, reported, and resolved. Having read this chapter, you should understand the impact culture has on the actions of MNCs, including general management practices and relations with employees and customers, and on maintaining overall reputation.

Recall the chapter opening discussion about the merger of ABInBev and SABMiller and then draw on your understanding of Hofstede’s and Trompenaars’s cultural dimen- sions to answer the following questions: (1) What dimensions contribute to the differences

Chapter 4 The Meanings and Dimensions of Culture 149

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between how Brazilian and United Kingdom workers address management problems, including operational or product flaws? (2) What are some ways that Brazilian culture may affect operational excellence in a positive way? How might it hurt quality? (3) How could managers from Brazil or other similar cultures adopt practices from European cultures when investing in those regions?

1. Culture is acquired knowledge that people use to interpret experience and generate social behavior. Culture also has the characteristics of being learned, shared, transgenerational, symbolic, patterned, and adaptive. There are many dimensions of cultural diversity, including centralized vs. decentralized decision making, safety vs. risk, individual vs. group rewards, informal vs. formal procedures, high vs. low organizational loyalty, cooperation vs. competition, short-term vs. long-term horizons, and stability vs. innovation.

2. Values are basic convictions that people have regarding what is right and wrong, good and bad, and important and unimportant. Research shows that there are both differences and similarities between the work values and managerial values of different cultural groups. Work values often reflect culture and industrialization, and managerial values are highly related to success. Research shows that values tend to change over time and often reflect age and experience.

3. Hofstede has identified and researched four major dimensions of culture: power distance, uncertainty avoidance, individualism, and masculinity. Recently, he has added a fifth dimension, time orientation, and more recently yet, a sixth dimension, indul- gence vs. restraint: Each will affect a country’s political and social system. The integration of these factors into two-dimensional figures can illustrate the complexity of culture’s effect on behavior.

4. In recent years, researchers have attempted to clus- ter countries into similar cultural groupings to study similarities and differences. Through analyzing the relationship between two dimensions, as Hofstede illustrated, two-dimensional maps can be created to show how countries differ and where they overlap.

5. Research by Trompenaars has examined five rela- tionship orientations: universalism vs. particularism, individualism vs. communitarianism, affective vs. neutral, specific vs. diffuse, and achievement vs. ascription. Trompenaars also looked at attitudes toward time and toward the environment. The result is a wealth of information helping to explain how cultures differ as well as practical ways in which MNCs can do business effectively in these environ- ments. In particular, his findings update those of Hofstede while helping support the previous work by Hofstede on clustering countries.

6. Recent research undertaken by the GLOBE project has attempted to extend and integrate cultural attri- butes and variables as they relate to managerial lead- ership and practice. The GLOBE project identified nine cultural dimensions through the study of middle managers from over 900 different countries. These analyses confirm much of the Hofstede and Trompe- naars research, with greater emphasis on differences in managerial leadership styles. Unique to the GLOBE project is the identification of both values, which represent how people think things should be, and practices, which represent how things actually are.

SUMMARY OF KEY POINTS

KEY TERMS

achievement culture, 143 ascription culture, 143 collectivism, 130 communitarianism, 141 culture, 124 diffuse culture, 142

emotional culture, 142 femininity, 132 GLOBE, 130 individualism, 130 masculinity, 131 neutral culture, 142

particularism, 139 power distance, 130 specific culture, 142 uncertainty avoidance, 130 universalism, 139 values, 128

Chapter 4 The Meanings and Dimensions of Culture 151

REVIEW AND DISCUSSION QUESTIONS

1. What is meant by the term culture? In what way can measuring attitudes about the following help differentiate between cultures: centralized or decen- tralized decision making, safety or risk, individual or group rewards, high or low organizational loy- alty, cooperation or competition? Use these atti- tudes to compare the United States, Germany, and Japan. Based on your comparisons, what conclu- sions can you draw regarding the impact of culture on behavior?

2. What is meant by the term value? Are cultural val- ues the same worldwide, or are there marked differ- ences? Are these values changing over time, or are they fairly constant? How does your answer relate to the role of values in a culture?

3. What are the four major dimensions of culture stud- ied by Geert Hofstede? Identify and describe each. What is the cultural profile of the United States? Of Asian countries? Of Latin American countries? Of Latin European countries? Based on your compari- sons of these four profiles, what conclusions can you draw regarding cultural challenges facing

individuals in one group when they interact with individuals in one of the other groups? Why do you think Hofstede added the fifth dimension of time orientation and the sixth dimension related to indul- gence versus restraint?

4. As people engage in more international travel and become more familiar with other countries, will cultural differences decline as a roadblock to inter- national understanding, or will they continue to be a major barrier? Defend your answer.

5. What are the characteristics of each of the following pairs of cultural characteristics derived from Trompe- naars’s research: universalism vs. particularism, neu- tral vs. emotional, specific vs. diffuse, achievement vs. ascription? Compare and contrast each pair.

6. How did project GLOBE build on and extend Hofstede’s analysis? What unique contributions are associated with project GLOBE?

7. In what way is time a cultural factor? In what way is the need to control the environment a cultural factor? Give an example for each.

The Renault-Nissan alliance, established in March 1999, is the first industrial and commercial partnership of its kind involving a French company and a Japanese com- pany. The Alliance invested more than 1 billion rand in upgrading Nissan’s manufacturing plant in Rosslyn, out- side Pretoria, to increase output and produce the Nissan NP200 pickup and the Renault Sandero for the South African market. Visit the Renault-Nissan website at http://www.renault.com to see where factories reside for

each car group. Compare and contrast the similarities and differences in these markets. Then answer these three questions: (1) How do you think cultural differ- ences affect the way the firm operates in South Africa versus France versus Japan? (2) In what way is culture a factor in auto sales? (3) Is it possible for a car com- pany to transcend national culture and produce a global automobile that is accepted by people in every culture? Why or why not?

INTERNET EXERCISE: RENAULT-NISSAN IN SOUTH AFRICA

1. Chad Bray, “Anheuser-Busch InBev Completes Agreement for SABMiller,”  New York Times, November 12, 2015, p. B1.

2. Ellen  Kullman, “DuPont’s CEO on Executing a Complex Cross-Border Acquisition,”  Harvard Busi- ness Review, July–August 2012,  https://hbr. org/2012/07/duponts-ceo-on-executing-a-complex- cross-border-acquisition.

3. Ibid. 4. Ibid. 5. Ibid. 6. Ibid.

7. Bill Vlasic and Bradley A. Stertz,  Taken for a Ride: How Daimler-Benz Drove off with Chrysler  (New York: Wiley, 2000).

8. Dorothee Ostle, “The Culture Clash at DaimlerChrysler Was Worse Than Expected,”  Automotive News Europe, November 22, 1999,  http://europe. autonews.com/article/19991122/ANE/911220842/ the-culture-clash-at-daimlerchrysler-was-worse- than- expected.

9. Ibid. 10. Ibid.

ENDNOTES

152 Part 2 The Role of Culture

11. Andrew  Inkpen, “InBev and Anheuser-Busch,” Thunderbird School of Global Management (2010), pp. 8–9,  https://cb.hbsp.harvard.edu/cbmp/product/ TB0251-PDF-ENG.

12. Ibid. 13. Ibid. 14. Anheuser-Busch InBev, “Anheuser-Busch InBev

2013 Annual Report,” press release (2013),  http:// www.ab-inbev.com/content/dam/universaltemplate/ ab-inbev/investors/sabmiller/reports/annual-reports/ annual-report-2013.pdf.

15. James Allen, “The Beliefs That Built a Global Brewer,”  Harvard Business Review, April 27, 2012,  https://hbr.org/2012/04/the-beliefs-that- built-a-globa.

16. Pat Joynt and Malcolm Warner, “Introduction: Cross-Cultural Perspectives,” in Managing Across Cultures: Issues and Perspectives, ed. Pat Joynt and Malcolm Warner (London: International Thomson Business Press, 1996), p. 3.

17. For additional insights, see Gerry Darlington, “Culture—A Theoretical Review,” in Managing Across Cultures, ed. Joynt and Warner, pp. 33–55.

18. Fred Luthans, Organizational Behavior, 7th ed. (New York: McGraw-Hill, 1995), pp. 534–535.

19. Gary Bonvillian and William A. Nowlin, “Cultural Awareness: An Essential Element of Doing Business Abroad,” Business Horizons, November– December 1994, pp. 44–54.

20. Roger E. Axtell, ed., Do’s and Taboos around the World, 2nd ed. (New York: Wiley, 1990), p. 3.

21. Fons Trompenaars and Charles Hampden-Turner, Riding the Waves of Culture: Understanding Diver- sity in Global Business, 2nd ed. (New York: McGraw-Hill, 1998), p. 23.

22. George W. England, “Managers and Their Value Sys- tems: A Five-Country Comparative Study,” Columbia Journal of World Business, Summer 1978, p. 39.

23. A. Reichel and D. M. Flynn, “Values in Transition: An Empirical Study of Japanese Managers in the U.S.,” Management International Review 23, no. 4 (1984), pp. 69–70.

24. Yumiko Ono and Bill Spindle, “Japan’s Long Decline Makes One Thing Rise: Individualism,” The Wall Street Journal, December 29, 2000, pp. A1, A4.

25. Sang M. Lee and Suzanne J. Peterson, “Culture, Entrepreneurial Orientation, and Global Competi- tiveness,” Journal of World Business 35, no. 4 (2000), pp. 411–412.

26. “Confucius Makes a Comeback,” The Economist, May 17, 2007, www.economist.com/world/asia/ displaystory.cfm?story_id=9202957.

27. Geert Hofstede, Culture’s Consequences: Interna- tional Differences in Work-Related Values (Beverly Hills, CA: Sage, 1980).

28. Ibid., pp. 251–252. 29. Ibid. 30. Geert Hofstede, “National Culture,”  http://geert-

hofstede.com/national-culture.html. 31. Geert Hofstede and Michael Bond, “The Need for

Synergy among Cross-Cultural Studies,” Journal of Cross-Cultural Psychology, December 1984, p. 419.

32. A. R. Negandhi and S. B. Prasad, Comparative Management (New York: Appleton-Century-Crofts, 1971), p. 128.

33. For additional insights, see Mark F. Peterson et al., “Role Conflict, Ambiguity, and Overload: A 21-Nation Study,” Academy of Management Journal, June 1995, pp. 429–452.

34. Hofstede, Culture’s Consequences. 35. Ibid. 36. Ibid. 37. Also see Chao C. Chen, Xiao-Ping Chen, and James

R. Meindl, “How Can Cooperation Be Fostered? The Cultural Effects of Individualism-Collectivism,” Academy of Management Review 23, no. 2 (1998), pp. 285–304.

38. Hofstede, Culture’s Consequences, pp. 419–420. 39. Ibid., p. 420. 40. Ibid.  41. Geert Hofstede, “Dimensionalizing Cultures: The

Hofstede Model in Context,” Online Readings in Psychology and Culture,  Unit 2 (2011), http:// scholarworks.gvsu.edu/orpc/vol2/iss1/8.

42. Hofstede, “National Culture.” 43. Hofstede. “Dimensionalizing Cultures.” 44. Fons Trompenaars, Riding the Waves of Culture:

Understanding Diversity in Global Business (New York: Irwin, 1994), p. 10.

45. Talcott Parsons, The Social System (New York: Free Press, 1951).

46. Also see Lisa Hoecklin, Managing Cultural Differ- ences (Workingham, England: Addison-Wesley, 1995).

47. Charles M. Hampden-Turner and Fons Trompenaars, “A World Turned Upside Down: Doing Business in Asia,” in Managing Across Cultures, ed. Joynt and Warner, p. 279.

48. Ibid., p. 288. 49. Fons Trompenaars and Charles Hampden-Turner,

Riding the Waves of Culture: Understanding Diversity in Global Business, 2nd ed. (New York: McGraw-Hill, 1998), p. 23.

Chapter 4 The Meanings and Dimensions of Culture 153

50. Ibid., p. 140. 51. Peter Dorfman, Mansour Javidan, Paul Hanges, Ali

Dastmalchian, and Robert House, “GLOBE: A Twenty Year Journey into the Intriguing World of Culture and Leadership,” Journal of World Business 47 (2012), pp. 504–518.

52. Ibid. 53. Mansour Javidan and Robert House, “Leadership

and Cultures around the World: Findings from GLOBE: An Introduction to the Special Issue,” Journal of World Business 37, no. 1 (2002), pp. 1–2.

54. Robert House, Paul J. Hanges, Mansour Javidan, Peter W. Dorfman, and Vipin Gupta, Culture, Lead- ership, and Organizations: The GLOBE Study of 62 Societies (London: Sage, 2004).

55. Kwong Leung, “Editor’s Introduction to the Exchange between Hofstede and GLOBE,” Journal of International Business Studies 37 (2006), p. 881.

56. Dorfman et al., “GLOBE: A Twenty Year Journey into the Intriguing World of Culture and Leadership.”

57. House et al., Culture, Leadership, and Organiza- tions: The GLOBE Study.

58. Mansour Javidan and Robert House, “Cultural Acu- men for the Global Manager: Lessons from Project GLOBE,” Organizational Dynamics 29, no. 4 (2001), pp. 289–305.

59. Robert House, Mansour Javidan, Paul Hanges, and Peter Dorfman, “Understanding Cultures and Implicit Leadership Theories across the Globe: An Introduction to Project GLOBE,” Journal of World Business 37, no. 1 (2002), pp. 3–10.

60. Ibid. 61. David A. Waldman, Mary Sully de Luque, et al.,

“Cultural and Leadership Predictors of Corporate Social Responsibility Values of Top Management: A

GLOBE Study of 15 Countries,” Journal of Interna- tional Business Studies 37 (2006), pp. 823–837.

62. Geert Hofstede, “What Did GLOBE Really Mea- sure? Researchers’ Minds versus Respondents’ Minds,” Journal of International Business Studies 37 (2006), pp. 882–896.

63. P. Christopher Earley, “Leading Cultural Research in the Future: A Matter of Paradigms and Taste,” Journal of International Business Studies 37 (2006), pp. 922–931.

64. Peter B. Smith, “When Elephants Fight, the Grass Gets Trampled: The GLOBE and Hofstede Projects,” Journal of International Business Studies 37 (2006), pp. 915–921.

65. CIA, “South Aftica,”  The World Factbook (2016), https://www.cia.gov/library/publications/the-world- factbook/geos/sf.html.

66. Ibid. 67. Ibid. 68. Rene  Vollgraaf, “Moody’s Says South African Debt

Could Surpass 50% of GDP,”  Bloomberg Business, February 4, 2016,  www.bloomberg.com/news/ articles/2016-02-04/moody-s-says-south-africa-debt- could-swell-to-over-50-of-gdp.

69. “Fool’s Gold—Black Economic Empowerment Has Not Worked Well. Nor Will It End Soon,”  The Economist, April 27, 2013,  www.economist. com/news/briefing/21576655-black-economic- empowerment-has-not-worked-well-nor-will-it- end-soon-fools-gold.

70. “As South African Economy Falters, Fast-Food Giant, Famous Brands, Seeks Fresh Pastures in Nigeria,” International Business Times, September 16, 2013,  www.ibtimes.com/south-african-economy- falters-fast-food-giant-famous-brands-seeks-fresh- pastures-1406294.

154

South Africa, as its name suggests, is located on the southern tip of the African continent. The Atlantic Ocean borders the country on the west and the Indian Ocean borders on the east. South Africa’s neighboring countries include Zimbabwe, Swaziland, Botswana, Namibia, and Lesotho. Slightly smaller than twice the size of Texas in area, the country’s natural resources are plentiful and include gold, chromium, antimony, coal, iron ore, manga- nese, nickel, phosphates, tin, rare earth elements, uranium, gem diamonds, platinum, copper, vanadium, salt, and natural gas.65 South Africa’s population is estimated at over 53 mil- lion people and has a modest projected growth rate of 1.33 percent. South Africa has one of the most diverse populations in the world, consisting of approximately 80 percent black African, 8.5 percent white, 9 percent mixed race, and around 2 percent Indian. Several languages are spoken in the country. The country’s main religions include Protestantism, Catholicism, Islam, and numerous indigenous religions. Approximately 90 percent of the population is 54 years old or younger, with a median age of 26.5 years old. Approximately 95 percent of the coun- try is deemed literate.66 South Africa’s GDP was estimated at US$350.1 billion in 2014 and per capita income was estimated at US$13,100.67  After a relatively solid period of strong growth, annual GDP growth has been slowing. In 2014, the economy grew by just 1.4 percent. South Africa ranks 73rd out of 185 nations in “Ease of Doing Business,” which is down four spots from its previous ranking. As the country’s GDP growth slows, the country’s debt con- tinues to grow. Moody’s Investor Services predict that the government debt could exceed 50 percent of the country’s GDP in the very near future.68 Unfortunately, the legacy of apartheid continues to exert profound impacts on the country and its socioeconomic environment. Apartheid was a system of legal racial segre- gation that was enforced for approximately 50  years. In response to the end of apartheid, South Africa installed a program known as Black Economic Empowerment (BEE) that seeks to redress the inequalities from the apartheid system and give those previously disadvantaged groups (essentially all groups besides the white South Africans) economic opportunities. Specifically, the program includes skill, ownership, management, and socioeconomic develop- ment and, in some cases, preferential procurement. Critics

of this program say that it is unfair and a crude form of affirmative action that is hurting the country’s economy. These critics cite examples of “brain drain,” in which qual- ified and talented white businesspeople leave the country to avoid the alleged unequal treatment. Additionally, critics argue that this program has helped to make primarily well- connected black Africans more wealthy while the large majority have not received any benefits.69

You Be the International Management Consultant Domestic South African companies appear to be search- ing outside of their home market for stability and growth. Famous Brands, one of South Africa’s largest food com- panies, is seeking to grow by more than 200 percent by expanding rapidly into the rest of Africa. Its initial focus is Nigeria, now the largest economy in Africa, with the goal of diversifying and spreading risk from its South and Southern Africa operations. The fast-food chain announced that it would buy a 49 percent stake in Nigeria’s UAC Restaurants Limited, which includes 165 franchised eater- ies. Famous Brands has long operated in surrounding countries, but this recent move indicates a doubling-down on its move into other countries.70

Questions 1. As a consultant looking for opportunities in Africa,

how would you gauge the prospects of moving a business into South Africa?

2. What are your immediate concerns about this move? 3. What are the pros and cons of opportunities in

South Africa? 4. How does the fact that traditional South African

companies are increasing their presence in other African countries factor into your decision?

