International Business Operations

To explore the case of the proposition – ‘culture is the single most important factor that ensures the success or failure of international business operations’ – would surely take a lot of reckoning on the part of the student and deeper examinations on the three concepts under considerations: first is culture – the influencing factor; second is success/failure – the gauging barometer; and third is international business operations – the influenced unit.

In today’s ‘shrinking world’ made probable by the advent of information technology, multinational companies operating on global scale are faced with a tougher challenge to succeed in its international operation. The environment in which it operates evolves each year and to stay ahead or survive, factors affecting its international business operations must be clearly identified, analyzed and responded accordingly in a pro-active manner. In reality, international business enterprises such as multinational companies or MNCs, operate under all sort of imperfect market conditions, presence of which put MNCs in a competitive advantage over the others for certain products or services internationally. By definition, “the essential elements of MNC operations are direct, as distinct from portfolio, investment abroad giving a power of control over decision-making in a foreign enterprise; the collective transfer of resources, involving factor inputs such as knowledge and entrepreneurships well as money capital; and finally the requirement that the income-generating assets acquired by this process be located in a number of countries” (Hood, 1979)

In the same manner, a company can be considered MNC when it owns controls and manages income generating assets in more than one country or where it has production or service facilities. Thus, in order to totally control and properly manage the enterprise, stakeholders should realize potential barriers. While new geographies open doors for expansion opportunities, these opportunities are accompanied with social, political, legal as well as cultural differences, making the expansion process more complex and posing more challenges towards the attainment of success.

In the book Governments, Globalization and International Business, the role of culture is clearly mentioned such that “the interface between governments, globalizations and international business activity was, and is likely to vary between countries according, for example, to their size, economic structures, stages of development, openness, and also to their cultural and ideological heritages.” (Dunning, 2001)

The study of culture is not new in the academic fields of international business. Contemporary writers have identified the important role culture played in the study of International business. By definition, culture has many dimensions. “Culture is the deposit of knowledge, experience, beliefs, values, attitudes, meanings, hierarchies, religion, notions of time, roles, spatial relations … and possessions acquired by a group of people in the course of generations through individual or group striving”(Samovar, 1995)  Consequently, culture can be acquired. It helps people categorize their world by teaching them habits, rules and expectations from other’s behavior through reading world’s signals or the meaning of gestures of others. (Leathers, 1986) Likewise, culture also moulds people’s way of thinking: what motivated them, how they infer, decide, categorize things, and their basis of self-evaluation. (Fiske, 1998)

Though there are numerous kinds of culture such as national, regional, occupational, organizational and so on, focus of this paper is solely on national culture as nations form the boundaries of international business operations setting distinguishing characteristics identifiable of the entity under consideration.

Among contemporary socials scientist who researched on differing cultures and the resulting grouping of similar and different countries the most prominent are (Hofstede, 1984) and (Hall, 1976) who developed ten dimensions where cultures have been found to differ: first is revering hierarchy or people’s perception of their relationships with superiors and subordinates; second is Individualism versus collectivism of goal to enhance their own position or the advancement of the corporation;. third is focus on task or relationship or the goal to take care of business or to maintain relationship or quality of life; fourth dimension is risk avoidance; and fifth is long term orientation whether future or here-and-now focus. (Hofstede, 1984) Sixth dimension is space or natural distance in conversations; seventh is material goods or possession as parameter for status; eight is friendship, whether it is transitory or takes long time to develop; ninth is Time management; and lastly agreement expressions. The scientists categorized these dimensions as being either high- or low- context cultures and found that with proper blending and adopting appropriate context to group or team work activities of various nationalities of varying degree of cultural differences, yielded more productive results with less inter-personal and cross-cultural friction.(Hall, 1976) It was further claim that factors such as local culture and institutions as crucial in shaping the development of management and organization and particularly employee’s attitudes towards work (Hofstede, 1984)

