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In this era of globalization, more companies than ever engage in multinational transactions, cross-border trade, international joint ventures, and mergers and acquisitions. They seek competitive advantage by accessing locations, facilities, and customers in different countries and by coordinating activities in the value chain across national borders. While economic considerations create a basis for strategic decision making when determining where, in which countries to locate research, manufacturing, supply chains, or distribution, they are not sufficient for sustainable international growth of a firm. The nature of globalization dictates additional considerations when designing and implementing corporate strategies, namely the cultural environments in different countries. If a company understands national cultures, it can increase local responsiveness to customer needs, strengthen relations with stakeholders in host countries, and develop the most effective leadership behaviors in those cultures. However, this practical approach in turn depends on the ways in which a firm perceives cultures—from an ethnocentric to a polycentric perspective—in other words, according to its cultural predisposition. Hence, international managers seek concepts and instruments that (a) incorporate cultural environments into global strategy making in addition to comparative advantage arguments and (b) imbed cultural sensitivity in the values and decisions of a multinational firm.
This research-paper summarizes theoretical developments that bridge the gap between business policy and cross-cultural studies and creates a basis for sound culture-sensitive strategies. First, it traces the emergence of the global component in strategy theory and raises awareness of the cultural dimension of international business expansion. Second, it illustrates recent developments in the behavioral sciences in response to internationalization, namely the growing interest in cross-cultural studies and comparative instruments. Third, the research-paper explores implications for multinational companies (MNCs) that stem from these streams of research and attempt to bridge the gap between policy and culture. This research-paper also emphasizes contributions to culture-sensitive global strategies by strategy scholars such as Howard Perlmutter, Michael Porter, Yves Doz, as well as by behavioral scholars such as Geert Hofstede, Robert House, and Robert Donaldson. We also suggest practical examples of multinational corporations such as DaimlerChrysler, Honda, Rover, 3M, Unilever, Johnson & Johnson, Nike, and Motorola that successfully capitalize on cultural differences.
Global Dimension Of Strategy
The concept of strategy has evolved from military-based frameworks to modern business concepts that interpret the direction of firms—their formation, survival, and continuing success. In ancient China and ancient Greece, political and military leaders relied on their knowledge of strategy to gain victories, understand their enemies and the conditions of warfare, evaluate their own strengths and weaknesses, and frame plans to succeed beyond the battle to win the whole war. In the 19th century, military leaders such as Karl von Clausewitz noted similarities between war and commerce and advised transferring strategic know-how to commercial activities. In fact, business and war both involve a conflict of human interests in which large organizations compete for resources, rely on leadership, discipline, intelligence, and winning plans, design offensive and defensive moves, and consider uncertainty and danger. However, when compared to war, business competition is not a zero-sum game; it is primarily a creative rather than a destructive activity and usually is conducted in a civilized manner.
Without a doubt, prominent business leaders in the first part of the 20th century such as Henry Ford and Alfred Sloan demonstrated strategic thinking. They could visualize the future and generate innovative business models. And successful corporate managers relied on budget planning techniques in making future-oriented decisions. However, it was only in the 1960s that radical changes in competition, technology, and internationalization of the economy created the preconditions for conceptual breakthroughs in business and corporate strategy. For example, the emergence of large conglomerates generated attention to business portfolios. Rapid technological progress, along with a growing diversity of customers and markets, increased the complexity of decisions and an uncertainty about the future of firms. Internationalization shifted the focus to noneconomic strategic factors such as political risk, cultural particularities of local practices, and ethical responses to global expansion. So, advanced strategic theory with a global component became essential.
The academic community responded to these changes by conceptualizating strategy as a pattern of decisions in a company that produces principal polices and plans, defines the range of businesses to pursue, and explains the nature of contribution to shareholders, stakeholders, customers, and communities. Prominent scholars who contributed to concepts of business and corporate strategy in the 1960s and 1970s include economic historian Alfred Chandler, systems expert Russel Ackoff, analyst-consultant Bruce Henderson, and management theorist Henry Mintzberg. In economic terms, they envisioned strategy as a framework for making decisions about product/market allocations that generate economic rents or profitability in excess of the competitive norm. In management terms, strategy determined the basic long-term goals and objectives of an enterprise and the adoption of courses of action and the allocation of resources necessary for carrying out these goals. Policy (or strategy) included a vision of a multiscenario future; goals as measurable milestones of growth; environmental scanning; perceived competitive advantage as a company’s edge over rivals in attracting customers and defending itself from competition forces; and prioritized growth avenues for sustaining the advantage—via organic growth or major acquisitions.
