the impact of Hofstedes cultural dimensions on global business management.

Phân tích 5 chiều văn hóa của Hofstede trong quản trị kinh doanh toàn cầu. Tài liệu được viết bằng tiếng Anh, phù hợp với các bạn học ngành quản trị kinh doanh ở các trường trong nước hoặc các trường liên kết. Tài liệu liên quan đến môn học Intercultural management.

Topic: Analyzing the impact of five cultural dimensions as presented by G Hofstede

on global business management.

INTRODUCTION

Nowadays, globalization trend in business has lead people from different countries interacting more frequently However, this has created many problems or misunderstandings in international business management because of variety of norms, values, rituals and beliefs among those nations Thus, it is important to understand and adapt to different cultures to enhance and perform business successful in today’s world This assignment will utilize the impact of five cultural dimensions presented by G HOFSTEDE (2005) on global business management Analysis is based on the review of literature through research articles and reference books related to the topic The data bases on Hofstede’s research (cultural dimension scores) and case study about influence

of cultural dimensions on business management in some countries such as America, Indonesia, Denmark, Viet Nam, and Thailand From this, we will have an overview about the importance of culture in performance management in any organization especially in multinational and international companies The first section of this paper will review the literature on five cultural dimensions presented by Hofstede The second part of this will analyze effects of those dimensions on basic international business management activities

Keywords: leadership styles, cross cultural leadership, power distance,

Individualism–collectivism, Uncertainty avoidance, Masculinity–femininity, Long-term orientation.

LITERATURE REVIEW

Geert Hofstede’s dimensional model of national culture has been applied to various business areas The Hofstede model (Geert Hofstede & Gert Jan Hofstede 2005) distinguishes cultures according to five dimensions: power distance, individualism/collectivism, masculinity/femininity, uncertainty avoidance, and long-/short-term orientation The model provides scales from 0 to 100 for 76 countries for each dimension, and each country has a position on each scale or index which give us insights into other cultures so that we can manage international business effectively There are many studies carried out related to how to manage international business performance, but very few studies were done on the cultural dimensions impact on global business management In this assignment, I will analyze effects of five cultural dimensions of Hofstede through four main activities associated to global business: leadership styles, human resources management, motivation assumptions, decision making and organizational designs and strategies Although these all dimensions have contributed in conducting global business management, some highlighted measuring patterns are mentioned for each activity and some example to prove its effect

For instance, in leadership styles, decision making process, cooperation, degree of control and direction, relationship between superior and subordinates will be mentioned through analyzing Power distance as a main dimension Problems related to recruitment, employment, training…will be focused in human resources management part through theory of long and short term orientation Strategies, I will focus impact of cross-cultural management on marketing and negotiation strategies, cross-cultural contexts (individualism and uncertainty avoidance) are highlighted

I Hofstede's cultural dimensions

1.1 Power distance

Power distance can be defined as the extent to which the less powerful members of

institutions and organizations within a country expect and accept that power is distributed unequally 'Institutions' are the basic elements of society like the family, school, and the community; 'organizations' are the places where people work (Geer Hofstede, Gert Jan Hofstede 2005, p.46)

1.2 Individualism and Collectivism

Individualism pertains to societies in which the ties between individuals are loose:

everyone is expected to look after himself or herself and his or her immediate family

Collectivism as its opposite pertains to societies in which people from birth onwards are

integrated into strong, cohesive in groups, which throughout people's lifetime continue to protect them in exchange for unquestioning loyalty (Geer Hofstede, Gert Jan Hofstede

2005, p.76)

1.3 Masculinity and Femininity

Masculinity indicates the extent to which the dominant values of a society are

"masculine" (e.g., assertive and competitive) Masculinity pertains to societies in which

social gender roles are clearly distinct (i.e., men are supposed to be assertive, tough, and focused on material success whereas women are supposed to be more modest, tender, and

concerned with the quality of life Femininity pertains to societies in which social gender

roles overlap i.e., both men and women are supposed to be modest, tender, and concerned with the quality of life (Geer Hofstede, Gert Jan Hofstede 2005, p.120)

1.4 Uncertainty avoidance

Uncertainty avoidance can be defined as the extent to which the members of a

culture feel threatened by uncertain or unknown situations and try to avoid such situations This feeling is, among other things, expressed through nervous stress and in a need for predictability: a need for written and unwritten rules (Geer Hofstede, Gert Jan Hofstede 2005, p.167)

