CONCEPTUAL FRAMEWORK ON CULTURAL DIVERSITY AND GLOBALIZATION WITH REFERENCE TO MNC

Transcription

1 International Journal of Economics and Business Review Vol. 1 No. 1 (January-June 2011) pp CONCEPTUAL FRAMEWORK ON CULTURAL DIVERSITY AND GLOBALIZATION WITH REFERENCE TO MNC 1 B. Prabu Christopher *Research Scholar, VIT Business School, VIT University Vellore. 2 Bhanu Sree Reddy **Professor, VIT Business School, VIT University Vellore. Abstract: It is incontrovertible fact that in contemporary business scenario, MNCs are performing in competitive world where there is more scope for increase in performance altitude of all sphere of business because of concept Diversification. The main cause for this diversification, if we analyze, we will come to discern that this is due to the process of Globalization. This Globalization paved the way for diversification in many aspects. Here in this conceptual paper we are more concern about the cultural diversification or cultural diversity, where diverse work force came into the way of organizational life. Keeping apart the debate of effect of globalization on cultural diversity and vice versa, this paper will try to give positive factors that influence cultural diversity in the global village and how far MNC and other international, national and private organizations work towards this cultural diversity as positive forces. Also this conceptual paper will give a conceptual model where the life stages of MNC in running a business internationally and organizations having overseas assignment has been discussed with respect to cultural diversity, as cultural diversity is performing as a catalyst for work force diversity which gives space for new knowledge, expertise and experience towards organizational life. Keywords: Cultural diversity, globalization, MNC, international business. 1. INTRODUCTION It is well known fact that 21 st century is facing global competition in all sphere of lives. If we take organizations of any industrial type, companies never deny the practices which are said to be the

2 B. Prabu Christopher & Bhanu Sree Reddy benchmark internationally, especially in MNC s, decision makers are more particular about the international standards that has to be followed in all areas of business. Many authors supported the point that IT sector are more volatile in the area of globalization if we take the words of Yeo, Trauth, Morgan, Quesenberry and Huang 2006 in IT sector the diversified workforce seems to be in high proportion. IBM in its statement regarding diversified work force says that its diversified work force involved in creating values everywhere thereby creating a better world. If we take manufacturing industries, it is mandatory that manufacturer has to understand the customer needs which varies across culture. These industries are concentrating on JIT and TQM in order to establish International standard to meet the customer needs. Globalization process is not a simple task when we take this along with cultural aspect if discussed in broader aspect as few consider this globalization as hindrance for domestic policies which in turn depends on cultural factors and few others are considering this as an opportunity for innovation. Hence the fruits of globalization in the society can fully be utilized if there is proper interpretation of the term. 2. REVIEW OF LITERATURE Doing business nationally and internationally is not one and the same as many multicultural factors are involved. It is undeniable fact that people can t attempt to influence culture on base level, as people are culturally ingrained for every reaction towards what they see and perceived, for example British never had the notion of mingling the business and non business activities. If a firm decides to start a business with other country its mandatory that it should involve in getting expatriate training in order to make sure that employees of the firm when faces the other culture should not fall in cultural shock (John D. Daniels, Lee H. Radebaugh, and Daniel P. Sullivan). This shock may be there for some time, once personnel get skilled with other culture it s easy for the firm to implement their business schedules. By this diversity of the business among the cultural diversity brings new customers, new partners, new business environment (Michael R Czinkota, IIKA A. Ronkainen, Michael H. Moffet). There is also an universal concept that it is 2

3 Conceptual Framework on Cultural Diversity and Globalization... unethical to break the business agreement without proper intimation as cited by Adam smith long back. These unethical and ethical issues are also related with cultural factors. It is also evident that if a firm opens its operations in foreign countries, not only that firms has to adapt that foreign culture, but also there is possibilities of local employees to follow the foreign concepts on certain areas of business life, for an example Japanese culture is having the habit of emphasizing on group affiliation, loyalty, honesty, which is positive side of cultural influence in international business. Hence if we see the implications of cultural differences on international business, it has the three perspective; first, implication is towards the development of cross cultural literacy; second, relationship between culture and ethics in decision making; lastly, connections among national competitive advantage and culture (Charles W. L Hill, Arun K. Jain). Though cultural diversity has its disadvantages like communication barriers, Perceptual context, it has the advantage of creativity which paves the way for new ideas in business arena especially during the time of planning and development of huge projects (Hodgetts, Luthans and DOH). It is also said that globalization refers to the relationship that exists between Nations through several means. International organization is one among those means are tried and trying to reduce the borders between the nation by expanding their international relationship. It s mandatory to note that ruling government policies are also having its own significance in international relationship. From the words of Ohmae (1995) we can say that non existence of borders and barriers paves the way for world trade. Here we are concentrating trade because it is acting as important tool for cultural diversity. When firm decides to operate internationally it is suggested that SWOT analysis has to be done on that particular nation which is of new culture along with proposed business. It is not only the training necessary for the managers who taking charge of conducting international business but also the proper understanding of the culture of the nation where new business strategy is going to be implemented (Dean Elmuti; Benjamin Tück; Friederike Kemper 2008). Normally American Managers are having notion that the true management practices will not work in global arena rather they have to practice their 3

