The international orientation of companies

Index of contents

1. Introduction
1.1 Stylised facts
1.2 Reasons for the International Orientation of Companies

2. The relevance of the “culture” factor within strategic alliances
2.1 Definition of culture
2.1.1 The relationship between culture and behaviour
2.1.2 A country’s culture versus corporate culture
2.2 Culture differences
2.2.1 The problems of cultural differences
2.2.2 Consequences of cultural differences
2.3 Culture shock

3. Intercultural management for problem-solving
3.1 The role of cultural mediators
3.2 A developmental expatriate model

4. DaimlerChrysler’s experiences of international strategic alliances

5. Conclusion

6. Bibliography

1. Introduction

1.1 Stylised facts

In times of progressing globalisation companies are continuing to orientate themselves more and more internationally. Mergers and acquisitions are for instance a possibility to expand their competencies through the co-operation with appropriate partners respectively to take-over another company, in this way ones position in the global competition will be further improved. That is why the number of mergers and acquisitions were permanently rising within the last few years. After a slow-down in 2001, the investment in other firms has started again from 2004 so that by 2006 the number of deals rose to almost 39.000.

This evolution of world-wide merger and acquisition deals within the last years is represented in the following figure:

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Source: Mergers & Acquisitions NOTE, Economic Evaluation Service, European Commission April 2007

Referring to the M&A NOTE of the European Commission, the average value of cross-border deals especially has been consistently higher compared to domestic deals. This can be explained by the fact that about 80% of these activities are concentrated in the EU, the USA and Asia (2007, p.2 et sqq.). That means that in times of incremental internationalisation, trade is in particular taking place between these economic, well-developed areas - as a result multicultural strategic alliances are assumed in order to strengthen their position in global competition. According to a report by the German news agency dpa-AFX, a new record in world-wide transactions was reached in 2007. Compared to the previous year a plus of 1/5th has been realised (Finanznachrichten.de, 20th December 2007).

1.2 Reasons for the International Orientation of Companies

Looking at the reasons for these trends you can see that globalisation allows companies to enlarge their businesses. Söllner describes this term as the process of expanding the possibilities of the international division of labour due to the reduction of communication and transport costs as well as the reduction of trade barriers. Hence companies are able to realise economies of scale and scope by concentrating on products they are able to produce with minor costs. By contrast more expensive goods are imported from other companies, adding another factor endowment which makes it possible to save costs. That is why value added activities can be designed in a way that production processes are co-ordinated in a new, cross-national manner (2007, p.10 et sqq.).

Using the definition of Stüdtlein, international strategic alliances are described as the co-operation of at least two companies from different countries which are combined through a cross-plant connection in order to realise common, compatible or complementary aims.

Thus, through linking together the value added activities of these partners, the potential for success is given and strategic competitive advantages can also be attained (1997, p.54).

Another aspect for putting the focus internationally is that more and more companies want to take part in the quantitative growth of the worldmarket. As a result business ventures e.g. aim to enter new market areas in a faster and more efficient way through using the partners’ knowledge in order to increase their growth of sales. Local markets are much more developed that a re-orientation becomes inescapable.

Hence globalisation is permanently increasing the need for adjustment so that new quantitative strategies are introduced (Küsters, 1998).

Depending on the relevant aims a company is pursuing, different corporate strategies and different types of companies can be distinguished. According to the EPRG -concept (in dependence on Perlmutter) the following ones exist (Küpers, 2000):

- International business company: foreign activities are essential for the attainment and the protection of the business objective (e thnocentric = original country oriented)
- Multinational business company: affiliates are provided with a freedom to manoeuvre in order to adapt to the relevant market characteristics (p olycentric = host country oriented)
- Global business company: integration of each business activity within a connected total system and geographic determination (g eocentric = world oriented)
- Transnational business company: interdependency and flexible intern process of integration in the sense of network co-operation

Based on those strategies certain ways of international strategic alliances proved to be the most appropriate ones. Looking at for instance a multinational business company, you can see that a joint venture is a suitable opportunity for entering into a new local market through sharing the costs and using the local partner’s contacts and knowledge (Söllner, 2007).

Despite these challenges and opportunities international partnerships also hold a lot of risks. As history has already shown quiet often there is a high quota of failures due to conflicting interests and priorities (Stüdlein, 1997).The most recent example is the failed alliance between Daimler and Chrysler. As mentioned by Forstmann certain studies have elaborated that the success of acquisitions is only about 50% (1994, p.3).

