Abstract - Hacettepe Üniversitesi



HACETTEPE UNIVERSITY

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FACULTY OF ECONOMICS AND ADMINISTRATIVE SCIENCES

DEPARTMENT OF BUSINESS ADMINISTRATION

BUS 436 INTERNATIONAL BUSINESS MANAGEMENT

Assoc. Prof. Mahmut ARSLAN

A STUDY ON THE EFFECT OF CULTURAL DIFFERENCES AND SIMILARITIES ON MNCs WITH ILLUSTRATIVE CASES

Submitted By

Canan KESİK - 20212129

Ayşen KARSAN - 20212115

Submitted Date: 01.03.2007

TABLE OF CONTENTS

1 Abstract 1

2 Introduction 1

3 Multicultural Environment in Business Life 2

3.1 Cultural Differences 3

3.1.1 Commonly Known Causes of Cultural Differences 5

3.2 Cultural Similarities 7

4 Cases 8

4.1 Kellogs Hata! Yer işareti tanımlanmamış.

4.2 Joint Venture of Vitro Monterey and Corning Inc. 9

4.3 Mc-Donalds 10

4.4 IKEA 11

4.5 Pepsi 12

4.6 Salem 12

4.7 General Motor-Chevy Nova 12

4.8 Colgate 13

4.9 Coca-Cola 13

4.10 Kentucky Fried Chicken 13

4.11 Schweppes Tonic Water 14

4.12 Doing Business in Japan 14

5 Comments on Managing With Cultural Differences 15

6 References 18

Abstract

In this study, we examine the effects of cultural differences and similarities on international businesses. To be thoroughly understandable we begin with what businesses are facing in international environment such as different people, values, languages, religions, etc. The methods that firms generally use for coping with these difficulties are internationalization, translation, localization and globalization. In this frame, our main objective is to analyze the specific firms while they are implementing internationalization and see the problems related with the cultural differences they experienced. In addition, we exhibit the cultural similarities between multinational firms and domestic countries. The cases we explained show cultural failures and successes.

Introduction

The need to understand cultural differences is obvious today. Many societies are multicultural, and many people and organizations collaborate across geographic and cultural boundaries. Although it is typical for people to see themselves as unique (Reed 1986, 1) and to be somewhat parochial, parochialism is not a good strategy for the future. According to Adler (1997, 10) "parochialism means viewing the world solely through one's own eyes and perspective. A person with a parochial perspective neither recognizes other people's different ways of living and working nor appreciates that such differences have serious consequences."

Today we live in a world that is somehow smaller than it is used to be. New communication technology (e.g. email and the WWW) has made it easier to a certain extent to cross previous boundaries and communicate across time and space. However, the new technology does not necessarily make it easier to collaborate and communicate interculturally. To effectively collaborate and communicate we have to share meanings. This often requires that we understand cultural differences and share cultural information.

International companies need to understand external environments to operate efficiently abroad. Business employs, sells to, buys from, is regulated by, and is owned by people. Because international business includes people from different cultures, every business function—managing a workforce, marketing output, purchasing supplies, dealing with regulators, securing funds—is subject to potential cultural problems. An international company must be sensitive to these cultural differences to predict and control its relationships and operations. Further, it should realize that its accustomed way of doing business may not be the only or best way. When doing business abroad, a company first should determine what business practices in a foreign country differ from those it’s used to. Management then must decide what, if any, adjustments are necessary to operate efficiently in the foreign country.

Multicultural Environment in Business Life

In multicultural environment, language translation is not the only way to cope with the cultural differences, that’s only the beginning. Also, most industry experts would agree it includes the following elements:

➢ Translation: Converting written text or spoken words to another language.

➢ Localization: Adapting documents, campaigns or products to a specific region or language by adding locale-specific components and translating text. The term localization is often abbreviated as l10n, because there are 10 letters between the "l" and the "n."

➢ Globalization: Integrating localization throughout a company – into marketing, sales and support – in addition to proper product design and internationalization

➢ Internationalization: It is the process of designing an application so that it can be adapted to various languages and regions without engineering changes. Sometimes the term internationalization is abbreviated as i18n, because there are 18 letters between the first "i" and the last "n."

An internationalized program has the following characteristics:

• With the addition of localized data, the same executable can run worldwide.

