The influence of culture on today’s business world

Introduction
The influence of culture in business terms has never been as important as it is
today (Jones, 2007). One of the most influential cross-cultural researcher is Geert
Hofstede, who is also the most cited academic in existence (Bond, 2002), which further
highlights the importance of culture in research today. Also, as indicated by Rugman &
Verbeke (2004), only a small part of the firms operates in all regions, trade is mostly
concentrated in one or two regions. According to them, this is because the firm specific
advantage is mostly specific for a region, due to cultural differences. Therefore it is of
growing importance how to successfully manage cultural differences in today’s
economy.
Before investigating the effects and impact of culture in the international
business field, the definition of culture should become clear. Hofstede defines culture as
“a collective programming of the mind which distinguishes one group from another”
(Hofstede, 1980). Unfortunately, there is not one widely used definition for such a broad
concept as culture. However, some consensus does exist. Firstly, culture cannot be easily
acquired but will slowly grow into a society, and is embedded in a society. Second, key
terms like beliefs and attitudes, are acquired from birth and are influenced by the direct
environment (family, school, etc.) (Jones, 2007)(Angeli, 2010). This makes culture
immensely important for international firms, who have to deal with people (customers,
employees, suppliers or stakeholders) from different cultures (Jones, 2007). It seems
that in order to be successful one should master and fully understand the cross-cultural
differences one experiences.

Two views of cultural distance: Hofstede and Schwartz

Hofstede measured culture by analyzing survey data on work-related values from
117,000 IBM employees working in 40 different countries between 1967 and 1973
(Drogendijk & Slangen, 2006). He found that four dimensions could explain the variation
in employee responses to his survey. These are: power distance, uncertainty avoidance,
individualism, and masculinity. Each country was assigned a number between 0 to 100
to indicate the importance of a dimension (Drogendijk & Slangen, 2006).
 Even though Hofstede is the most cited, this does not mean that his findings are
unquestionable. Especially Schwartz (1994) has criticized Hofstede on several grounds.
Schwartz states that Hofstede’s sample of countries did not reflect all national cultures.
In addition, the data was obtained from 1967 to 1973, while major cultural changes have
occurred ever since. And lastly, it is unclear whether people from different cultures
understood the value items were understood in the same way.
Hence, Schwartz (1994) designed another value survey to overcome the issues
mentioned above. He first identified 56 individual values across cultures, covering all
value dimensions that explain inter-country cultural variation (Drogendijk & Slangen,
2006). He further examined if these values had an equivalent meaning, and eventually
came up with seven dimensions: conservatism, intellectual autonomy, affective
autonomy, hierarchy, egalitarian commitment, mastery, and harmony (Schwartz, 1994).
While some scholars find Schwartz’s framework superior, it has not yet been well-tested
empirically.

Examination of cultural distance measures by Hofstede and Schwartz

Drogendijk & Slangen (2006) make a first attempt to examine the explanatory
power of two cultural distance measures of Schwartz, while also comparing this to two
measures of Hofstede, and one of managerial perceptions.
As mentioned in the introduction, culture is immensely important for
international firms expanding into foreign markets. Drogendijk & Slangen (2006)
elaborate on this further by investigating the effect of national cultural distance on the
establishment mode of a MNE, i.e. through Greenfield investment or acquisition. It is
argued that the larger the cultural distance, the more likely it is that an MNE will expand
through a Greenfield.
The unit of analysis are Dutch MNEs, and data is gathered through a mail survey
to senior managers of 821 Dutch MNE parents and secondary data on 246 foreign
expansions by Dutch MNEs between 1995 and 2003. By using two different ways of
measuring cultural distance, the traditional Kogut and Singh index and the Euclidean
distance index, Drogendijk & Slangen (2006) want to compare two measures of cultural
distance of Hofstede (1980) and Schwartz (1994). Lastly, they include managerial
perceptions, a survey-based perceptual measure of national cultural distance.
Controlling for various factors, like MNE size, experience, type, and subsidiary size and
autonomy, they find the measures of Hofstede and Schwartz overlap partly, and reflect
both similar and different aspects of national culture.
All five measures of cultural distance are significant predictors of an MNE’s
establishment mode choice; as cultural distance increases, greenfields are to be
preferred. This is in contrast to Hennart & Park (1993), who argue that it is also possible
that firms with more experience in a foreign market will be better able to meld the
“company culture” of the acquired unit with that of the acquirer. And the most striking
conclusion: Hofstede and Schwartz-based measures explain establishment mode choices
equally well. Henceforth, it is too early to consider Schwartz’s framework as superior.

Values and perceptions

In a later study, Hofstede (2001) argues that values drive actual practices, and
explains this with the “Onion Diagram”. According to Hofstede (2001) values are the
most deeply rooted aspects of a culture, on which
practices are based. As can be seen in figure 1,
values form the core of culture. Rituals, heroes, and
symbols together form practices, these include
language, gestures, model for highly prized
characteristics, and activities (Sun, 2008). If the
reasoning of Hofstede is indeed correct, one would
expect positive correlations between values and
practices.
The Global Leadership and Organizational Behavior Effectiveness project (GLOBE
project), included both values and practices in their research and found for almost all
dimensions a significant negative correlation between values and practices. While
Hofstede argues people are unable to describe practices independent of their values,
Maseland and van Hoorn (2009) come with a different explanation. According to them,
the importance people attach to a certain issue (i.e. freedom or food consumption)
declines with the amount that is available. For example, countries that experience a high
level of freedom, are more likely to value this less than people who live in dictatorship
countries. This diminishing marginal utility describes and explains the significant
negative relation between practices and values (Maseland & Van Hoorn, 2009).
 However, even though Maseland & Van Hoorn (2009) come up with a type of
value question that will better measure actual values in society, this one is in light of the
definition of culture still prone to marginal preferences. Since culture is something
completely embedded in a person’s life (note that it is acquired at birth, and influenced
by your whole environment), people will not be able to answer a question without
taking into account their own culture and values. Because values are acquired from
birth, many remain unconscious to those who hold them. It follows that it is extremely
difficult to discuss cultural values, or even observe them by outsiders (Angeli, 2010). It
might therefore be impossible to come up with question that measure cultural values.

Dual institutional pressure

Discuss last paper, where dual institutional pressure exists between Home MNE country
and Host Subsidiary country.

Limitations
Much research about cultural distance at wrong level (see articles about munificence, de
Jong).

Reference list

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