4 B. Prabu Christopher & Bhanu Sree Reddy management according to the consumer preferences and work culture (Gail Robinson and Kathleen Dechant). 3. GLOBALIZATION AND CULTURE (CULTURAL DIVERSITY): ESTABLISHING THE RELATIONSHIP It is said that the process of globalization started during the time of Roman Empire in the form of worldwide trading. Radically we can say that globalization after analyzing the previous scholarly articles; it is the process where human beings are getting interacted for various objectives in the area of scientific management, personnel management thereby integrating various economies and societies. When a firm operates internationally it has to focus on proper sharing of technology and other resources where the term globalization gets its magnitude. But at the same time it s difficult for any firm to function globally in its all aspect as the issue of diversity comes in to picture. Diversity is the vast concept to explain but to be precise; it denotes the differences in Values attitudes, religion, language, beliefs, so on and so forth. Hence when a firm decides to operate internationally, these above said facts comes in to priority of concern. There is N number of definitions for the term culture by different scholars from different schools like Anthropology, sociology. If we take those explanations we can say culture is having the character of multi dimension where numbers of elements are interdependent. That is the reason why Geert Hofstede has termed as Collective programming. Here the Elements refer to Artifacts, Feelings, Values, attitudes, Customs. These elements are interrelated and tries to form the behavior pattern particular to one society thus forms a culture of a particular society where members react differently with other society of different culture encompasses the above said elements in different format or combinations. Process of adjusting and adapting to one culture will be the prime criteria for the firm which involves in international business and this process is branded as Acculturation. In the International business the above said acculturation works out if the management forerunners have properly defined their organizational structure before going to onsite project by understanding the existing culture in total and comparing with the culture where the project is 4

5 Conceptual Framework on Cultural Diversity and Globalization... going to be implemented, which is polycentrism. Adaptation by the company in other nations covers all the areas pertaining to the industry as each and every nation have their own set of systems based on their primary culture, areas includes structure of an organization, Payroll and incentives, Promotions, performance criteria. So here the main objective of the scholars over the years are to evaluate the impact of cultural diversity on globalization, precisely whether Cultural diversity is having positive or negative impact on international business. 4. FACTORS THAT INFLUENCE CULTURAL DIVERSITY AS POSITIVE FORCE In the current scenario of the globalization, there are many governmental, both international and national and private organizations are involving in developing the concept of Cultural diversity. If we take the universal declaration of UNESCO on Cultural diversity, it is mentioned that the Term Cultural Diversity as the Key factor for Sustainable development. UNESCO as International Organization plays an important role in developing the international relationship by means of conducting various summits, conferences between the nations and taking the issues on priority basis Such as Summit on Multilingualism for Cultural Diversity, Promoting intercultural dialogue, Arab Japanese experience a cross regional Dialogue soon and so forth. Apart from this organization as mention earlier there are many other organization are working to develop the cultural diversity among the nations and also among the particular group. Recent days UNESCO is trying to conduct many programs to attract foreigners in many countries if we take in India for an example, UNESCO is planning to conduct audio and visual programs in kanyakumari and Mahabalipuram to attract travelers from abroad. Associations like PATA are encouraging countries and its organizations involving tourism by giving several awards and recognition thereby increasing the cultural awareness among foreign nationals. It has become important for Universities also to develop the cultural diversity in the form of special educational programs such as Sea board education. By this means there are many opportunities for the new 5 1

6 B. Prabu Christopher & Bhanu Sree Reddy generation to acquire foreign knowledge to implement in their home land opportunities. World tourism organization has estimated that by 2010 number of international tourists will rise to 940 million per year, which clearly emphasis the increasing phases of cultural diversity on globalization. At the same time we can t deny the fact that colonization in olden days also paved the way for this cultural diversity which has its implication on developing nations even today, where many traditional rituals have gone and brought unseen culture to the globe. Diversity audit is also a best example to quote the positive impact of cultural diversity where steps have been taken evaluate the diversity training, surveying the level of success in the area of diversity initiatives. If we take International business thanks to world trade organization where trade has been liberalized and given a big space for MNC s in international market as a result it is said that global culture started to emerge. Figure 1: Stages of MNC Adopting New Culture Source: Diagram Compiled by Authors While starting a business may it be at Micro Level or Macro level. Its necessary for the management to go thorough study on market, we used to call it as market analysis. This analysis includes many aspects. In these aspects we used to come across the concept of consumer Behavior. This Consumer Behavior at some level gets influenced by the culture where the individual dwells. This projects 6