Source: The Economist Intelligence Unit, Country Report: South Africa (Kent, U.K.: EIU, 2009), pp. 7–10; “Still Everything to Play For,” The Economist, June 5, 2010, pp. 15–16; “The Darkening of White South Africa,” The Economist, May 20, 1995, pp. 18–20; Tom Nevin, “The World Cup Retail Windfall—Myth or Reality?” African Business, March 2010, pp. 58–59; “When the Whistle Blows,” The Economist, June 5, 2010, p. 15; “Buthelezi Slams Affirmative Action,” Mail & Guardian, February 1, 2007; “Tutu Warns of Poverty ‘Powder Keg’,” BBC, November 23, 2004, news.bbc.co.uk.

South AfricaIn the International Spotlight

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MANAGING ACROSS CULTURES

The World of International Management

Taking a Bite Out of Apple: Corporate Culture and an Unlikely Chinese Start-Up

S ince first introducing the iPhone in 2007, Apple has achieved tremendous success in the smartphone industry. User-friendly innovations, including the first touchscreen dis- play, transformed the smartphone market. Through 2015, Apple has sold over 800 million iPhones, becoming one of the most admired and recognizable brands worldwide.2 Though Apple has faced competition from traditional rivals Samsung and Motorola for several years, new competition from unexpected companies in developing markets is beginning to disrupt the smartphone market. Xiaomi, a Chinese start-up formed in 2010, is perhaps the largest and most successful of these new smart- phone marketplace entrants. Xiaomi released its first phone in 2011; since then, sales have soared. By 2013, Xiaomi had sur- passed Apple in terms of sales within China, the world’s largest smartphone market. And in 2015, Xiaomi became the fourth largest smartphone producer worldwide. Though they are competing for the same customers, Apple and Xiaomi could not be more different. Their approaches to innovation, their supply chains, their product lines, and even their ideas about intellectual property rights are diametrically opposed. How have these two incredibly different companies achieved success, and will Xiaomi’s corporate culture and accompanying strategy ultimately propel the company to rival Apple in the smartphone battle?

Individual versus the Collective At Apple, individual achievement is highly regarded. Innovating for the company, as an individual, is expected and required. In fact, according to an urban legend, Steve Jobs allegedly once fired an employee in the elevator for not having an answer to the question, “So what have you done for Apple lately?” Per- sonal excellence is required by every employee, with an over- all focus on end results and exceeding corporate goals.3 Internal competition, and challenging others, is strongly encouraged. Hierarchy exists, but individuals are encouraged to speak up if it means achieving a better, more innovative

Traditionally, both scholars and practitioners assumed the uni- versality of management. There was a tendency to take the management concepts and techniques that worked at home into other countries and cultures. It is now clear, from both practice and cross-cultural research, that this universality assumption, at least across cultures, does not hold up. Although there is a tendency in a borderless economy to pro- mote a universalist approach, there is enough evidence from many cross-cultural researchers to conclude that the universal- ist assumption that may have held for U.S. organizations and employees is not generally true in other cultures.1

The overriding purpose of this chapter is to examine how MNCs can and should manage across cultures. This chap- ter puts into practice Chapter 4’s discussion on the meaning and dimensions of culture and serves as a foundation and point of departure for Chapters 8 and 9 on strategic manage- ment. The first part of this chapter addresses the traditional tendency to attempt to replicate successful home-country operations overseas without taking into account cultural differ- ences. Next, attention is given to cross-cultural challenges, focusing on how differences can impact multinational manage- ment strategies. Finally, the cultures in specific countries and geographic regions are examined. The specific objectives of this chapter are

1. EXAMINE the strategic dispositions that characterize responses to different cultures.

2. DISCUSS cross-cultural differences and similarities.

3. REVIEW cultural differences in select countries and regions, and note some of the important strategic guidelines for doing business in each.

157

production expenses over the life of the product. While Apple and other competitors retire their products nearly every year, Xiaomi will continue to manufacture the same phone for nearly two years.9 This flexibility also lowers inventory carrying costs. Xiaomi owns no warehouses for long-term inventory holding, considering itself more of an Internet-based merchant.10

Product Focus Apple is dedicated to maintaining first-mover advantage. As a result, Apple focuses narrowly on a few key products, with lit- tle variation in features and price. The iPhone, for example, is the only phone offered by Apple. When purchasing the latest Apple product, customers know that they are buying the most current technology on the market. By continually being the first to market with new technology, Apple is able to maintain a loyal customer base that is willing to put up with minor defects and flaws in design. This narrow product focus has created a trendy “brand” image for the company. However, by only offering one product line, Apple sacrifices sales to potential customers who are less concerned with the latest technology. Knowing that it cannot compete for the first-mover custom- ers who want the newest technology fastest, Xiaomi focuses on competing on price. Xiaomi aims to provide the best value in the marketplace to its customers by not sacrificing quality to meet consumer pricing demands; the hardware specifications of Xiaomi phones rival those of Apple and Samsung but remain at a fraction of the cost. Unlike Apple, Xiaomi offers a wide array of products at multiple price points. In fact, Xiaomi plans to introduce regionally specific models for every new market it enters. With dozens of different phone products, for example, customers can sacrifice features and the most cur- rent technology for a phone within their budget. Xiaomi is will- ing to quickly try multiple products, releasing slightly updated models nearly every week.11

Intellectual Property Apple, as a company that differentiates itself through innova- tion, values its intellectual property as an important asset. This culture starts at the top and permeates through the company: Steve Jobs alone was listed as the inventor on over 300 pat- ents.12 Having spent millions in research and development for new technology and improved designs, Apple has accused Samsung and others of essentially stealing patent-protected technology. Apple has sued numerous companies to protect its

product. According to a former employee, “There’s a mentality that it’s okay to shred somebody in the spirit of making the best products.”4

Collectivism and group achievement, on the other hand, permeate Xiaomi’s corporate culture. From initial design to final production, collaboration between employees and the public is more celebrated than individual creativity. Rather than developing innovations in secret, Xiaomi takes an unconven- tional approach to design by using crowd-sourcing as a key element of its strategy.5 End users provide input and feedback continuously to Xiaomi, shaping the direction in which Xiaomi takes it products. This feedback results in continual product evolution; rather than release new phones annually, like Apple, Xiaomi actually releases new, incrementally better smartphone models every week.6

Supply Chain Management Apple has been able to maximize profits through its com- plex, yet carefully doctored, supply chain. To minimize costs, Apple outsources the majority of its production processes. Nearly a thousand factories produce components for Apple across the globe, with over 600 in Southeast Asia alone.7 As a result of its low manufacturing costs, Apple is able to sell the majority of its products with a 70 percent gross profit margin. Relinquishing its control over the manufacturing process, however, has led to some major negative conse- quences for Apple. In 2012, Apple was unable to meet customer demand for the iPad Mini due to supply chain issues that resulted in lower-than-expected production numbers.8 Furthermore, the lack of control over its suppliers’ actions has exposed Apple to criticism over human rights violations. Highly publicized worker suicides and alleged underage labor have tarnished Apple’s image, even though the abuses occurred at the suppliers’ facilities. Like Apple, Xiaomi works with a variety of suppliers throughout Asia to produce its products. A key advantage for Xiaomi’s approach to its supply chain, however, is its unique ability to adjust production to meet demand. To achieve this, Xiaomi maintains a strict policy with its suppliers that demand alone drives the production quantity. This has allowed for great flexibility in its supply. For example, in 2015, Xiaomi was able to set the world record for most smartphones sold in 24  hours when it sold and shipped 2.1 million units. To keep costs along its supply chain low, Xiaomi sells its products for longer periods of time than its competitors, reducing

158 Part 2 The Role of Culture

intellectual property. In 2010, Apple sued HTC over 20 patent infringements relating to its iPhone’s hardware and software.13

In 2012 alone, Apple and Samsung launched over a dozen lawsuits against each other, primarily over patent infringe- ments. Contested issues range from component technology to software design. According to Apple, protecting its patents allows it to provide “distinctive products that stand apart from the masses.”14 Xiaomi’s approach to intellectual property mirrors its collec- tive approach to design; exclusivity and secrecy are not seen as important to its overall strategy. Little priority is placed on protecting its own intellectual property, and the company often skirts the line of violating other companies’ intellectual prop- erty. For example, Xiaomi’s “MiPad” looks like, operates similar to, and mimics the naming of Apple’s “iPad.” In fact, Xiaomi will find it difficult, if not impossible, to sell its products in many markets without facing lawsuits due to patent violations. Most of the largest cell phone markets have strict intellectual property protections in place. Xiaomi only holds two patents

from the United States, making it nearly impossible to defend itself against lawsuits from Apple and other cell phone produc- ers. It has been estimated that Xiaomi will need to spend as much as US$100 million on lawsuits in the first two years if it were to start selling products in the United States.15,16

Looking Forward—Which Strategy Is Working? Whether or not Xiaomi can ultimately rival Apple in the smart- phone battle is unclear. The first-mover advantage that Apple has leveraged since 2007 has begun to deliver diminishing returns. In the second quarter of 2016, Apple posted its first decrease in revenue since the iPhone was first introduced. However, while Xiaomi has surpassed Apple in sales within China, Xiaomi’s global market share stands at only 5 percent, far behind Apple’s 14 percent.17 Additionally, Xiaomi’s low-cost strategy comes with low profits; in 2014, Xiaomi’s 2 percent profit margin netted only US$56 million. Apple, on the other hand, managed a 29 percent profit margin in the same year.18

The cultural differences of Xiaomi and Apple highlight how, within the same industry, two companies can achieve success despite opposing strategies. This chapter provides insight into uncovering similarities and differences across cultures and using those insights to develop international management approaches that are effective and responsive to local cultures.

■ The Strategy for Managing across Cultures As MNCs become more transnational, their strategies must address the cultural simi- larities and differences in their varied markets. A good example is provided by Renault, the French auto giant. For years Renault manufactured a narrow product line that it sold primarily in France. Because of this limited geographic market and the fact that its cars continued to have quality-related problems, the company’s performance was at best mediocre. Several years ago, however, Renault made a number of strategic decisions that dramatically changed the way it did business. Among other things, it bought controlling stakes in Nissan Motors of Japan, Samsung Motors of South Korea, and Dacia, the Romanian automaker. The company also built a $1 billion factory in Brazil to produce its successful Mégane sedan and acquired an idle factory near Moscow to manufacture Renaults for the Eastern European market.

Today, Renault is a multinational automaker with operations on four continents. The challenge the company now faces is to keep all these operations profitable. This has not been easy. Nissan’s profits have a history of being unpredictable. In the years since the global recession, Nissan has refocused its strategy by cutting costs and increasing sales in the markets outside of Japan. These changes have resulted in a drastic turnaround; Nissan experienced positive net incomes of 389 billion yen in 2013, 458 billion yen in 2014, and 535 billion yen in 2015.19,20,21 Similarly, Renault has rebounded to net incomes of 1.99 billion euros and 2.82 billion euros in 2014 and 2015, respectively.22 Renault’s quest for greater global market share continues to progress, with world market share up to 3.1 percent in 2014. In the passenger car market, the Renault Group reported market share of 3.3 percent.23 The Renault brand reclaimed the position of third-ranked brand in Western Europe mainly owing to the success of the Mégane family and Twingo. In the light commercial vehicle (LCV) market, the Renault brand has been the number-one brand in Western Europe since 1998.

Chapter 5 Managing Across Cultures 159

Dacia has manufactured what some call a genuine world car, known as the Logan. Now sold in 43 countries, this simple, compact vehicle is sold at an affordable price in European markets and has recently been introduced in India. Renault maintains innova- tive strategies by offering the Logan under either the Dacia, Renault, or Nissan name, depending on the market. Constituting 31 percent of market share in Romania, 5 percent of market share in France, and 2.5 percent of market share across Europe, Dacia sold over 500,000 passenger cars in 2014.24 The decision to integrate its sales organizations with those of Nissan in Europe, thus creating one well-integrated, efficient sales force on the continent, and the decision to start producing Nissan models in its Brazilian plant, so that it can expand its South American offerings by more efficiently using current facili- ties, have led to continual growth year-over-year improvements in sales and efficiency.25

In 2015, Renault introduced the Kwid, its ultra-low-cost hatchback, for the Indian market. Unlike Tata’s Nano and other low-price cars introduced into the Indian market over the last several years, the Kwid is designed to offer features similar to more expen- sive cars, including good gas mileage, generous leg and head room, and attractive design. Initial pricing in 2015 started at only US$5,000.26 On the 15th year of the Renault- Nissan alliance, the Group called attention to a number of milestones achieved over that period:

∙ Growth in sales from 4.8 million units in 1999 to 8.3 million in 2014. ∙ The eight brands within the alliance account for 10 percent of all car sales

worldwide. ∙ Savings of over 2.8 billion euros in 2013 alone through strategic synergies

that led to cost reductions and cost avoidance, as well as increased revenue. ∙ Growth in proportion of total sales that were coming from BRIC nations,

from 1 percent in 1999 to 30 percent in 2014. ∙ Development of zero-emission technology, resulting in 134,000 zero-emission

vehicles sold by 2013. ∙ Expansion globally, including in Russia through the acquisition of a majority

stake in the country’s largest car maker, AvtoVAZ. ∙ The longest-lasting and most productive alliance in the automobile sector. ∙ Employment of nearly a half of a million people worldwide.27

The Renault-Nissan Alliance has sought to foster multicultural management at all levels. Each year, more than 30 teams with Renault and Nissan employees from all regions and functions work together to identify synergies and best practices. Thou- sands of people with cross-cultural experience have been in collaboration since the beginning of the Alliance. Renault’s chief Carlos Ghoshen, who also serves as CEO of Nissan Motor Co., is widely credited with both the operational and strategic improvements at both Renault and Nissan. His multicultural and multinational upbring- ing and career have convinced him of the value of cultural diversity and the creativity they generate.

Renault’s recent experiences underscore the need to carefully consider different national cultures and practices when developing international strategies.

Strategic Predispositions Most MNCs have a cultural strategic predisposition toward doing things in a particular way. Four distinct predispositions have been identified: ethnocentric, polycentric, regio- centric, and geocentric.

A company with an ethnocentric predisposition allows the values and interests of the parent company to guide strategic decisions. Firms with a polycentric predisposition make strategic decisions tailored to suit the cultures of the countries where the MNC operates. A regiocentric predisposition leads a firm to try to blend its own interests with those of its subsidiaries on a regional basis. A company with a geocentric predisposition

ethnocentric predisposition A nationalistic philosophy of management whereby the values and interests of the parent company guide strategic decisions.

polycentric predisposition A philosophy of management whereby strategic decisions are tailored to suit the cultures of the countries where the MNC operates.

regiocentric predisposition A philosophy of management whereby the firm tries to blend its own interests with those of its subsidiaries on a regional basis.

geocentric predisposition A philosophy of management whereby the company tries to integrate a global systems approach to decision making.

160 Part 2 The Role of Culture

tries to integrate a global systems approach to decision making. Table 5–1 provides details of each of these orientations.

If an MNC relies on one of these profiles over an extended time, the approach may become institutionalized and greatly influence strategic planning. By the same token, a predisposition toward any of these profiles can provide problems for a firm if it is out of step with the economic or political environment. For example, a firm with an ethno- centric predisposition may find it difficult to implement a geocentric strategy because it is unaccustomed to using global integration. Commonly, successful MNCs use a mix of these predispositions based on the demands of the current environment described in the chapters in Part One.

Meeting the Challenge Despite the need for and, in general, the tendency of MNCs to address regional differ- entiation issues, many MNCs remain committed to a globalization imperative, which is a belief that one worldwide approach to doing business is the key to both efficiency and effectiveness. However, despite this predilection to use home strategies, effective MNCs are continuing their efforts to address local needs. A number of factors are mov- ing companies to facilitate the development of unique strategies for different cultures, including

1. The diversity of worldwide industry standards such as those in broadcasting, where television sets must be manufactured on a country-by-country basis.

globalization imperative A belief that one worldwide approach to doing business is the key to both efficiency and effectiveness.

Table 5–1 Orientation of an MNC under Different Profiles

Orientation of the Firm

Ethnocentric Polycentric Regiocentric Geocentric

Mission

Governance

Strategy

Structure

Culture Technology Marketing

Finance

Personnel practices

Profitability (viability)

Top-down

Global integration

Hierarchical product divisions

Home country Mass production Product development determined primarily by the needs of home country customers Repatriation of profits to home country

People of home country developed for key positions everywhere in  the world

Public acceptance (legitimacy)

Bottom-up (each subsidiary decides on local objectives) National responsiveness

Hierarchical area divi- sions, with autonomous national units

Host country Batch production Local product development based on local needs

Retention of profits in host country People of local nationality developed for key positions in their own country

Both profitability and public acceptance (viability and legitimacy) Mutually negotiated between region and its subsidiaries Regional integration and national responsiveness Product and regional organization tied through a matrix

Regional Flexible manufacturing Standardized within region, but not across regions

Redistribution within region Regional people devel- oped for key positions anywhere in the region

Same as regiocentric

Mutually negotiated at all levels of the corporation Global integration and national responsiveness A network of organiza- tions (including some stakeholders and com- petitor organizations) Global Flexible manufacturing Global product, with local variations

Redistribution globally

Best people everywhere in the world developed for key positions every- where in the world

Source: From Balaji S. Chakravarthy and Howard V. Perlmutter, “Strategic Planning for a Global Business,” Columbia Journal of World Business, Summer 1985, pp. 5–6.

Chapter 5 Managing Across Cultures 161

2. A continual demand by local customers for differentiated products, as in the case of consumer goods that must meet local tastes.

3. The importance of being an insider, as in the case of customers who prefer to “buy local.”

4. The difficulty of managing global organizations, as in the case of some local subsidiaries that want more decentralization and others that want less.

5. The need to allow subsidiaries to use their own abilities and talents and not be restrained by headquarters, as in the case of local units that know how to customize products for their market and generate high returns on investment with limited production output.

Responding to the cultural needs of local operations and customers, MNCs find that regional strategies can be used effectively in capturing and maintaining worldwide market niches. One example is Haier, which is discussed in the opening World of Inter- national Management section at the beginning of Chapter 9. Another example is appli- ance producer Whirlpool, which has manufacturing facilities spread across the United States. Each plant is specialized and produces a small number of products for the entire North American market; in this way, each can focus on tailoring products for the unique demands of the various markets.

