Hofstede's cultural dimensions and international airline industry dynamics

¶ … political scenario illustrated that governments all over the globe are making their immigration rules more stringent because of the rise in terrorism; the implication of this phenomenon is a decrease in international traveling, which endangers continuance of a number of airlines, including Nigeria's Arik Air (Eze, 2010). Hofstede's power distance dimension denotes the degree to which unequal distribution of power is anticipated and accepted by the lower ranking members (in terms of authority), of organizations and institutions in the nation under consideration. USA's score on this dimension is relatively low (40). Power distance deals with members of a society not being on an equal footing with one another; the dimension conveys a particular culture's outlook towards power imbalances among countries, as well. Furthermore, the inequality that prevails in a given society is equally approved of by its leaders and followers. Nigeria demonstrates a high power distance score (80), signifying its citizens' acceptance of a hierarchical system wherein each individual has a grade; there is no additional justification required. Organizational hierarchy exhibits intrinsic inequalities; organizational structure tends to be centralized, with the subordinates anticipating instructions of what their role is, and the model boss being a well-meaning autocrat. Nigeria and the U.S. differ by a score of 40 on the dimension, implying that hierarchical structures are more dominant in the former nation, with every individual having a specific, unquestionable place, and requiring no further explanation (Countries - GeertHofstede, n.d).

With the above implications in mind, a U.S. commercial airline needs to present before its customers a choice of numerous alternatives, allowing them significant bargaining power, which can also be seen in the fact that manufacturers of aircrafts strive for increased airline participation in aircraft design customization. But, owing to steep switching costs within the airline sector, suppliers' bargaining power is mediocre (Kotler et al., 2009).

Nigeria's score on Hofstede's individualism dimension is low (30), indicating the nation to be collectivistic. This is evident in Nigerians' strong, lasting commitment to any group that they belong (family, organization, etc.). Collectivist societies value loyalty as a paramount virtue; it takes precedence over almost all other social principles and laws. Powerful bonds are fostered, and all individuals assume responsibility for others in their group. Here, offence results in humiliation and shame, and the relationship between employer and worker is viewed in terms of morals. People treat organizations like their family, promotion or hiring decisions take into consideration workers' in-group, and management refers to group management (Countries - Geert Hofstede, n.d).

The U.S. depicts a high individualism score (91). In individualistic countries, citizens are expected to care merely for themselves and immediate family, whereas, in countries that are labeled 'collectivist', individuals form part of groups, which see to their well-being and are responsible for them, in return for absolute loyalty. Hierarchy, in organizations in the U.S., is instituted for the purpose of convenience and structure --subordinates can access their superiors more easily, and managers can make the most of teams' and individual staff members' expertise. Subordinates as well as managers are conferred with and, there is regular information sharing. Simultaneously, intra-organizational communication is, to some extent, direct, informal, and participative. Social bonds in the U.S. are loose; everyone is expected to look only after themselves and members of their immediate family, without over-reliance on governmental or social support. Moreover, America demonstrates a great degree of geographic mobility. Though Americans are considered the world's best joiners, the men, in particular, face challenges with cultivating meaningful friendships. They are habituated to communicating and having business dealings with individuals not very familiar to them. As a result, they do not show reluctance towards seeking or procuring desired information from prospective counterparts. On the business scene, American company employees must display initiative and self-sufficiency. Lastly, in the exchange-based context, it has been noted that promotion, hiring and decisions hinge on proof of competency or merit (Countries - Geert Hofstede, n.d).