• Support for new languages does not require recompilation.

• Culturally-dependent data, such as dates and currencies, appear in formats that conform to the end user's region and language.

• It can be localized quickly.

Culture is one of the main factors affecting the internationalization process.

1 Cultural Differences

We know that culture is the specific learned norms based on attitudes, values, and beliefs that exist in every nation—is an integral part of external environments. As values, beliefs and attitudes differ from nation to nation, multinational firms (MNCs) are obliged to take into consideration these differences when they decide to expand abroad. A number of researchers (see e.g. Bartlett, 1986, Ghoshal and Bartlett, 1990, Hedlund, 1986, Ghoshal and Nohria, 1989, Gupta and Govindarajan, 199 1, Nohria and Ghoshal, 1994, Prahalad and Doz, 1987, Rosenzweig and Nohria, 1994) have pointed out the fact that units within multinational firms are not identical. Thus, MNC units are located in different cultural milieus (Hofstede, 1980) and people with different nationalities, belonging to the same firm have to cope with each other. When people from different cultures work together, misunderstandings are likely to occur (Adler, 1986). Problems due to cultural differences are thus of special interest in such firms in which complexity, differentiation and variation in relations between the subsidiaries and main firm are characteristic features (Van Maanen and Laurent, 1993).

As Hofstede (1983, p. 75) points out, cultural differences do matter, and cultural differences may become one of the most crucial problems especially for managements in multinational, multicultural firms. Differences in culture are thus a main factor causing friction between parties in MNCs as cultural differences may lead to a communication gap. In order to get necessary information, individuals in different parts of the firm have to communicate and communication is largely influenced by cultural factors. Hence, people have culturally determined styles and ways of doing business, acquired primarily through their national culture but also through their business, corporate and individually based environments, and a reasonable hypothesis is that it is easier to communicate with people who share the same view of the world. Conflicts are also affected by cultural differences as individuals may have very different approaches to conflict resolution. (Törnroas el ul, 1993)

The best known study on cultural differences is probably Hofstede’s (1980) study of 40 subsidiaries in one multinational firm. He argues that people within a nation are “collectively mentally programmed”, i.e. they interpret experiences in a certain way that differs from the interpretation in other cultures. These mental programs are developed in childhood and as they are reinforced and institutionalized in legal systems, government, schools, organizations etc., there are no rapid changes in culture (Hofstede, 1983, p. 76). According to Hofstede, cultural differences can be expressed as differences in symbols, heroes, rituals and values, of which the three first can be collected under the term “practices”. Such practices are more superficial than values and can be manipulated through organizational culture. Hence, while national culture mainly refers to differences in values developed early in a person’s life, organizational culture is primarily related to practices which have been learnt at work. Between national and organizational culture, Hofstede identifies a third category, professional culture, which is formed somewhere in between and consists of values and practices to an equal degree. (Hofstede, 1991)

According to Hofstede (1980), differences in national cultures vary along four dimensions (individualism vs. collectivism, large vs. small power distance, strong vs. weak uncertainty avoidance and masculinity vs. femininity), and in his study the position of each country on each of the four dimensions has been indicated by a score.

1 Commonly Known Causes of Cultural Differences

← National boundaries and geographical obstacles

← Language: The language diversity has created problems for companies in integrating their workforces and marketing products on a truly national level. When a new product or service enters another language area, it may take on an Anglicized name. For example, Russians call tight denim pants dzhinsi (pronounced “jeansy”) the French call a self-service restaurant le self, and Lithuanians go to the theater to see moving pikceris.

← Religion: Religion is a strong shaper of values. Religion of a nation has influence on the way firms are doing business like working hours, holidays, preferences and tastes. For example, McDonald’s agreed not to serve beef in India because of criticism from Hindus, the Israeli national airline, does not fly on Saturday, the holiday in Judaism. But not all nations that practice the same religion have the same constraints on business. For example, Friday is normally not a workday in predominantly Muslim countries because it is a day of worship; however, Turkey is a secular Muslim country that adheres to the Christian work calendar to be more productive in business dealings with Europe. In countries where rival religions vie for political control, the resulting strife can cause so much unrest that business is disrupted through property damage, difficulty in getting supplies, and the inability to reach customers. In recent years, violence among religious groups has erupted in India, Lebanon, Northern Ireland, and Yugoslavia.