In the 1980s, Michael Porter expanded theory, combining competitive strategy with industrial organization. He focused on the structural analysis of industries—the rules of the game that all or most of the technologically compatible actors play in a particular industry, such as the behaviors of buyers and suppliers, ease of entry, rivalry, and substitution threats from other industries. The contingency nature of those rules showed that there was no single best strategy and that corporate behaviors in one area, for example the research and development (R&D)-intensive pharmaceutical industry with its reliance on “blockbuster” medical drugs, may be quite different from behaviors in other areas, such as the fragmented restaurant business or regulated, unionized, and labor-intensive air transportation.
The concepts of business and corporate strategy provided logical and structured interpretation of decision-making patterns in the national economic environment. However, these concepts could not serve as the sole source of wisdom when interpreting entries into international territories and competition in political, economic, and cultural landscapes that could be quite different from home practices. Hence, the late 20th century generated valuable contributions to the concept of global strategies.
In the past 200 years, mainstream economic discussions focused on country-based differences in international trade and on national comparative advantage driven by differences in the costs of inputs in these countries. More recent streams of firm-based international theories, namely the contributions of John Dunning, John Stopford, and Paul Krugman focus on multinational companies generating international competitive advantage. This recent discussion not only recognized differences in national business environments, but also searched for answers regarding which firms from which nations gain advantage in a particular industry. In the early 1990s, a team of international scholars lead by Porter created an aggregate firm-based framework of “competitive advantage of nations” that considered major economic factors in national environments (e.g., factor endowment, demand structure, interindustry links) as well as political risk, the role of the government, and the impact of social factors (Porter, 1999). For example, this team provided cultural arguments as to why and how German firms were globally strong in manufacturing and the pharmaceutical industries; Italian firms in fashion, apparel, and leather; and Japanese firms in consumer electronics.
In terms of global environmental scanning, the impact of social capital on national industry structure and implications for businesses were also successfully explored by social historian Francis Fukuyama (1995). He emphasized that since law, contract, and economic rationality provide a necessary but not sufficient basis for economic success, they must also be supplemented with reciprocity, moral obligation, duty toward community, and trust, which are based on habit rather than on rational calculation. This research separated “low-trust” societies with preference for family-based business networks such as China, Italy, and South Korea, from “high-trust” societies with well-developed networks beyond family or government-based networks such as Germany and Japan.
An important contribution to understanding strategic choices stemming from the diversity of national environments was made by Christopher Bartlett and Sumantra Ghoshal (1998). They explored barriers and linkages among countries and asymmetric environmental pressures on multinational companies such as global efficiencies (e.g., standardization, economies of scale), local responsiveness, and flexibility. They also emphasized consumer divergence that, in turn, depended on national cultural attributes. Different combinations of global integration and local responsiveness predefine distinctive strategies (e.g., global, transnational, home replication, multidomestic) and refer to different industries typically associated with these combinations.
A group of scholars including Pankaj Ghemawat (2007) further developed these ideas from a dyadic model (separation of markets vs. integration across markets) to a broader set of strategic responses such as adaptation, aggregation, and arbitration and highlighted the willingness of multinationals to find innovative recombination of all three responses. Through adaptation, companies seek to boost revenues and market share by maximizing their local relevance. Through aggregation, they attempt to deliver economies of scale by creating regional, or sometimes global, operations. And through arbitrage, they exploit disparities between national or regional markets, often by locating different parts of the supply chain in different places—for instance, call centers in India, factories in China, and retail shops in Western Europe. These scholars underlined the dynamic and transformational nature of global strategy. For example, in the late 1990s, Coca-Cola made a radical turn from aggregation (strategic perception “think global—act global”) to adaptation (“think local—act local”), and then in the early 2000s to a middle ground between these two opposing approaches.
Modern interpretations of global strategy combine global efficiencies (i.e., scale, scope, and location), multinational flexibility, and worldwide learning. These strategic pillars rest on the interplay of competitive advantage of firms with the comparative advantage of countries. Uncertainty over these advantages is the outstanding feature of these advantages in global competition. To overcome uncertainties when building advantage on a worldwide basis, a multinational company must strategically balance several imperatives: economic, political, and cultural.