Nigeria's score on the dimension of uncertainty avoidance is 55. This intermediate ranking proves no clear preference. Uncertainty avoidance depicts the degree to which any given society feels endangered by unfamiliar or vague situations and creates institutions and beliefs in an attempt to avoid, stave off or counter such situations. America's score on this factor lies below average (46). Uncertainty avoidance pertains to how a particular society copes with the issue of unpredictability of the future. Nigeria's higher score, compared to that of the U.S., suggests that Nigerians feel more vulnerable when faced with vague and unfamiliar situations than Americans do. Further, American society is rather receptive to inspiration or views from anybody; everybody is free to articulate and express his or her thoughts and feelings. This poses a challenge, as the American employer will anticipate or even expect that local (Nigerian) staff can easily handle uncertainties of the future, and will therefore, not feel vulnerable in the face of unfamiliar/vague situations. As such, American society does not demand a great many rules; Americans are more emotionally-guarded than members of higher-scoring societies (Countries - Geert Hofstede, n.d).

Part 2

The American firm must adopt a geocentric human resource (HR) strategy for managing Arik Airlines. Geocentric hiring implies recruiting the most competent of candidates, irrespective of their nationality (background). This is a global approach- one that fosters universal integration; it believes that individual facets of a company all contribute uniquely to its overall functioning. A geocentric staffing policy gives priority to skill and suitability of individuals for a particular post over nationality. What passport one holds is unimportant in a geocentric company, in matters of promotion, rewards, and growth in the organization. The advantage of a geocentric strategy is the organization's ability to establish a culturally diverse executive board comprising members hailing from different countries. Geocentric policy surmounts the federation shortcoming that characterizes a polycentric staffing policy; also, it facilitates resource sharing and collaboration across units. Bearing in mind the large amount of Arik Airlines employees required in America, it would also prove more convenient to conduct business in their own domain when there is a difference of culture (Williams, 2010; Rao, 2010).

Part 3

The responsibility of organizations that send employees overseas expands to cover more than just elementary HRM functions. For instance, hiring, development and training are given particular emphasis in such companies. They cannot simply choose employees most suitable for placement in a foreign division, without regard for the families they will be taking along to the unfamiliar overseas cultural environment. Numerous employees who are assigned overseas come back unsuccessful simply because of familial adjustment issues. Therefore, it is imperative to arrange foreign language training for the selected individual and members of the employee's family a prior to departure. All prerequisites, such as visas to undertake the journey, must be made available on time. Moreover, the employer must ensure preparation of a residence for the family in the other country, school enrolment for the employee's children, and family health services. The geocentric organization makes use of a global integrated approach and hires and manages its workforce on an international basis (Treven, 2001)

America's HRM system, when compared to that in Nigeria, is rather strict- well-structured and formalized; organizations need to abide by federal HRM rules in the process of hiring candidates, while decision-making in the organization needs to be in line with organizational requirements, and economic and political factors. Therefore, there is a call for hiring specific, competent HR from the local candidate pool. American labor law provides better remuneration and accommodation benefits to staffs. However, Nigeria's population is already relatively high. The management of Arik Air believes that the local workforce is not competent enough; furthermore, owing to its high population density, people work for lesser pay, giving rise to issues of social inequity in the nation. The Nigerian government had chosen to ignore the problems faced by domestic workers until recently. An effort is underway to equalize local work conditions. The U.S. firm must take into account the prevailing problems and HRM structure of the organization while employing workers from the local candidate pool. While developing its HRM strategy in Nigeria, environmental factors (i.e., political, social, economic, and legal) need to be borne in mind. At present, for a majority of Nigerian companies, performance appraisal takes place via dialogue with employees; it plays the role of a mentor in general molding of employees to gain optimal performance from them (Treven, 2001)

While a geocentric policy is the preferred approach to staffing in this case, it may pose some difficulties as well. A geocentric strategy makes it challenging to counterbalance international priorities and domestic demands. It puts off tough local decisions till they cannot be avoided -- at a stage when they become costlier, more complex and pose more troubles than they would have, had they been addressed earlier. Geocentric approach may likely render it harder to hire qualified workers, and can reduce head office control over the overseas subsidiary (Treven, 2001; Rao, 2010)