Subsequently, several authors have criticized Hofstede for not considering the dynamic relationship between parent companies and subsidiaries in a globalize economy.  One such critic is Christina Garstens (1994) who claims that “although local values are important for the development of employee’s attitudes towards work, the corporate culture, as envisioned by MNCs headquarters, becomes more important in local employee’s value orientations.” With this concept of culture, “the action of a national group of employees of an MNC is not influenced by a common set of collective national values but by various sub cultural contexts and display different interpretations of and engagement with their company.” (Garstens, 1994) As expounded by Fleming: “local employees are anchored in their local culture and environment. Yet they also work in an organization that is not local but global in its ideas and set-up. This global determination of the local subsidiary does not mean that the latter loses its own local culture or influence on local production. In the globalization process, there is a built-in dialectical tension between the global and local dimensions. In other words, the transmission of information and knowledge from headquarters to subsidiaries also involves a transformation where local actors filter and interpret what they receive.”

Human resources management in multinational companies has been seeking strategies which can cope with flexibility. Manuel Castells makes an interesting observation in this connection. “To be able to internalize the benefits of network flexibility the corporation had to become a network itself and dynamist each element of its internal structure”.(Castells, 1998) When human resource management of MNCs experiments with the dynamic-inspired horizontal organization and decentralized units, cultural encounters between units of different cultural backgrounds engendered. The result of these encounters is the concept of ‘third culture’ which views that national and local culture identities have to relate to global discourses but not necessarily adopt them. A third outcome is created which is neither national/local nor global/universal but an encounter in two cultures resulting in a third culture – the global culture represented by different multinational subsidiaries that constitute a global company culture in practice. (Kelner, 2002)

Indeed, culture has continuously undergone into formal evolution overtime on the context of how international business operations affect its development. Though its causal effects on the success of international business operations are implicitly described as implied by the continuous effort on the part of stakeholders to further refine the concept ‘culture’ to their advantage, still, the proposition as to whether culture is really the single most important factor that ensures the success or failure of international business remained partly resolved.

Along this line, other contemporary social scholars have shed lights on how culture affects the fate of MNCs vis-à-vis research study; this time not on a generalized global scenario but based on a perspective of national culture specific of a country. One of the most outstanding paper is that of Maminta Mamabaya (2003) whose earlier thesis entitled ‘The Role of Multinational Companies in the Middle East: The Case of Saudi Arabia’ lead into the subsequent publication of the book “International Business Success in a Strange Cultural Environment”. The book focuses on the cultural aspect, specifically Islam culture, by exploring the success of multinational enterprises doing business in the Kingdom of Saudi Arabia through their cultural awareness and responsiveness.

As reviewed, many newcomers to Saudi Arabia – especially non-Muslim foreign investors, businessmen and workers – often find many things ‘strange’ about the Kingdom, its people and cultural values. Business visitors find strange the fact that in the midst of their meetings with their Saudi or Muslim counterparts, the latter excuse themselves for prayer. Some visitors are disappointed when Muslim workers closed commercial establishments to attend their daily prayers in the mosques while expatriates feel it odd that their counterparts give more importance to prayer than business. They have these ‘strange’ feelings due to their lack of understanding of true Islamic culture. The book findings reveal that the success of an international business operating in a strange cultural environment depends partly on the MNCs’ managers to understand the local culture; in this case Islamic culture in its purest form. Among the given success measures, sales growth turned out to be the most appropriate success indicator in the light of data availability constraints. (Mamabaya, 2003)

Another local study worth citing is that of Numprasertchai and Swierczek, (2006), whose paper entitled ‘Dimensions of Success in International Business Negotiations: A Comparative Study of Thai and International Business Negotiator’ deals with how Thai culture affects success of international business not in the entirety of its operation but specifically on the aspect of negotiation.  Proposition is that “the success of international business relationships depends on effective business negotiations. Negotiators need to be well prepared. Understanding how to achieve international business negotiation outcomes and the factors relevant to the process will allow negotiators to be more successful. Based on theories of negotiation with a cultural focus, the study focuses on the dimensions of negotiating outcomes and process as perceived by Thai and International business negotiators related to past cross-cultural international business negotiations.” (Numprasertchai, 2006) Specific theories that identify the effects of culture on the process of international business negotiations are synthesized and compared in Table#1 in page Attachment #1.

