The remarkable and rapid development in the fields of communication, transportation and technology has brought the world together, making the world a global village. Globalization has enabled the corporations to expand their business activities beyond geographical boundaries by providing tremendous Opportunities to increase their market share and profits while enhancing the efficiency and the productivity. Organizational culture determines how the business activities are carried out and is built upon the cultural orientation of its employees.
Culture has received much attention and importance in the management of international human resources. Culture is central in managing the current global workforce dynamics. The nature of organizational culture is largely influenced by the cultural orientations of the individuals forming it. Therefore, it is important for Multinational organizations to identify cultural differences of nations to implement the best working and applicable human resources practices to manage their global workforces.
This literature incorporates three different cultural frameworks to describe how the human resources management practices must differ from nation to nation based on cultural context. Each framework concentrates on similar dimensions such as power distance, Universalism versus Particularism, gender differentiation and etc. Additionally, the implications of culture on international human resources management practices of MNEs are elaborated along with some real-life examples.
This literature review attempts to address how culture influences on managing people in MNEs. The major challenge for MNCs operating in different markets is to adapt to the different socio-economic and cultural contexts. The complications of managing the global human force from various cultural backgrounds have a direct impact on a company’s economic objective. Moreover, there is no such thing called best practices, It is therefore MNCs responsibility to recognize the cultural diversity to build up strategies to face the global competitiveness while developing cultural sensitivity.
This literature review discusses on the importance of understanding cultural differences among the nations to manage the global workforce of MNEs. The first section of this literature has described on Three theoretical frameworks namely Hofstede’s dimensions of culture, The GLOBE project’s nine dimensions of culture and Trompenaars’ seven dimensions of culture that could be used to demonstrate the platforms available for an international HR manager to recognize the national differences. A number of literatures from various authors were incorporated to describe the implications on culture on international human resources management.
2. CULTURAL FRAMEWORKS
In examining International Culture and the preferential differences in culture across modern nations, three cultural frameworks created to make a drastic impact on identifying culture in managing people; have been outlined below.
2.1 Hofstede’s Dimensions of Culture
Representing the independent inclinations for one nation over another that distinguishes countries (rather than individuals) from each other, the Hofstede’s model of national culture was constructed by Geert Hofstede, consisting of six specific dimensions. These cultural dimensions represent aspects of categories for viewing people, where the feature that we are all human and simultaneously we are all unique is revealed with comparisons (Hofstede & Fink, 2007).
1. Power Distance Index- This measures the extent to which the less powerful members of a collective accept and expect that power is distributed unequally, representing the factor that inequality is not defined from above but from below. Saudi-Arabia for example has a very high-power distance (80) while Austria has it low (11) depending on strong belief in equality for each citizen (Kim, 2016).
2. Individualism Versus Collectivism- Collectivistic societies, such as most of Asian countries (Eroglu, 2014), emphasize obligations they have toward the group, willing to sacrifice their individual needs for the benefits of the group, while Germany is considered Individualistic due to the self-help, independence and self-motives that are considered therein.
3. Masculinity Versus Femininity- Masculine cultures, such as Japan prefer achievements, ambition, power, and assertiveness over tender values like quality of life and compassion for the weak unlike Scandinavia which is more towards the feminine quality (Nikpour, 2017). Additionally, men and women play separate roles in the society, by differing in embracing these values within their nations accordingly (Hofstede, 1996).
4. Uncertainty Avoidance Index- In low uncertainty avoidance cultures, such as Singapore (8), people are more comfortable with unstructured risky situations which are considered natural and accepted necessary while in cultures like Germany (65) there is a reasonable high uncertainty avoidance where the possibility of risky situations are minimized by strict laws and rules (Adalsteinsson, Gudmundsdottir & Gudlaugsson, 2013).
5. Short and Long-Term Orientation- Short-term orientation is focused on the present or past, considering them more important than the future (like UK for example) (Reddy, 2011), while long-term orientation societies deal with a search for future virtues as most East Asian societies, embracing operations working towards a long-term objective and long-term virtues (Cronjé, 2011).
6. Indulgence Versus Restraint- Being the latest addition to the above dimensions, indulgence stands for a society that allows human drives related to enjoying life, while restraint stands for a society that suppresses gratification of needs and regulates it by means of strict norms as in the example of Africa and Russia respectively (Dowling, Festing & Engle, 2013). This was added into the list, due to the importance given to freedom and personal control of nations (Soares, Farhangmehr & Shoham, 2007).