The globalization versus national responsiveness challenge is even more acute when marketing cosmetics and other products that vary greatly in consumer use. For example, marketers sell toothpaste as a cosmetic product in Spain and Greece but as a cavity fighter in the Netherlands and United States. Soap manufacturers market their product as a cosmetic item in Spain but as a functional commodity in Germany. Moreo- ver, the way in which the marketing message is delivered also is important. For example:

∙ Germans want advertising that is factual and rational; they fear being manip- ulated by “the hidden persuader.” The typical German spot features the stan- dard family of two parents, two children, and grandmother.

∙ The French avoid reasoning or logic. Their advertising is predominantly emotional, dramatic, and symbolic. Spots are viewed as cultural events—art for the sake of money—and are reviewed as if they were literature or films.

∙ The British value laughter above all else. The typical broad, self-deprecating British commercial amuses by mocking both the advertiser and consumer.28

In some cases, however, both the product and the marketing message are similar worldwide. This is particularly true for high-end products, where the lifestyles and expec- tations of the market niche are similar regardless of the country. Heineken beer, Hennes- sey brandy, Porsche cars, and the Financial Times all appeal to consumer niches that are fairly homogeneous, regardless of geographic locale. The same is true at the lower end of the market for goods that are impulse purchases, novel products, or fast foods, such as Coca-Cola’s soft drinks, Levi’s jeans, pop music, and ice-cream bars. In most cases, however, it is necessary to modify products as well as the market approach for the regional or local market. One analysis noted that the more marketers understand about the way in which a particular culture tends to view emotion, enjoyment, friendship, humor, rules, status, and other culturally based behaviors, the more control they have over creating marketing messages that will be interpreted in the desired way.

The need to adjust global strategies for regional markets presents three major chal- lenges for most MNCs. First, the MNC must stay abreast of local market conditions and sidestep the temptation to assume that all markets are basically the same. Second, the MNC must know the strengths and weaknesses of its subsidiaries so that it can provide these units with the assistance needed in addressing local demands. Third, the multina- tional must give the subsidiary more autonomy so that it can respond to changes in local demands. The International Management in Action “Ten Key Factors for MNC Success” provides additional insights into the ways that successful MNCs address these challenges.

162

■ Cross-Cultural Differences and Similarities As you saw in Chapter 4, cultures can be similar or quite different across countries. The challenge for MNCs is to recognize and effectively manage the similarities and differ- ences. Generally, the way in which MNCs manage their home businesses often should be different from the way they manage their overseas operations.29 After recognizing the danger for MNCs of drifting toward parochialism and simplification in spite of cultural differences, the discussion in this section shifts to some examples of cultural similarities and differences and how to effectively manage across cultures by a contingency approach.

Parochialism and Simplification Parochialism is the tendency to view the world through one’s own eyes and perspectives. This can be a strong temptation for many international managers, who often come from advanced economies and believe that their state-of-the-art knowledge is more than ade- quate to handle the challenges of doing business in less developed countries. In addition, many of these managers have a parochial point of view fostered by their background.30 A good example is provided by Randall and Coakley, who studied the impact of culture on successful partnerships in the former Soviet Union. Initially after the breakup of the Soviet Union, the republics called themselves the Commonwealth of Independent States (CIS). Randall and Coakley found that while outside MNC managers typically entered into partnerships with CIS enterprises with a view toward making them efficient and profitable, the CIS managers often brought a different set of priorities to the table.

Commenting on their research, Randall and Coakley noted that the way CIS man- agers do business is sharply different from that of their American counterparts. CIS managers are still emerging from socially focused cultural norms embedded in their

parochialism The tendency to view the world through one’s own eyes and perspectives.

International Management in Action

Ten Key Factors for MNC Success

Why are some international firms successful while oth- ers are not? Some of the main reasons are that success- ful multinational firms take a worldwide view of operations, support their overseas activities, pay close attention to political winds, and use local nationals whenever possible. These are the overall findings of a report that looked into the development of customized executive education programs. Specifically, there are 10 factors or guidelines that successful global firms seem to employ. Successful global competitors

1. See themselves as multinational enterprises and are led by a management team that is comfort- able in the world arena.

2. Develop integrated and innovative strategies that make it difficult and costly for other firms to compete.

3. Aggressively and effectively implement their world- wide strategy and back it with large investments.

4. Understand that innovation no longer is confined to the United States and develop systems for tapping innovation abroad.

5. Operate as if the world were one large market rather than a series of individual, small markets.

6. Have organization structures that are designed to handle their unique problems and challenges and thus provide them the greatest efficiency.

7. Develop a system that keeps them informed about political changes around the world and the implications of these changes on the firm.

8. Have management teams that are international in composition and thus better able to respond to the various demands of their respective markets.

9. Allow their outside directors to play an active role in the operation of the enterprise.

10. Are well managed and tend to follow such impor- tant guidelines as sticking close to the customer, having lean organization structures, and encour- aging autonomy and entrepreneurial activity among the personnel.

Source: James F. Bolt, “Global Competitors: Some Criteria for Success,” Business Horizons, January–February 1988, pp. 34–41; Alan S. Rugman and Richard M. Hodgetts, International Business, 2nd ed. (London: Pearson, 2000), chapter 1; Sheida Hodge, Global Smarts: The Art of Communicating and Deal Making Anywhere in the World (New York: Wiley, 2000).

Chapter 5 Managing Across Cultures 163

history, past training, and work experiences that emphasize strategic values unlike those that exist in an international market-driven environment. For example, while an excess of unproductive workers may lead American managers to lay off some individuals for the good of the company, CIS managers would focus on the good of the working com- munity and allow the company to accept significant profit losses as a consequence. This led the researchers to conclude:

As behavioral change continues to lag behind structural change, it becomes imperative to understand that this inconsistency between what economic demands and cultural norms require manifests problems and complexities far beyond mere structural change. In short, the implications of the different perspectives on technology, labor, and production . . . for potential partnerships between U.S. and CIS companies need to be fully grasped by all par- ties entering into any form of relationship.31

Simplification is the process of exhibiting the same orientation toward different cultural groups. For example, the way in which a U.S. manager interacts with a British manager is the same way in which he or she behaves when doing business with an Asian executive. Moreover, this orientation reflects one’s basic culture. Table 5–2 provides an example, showing several widely agreed-on, basic cultural orientations and the range of variations for each. Asterisks indicate the dominant U.S. orientation. Quite obviously, U.S. cultural values are not the same as those of managers from other cultures; as a result, a U.S. manager’s attempt to simplify things can result in erroneous behavior. Here is an example of a member of the purchasing department of a large European oil company who was negotiating an order with a Korean supplier:

At the first meeting, the Korean partner offered a silver pen to the European manager. The latter, however, politely refused the present for fear of being bribed (even though he knew about the Korean custom of giving presents). Much to our manager’s surprise, the second

simplification The process of exhibiting the same orientation toward different cultural groups.

Table 5–2 Six Basic Cultural Variations

Orientations Range of Variations

What is the nature of people? Good (changeable/unchangeable) A mixture of good and evil* Evil (changeable/unchangeable)

What is the person’s relationship to nature? Dominant* In harmony with nature Subjugation

What is the person’s relationship to other people? Lineal (hierarchic) Collateral (collectivist) Individualist*

What is the modality of human activity? Doing* Being and becoming Being

What is the temporal focus of human activity? Future* Present Past

What is the conception of space? Private* Mixed Public

Note: *Indicates the dominant U.S. orientation. Source: Adapted from the work of Florence Rockwood Kluckhohn and Fred L. Stodtbeck.

164 Part 2 The Role of Culture

meeting began with the offer of a stereo system. Again the manager refused, his fear of being bribed probably heightened. When he gazed at a piece of Korean china on the third meeting, he finally realized what was going on. His refusal had not been taken to mean “let’s get on with business right away,” but rather “If you want to get into business with me, you had better come up with something bigger.”32

Understanding the culture in which they do business can make international man- agers more effective.33 Unfortunately, when placed in a culture with which they are unfamiliar, most international managers are not culturally knowledgeable, so they often misinterpret what is happening. This is particularly true when the environment is mark- edly different from the one from which they come. Consider, for example, the difference between the cultures in Malaysia and the United States. Malaysia has what could be called a high-context culture, which possesses characteristics such as

1. Relationships between people are relatively long lasting, and individuals feel deep personal involvement with each other.

2. Communication often is implicit, and individuals are taught from an early age to interpret these messages accurately.

3. People in authority are personally responsible for the actions of their subordi- nates, and this places a premium on loyalty to both superiors and subordinates.

4. Agreements tend to be spoken rather than written. 5. Insiders and outsiders are easily distinguishable, and outsiders typically do not

gain entrance to the inner group.

These Malaysian cultural characteristics are markedly different from those of low- context cultures such as the United States, which possess the following characteristics:

1. Relationships between individuals are relatively short in duration, and in gen- eral, deep personal involvement with others is not valued greatly.

2. Messages are explicit, and individuals are taught from a very early age to say exactly what they mean.

3. Authority is diffused throughout the bureaucratic system, and personal responsibility is hard to pin down.

4. Agreements tend to be in writing rather than spoken. 5. Insiders and outsiders are not readily distinguished, and the latter are encour-

aged to join the inner circle.34

These differences are exacerbated by the fact that Malaysian culture is based on an amalgamation of diverse religions, including Hinduism, Buddhism, and Islam. The belief is pervasive that success and failure are the will of God, which may create issues with American managers attempting to make deals, as Malaysians will focus less on facts and more on intuitive feelings.

At the same time, it is important to realize that while there are cultural differences, there also are similarities. Therefore, in managing across cultures, not everything is totally different. Some approaches that work at home also work well in other cultural settings.

Similarities across Cultures When internationalization began to take off in the 1970s, many companies quickly admit- ted that it would not be possible to do business in the same way in every corner of the globe. There was a secret hope, however, that many of the procedures and strategies that worked so well at home could be adopted overseas without modification. This has proved to be a false hope. At the same time, some similarities across cultures have been uncov- ered by researchers. For example, a co-author of this text (Luthans) and his associates studied through direct observation a sample of managers in the largest textile factory in Russia to determine their activities. Like U.S. managers studied earlier, Russian managers

Chapter 5 Managing Across Cultures 165

carried out traditional management, communication, human resources, and networking activities. The study also found that, as in the United States, the relative attention given to the networking activity increased the Russian managers’ opportunities for promotion, and that communication activity was a significant predictor of effective performance in both Russia and the United States.35

Besides the similarities of managerial activities, another study at the same Russian factory tested whether organizational behavior modification (O.B.Mod.) interventions that led to performance improvements in U.S. organizations would do so in Russia.36,37 As with the applications of O.B.Mod. in the United States, Russian supervisors were trained to administer social rewards (attention and recognition) and positive feedback when they observed workers engaging in behaviors that contributed to the production of quality fabric. In addition, Russian supervisors were taught to give corrective feedback for behaviors that reduced product quality. The researchers found that this O.B.Mod. approach, which had worked so well in the United States, produced positive results in the Russian factory. They concluded that the hypothesis that “the class of interventions associated with organizational behavior modification are likely to be useful in meeting the challenges faced by Russian workers and managers [is] given initial support by the results of this study.”38,39

In another cross-cultural study, this time using a large Korean sample, Luthans and colleagues analyzed whether demographic and situational factors identified in the U.S.- based literature had the same antecedent influence on the commitment of Korean employ- ees.40,41 As in the U.S. studies, Korean employees’ position in the hierarchy, tenure in their current position, and age all related to organizational commitment. Other similari- ties with U.S. firms included (1) as organizational size increased, commitment declined; (2) as structure became more employee-focused, commitment increased; and (3) the more positive the perceptions of organizational climate, the greater the employee commitment. The following conclusion was drawn:

This study provides beginning evidence that popular constructs in the U.S. management and organizational behavior literature should not be automatically dismissed as culture bound. Whereas some organizational behavior concepts and techniques do indeed seem to be culture specific . . . a growing body of literature is demonstrating the ability to cross-culturally validate other concepts and techniques, such as behavior management. . . . This study con- tributed to this cross-cultural evidence for the antecedents to organizational commitment. The antecedents for Korean employees’ organizational commitment were found to be similar to their American counterparts.42

Many Differences across Cultures We have stressed throughout the text how different cultures can be from one another and how important it is for MNCs to understand the points of disparity. Here, we look at some differences from a human resources perspective, a topic that will be covered in depth in Chapter 14. We introduce human resource management (HRM) here as a way to illustrate that the cultural foundations utilized in the selection of employees can further form the culture that international managers will oversee. In other words, understanding the HRM strategies before becoming a manager in the industry can aid in effective per- formance. The focus here is more from a socially cultural perspective; the organizational perspective will be discussed further in Chapter 14.

Despite similarities between cultures in some studies, far more differences than sim- ilarities have been found. MNCs are discovering that they must carefully investigate and understand the culture where they intend to do business and modify their approaches appropriately. Sometimes these cultures are quite different from the United States—as well as from each other! One human resource management example has been offered by Trompenaars, who examined the ways in which personnel in international subsidiaries were appraised by their managers. The head office had established the criteria to be used in these evaluations but left the prioritization of the criteria to the national operating company.

166 Part 2 The Role of Culture

As a result, the outcome of the evaluations could be quite different from country to coun- try because what was regarded as the most important criterion in one subsidiary might be ranked much lower on the evaluation list of another subsidiary. In the case of Shell Oil, for example, Trompenaars found that the firm was using a HAIRL system of appraisal. The five criteria in this acronym stood for (a) helicopter—the capacity to take a broad view from above; (b) analysis—the ability to evaluate situations logically and completely; (c) imagination—the ability to be creative and think outside the box; (d) reality—the ability to use information realistically; and (e) leadership—the ability to effectively galvanize and inspire personnel. When staff in Shell’s operating companies in four countries were asked to prioritize these five criteria from top to bottom, the results were as follows:

Netherlands France Germany Britain

Reality Imagination Leadership Helicopter Analysis Analysis Analysis Imagination Helicopter Leadership Reality Reality Leadership Helicopter Imagination Analysis Imagination Reality Helicopter Leadership

Quite obviously, personnel in different operating companies were being evaluated differently. In fact, no two of the operating companies in the four countries had the same criterion at the top of their lists. Moreover, the criterion at the top of the list for operat- ing companies in the Netherlands—reality—was at the bottom of the list for those in France; and the one at the top of the list in French operating companies—imagination— was at the bottom of the list of the Dutch firms. Similarly, the German operating com- panies put leadership at the top of the list and helicopter at the bottom, while the British companies did the opposite! In fact, the whole list for the Germans is in the exact reverse order of the British list.43

Other HRM differences can be found in areas such as wages, compensation, pay equity, and maternity leave. Here are some representative examples.

1. The concept of an hourly wage plays a minor role in Mexico. Labor law requires that employees receive full pay 365 days a year.

2. In Austria and Brazil, employees with one year of service are automatically given 30 days of paid vacation.

3. Some jurisdictions in Canada have legislated pay equity—known in the United States as comparable worth—between male- and female-intensive jobs.

4. In Japan, compensation levels are determined by using the objective factors of age, length of service, and educational background rather than skill, ability, and performance. Performance does not count until after an employee reaches age 45.

5. In the United Kingdom, employees are allowed up to 40 weeks of maternity leave, and employers must provide a government-mandated amount of pay for 18 of those weeks.

6. In 87 percent of large Swedish companies, the head of human resources is on the board of directors.44

These HRM practices certainly are quite different from those in the United States, and U.S. MNCs need to modify their approaches when they go into these countries if they hope to be successful. Compensation plans, in particular, provide an interesting area of contrast across different cultures.

Drawing on the work of Hofstede (see Chapter 4), it is possible to link cultural clusters and compensation strategies. Each cluster requires a different approach to for- mulating an effective compensation strategy:

1. In Pacific Rim countries, incentive plans should be group-based. In high- masculinity cultures (Japan, Hong Kong, Malaysia, the Philippines, Singapore), high salaries should be paid to senior-level managers.

Chapter 5 Managing Across Cultures 167

2. In EU nations such as France, Spain, Italy, and Belgium, compensation strategies should be similar. In the latter two nations, however, significantly higher salaries should be paid to local senior-level managers because of the high masculinity index. In Portugal and Greece, both of which have a low individualism index, profit-sharing plans would be more effective than individual incentive plans, while in Denmark, the Netherlands, and Germany, personal-incentive plans would be highly useful because of the high individualism in these cultures.

3. In Great Britain, Ireland, and the United States, managers value their individ- ualism and are motivated by the opportunity for earnings, recognition, advancement, and challenge. Compensation plans should reflect these needs.45

Figure 5–1 shows how specific HRM areas can be analyzed contingently on a country-by-country basis. Take, for example, the information on Japan. When it is con- trasted with U.S. approaches, a significant number of differences are found. Recruitment and selection in Japanese firms often are designed to help identify those individuals who will do the best job over the long run. In the United States, people often are hired based on what they can do for the firm in the short run because many of them eventually will quit or be downsized. Similarly, the Japanese use a great deal of cross-training, while the Americans tend to favor specialized training. The Japanese use group performance appraisal and reward people as a group; at least traditionally, Americans use manager- subordinate performance appraisal and reward people as individuals. In Japan, unions are regarded as partners; in the United States, management and unions view each other in a much more adversarial way. Only in the area of job design, where the Japanese use a great deal of participative management and autonomous work teams, are the Americans beginning to employ a similar approach. The same types of differences can be seen in the matrix of Figure 5–1 among Japan, Germany, Mexico, and China.

These differences should not be interpreted to mean that one set of HRM practices is superior to another. In fact, recent research from Japan and Europe shows these firms often have a higher incidence of personnel-related problems than do U.S. companies. Figure 5–1 clearly indicates the importance of MNCs using a contingency approach to HRM across cultures. Not only are there different HRM practices in different cultures, but there also are different practices within the same cultures. For instance, one study involving 249 U.S. affiliates of foreign-based MNCs found that in general, affiliate HRM practices closely fol- low local practices when dealing with the rank and file but even more closely approximate parent-company practices when dealing with upper-level management.46 In other words, this study found that a hybrid approach to HRM was being used by these MNCs.

