Understanding Cross-Cultural Management. The Role of Business Interactions

Introduction

Globalisation refers to the transmission of knowledge, ideas, values, products and services all around the world, shaping a new era of interactions among various political, religious, cultural and economic groups. As a result, it is increasing business interactions between individuals across various geographical and cultural boundaries. Research indicates that companies need to consider cost, availability of skills, environment and quality of infrastructure (Farrell, 2006).

Cross-Border Management

Cross cultural management studies the behaviour of people in organisations all around the world in order to improve communication and interaction (Browaeys & Price, 2011).

Culture is defined as the "characteristics and knowledge of a particular group of people, defined by everything from language, religion, social habits, music and arts" (Zimmermann, 2015). Culture has been compared to an iceberg. Just as an iceberg has a visible section above the waterline and a larger, invisible section below the water line, so culture has some aspects that are observable and others that can only be suspected or imagined. Also like an iceberg, the part of culture that is visible is only a small part of a much bigger whole (Storti and Bennhold- Samaan, 1997).

"Management in its broadest sense consists of the co-ordination of the efforts of people and the use of economic and technical resources in order to obtain desired ends" (Hofstede, 1984). According to Holden (2002), it must be related to managerial activity in the new geo-economy with its emphasis on global networking, organisational learning and knowledge management. It is very crucial for cross-border management to collect relevant information and gain knowledge about specific situations that companies need, but misjudge, miss, or generally lack access to.

Offshoring refers to the delegation of services in another country and it could be done by either creating an internal entity or through outsourcing to a foreign contractor. Lohr (2004) defined offshoring and offshore outsourcing as "the migration of jobs and operators to lower-cost countries".

The external service provider actually takes care of hiring and training all the employees, maintains the software and infrastructure and runs the day to day operations. Selecting the outsourcing solution, generally, involves a trade-off between either the benefit of a low cost external solution and the loss of managerial control over the process. Loss of control may be a problem when employees lack company knowledge and they are not familiar the company's products, services, practices and its customers' culture.

In order to secure high level services, a contract should be signed, spesifying the fees, the duration and the obligations of each party etc. According to Jensen and Meckling (1995), contracting is a means to guarantee the fulfilment of the obliations of each party and the effectiveness of contracts may depend on the ability of partners to measure the quality and quantity of services.

One of the main advantages of offshoring is achieving lower costs associated with operation expenses, infrastructure, overheads and labour" (Collier & Evans, 2009). In addition to the above, it allows companies to have tax savings (Vogel & Connolly, 2005).

The most crucial obstacle when offshoring is the communication. Cross-Cultural communication occurs when a person from one culture sends a message to a person from another culture. "Miscommunications occur when the person from one culture does not receive the message" (Adler, 1991). Lack in communication skills may lead to miscommunication and cause frustration to the clients (Flatworld, 2015). Accent neutralisation is not enough and it is not easy to teach cultural awareness. Some have criticised that, "all too often, attempts at mimicking a foreign culture fall flat. An appreciation of the style and culture of a foreign land cannot be learned through a process of television osmosis" (Kobayashi-Hillary, 2004). Most third-party employees are constantly struggling to adapt and improve their accent. They are also encouraged to study the culture and lifestyle of the visiting company in an attempt to understand their customers and learn about significant events in that geographical location. Only after successfully completing this initial training would product training begin (Das et al, 2008).

Edward Hall's theory of high-low context culture helps us understand better the powerful effect culture has on communication. The key factor in his theory is context and "cultures are compared on a scale from high to low context" (Hall & Hall, 1990). "This relates to the framework, background, and surrounding circumstances in which communication or an event takes place" (Hall, 1977).

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In high context cultures internal meaning is usually embedded deep in the information, so not everything is explicitly stated in writing or when spoken. The listener is expected to be able to read 'between the lines', to understand the unsaid, thanks to his or her background knowledge (Hall, 1977). In low context cultures meanings are explicitly stated through language. People usually expect explanations when something remains unclear. As Hall (1977) explains, "most information is expected to be in the transmitted message in order to make up for what is missing in the context". People assign meaning to a message according to their cultural context.

High level context cultures rely less on verbal communication, while low level cultures the exact opposite and this could create misunderstandings. The explicitness with which they communicate can often cause offence and resentment (Flatworld, 2015).

Most of the times, the visiting country provides a round the clock service as operations are performed in different time zones and this increases the efficiency of the company (Vogel & Connolly, 2005). On the other hand, shift hours interfere with family relationships as employees do not spend significant time with their families and friends and they become isolated (Mohan, 2011).

Religion is an important organising principle, around which people define their identity (Das et al, 2008). Some religion practices include daily rituals and recitations which may affect operations if management does not take religion diversity into consideration.

Stereotypes are generalisations that may or may not be factual and often overlook real, deeper differences. They basically involve categorising and making perceptions about people based on experiences and guide their behaviour towards that group of people in a particular way. Most stereotypes usually tend to convey a negative impression. "When members of stereotyped groups are aware of negative stereotypes about them, they may fear that others will apply these negative qualities to them. These thoughts may be anxiety-provoking and lead to lower performance" (Schneider, 2005).