SLP

Power Distance

Hofstede proposed "Power Distance' as a measure of social inequality that expresses a society's outlook towards inequalities inherent in it. It refers to the degree to which unequal power distribution is expected and accepted by the lower ranking members (in terms of authority), of organizations and institutions in a country. It deals with the degree of endorsement of societal inequality by both leaders and followers. Canada's power distance score is low (39). Canadian society is characterized by societal interdependence. As is common with other low-scoring nations (in regard to the dimension of power distance), Canadian firms institute hierarchy for mere convenience; superiors are easily accessible to subordinates and managers depend on the expertise of team members and individual workers. Staff members and managers confer with each other on organizational matters and there is free flow of information at all levels of the company. As regards communication, the Canadian society sets store by a straightforward information interchange. America's power distance score (40) is very closely ranked to that of Canada (39).This implies that employees of either country will find it easy to fit into the work environment of the other (The Hofstede center, n.d).

Individualism

This dimension deals with whether individuals in a given society perceive themselves singly or collectively. Individualist cultures expect members of society to be responsible only to themselves and immediate family members. On the other hand, individuals in collectivist cultures form part of groups, which look after them, in return for absolute loyalty. In this dimension, Canada and the U.S. display high scores of 80 and 91, respectively; the cultures in these neighboring countries are categorized as 'individualist'. In both nations, communities are loosely-united. In the context of business, in both nations, companies require their employees to exhibit the qualities of self-reliance and enterprise. Additionally, in the exchange-based context, it has been observed that promotion, hiring and decisions hinge on proof of competency or merit. Americans are comfortable communicating and having business dealings with persons not very familiar to them. As a result, they do not display reluctance towards seeking or acquiring requisite information from prospective counterparts (The Hofstede center, n.d).

Masculinity

A masculine culture denotes one that is guided by success, competition, and achievement; here, "best-in-the-field" or the best performers define the measure of success in this culture. The basic focus concerning this dimension is individuals' motivation: the urge to surpass all others (Masculine) or being content with what one does (Feminine). In terms of masculinity, Canada may be labeled as dominantly "masculine," with a score of 52, while the U.S. depicts high masculinity, with a score of 62. Masculinity in American culture is manifested in its typical behavioral patterns, which stem from a blend of extreme individualism and high masculinity. Canadians, meanwhile, try hard to achieve high performance standards in work as well as play (sports). Canada's general cultural tone, in relation to achievement, winning, and success, can be deemed more comparatively subdued than that of the U.S. Likewise, Canadians are inclined to balance their personal and professional lives well, and will likely devote time towards recreation, family events, and life's simple pleasures. Canadians typically put their best foot forward for achieving high performance standards in every task they undertake. The Americans also exhibit this trait (The hofstede center, n.d).

Question 2

In the present times, any small-scale or large-scale organization, be it supplier, buyer, manufacturer, distributor or service provider, will likely be affected by international variables, like inflation, foreign currency, and interest rates. They can individually or collectively influence cash flow and profit levels desired by internationally-operating firms. For a multinational company (MNC), a well-developed, all-inclusive, and functional budgeting system forms a vital management tool. These companies need to predict effect of internal variables as well as international (external) variables. Overall, a business's budgeting system must be efficient with regard to monitoring progress in comparison to the pre-determined plan as well as in adjusting and accommodating unforeseen circumstances and events transpiring with growth and progress of business operations (Rivera & Milani, 2011).

This is regarded as economic risk (Shackman, 2015); it necessitates policy decisions critical to the process of budgeting. The activities entailed in strategic planning must take into account policy decisions, which include:

1. Marketing-connected policies; these define how the strategic sales budget differs as per exchange rate fluctuations.

1. Production-connected policy; these indicate that company budget should have the ability to deal with critical changes in production.