1.5 Long –term orientation (LTO)

Long –term orientation stands for the fostering of virtues oriented towards future

rewards, in particular perseverance and thrift It’s opposite pole, Short Term Orientation, stands for the fostering of virtues related to the past and present, in particular, respect for

tradition, preservation of ‘face’ and fulfilling social obligations.” (Geer Hofstede, Gert Jan Hofstede 2005, p.210)

DISCUSSION

I The impact of five cultural dimensions on global business management

1 Leadership style

In global business world, it is very important to understand the concept of leadership styles and behavior which are applicable and present in different cultural and national contexts This is one of the essential tools to help multinational companies can understand how and why these cultural factors influence organizational behavior From this, they can manage their companies better in different countries Generally, dimensions mentioned by Hofstese have been used in various cross cultural leadership style

According to Dickson, Hartog and Mitchelson (2003) power distance is one of the most

influential cultural dimensions which have been used to have an in-depth analysis of cross-cultural leadership styles and behaviors in an organization as it deals directly with the expectations and distribution of power, authority and status (Sandhiya Goolaup and Tural Ismayilov 2011, p.40)

Sandhiya Goolaup and Tural Ismayilov 2011, ‘The influence of power distance on

http://www.diva-portal.org/smash/get/diva2:502384/FULLTEXT01.pdf

The leadership styles and behaviors are obviously seen in decision making process, cooperation, degree of control and direction, organization hierarchy the participation level of subordinates and setting goals process

In large-power-distance countries, superiors and subordinates consider each other as existentially unequal; the hierarchical system is based on this existential inequality Organizations centralize power as much as possible in a few hands Subordinates expect

to be told what to do There are a lot of supervisory personnel, structured into tall

hierarchical of people reporting to each other Salary system show wide gaps between top and bottom in the organization Superiors are entitled to privileges (literally, “private law”) and contacts between superiors and subordinates are supposed to be initiated by superiors only (Geer Hofstede, Gert Jan Hofstede 2005, p.55)

Indonesia gets high score of power distance index (78) Indonesian people tend to

be dependent on hierarchy, unequal rights between power holders and non power holders, superiors in-accessible, leaders are directive, management controls and delegates Power

is centralized and managers count on the obedience of their team members Employees expect to be told what to do Control is expected and managers are respected for their position Communication is indirect and negative feedback hidden High Power Distance also means that Indonesian co-workers would expect to be clearly directed by the boss or manager – it is the classic Guru-Student kind of dynamic that applies to Indonesia (Hofstede Centre 2011 1) (Hofstede Centre 2011 Available from: http://geert-hofstede.com/indonesia.html

In small- power distance countries, subordinates and superiors consider each other

as existentially equal; the hierarchical system is just an inequality of roles, established for convenience; and roles may be changed, so that someone who today is my subordinates may tomorrow be my boss Organizations are fairly decentralized, with flat hierarchical pyramids and limited numbers of supervisory personnel Salary ranges between top and bottom job are relatively small Superiors should be accessible for subordinates, and the ideal boss is resourceful (and therefore respected) democrat Subordinates expect to be consulted before a decision is made that affects their work, but they accept that the boss

is the one who finally decides (Geer Hofstede, Gert Jan Hofstede 2005, p.56)

Taking Denmark as an example, with a score of 18 points Denmark is at the very low PDI score compared to other countries Danes do not lead, they coach and employee autonomy is required In fact, Denmark ranks highest amongst the EU27 countries in terms of employee autonomy With a very egalitarian mindset the Danes believe in independency, equal rights, accessible superiors and that management facilitates and empowers Power is decentralized and managers count on the experience of their team members Respect among the Danes is something which you earn by proving your

hands-on expertise Workplaces have a very informal atmosphere with direct and involving communication and on a first name basis Employees expect to be consulted (Hofstede

Centre 2011 2) (Hofstede Centre 2011 Available from: http://geert-hofstede.com/denmark.html)

Another example for influence of power distance on behavior, Thailand is described

as a country of high power distance It’s easy to see the differences in the height of the