Aside from the different approaches used in different countries, it is becoming clear that common assumptions and conventional wisdom about HRM practices in certain countries no longer are valid. For example, for many years, it has been assumed that Japanese employees do not leave their jobs for work with other firms, that they are loyal to their first employer, and that it would be virtually impossible for MNCs operating in Japan to recruit talent from Japanese firms. Recent evidence, however, reveals that job-hopping among Japanese employees is increasingly common. One report concluded:

While American workers, both the laid-off and the survivors, grapple with cutbacks, one in three Japanese workers willingly walks away from his job within the first 10 years of his career, according to the Japanese Institute of Labor, a private research organization. And many more are thinking about it. More than half of salaried Japanese workers say they would switch jobs or start their own business if a favorable opportunity arose, according to a survey by the Recruit Research Corporation.47

These findings clearly illustrate one important point: Managing across cultures requires careful understanding of the local environment because common assumptions and stereotypes may not be valid. Cultural differences must be addressed, and this is why cross-cultural research will continue to be critical in helping firms learn how to manage across cultures.48,49

168 Part 2 The Role of Culture

• Prepare for long process

• Ensure that your firm is “here to stay”

• Develop trusting relationship with recruit

• Make substantial investment in training

• Use general training and cross-training

• Training is everyone’s responsibility

• Use recognition and praise as motivators

• Avoid pay for performance

• Treat unions as partners

• Allow time for negotiations

• Include participation • Incorporate group

goal setting • Use autonomous

work teams • Use uniform, formal

approaches • Encourage

co-worker input • Empower teams to

make decision

Recruitment and selection

Training

Compensation

Labor relations

Job design

• Obtain skilled labor from government- subsidized appren- ticeship program

• Reorganize and utilize apprenticeship programs

• Be aware of govern- ment regulations on training

• Note high labor costs for manufacturing

• Be prepared for high wages and short workweek

• Expect high pro­ ductivity from unionized workers

• Utilize works councils to enhance worker participation

• Use expatriates sparingly

• Recruit Mexican nationals at U.S. col- leges

• Use bilingual trainers

• Consider all aspects of labor cost

• Understand changing Mexican labor law

• Prepare for increas- ing unionization of labor

• Approach participa- tion cautiously

• Recent public policy shifts encourage use of sophisticated selection procedures

• Carefully observe existing training programs

• Utilize team training

• Use technical training as reward

• Recognize egalitarian values

• Use “more work, more pay” with caution

• Tap large pool of labor cities

• Lax labor laws may become more stringent

• Determine employ- ee’s motives before implementing participation

Japan Germany Mexico China Source: From Fred Luthans, Paul A. Marsnik, and Kyle W. Luthans, “A Contingency Matrix Approach to IHRM,” Human Resource Management Journal 36, no. 2 (1997), pp. 183–199.

A Partially Completed Contingency Matrix for International Human Resource Management

Figure 5–1

■ Cultural Differences in Selected Countries and Regions

As noted in Part One and in Chapter 4, MNCs are increasingly active in all parts of the world, including the developing and emerging regions because of their recent growth and future potential. Chapter 4 introduced the concept of country clusters, which is the idea that certain regions of the world have similar cultures. For example, the way that Amer- icans do business in the United States is very similar to the way that the British do

Chapter 5 Managing Across Cultures 169

business in England. Even in this Anglo culture, however, there are pronounced differ- ences, and in other clusters, such as in Asia, these differences become even more pro- nounced. The next sections focus on cultural highlights and differences in selected countries and regions that provide the necessary understanding and perspective for effective management across cultures.

Using the GLOBE Project to Compare Managerial Differences Examination of the GLOBE project has resulted in an extensive breakdown of how managers behave and how different cultures can yield managers with similar perspec- tives in some realms, with quite divergent opinions in other sectors. One example, as illustrated in Figure 5–2, shows how the value scores for managers in China compare to those of managers in the United States and Argentina. The web structure, based on factors such as individualism, consciousness of social and professional status, and risky behaviors, can be used to show both similarities and differences between multiple cultures at once, indicating potential areas of cultural misunderstanding when conduct- ing business. As can be seen through the web structure shown, Chinese managers typically score higher than their Argentine and U.S. counterparts in the area of uncer- tainty avoidance. This indicates that Chinese managers prefer structured situations, rules, and careful planning, while their counterparts in the U.S. and Argentina are more open to looser restrictions and more unplanned situations. When managers from the U.S. and Argentina are conducting business in a culture with high uncertainty avoid- ance preferences, like China, it is suggested that they give their employees a clear plan and a structural framework to complete their assigned tasks. Interestingly, all three countries score similarly low in the area of power distance, indicating that managers

Figure 5–2 GLOBE Analysis: Comparing Values in China, the U.S., and Argentina

Source: Original graphic by Ben Littell under supervision of Professor Jonathan Doh based on data from the GLOBE project research.

U.S.China Argentina

Assertiveness

Institutional Collectivism

In-Group CollectivismPower Distance

Performance Orientation Future Orientation

Gender EgalitarianismHumane Orientation

Uncertainty Avoidance

0 1

2

3

4

5

6

7

170 Part 2 The Role of Culture

in these cultures prefer structures with less hierarchy and more equality—even if, in practice, the opposite is true within their country.50

As shown in the figure, Chinese managers tend to value assertiveness significantly more than managers from Argentina, indicating that aggressive or confrontational behavior in a business negotiation, for example, would not be viewed in a negative way by Chinese businesspeople but might well by Argentine businesspeople. A Chinese businessperson may walk away from intense negotiation feeling as though things went well, while an Argentine counterpart across the table might view the same meeting as unproductive and detrimental.51

One interesting development is the increasing frequency of managers and execu- tives from one part of the world assuming leadership roles in another. For example, in 2015, Takeda Pharmaceutical Company named Christophe Weber as its new CEO, becoming the first non-Japanese CEO in the company’s history. He joins the ranks of the few—but increasing—number of foreign heads of Japanese firms, who now include Brian Prince of Aozora Bank, Eva Chen of Trend Micro, and Carlos Ghoshen of Nissan Motor Co. Foreign CEOs still face cultural difficulties, however. At Nippon Sheet Glass, for example, American Craig Naylor resigned suddenly in 2012 after just two years as CEO. Naylor cited “fundamental disagreements with the board on company strategy” as the key reason for his departure.52 Chapters 13 and 14 provide an in-depth discussion of leadership and human resource management across cultures, respectively. Because of the increasing importance of developing and emerging regions and countries in the global economy, knowledge of these contexts is more and more important for global managers. In a study by the China Europe International Business School’s Leadership Behavioral Laboratory and the Center for Creative Leadership, executives identified critical charac- teristics in their careers that contributed to their development as managers in emerging markets settings. These included setting an example for junior employees and learning to thrive in unstable environments.53 In addition, managers emphasized the importance of learning about their business and the emerging markets environment, through formal classes, mentoring, and direct experience.

Managing Culture in Selected Countries and Regions More specific insight on cultural practices specific to the BRIC countries, Arab countries, and France are presented below.

Before this discussion, however, it is important to provide a word of caution on overgeneralizing about cultures. Businesspeople from all cultures are individuals with unique personalities and styles; there are always exceptions to the general cultural char- acteristics discussed in the following sections. Stereotyping in cross-cultural dealings is unwarranted. In this chapter, we review general cultural characteristics, but from your own experience, you know the importance of an understanding of the particular individuals or situations you are dealing with.

Managing Culture in China The People’s Republic of China (China, for short) has had a long tradition of isolation. In 1979, Deng Xiaoping opened this country to the world. Although his bloody 1989 put-down of protesters in Tiananmen Square was a definite setback for progress, China is rapidly trying to close the gap between itself and economically advanced nations and to establish itself as a power in the world economy. As noted in Chapter 1, China is actively trading in world markets, is a member of the WTO, and is a major trading partner of the United States. Despite this global presence, many U.S. and European multinationals still find that doing business in China can be a long, grueling process.54,55 Foreign firms still find it difficult to make a profit in China. One primary reason is that Western-based MNCs do not appreciate the important role and impact of Chinese culture.

Experienced executives report that the primary criterion for doing business in China is technical competence. For example, in the case of MNCs selling machinery,

Chapter 5 Managing Across Cultures 171

Chinese businesspeople tend to want to know exactly how the machine works, what its capabilities are, and how repairs and maintenance must be handled. Sellers must be prepared to answer these questions in precise detail. This is why successful multination- als send only seasoned engineers and technical people to China. They know that the questions to be answered will require both knowledge and experience, and young, fresh- out-of-school engineers will not be able to answer them.

A major cultural difference between China and many Western countries is the issue of time. Chinese culture tends to value punctuality, so it is important that those who do business with them arrive on time, as discussed in Chapter 4. During meetings, such as those held when negotiating a contract, Chinese businesspeople may ask many questions and nod their assent at the answers. This nodding usually means that they understand or are being polite; it seldom means that they like what they are hearing and want to enter into a contract. For this reason, when dealing with Chinese businesspeople, one must keep in mind that patience is critically important. Chinese businesspeople will make a decision in their own good time, and it is common for outside businesspeople to make several trips to China before a deal is finally concluded. Moreover, not only are there numerous meetings, but sometimes these are unilaterally cancelled at the last minute and rescheduled. This often tries the patience of outsiders and is inconvenient in terms of rearranging travel plans and other problems.

Another important dimension of Chinese culture is guanxi, which means “good connections.”56 In turn, these connections can result in such things as lower costs for doing business.57 Yet guanxi goes beyond just lower costs. Yi and Ellis surveyed Hong Kong and Chinese managers and found that both groups agreed that guanxi networking offered a number of potential benefits, including increased business, higher sales revenue, more sources of information, greater prospecting opportunities, and the facilitation of future transactions.58 In practice, guanxi resembles nepotism, where individuals in author- ity make decisions on the basis of family ties or social connections rather than objective indices.59 Additionally, outsiders doing business in China must be aware that Chinese people will typically argue that they have the guanxi to get a job done, when in reality they may or may not have the necessary connections.

When conducting business in China, one must realize that the Chinese are a col- lective society in which people pride themselves on being members of a group. Chinese people are very proud of their collective economic accomplishments and want to share these feelings with outsiders. This is in sharp contrast to the situation in the United States and other Western countries, where individualism is highly prized. For this reason, one must never single out a Chinese employee and praise him or her for a particular quality, such as intelligence or kindness, because doing so may embarrass the individual in the presence of his or her peers. It is equally important to avoid using self-centered conver- sation, such as excessive use of the word “I,” because it appears that the speaker is trying to single him- or herself out for special consideration.

In negotiations, reciprocity is important. If Chinese partners give concessions, they expect some in return. Additionally, it is common to find them slowing down negotiations to take advantage of Westerners’ desire to conclude arrangements as quickly as possible. The objective of this tactic is to extract further concessions. Another common strategy used by Chinese businesspeople is to pressure the other party during final arrangements by suggesting that this counterpart has broken the spirit of friendship in which the business relationship originally was established. Again, through this strategy, the Chinese partners are trying to gain additional conces- sions. Because negotiating can involve a loss of face, it is common to find Chinese businesspeople carrying out the whole process through intermediaries. This allows them to convey their ideas without fear of embarrassment.60 During negotiations, it is also important not to show excessive emotion of any kind. Anger or frustration, for example, is viewed as antisocial and unseemly. Negotiations should be viewed with a long-term perspective. Those who will do best are the ones who realize they are investing in a long-term relationship.61

guanxi In Chinese, it means “good connections.”

172 Part 2 The Role of Culture

While these are the traditional behaviors of Chinese businesspeople, the transition- ing economy (see Chapter 1) has also caused a shift in business culture, which has affected working professionals’ private lives. Performance, which was once based on effort, is now being evaluated from the angle of results as the country continues to maintain its flourishing profits. While traditional Chinese culture focused on family first, financial and material well-being has become a top priority. This performance orientation has increased stress and contributed to growing incidence of burnout, depression, sub- stance abuse, and other ailments. Some U.S. companies have attempted to curb these psychological ailments by offering counseling; however, this service is not as readily accepted by Chinese culture. Instead of bringing attention to the “counseling” aspect, firms instead promote “workplace harmony” and “personal well-being services.”62 This suggests that while some aspects of Chinese culture are changing, international managers must recognize the foundational culture of the country and try to deal with such issues according to local beliefs.

Managing Culture in Russia As pointed out in Chapter 1, the Russian economy has experienced severe problems, and the risks of doing business there cannot be overstated. Recent tensions between the governments of Russia and the G7 nations, resulting from Russian intervention in Crimea and Syria, have made business dealings even more com- plicated. At the same time, however, by following certain guidelines, MNCs can begin to tap the potential opportunities.

When conducting business in Russia, it is important to build personal relationships with partners. Business laws and contracts do not mean as much in Russia as they do in the West. When there are contract disputes, there is little protection for the aggrieved party because of the time and effort needed to legally enforce the agreement. Detailed contracts can be hammered out later on; in the beginning, all that counts is friendship.

Local consultants can be valuable. Because the rules of business have changed so much in recent years, it pays to have a local Russian consultant working with the com- pany. Russian expatriates often are not up to date on what is going on and, quite often, are not trusted by local businesspeople who have stayed in the country. So the consultant should be someone who has been in Russia all the time and understands the local busi- ness climate.

Ethical behavior in Europe and the United States is not always the same as in Russia. For example, it is traditional in Russia to give gifts to those with whom one wants to transact business, an approach that may be regarded as bribery in the United States. In recent years, large companies such as IKEA have faced repercussions in their home markets due to bribery allegations from their business conduct in Russia (see Brief Integrative Case 4.1 at the end of Part 4).

When conducting business in Russia, businesspeople should be careful about com- promising or settling things too quickly, as this is often seen as a sign of weakness. Because of the history of complexity during the Soviet Union days, Russians today tend to be suspicious of anything that is conceded easily. If agreements are not reached after a while, a preferred tactic on their part is to display patience and then wait it out. How- ever, they will abandon this approach if the other side shows great patience because they will realize that their negotiating tactic is useless.63

Conducting business in Russia requires careful consideration of cultural factors, and it often takes a lot longer than initially anticipated. However, the benefits may be worth the wait. And when everything is completed, there is a final cultural tradition that should be observed: Fix and reinforce the final agreements with a nice dinner together and an invitation to the Russians to visit your country and see your facilities.64

Managing Culture in India In recent years, India has begun to attract the attention of large MNCs. Unsaturated consumer markets, coupled with cheap labor and production locations, have helped make India a desirable market for global firms. The government continues to play an important role in this process, although recently many of the

Chapter 5 Managing Across Cultures 173

bureaucratic restrictions have been lifted as India works to attract foreign investment and raise its economic growth rate.65,66 In addition, although most Indian businesspeople speak English, many of their values and beliefs are markedly different from those in the West. Thus, understanding Indian culture is critical to successfully doing business in India.

Shaking hands with male business associates is almost always an acceptable prac- tice. U.S. businesspeople in India are considered equals, however, and the universal method of greeting an equal is to press one’s palms together in front of the chest and say, “namaste,” which means “greetings to you.” Therefore, if a handshake appears to be improper, it always is safe to use “namaste.”

For Western businesspeople in India, shirt, trousers, tie, and suit are proper attire. In the southern part of India, where the climate is very hot, a light suit is preferable. In the north during the winter, a light sweater and jacket are a good choice. Indian busi- nesspeople, on the other hand, often will wear local dress. In many cases, this includes a dhoti, which is a single piece of white cloth (about five yards long and three feet wide) that is passed around the waist up to half its length and then the other half is drawn between the legs and tucked at the waist. Long shirts are worn on the upper part of the body. In some locales, such as Punjab, Sikhs will wear turbans, and well-to-do Hindus sometimes will wear long coats like the rajahs. This coat, known as a sherwani, is the dress recognized by the government for official and ceremonial wear. Foreign business- people are not expected to dress like locals, and in fact, many Indian businesspeople will dress like Europeans. Therefore, it is unnecessary to adopt local dress codes.67

Finally, it is important to remember that Indians are very tolerant of outsiders and understand that many are unfamiliar with local customs and procedures. Therefore, there is no need to make a phony attempt to conform to Indian cultural traditions. Making an effort to be polite and courteous is sufficient.68

Managing Culture in France Many in the United States believe that it is more difficult to get along with the French than with other Europeans. This feeling probably reflects the French culture, which is markedly different from that in the United States. In France, one’s social class is very important, and these classes include the aristocracy, the upper bourgeoisie, the upper-middle bourgeoisie, the middle, the lower middle, and the lower. Social interactions are affected by class stereotypes, and during their lifetime, most French people do not encounter much change in social status. Additionally, the French are very status conscious, and they like to provide signs of their status, such as knowledge of literature and the arts; a well-designed, tastefully decorated house; and a high level of education.

In the workplace, many French people are not motivated by competition or the desire to emulate fellow workers. They often are accused of not having as intense a work ethic as, for example, Americans or Asians. Many French workers frown on overtime, and statistics show that on average, they have the longest vacations in the world (four to five weeks annually). On the other hand, few would disagree that they work extremely hard in their regularly scheduled time and have a reputation for high productivity. Part of this reputation results from the French tradition of craftsmanship. Part of it also is accounted for by a large percentage of the workforce being employed in small, independ- ent businesses, where there is widespread respect for a job well done. In general, French employees do not derive much motivation from professional accomplishment. Rather, they believe that quality of life is what really matters. As a result, they attach a great deal of importance to leisure time, and many are unwilling to sacrifice the enjoyment of life for dedication to work.

Most French organizations tend to be highly centralized and have rigid structures. As a result, it usually takes longer to carry out decisions. Because this arrangement is quite different from the more decentralized, flattened organizations in the United States, both middle- and lower-level U.S. expatriate managers who work in French subsidiaries often find bureaucratic red tape a source of considerable frustration. There also are

174 Part 2 The Role of Culture

marked differences at the upper levels of management. In French companies, top manag- ers have far more authority than their U.S. counterparts, and they are less accountable for their actions. While top-level U.S. executives must continually defend their decisions to the CEO or board of directors, French executives are challenged only if the company has poor performance. As a result, those who have studied French management find that they take a more autocratic approach.69

Managing Culture in Brazil Brazil is considered a Latin American country, but it is important to highlight this nation since some characteristics make it markedly different to manage as compared to other Latin American countries.70 Brazil was originally colo- nized by Portugal, and remained affiliated with its parent country until 1865. Even though today Brazil is extremely multicultural, the country still demonstrates many at- tributes derived from its Portuguese heritage, including its official language. For exam- ple, the Brazilian economy was once completely centrally controlled like many other Latin American countries, yet was motivated by such Portuguese influences as flexibil- ity, tolerance, and commercialism.71 This may be a significant reason behind its success- ful economic emergence.