The economic imperative involves key strategic choices about configurations of activities internationally (where and in how many nations each activity of the value chain is performed) and about coordination (how to coordinate dispersed activities in different nations). The advantage rests on the ability to access more effective sources and effectively organize interactions among overseas operations. However, centralized coordination entails significant fixed costs and central authorities may miss important local trends and opportunities. Hence, realization of global benefits depends on integrative systems that provide decentralization of certain responsibilities to exploit these opportunities (for example, in human-resource management). In other words, the structural configuration of investment in different foreign locations and international market penetration are necessary but not sufficient preconditions for creating additional opportunities and exercising competitive leverage. Organizational flexibility is no less important in responding to local challenges and changes in the international business environment. Hence the firm seeks a balance between global integration and national responsiveness to different tastes, standards, and segmentation of local markets.
The political imperative involves balancing the bargaining power of a multinational company with the host political framework. Political risk in international operations traditionally has been associated with the host government’s interference in business operations. A multinational firm may experience loss because of the actions of legitimate government authorities, including involuntary loss of control over specific assets without adequate compensation such as in cases of expropriation, forced divestiture, confiscation, and the calling off of performance bonds. A reduction in the value of a stream of benefits expected from foreign operations such as nonapplicability of “national treatment,” restrictions in access to markets, control on prices, outputs, or activities, and currency restrictions may add to this list. However, certain events that create political risks derive from actions outside direct government control such as war, revolution, terrorism, strikes, extortion, and nationalistic buyers and suppliers. Hence, the political imperative is critical in making strategic decisions about entry and future presence in a particular country or group of countries.
The cultural imperative is the third critical component in building global strategy. Firms and other stakeholders from different cultures or cultural clusters may display visible asymmetries. The gaps in interests, ethical orientations, core values, and beliefs between home and host parties might be crucial to making sound decisions about international development and resource allocation. However, we should not assume that “different is wrong,” associating the cultural imperative with additional problems and extra costs. In many cases, multinational companies are willing and able to turn asymmetries into new opportunities and capitalize on cultural differences.
Focus On Cross-Cultural Comparisons
At the 1998 World Economic Forum, 377 CEOs representing leading global companies with combined revenues of $2.23 trillion and with more than 8 million employees ranked “setting vision and strategy” as their top concern, “exploring mergers and acquisitions” as their second priority, and ranked “reshaping corporate culture and human behavior” as their third; ranking cultural concerns higher than “monitoring corporate financial information” or “monitoring customer relations.” This fact illustrates crucial attention to cultural sensitivity in understanding global strategies.
In general, the term “culture” is used by social scientists to refer to a set of parameters that differentiate collectives from one another in meaningful ways. Culture is what is shared by most members of a social group, what is transferred from older (more experienced) generations to younger, and what prescribes the ways members perceive, think, and evaluate the world, self, and others. Culture may be observed at the levels of civilizations, nations, or organizations, as well as in social entities such as families, professional associations, and communities.
Civilizations are the highest cultural groupings of people. According to modern studies such as Samuel Huntington’s research, it is far more meaningful now to group countries, not in terms of their political or economic systems or in terms of their level of economic development, but rather in terms of their culture and civilization (Huntington, 1993). The most important conflicts of the future will occur along the fault lines separating civilizations from one another. Western, Confucian, Japanese, Hindu, Slavic-Orthodox, Latin American, and African civilizations are differentiated from each other by history, language, tradition, and religion. The people of different civilizations have different views on the relations between God and man, the individual and the group, husband and wife, parent and child, and the relative importance of rights and responsibilities, liberty and authority, equality, and hierarchy.
Cultural differences at the nation/country level are most critical to international business. Historically, people were separated by national boundaries and absorbed values, beliefs, and artifacts of a particular environment. In a broad sense, national (societal) culture is primarily the values and practices that characterize a particular country. Culture can be manifested in dress, food, gestures, manners, practices, beliefs, norms, standards, perceptions, attitudes, priorities, folktales, proverbs, idioms, and so on. It allows people to communicate with others through a common language, makes it possible to anticipate how others in society are likely to respond to one’s actions, and provides standards for distinguishing among what is right or wrong, beautiful or ugly, reasonable or unreasonable, tragic or humorous, and safe or dangerous.
Multinational companies analyze cultures, identify cultural differences, and incorporate this information into policy decisions. However, it was not until the 1970s that social scientists responded to multinational companies’ demands for such measuring instruments. For example, information giant IBM contracted the team of scholars led by Dutch sociologist Geert Hofstede to analyze matched populations of employees in its foreign subsidiaries and recommend a comprehensive-yet-simple set of cultural dimensions. The IBM data was complied from answers to 116,000 survey questionnaires about employee values and perceptions of work situations. This team revealed a structure consisting of four largely independent dimensions of differences among national value systems labeled power distance (large vs. small), uncertainty avoidance (strong versus weak), individualism versus collectivism, and masculinity versus femininity.