‘wai” (the Thai greeting) which represents the extent of this power distance People who their status is high will receive a high ‘wai’ meaning finger tips to the nose or even higher People who have lower or equal status often receive a lower ‘wai”, finger tips

can be in front of their chest It’s not in greetings alone, Thai language has specific honorifics which indicate social standing for each position, sex, age, title or occupation The purpose is to save the face of lower status individuals as one need not ask personal questions of a possibly higher status individual (Eduasiapacific 2012 3) (Eduasiapacific, Power Distance and Leadership in Thailand Available from: http://eduasiapacific.com/power-distance-and-leadership-thailand [06/22/2012]

Even though power distance has been one of the most influenced in illustrating the leadership behaviors and styles in different cultures, the other dimensions provided by Hofstede have also been considered in cross cultural leadership studies In relation to the dimension individualism-collectivism, Jung and Avolio (1999) argued that in individualistic cultures, supervisors are more prone to adopt a transactional leadership style whilst collectivist cultures have shown a preference for transformational style As they further highlighted, the presence of transformational leadership style within the collectivist culture has generated more ideas whilst individualist has generated more ideas with a transactional leader Similarly, in a study undertaken by Bochner and Hesketh (1994) in a large, culturally diverse Australian bank they found that persons from individualistic cultures reported significantly less likelihood of working in a team rather than alone compared to persons from collectivistic culture (Sandhiya Goolaup and Tural Ismayilov 2011, p.41)

Sandhiya Goolaup and Tural Ismayilov 2011, ‘The influence of power distance on

http://www.diva-portal.org/smash/get/diva2:502384/FULLTEXT01.pdf

II Human recourses management.

The aim of human recourses management is to maximize employee performance in service of their employer’s strategic objectives Understanding cross-cultural human resource management assists to managing the harmonious working relationship between expatriates and local employees Human resource management including: management selection, training, evaluation and promotion, and remuneration

This part will focus the impact of one of cultural dimensions (Short and long – term orientation) dimension on human recourses management

For countries with high score of long – term orientation, recruiting or promoting, managers are selected based on the fit of their personal and educational characteristics, a prospective employee’s particular skills have less importance in the hiring decision They often accept slow results and persist to achieve goals Training and socialization for a long term commitment to the organization compensate for any initial weaknesses in work-related skills (Cullen, K Praveen 2014)

Cullen, John B (John Brooks) & Parboteeah, Praveen, (author.)

(2014) Multinational management: a strategic approach (Sixth edition, International

edition / John Cullen, K Praveen Parboteeah) Australia South-Western

For example, in Viet Nam, employees are hired out of school For them, selecting a place to work one of the most important decisions they makes after selecting a spouse and a university Vietnamese people like to have a stable job Thus, when they work in a company, they have tendency to work in that company for a long time and hardly find another place to work Promotions are rather slow, may take most young people from 15 years or more Employees want to show their loyalty and want to receive a stable job from that company Furthermore, performance is very infrequently evaluated, evaluation base on a long period of time to reduce the probability that luck or misfortune influence the evaluation This practice results in linking rewards (such as promotions) to effective long-term performance The criteria for promotion are usually a combination of seniority and merit Also, educational background plays a role in promotion decisions; a person who got MBA degree is easy to get promotion than another who has lower educational background

The differences in pay increases are very small and rewards are essentially considered performance of group rather than individual contributions In addition, they also care about training for their employees; they can spend money for their employees to

get higher education and give them opportunities to rotate different position in throughout their working life which helps employees get exposed to many different businesses

However, for those countries which have short- term orientation especially Western countries cultures, value logical analysis in their approach to organizational decisions They often use quick layoffs of “excess” employees to adjust to shrinking demand for products (Cullen, K Praveen 2014)

Taking a case of an American company, they recruit employees from schools, and they also hire from other companies High turnover rates among recent MBAs are quite notorious Employees often identify more with their profession than with their company, and job-hopping is not unusual, they expect more rapid advancement, and they can change the job if they cannot obtain it Performance of new employees is evaluated soon after they are recruited If performance cannot adapt the company's expectations, employment may be dismissed The same case happens even for those who have been with a company for many years and performance is evaluated at least once a year In general, the focus of performance appraisal is on short-term results and individual contributions to the company aims Difference in pay increases is substantial and often based on individual contribution Promotions in U.S companies are based primarily on individual performance Training is often undertaken with hesitation because of the cost and the concern that the trained person may switch to another company Thus, employees are often trained in specialized functions resulting in a rather narrow career path within the company In many American companies, employees feel that they may be laid off especially in economic crisis period

