Managing Across Cultures

19/02/2024

BUSINESS CASE: VOLKSWAGEN

Team 5:

Alfonso Escagedo
Diego García
Eyoab Habtamu
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Pablo Corral
Xiaoni Uría

1. Why is a partnership between Germany and Mexico attractive for German

companies? Why is it attractive to the Mexican economy? Why do German
companies come to Mexico and not vice versa?

For German companies, the partnership between Germany and Mexico is attractive because
Mexico offers several opportunities. On the one hand, Mexico is strategically located
between Latin America and North America. Mexico also has free trade agreements with
several countries, the most important being the USMCA (agreement between Mexico,
Canada, and the United States, NAFTA at that time). On the other hand, Mexico has a skilled
labor force, but at the same time, it is less skilled than that of Germany, thus benefiting
German companies with greater efficiency and competitiveness due to lower labor costs.
Mexico is also experiencing economic growth and has implemented policies to encourage
foreign investment.

It should be noted that for the Mexican economy, the partnership between these two countries
is also beneficial because German investments bring with them technology, knowledge and
more advanced business practices than those currently available in Mexico. This is beneficial
for Mexico as it boosts the country's growth and development, in addition to creating jobs
and thus transferring labor skills and knowledge.

It is important to mention that although investment between these two countries is

bidirectional, German investment in Mexico is significantly higher due to the fact that
Germany has one of the largest and most developed economies in the world and is more
advanced compared to Mexico, which is in a state of growth. Also, Mexico's strategic
location together with its lower labor costs have been key factors for German companies to
decide to establish themselves in Mexico. It is worth mentioning that Mexican companies
have also invested in Germany, but on a smaller scale and in more specific sectors, due to the
limited financial and technological capacity of Mexican companies.

2. What strategic advantages have brought German OEMs to Mexico?

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Many advantages propel this decision of investment. Mexico’s strategic position next to the
United States (one of the biggest automobile markets), and also to other markets in Latin
America is a huge advantage. This is because German companies can leverage the country as
a base for cost-effective transportation and workforce, while the cost of the labor force in
Germany or the United States is much higher, this will provide cost savings to the company
that produces in Mexico and it will provide competitiveness to VW. Knowing this, the
government has implemented measures to attract foreign investment, like tax incentives, and
also developed a skilled labor force in the automobile sector (having a big pool of talent). The
Mexican government has also invested in developing the country’s infrastructure, making the
logistic network more efficient. We cannot forget the trade agreement between Mexico, the
United States, and Canada (NAFTA at the time of the article) that provides companies
operating in Mexico easy access to these markets.

3. Describe and analyze the cultural and infrastructural impact of the installation
of the Volkswagen Group factory in Mexico.

Volkswagen Group installation had a huge economic impact in Puebla, as they contribute to
about 25 percent of the GDP per capita, in addition to that they also contribute to more than
12 thousand direct and indirect jobs. Moreover, Volkswagen has shaped a lot of infrastructure
in terms of logistics, mainly thanks to their exports to the US, and the connection to other car
manufacturers which led to the highway of San Jose Chiapa. Furthermore, the roads in Puebla
have gone through an infrastructural change as bottlenecks have increased because of traffic,
hence the development of them. According to the Administrative Registry of the Automotive
Industry of Light Vehicles in Mexico during the months of January to July of 2022, the VW
factory produced around 175 thousand units.

Now, to analyze the cultural impact of the VW factory in Puebla we need to understand that
the factory has been established in Puebla for 50 years now. The cultural impact has changed
the city drastically, as not only has it globalized it, but also they have brought different
aspects of German culture, as Mexicans are required to take a pre-course of German culture
so they adapt easier. This consequently leads to cultural change as people in Puebla get more
accustomed to bilingual or trilingual people which is not usual in other cities in Mexico.

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4. How does the Volkswagen Group prepare its Mexican and German employees?
Do they go through the same training process? If so, why?

VW offers training processes to both its Mexican and German employees. On the one hand,
the training that German expatriate employees receive is aimed at adapting and working
effectively in a multicultural environment. On the other hand, Mexican employees also
receive training, including at assembly line level. In this case with the aim of adapting to the
corporate culture of the German company. In addition, in the event that the employee is to
occupy a supervisory or team leader position, the employee travels to the headquarters in
Germany both to learn German and the corporate culture, as well as to receive intensive
language training. Although the training processes vary depending on the employee's origin,
in any case, the employee undergoes training processes tailored to his or her needs and roles
within the company, in order to enhance his or her performance and successful integration
into the organization.

5. How could differences in Hofstede's cultural dimensions affect the daily work of
a German company in Mexico?

Hofstede's cultural dimensions can provide insights into the potential challenges and
opportunities that one company can face when operating abroad. In the case of a German
company in Mexico, just by using Hofstede's tool1, we can see that most of the indicators
show a huge difference. The case of “Power Distance” Germany (35), Mexico (81) shows
that in Germany there is a preference for equality and a flat organization structure, the
opposite of Mexico. This difference may affect the decision-making process, this is because
Germans could find it difficult to adapt to a more hierarchical organization and Mexicans the
other way around. When it comes to the indicator “Individualism” we can find huge
differences again, Germany (79) and Mexico (34). In German society, loyalty is based on
personal preferences and achievements, the relationship between the employer and the
employee is one of the most direct in the world following the ideal of being “honest even if it
hurts”. In the counterpart we can find Mexicans, considered to be a collectivistic society,
manifesting a commitment to the group (the extension of the family). In Mexico everyone

1 (Country Comparison Tool, n.d.)