This four-dimensional model of national culture differences has served as a useful framework for comparing and clustering cultures and applying results to managerial decisions. For example, follow-up research conducted by Nikolai Rogovsky and Randall Schuler (Rogovsky & Schuler, 1997) found that variations in work values related to desirability of high income and job security were explained by cross-cultural differences. This suggested that multinational companies use different compensation and benefit packages in different countries: higher level pay-for-performance compensation and limited benefit packages in low-uncertainty-avoidance cultures versus lower level skill-based or seniority-based compensation and generous benefit packages (including substantial severance pay and easy procedures to withdraw money from pension plans) in high-uncertainty-avoidance cultures. Following the same logic, since the variance in the importance of flexible working hours was largely explained by the dimensions of uncertainty avoidance and masculinity, one could suggest using flextime more widely in low-uncertainty-avoidance countries or in highly masculine countries. The findings also suggested that autonomy was significantly more highly valued and, therefore, a better motivator in low-uncertainty-avoidance, low-power-distance, low-masculine, and highly individualistic cultures.
Empirical research such as Harry Barkema and Freek Vermeulen’s (Berkema & Vermeulen, 1997) shows that differences in cultural backgrounds cause problems in joint ventures but some Hofstede-type differences (like uncertainty avoidance and long-term orientation) are more disruptive than others and more difficult to resolve than differences about power distance, individualism, and masculinity.
The most recent fundamental research on cultural differences, the Global Leadership and Organizational Behavior Effectiveness (GLOBE) research, was conducted in 62 countries by 170 social scientists in the 1990s (Chhokar, 2007; House, 2004). GLOBE helped to further define cultural configuration of societies and predict cultural and behavioral discrepancies when representatives of these societies interact in organizations. The central research proposition was that attributes and entities that distinguish a given culture from other cultures were predictive of the practices of organizations of that culture and predictive of the leader attributes and behaviors that were most frequently enacted, accepted, and effective in that culture. GLOBE research operationally measured societal and organizational cultures by assessing questionnaire responses from 17,300 middle managers in three industries (telecommunications, food processing, and financial services) with respect to (a) the values they endorse and (b) reports of practices of entities in their societies. Cultural values and practices were measured on a seven-point response scale with respect to nine cultural dimensions that display high within-culture and within-organization agreement and high between-culture and between-organization differentiation:
- Institutional Collectivism (degree to which organizational and societal norms and practices encourage and reward collective distribution of resources and collective action)
- Group Collectivism (degree to which individuals express pride, loyalty, and cohesiveness in their organizations or families)
- Gender Egalitarianism (extent to which an organization or society minimizes gender-role differences)
- Assertiveness (degree to which individuals in organizations or societies are assertive, confrontational, and aggressive in social relationships)
- Power Distance (degree to which members of an organization or society expect and agree that power should be unequally shared)
- Performance Orientation (extent to which an organization or society encourages or rewards group members for performance involvement and excellence)
- Future Orientation (degree to which individuals in organizations or society engage in future-oriented behaviors such as planning, investing in the future, and delaying gratification)
- Uncertainty Avoidance (extent to which members of the organization or society strive to avoid uncertainty by relying on social norms, rituals, and bureaucratic practices to alleviate the unpredictability of future events)
- Humane Orientation (degree to which individuals in organizations or societies encourage and reward individuals for being fair, friendly, generous, caring, and kind to others)
The GLOBE project benchmarked countries on these dimensions and clustered countries with high within-culture agreement and high between-culture differentiation. For example, Switzerland and Singapore were among the highest and Russia and Venezuela among the lowest on Performance Orientation; Hungary and Poland were among the highest and Kuwait and South Korea among the lowest on Gender Egalitarianism; Sweden and Japan were among the highest and Germany and Greece were among the lowest on Institutional Collectivism; Morocco and Nigeria were among the highest and Netherlands and Denmark among the lowest on Power Distance. These rankings help to better understand cultural distance and sources for cultural friction among national environments.
Hofstede’s (1980) typology, GLOBE, and classifications developed by Fons Trompenaars, Harry Triandis, and others helped measure cultural distance and assemble countries with statistically sound similarities into large clusters (Anglo, Germanic, Nordic, Latin European, Latin American, Eastern European, Confucian Asian, South Asian, Middle Eastern, and Central and South African). For example, cultural similarities stemming from the British colonial system (law, language, religion, traditions, etc.), explain certain attitudinal and behavioral similarities in the Anglo cluster that includes the United Kingdom, Canada, Australia, New Zealand, South Africa, and the United States. The practical value of clusters for multinationals is the potential standardization of certain activities and management processes (such as human resource management) for those countries that display similarities on cultural scales.