In the present study, France and Belgium fell above the mean on power distance with the score 68 and 65, conversely, Germany and United Kingdom scored below the mean with the score 35 for both In small power distance countries like Germany and United Kingdom there is flatter organization pyramids, less power centralization, and smaller proportion of supervisory personnel, smaller wage differentials and high qualification of lower strata comparing with the situation in a large power distance countries such as Belgium and France

Individualism versus Collectivism Refers to the extent that individuals focus on

individual wants and needs versus the needs of the group According to this dimension in

individualistic cultures people are supposed to look after only themselves, the ties between individuals are very loose and Work is important and employees don‟t expect the company to care of them, whereas in collectivistic cultures people belong to groups that are supposed to look after them in exchange for loyalty and Relationships are important, the ties between individuals are very tight and employees expect the company

to care of them Individualistic societies tend to emphasize personal achievement whereas collectivist cultures highlight group-based achievement The collectivists rely on other members in group chronically, they have weaker upwards mobility and underestimate their contributions they can make for companies, in contrast, the individualists try their best to do better and better, and finally become the best, they have strong upwards mobility; at the same time and overestimate the importance of their work in group work Erez (2000) indicated that in individualistic cultures the selection procedure of new employees is based on their personal records, whereas in collectivistic cultures an important criterion for selecting new employees is recommendations by family members, who already work for the company

III Motivation assumptions

Motivation assumptions are belief regarding how people respond to work

Cullen and Parboteeah (2008) notes that a great challenge for international organizations in today’s business world is the ability to retain, attract, and motivate employees with different cultural backgrounds When working across cultures an understanding of needs, goals, values and expectations in different cultures is of great importance; otherwise what has successfully motivated employees in one culture may be demotivating and frustrating for employees in another culture (Phatak, Bhagat & Kashlak, 2005) For this not to happen, knowledge about what work means to people in different cultural backgrounds are essential This knowledge comes from answering two basic questions: how important is work in people’s lives? And what do people value in work? (Mikael Nilsson, cited in Cullen & Parboteeah in 2008) Cullen, John B & Parboteeah, K Praveen (2008) Multinational Management: A Strategic Approach (4th

Ed.) Thomson Higher Education

Effects of Hofstede’s cultural dimensions on motivation assumption

1 Power distance

Organizations in societies with a high power distance are more likely to be highly hierarchical structured with many levels of management Work tasks, work design and reward systems are structured through formal rules and regulations set by the organization In contrast, organizational structures in societies low in power distance are more likely to be “flatter” with the absence of formal rules and regulations Instead, creativity is encourage and work tasks, work design and reward systems are usually formulated in consultation between superiors and subordinates Intrinsic motivation is often favorably in societies with a low degree of power distance (Mikael Nilsson, cited

in Phatak etal 2005) Phatak, Arvid V., Bhagat, Rabi S & Kashlak, Roger J (2005) International Management: Managing in a diverse and dynamic global environment Tata McGraw-Hill Publishing Company

2 Individualism – Collectivism

Societies with a high degree of individualism are motivated by the opportunities of individual achievement and increased autonomy than in societies with a high degree of collectivism, where people are motivated by group achievements, activities and rewards Research shows that performance is higher when individualists are working alone than when working in a group while collectivists working in a group perform higher than

when working alone (Mikael Nilsson, cited in Phatak etal 2005).

3 Uncertainty Avoidance

The unwilling to take risks, the need for job security and reluctant to make independent decisions characterize a society high in uncertainty avoidance It is expected that decision-making is a task for managers and then provide explicit instructions to the subordinates, which results in prevented creativity and innovations In societies low in uncertainty avoidance is characterized by a desire to perform tasks with calculated risks

as well as continuous problem solving Societies low in uncertainty avoidance is reflected

by a higher level of achievement motivation, while societies high in uncertainty avoidance are reflected by strong security motivation (Mikael Nilsson, cited in Phatak

etal 2005).

4 Masculinity – Femininity

In highly masculine societies, the feeling of competition acts as a motivator In contrast, the boundaries between work role and non-work role are more flexible in feminine societies This make accommodating work schedules, such as flextime,