2.2 The GLOBE project’s Nine Cultural Dimensions
The GLOBE research program was a major premise in the findings of how contextual leader effectiveness is and how it is embedded in the societal and organizational norms, values, and beliefs of leading people (Kelleher, 2011). In this regard, GLOBE empirically established nine cultural dimensions that make it possible to capture the similarities and/or differences in values, beliefs and practices of nations/ individuals as mentioned in Javidan ; Dastmalchian, (2009):
1) Performance Orientation- This idealizes the extent to which associates of a collective expect performance from individuals and then encourage the group members for excellent performance and improvements.
2) Uncertainty Avoidance- Dependency on accepted socials, rules and regulations, and procedure to relieve and reduce future uncertainties (Grove ; LLC, 2002) and the extent to which procedures are utilized to alleviate unpredictability of future events fall under this.
3) Humane Orientation- The degree of how individuals are rewarded and encouraged in their moral attributes of being fair, altruistic, generous, caring, and kind to others (Hadwick, 2011).
4) Institutional Collectivism- When the collective distribution of performances is rewarded by the organizational and institutional actions (Perkins, 2009), and the nation practices collective distribution of award resources majorly, it is considered to be institutionally collective (Eroglu, 2014).
5) In-Group Collectivism- When individuals within a group take satisfaction in their accomplishments, while being loyal to their respective organizations and family lives, thus revealing a unified factor, it is considered to be in-group collectivism (Eroglu, 2014).
6) Assertiveness- This dimension denotes the amount of confrontations and displaying of aggressiveness in relationships between the individuals inside a group.
7) Gender Egalitarianism- How well the collective minimizes the prevailing gender inequality (Joannides, Wickramasinghe ; Berland, 2012), by taking necessary actions to prevent and reduce unfair privileges one sex has over the other, is considered here.
8) Future Orientation- The extent to which individuals engage in future-oriented behaviors, like procrastinating, planning, and investing and the intensity of how these individuals focus on these future considerations are represented within this dimension.
9) Power Distance- The levels of how fairly power is distributed among individuals in a collective group, and how well they expect it as a right, falls under this dimension (Dartey-Baah, 2013).
Based on these dimensions of GLOBE, traits are divided into other attributes related to the managerial perspective. These are universally referred to, as the “22 Leadership traits of GLOBE”, listed out below, with their definitions being as per the particular term suggests (Javidan ; Dastmalchian, 2009):
• Trustworthy, Foresight, Positive, Confidence-builder, Intelligent, Win-win problem-solver, Administrative-skilled, Excellence-oriented, Just, Planning-ahead, Dynamic, Motivational, Decisive, Communicative, Coordinative, Honest, Encouraging, Motive-arouser, Dependable, Effective-bargainer, Informed, Team-builder.
2.3 Trompenaars’ Seven Dimensions of Culture
In the Cultural framework sense, Fons Trompenaars developed the 7-value Dimensional framework, briefly explained as follows;
1. Universalism vs. Particularism- In this dimension, the importance that people place on laws, rules, values, and obligations is considered, where Universalism focuses on dealing fairly with people based on these rules, by setting rules before relationships (Reddy, 2011). On the other hand, Particularism believes that each circumstance creating relationships, dictates rules that should be lived by (Eroglu, 2014).
2. Individualism vs. Communitarianism- Nations believing in personal freedom and achievement and relying on their ability to make their own decisions, is depicted by Individualism (Eroglu, 2014), while Communitarianism considers that the group comes in first and is more important than the individual; providing more help, loyalty and safety (Cronjé, 2011).
3. Specific vs. Diffuse- This dimension specifies on how far focus is given on getting involved with relationships, where keeping work and personal lives separately with the belief that relationships do not impact work, is denoted by ‘Specific’ (Cronjé, 2011), while ‘Diffuse’ denotes seeing overlaps between work and personal lives with the belief that good relationships are vital in meeting business objectives (Reddy, 2011).
4. Neutral vs. Affective- With regard to the dimension of how emotions are expressed, ‘Neutral’ deems people formulating a great effort to control their emotions, instead of revealing their mentality (Perkins, 2009) and ‘Affective’ people welcome and search out for ways to express their emotions, even spontaneously at work (Bogicevic-Milikic, 2009).
5. Achievement vs. Ascription- Countries believing that the worth of a person is solely based on what is performed by the individual, fall under Achievement-based (Rugman & Collinson, 2012), while countries that value individuals for who they are, regardless of power, title, and position define Ascription.
6. Sequential time vs. Synchronous time- Preferring events to occur in an order, by placing a high value on punctuality, scheduling and planning is appreciated by the ‘Sequential-time’ countries (Perkins, 2009). On the other hand, seeing the past, present, and future as interwoven periods and operating on several tasks at a time by crediting flexibility as key, is denoted by synchronous timing (Rugman & Collinson, 2012).