Brazilian businesspeople tend to have a relaxed work ethic, often respecting those who inherit wealth and have strong familial roots over those seeking entrepreneurial opportunities. They view time in a very relaxed manner, so punctuality is not a strong suit in this country. Overall, the people are very good-natured and tend to avoid confron- tation, yet they seek out risky endeavors.

In Brazil, physical contact is acceptable as a form of communication. Brazilian businesspeople tend to stand very close to others when having a conversation, and will touch the person’s back, arm, or elbow as a greeting or sign of respect. Additionally, face-to-face interaction is preferred as a way to communicate, so avoid simply e-mailing or calling. Do not be surprised if business meetings begin anywhere from 10 to 30  minutes after the scheduled time because Brazilian culture tends to not be governed by the clock.

Appearance can be very important to Brazilian culture, as it will reflect both you and your company. When conducting business, men should wear conservative dark suits, shirts, and ties. Women should dress nicely but avoid too conservative or formal attire. Brazilian managers often wonder, for example, if Americans make so much money, why do they dress like they are poor?

Patience is key when managing business in Brazil. Many processes are longer and more drawn out than in other cultures, including negotiations. Expressing frustration or impatience and attempting to speed up procedures may lose the deal. The slow processes and relaxed atmosphere do not imply that it is acceptable to be ill-prepared. Presentations should be informative and expressive, and consistency is important. It is common for Brazilian businesspeople to bring a lot of people to attend negotiations, mostly to observe and learn. Subsequent meetings may include members of higher management, requiring a rehashing of information.72,73

Managing Culture in Arab Countries The intense media attention given to the Iraq War, terrorist actions, and continuing conflicts in the Middle East have perhaps revealed to everyone that Arab cultures are distinctly different from Anglo cultures.74,75 Europeans and Americans often find it extremely hard to do business in Arab countries, and a number of Arab cultural characteristics can be cited for this difficulty.

One is the Arab view of time. In the United States, it is common to use the cliché, “Time is money.” In Arab countries, a favorite expression is Bukra insha Allah, which means “Tomorrow if God wills,” an expression that explains the fatalistic approach to time common to many Arab cultures. As a result, if Arab businesspeople commit themselves to a date in the future and fail to show up, they may feel no guilt or concern because they believe they have no control over time in the first place.

Chapter 5 Managing Across Cultures 175

When conducting business in an Arab country, it is important to understand that culture generally holds that destiny depends more on the will of a supreme being than on the behavior of individuals. A higher power dictates the outcome of important events, so individual action is of little consequence. Also of importance is that, in the culture of many Arab countries, social status is largely determined by family position and connections, not necessarily by accomplishments. This view helps to explain why some Middle Easterners take great satisfaction in appearing to be helpless. This approach is quite different from that in the United States, where the strong tend to be compensated and rewarded. If a person was ill, such as in this example, the individual would be relieved of his responsibility until he or she had regained full health. In the interim, the rest of the group would go on without the sick person, and he or she might lose power.

In Arab countries, initial meetings typically are used to get to know the other party. Business-related discussions may not occur until the third or fourth meeting. Also, in contrast to the common perception among many Western businesspeople who have never been to an Arab country, it is not necessary to bring the other party a gift. If this is done, however, it should be a modest gift. A good example is a novelty or souvenir item from the visitor’s home country. Also, Arab businesspeople tend to attach a great deal of importance to status and rank. When meeting with them, one should pay deference to the senior person first. It also is important never to criticize or berate anyone publicly. This causes the individual to lose face, and the same is true for the person who makes these comments. Mutual respect is required at all times.76

The World of International Management—Revisited Management at many companies and in many countries is becoming more and more multicultural, yet individual corporate cultures persist. Apple and Xiaomi are both exam- ples of highly successful companies with radically different approaches to strategy and management. Apple prides itself on groundbreaking innovation, individual achievement, and excellence. At Xiaomi, the emphasis is on extending innovations and applications and on group achievement and collective responsibility, all geared toward companywide success. The two companies even take a very different approach to their supply chains, with Apple outsourcing the entirety of its production and only manufacturing its new phone models for about a year, while Xiaomi produces its new phone models for a lon- ger period of time and maintains contracts with suppliers who can adjust production based on frequent changes in demand. In terms of products, Apple is a first-mover with a universal product focus, while Xiaomi is a “fast follower” with a variety of phones for its different markets. In some ways, these two companies epitomize the cultures from which they emanate, but both are now global players.

Cross-border investments by Chinese, Indian, and other developing-country firms have prompted investing firms, especially in Europe and North America, to more thought- fully consider cultural issues as they seek to integrate local companies and employees into their global organizations. As we saw in Chapter 4, East Asian, U.S., and Western European cultures differ on many dimensions, which may pose challenges for companies seeking to operate across these geographical/cultural boundaries.

Now that you have read this chapter, you should have a good understanding of the importance and the difficulties of managing across cultures. Using this knowledge as a platform, answer the following questions: (1) Which aspects of Apple’s culture have helped it succeed in its global growth and which may have impeded it? (2) Which aspects of Xiaomi’s culture have helped it succeed in its global growth and which may have impeded it? (3) How would you characterize Apple and Xiaomi in terms of the four basic strategic predispositions? (4) What might Apple learn from Xiaomi and Xiaomi learn from Apple?

176 Part 2 The Role of Culture

1. One major problem facing MNCs is that they some- times attempt to manage across cultures in ways similar to those of their home country. MNC dispo- sitions toward managing across cultures can be characterized as (1) ethnocentric, (2) polycentric, (3) regiocentric, and (4) geocentric. These different approaches shape how companies adapt and adjust to cultural pressures around the world.

2. One major challenge when dealing with cross- cultural problems is that of overcoming parochialism and simplification. Parochialism is the tendency to view the world through one’s own eyes and per- spectives. Simplification is the process of exhibiting the same orientation toward different cultural groups. Another problem is that of doing things 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 com- monly requires approaches different than those used at home. One area where this is particularly evident is human resource management. Recruitment, selec- tion, training, and compensation often are carried out in different ways in different countries, and what works in the United States may have limited value in other countries and geographic regions.

3. Doing business in various parts of the world requires the recognition and understanding of cul- tural differences. Some of these differences revolve around the importance the society assigns to time, status, control of decision making, personal accom- plishment, and work itself. These types of cultural differences help to explain why effective managers in China or Russia often are quite different from those in France, and why a successful style in the United States will not be ideal in Arab countries.

SUMMARY OF KEY POINTS

KEY TERMS

ethnocentric predisposition, 159 geocentric predisposition, 159 globalization imperative, 160

guanxi, 171 parochialism, 162 polycentric predisposition, 159

regiocentric predisposition, 159 simplification, 163

REVIEW AND DISCUSSION QUESTIONS

1. Define the four basic predispositions MNCs have toward their international operations.

2. If a locally based manufacturing firm with sales of $350 million decided to enter the EU market by set- ting up operations in France, which orientation would be the most effective: ethnocentric, polycentric, regio- centric, or geocentric? Why? Explain your choice.

3. In what way are parochialism and simplification barriers to effective cross-cultural management? In each case, give an example.

4. Many MNCs would like to do business overseas in the same way that they do business domestically. Do research findings show that any approaches that

work well in the United States also work well in other cultures? If so, identify and describe two.

5. In most cases, local managerial approaches must be modified for doing business overseas. What are three specific examples that support this statement? Be complete in your answer.

6. What are some categories of cultural differences that help make one country or region of the world different from another? In each case, describe the value or norm and explain how it would result in different behavior in two or more countries. If you like, use the countries discussed in this chapter as your point of reference.

Haier is a China-based multinational corporation that sells a wide variety of commercial and household appliances in the international marketplace. These range from washers, dryers, and refrigerators to industrial heating and ventila- tion systems. Visit Haier.com and read about some of the latest developments in which the company is engaged: (1)  What type of cultural challenges does Haier face when it attempts to market its products worldwide? Is demand

universal for all these offerings, or is there a “national responsiveness” challenge, as discussed in the chapter, that must be addressed? (2) Investigate the way in which Haier has adapted its products in different countries and regions, especially emerging markets. What are some examples? (3) In managing its far-flung enterprise, what are two cul- tural challenges that the company is likely to face and what will it need to do to respond to these?

INTERNET EXERCISE: HAIER’S APPROACH

Chapter 5 Managing Across Cultures 177

1. Nancy J. Adler, International Dimensions of Orga- nizational Behavior, 5th ed. (Cincinnati, OH: Southwestern, 2007).

2. Evan Niu, “How Many iPhones Has Apple Sold?” The Motley Fool, November 14, 2015, www.fool. com/investing/general/2015/11/14/iphones-sold.aspx.

3. Dylan Love, “At Apple, They Really Are After You,” Business Insider, January 9, 2013, www.busi- nessinsider.com/apple-corporate-culture-2013-1.

4. Adam Lashinsky, “This Is How Apple Keeps the Secrets,” Fortune, January 18, 2012, http://fortune. com/2012/01/18/the-secrets-apple-keeps/.

5. Parmy Olson, “How China’s Xiaomi Does in a Week What Apple Does in a Year: Update Devices,” Forbes, October 22, 2013, www.forbes. com/sites/parmyolson/2013/10/22/how-chinas- xiaomi-does-in-a-week-what-apple-does-in-a-year- update-devices/2/#15201d7b2c16.

6. Ibid. 7. David M. Barreda, “Who Supplies Apple? (It’s Not

Just China),” China File, February 14, 2013, www. chinafile.com/who-supplies-apple-it-s-not-just-china- interactive-map.

8. Peter Cohan, “Apple Can’t Innovate or Manage Supply Chain,” Forbes, October 26, 2012. http://www.forbes.com/sites/petercohan/2012/10/26/ apple-cant-innovate-or-manage-supply-chain/.

9. “Xiaomi & the Supply Chain Behind the World’s Highest Valued Startup,” Elementum News, April 16, 2015, http://news.elementum.com/how-supply- chain-is-building-xiaomis-empire.

10. Ibid. 11. Devindra Hardawar, “What China’s Xiaomi Can

Teach Apple, Google, and the Western Tech World,” Venture Beat, September 1, 2013, http:// venturebeat.com/2013/09/01/what-xiaomi-can-teach- google-apple-and-the-western-tech-world/.

12. Miguel Helft and Shan Carter, “A Chief Executive’s Attention to Detail, Noted in 313 Patents,” The New York Times, August 25, 2011, www.nytimes. com/2011/08/26/technology/apple-patents-show- steve-jobss-attention-to-design.html?_r=2.

13. Nick Bilton, “Bits: What Apple vs. HTC Could Mean,” The New York Times, March 2, 2010, http://bits.blogs.nytimes.com/2010/03/02/what-apple- vs-htc-could-mean/.

14. Leo Kelion, “Apple v Samsung Patent Verdict Reconsidered in Court,” BBC, December 6, 2012, www.bbc.com/news/technology-20615376.

15. Parmy Olson, “Xiaomi May Have a Major Patent Problem,” Forbes, January 29, 2015, www.forbes. com/sites/parmyolson/2015/01/29/xiaomi-patent- problem/#37415e5322ec.

16. Salvador Rodriguez, “Why Xiaomi Is Not Coming to America Anytime Soon: It Only Has 2 US Pat- ents,” International Business Times, March 30, 2015, www.ibtimes.com/why-xiaomi-not-coming- america-anytime-soon-it-only-has-2-us-pat- ents-1863838.

17. “Smartphone Vendor Market Share, 2015 Q2,” IDC, http://www.idc.com/prodserv/smartphone-market- share.jsp.

18. Carrie Mihalcik, “Xiaomi Made Only $56M Last Year, Filing Shows,” CNet, December 16, 2014, www.cnet.com/news/upstart-phone-maker-xiaomi- values-growth-over-profit/.

19. Nissan Motor Corporation, “Nissan Reports Net Income of 389 Billion Yen for FY2013,” news releases, May 12, 2014, www.nissan-global.com/ EN/NEWS/2014/_STORY/140512-01-e.html.

20. Nissan Motor Corporation, “Nissan Reports Net Income of $4.2 Billion (¥457.6 billion) for FY2014,” news release, May 13, 2015, http://nissan- news.com/en-US/nissan/usa/releases/nissan-reports- net-income-of-4-2-billion-457-6-billion-for-fy2014.

21. Yuro Kageyama, “Nissan Reports 38 Percent Rise in Profit, Raises Forecasts,” AP, November 2, 2015, http://bigstory.ap.org/article/80dda8efe70041f4b8aa3 12b14d67996/nissan-reports-38-percent-rise-profit- raises-forecasts.

22. “New models lift Renault profit despite Russia writedown.” Reuters, February 12, 2016. http:// www.reuters.com/article/us-renault-results- idUSKCN0VL0KP.

23. “World Motor Vehicle Production,” OICA, February 2016, www.oica.net/category/production-statistics/.

24. “Dacia Exceeded the Threshold of 500,000 Vehicles Sold Worldwide,” Dacia Group, January 19, 2015, www.daciagroup.com/en/press/press-releases/2015/ dacia-exceeded-the-threshold-of-500000-vehicles- sold-worldwide.

25. Luca Ciferri, “How Renault’s Low-Cost Dacia Has Become a ‘Cash Cow,’” Automotive News Europe, January 2, 2013, http://europe.autonews.com/arti- cle/20130102/ANE/312259994/how-renaults-low- cost-dacia-has-become-a-cash-cow.

26. Greeshma M, “5 Reasons Why Renault Kwid Will Be a Game Changer,” Economic Times of India, September 26, 2015, www.ibtimes.co.in/5-reasons- why-renault-kwid-will-be-game-changer-648139.

ENDNOTES

178 Part 2 The Role of Culture

27. “Renault-Nissan Alliance Celebrates 15th Anniver- sary as Four Key Business Units Prepare to Con- verge,” Renault Nissan, March 27, 2014, www. media.blog.alliance-renault-nissan.com/news/renault- nissan-alliance-celebrates-15th-anniversary-as-four- key-business-units-prepare-to-converge/.

28. Lisa Hoecklin, Managing Cultural Differences: Strategies for Competitive Advantage (Workingham, England: Addison-Wesley, 1995), pp. 98–99.

29. Marcy Beitle, Arjun Sethi, Jessica Milesko, and Alyson Potenza, “The Offshore Culture Clash,” AT  Kearney Executive Agenda XI, no. 2 (2008), pp.  32–39.

30. Matt Ackerman, “State St.: New Markets Key to Growth,” American Banker, May 3, 2004, p. 1.

31. Linda M. Randall and Lori A. Coakley, “Building a Successful Partnership in Russia and Belarus: The Impact of Culture on Strategy,” Business Horizons, March–April 1998, pp. 15–22.

32. Fons Trompenaars and Charles Hampden-Turner, Riding the Waves of Culture: Understanding Diver- sity in Global Business, 2nd ed. (New York: McGraw-Hill, 1998), p. 202.

33. See, for example, Anisya S. Thomas and Stephen L. Mueller, “A Case for Comparative Entrepreneurship: Assessing the Relevance of Culture,” Journal of International Business Studies, Second Quarter 2000, pp. 287–301.

34. Adapted from Richard Mead, International Manage- ment (Cambridge, MA: Blackwell, 1994), pp. 57–59.

35. Fred Luthans, Dianne H. B. Welsh, and Stuart A. Rosenkrantz, “What Do Russian Managers Really Do? An Observational Study with Comparisons to U.S. Managers,” Journal of International Business Studies, Fourth Quarter 1993, pp. 741–761.

36. Diane H. B. Welsh, Fred Luthans, and Steven M. Sommer, “Organizational Behavior Modification Goes to Russia: Replicating an Experimental Analy- sis Across Cultures and Tasks,” Journal of Organi- zational Behavior Management 13, no. 2 (1993), pp. 15–35.

37. Diane H. B. Welsh, Fred Luthans, and Steven M. Sommer, “Managing Russian Factory Workers: The Impact of U.S.-Based Behavioral and Participative Techniques,” Academy of Management Journal, February 1993, pp. 58–79.

38. Welsh, Luthans, and Sommer, “Organizational Behavior Modification,” p. 31.

39. The summary of positive (17 percent average) per- formance from O.B.Mod. for U.S. samples can be found in Fred Luthans and Alexander Stajkovic,

“Reinforce for Performance,” Academy of Manage- ment Executive 13, no. 2 (1999), pp. 49–57.

40. Steven M. Sommer, Seung-Hyun Bae, and Fred Luthans, “The Structure-Climate Relationship in Korean Organizations,” Asia Pacific Journal of Management 12, no. 2 (1995), pp. 23–36.

41. Also see Steven Sommer, Seung-Hyun Bae, and Fred Luthans, “Organizational Commitment Across Cultures: The Impact of Antecedents on Korean Employees,” Human Relations 49, no. 7 (1996), pp. 977–993.

42. Sommers, Bae, and Luthans, “The Structure- Climate Relationship in Korean Organizations.”

43. Trompenaars and Hampden-Turner, Riding the Waves of Culture, p. 196.

44. Shari Caudron, “Lessons for HR Overseas,” Person- nel Journal, February 1995, p. 92.

45. Richard M. Hodgetts and Fred Luthans, “U.S. Mul- tinationals’ Compensation Strategies for Local Man- agement: Cross-Cultural Implications,” Compensation and Benefits Review, March–April 1993, pp. 42–48.

46. Philip M. Rosenzweig and Nitin Nohria, “Influ- ences on Human Resource Management Practices in Multinational Corporations,” Journal of Interna- tional Business Studies, Second Quarter 1994, pp. 229–251.

47. “Disillusioned Workers Cost Japanese Economy up to $180.18 Billion,” The Wall Street Journal, September 5, 2001, p. B18.

48. Also see Richard W. Wright, “Trends in Interna- tional Business Research: Twenty-Five Years Later,” Journal of International Business Studies, Fourth Quarter 1994, pp. 687–701.

49. Also see Schon Beechler and John Zhuang Yang, “The Transfer of Japanese-Style Management to American Subsidiaries: Contingencies, Constraints, and Competencies,” Journal of International Busi- ness Studies, Third Quarter 1994, pp. 467–491.

50. Mansour Javidan, Peter W. Dorfman, et al., “In the Eye of the Beholder: Cross Cultural Lessons in Leadership from Project GLOBE,” Academy of Management Perspectives 20, no. 1 (2006), pp. 67–90.