A flexible budgeting approach will enable implementation and control of production and marketing variations. MNCs can establish operations in nations that often minimize negative repercussions of fluctuations in exchange rate (i.e., China, in this particular instance). Also, the organization can obtain capital for the foreign country venture in the respective foreign currency rather than utilizing home currency (i.e., South African and Indonesian currencies, in this instance). Both the above policies will aim at aiding the MNC in equalizing cash inflows (capital proceeds and revenue) and outflows (financing and production expenses) in the very same currency for minimizing inter-country cash flows and, thereby eventually, lowering economic exposure. These policies, after institution, will come under the process of budgeting; they will be utilized for assessing foreign operations' actual performance when subject to variations in exchange rate (Rivera & Milani, 2011; Avadhani, 2010).

Question 3

If the products of any nation are relatively inexpensive, foreigners will prefer to purchase them. In order to enable them to do so, they require that nation's currency. The nations where prices are lower are characterized by strong currencies and the currency value of these nations will increase. With growth in economic size, a growth in money supply is required for ensuring price stability; if this does not happen, a drop in prices will ensue, as services' and goods' quantity will rise at a faster rate than the money circulating in the economy, thereby causing deflation. When the opposite phenomenon transpires, that is, quicker increase in money supply than economy, the outcome will be inflation. Therefore, as services and goods possess a fundamental value and as supplier profitability limits quantity produced, their nominal price is principally decided by money circulating in the given economy. Forex rate refers to one currency's price with regard to another. As it compares two nations' currencies, forex rate relies on each currency's value, and, consequently, both nations' economies (Economics of Foreign Exchange Rates, n.d). Forex rate is impacted by three basic economic factors:

Each currency's relative purchasing power;

Investment risks and prospects of both nations, and Services and goods desirability of both nations.

Though there are other factors worth mentioning, like international BOP (balance-of-payments), we can incorporate them all under the aforementioned three basic economic factors determining forex rates (Economics of Foreign Exchange Rates, n.d).

Usually, a country with better opportunities for investment will draw international capital. This will result in its local currency appreciating relative to the currency of other nations, as foreign investors will be required to exchange home currency for that of the nation they intend to invest in, thus increasing investment currency demand; consequently, investment currency's price, that is, forex rate, will rise (Agarwal, 2009). For example, emerging economies have drawn a significant quantity of capital from foreign countries as the underdeveloped nature of their markets pose greater growth potential. Thus, if a particular currency is able to purchase more services and goods as compared to an equal sum of another currency, the former's value and, consequently, demand will be more. Another economic determinant of forex rate is how desirable a nation's services and goods are in comparison to other services and goods on sale in the global scene. If a nation delivers superior services or superior goods at lower cost, foreign nationals will purchase more from it, thus increasing its local currency value (Economics of Foreign Exchange Rates, n.d).

SLP (3pages)

Part 1

Ever since December of 2010, Australia's currency (i.e. Australian dollar or AUD) has typically traded above parity with America's currency (U.S. dollar); it has seldom shown a decline below parity. Australia's forex regime has transformed and improved from a fixed regime, to managed floating, to eventual independent floating. The nation had constant exchange rates from 1945 to1973 -- the era of the Bretton Woods system. Following the system's collapse in the year 1973, there was a shift towards managed floating currency exchange system, wherein the Reserve Bank set exchange levels on a daily basis; they were connected to a trade-weighted portfolio of select currencies having different weightings (i.e., currency basket). During the 80s, several capitalistic economies displayed a trend of currency floating probably because they understood that they did not have independent control over domestic fiscal policy, which could result in inflations and a decrease in their export competitiveness. Moreover, nations were at a risk of speculative attacks, owing to connected exchange rates. A decade after the elimination of Bretton Woods system, nearly all Australian forex controls were abolished. Since then, the AUD's link to a trade-weighted portfolio of currencies has been severed, with the monetary unit being assigned to the 'independently floating' category. Australian exchange rate, at present, is regulated by the market. Licensed forex dealers are allowed to deal with one another, with clients, and with foreign counterparts at jointly-settled rates for forward as well as spot transactions in the currency of any country, with respect to non-trade- and trade-linked transactions. Australia's Reserve Bank, nevertheless, still holds discretionary power for intervening in the forex marketplace. The AUD does not possess an official foreign exchange rate (International Economics - Historial Exchange Rate Regime of Asian Countries, n.d). The AUD's fluctuations in relation to USD, typically, are larger than TWI (Trade Weighted Index) fluctuations, as the TWI determines the overall rise and fall of the AUD (Ravimohan, 2010).

