Analysis of Challenges in International Management Essay

Analysis of Challenges in International Management† Abstract The following essay analysis the challenges in International Management with particular regard to the challenge of â€Å"culture† in international business as it is the must difficult to deal with and being essential for successful results in a wide range of global management tasks nowadays and in the future. Introduction Today successful international management requires more than a lot of frequent flyer miles or seasoned expatriate managers. But what are those exclusive challenges of international management in today’s world? The importance of international management is constantly increasing, as we exist in a world where globalisation is affecting the traditional borders in a broad range of areas. †¢Trade and investment, †¢Economic alliances, †¢The international stage players, and †¢The work environment are changing rapidly, being supported by the increasing sophistication and lower cost of information technology. World trade and investments are growing fast (the volume of world trade among countries has grown at an average rate over 8% since 2005 (WTO 2008)), linking the economies and creating opportunities and threats. New, strong and forced competitors are coming from developing nations in Asia and the transitioning economies of Eastern Europe. Furthermore, the constantly rising level of foreign direct investment also has a globalising effect (Thomas 2002). Moreover, the emergence of the free-trade areas drastically decreased traditional economic boundaries. So do the three largest groups, the EU, the NAFTA, and the APEC, account for nearly half of the world’s trade (Cullen 2002) and the World Trade Organization (WTO) now has 140 member-nations, aiming to reduce tariffs and liberalize trade. But globalization also affects the work environments within organizations. Changes involve cutbacks, team-based management movements and privatization. For instance, there can be factory closings, as Nokia closing their German plant in Bochum moving to Romania, because of cheaper labour. All in all, as one key consequence of globalisation, international managers nowadays have to face a more dynamic, complex, competitive and uncertain environment and need skills (as a global mindset or the ability to work with people from diverse background) not considered necessary for domestic-only managers. The environment of international management can be divided into †¢economic, †¢legal, †¢political, and †¢cultural factors (Thomas 2002). So for making decisions it is essential to understand the economic strategies of the countries in or with one wants to conduct business with, because level of economic development and quality of life differs extremely worldwide. Furthermore, there are various national sovereign laws and regulations existing in the world which have to be observed and made allowance for. And in addition, there are several varieties of political systems (e. g. , theocratic totalitarianism in Saudi Arabia), containing different levels of political risks which have to be managed. For instance, decision makers have to able to estimate the degree of risk associated with a government’s involvements in business affairs depending on characteristics of their company. All these factors present impressive challenges multinational management has to face. However, the management challenge of culture and its effects on business practices and organizations is one of the most difficult to deal with. As conducting business with people from other cultures will never be easy you have to understand how culture affects management and organizations. â€Å"Culture† is a concept borrowed from cultural anthropology and there are numerous and subtle different definitions. As each definition has limitations focussing on international management the following description of Geert Hofstede seems very helpful. He defines the culture of any society as comprising shared values, understandings, assumptions and goals learned from earlier generations, imposed by present members of a society and passed on to succeeding generations (Hofstede 2008). Culture is something shared by members of a particular group, differentiates humans from other groups, is transmitted through the process of learning and adapts to external and internal environments and relationships. The international businessperson needs to be aware of three levels of cultures that may influence multinational operations. These include national culture, business culture, and organisational cultures (Cullen 2002). National culture can be described as the dominant culture within the political borders of a nation-state. But one has to be aware that multiple cultures can exist within political boundaries and they do not necessarily reflect cultural borders. For instance, Canada being home to Anglophones and Francophones. Furthermore, even relatively homogenous cultures can have diverse subcultures, including cultural differences which are affecting the international business. Nevertheless, as most business is conducted within the political borders of a state and nations can be defined as political unities, varying in governmental, legal, educational, institutional and labour systems, influencing the way people interact with their environment (Thomas 2002), national culture has the greatest effect on international business being probably the most logic starting point trying to understand the cultural environment. Business culture, reflecting the national culture, influences all aspects of work and organizational life (e. g. , motivating staff, negotiating with business partners, etc. and knowing it’s basic requirements (e. g. , what to wear to business meetings, business etiquette is more formal in Germany than in the U. S. with conservative dark business suits, etc. ) is essential for the international manager. Moreover, especially in the last few years, people realized that the â€Å"culture†-concept also holds for individual organizations. So may differences in organizational culture may be one reason why the merger of two otherwise successful companies failed. It is important to evaluate the influence of organizational rules, norms and procedures to understand the causes of behaviour in organizations. With shared behaviours, conditional relationship, being socialized into and partly involved in it, etc. organizational culture differs in construction and elements of national culture. Even so understanding these cultural factors is fundamental for international managers conducting international business, they have to be aware that â€Å"cultures† can just offer wide guidelines for behaviour, as for instance organizational cultures differ within any national context and individuals vary in each culture level. One cannot predict exactly how each person acts, feels, thinks, etc. Nonetheless, broad generalization about a culture provides a level of analysis from which to begin to understand the cultural environment and the complexities of cultural differences, because management functions such as planning, organizing, leading, and controlling in a global economy have to account for them. As international managers have to face various cultural challenges testing their management abilities they must be able to unpack the culture concept. Therefore the basic concepts of cultural dimensions can help them understand how two or more cultures might be different. An essential implication of these frameworks referring to international management and culture is that cultural interpretation and adaptation are a prerequisite to the comparative understanding of international management practice (Morden 1995). The following sections describe two popular models. Hofstede’s Culture Model This Framework, created by dutch scientist Geert Hofstede and based on a research over 11600 people in 50 countries (starting with 39 IBM subsiadiaries worldwide), tries to evaluate how basic values underlay organizational behaviour. National differences are investigated by five dimensions of basic cultural values: 1. Power distance 2. Uncertainty avoidance 3. Individualism 4. Masculinity and 5. Long-term orientation (Hofstede 2008). 