51. Ibid. 52. Jacob M. Schlesinger, “Another Foreign CEO

Leaves Japan’s Executive Ranks,” The Wall Street Journal Online, April 18, 2012, http://blogs.wsj. com/japanrealtime/2012/04/18/another-foreign-ceo- leaves-japans-executive-ranks/.

53. Jean Lee, “Emerging Need: How Companies in Developing Markets Can Cultivate the Leaders

Chapter 5 Managing Across Cultures 179

They Lack,” The Wall Street Journal Online, May 24, 2010, www.wsj.com/articles/SB10001424052748 704878904575030901196923746.

54. John Boudreau and Brandon Bailey, “Doing Business in China Getting Tougher for U.S. Companies,” Mercury News, March 27, 2010.

55. Emily Rauhala, “Q. and A.: Doing Business in China,” The New York Times online, June 16, 2010, www.nytimes.com/2010/06/17/business/global/17iht- chinqa.html.

56. Eric W. K. Tsang, “Can Guanxi Be a Source of Sustained Competitive Advantage for Doing Busi- ness in China?” Academy of Management Executive 12, no. 2 (1998), p. 64.

57. Stephen S. Standifird and R. Scott Marshall, “The Transaction Cost Advantage of Guanxi-Based Busi- ness Practices,” Journal of World Business 35, no. 1 (2000), pp. 21–42.

58. Lee Mei Yi and Paul Ellis, “Insider-Outsider Per- spective of Guanxi,” Business Horizons, January– February 2000, p. 28.

59. Rosalie L. Tung, “Managing in Asia: Cross-Cultural Dimensions,” in Managing Across Cultures: Issues and Perspectives, ed. Pat Joynt and Malcolm War- ner (London: International Thomson Business Press, 1996), p. 239.

60. For more on this topic, see Philip R. Harris and Robert T. Moran, Managing Cultural Differences, 3rd ed. (Houston: Gulf Publishing, 1991), pp. 410–411.

61. Ming-Jer Chen, Inside Chinese Business (Boston: Harvard Business School Press, 2001), p. 153.

62. Michelle Conlin, “Go-Go-Going to Pieces in China,” BusinessWeek, April 23, 2007, p. 88.

63. For additional insights into how to interact and negotiate effectively with the Russians, see Richard D. Lewis, When Cultures Collide (London: Nicholas Brealey, 1999), pp. 314–318.

64. William B. Snavely, Serguel Miassaoedov, and Kevin McNeilly, “Cross-Cultural Peculiarities of the Russian Entrepreneur: Adapting to the New Russians,” Business Horizons, March–April 1998, pp. 13.

65. “The AU: Challenges for India,” Chicago Tribune, May 27, 2004, p. 28.

66. Amy Waldman, “In India, Economic Growth and Democracy Do Mix,” The New York Times, May 26, 2004, p. A13.

67. Adapted from Harris and Moran, Managing Cultural Differences, p. 447.

68. Also see Lewis, When Cultures Collide, pp. 341–346.

69. Jean-Louis Barsoux and Peter Lawrence, “The Making of a French Manager,” Harvard Business Review, July–August 1991, pp. 58–67.

70. T. Lenartowicz and James Patrick Johnson, “A Cross-National Assessment of Values of Latin America Managers: Contrasting Hues or Shades of Gray?” Journal of International Business Studies 34, no. 3 (May 2003), p. 270.

71. Reed E. Nelson and Suresh Gopalan, “Do Organi- zational Cultures Replicate National Cultures? Isomorphism, Rejection and Reciprocal Opposition in the Corporate Values of Three Countries,” Organization Studies 24, no. 7 (September 2003), pp. 1115–1154.

72. Derived from Raul Gouvea, “Brazil: A Strategic Approach,” Thunderbird International Business Review 46, no. 2 (March–April 2004), pp. 183–184.

73. David Hannon, “Brazil Offers the Best of Both Worlds,” Purchasing, October 5, 2006, pp. 51–52, https://www.highbeam.com/doc/1G1-152695481.html.

74. Sean Van Zyl, “Global Political Risks: Post 9/11,” Canadian Underwriter 71, no. 3 (March 2004), p. 16.

75. Marvin Zonis, “Mideast Hopes: Endless Surprises,” Chicago Tribune, January 18, 2004, p. 1.

76. Adapted from Harris and Moran, Managing Cul- tural Differences, p. 503.

77. CIA, “Poland,” The World Factbook (2016), https:// www.cia.gov/library/publications/the-world-factbook/ geos/pl.html.

78. Ibid. 79. “Poland: Selected Indicators,” Organization for Eco-

nomic Co-operation and Development, https://data. oecd.org/poland.htm.

80. CIA, “Poland.” This is Op. cit of Endnote 77. 81. “Poland: Selected Indicators.” This is Op. Cit of

Endnote 79. 82. CIA, “Poland.” This is Op. cit of Endnote 77. 83. Ibid. 84. Deyana Ivanova, “Tesco Share Price: Grocer’s

Polish Business at Risk,” Invezz, February 10, 2016, http://invezz.com/news/equities/22323-Tesco-share- price-Grocers-Polish-business-at-risk-.

180

Poland is located in Central Europe and is bordered by Germany, the Czech Republic, Slovakia, Ukraine, Belarus, and Lithuania. The Baltic Sea is located to the northwest. Slightly smaller than New Mexico, the country’s terrain is largely flat with mountain ranges along its southern border. Its climate is relatively cool, with moderately severe winters and mild summer temperatures. Poland’s natural resources include coal, sulfur, copper, natural gas, silver, lead, salt, amber, and arable land.77 Poland’s population, estimated at 38,562,000, has remained steady for the last several years. Poland, with a median age of 40 years old, has an older-than-average population. The country is essentially entirely made up of native Poles. Immigrants do not comprise a significant proportion of the population. Poland has no citizenship by birth; instead, citizenship is awarded by descent, which requires both parents to be citizens of Poland. The coun- try is almost exclusively Roman Catholic.78 Poland’s GDP stands at US$545 billion, or US$24,952 per capita. Unlike most of Europe, Poland has seen years of steady economic gains. In 2015, the economy expanded at 3.5 percent.79 Poland was one of the only countries in the European Union to avoid a recession during 2008– 2009: The government of Prime Minister Donald Tusk steered the Polish economy through the economic down- turn by skillfully managing public finances and adopting controversial pension and tax reforms to further shore up public finances. Once a largely agricultural nation, the country’s economy has transitioned to one based primar- ily on industry (41 percent) and services (56 percent).80 The labor force, with 18.29 million people, ranks 34th in the world in size.81 Poland’s main export partners include Germany, the UK, the Czech Republic, France, Italy, the Netherlands, and Russia. Machinery and transportation equipment, intermediate manufactured goods, miscella- neous manufactured goods, foodstuffs, and live animals are all major exports.82 Poland has adopted a republic form of government. It was one of the first ex-communist countries to embrace a

capitalistic economy with privatization and economic lib- eralization. The country’s economic success following the fall of the Soviet Union was largely attributed to the gov- ernment’s success at privatizing most of the small and medium state-owned companies and encouraging foreign direct investment. Poland’s major difficulties lie in its somewhat deficient infrastructure, its rigid labor codes, a burdensome commercial court system, its extensive government red tape, a lack of energy mix, and its burdensome tax system.83

You Be the International Management Consultant Tesco, a multinational grocery and general merchandise retailer, operates over 6,000 stores around the world and 442 stores in Poland. Tesco has a large online presence and handles online orders for customers in its various markets. The company has enjoyed considerable success across the world but has faced some recent difficulty with its Polish investments. The Polish government has recently announced a plan to increase revenues to pay for various initiatives, includ- ing the proposed imposition on large retailers of a 1.9  percent tax on gross revenue. This tax is targeted at “foreign-dominated industries” like supermarkets and banks. Moody’s estimates that this new tax could cost Tesco as much as 3.5 percent of earnings.84

Questions 1. If you were a consultant for Tesco, how would you

advise Tesco to deal with the new tax? 2. Would this new tax be enough for you to advise the

company to end business in Poland? 3. Does the fact that this regulation is specifically

targeted at foreign-dominated industries and businesses create concern for future regulations should you choose to continue operations in Poland?

PolandIn the International Spotlight

262

Despite the frustrations, Eisner was tirelessly upbeat about the project. “Instant hits are things that go away quickly, and things that grow slowly and are part of the culture are what we look for,” he said. “What we created in France is the biggest private investment in a foreign country by an American company ever. And it’s gonna pay off.”

In the Beginning Disney’s story is the classic American rags-to-riches story, which started in a small Kansas City advertising office where Mickey was a real mouse prowling the unknown Walt Disney floor. Originally, Mickey was named Mortimer, until a dissenting Mrs. Disney stepped in. How close Mickey was to Walt Disney is evidenced by the fact that when filming, Disney himself dubbed the mouse’s voice. Only in later films did Mickey get a dif- ferent voice. Disney made many sacrifices to promote his hero-mascot, including selling his first car, a beloved Moon Cabriolet, and humiliating himself in front of Louis B. Mayer. “Get that mouse off the screen!” was the movie mogul’s reported response to the cartoon character. Then, in 1955, Disney had the brainstorm of sending his movie characters out into the “real” world to mix with their fans, and he battled skeptics to build the very first Disneyland in Anaheim, California.

When Disney died in 1966, the company went into virtual suspended animation. Its last big hit of that era was 1969’s The Love Bug, about a Volkswagen named Herbie. Today, Disney executives trace the problem to a tyrannical CEO named E. Cardon Walker, who ruled the company from 1976 to 1983, and to his successor, Ronald W. Miller. Walker was quick to ridicule underlings in pub- lic and impervious to any point of view but his own. He made decisions according to what he thought Walt would have done. Executives clinched arguments by quoting Walt like the Scriptures or Marx, and the company even- tually supplied a little book of the founder’s sayings. Mak- ing the wholesome family movies Walt would have wanted formed a key article of Walker’s creed. For example, a poster advertising the unremarkable Condorman featured actress Barbara Carrera in a slit skirt. Walker had the slit painted over. With this as the context, studio producers ground out a thin stream of tired, formulaic movies that fewer and fewer customers would pay to see. In mid-1983, a similar low-horsepower approach to television production

On January 18, 1993, Euro Disneyland chair Robert Fitzpatrick announced he would leave that post on April 12 to begin his own consulting company. Quitting his position exactly one year after the grand opening of Euro Disneyland, Fitzpatrick with his resignation removed U.S. management from the helm of the French theme park and resort.

Fitzpatrick’s position was taken by a Frenchman, Philippe Bourguignon, who had been Euro Disneyland’s senior vice president for real estate. Bourguignon, 45 years old, faced a net loss of FFr 188 million for Euro Disneyland’s fiscal year, which ended September 1992. Also, between April and September 1992, only 29 percent of the park’s total visitors were French. Expectations were that closer to half of all visitors would be French.

It was hoped that the promotion of Philippe Bourgui- gnon would have a public relations benefit for Euro Disneyland—a project that had been a publicist’s night- mare from the beginning. One of the low points was at a news conference prior to the park’s opening when protest- ers pelted Michael Eisner, CEO of the Walt Disney Com- pany, with rotten eggs. Within the first year of operation, Disney had to compromise its “squeaky clean” image and lift the alcohol ban at the park. Wine is now served at all major restaurants.

Euro Disneyland, 49 percent owned by Walt Disney Company, Burbank, California, originally forecasted 11 million visitors in the first year of operation. In January 1993 it appeared attendance would be closer to 10 mil- lion. In response, management temporarily slashed prices at the park for local residents to FFr 150 ($27.27) from FFr 225 ($40.91) for adults and to FFr 100 from FFr 150 for children in order to lure more French during the slow, wet winter months. The company also reduced prices at its restaurants and hotels, which registered occupancy rates of just 37 percent.

Bourguignon also faced other problems, such as the second phase of development at Euro Disneyland, which was expected to start in September 1993. It was unclear how the company planned to finance its FFr 8–10 billion cost. The company had steadily drained its cash reserves (FFr 1.9 billion in May 1993) while piling up debt (FFr 21 billion in May 1993). Euro Disneyland admitted that it and the Walt Disney Company were “exploring poten- tial sources of financing for Euro Disneyland.” The com- pany was also talking to banks about restructuring its debts.

In-Depth Integrative Case 2.1a

Euro Disneyland

In-Depth Integrative Case 2.1a Euro Disneyland 263

“I knew that would hang a ‘For Sale’ sign over the com- pany,” said Gold.

By resigning, Roy pushed over the first of a train of dominoes that ultimately led to the result he most desired. The company was raided, almost dismantled, greenmailed, raided again, and sued left and right. But it miraculously emerged with a skilled new top management with big plans for a bright future. Roy Disney proposed Michael Eisner as the CEO, but the board came close to rejecting Eisner in favor of an older, more buttoned-down candidate. Gold stepped in and made an impassioned speech to the directors. “You see guys like Eisner as a little crazy . . . but every studio in this country has been run by crazies. What do you think Walt Disney was? The guy was off the goddamned wall. This is a creative institution. It needs to be run by crazies again.”

Meanwhile Eisner and Wells staged an all-out lobbying campaign, calling on every board member except two, who were abroad, to explain their views about the com- pany’s future. “What was most important,” said Eisner, “was that they saw I did not come in a tutu, and that I was a serious person, and I understood a P&L, and I knew the investment analysts, and I read Fortune.”

In September 1984, Michael Eisner was appointed CEO and Frank Wells became president. Jeffrey Katzen- berg, the 33-year-old, maniacal production chief, followed Fisher from Paramount Pictures. He took over Disney’s movie and television studios. “The key,” said Eisner, “is to start off with a great idea.”

Disneyland in Anaheim, California For a long time, Walt Disney had been concerned about the lack of family-type entertainment available for his two daughters. The amusement parks he saw around him were mostly filthy traveling carnivals. They were often unsafe and allowed unruly conduct on the premises. Disney envi- sioned a place where people from all over the world would be able to go for clean and safe fun. His dream came true on July 17, 1955, when the gates first opened at Disneyland in Anaheim, California.

Disneyland strives to generate the perfect fantasy. But magic does not simply happen. The place is a marvel of modern technology. Literally dozens of computers, huge banks of tape machines, film projectors, and electronic controls lie behind the walls, beneath the floors, and above the ceilings of dozens of rides and attractions. The philosophy is that “Disneyland is the world’s biggest stage, and the audience is right here on the stage,” said Dick Hollinger, chief industrial engineer at Disneyland. “It takes a tremendous amount of work to keep the stage clean and working properly.”

Cleanliness is a primary concern. Before the park opens at 8 a.m., the cleaning crew will have mopped, hosed, and dried every sidewalk, street, floor, and counter.

led to CBS’s cancellation of the hour-long program The Wonderful World of Disney, leaving the company without a regular network show for the first time in 29 years. Like a reclusive hermit, the company lost touch with the contemporary world.

Ron Miller’s brief reign was by contrast a model of decentralization and delegation. Many attributed Miller’s ascent to his marrying the boss’s daughter rather than to any special gift. To shore Miller up, the board installed Raymond L. Watson, former head of the Irvine Co., as part-time chair. He quickly became full time.

Miller sensed the studio needed rejuvenation, and he managed to produce the hit film Splash, featuring an apparently (but not actually) bare-breasted mermaid, under the newly devised Touchstone label. However, the reluctance of freelance Hollywood talent to accommodate Disney’s narrow range and stingy compensation often kept his sound instincts from bearing fruit. “Card [Cardon Walker] would listen but not hear,” said a former executive. “Ron [Ron Miller] would listen but not act.”

Too many box office bombs contributed to a steady erosion of profit. Profits of $135 million on revenues of $915 million in 1980 dwindled to $93 million on revenues of $1.3 billion in 1983. More alarmingly, revenues from the company’s theme parks, about three-quarters of the company’s total revenues, were showing signs of leveling off. Disney’s stock slid from $84.375 a share to $48.75 between April 1983 and February 1984.

Through these years, Roy Disney Jr. simmered while he watched the downfall of the national institution that his uncle, Walt, and his father, Roy Disney Sr., had built. He had long argued that the company’s constituent parts all worked together to enhance each other. If movie and tele- vision production weren’t revitalized, not only would that source of revenue disappear, but the company and its activities would also grow dim in the public eye. At the same time, the stream of new ideas and characters that kept people pouring into the parks and buying toys, books, and records would dry up. Now his dire predictions were coming true. His own personal shareholding had already dropped from $96 million to $54 million. Walker’s treat- ment of Ron Miller as the shining heir apparent and Roy Disney as the idiot nephew helped drive Roy to quit as Disney vice president in 1977 and to set up Shamrock Holdings, a broadcasting and investment company.

In 1984, Roy teamed up with Stanley Gold, a tough- talking lawyer and a brilliant strategist. Gold saw that the falling stock price was bound to flush out a raider and afford Roy Disney a chance to restore the company’s for- tunes. They asked Frank Wells, vice chair of Warner Bros., if he would take a top job in the company in the event they offered it. Wells, a lawyer and a Rhodes scholar, said yes. With that, Roy knew that what he would hear in Disney’s boardroom would limit his freedom to trade in its stock, so he quit the board on March 9, 1984.

264 Part 2 The Role of Culture

complexes: Future World, a series of pavilions designed to show the technological advances of the next 25 years, and World Showcase, a collection of foreign “villages.”

Tokyo Disneyland It was Tokyo’s nastiest winter day in four years. Arctic winds and 8 inches of snow lashed the city. Roads were clogged and trains slowed down. But the bad weather didn’t keep 13,200 hardy souls from Tokyo Disneyland. Mikki Mausu, better known outside Japan as Mickey Mouse, had taken the country by storm.

Located on a fringe of reclaimed shoreline in Urayasu City on the outskirts of Tokyo, the park opened to the pub- lic on April 15, 1983. In less than one year, over 10 million people had passed through its gates, an attendance figure that has been bettered every single year. On August 13, 1983, 93,000 people helped set a one-day attendance record that easily eclipsed the old records established at the two parent U.S. parks. Four years later, records again toppled as the turnstiles clicked. The total this time: 111,500. By 1988, approximately 50 million people, or nearly half of Japan’s population, had visited Tokyo Disneyland since its opening. The steady cash flow pushed revenues for fiscal year 1989 to $768 million, up 17 percent from 1988.