Based on this table, it was concluded that cultural differences influenced international business negotiations consistently with negotiators of specific cultures seeing negotiations as a particular type. In the same manner, dimensions of Thai culture based on earlier discussed Hofstede’s work are scored and synthesized in Table #2 of Attachment #1. As analyzed, Thai culture turned out to be hierarchical respecting negotiator’s seniority, group oriented and caring preferring long term orientation, and reasonably flexible such that Thai may conduct an international business negotiation from a specific frame of reference contrastingly different from negotiators of other cultures. The final findings relative to the effect of culture on the success of international business negotiation indicates that the cultural awareness have a major influence on the process of negotiation and that greater awareness of how culture affects the process would dictate the outcome of the negotiation, be it success or failure. (Numprasertchai, 2006)

            On a separate topic relative to culture and the conduct of international business operations, decision making is one major function of managers that is routinely executed and its impacts greatly spell the difference of results and the repercussions of actions taken. A study by Güss (2002) scrutinized how cultural values influence individuals’ decision making. In his initial analysis, he viewed decision making as the selection among several options available. Figure #3 in Attachment #2, shows abstract schema of a simple decision making. Upon further exploration, using normative models of decision making, the best choice among several choices has been determined as shown in Figure #4 of Attachment#2. This put us into realization that decision problem is far more complex: that decision making not only involves the choice alternatives but likewise related to the generation of possible relevant choices, with unclear short- and long-term possible consequences.

His study propositioned that both individualistic cultures – defined by detachment from relationship or community, and collectivistic cultures – defined by attachment to relationships roles and status within the social system greatly influence individual’s decision making in three ways as seen in Figure #5 of Attachment #3. Out of earlier simple analysis, Güss came out with a more complex diagram showing relationship between cultural value orientations, abstract and concrete decision making strategies, decision making success and other possible influences as shown on Figure #6 of Attachment#3. In this diagram, the solid, broken and curvilinear arrows stand for positive, negative and unclear relationships respectively. From this model, knowledge about different decision-making strategies in different countries can help international business managers and other stakeholders to be more sensitive towards those from other cultures and in order for them to work together more happily and efficiently. (Güss, 2002)

            On dealing with conflicts, Ohbuchi, Fukushima and Tedeshi (1999) studied the cultural values in conflict management and on how people make decisions exploring goal orientation, goal attainment, and tactical decision. By asking American and Japanese students results show that the more individualistic Americans prefer assertive tactics while the more collectivist Japanese favor avoidance tactics. On main goals conflict situation, Americans were justice-achievement oriented while Japanese were more relationship oriented. (Ohbushi, 1999)

             Collectively, six authors Mann, Radford, Burnett, Ford, Bond, Leung, Nakamura, Vaughan, & Yang (1998) collaboratively made an extensive research to measure decision-making style and confidence among students from three Western individualistic countries namely USA, Australia and New Zealand and from three East Asian collectivist cultures namely Japan, Hong Kong and Taiwan.  “Findings show that Western individualistic students were more confident in their decision-making making ability than their East Asian collectivist culture counterparts who scores high on three dimensions such as buck-passing, avoiding and hyper-vigilance.” (Mann, 1998) Though these last two studies were conducted on younger subjects’ nationals, possible major changes in their culture orientation in the near future would be very unlikely.