Part 2

The banking sector of Australia is powerful, advanced, well-structured, and profitable; it increasingly participates in global and regional markets, and accepts new entrants (Australian Trade Commission, 2011). In the year 2012, Australia's banking system was functionally very sound; not even l% of loans were regarded problematic, as opposed to the 1991 figure of 6%; one can view this against Japan's figure of 8% in the year 2002, or America's struggle in 2009 with around 6% mortgage delinquency (most of which were sub-prime, i.e., loans to individuals posing high default risks) (Blanchard & Sheen, 2013). Australia's banking system counts among the most sophisticated systems across the world. The country boasts of a lengthy history of safe and stable banks.

Two of the major 'safety' dimensions include probabilities of illiquidity and failure. As regards the latter dimension, one can witness widespread consensus regarding the fact that major banks of Australia are financially stable. In terms of debt ratings, the nation's 4 important banks are rated medium to low AA, counting the Australian banking system, together with those of Canada and Singapore, among the world's highest rated systems. After the economic crisis, majority of the international banks were rated either BBB or single A. The financial strength of a bank is centered on its capital quality, capital quantity, asset quality, and earnings capacity, all of which are reinforced by effective management and governance. According to the Australian Prudential Regulation Authority (APRA), the asset quality of Australia's banks is one of the strongest globally, in spite of being highly focused in mortgage loans which possesses higher risk than normal. Also, their earnings capacity and capital quality counts amongst the best, globally. Capital quantity of major Australian banks, in contrast, lies far above the minimum requirements of the law, and above global average; however, it is short of Australian FSI-recommended (FSI- Financial System Inquiry) top quartile standing. In view of Australian banks' dependence on offshore finance, there is inevitable showcasing of international comparisons in any issue of the proper capital levels of Australian banks. In short, the major banks of Australia are financially-strong and well-capitalized, and can potentially play the role of shock absorbers, in case the nation's financial system and economy faces any unforeseen external adversity. However, this stability is mainly due to the bank earnings and asset quality. However relative capital level of banks has lower bearing on stability. (Littrell, 2015).

Part 3

It is easy to carry out business operations in Australia. The nation has a transparent and well-organized regulatory system, which offers businessmen a safe commercial and economic environment. Entrepreneurs acquire a secure and stable environment for conducting business, owing to Australia's firm governance and legal structures, and political stability. Australia has, for six consecutive years, retained the third spot on the Economic Freedom Index. Australia's financial sector is advanced and provides access to one of the largest bank asset pools in the Asia-Pacific, in addition to the fourth largest pool of pension assets worldwide. The above credentials encourage corporates across the globe to do their business in Australia. (Business, n.d).

Below are recommended some steps for assisting risk managers with ascertaining whether their organization benefits from a certain hedging strategy or not.

STEP 1: Risk Identification

Prior to taking any decisions with regard to hedging, a firm's management ought to initially determine what risks their company is vulnerable to. Financial risks can mostly be hedged because of the presence of large, well-organized markets that allow transference of these risks. Unless there is material potential loss (loss large enough for having a serious impact on company returns) costs might not be outweighed by a hedge's benefits; consequently, the business may be at a greater advantage if it chooses not to hedge (Giddy, n.d).

STEP 2: Differentiation Between Speculating And Hedging

One of the reasons behind the occasional reluctance of organizational risk managers towards hedging is their association of the employment of hedging instruments with speculation. The opposite holds good in reality. A well-developed hedge lowers risk at all times. The managers' choice of not hedging is what frequently exposes a company to added risks (Giddy, n.d).