← Preferences and Tastes: As preferences and tastes may be different for each individual, it also differs among different cultures. And these differences affect the decisions of MNCs. For example, Japan people dislike sour tastes like lemon, and colors that is reminiscent of sour (yellow). Because of this perception, firms using yellow packages on their product have faced a drop in their sales.

← Perception: As perception affects attitudes and values, attitudes affect behaviors. Due to this general fact, business managers are also affected by these perceptions.

• Role of competence

• Gender

• Age

• Race

• Family

• Time

• Occupation

• Power

The power relationship between the parties involved may also affect how cultural differences are perceived. The more dependent a party is in an interdependent system, the more likely that this party experiences problems due to cultural differences.

For example, managers in The United States values competence so highly that legislative and judicial actions aim to prevent discrimination on the basis of sex, race, age, and religion, even though such legislation is not fully effective. But in some other cultures, individual competence is of secondary importance.

Another example of perception is about gender differences. There are strong country-specific differences in attitudes toward males and females. In China and India there is an extreme degree of male preference.

Like role of competence and gender, the other factors have influence on managerial decision.

← Communication: verbal and non-verbal communication (especially body language) can cause misunderstandings between different nations.

2 Cultural Similarities

The nations which are closer geographically to each other, sharing a common language, religion and historical and ethnic background show similar cultural characteristics. For instance, when people from different areas speak the same language, culture spreads easily. That helps explain why more cultural similarity exists among English-speaking countries or among Spanish-speaking ones than between English-speaking and Spanish-speaking countries.

When we consider Turkey and Greece, we realize both nations have many common cultural characteristics due to their shared historical and ethnic background and their geographic locations. These resembling aspects make easier for managers in these countries to adapt quickly in each others cultures. Also these features can be seen in Arabian business environment since they have many parallel cultures.

Cases

Having a poor understanding of the influence of cross cultural differences in areas such as management, PR, advertising and negotiations can eventually lead to blunders that can have damaging consequences.

It is crucial for today’s business personnel to understand the impact of cross cultural differences on business, trade and internal company organization. The success or failure of a company, venture, merger or acquisition is essentially in the hands of people. If these people are not cross culturally aware then misunderstandings, offence and a break down in communication can occur.

These are the examples:

1 Kellogg’s

Kellogg's set up a branch in India and started selling Corn Flakes to give consumers the real thing. What they didn't realize was that Indians think that to start the day with something cold -- like cold milk on their cereal -- is a shock to the system. And if they pour warm milk on Kellogg's Corn Flakes, they instantly turn into wet paper.

In business studies, when you look at a market, you have to know something about its anthropology and its cultural rituals. What Kellogg’s ignored was that the Indians dislike cold breakfast.

Given how many marketers worship at the altar of brand integrity, the attempt to protect a product by changing it as little as possible around the world is understandable. And for some geographic expansions, it may be exactly the right thing to do. In India and many other countries, however, transplanting a business from one cultural, economic, and political setting to another requires more.

Had Kellogg's aimed at winning in the "breakfast" market rather than importing intact the cold cereal category with which it was familiar, the company's full talents could have been focused on creating products that suited the Indian preference for a hot breakfast.

2 Joint Venture of Vitro Monterey and Corning Inc.

Vitro Monterey is a Mexican glass making company. Vitro has many successful joint ventures and tends to globalization as Corning. Beyond Vitro, Corning has a differentiated product range such as fiber optics, environmental products and laboratory tools but it is especially known with its baked glass production.

They formed their alliance to take the advantage of the opportunities presented by the NAFTA. Managers in both companies claimed that they had similar organizational cultures. Nevertheless, two years later Corning glass terminated the joint venture and gave Vitro back 150 million dollars it had given Corning for excess the Corning’s technology.

Why had the venture failed?

The cultures and the values of two companies were so different that Corning managers and Vitro managers could not work together.

The differences between the two companies has first aroused in the marketing strategies. Vitro was less aggressive and more risk averse than Corning expected. In doing business, while Mexicans think that Americans are making out too fast, Americans think that Mexicans are not effective in time management with emphasizing too much on political issues. They also differ in terms of decision making process and working styles. While Mexican corporate culture is based on paternalistic, hierarchical values and decision making is centralized, American decision making authority is decentralized to lower level managers who make important decisions and commit their organization to certain courses of action and US managers like to make decisions quickly.