Another tool for better understanding of the effect of culture on international business operations was explored by Gannon (2002) in his book ‘Cultural Metaphors: Their Use in Management Practice and as a Method for Understanding Cultures.’  Here, he defined cultural metaphor as “any activity, phenomenon or an institution with which members of a given culture emotionally and/or cognitively identify. Examples of national cultural metaphors include the Japanese garden, the Chinese family altar, and the American Football.” (Gannon, 2002) As Kaufman (Kaufman, 1999) pointed out: “today many business leaders see their game as more like football, with its image of interdependent players with multiple skills cooperating to move the ball down a long field 10 yards at a time.  And even the jargon or popular vocabulary of American football dominates business meetings and activities, for example, ‘going for the blitz,’ ‘getting to the red zone,’ ‘fall back and punt,’ and ‘throwing a Hail Mary Pass.’  Not surprisingly, then, American football is our cultural metaphor for the United States.”

            This particular study highly recommends in wisely utilizing cultural metaphor in the following possible manner: as a ‘starter kit’ for understanding a culture; as an ‘emergency tool’ for gaining deep insights into a group’s culture; as a ‘calculative method’ for discussing cross-cultural differences and similarities. and most importantly, as a useful ‘managerial tool’ “allowing international business managers with limited time to gain some understanding of a nation’s culture that they can apply quickly to the myriad problems that they face daily in international activities.”(Gannon, 2002)

            On other side aspect of culture and success, most business executives both in America and worldwide have been raised on a diet of preferential celebration for the successful and the Number One in every endeavor. Contrary to this popular notion, not all international business organizations are wholly embarking on the culture of success; some explores failures and even innovates on past mistakes on the belief that ‘failure breeds success.’ As featured in a cover story of Business Week July 10 (2006) issue “Everyone fears failure. But breakthroughs depend on it. The best companies embrace their mistakes and learn from them.” Citing specific example, having been briefed in advance of unfavorable yearend figures while reporting for the company’s annual meeting, Coke Chairman and CEO Neville Isdell bravely disclosed in front of their investors “You will see some failures, as we take more risks; this is something we must accept as part of the regeneration process.” Critics called this blasphemy but actually, this is his initial step towards changing Coke’s traditionally ‘risk-averse culture’ – through taking bigger risks by tolerating failures which will inevitably results. But these are not ordinary failures, rather intelligent failures, happening early and inexpensively, hence encouraged. As Paul Schoemaker, Decision Strategies International CEO puts it, “the performance culture really is in deep conflict with the learning culture and it will take an unusual executive to balance that.”

            The student here wishes to raise his own thoughts that having examined the numerous approaches and proven practices echoed by contemporary scholars, as well as corporate culture options available to stakeholders of international business operators, student is therefore better equipped with all possible alternatives to arrive in a justifiable assessment to the original paper proposition. In light of this remark, to what extent would the student agree to the proposition `culture is the single most important factor that ensures the success or failure of international business` would probably end up arguing for a less than total acceptance of that proposition based on studies and analysis presented.

As to why less than total acceptance of the proposition, the students found some limitation on the concept culture as the sole factor that will ensure the success or failure of international business operations. As with most, if not all, studies presented and researches so far conducted, other factors such as economic, political, social, etc were excluded focusing mainly on culture for simplification purposes. Yet they have cross-factor effects and implications vis-à-vis other factors which significantly contribute to the outcome of international business ventures. In a slightly similar vein, Dunning on Governments, Globalization and International Business, carefully cautioned readers “studies confirm that this interface – between governments, globalizations and international business activities, is, in fact, highly country specific. It does mean that it is dangerous to conclude that the factors leading to the successes of one governance regime can be easily transferred to another regime where the political and legal systems, social values, economic moves and commercial infrastructure are totally different.”(Dunning, 2001) Perhaps, this imperfection justifies continuous existence of imperfect global market conditions in order for international business operations to thrive.

Given the moral of those scholarly studies on cultures, when properly and timely applied both to beneficiaries and benefactors of an international business enterprise, there is a higher probability or greater likelihood to achieve success more than failure.  But again, depending on what corporate culture the organization values more, whether it is success or ‘intelligent failures’, decision remain an option to the stakeholders of the organization in order to keep it abreast on the global competition under an external and internal environment both conducive for symbiotic relations. As with all other things in nature, balance is the key.

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(2006) Cover story: HowFailure Breeds Success Business Business Week.

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