STEP 3: Evaluation Of Hedging Costs Taking Into Account The Costs Of Not Hedging

Hedging costs can, at times, make organizational risk managers unwilling to hedge. However, they must take into consideration the alternative: in case the market factors (like exchange rates or interest rates) take an adverse course (Shackman, 2015). Hedging cost, in these cases, should be assessed similar to an insurance policy's cost, i.e., in relation to probable loss (Giddy, n.d).

STEP 4: Adoption Of The Right Measure For Evaluating Hedge Performance

The answer to proper evaluation of every derivative transaction's performance (including that of hedges) is to establish proper goals right from the start (Giddy, n.d).

STEP 5: Avoidance Of Centering Hedge Program On Market View

A number of organizational risk managers strive to develop hedges depending on their outlook of market elements such as exchange rates and interest rates. The main aim to hedge must be risk minimization and must not gamble with market price directions (Giddy, n.d).

STEP 6: GRASP OF HEDGING TOOLS

One last factor which discourages adoption of hedging by numerous organizational risk managers is non-familiarity with derivatives. There are some managers who perceive derivatives to be overly-complex, incomprehensible instruments. But, the truth is that the basis of a majority of derivative solutions is the two elementary instruments, namely, options and forwards (Giddy, n.d).

STEP 7: Establishment Of A System Of Controls

Like every other financial activity, a hedge also needs a framework of internal controls, policies, and procedures for ensuring its proper implementation (Giddy, n.d).

Discussion Question: Gambling with Currency (1 Page)

Case study: I lost $2,800 in a forex trade

I wished to trade in foreign exchange, and therefore, deposited 3, 500 Australian dollars with a Forex margin provider. I settled on buying AUD 100,000 against USD at 0.9100 (i.e. a USD 91,000 foreign exchange contract). I paid an AUD 500 margin (i.e., 0.5%). Unfortunately for me, AUD's value against the U.S. currency dipped to 0.8850; I closed out the transaction and lost around 2, 825 AUD (in addition to the AUD 500 margin). Therefore, from the original amount I invested (AUD 3,500); I had around AUD 675 left, minus transaction costs.

Had I not chosen to close out the transaction, and had the AUD's value against USD kept dropping, I might have met a margin call, while losing several times my original investment. The arrangement of a guaranteed stop loss (GSL) order would require an additional fee. The GSL would have closed the transaction, thereby preventing any further loss in case of inadvertent movements in the market. This would have reduced my losses by not fully recovered. (Foreign exchange trading, 2015).

Foreign exchange trading is highly risky since:

Considerable investment risks accompany forex trading; currency changes can take place against the forex trader, resulting in loss of money. Forex rates are highly volatile and fluctuate a lot in extremely short spans of time. Unlike other means of gambling, time zones ensure 24/7 accessibility to markets; thus, traders have to commit a considerable amount of time towards tracking their investments. Also, owing to the fact that several factors impact exchange rates, currency markets prove to be highly unpredictable. Furthermore, due to high leveraging of a majority of foreign exchange trading products, even small fluctuations in the market have the capability of making a great impact. GSLs and other risk management options only allow limited trader protection by loss capping; however, GSLs command a premium fee (Foreign exchange trading, 2015).

In case of United Arab Emirates' currency, Dirham (AED), forex rate arrangements fluctuate around the SDR's (Special Drawing Rights') value; SDR is the special financial unit of the International Monetary Fund, constituting a fixed major global currency basket. In case of the Kuwaiti dinar, forex rate is established based on an adjustable, yet fixed relationship between a weighted currency basket and the dinar. The Kuwaiti dinar's Dollar forex rate has, of late, remained extraordinarily stable; the Kuwaiti dinar depicted a less than1% standard deviation in the past 5 years. Kuwait's currency is also the only Middle Eastern currency not pegged to the Dollar, following the Bretton Woods system's collapse (Jadresic? & International Monetary Fund, 2002).