Multinational companies may learn important lessons from these comparative frameworks. First, cross-cultural research provides a deeper understanding of host cultures as well as of home cultural environments. Second, multinational companies’ managers acquire instruments for detailed comparisons of cultures and cultural clusters. Third, these managers generate important arguments for strategic decision making, including careful selection of cultural obstacles and cultural sources of competitive advantage in the global setting, international human resource management system and selection of expatriates, and perceiving dynamic change in resource and customer bases.
Cultural Predisposition Of A Multinational Firm
The literature indicates that predictions based on cultural distance at the societal level should be made with great caution to avoid oversimplification by directly associating multinational companies’ cultures with the cultures of their home countries. In particular, it is not advisable to look at congruence in cultural values and then predict that high congruence would necessarily lead to competitive advantage unless one first understands those companies’ cultural predispositions.
Cultural predisposition stems from a multinational company’s perspective on home culture relative to foreign subsidiaries’ host countries’ cultures. Classical typology reflecting a company’s cultural configuration was developed in the 1980s by scholars such as Howard Perlmutter and Balajai Chakrawarthy. They defined the distinct ethnocentric-poly-centric-regiocentric-geocentric (EPRG) profile of a multinational company indicating whether, in international operations, it is primarily driven by home country, host country, regional, or global cultural perspectives (Chakravarthy & Perlmutter, 1985). When strategic decisions worldwide are guided by the values and interests of the parent company (headquarters), assuming that “what works at home will work abroad,” such a multinational company follows ethnocentric orientation. Strategic manufacturing, marketing, and personnel decisions in such a company are typically made at headquarters with little influence from country subsidiaries. When decisions in foreign subsidiaries are clearly tailored to suit the cultures of the countries where the company competed and managers “run a subsidiary as an independent company,” such a multinational follows a polycentric orientation. In strategic decisions about manufacturing, marketing, or personnel at the country level, these managers definitely consider local cultural configuration. Regiocentrism is a predisposition to blend the interests of the parent with that of the subsidiaries, at least on a limited regional basis. And multinationals with a “worldwide outlook” that try to integrate diverse subsidiaries through a global systems’ approach to decision making follow geocentric orientation.
With the growing awareness of global ethics and the application of a stakeholder model to strategic behavior, multinational companies have been paying more attention to behavior on a continuum between two extremes. These ideas were further developed by scholars such as Thomas Dunfee (2003) and Thomas Donaldson (1996). On the one hand, cultural relativism dictates that no culture’s ethics are better than any other’s and therefore, there are no international rights or wrongs. This extreme type tolerates bribery, cheap waste dumping in developing countries, exploitation of weak health and safety standards, or lack of civil society standards. On the other hand, ethical imperialism directs company managers to do everywhere exactly as they did at home. It disrespects cultural diversity under a banner of global ethical uniformity and dictates a single truth in decision making by imposing ethical standards from a home country on a host country. Neither of these extremes proves to be effective in a modern interrelated world. A realistic approach between these extremes at least requires respect for core human values, respect for local traditions, and the belief that context matters when deciding what is right or wrong in international operations.
The typology of culture-sensitive, ethical behaviors includes corporate strategic orientations such as imperialist, chameleon, nationalist, and opportunist. The corporate imperialist derives its own values internally from its history and organizational culture and relies on an integrated, centralized, and unified corporate code of conduct. These norms are widely accepted by all global subsidiaries and emphasized in training and development of company employees. Multinationals of this type, such as Citicorp, have strong ethics programs, committed personnel, transparent reputations, and integrated organizational culture but face problems in overriding local cultural practices, often losing competition to more flexible rivals. For example, Motorola’s values and norms of global corporate behavior were traditionally based on “constant respect for people” and “uncompromising integrity”—principles rooted in the personal code of company founder Paul Galvin and extended to a global code of conduct. But these principles ignored global cultural diversity and created conflicts between Motorola’s traditional ethical expectations and acceptable business practices and ethical standards (such as gift giving, paying agent’s fees, or group rewards) in the countries in which they operated.