The 204-acre Tokyo Disneyland is owned and operated by Oriental Land under license from the Walt Disney Co. The 45-year contract gives Disney 10 percent of admis- sions and 5 percent of food and merchandise sales, plus licensing fees. Disney opted to take no equity in the proj- ect and put no money down for construction. “I never had the slightest doubt about the success of Disneyland in Japan,” said Masatomo Takahashi, president of Oriental Land Company. Oriental Land was so confident of the success of Disney in Japan that it financed the park entirely with debt, borrowing ¥180 billion ($1.5 billion at February 1988 exchange rates). Takahashi added, “The debt means nothing to me,” and with good reason. Accord- ing to Fusahao Awata, who co-authored a book on Tokyo Disneyland: “The Japanese yearn for [American culture].”

Soon after Tokyo Disneyland opened in April 1983, five Shinto priests held a solemn dedication ceremony near Cinderella’s castle. It is the only overtly Japanese ritual seen so far in this sprawling theme park. What visitors see is pure Americana. All signs are in English, with only small katakana (a phonetic Japanese alphabet) translations. Most of the food is American style, and the attractions are cloned from Disney’s U.S. parks. Disney also held firm on two fundamentals that strike the Japanese as strange—no alcohol is allowed and no food may be brought in from outside the park.

However, in Disney’s enthusiasm to make Tokyo a brick- by-brick copy of Anaheim’s Magic Kingdom, there were a few glitches. On opening day, the Tokyo park discovered that almost 100 public telephones were placed too high for Japanese guests to reach them comfortably. And many

More than 350 of the park’s 7,400 employees come on duty at 1 a.m. to begin the daily cleanup routine. The thousands of feet that walk through the park each day and chewing gum do not mix; gum has always presented major cleanup problems. The park’s janitors found long ago that fire hoses with 90 pounds of water pressure would not do the job. Now they use steam machines, razor scrapers, and mops towed by Cushman scooters to literally scour the streets and sidewalks daily.

It takes one person working a full eight-hour shift to polish the brass on the Fantasyland merry-go-round. The scrupulously manicured plantings throughout the park are treated with growth-retarding hormones to keep the trees and bushes from spreading beyond their assigned spaces and destroying the carefully maintained five-eighths scale modeling that is utilized in the park. The maintenance supervisor of the Matterhorn bobsled ride personally walks every foot of track and inspects every link of tow chain every night, thus trusting his or her own eyes more than the $2 million in safety equipment that is built into the ride.

Eisner himself pays obsessive attention to detail. Walk- ing through Disneyland one Sunday afternoon, he peered at the plastic leaves on the Swiss Family Robinson tree house, noting that they periodically wear out and need to be replaced leaf by leaf at a cost of $500,000. As his family strolled through the park, he and his eldest son Breck stooped to pick up the rare piece of litter that the cleanup crew had somehow missed. This old-fashioned dedication has paid off. Since opening day in 1955, Disneyland has been a consistent moneymaker.

Disney World in Orlando, Florida By the time Eisner arrived, Disney World in Orlando was already on its way to becoming what it is today—the most popular vacation destination in the United States. But the company had neglected a rich niche in its business: hotels. Disney’s three existing hotels, probably the most profit- able in the United States, registered unheard-of occupancy rates of 92 percent to 96 percent versus 66 percent for the industry. Eisner promptly embarked on an ambitious $1 billion hotel expansion plan. Two major hotels, Disney’s Grand Floridian Beach Resort and Disney’s Caribbean Beach Resort, were opened during 1987–89. Disney’s Yacht Club and Beach Resort along with the Dolphin and Swan Hotels, owned and operated by Tishman Realty & Construction, Metropolitan Life Insurance, and Aoki Cor- poration, opened during 1989–90. Adding 3,400 hotel rooms and 250,000 square feet of convention space made it the largest convention center east of the Mississippi.

In October 1982, Disney made a new addition to the theme park—the Experimental Prototype Community of Tomorrow, or EPCOT Center. E. Cardon Walker, then president of the company, announced that EPCOT would be a “permanent showcase, industrial park, and experimen- tal housing center.” This new park consists of two large

In-Depth Integrative Case 2.1a Euro Disneyland 265

James B. Cora and his team of some 150 operations experts did a little calculating and pointed out that it would take 100,000 pigs to do the job. And then there would be the smell . . .

The Japanese relented. The Japanese were also uneasy about a rustic-looking

Westernland, Tokyo’s version of Frontierland. “The Japa- nese like everything fresh and new when they put it in,” said Cora. “They kept painting the wood and we kept saying, ‘No, it’s got to look old.’” Finally the Disney crew took the Japanese to Anaheim to give them a firsthand look at the Old West.

Tokyo Disneyland opened just as the yen escalated in value against the dollar, and the income level of the Japanese registered a phenomenal improvement. During this era of affluence, Tokyo Disneyland triggered an inter- est in leisure. Its great success spurred the construction of “leisurelands” throughout the country. This created an increase in the Japanese people’s orientation toward leisure. But demographics are the real key to Tokyo Disneyland’s success. Thirty million Japanese live within 30 miles of the park. There are three times more than the number of people in the same proximity to Anaheim’s Disneyland. With the park proven such an unqualified hit, and nearing capacity, Oriental Land and Disney mapped out plans for a version of the Disney-MGM studio tour next door. This time, Disney talked about taking a 50 percent stake in the project.

Building Euro Disneyland On March 24, 1987, Michael Eisner and Jacques Chirac, the French prime minister, signed a contract for the build- ing of a Disney theme park at Marne-la-Vallee. Talks between Disney and the French government had dragged on for more than a year. At the signing, Robert Fitzpat- rick, fluent in French, married to the former Sylvie Blondet, and the recipient of two awards from the French government, was introduced as the president of Euro Disneyland. He was expected to be a key player in wooing

hungry customers found countertops above their reach at the park’s snack stands.

“Everything we imported that worked in the United States works here,” said Ronald D. Pogue, managing director of Walt Disney Attractions Japan Ltd. “American things like McDonald’s hamburgers and Kentucky Fried Chicken are popular here with young people. We also wanted visitors from Japan and Southeast Asia to feel they were getting the real thing,” said Toshiharu Akiba, a staff member of the Oriental Land publicity department.

Still, local sensibilities dictated a few changes. A Jap- anese restaurant was added to please older patrons. The Nautilus submarine is missing. More areas are covered to protect against rain and snow. Lines for attractions had to be redesigned so that people walking through the park did not cross in front of patrons waiting to ride an attrac- tion. “It’s very discourteous in Japan to have people cross in front of somebody else,” explained James B. Cora, managing director of operations for the Tokyo project. The biggest differences between Japan and America have come in slogans and ad copy. Although English is often used, it’s “Japanized” English—the sort that would have native speakers shaking their heads while the Japanese nod happily in recognition. “Let’s Spring” was the motto for one of their highly successful ad campaigns.

Pogue, visiting frequently from his base in California, supervised seven resident American Disney managers who work side by side with Japanese counterparts from Oriental Land Co. to keep the park in tune with the Dis- ney doctrine. American it may be, but Tokyo Disneyland appeals to such deep-seated Japanese passions as cleanli- ness, order, outstanding service, and technological wiz- ardry. Japanese executives are impressed by Disney’s detailed training manuals, which teach employees how to make visitors feel like VIPs. Most worth emulating, say the Japanese, is Disney’s ability to make even the lowliest job seem glamorous. “They have changed the image of dirty work,” said Hakuhodo Institute’s Sekizawa.

Disney Company did encounter a few unique cultural problems when developing Tokyo Disneyland:

The problem: how to dispose of some 250 tons of trash that would be generated weekly by Tokyo Disneyland visitors? The standard Disney solution: trash compactors. The Japanese proposal: pigs to eat the trash and be slaughtered and sold at a profit.

Exhibit 1 How the Theme Parks Grew 1955 Disneyland 1966 Walt Disney’s death 1971 Walt Disney World in Orlando 1982 Epcot Center 1983 Tokyo Disneyland 1992 Euro Disneyland

Source: Stephen Koepp, “Do You Believe in Magic?” Time, April 25, 1988, pp. 66–73.

Exhibit 2 Investor’s Snapshot: The Walt Disney Company (December 1989)

Sales (latest four quarters) $4.6 billion Change from year earlier Up 33.6% Net profit $703.3 million Change Up 34.7% Return on common stockholders’ equity 23.4% Five-year average 20.3% Stock price average (last 12 months) $60.50–$136.25 Recent share price $122.75 Price/Earnings Multiple 27 Total return to investor (12 months to 11/3/89) 90.6%

Source: Fortune, December 4, 1989.

266 Part 2 The Role of Culture

40 percent foreign, with Disney taking 16.67 percent. Euro Disneyland was expected to bring $600 million in foreign investment into France each year.

As soon as the contract had been signed, individuals and businesses began scurrying to somehow plug into the Mickey Mouse money machine—all were hoping to ben- efit from the American dream without leaving France. In fact, one Paris daily, Liberation, actually sprouted mouse ears over its front-page flag.

The $1.5 to $2 billion first-phase investment would involve an amusement complex including hotels and res- taurants, golf courses, and an aquatic park in addition to a European version of the Magic Kingdom. The second phase, scheduled to start after the gates opened in 1992, called for the construction of a community around the park, including a sports complex, technology park, confer- ence center, theater, shopping mall, university campus, villas, and condominiums. No price tag had been put on the second phase, although it was expected to rival, if not surpass, the first-phase investment. In November 1989, Fitzpatrick announced that the Disney–MGM Studios, Europe, would also open at Euro Disneyland in 1996, resembling the enormously successful Disney–MGM Stu- dios theme park at Disney World in Orlando. The new studios would greatly enhance the Walt Disney Compa- ny’s strategy of increasing its production of live action and animated filmed entertainment in Europe for both the European and world markets.

“The phone’s been ringing here ever since the announcement,” said Marc Berthod of EpaMarne, the government body that oversees the Marne-la-Vallee region. “We’ve gotten calls from big companies as well as small—everything from hotel chains to language inter- preters all asking for details on Euro Disneyland. And the individual mayors of the villages around here have been swamped with calls from people looking for jobs,” he added.

Euro Disneyland was expected to generate up to 28,000 jobs, providing a measure of relief for an area that had suffered a 10 percent–plus unemployment rate for the pre- vious year. It was also expected to light a fire under France’s construction industry, which had been particularly hard hit by France’s economic problems over the previous year. Moreover, Euro Disneyland was expected to attract many other investors to the depressed outskirts of Paris. International Business Machines (IBM) and Banque National de Paris were among those already building in the area. In addition one of the new buildings going up was a factory that would employ 400 outside workers to wash the 50 tons of laundry expected to be generated per day by Euro Disneyland’s 14,000 employees.

The impact of Euro Disneyland was also felt in the real estate market. “Everyone who owns land around here is holding on to it for the time being, at least until they know what’s going to happen,” said Danny Theveno, a

support from the French establishment for the theme park. As one analyst put it, Disney selected him to set up the park because he is “more French than the French.”

Disney had been courted extensively by Spain and France. The prime ministers of both countries ordered their governments to lend Disney a hand in its quest for a site. France set up a five-person team headed by Special Advisor to Foreign Trade and Tourism Minister Edith Cresson, and Spain’s negotiators included Ignacio Vasallo, Director-General for the Promotion of Tourism. Disney pummeled both governments with requests for detailed information. “The only thing they haven’t asked us for is the color of the tourists’ eyes,” moaned Vasallo.

The governments tried other enticements too. Spain offered tax and labor incentives and possibly as much as 20,000 acres of land. The French package, although less generous, included spending of $53 million to improve highway access to the proposed site and perhaps speeding up a $75 million subway project. For a long time, all that smiling Disney officials would say was that Spain had better weather while France had a better population base.

Officials explained that they picked France over Spain because Marne-la-Vallee is advantageously close to one of the world’s tourism capitals, while also being situated within a day’s drive or train ride of some 30 million peo- ple in France, Belgium, England, and Germany. Another advantage mentioned was the availability of good trans- portation. A train line that serves as part of the Paris Metro subway system ran to Torcy, in the center of Marne-la-Vallee, and the French government promised to extend the line to the actual site of the park. The park would also be served by A-4, a modern highway that runs from Paris to the German border, as well as a freeway that runs to Charles de Gaulle airport.

Once a letter of intent had been signed, sensing that the French government was keen to not let the plan fail, Disney held out for one concession after another. For example, Disney negotiated for VAT (value-added tax) on ticket sales to be cut from a normal 18.6 percent to 7 percent. A quarter of the investment in building the park would come from subsidized loans. Additionally, any dis- putes arising from the contract would be settled not in French courts but by a special international panel of arbi- trators. But Disney did have to agree to a clause in the contract that would require it to respect and utilize French culture in its themes.

The park was built on 4,460 acres of farmland in Marne-la-Vallee, a rural corner of France 20 miles east of Paris known mostly for sugar beets and Brie cheese. Opening was planned for early 1992, and planners hoped to attract some 10 million visitors a year. Approximately $2.5 billion was needed to build the park, making it the largest single foreign investment ever in France. A French “pivot” company was formed to build the park with start- ing capital of FFr 3 billion, split 60 percent French and

In-Depth Integrative Case 2.1a Euro Disneyland 267

problems to their countryside. Such a public relations pro- gram was a rarity in France, where businesses make little effort to establish good relations with local residents. Dis- ney invited 400 local children to a birthday party for Mickey Mouse, sent Mickey to area hospitals, and hosted free trips to Disney World in Florida for dozens of local officials and children.

“They’re experts at seduction, and they don’t hide the fact that they’re trying to seduce you,” said Vincent Guar- diola, an official with Banque Indosuez, one of the 17 banks wined and dined at Orlando and subsequently one of the venture’s financial participants. “The French aren’t used to this kind of public relations—it was unbeliev- able.” Observers said that the goodwill efforts helped dis- sipate initial objections to the project.

Financial Structuring at Euro Disneyland Eisner was so keen on Euro Disneyland that Disney kept a 49 percent stake in the project, while the remaining 51 percent of stock was distributed through the London, Paris, and Brussels stock exchanges. Half the stock under the offer was going to the French, 25 percent to the Eng- lish, and the remainder distributed in the rest of the Euro- pean community. The initial offer price of FFr 72 was considerably higher than the pathfinder prospectus esti- mate because the capacity of the park had been slightly extended. Scarcity of stock was likely to push up the price, which was expected to reach FFr 166 by opening day in 1992. This would give a compound return of 21 percent.

Walt Disney Company maintained management control of the company. The U.S. company put up $160 million of its own capital to fund the project, an investment that soared in value to $2.4 billion after the popular stock offering in Europe. French national and local authorities, by compari- son, were providing about $800 million in low-interest loans and poured at least that much again into infrastructure.

Other sources of funding were the park’s 12 corporate sponsors, and Disney would pay them back in kind. The “autopolis” ride, where kids ride cars, features coupes emblazoned with the “Hot Wheels” logo. Mattel Inc., sponsor of the ride, was grateful for the boost to one of its biggest toy lines.

The real payoff would begin once the park opened. The Walt Disney Company would receive 10 percent of admis- sion fees and 5 percent of food and merchandise revenue, the same arrangement as in Japan. But in France, it would also receive management fees, incentive fees, and 49 per- cent of the profits.

A Saloman Brothers analyst estimated that the park would pull in 3 to 4 million more visitors than the 11 mil- lion the company expected in the first year. Other Wall Street analysts cautioned that stock prices of both Walt Disney Company and Euro Disney already contained all the Euro optimism they could absorb. “Europeans visit

spokesperson for the town of Villiers on the western edge of Marne-la-Vallee. Disney expected 11 million visitors in the first year. The break-even point was estimated to be between 7 and 8 million. One worry was that Euro Disneyland would cannibalize the flow of European vis- itors to Walt Disney World in Florida, but European travel agents said that their customers were still eagerly signing up for Florida, lured by the cheap dollar and the promise of sunshine.

Protests of Cultural Imperialism Disney faced French communists and intellectuals who protested the building of Euro Disneyland. Ariane Mnouchkine, a theater director, described it as a “cultural Chernobyl.” “I wish with all my heart that the rebels would set fire to Disneyland,” thundered a French intel- lectual in the newspaper La Figaro. “Mickey Mouse,” sniffed another, “is stifling individualism and transform- ing children into consumers.” The theme park was damned as an example of American “neoprovincialism.”

Farmers in the Marne-la-Vallee region posted protest signs along the roadside featuring a mean-looking Mickey Mouse and touting sentiments such as “Disney go home,” “Stop the massacre,” and “Don’t gnaw away our national wealth.” Farmers were upset partly because under the terms of the contract, the French government would expropriate the necessary land and sell it without profit to the Euro Disneyland development company.

While local officials were sympathetic to the farmers’ position, they were unwilling to let their predicament inter- fere with what some called “the deal of the century.” “For many years these farmers have had the fortune to cultivate what is considered some of the richest land in France,” said Berthod. “Now they’ll have to find another occupation.”

Also less than enchanted about the prospect of a magic kingdom rising among its midst was the communist- dominated labor federation, the Confédération Générale du Travail (CGT). Despite the job-creating potential of Euro Disney, the CGT doubted its members would benefit. The union had been fighting hard to stop the passage of a bill that would give managers the right to establish flexible hours for their workers. Flexible hours were believed to be a prerequisite to the profitable operation of Euro Disneyland, especially considering seasonal variations.

However, Disney proved to be relatively immune to the anti-U.S. virus. In early 1985, one of the three state- owned television networks signed a contract to broadcast two hours of dubbed Disney programming every Saturday evening. Soon after, Disney Channel became one of the top-rated programs in France.

In 1987, the company launched an aggressive com- munity relations program to calm the fears of politicians, farmers, villagers, and even bankers that the project would bring traffic congestion, noise, pollution, and other

268 Part 2 The Role of Culture

In Fantasyland, designers strived to avoid competing with the nearby European reality of actual medieval towns, cathedrals, and chateaux. While Disneyland’s castle is based on Germany’s Neuschwanstein and Disney World’s is based on a Loire Valley chateau, Euro Disney’s Le Château de la Belle au Bois Dormant, as the French insisted Sleeping Beauty be called, is more cartoonlike with stained glass windows built by English craftspeople and depicting Disney characters. Fanciful trees grow inside as well as a beanstalk.

The park is criss-crossed with covered walkways. Eisner personally ordered the installation of 35 fireplaces in hotels and restaurants. “People walk around Disney World in Florida with humidity and temperatures in the 90s and they walk into an air-conditioned ride and say, ‘This is the greatest,’” said Eisner. “When it’s raining and miserable, I hope they will walk into one of these lobbies with the fireplace going and say the same thing.”