That is why special requirements have to be met to guarantee a more successful performance. Instead of reacting on global processes with the help of quantitative strategies through outer growth (e.g. enlargement of the acquisition –, production – and business market), it is better to rely on qualitative strategies for aiming at the internal growth of the organisation. Through developing and enhancing the decision-making as well as the capabilities for solving problems, an organisation is able to contain and improve its competitive position within a global environment.

Hence, only a balance between inner and outer growth makes it possible to meet the conditions for ensuring their ability to survive. Next to an universal management a culturally appropriate management strategy, – structure and – behaviour has to be in the focus of a globalised organisation (Küsters, 1998).

That is why culture is very important within the process of globalisation. The intention of the next chapter is thus to work out what culture means and what differences and conflicts exist.

2. The relevance of the “culture” factor within strategic alliances

2.1 Definition of culture

According to Küsters culture is the fundamentally accepted orientation of a group of people (societies, organisations, families etc.) which is internalised trough and manifested in norms, values, symbols, myths and rituals. Always referring to a social, supra-individual, collective shared phenomena, it contains competencies for dealing with problems so that the capacity of survival of a group is assured. Moreover groups are using culture as a mechanism of adjusting to the environment (1998, p.340).

2.1.1 The relationship between culture and behaviour

Culture generally determines the prevailing norms and values. Those common norms in turn have certain characteristics:

- They are developed and proved through a historic process.
- They are created and changed by humans.
- Due to the human capacity for symbolisation norms can be learned.
- To a larger extent they are accepted and followed.

Resulting from these aspects it is visible that a change in culture and values would take a lot of time. That is why even the attitudes and behaviour which are influenced by culture and norms can only be changed over a long period (Forstmann, 1994).

Hence strategic alliances between companies with different cultural backgrounds need a lot of effort and preparation time for adjusting to each other, in order to allow successful co-operation.

Recapitulating, it can be seen that a strong relationship between culture and behaviour is in existence. Changing the culture would affect the norms and values of humans which are used for expressing an individual’s culture. Those again would have an impact on its attitudes – they influence a person’s attitudes and suitable performance according to the situation, so that finally through culture persons behaviour, which is influenced by one’s mental attitude, would change. This behaviour e.g. is expressed through visible artefacts. With the help of these objects the membership to a special group is shown. As a result culture is manifested in visible artefacts. In turn values and norms are invisible and partly influenced by basic presumptions which are affected by one’s culture (Stüdlein, 1997).

2.1.2 A country’s culture versus corporate culture

Within globalised markets companies have to face different types of cultures. On the one hand there is the country’s culture which determines the life within a country on a macroscopic level. All the elements, for instance an economic or political system, which influence a foreign company, are exogenously established. In this context especially Hofstede’s research on country cultural differences is of high importance. On the other hand each business company has its own corporate culture which is primarily important during a company’s development and which is enhancing permanently in a process. Next to the function of motivation, the corporate culture is important for internal integration and identification as well as the co-ordination within the company (Forstmann, 1994).

Nevertheless there is also a relationship between both types of existing cultures. Due to the fact that the country’s culture is surrounding the corporate culture, certain norms and values as well as cultural artefacts are influenced by the culture of the country. That is why corporate culture can also be understood as a subculture. Moreover employees of a company also affect the corporate culture through their country’s cultural influence of norms and values. Even though those employees are also internalising corporate cultural values, a life-long learned country culture is more dominant, so that national cultural value based assumptions are hardly changeable. Despite adapting to the corporate culture of a multinational enterprise, people will always fall back on their proper cultural values and behaviour patterns especially in times of crisis, stress or uncertainty. Thus, a country’s culture will always be stronger than corporate culture (Stüdlein, 1997).

That is why especially the confrontation of two different corporate cultures influenced by different country cultural backgrounds can cause problems.

An intra-organisational problem between e.g. a foreign subsidiary and the parent company could be the cross-border decision making. Thus, the parent company’s decentralised process of making decisions might provoke conflicts between both units. Moreover the clash of moral concepts between expatriates and employees of the host country could cause ethical conflicts.

By contrast inter-organisational conflicts are ethic conflicts between a foreign company and institutions in the host country, e.g. local authorities. Differences between those entities can result amongst others in restricted corporate latitude. Briberies such as side-payments, being regarded as something normal in a host country, can be completely uncommon for the foreign company so that problems in the business process might occur (Kreikebaum et al., 2001).

As a result the success of an international strategic alliance depends on the capability to overcome cultural differences.

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