The corporate chameleon adopts customs, rules, and values from host environments, uses decentralized codes for foreign subsidiaries, and bases its standards on local practices and customs. Shell and United Technologies may serve as examples. While this type is highly adaptable to and respectful of local diversity, it may follow problematic local practices such as nepotism, animal testing, or software copying. This type of company lacks a global ethical core and connections to the firm’s implicit corporate values and beliefs. For example, in some post-Communist countries, “chameleonic” South Korean electronic, Indian trade, or Turkish construction firms are more successful than their Western competitors, because in an ethically dysfunctional and relations-oriented environment, they simply follow the principle “When in Rome, do as the Romans do.”
The corporate nationalist prioritizes and adopts the values and customs of the home country. When conducting business in the other countries, such compliance-oriented firms like Renault or Honda rely on home legislation. This firm may not have its own source of core values but derives values from the standards and customs of the home country. For example, an American firm may emphasize OSHA standards or Foreign Corrupt Practices Act in other countries. But it may also permit government programs on site or respond to host government requests to fire an employee. This law-abiding orientation, compatibility with the home culture, and transparent reputation may strengthen the company unless it faces difficulties when home and host country laws conflict or when it serves as a target for local anti-Americanists.
The utilitarian corporate opportunist pays relatively less attention to cultural and stakeholder issues or to integrating the efforts of its personnel via codes of conduct or cultural training. To achieve primarily short-term and medium-term results, it might use different approaches or combinations depending on the situation in a particular environment. While this pragmatic approach by “opportunistic” companies like Texaco and Life Science justifies focused business orientation, it lacks a visible ethical core and transparent cultural identity. The metaphor of a pirate ship carrying a wide array of flags to run up the pole when new circumstances arise is quite applicable to the corporate pragmatist.
Typologies of a corporate cultural “genetic code” help to better understand the fit between a foreign business environment and a firm’s cultural orientation to these environments, to consider this fit in strategic entry and business development in a country, and to extract cultural sources for sustainable success.
Cultural Sensitivity In Multinational Companies’ Policies
Cultural Considerations in MNCs’ Subsidiaries
A growing number of international firms go far beyond economic and financial sources to succeed in foreign markets. They seek ways to capitalize on cultural differences in other countries and find new sources for strategic success. Many are serious about adding the parameters of global versus local cultural configuration to their pattern of strategic decisions.
For example, managers from several multinational companies doing business in Russia such as Shell, 3M Company, J. P. Morgan, Unilever, and Motorola were asked,
- if the Russian GLOBE score on selected dimensions reflected strategic advantage or strategic disadvantage to their companies; and
- if this was perceived as an advantage, did the company capitalize on this or not? And if it was perceived as a disadvantage, did the company try to correct this or not?
The analysis revealed agreement on the advantages of the Russian behavioral configuration. The companies respondents positively assessed the ability of Russian managers and employees to work in teams and to follow group norms. Each company in the survey has developed a sophisticated system to exploit this factor and motivate the high loyalty of its Russian managers, sometimes pushing them to sacrifice individual interests. The cultural environment helped multinationals combine innovative efforts within the company and target specific groups in the market. At the same time, respondents shared a high level of agreement on selected cultural disadvantages. The companies tried to correct the influence of low uncertainty avoidance by providing clear corporate guidelines and codes of conduct. The respondents explained low assertiveness by referring to the conformism rooted in the authoritarian system and the lack of leadership initiative. To balance the negative impact of this factor, these companies have designed specific programs encouraging initiative and entrepreneurial assertive behavior for managers. Most respondents mentioned the companies’ serious consideration of low-performance orientation and future orientation and its impact on company policies. Some respondents viewed this as a positive factor since companies could build competitive advantage by creating vision and encouraging leadership behavior. Others considered this a disadvantage when working with more future-oriented headquarters and other international subsidiaries.
