Culture Concept and Overseas Subsidiaries

Culture Concept and Overseas Subsidiaries

Globalization is no longer an abstract term from the 1990s; globalization is the present day reality for businesses providing services or engaged in manufacturing automobiles, technologies, clothing, running shoes, or other products. Companies and their employees who move to overseas locations to work in subsidiaries face challenges and obstacles that frequently offer unanticipated and unpleasant experiences. What are the limitations when conceptualizing and attempting to apply the culture concept in an overseas venue? What are the keys to making successful transitions - with the same company - from the comforts of a familiar home-based working environment to a foreign venue thousands of miles away? This paper reviews and evaluates examples of these experiences, including how companies are adjusting to cultural diversity in their overseas marketing and production facilities.

CULTURE CONCEPT -- BACKGROUND

Culture or Civilization, taken in its broad, ethnographic sense, is that complex whole which includes knowledge, belief, art, morals, law, custom and any other capabilities and habits acquired by man as a member of society..." - Edward Tylor (Primitive Culture, 1871)

Professor Brian Schwimmer of the Department of Anthropology at the University of Manitoba puts into perspective what alert scholars have been aware of for many years; that the contemporary world is bringing business employees "...into direct contact with peoples of many regions with vastly different values and ways of life" (Schwimmer, 2004). In the case of companies sending their employees to a foreign countries to work, where those "vastly different values" will confront the employees on a daily basis, the challenges of learning to appreciate other culture systems is very real and vitally important. The alternative to being tolerant and flexible, Schwimmer explains, is being met with "hostility" and possibly experiencing a confrontation with "ethnic nationalism" in that foreign land.

Anthropologists understand and explain the culture concept, and they take the culture concept as a "starting point," Schwimmer goes on, for understanding the human experience - regardless of sub-discipline, specialization, or "theoretical orientation." In approaching the strategy of sending employees to a foreign country, a company should be prepared to train those employees - or at least do the research necessary to determine who among them is not suited for the cultural understanding that is necessary. Schwimmer believes that it is unfortunate that ethnocentrism is alive and well in many cultures; in particular ethnocentrism presents rough going for those who will be working abroad. Ethnocentrism, he explains, is the practice of "interpreting and judging other cultures by the values of one's own."

Schwimmer alludes to the research done by Franz Boas, a pioneering anthropologist from the early 20th Century; Boas was "instrumental" in the development of "cultural relativism" - a reversal of the ethnocentricity many people from a variety of cultures struggle with. Boas presented four major postulates, which every HR professional in every overseas subsidiary should be familiar with and conversant with.

One, cultural aspects of humans are acquired "solely through learning," and not through biological transference. Two, making the cultural conditioning adjustments is "ultimately accomplished through habituation" and "unconscious processes" rather than through a planned, "rational deliberation"; in other words, training helps, but getting out into the new community and keeping an open mind about that culture is the best strategy. Three, Boas writes that "All cultures are equally developed according to their own priorities and values," and there are none that are "better, more advance, or less primitive than any other."

And Boas' fourth postulate with reference to cultural relativism posits that there are no easy classifications for cultural traits; it's simply "human behavior" and cultural traits only assuming meaning "...within the context of coherently interrelated elements internal to the particular culture under consideration."

LITERATURE REVIEW - CULTURE CONCEPTS (EXAMPLES)

Timothy Dean Keeley analyzed the practices of Japanese firms - relative to HR strategies in international Japanese subsidiaries - in his book International Human Resource Management in Japanese Firms: Their Greatest Challenge. In his book, reviewed by Dr. Kuniko Ishiguro (www.japanesestudies.org),Keeley discusses the strategies employed by Japanese firms' human relations management groups in overseas environments. Keeley stresses the importance that high quality International Human Resource Management (IHRM) professionals place on employees relating well to local cultures.

After reading Keeley's book, reviewer Ishiguro - an academic who has studied Human Resource Management (HRM) and has substantial practical business experience - believes that Keeley's "neutral position" on issues was rather bland narrative, and he believes that by staying "neutral" Kelley missed key points.

Ishiguro explained that "...there may be a greater proportion of negatives than positives among Japanese companies' attitudes..." toward Host Country National (HCN) managers. Ishiguro also wonders in the review why Japanese companies "...have been so inefficient in managing foreign subsidiaries." There are "many" negative stereotypes associated with Japanese management strategies, Ishiguro continues, and some are valid. For example, there is the lingering belief that "Japanese companies try to force subsidiaries in HCNs to implement Japanese management practices."

There is also the perception that "people from Japan do not understand local culture and people," which is not always the case; however Ishiguro suggests that Japanese companies could work harder toward "the internationalization of their management." One thing that Japan has been accused of - and there is some truth to this - is that Japanese business people doing business in foreign placed subsidiaries "do not understand local culture and people."

One thing Kelley mentions in the book that rings true in the world of Japanese subsidiaries is that Japanese management is often slow in "...entrusting plant management to local personnel, which may lead to low levels of profitability." For those Japanese companies that do indeed make an effort to promote people from local cultures into plant management environments, Ishiguro concludes, they are to be commended for adapting to local staffing, even though the normal "high operational efficiency" that Japanese managers insist upon may be somewhat reduced.

Meanwhile, as the globalization of markets over the past two or three decades has heightened the level of competition for many competing companies, many of those firms that have not adjusted their strategies to meet the pivotal cultural changes in the global marketplace have fallen by the wayside or stumbled before seeing the light.

According to an article in the Journal of International Marketing, senior corporate leadership is under constant and growing pressure to develop globally integrated strategies to become more efficient "across their geographically dispersed subsidiaries" (Hult, et al., 2006). In other words, the way in which an assertive, intelligent company successfully competes on the global stage is to avoid becoming "homogeneous" across various borders and markets.

