Belief

Geert Hofstede defines culture as the collective programming of the mind which distinguishes one group or category of people from another.[footnoteRef:1] Broadly speaking, culture is the set of assumptions, beliefs, values and norms that are shared by an organization’s members. When one talks about international business, it is not only limited to cross-border deals, but also extends to cross cultures. This impacts the way people think, communicate and behave in social settings. It affects the kind of transactions we undertake, and the way negotiation takes place. No matter how skilled and experienced a negotiator might be, she needs to encounter cultures in real settings to be able to fully understand them. [1: Hofstede, G. (1993). Cultural constraints in management theories. The Academy of Management Executive.]

From an organization’s perspective, culture provides a sense of identity to its people. It defines appropriate standards of conduct and builds commitment to the organization’s mission. As Hofstede mentions, organizational cultures could be changed slowly. There are certain shortcomings of having a defined organizational culture as well. Sometimes, culture serves as a barrier to change. Since cultures are so well-rooted in the system, employees are resistant to change.

Culture also serves as a barrier to diversity. One of the recommendations provided by Sebastian Reiche[footnoteRef:2] to nurture global leadership, is to actually hire and promote people from diverse backgrounds. However, as the article states, there are yet many multinational companies who continue to favor parent-country nationals, not only for the top roles but also for many lower-level managerial positions at foreign operations. This transcends to limited foreign nationals’ career prospects and lesser visibility in the organization. [2: Reiche, S. (2017). Tips for Nurturing Global Leadership Talent. IESE insight.]

Another way to interpret culture is how organizations “do things.” This creates a hindrance at the time of a mergers and acquisitions, when the methodology of performing tasks is different between companies.

Thus, to be successful in international business, managers need to be equipped with cross cultural sensitivity skills. This would help improve the level of personal cultural awareness and in understanding the culture of other people.

At this juncture, it may be pertinent to discuss the various issues which determine the impact of culture on business leadership and strategy.

Let me begin by discussing the first factor – leadership styles. Leadership styles can broadly be divided into two types – hierarchical and egalitarian. Drawing an inference from Meyer’s article[footnoteRef:3], she provides examples of leadership trends in the U.S. and parts of Western Europe, that are shifting from hierarchical management processes to a more facilitate, egalitarian approach. A hierarchical management process is characterized by command-and-control, where managers are trained to tell their employees what to do. Bosses would be addressed by title and impromptu discussions were never the norm. In contrast, in an egalitarian approach to management, we see significant levels of empowerment. Instead of telling employees what to do, they now follow management by objectives. Open-door policies have been introduced and managers receive 360-degree feedback. Bosses are addressed by first name and company CEOs practice ‘management by walking around.’ They indulge in impromptu discussions with people at all levels without even letting their supervisors know. The corner offices predominant in hierarchical management have been replaced with open-plan spaces. [3: Meyer, E. (2017). Being the boss in Brussels, Boston and Beijing. Harvard Business Review.]

An interesting finding in Meyer’s article states that hierarchies and decision-making methods are not always correlated. She provides an example of the U.S. where there is an egalitarian approach to leadership but consensual decision making is not the norm. On the other hand, we have Japan, which follows hierarchical management but when it comes to decision-making a lot of people seem to be involved in the decision-making process. This stands true as they follow the principles of newashi and ringi during their consensual decision-making process.

The above idea brings us to the second cultural factor impacting business leadership and strategy – decision making. Decision making cultures can be classified as top-down cultures and consensual cultures. In top-down decision-making cultures such as those seen in India, Italy and Morocco to name a few, decisions are made quickly, but they are subject to change as new input or arguments arise. When people in these cultures arrive at a decision, the decision is not a firm commitment but a placeholder than can later be adjusted. In contrast, in a consensual decision-making process such as those in Germany, Japan and the Netherlands, since a lot of people seem to be involved, it takes a long time to negotiate group agreement. However, this leads to quicker implementation since the details and the stakeholders were aligned while consensus was being reached.

Every society has to maintain some links with its own past while dealing with the challenges of the present and the future. Societies prioritize these two existential goals differently. This brings us to the third factor impacting business leadership and strategy – time horizons. According to Hofstede, societies who have a short-term orientation or score low on this dimension, prefer to maintain time-honored traditions and norms while viewing societal change with suspicion. On the other hand, those with a long-term horizon or cultures which score high on this dimension, take a more pragmatic approach: they encourage thrift and efforts in modern education as a way to prepare for the future. Drawing an inference from the data provided in Table 1 of Hofstede’s paper[footnoteRef:4], we see how the U.S. ranks in the bottom-third of the countries surveyed with a short-term orientation viz-a-viz Hong Kong which ranks in the top-third of the countries surveyed with a long-term orientation. [4: Hofstede, G. (1993). Cultural constraints in management theories. The Academy of Management Executive.]

Another approach to decoding the time horizon is as explained by DiStephano and Maznevski[footnoteRef:5]. They say that the notion of time is complex. In a monochronic orientation, time is broken into segments of equal length and progresses linearly. In polychronic cultures, time is viewed as plentiful and flexible. People naturally engage in several activities at once, and see time and activities as moving fluidly back and forth. They also consider time as past orientation (importance to traditions), present orientation (fulfill immediate concerns) and future orientation (sacrifice today for benefits in the long-term). [5: DiStephano, J.J., and Maznevski, M. (2003). Culture in International Management: Mapping the Impact. IMD Perspectives for Managers]

DiStephano and Maznevski in the paper cited above also explain that it is essential to understand whom we are responsible for, whom must we take care of and whom must we obey and be accountable to. This brings us to the fourth cultural factor impacting business leadership and strategy – accountability. Accountability in business is critical, as the concept enhances the ethics of managers. Being accountable means standing by decisions, actions, and the overall well-being of projects. Accountability is also a management process that ensures employees answer to their superior for their actions and that supervisors behave responsibly as well.