In particular, 3M’s global strategy differentiates developed economies, growing-but-volatile economics, and emerging markets. When doing business in emerging economies, the company focuses on products for the country’s infrastructure, like highway signs and telecom equipment, and equipment for exploiting natural resources, like mining and products for oil and gas industries. For the past decade, 3M has enjoyed profitable, double-digit sales growth in Russia, established a sales distribution network, and helped launch multiple local businesses by sharing its technology and helping them tailor 3M products for the Russian market. 3M’s experience in Russia provides two important lessons for multinational companies facing significant cultural differences in a foreign market. First, 3M leverages positive cultural traits. Recognizing the Russian tradition of working cooperatively, the company has aggressively implemented 3M’s team-based work practices. Recognizing the comfort with which Russian managers operate in a turbulent environment, 3M Russia has hired most of its top executives locally. 3M Russia is known for a tough hiring process, with six to eight interviews that focus on a candidate’s innovativeness and cultural compatibility. The company has also capitalized in an interesting way on a longstanding Russian tradition: the practice of making charitable contributions to the community. As one of the relatively few companies adopting a policy of good corporate citizenship, 3M has made itself more “Russian,” dramatically raised its profile in the country, and established solid relationships with government authorities. Second, 3M turns negative cultural traits to its advantage. The Russian business environment can be corrupt and dangerous; bribes and protection money are facts of life. But unlike many international companies, which try to distance themselves from such practices by simply banning them, 3M Russia actively not only promotes ethical behavior but also ensures the personal security of its employees. The company enhances its reputation as an attractive employer by working with its sales force to avoid both illegal acts and personal harm. 3M Russia also strives to differentiate itself from competitors by being an ethical leader and by holding training courses in business ethics for its customers and suppliers.
International Strategic Alliances and Mergers
The strategic role of culture is shown in the interaction of companies from different countries—in strategic alliances, mergers, and acquisitions. Cultural frictions may increase transaction costs while the ability to overcome cultural distance may translate into valuable advantages such as quick access to a partner’s competencies, joint manufacturing, global marketing, shared client base, accelerating innovations, and fostering industry standards.
Strategic alliances are trustful, long-term, and mutually beneficial relations between the firms that permit each partner to more effectively accomplish strategic goals, coordinate shared resources, and optimize transaction costs. These relations may take different forms such as joint ventures, long-term licensing agreements, joint marketing or manufacturing reciprocal dedicated assets, or combinations of these forms. An analysis of major international alliances shows that their effectiveness depends on appropriately selecting partners with alliance experience but that are not direct competitors; preserving symmetry (win-win); controlling obligations; resolving conflicts; making decisions quickly; and—last but not least—understanding cultural differences.
When in the late 1970s, Honda and Rover agreed on a strategic alliance in car manufacturing, both parties clearly realized their technological and cultural differences and did not expect quick results. Both participants emphasized mutual trust and commitment as key success factors of the partnership. That is why additional efforts and resources were channeled into understanding each other’s culture and core values, creating mechanisms for conflict resolution, intense training, and exchange of ideas. This process took about 7 years, or nearly half of the alliance lifetime.
Once the partners created a higher cultural cohesion with substantial “Japanization” of British production facilities and a smooth cross-border know-how transfer, they decided to move to an equity-based form (swap shares) and further strengthen their cooperation in manufacturing new models, streamlining shared supply systems, new market development initiatives, and technology transfer (design and process technologies).
In international mergers and acquisitions, cultural factors may play an even more critical role. When companies buy companies for access to markets, products, technology, resources, and management talent (less risky and faster than through internal efforts), they face transition from strategic fit to organizational fit. In effective mergers, top executives take an active role in the ex post process; they involve operating managers and internal consultants in the change process and rely on professional integrators.
When, in the late 1990s, Daimler-Benz and Chrysler Corporation announced “a merger of equals” as a response to globalization, they emphasized cultural integration in their postmerger efforts based on a clear concept, a precise timetable, pragmatism, openness, and speed. The leadership of this new auto giant agreed that only those companies that adapt to national cultures and traditions, respond to the demands of various national and regional markets, and are willing to assume responsibility for making a real contribution in those societies will be able to successfully compete in the long run. These two somewhat ethnocentric companies united in an effort to create a new mega-corporation with a new global culture. They had to address differences in communication styles and decision making, consider compensation practices and union influence, and change stereotypes about their home bases. When asked about differences in the national cultures of the parties, DaimlerChrysler’s CEO Dieter Zetsche explained that they had created a new corporate culture that was neither American nor German, but global, combining the strengths of both national cultures. While the merger dissolved in 2007, it was quite successful in responding to negative impacts of globalization in car manufacturing in the previous decade and in creating shareholder value for parties involved.
Leadership Core Competencies
The resource-based view of the firm suggests that multinational companies build competitive advantage by utilizing their tangible and intangible resources, including those directly related to human behavior in the organization. Core competencies—combined skills/ behaviors developed through organizational learning, which are valued by customers and are difficult to imitate by competitors—are viewed among the major strategic success factors, for example, 3M’s innovation, Kodak’s digital imaging, and Boeing’s large complex integrated systems.
In the 2000s, top multinational companies have been seriously considering behavioral resources as a source of competitive advantage and sustainable strategic development. They viewed leader effectiveness as a function of the interacting strategic organizational contingences, leadership competencies, and leader attributes and behaviors.