Corporate social responsibility (CSR) refers to a business practice that involves participating in initiatives that benefit the society. The main important drivers of CSR are: environment and pollution, ecological sustainability, waste, natural resource depletion, climate change and the increasing of the CSR discussion and heighten expectations for proactive corporate action (Werther and Chandler, 2013). This way, the company will differentiate in the market, cut costs and earn public trust. Companies should focus on CSR strategy and become a driver of its development by treating employees fairly and ethically. They must develop CSR standards and objectives for the employees, maintain a training program on a frequent basis about CSR principles and keep a daily communication and close relations with the visiting country management (Werther and Chandler, 2013).

Companies might face various ethical dilemmas during their offshore operations. Ethics describes a generally accepted set of moral principles. It is a code of behaviour that a society considers moral and appropriate for guiding relationship with one another. "Ethics involves judgment as to good and bad, right and wrong and what ought to be" (Hartman, 2002). This could be a possible hazard while contracting an offshore cooperation.

One of the biggest ethical dilemma that may occur, concerns the working environment. Employees are often "subject to extreme exploitation, including the absence of a living wage or benefits, poor working conditions, and arbitrary discipline, such as verbal and physical abuse" (Ramishvili, 2012). Defenders of sweatshops often bring up the fact that even though sweatshops are bad, they at least give people jobs they would not have had otherwise.

However, the types of salaries sweatshop workers receive are so bad that they rarely improve their economic situation. In order to avoid any "uncomfortable" situations, companies should include specific guidelines, and environmental standards in the contract, but there is always the possibility to come across legal matters, ethical dilemmas, corruption and bribery that will have to be solved in a decisive way.

Companies should establish and maintain relations with the offshore management and formulate a team structure and roles. According to Belbin (1981), team roles are used to identify people's behavioural strengths and weaknesses in the workplace. This information can be used to build productive working relationships, select and develop high-performing teams, raise self-awareness and personal effectiveness and build mutual trust and understanding.

However, some of the risks that companies may face include damaging their reputation, customer dissatisfaction and reduced brand loyalty (Sharma et al., 2009). Cultural differences have an impact and the larger the difference the greater the impact on customer satisfaction (Hutzschenreuter et al., 2011).

Cultural Dimensions

Culture is linked to particular groups based on various factors, including geography, ethnicity, age, gender, language, occupation etc. The term "culture" lacks a consensual agreement among social scientists (Alas et al., 2008). One common definition comes from Geert Hofstede (1984) who defines culture as "the collective programming of the mind which distinguishes the members of one category of people from those of another".

According to Hofstede (1983a), cultural dimensions describe the effects of a society's culture on the values of its members and how these values relate to behaviour, using a structure derived from factor analysis. Hofstede developed his original model as a result of using factor analysis to examine the results of a world-wide survey in the 1970s.

The original theory proposed four dimensions:

1. Low vs. High power distance
2. Individualism vs. collectivism
3. Masculinity vs. Femininity
4. Low vs. High uncertainty avoidance

A fifth dimension was added in the 2000s based on research by Michael Minkov, using data from the World Values Survey, while a sixth dimension followed based on Hofstede and Minkov's analysis. Both dimensions are supported by Hofstede, as he analysed a large database of employee value scores in more than 70 countries and ranked each country according to its culture (Hofstede, 2011).

The fifth and sixth dimensions are:

5. Short-Term vs. Long-Term orientation
6. Indulgence vs. Restraint

Low vs. High power distance

Power distance dimension deals with the fact that all individuals are not equal and describes the desire for hierarchy. "It is the extent to which the members of a society accept that power in institutions and organisations is distributed unequally" (Hofstede, 1984b). People in large power distance societies accept a hierarchical order in which everybody has a place which needs no further justification while people in small power distance societies strive for power equalisation and demand justification for power inequalities among people when they occur.

High power culture have big gaps between the week and the powerful, have an appreciation for hierarchy in the organisation, they depend on the management or the power holder and they do not question the decisions of their leaders. "They are given less opportunity for discretion and problem solving while under high levels of surveillance" (Das et al, 2008).

Managers earn more money and respect and they count on the obedience of their team members. Employees expect to be directed clearly as to their functions and what is expected of them. Communication is top down but often feedback which is negative is never offered up the ladder. According to Youngdahl et al. (2010), "employees who exhibit high power distance usually are reluctant to seek expertise or opinions from superiors".

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Individualism vs. Collectivism

Individualism's fundamental issue is the degree of independence a society maintains among its members. "It stands for a preference for a loosely knit social framework in society wherein individuals are supposed to take care of themselves and their immediate family only. Its opposite, collectivism, stands for a preference for a tightly knit social framework in which individuals can expect their relatives or other in-group to look after them in exchange for unquestioning loyalty. I relates to people's self-concept: 'I' or 'We' "(Hofstede, 1984b).

In individualistic societies, each person emphasises on his or her own self-interest, decisions are based primarily on individual needs and tasks prevail over relationships, whether in collectivist societies, people belong to groups that take care of them in exchange for loyalty, decisions are primarily made according to what is the best for the group and relationships prevail over task.

The collectivist side indicates that the employees have a high preference for belonging to a larger social framework in which individuals are expected to act in accordance to the greater good of a greater group. This means that their actions are according to the influence of various concerns, such as their family, their friends and their work group. There is loyalty between employees and management and hiring and promotion decisions are made based on relationships (Das et al, 2008).

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