Instead, that successful company will show its creative marketing hand by striking a balance between "local adaptation and global optimization," Hult explains. That means a company should create a strategy of training leaders in diverse regions of the world market "interdependently" (each in their respective market, which will vary dramatically one country to the next), and yet strive to coordinate and "cross-fertilize" in order to cultivate a "global mind-set" within that company, Hult explained.

A successful global market organization (GMO) will give sturdy consideration to employing a "strategic choice paradigm." This implies a more "deliberate and participatory" role for managers, in Hult's view. It also suggests that management must take heed of the vast difference between "strategy" and "performance," the authors write. In short, the emphasis in a creative organization that wishes to compete successfully on the global market place should be that managers hold "significant" responsibility and have the capability and authority to make "strategic decisions," to determine "resource allocations," and also to shape "organizational structure" to include a rich involvement of local cultural talent (Hult).

A share of the duties that a manager must assume (while pursuing a strategic choice policy), according to Hult, include: a) acting as catalysts in disseminating their goals, visions, and beliefs "through the ranks of the GMO." This should, if things are working correctly, help create a culture "and structure" that is poised to adopt the "requirements and mind-set necessary to compete at the global level."

This culture should accept that experimentation is a necessary part of the strategy; "strong leaders" thus become "change leaders" and organizations must first develop a strategy for their marketing posture prior to designing their structure. This is a main point in the article; without market strategy planning that is also based on cultural adaptation, a structure for global participation is a crapshoot, a guess, and a shot in the dark.

North Carolina State University professor Tim Wallace zeros in on "Cross-Cultural Miscues" related to the culture concept theme in subsidiaries; there is value in reviewing these miscues (www.4.ncsu.edu).In "Miscue No.1" Hanes Black worked for a textile chemical company in Denver. His company signed a joint venture deal with a Japanese firm and four Japanese managers came for a three-month training session with Black in charge. Black soon became weary of the demands these managers made on his "personal time." They wanted to get together with him in the evenings, they constantly called him for a number of personal and professional reasons. They wanted to know the best places to go after work, and expected him to help them in that regard.

Hanes finally told his Japanese trainers "he preferred not to mix business with pleasure." Within a couple days, the group requested another instructor. The critical issue here, one can quickly discern, is that Hanes did not do his homework on the Japanese business culture; if he had, he would know the Japanese are intensely committed to their work, on duty and off duty.

The "Miscue No. 2" involves Ray Lopez, top salesperson for his company who was fluent in Spanish; he was sent to Buenos Aires to make a marketing pitch to a distribution firm there. He arrived and was picked up at the airport and surprised to learn that the meeting had been postponed for two days "...so that Ray could rest after the long trip" and also have an opportunity "to see some of the local sites..."

Lopez insisted that he was fine, and wanted the meeting to go forward that afternoon, as had been scheduled. After twisting arms, Lopez got his way, and the meeting was scheduled for later that day. Once in the meeting, Lopez noticed "that the Argentinean executives never really got beyond the exchange of pleasantries." The VP in charge then set the formal meeting for the next afternoon. Lopez was frustrated with the "excruciatingly slow pace of the negotiations," because quite simply, he didn't understand that this is the cultural reality in Argentina. Business executives rarely meet a foreign visitor and sit right down to do business. There is a period of cultural interplay prior to serious business matters being attended to. He didn't do his prep work.

A study published in the Journal of American Academy of Business, Cambridge, looked into the relationships among Taiwan's overseas subsidiaries based on several factors such as "strategic roles...organizational configurations...and business performance" (Yu, 2005). The research also included focused on "...subsidiaries' cultural differences." The author explains (p. 214) that there are "four dimensions" along which managers in multinational corporations" perceive cultural differences in their subsidiaries: "power distance"; "individualism / collectivism"; uncertainty avoidance"; and "masculinity / femininity."

The research done by Dr. Ming-chu Yu - which included existing research he deemed pertinent - shows that when there are "large" cultural differences between parent company and subsidiaries "...there will be more uncertainties in decision making" and a potential "significant negative effect" on the business performance of that subsidiary. In other words, money will be lost and market positioning will be weak, when a company fails to effectively establish cultural concepts in its expansion enterprises.

Yu's hypothesis: A parent company's cultural difference has a "significant negative effect on its subsidiary's business performance"; also, the interaction of a subsidiary's "strategic role and cultural differences" has a definite influence on the business performance. These hypotheses were arrived at through data from responses of 142 valid questionnaires (out of 600 that were sent to Taiwanese MNCs). The respondents were 17.5% European and American; 23.1% South East Asian; and 54.9% Mainland Chinese.

Meanwhile the International Journal of Human Resource Management (Martin, et al., 1999) investigated the control of HRM in the U.S.-based multinational enterprise (MNE) "CASHCO," which established a subsidiary in Scotland. The company had to constantly respond to "ethnocentric control" coming from the parent company in the U.S., and in short, the case study shows that by forcing "empiricist-rational strategies" on the UK subsidiary, and using ethnocentric methods to "teach" Scottish employees "the facts of life," CASHCO failed to achieve what it had hoped to achieve.

The CASCO "ethnocentric transfer of U.S. best practice rarely worked effectively," Martin writes. That was because "the assumptions underlying these practices failed to reflect the institutional and cultural circumstances of the Scottish plant." Moreover, the parent company had a "paternalistic" attitude towards unions; and also, the failure of the parent company to understand "local plant culture" and the "flawed nature of corporate culture control" led to the Scottish plant managers' desire to develop their own strategies based on Scottish culture.