Johnson & Johnson, one of the most competitive global health-care corporations, relies on leadership core competency worldwide. Among the six basic tools to achieve the company strategic goals, “leadership” was named number one. At the same time, lack of leadership competency throughout a global company was viewed as the biggest single constraint to growth. Developed by American experts, but adjusted to multicultural operations, “The Standards of Leadership” framework was launched in 1996 and applied to operating divisions and franchises everywhere in the world. This model showed the relationship between Johnson & Johnson’s “Credo” values, business results, and the companywide leadership competencies required to achieve these results. Because this model was unique to Johnson & Johnson, its leaders had not previously compared themselves to this special set of standards. Among its criteria were considerations of the individual as a role model for “living” Johnson & Johnson values, ensuring that his or her organization seizes the advantage of leadership in its field or market, and fostering open, candid communication across organizational geographic boundaries. Worldwide implementation of these “Standards of Leadership” pro-vides a coherent managerial behavior through all Johnson & Johnson companies.
Another example of reliance on leadership core competency in strategic development is the Anglo-Dutch company Unilever, known for worldwide brands such as Lipton, Dove, Surf, and Rexona. In 2001, the company announced its new strategy “Path to Growth.” It aimed to encourage employees in all countries to display winning behavior in the marketplace through their mind-set, passion, and motivation. Most important in this strategic redirection was Unilever’s new competency model, the Leadership for Growth Profile (LGP), which combine the following components. First, everyone in the company was expected to create growth vision. Growth was considered the key criterion for employees’ behavior at Unilever. Second, everyone had to drive growth through implementation and to energize others for growth. Third, it was important to secure commitment to growth. By defining a new set of LGP competencies/factors and using it for management development and recruitment, Unilever tried to change managers’ behaviors and increase behaviors that were directly linked to achieving strategic growth. The corporate Purpose Statement described what Unilever aspired to be, as well as expressed its values and beliefs and pointed out Unilever’s focus on local culture. In this multilocal, multinational company, local operating subsidiaries were able to draw on the resources of a global corporation and bring together global scale and local relevance.
The Ethical Dimension of Strategy
Among the latest trends in sound multinational companies’ strategies is the response to ethical challenges and the stakeholder model in the global economy. Leading companies redefine their attitude to new ethical challenges rooted in national cultures. They revisit their strategic goals to incorporate an ethical dimension into their long-term milestones and performance management, assign new ethical responsibilities to senior managers in headquarters and foreign subsidiaries, provide resources for sustaining corporate-wide ethics, and transfer ethical principles to global supply chains. The most recent trend is cooperation among industry leaders in computer manufacturing, software development, apparel, and even banking in creating industrywide ethical standards. These standards may consider elimination of child labor in the supply chain, rejection of loans to those damaging the environment, and collective enforcement of intellectual property rights worldwide. It is important to underline that these new ethical policies do not necessarily incur additional costs. They may actively generate new competitive advantage by responding to the customers’ ethical awareness and by creating higher industry entry barriers to less ethical firms.
Nike is an example of a company with a proactive ethical global strategy. Driven by a search for cheap labor, it accessed Asian contractors. However, in the late 1990s, it was accused of child labor, sweatshops, harassment, and wage problems in its supply chain with over 600,000 employees. The company proactively responded to these accusations and raised ethical sensitivity of its global strategy, appointed a social responsibility vice president, issued social responsibility reports, conducted an open-door policy, outlined compliance areas, and facilitated respectful treatment of workers in all countries. In the other words, Nike tried to form a positive cross-cultural connection and a clear communication channel between headquarters and its foreign-owned manufacturing facilities. Other companies such as Adidas and Reebok followed the same type of policy and engaged in an industry leaders’ dialogue about shared ethical standards and cultural sensitivity.
Multinational firms’ executives seek professional tools to make sound and effective strategic decisions about doing business internationally and consider the growing economic role of culture in the life of a business organization. This idea is recognized by intellectual champions of the business community who take into consideration cultural dimensions in determining their choice of organizational practices in foreign operations and product positioning and respond to globalization by incorporating noneconomic parameters into their strategy making.
This research-paper addressed this complex culture-sensitive perspective on global strategy and discussed corporate responses to globalization with an emphasis on culture. The research-paper bridged the gap between traditional policy interpretation and the emerging behavioral component of global strategic management and summarized major scholarly contributions to this field with practical examples of culture-based sources for competitive advantage.
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