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takes responsibility for fellow members of the group, in societies like this, being “honest even
if it hurts” leads to shame, this difference could mean a problem in terms of effective
communication and teamwork among the two nationalities. Another indicator showing strong
differences is “Long Term Orientation”, Germany (57) and Mexico (23). This means that
Mexicans exhibit more respect for tradition and a small propensity to save for the future,
whilst Germans show an ability to adapt traditions easily to changing conditions. The
difference in this indicator can influence the planning of objectives and timelines. If we look
at “uncertainty Avoidance” there is little difference between Germany (65) and Mexico (82),
meaning that Germans prefer clear rules and well-structured planning, while Mexicans have a
better tolerance for ambiguity and a better adaptability to unexpected situations. This can
create concern about how the employees from the two countries could handle risk. On the
other hand, there is the indicator “Motivation Towards Achievements and Success” that
shows similarity. The company can take advantage of this by setting goals for their
employees and propelling their efficiency.

6. How could differences in the cultural map’s dimensions explain the strategy
followed by VW?

First of all, Volkswagen adapted its strategy in terms of communication, mexican culture
communicates indirectly, they do not always say their thoughts directly and you need to read
between the lines, in addition to this the language barrier also built borders between cultures,
however, Volkswagen broke them down first by applying german language courses to the
new employees. Moreover, Mexico’s culture tends to lean on family more than anything else,
the Germans used this to leverage their egalitarian structure and they are also more likely to
make group consensus decisions according to the Harvard Business Review survey2.

Furthermore, employees from Mexico tend to have scheduling preparation when entering
Volkswagen as the German culture has a more linear time approach in their professional lives
than Mexicans who tend to have a more flexible view of time. Finally, Volkswagen
expatriates had to begin engaging in a personal matter with the Mexican employees, as that is
how they build trust in Mexico, in contrast to Germany who have a more task-based
professional relationship with employees.

2 (Meyer, 2022)

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7. Do you think it makes more sense for Mexican employees to adapt to German
culture and Audi's corporate culture, or for Audi to adapt its corporate culture
to Mexico? Why?

Regarding cultural diversity, it must be taken into account in the international workplace that
Audi faces in Mexico. Local employees and Audi corporate may get unhappy if Mexican
employees are forced to adapt to German culture. Audi's corporate culture has many
advantages that are transferable to any setting, including its emphasis on innovation,
efficiency, and high standards of quality, which is why employees from Mexico should adjust
to this.

It would be crucial to modify Audi's corporate culture for Mexico in order to promote a more
inclusive and cooperative atmosphere. Promoting originality, inventiveness, and the
dedication of local staff to recognize and respect cultural differences would be another
important point to emphasize. To achieve a balance between the customs of the local culture
in Mexico and Audi's corporate culture, as well as to promote harmony and success in the
workplace. The ideal course of action would be to preserve Audi's basic values while
embracing aspects of Mexican culture.

The capacity to be adaptable and change course depending on the demands of the market and
the workplace is crucial for long-term success. In order to enhance worker productivity and
integration, Audi needs to modify its corporate culture to correspond to Mexican cultural
norms and expectations.

Both of the options may work well. Audi can, on the one hand, modify its strategy to make it
more acceptable and sensitive to Mexican cultural norms. On the other hand, in order to
foster greater productivity, unity, and success at work, Mexican employees would need to
adjust some significant elements of Audi's corporate culture.

8. Given all the cultural difficulties, should VW look for another country with less
differences?

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Well, even though there are some cultural differences that would make it a bit difficult to
integrate and have a smooth flow of corporal management between these two countries with
totally different work and social cultures, we would say that VW should not look for another
country. In fact, we would say that Mexico is actually the best place for VW to be, in
comparison to other countries in Latin America and some other parts of the world.

It is obvious there are countries that are culturally very similar and better for Germany, for
instance, we can take Austria, but the problem is that Austria is not strategically a favorable
place for VW (Austria might fit the culture matrix, but not the geographical, economic, and
political advantage that they want for their strategic plan to work). Furthermore, we have seen
in this case how German companies use intensive training for their employees to adapt to the
corporate culture so that their employees don’t struggle with the different contexts and
languages these countries might have, like with Germany’s very direct communication and an
individualistic approach versus Mexico’s very hierarchical and collectivist society, which
might create some serious corporate cultural clash.

So, in conclusion, the strategic benefits outweigh the disadvantages of cultural differences,
and VW is actually doing very well in Mexico in terms of managing cultural differences in its
corporate culture.

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BIBLIOGRAPHY

- Country comparison tool. (n.d.). https://www.hofstede-insights.com/country-

comparison-tool?countries=germany%2Cmexico

- Meyer, E. (2022, August 23). What’s your cultural profile? Harvard Business

Review. https://hbr.org/2014/08/whats-your-cultural-profile