Children all over Europe were primed to consume. Even one of the intellectuals who contributed to Le Figaro’s Disney-bashing broadsheet was forced to admit with resignation that his 10-year-old son “swears by Michael Jackson.” At Euro Disneyland, under the name “Captain EO,” Disney just so happened to have a Michael Jackson attraction awaiting him.

Food Service and Accommodations at Euro Disneyland Disney expected to serve 15,000 to 17,000 meals per hour, excluding snacks. Menus and service systems were devel- oped so that they varied in both style and price. There is a 400-seat buffeteria, 6 table service restaurants, 12 counter service units, 10 snack bars, 1 Discovery food court seating 850, 9 popcorn wagons, 15 ice-cream carts, 14 specialty food carts, and 2 employee cafeterias. Restaurants were, in fact, to be a showcase for American foods. The only excep- tion to this is Fantasyland, which recreates European fables. Here, food service will reflect the fable’s country of origin: Pinocchio’s facility having German food; Cinderella’s, French; Bella Notte’s, Italian; and so on.

Of course recipes were adapted for European tastes. Because many Europeans don’t care much for very spicy food, Tex-Mex recipes were toned down. A special coffee blend had to be developed that would have universal appeal. Hot dog carts would reflect the regionalism of American tastes. There would be a ball park hot dog (mild, steamed, a mixture of beef and pork), a New York hot dog (all beef, and spicy), and a Chicago hot dog (Vienna-style, similar to bratwurst).

Euro Disneyland has six theme hotels, which would offer nearly 5,200 rooms on opening day; a campground (444 rental trailers and 181 camping sites); and single-family homes on the periphery of the 27-hole golf course. Exhibit 4 provides an overview of the size, and main features of Euro Disneyland. Exhibit 5 compares daily pass and accommoda- tion prices of Euro Disneyland with Disney World Orlando.

Disney World in Florida as part of an ‘American experi- ence,’” said Patrick P. Roper, marketing director of Alton Towers, a successful British theme park near Manchester. He doubted they would seek the suburbs of Paris as eagerly as America and predicted attendance would trail Disney projections. Exhibit 3 summarizes the history and major milestones of Euro Disneyland.

The Layout of Euro Disneyland Euro Disneyland is determinedly American in its theme. There was an alcohol ban in the park despite the attitude among the French that wine with a meal is a God-given right. Designers presented a plan for a Main Street USA based on scenes of America in the 1920s because research indicated that Europeans loved the Prohibition era. Eisner decreed that images of gangsters and speakeasies were too negative. Though made more ornate and Victorian than Walt Disney’s idealized Midwestern small town, Main Street remained Main Street. Steamships leave from Main Street through the Grand Canyon Diorama en route to Frontierland.

The familiar Disney Tomorrowland, with its dated images of the space age, was jettisoned entirely. It was replaced by a gleaming brass and wood complex called Discoverland, which was based on themes of Jules Verne and Leonardo da Vinci. Eisner ordered $8 or $10 million in extras to the “Visionarium” exhibit, a 360-degree movie about French culture that was required by the French in their original contract. French and English are the official languages at the park, and multilingual guides are available to help Dutch, German, Spanish, and Italian visitors.

With the American Wild West being so frequently cap- tured on film, Europeans have their own idea of what life was like back then. Frontierland reinforces those images. A runaway mine train takes guests through the canyons and mines of Gold Rush country. There is a paddle-wheel steamboat reminiscent of Mark Twain, Indian explorer canoes, and a phantom manor from the Gold Rush days.

Exhibit 3 Chronology of the Euro Disneyland Deal 1984–85 Disney negotiates with Spain and France to cre-

ate a European theme park. Chooses France as the site.

1987 Disney signs letter of intent with the French government.

1988 Selects lead commercial bank lenders for the senior portion of the project. Forms the Société en Nom Collectif (SNC). Begins planning for the equity offering of 51% of Euro Disneyland as required in the letter of intent.

1989 European press and stock analysts visit Walt Disney World in Orlando. Begin extensive news and television campaign. Stock starts trading at 20–25 percent premium from the issue price.

Source: Geraldine E. Willigan, “The Value-Adding CFO: An Interview with Disney’s Gary Wilson,” Harvard Business Review, January–February 1990, pp. 85–93.

In-Depth Integrative Case 2.1a Euro Disneyland 269

with the earring’s diameter no more than three-quarters of an inch. Neither men nor women can wear more than one ring on each hand. Further, women were required to wear appropriate undergarments and only transparent panty hose, not black or anything with fancy designs. Though a daily bath was not specified in the rules, the applicant’s video depicted a shower scene and informed applicants that they were expected to show up for work “fresh and clean each day.” Similar rules are in force at Disney’s three other theme parks in the United States and Japan.

In the United States, some labor unions representing Dis- ney employees have occasionally protested the company’s strict appearance code, but with little success. French labor unions began protesting when Disneyland opened its “casting center” and invited applicants to “play the role of [their lives]” and to take a “unique opportunity to marry work and magic.” The CGT handed out leaflets in front of the center to warn applicants of the appearance code, which they believed rep- resented “an attack on individual liberty.” A more mainstream union, the Confédération Française Démocratique du Travail (CFDT), appealed to the Labor Ministry to halt Disney’s vio- lation of “human dignity.” French law prohibits employers from restricting individual and collective liberties unless the restrictions can be justified by the nature of the task to be accomplished and are proportional to that end.

Degelmann, however, said that the company was “well aware of the cultural differences” between the United States and France and as a result had “toned down” the wording in the original American version of the guidebook. He pointed out that many companies, particularly airlines, maintained appearance codes just as strict. “We happened to put ours in writing,” he added. In any case, he said that he knew of no one who had refused to take the job because of the rules and that no more than 5 percent of the people showing up for interviews had decided not to proceed after watching the video, which also detailed transportation and salary.

Fitzpatrick also defended the dress code, although he conceded that Disney might have been a little naive in presenting things so directly. He added, “Only in France is there still a communist party. There is not even one in Russia any more. The ironic thing is that I could fill the park with CGT requests for tickets.”

Another big challenge lay in getting the mostly French “cast members,” as Disney calls its employees, to break their ancient cultural aversions to smiling and being consistently polite to park guests. The individualistic French had to be molded into the squeaky-clean Disney image. Rival theme parks in the area, loosely modeled on the Disney system, had already encountered trouble keep- ing smiles on the faces of the staff, who sometimes took on the demeanor of subway ticket clerks.

The delicate matter of hiring French citizens as opposed to other nationals was examined in the more than two-year- long preagreement negotiations between the French govern-

Disney’s Strict Appearance Code Antoine Guervil stood at his post in front of the l,000- room Cheyenne Hotel at Euro Disneyland, practicing his “Howdy!” When Guervil, a political refugee from Haiti, said the word, it sounded more like “Audi.” Native French speakers have trouble with the aspirated “h” sound in words like “hay” and “Hank” and “howdy.” Guervil had been given the job of wearing a cowboy costume and booming a happy, welcoming howdy to guests as they entered the Cheyenne, styled after a Western movie set.

“Audi,” said Guervil, the strain of linguistic effort showing on his face. This was clearly a struggle. Unless things got better, it was not hard to imagine objections from Renault, the French car company that was one of the corporate sponsors of the park. Picture the rage of a French auto executive arriving with his or her family at the Renault-sponsored Euro Disneyland, only to hear the doorman of a Disney hotel advertising a German car.

Such were the problems Disney faced while hiring some 12,000 people to maintain and populate its Euro Disney- land theme park. A handbook of detailed rules on accept- able clothing, hairstyles, and jewelry, among other things, embroiled the company in a legal and cultural dispute. Crit- ics asked how the brash Americans could be so insensitive to French culture, individualism, and privacy. Disney offi- cials insisted that a ruling that barred them from imposing a squeaky-clean employment standard could threaten the image and long-term success of the park.

“For us, the appearance code has a real effect from a product identification standpoint,” said Thor Degelmann, vice president for human resources for Euro Disneyland. “Without it we wouldn’t be presenting the Disney product that people would be expecting.”

The rules, spelled out in a video presentation and detailed in a guide handbook, went beyond height and weight standards. They required men’s hair to be cut above the collar and ears with no beards or mustaches. Any tat- toos must be covered. Women must keep their hair in one “natural color” with no frosting or streaking, and they may make only limited use of makeup like mascara. False eye- lashes, eyeliners, and eye pencil were completely off lim- its. Fingernails can’t pass the end of the fingers. As for jewelry, women can wear only one earring in each ear,

Exhibit 4 The Euro Disneyland Resort 5,000 acres in size 30 attractions 12,000 employees 6 hotels (with 5,184 rooms) 10 theme restaurants 414 cabins 181 camping sites

Source: Roger Cohen, “Threat of Strikes in Euro Disney Debut,” New York Times, April 10, 1992, p. 20.

270 Part 2 The Role of Culture

below 25,000, less than half the park’s capacity and way below expectations. Many people may have heeded the advice to stay home or, more likely, were deterred by a one-day strike that cut the direct rail link to Euro Disney- land from the center of Paris. Queues for the main rides, such as Pirates of the Caribbean and Big Thunder Moun- tain railroad, were averaging around 15 minutes less than on an ordinary day at Disney World, Florida.

Disney executives put on a brave face, claiming that attendance was better than at first days for other Disney theme parks in Florida, California, and Japan. However, there was no disguising the fact that after spending thou- sands of dollars on the preopening celebrations, Euro Dis- ney would have appreciated some impressively long traffic jams on the auto route.

Other Operating Problems When the French government changed hands in 1986, work ground to a halt, as the negotiator appointed by the Conser- vative government threw out much of the groundwork pre- pared by his Socialist predecessor. The legalistic approach taken by the Americans also bogged down talks, as it meant planning ahead for every conceivable contingency. At the same time, right-wing groups who saw the park as an inva- sion of “chewing-gum jobs” and U.S. pop culture also fought hard for a greater “local cultural context.”

On opening day, English visitors found the French reluctant to play the game of queuing. “The French seem to think that if God had meant them to queue, He wouldn’t have given them elbows,” they commented. Different cul- tures have different definitions of personal space, and Disney guests faced problems of people getting too close or pressing around those who left too much space between themselves and the person in front.

Disney placed its first ads for work bids in English, leaving small- and medium-sized French firms feeling like foreigners in their own land. Eventually, Disney set up a data bank with information on over 20,000 French and European firms looking for work, and the local Chamber of Commerce developed a video text information bank with Disney that small- and medium-sized companies

ment and Disney. The final agreement called for Disney to make a maximum effort to tap into the local labor market. At the same time, it was understood that for Euro Disneyland to work, its staff must mirror the multicountry makeup of its guests. “Casting centers” were set up in Paris, London, Amsterdam, and Frankfurt. “We are concentrating on the local labor market, but we are also looking for workers who are German, English, Italian, Spanish, or other nationalities and who have good communication skills, are outgoing, speak two European languages—French plus one other— and like being around people,” said Degelmann.

Stephane Baudet, a 28-year-old trumpet player from Paris, refused to audition for a job in a Disney brass band when he learned he would have to cut his ponytail. “Some people will turn themselves into a pumpkin to work at Euro Disneyland,” he said. “But not me.”

Opening Day at Euro Disneyland A few days before the grand opening of Euro Disneyland, hundreds of French visitors were invited to a preopening party. They gazed perplexed at what was placed before them. It was a heaping plate of spare ribs. The visitors were at the Buffalo Bill Wild West Show, a cavernous theater featuring a panoply of “Le Far West,” including 20 imported buffaloes. And Disney deliberately didn’t provide silverware. “There was a moment of consternation,” recalls Fitzpatrick. “Then they just kind of said, ‘The hell with it,’ and dug in.” There was one problem. The guests couldn’t master the art of gnawing ribs and applauding at the same time. So Disney planned to provide more napkins and teach visitors to stamp with their feet.

On April 12, 1992, the opening day of Euro Disney- land, France-Soir enthusiastically predicted Disney dementia. “Mickey! It’s Madness” read its front-page headline, warning of chaos on the roads and suggesting that people might have to be turned away. A French gov- ernment survey indicated that half a million might turn up with 90,000 cars trying to get in. French radio warned traffic to avoid the area.

By lunchtime on opening day, the Euro Disneyland car park was less than half full, suggesting an attendance of

Exhibit 5 What Price Mickey? Euro Disneyland Disney World, Orlando

Peak Season Hotel Rates

4-person room $97–$345 $104–$455

Campground Space

$48 $30–$49 One-Day Pass

Children $26 $26

Adults $40 33

Source: BusinessWeek, March 30, 1992.

In-Depth Integrative Case 2.1a Euro Disneyland 271

thought about these and other problems, the previous year’s losses and the prospect of losses again in the cur- rent year, with their negative impact on the company’s stock price, weighed heavily on his mind.

Questions for Review 1. Using Hofstede’s four cultural dimensions as a

point of reference, what are some of the main cul- tural differences between the United States and France?

2. In what way has Trompenaars’s research helped explain cultural differences between the United States and France?

3. In managing its Euro Disneyland operations, what are three mistakes that the company made? Explain.

4. Based on its experience, what are three lessons the company should have learned about how to deal with diversity? Describe each.

Source: This case was prepared by Research Assistant Sonali Krishna under the direc- tion of Professors J. Stewart Black and Hal B. Gregersen as the basis for class discus- sion. It is not intended to illustrate either effective or ineffective managerial capability or administrative responsibility. J. S. Black, and H. B. Gregersen, “EuroDisneyland,” in Cases in International Organizational Behavior, ed. G. Oddou and M. Mendenhall (Malden, MA: Blackwell Publishers, 1998). Copyright © 1998 by J. Stewart Black and Hal B. Gregersen. All rights reserved. Used with permission.

through France and Europe would be able to tap into. “The work will come, but many local companies have got to learn that they don’t simply have the right to a chunk of work without competing,” said a chamber official.

Efforts were made to ensure that sooner, rather than later, European nationals take over the day-to-day running of the park. Although there were only 23 U.S. expatriates among the employees, they controlled the show and held most of the top jobs. Each senior manager had the task of choosing his or her European successor.

Disney was also forced to bail out 40 subcontractors who were working for the Gabot-Eremco construction contracting group, which had been unable to honor all of its commitments. Some of the subcontractors said they faced bankruptcy if they were not paid for their work on Euro Disneyland. A Disney spokesperson said that the payments would be less than $20.3 million and the com- pany had already paid Gabot-Eremco for work on the park. Gabot-Eremco and 15 other main contractors demanded $157 million in additional fees from Disney for work that they said was added to the project after the initial contracts were signed. Disney rejected the claim and sought government intervention. Disney said that under no circumstances would it pay Gabot-Eremco and accused its officers of incompetence. As Bourguignon

A Further Look at Euro Disneyland in Recent Years: As discussed in In-Depth Integrative Case 2.1a, Euro Disneyland faced major hurdles in its early years. In May 1992, roughly 25 percent of Euro Disney’s work- force (approximately 3,000 people) resigned from their jobs citing unacceptable working conditions. As a result, the Euro Disney Company stock price declined and Euro Disney announced an expected net loss in its first year of operation of approximately 300 million French francs in July of 1992.1 Since then, Euro Dis- neyland has enacted some major changes—many with great success. In an effort to improve attendance, Disney began serving alcoholic beverages with meals inside the Euro Disneyland Park in June of 1993.2 In March of 1994, Disney offered the banks a deal: Disney would provide additional capital to ensure that it continues to operate if the banks agreed to restructure the US$1 billion of debt. If the banks did not agree, Disney was prepared to close the park and default on the loans. Disney put additional pressure on the banks by publicly announc- ing the possible closure of the park unless the debt was restructured. The banks agreed to Disney’s demands and wrote off the next two years of interest payments along with a three-year period where loan repayments

would be postponed. In return, The Walt Disney Com- pany agreed to restructure its own loan arrangements at the new park valued at US$210 million.3

A turnaround began to blossom shortly after restruc- turing. In 1995, Disney reported that attendance had increased 21 percent from 8.8 million to 10.7 million year over year with hotel occupancy also increasing from 60 percent to 68.5 percent.4 The Euro Disney Resort was renamed to Disneyland Paris in 1994 and, in July of 1995, the company reported its first quarterly profit of US$35.3 million. Disneyland Paris ended 1995 with a profit of US$22.8 million. Disney opened a sec- ond theme park in France, Walt Disney Studios Park, in March of 2002.5 The two combined parks had a total attendance in 2015 of over 14.8 million, making it Europe’s most visited themed attraction.6

In January 2015, Euro Disney S.C.A. shareholders approved a one billion euro recapitalization plan. Funded by the Walt Disney Company, the plan aims to improve the long-term cash position of Disneyland Paris, putting an end to the reoccurring debt crises that have plagued Euro Disney S.C.A. over its two-decade history. Per the terms of the deal, the existing debt held by Walt Disney Company will be converted to equity, further increasing the American company’s investment in the European operations.7

272 Part 2 The Role of Culture

1. Anna Willard, James Mackenzie, James Grubel, Wayne Cole, Tova Cohen, Alan Raybould, and Jon- athan Thatcher. “FACTBOX: Who’s Next? Coun- tries at Risk of Recession,”  Reuters,  March 3, 2009,  www.reuters.com/article/financial-recession- risk-idUSSP40009620090304.

2. “Euro Disney Adding Alcohol,”  New York Times, June 12, 1993,  www.nytimes.com/1993/06/12/ business/euro-disney-adding-alcohol.html.

3. “The History of DisneyLand Paris,”  Solarius, July 4, 2006.  www.solarius.com/dvp/dlp/dlp-history.htm.

4. Christian Sylt, “Magic Results: Euro Disney Plans New Hotels,” August 17, 2008,  www.independent. co.uk/news/business/news/magic-results-euro-disney- plans-new-hotels-899529.html.

5. Euro Disney S.C.A., “Euro Disney S.C.A. Reports Fiscal Year 2011 Results,” November 9, 2011,  http://corporate.disneylandparis.com/CORP/ EN/Neutral/Images/uk-2011-11-09-euro-disney-sca- reports-annual-results-for-fiscal-year-2011.pdf.

6. “Disneyland Paris Visitor Numbers Down Since Attacks,”  RFI,  February 10, 2016,  http://en.rfi.fr/ france/20160210-disneyland-paris-visitor-numbers- down-attacks.

7. Euro Disney S.C.A.,  First Quarter Announcement, January 16, 2015,  http://disneylandparis-news.com/ wp-content/uploads/2015/01/uk-2015-01-16-cp-Q1- revenues.pdf.

ENDNOTES