Early on when they were aware of the differences in their approaches to doing business, managers from both companies tried to compromise and find a mutually acceptable working style. Over time, however, the differences in management style and approach to work became a source of frustration for managers from both companies. They discovered that the organizational cultures of Vitro and Corning were not so similar after all and they decided to declare off the joint venture.

3 Mc-Donald’s

McDonald's dispensed with its most prominent ingredient in order to respect, and to please, its Indian customers. Many Indians eat no beef or pork, or any meat at all. According to Vikram Bakshi, managing director of McDonald's India North, it was necessary to adapt the company's offerings while keeping the core brand values consistent across cultures.

"The menu has evolved over the years as a result of constant innovation and our customers' needs," says Bakshi. "Local creations like McAloo Tikki Burger, Curry Pans, Wraps Pizza McPuff, and McVeggie are established departures from what we had in our introductory restaurant offerings.

"Today 70 percent of our menu is ‘Indianized', and the McAloo Tikki burger is our highest selling product. While the menu may be different in some ways, the McDonald's experience around the world is consistent, offering quality, great service, cleanliness, and value."

Since drive-through service is not common in India, scooters and bicycle delivery services extend the concept of a quick, hot meal on the go in a way that is essentially Indian yet consistent with the global brand. It's still McDonalds, and Indians love it. Think global. Be local.

Mc Donald’s also has operations in Turkey and take into consideration of our local tastes and food habits means that Mc Donald’s is also adapting to Turkish culture. The product it serves us is McTurko beyond its other classical products.

4 IKEA

IKEA is a Scandinavian multinational firm which produces modern style furniture and home accessories. IKEA failed to consider cultural differences when it first entered the US market. Its beds were too narrow, its kitchen cupboards were not big enough for pizza-sized dinner plates and its glasses were too small for all the ice Americans like in their drinks.

The Firm Examples Facing With Cultural Differences Sourcing From Translation

5 Pepsi

In Taiwan, the translation of the Pepsi slogan “Come alive with the Pepsi Generation“…

… Came out as “Pepsi will bring your ancestors back from the dead“.

6 Salem

The American slogan for Salem cigarettes, “Salem - Feeling Free“, got translated in the Japanese market into “When smoking Salem, you feel so refreshed that your mind seems to be free and empty“.

7 General Motor-Chevy Nova

When General Motors introduced the Chevy Nova in South America, it was apparently unaware that “no va” means “it won’t go“.

After the company figured out why it wasn’t selling any cars, it renamed the car in its Spanish markets to the Caribe.

8 Colgate

Colgate introduced a toothpaste in France called Cue, the name of a notorious porno mag.

9 Coca-Cola

The name Coca-Cola in China was first rendered as Ke-kou-ke-la…

Unfortunately, the Coke company did not discover until after thousands of signs had been printed that the phrase means “bite the wax tadpole” or “female horse stuffed with wax” depending on the dialect.

Coke then researched 40,000 Chinese characters and found a close phonetic equivalent, “ko-kou-ko-le“, which can be loosely translated as “happiness in the mouth“.

10 Kentucky Fried Chicken

In Chinese, the Kentucky Fried Chicken slogan “finger-lickin’ good” came out as “eat your fingers off.”

11 Schweppes Tonic Water

In Italy, a campaign for Schweppes Tonic Water translated the name into Schweppes Toilet Water.

12 Doing Business in Japan

An American Firm has signed an agreement with a Japan Manufacturing Firm. According to the agreement Japan Firm would produce a part the product. When customers of American firm begin to demand an auxiliary of that part, American firm wanted Japan firm to produce the part. But Japan Firm refused to produce saying that they do not produce auxiliary part to their customers. On the contrary, American Firm insisted that they had to produce this part on the basis of agreement. Then both parties come together and Japan managers saw the section which included the production of auxiliaries. Then they surprised and said “was the person signed this agreement me?” by laughing.

This is because of the attitudes Japans have toward agreements. In Japan culture agreement is just a symbol, shortly designed and unclear. The agreements demonstrate only the desire to work together. On the other hand, American agreements are more detailed and clear. For this reason Japans complained from Americans. Also Japans do not abide by an agreement. In the view of Japans, agreements should be flexible and open to change when conditions changed. In addition, demanding more detailed agreement is perceived as lack of confidence. All these differences make them to compromise difficult.