1. This first value dimension refers to how cultures deal with inequality and tries to postion the inequality acceptance level by unequal power distribution society members. In countries with a high power distance acceptance (e. g. , such as Mexico), people respect and hardly ever bypass formal hierarchy positions (Elizabeth M. Christopher 2008). 2. The second value dimension concerns about the degree humans in a society are threatened by uncertain situations. The social system of a higher uncertainty avoidance society is dominated by regulations and rules, predictabilties and orders and people tend to be suspicious of change, whereas people from lower levels of uncertainty avoidance societies (for instance, countries such as Denmark). tend to be less formal, take higher business risks and plan and structure less 3. Individualism refers to the affinity to primarily take care of oneself and one’s direct family, and then to the rest of society (with the U. S. being a good example) (Elizabeth M. Christopher 2008). 4. The fourth dimension of â€Å"masculinity† concerns about the ranking of tradionally â€Å"masculine† values in a society, such as less concerning for others, materialism and assertiveness, whereas â€Å"feminity† on the other side emphasises the quality of life and relationships. 5. Long-term orientation cultures are insistent and saving (e. g. the culture of China) and short-term orientation is more self-centered, money-oriented and more social. All these factors are inter-reliant and interactive in their effects. So shows the Anglo-Dutch example Unilever the practicability of multinational enterprises where the power distance, uncertainty avoidance, and individualism values are similar; and where the masculine achievement orientation of the British complements the people orientation of the Dutch (Morden 1995). All in all, so there is a lot of criticism (for instance, the time-dependence of the results, the non-exhaustive investigation of only one multinational US company, etc. to these findings and the model of Hofstede, it is still a very valuable and useful â€Å"gift† for understanding culture and culture-based behavior. Trompenaars’ Culture Model The model created by Fons Trompenaars its also based on the researched of value dimensions. He studied the behavoiur of 15000 managers, representing 47 national cultures (Hampden-Turner 2008). Five of the seven dimensions of his model deal with the challenges of h ow people relate to each other: 1. Universalism versus particularism 2. Neutral versus affective 3. Specific versus diffuse . Achievement versus ascription 5. Time as sequence versus synchronisation The two final dimensions deal with how a culture manages time and how it deals with nature. They include: 6. The society-orientation to the past, present, or future and 7. â€Å"Control of† versus â€Å"accommodation with† nature 1. The value of univerlism refers to the application to systems and rules objectively, without taking consideration to personal circumstances, whereas the particularism culture (e. g. in countries as Spain) is more subjective and focusses more on relationships. 2. The second, the neutral-versus-affective, value dimension refers on the emotional orientation of relationships (such as expressing your feelings and emotions more like, for example, the Portugese). 3. In Addition the specific-versus-diffus dimension investigates if people from a special culture tend to be more or less specific or diffuse in their relationships (for example, Germans try to separate work and personal issues). 4. In the achievement-versus-ascription dimension, it is asked: †What is the source of power and status in society? † (Elizabeth M. Christopher 2008) So is for instance, in an achievement refering culture, the â€Å"status† of a person mainly based on it’s individual achievement (such as job performance, etc. ). 5. â€Å"Time as sequence† orientated cultures separate events in time (â€Å"step-by-step†), whereas â€Å"time as synchronisation†-orientated indiviuals manage events in parallel. (For example, if their business partners are not sharp on time, Germans, coming from a â€Å"time-as-sequence† orientated culture, may consider it an insultation). 6. This value dimension is about past versus future orientations. 7. Moreover, this dimension refers to the extent to which individuals feel that they themselves are the primary influence on their lives. Using this framework trying to understand some culture-basics some interesting patterns may emerge. Altough, being recognised for their validity (the results of these both major studies have some significant parallels, even so they were carried out in different times using different methods and examples), these concepts of cultural value orientation proposed by Hofstede and Tropmenaar can only give a basic framework for the analysis of cultural differences. They are utensils to help understand a culture and adjusting business practices to diverse cultural environments. They are for instance, a prerequisite to the successful new-market country entry, whether by setting up licensing or new subsidiaries, joint ventures, mergers or for the establishment of efficient programmes of international HR development (Kay 1993). But international managers have to realise that the understanding of another culture is a inexhaustible learning process. They will have to practice for their international work with or in other countries by studiying all that they can about the country, including more than just the business etiquette. Understanding the national culture builds just the foundation. As you seldom can get behind the front stage of culture without speaking the national language onother basic instrument is learning the language. But the challenge of â€Å"culture† in international management takes such much more than this. International managers have to broaden their understanding of cultural differences and to learn to seek advantage in differences. Understanding the culture is just a basis for the diverse international management tasks, as appropriate cross-cultural communication (using appropiate communication styles), effective and positive motivating and leadership in international organisations and across cultures, successful negotiation with international business partners and making ethically and socially responsible decisions. Conclusion The environment of international management can be divided into economic, legal, political, and cultural factors, with â€Å"culture† being the most challenging and most difficult to deal with, influencing a broad range of management tasks. Providing oneself with the necessary knowlegde and understanding of the national culture of the country or the people one is conducting business with is essential and builds just the foundation for the successful complementation of global management tasks, such as for instance leadership in multinational organisations (where you have to have understanding of all three levels of culture; national, business and organisational culture, being different and influencing each other).