The authors state that there are three common patters of relations – collective, individualistic and hierarchical. In collective cultures, such as those in Latin America, members of a group look after each other, maintaining and promoting the welfare of the group as a whole. Individuals living in such cultures are held accountable to the group for their actions. In individualistic cultures, like Australia and the U.S., people are responsible mainly for themselves and their immediate families. Parents are responsible for children, but only until the children are adults themselves. The notion of accountability is not very strong in this case. Finally, in hierarchical cultures, like India, those at the top of the hierarchy have both responsibility for and authority over those below. There is a very strong notion of accountability in these cultures.

Within organizations, managerial communication impacts the culture of the organization[footnoteRef:6] and is the fifth cultural factor impacting business leadership and strategy. Employees who are not satisfied with their superiors and co-workers are usually not satisfied with their jobs and this can affect the culture of the organization. Therefore, it is important for organizations to have a strong culture to effectively do business, both internally and externally. As Sebastian Reiche mentions in his article[footnoteRef:7], leaders need to intentionally orchestrate points of contact across dispersed organizational units while carrying out international business. Face-to-face encounters could be supplemented with virtual subteaming, virtual work spaces and virtual rewards (whereby team achievements ate celebrated jointly via an online award ceremony). A common corporate language can also facilitate social identification. [6: Hendrith, M. (2018). The Effects Culture and Communication have on Businesses. Murray State’s Digital Commons.] [7: Reiche, S. (2017). Tips for Nurturing Global Leadership Talent. IESE insight.]

Non-verbal and verbal cues are also essential to be learnt for effective communication. One must be aware of how to exchange information when working in a culture different from their own. It is important to state here that developing your cultural intelligence is critical when engaging in international business. As Earley and Mosakowski define cultural intelligence (CQ) in their paper[footnoteRef:8], it is the seemingly natural ability of an individual to interpret someone’s unfamiliar and ambiguous gestures in just the way that person’s compatriots and colleagues would, even to mirror them. Managers must adopt a hybrid cultural intelligence profile when communicating in international business. A hybrid of the analyst type and the ambassador is usually what is observed. The analyst methodically deciphers a foreign culture’s rules and expectations by resorting to a variety of elaborate learning strategies. The analyst realizes quickly that he is in alien territory but then ascertains the nature of the patterns at work and how he should interact with them. The ambassador on the other hand, may not know much about the culture he has just entered, but he convincingly communicates his certainty that he belongs there. His confidence is a very powerful component of his cultural intelligence. [8: Earley, P.C., and Mosakowski, E. (2004). Cultural Intelligence. Harvard Business Review.]

If you are in business, then you are in a global business. Whether you are working in a large corporation with a presence in all the major markets or you’re an owner operator with a single website, it is likely that your communications will reach people from a wide variety of cultural origins. And this makes persuasion the sixth cultural factor impacting business leadership and strategy. In this context, we usually refer to the individualism and collectivism models of cross-cultural communication and persuasion.

In individual focused cultures such as those in the U.S., Canada and the United Kingdom people tend to value their independence and focus on furthering their own personal goals. By contrast individuals in more collective-focused cultures such as Japan, China, Korea, and Mexico tend to see themselves as fundamentally embedded within a wider social group.[footnoteRef:9] [9: Martin, S. (2010). Being Persuasive Across Cultural Divides. Harvard Business Review.]

When indulging in a persuasion exercise with people in the westernized, individualistic cultures, individuals there would always think in terms of “What has this person done for me?” which will form the basis of them being obligated to help an individual. This makes it harder to persuade them and ensure compliance. On the contrary, in Asian cultures where a collective family-based approach is adopted, personal connections and relationships are what matter. This would make it easier to persuade them and ensure compliance.

This leads to a clear distinction in the way societies are divided. As the author mentions in the article cited above, horizontal societies such as China, Korea and Latin America are those that value equality amongst members whereas vertical societies like the U.S., Canada and the United Kingdom place an emphasis on hierarchy.

When negotiating with foreign suppliers, one will always encounter a variety of obstacles such as unfamiliar laws, ideologies and governments. One particular obstacle that almost always complicates international negotiations is cultural differences between the two sides. This brings us to the seventh cultural factor impacting business leadership and strategy – negotiation tactics.

The importance of understanding your foreign counterpart’s communication is critical in international negotiations. Failure to understand culture, can create communication problems. For example, if in response to one of your proposals your Japanese supplier says, “That’s difficult,” you might erroneously assume that the door is still open for further discussion. However, in reality, your supplier comes from a culture that avoids confrontation, instead of refusing flatly. Cultural consideration also influences the form and substance of the deal. For example, when McDonald’s first franchised its operations in Thailand, it insisted on strict adherence to its traditional American menu. Later, under pressure from its Thai franchisee, it permitted the sale of noodles, a dish traditionally served on auspicious occasions. Sales increased as a result of the menu changes. Finally, culture can influence the way people behave and interact at the bargaining table. 

In some countries, such as Spain, business negotiators’ primary goal may be to achieve a signed contract, whereas negotiators in other cultures, including India, may be more focused on establishing an effective long-term relationship with their counterparts.

Given the above instances of the importance of culture in negotiations, it is fundamental for an international negotiator to understand local cultures, show respect for cultural differences and be aware of how others perceive their culture.