Another example that arises from the differences about preferences and tastes of Japan is like that:

An American firm decided to export apples to Japan without researching Japan customers’ preferences. And they believed that Japans would like the taste of apple and want to see on the shelves because other nations were consuming apple widely. Since they didn’t know that Japan dislike sour tastes, apple was not convenient for their consumption. Finally, all their efforts and investments went down the drain.

Comments on Managing With Cultural Differences

Although there are cultural differences between different companies belonging to the different nations, these differences are not necessarily a handicap. However, cultural differences must be handled in such a way that they do not create too many problems in the relationship between companies.

In order to function smoothly, there is a need for understanding between the firms in the different cultures. The parties must learn how to cope with the cultural differences that exist. In order to manage these cultural differences, first of all we must admit that there exist cultural differences in different nations. So, if multinational firms want to be successful in different markets, they must be flexible and respond the local preferences, tastes and perceptions which are different from their home country. With the aim of displaying these tendencies, first of all, they must make market research:

Market Research: Starting with the end in mind, MNCs have to understand their audience. Who are they? What are the relevant demographic issues? What are the specific ethnic-oriented issues to be sensitive to? Where do the unsuspected potential pitfalls lie? The goal of market research is gathering information about the nation the firm wants to invest as much as possible. For this aim firms may send a team. But this method will be costly; instead technology and internet can be used.

Another point that we must take into consideration is cultural adaptation:

Cultural Adaptation: To deliver the message effectively, it is necessary to employ culturally appropriate communication techniques. A culture’s communication dynamics can be categorized in such terms as humor, grammar, analogies, active or passive voice, and symbolism so we must know that communication should not be perceived only as translation.

Many problems that firms face while adapting to another culture arise from the communication obstacles. So these obstacles should be removed. For this aim, body languages, jargons, social nuances of different cultures should be learned. Also, the causes of these obstacles may be the channel we use while delivering our message. Because different channels have different strengths and weaknesses, we must use appropriate channels in communication. For example, it's not particularly effective to give a long list of directions verbally, while you'll quickly cause problems if you criticize someone strongly by email.

Direct Investment or Indirect Investment? : While MNCs decide to invest another country, they should select the right investment model by taking into account the degree of cultural differences. If these differences are so great, firms should make their production in the country they wish to invest by employing local managers. Because local managers know best their nation’s needs and wants, preferences and perceptions, in this way risk-related to cultural differences are eliminated to the minimum level. On the other hand, if the cultural differences are at tolerable level, firms should choose to invest indirectly by effectively using suitable marketing techniques. In marketing the crucial part is the test marketing. After making appropriate adjustments on the product on the basis of cultural differences and marketing strategies, firms should test the performance of the product by running it to the pilot region or selected groups before running it nationwide. If it fails, the firms should decline the product by bearing the cost of test marketing. By this way, firms would avoid the probable losses if they have run the product in the whole country.

The last point we want to emphasize is about the web marketing:

Web marketing adds a new layer of complexity to multicultural efforts, requiring multiple initiatives. Here’s what successful companies are doing well:

✓ They provide Web sites in multiple languages and for multiple countries, with easy access directly from the main page

✓ Each individual Web site contains images and content specific to the country and/or ethnic group at which it is targeted

✓ Individual Web sites map to the same look, feel and tone as the main corporate Web site—preserving the brand

✓ Despite wealth of content included in the Web site, each site loads quickly and is easy to navigate.

Since information technologies are rapidly growing and providing communication internationally, firms should be aware of the importance of this and benefit these opportunities.

As it will be understood from the cases we have tried to explain, cultural differences and similarities have a sensitive impact on problems that firms face. So by keeping all these strategies in managing these difficulties in mind, they should implement right strategies in order to be successful in the multicultural environment.

References

Daft, Richard L. (2004), Organization Theory and Design, Thomson Learning, Ohio

Daniels, John D., Radebaugh Lee H., Sullivan Daniel P. (2004), International Business, Pearson Education International, New Jersey

Jones, Gareth R. (2004), Organizational Theory, Design and Change, Pearson Education International, New Jersey

Martin, Joanne (2002), Organizational Culture, Sage Publications Inc., California

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