7 Conceptual Framework on Cultural Diversity and Globalization... a point that it is necessary for a firm which is going to start the operations has to study the basic culture of the consumers of their product be it a national business or international business. Generally speaking before starting a business, firm will undergo many surveys to get the projects successful, the model gives an idea about the stages that MNC will go through when it starts its business in abroad. Stages are three Viz Penetrating stage, Stage of Adaptability and Implementing stage. MNC if decides to start a project in foreign nation, it is mandatory that it has to analyze the Culture of that particular nation commonly known as cross culture analysis along with other analysis, as the nations may have different values, norm beliefs that forms an particular attitude of the customers, that will also be a component of the consumer behavior. Analyzing governmental norms is straightforward compare to that of consumer choice as most of them are inherent and few are emotionally tied up and concealed. Starting a new business in other country needs the following, local acceptance which is determined by the behavioral aspects of the residents of that particular nation, communication pattern, rules and regulation. Because of that reason many international forums have been established where mutual consensus have arrived to make a trade in other nation which paved the way for diversified culture in global arena taking many aspects such as economic barrier along with cultural barriers. It is possible that for an MNC to face cultural shock and cultural bias through its employees while starting business which in turn affect the speed of the growth. That is the reason why Expatriate training came to the picture where employees who are assigned overseas assignment will get proper training. Expatriate are commonly known as Home country Nationals. Many Research has indicated that many managers were under tough time in their overseas assignment which means that they have undergone the cultural shock because of the new environment, but at the same time it shows the positive side of cultural diversity where managers are trying to accommodate themselves in the new culture where entire or most of the ongoing policies and procedures are different. There is an another fact that virtual team has its less advantage when it is compare with that of real time team work when it comes to 7

8 B. Prabu Christopher & Bhanu Sree Reddy overseas business which clearly indicates that direct exposure to the new environment will fetch more advantage than working virtually. For this kind of real time expatriates, organization had some policies before putting them in the overseas assignment in the form of brief study of the previous profile of the person who is going to be an expat, like analyzing his sensitivity toward other politics, religion, ethics, flexibility in taking operational activities so and so forth irrespective of assistance and information gap (See International management by Hodgetts and co.). By concentrating expatriate its necessary for the firm to look for inpatriate, the Host country nationals as those person since he or she is local person of that nation he may know all the rules and regulations and also various cultural dimension of that particular nation where he hails from. The another tangible Cultural shock may be also through terrorism, but for that, companies have different strategies to protect their employees in the form security, insurance of different ranges according to the employees experience and qualifications. These Expatriates and inpatriates concepts are widely used by the MNC and paved the way for diversified culture. Communication if we take, language plays an important role in the area of gathering information, to reach the people with product and services. That is the reason why there are many forums on multilingualism is being conducted in international level to make the necessary steps to develop the national s language in the global level. The common areas where MNC s faces the problems when they are taking overseas assignments are Decision making style, Power distribution, Communication, Priorities in work related issues. If we take Hofstede study where he has analyzed different work related values among nations and they are Power distance, Uncertainty avoidance, individualism and masculinity where he covered the major difference among the nations like how inequalities among physical and intellectual capabilities is being practiced among the nations, nature of accepting the uncertainty or ambiguous situation, how the nations are practicing the features of masculinity and femininity. This kind of cultural study is the tool for the MNCs to run its overseas business and to identify the new business opportunities. This MNC s once involved and expanding the area 8

9 Conceptual Framework on Cultural Diversity and Globalization... of business in other nation, it will pave the way for transfer of knowledge. Because this diversified work force will have different backgrounds and skills that will help the process of globalization easier. Many cross cultural marketing activities are being taken care by the researchers in the area of marketing mix, dimension of marketing research by itself in the international business. 5. CONCLUSION From the above discussion we can able to acknowledge the fact that cultural diversity has more advantages, among few disadvantages. The above said model clearly tells that MNC has to face three phases namely Penetrating stage where it starts the business and faces certain problems like cultural shocks faced by the Individuals of the organization and in the stage of adaptability what are all the possible steps that organization can take such as cultural study, market analysis, Expatriate training in order to overcome the above said cultural shock. As and when it has prepared to face and accommodate the cultural shock in the last phase of implementation it will be possible for an MNC to implement the action plan for running business and exploring new opportunities. It is clearly evidenced that culture can influence the process of globalization positively where new trends can be introduced in all spheres of livelihood apart for business arena for which national and international organization are ready to render the helping hands. The phenomenon of cross culture thus become more important in order to find the ways and means for making globalization easier than ever before, thus it made the researchers to concentrate on the area of development of cultural empathy. REFERENCES Dean Elmuti; Benjamin Tück;, Friederike Kemper 2008, Analyzing Cross Cultural Adaptability Among Business Students: An Empirical Investigation. Ohmae,K.(1995), The End of the Nation State, Cambridge MA: Free Press. Gail Robinson Kathleen Dechant Building a Business Case for Diversity. Michael R. Czinkota., IIKKA. Ronkainen. Michael H. Mofett(2003), International Business (Sixth Edition). 9

10 B. Prabu Christopher & Bhanu Sree Reddy John D. Daniels, Lee H. Radebaugh, Daniel P. Sullivan (Tenth edition First Print 2008)., International Business, Environment and Operations. Charles W.L.Hill. Arun K.Jain (Fifith edition -First Edition 2006), International Business, Competing in the Global Market Place Fifth Edition. David C Thomas.( Edition 2) Cross Cultural Management. Hodgetts, Fred Luthans, Jonathan (Fifth Reprint 2006).P. DOH International Management, Culture Strategy and Behavior. 10