7. Internal direction vs. External direction- Nations where control nature and their environment to achieve goals, is thought possible, comes under Internal direction (Dowling, Festing & Engle, 2013), while countries certain that their environment controls them and they must work with their environment to achieve goals, fall under externally directed (Eroglu, 2014).
2.4 Pitfalls of using Cultural Frameworks to depict Cultural Differences
Even though there are many cultural dimensions which are widely used in understanding cultural context, all these frameworks are subjected to certain criticism. The most common criticism is that none of these frameworks are able to do justice to the complex, dynamic and sensitive concept of culture (IHRM). Furthermore, culture changes over time. And the validity of these theories in the contemporary management practices is becoming questionable (kwaski).
According to McSweeney (2002) the major weakness of Hofstede’s dimension is its methodological bias. What more is Hofstede’s cultural dimensions neglect multi-cultural nations (USA and Canada) and cross border nations (Basques in France and Spain) Hence it is absurd to generalize a culture of a nation assuming that the nation and the states represent one (Berland et al., 2012). Smith (2006), says that even though he admires the outcomes of the globe project, he has speculations on how the complexity of the model has added any value to the study as many study models were unable to integrate it. Moreover, GLOBE Project was excessively rooting in Hofstede’s dimensions model, whereas House et al eventually developed nine dimensions (Hadwick, 2011).
3. CULTURAL-DIVERSITY AND ITS IMPLICATIONS ON INTERNATIONAL HRM
3.1 Why Organizational Culture is Important?
Schein (1985) says that organizational culture is a pattern of shared basic assumptions, regarded as valid and eligible enough to pass down to newly recruited employees as an effective way of perceiving, thinking and feeling in terms of those problems (Nikpour, 2017). As said by Hofstede (1984) the organization is created by its employees based on their values. The societies encompass of institutions and organizations replicating the foremost values in their culture (Reddy, 2011).
Schneider and De Meyer (1991) claims that it is crucial to identify the cultural differences to cope up with diversification effectively as culture shapes up perceptions and responses to strategic changes (Maseland et al., 2015). Newman ; Nollen (1996) state that Cultural-differences mold the strategies and practices used in managing people (Milikic, 2009).
3.2 How to manage Employees in MNEs while coping up with Cultural Diversity
According to Ghemawat (2007) one of the major obstacles of any multinational organization is to match up the dissimilarities between the societies it operates in (Maseland et al., 2015). According to Hofstede (1984) Human resources function is highly responsive to cultural differences, which may influence on the design and the appropriateness of the human management practices (Reddy, 2011). Hofstede (1980 and 1998) says Culture will directly affect the organizational behavior including motivation, Communication, conflict, wok-orientation, goals, performance appraisal and rewards (Kwasi, 2013).
Besides the cultural insensitivity that arises from the ignorance or misguided beliefs such as “my way is best “, or “what works at home will work here” are not only highly unsuitable but can also cause international business breakdowns (IHRM). The best example is Wal mart expansion to Germany. Wal mart used American management practices in Germany ignoring the cultural differences. Thus, Wal mart poisoned expatriates in the top positions causing many talented German managers to leave. Poor knowledge on German culture led Wal mart to earn massive losses (Taras et al., 2011).
Morgan defines international HRM as the interplay among the three dimensions of human resource activities, type of employees and countries of operation (IHRM). it’s Therefore essential that the HR manager enrich these cultural differences and know when these differences are important. Hence Culture can be a source of conflict because problems are created when people with different cultural interact with each other (IHRM).
Additionally, the appropriateness of HRM practices varies from context to context. HRM techniques such as participative management and 360-degree feedback systems will work well in the companies in countries such as UK and Northern Europe with low power distances and flat hierarchies and whereas these techniques are not applicable for companies in countries with high power distance such as Mexico and Russia (book). Brewster (1993) argues that HRM concepts practiced in USA is not practiced elsewhere in Europe and in transitional economies (Miliki? et al., 2008).
Multinational organizations therefore have a continuous challenge in dealing with cultural diversity and identifying how and when these differences are relevant (IHRM). None of these frameworks suggest that the international human resources managers need to take a dramatic change the behavior to be cultural sensitive and cross cultural effective. But it comes from finding the balance between one’s own norms and values and those of the foreigners Standardized HRM systems or ethnocentric corporate cultures do not work for multinationals.
The purpose of this literature review was to understand how culture influences on performing human resources manage activities in a multinational organization. MNC across nations operates in cultures different from their parent country’s culture. Therefore, it is crucial e to identify the differences between different cultures to thrive for success.
In conclusion the frameworks play a key in deciding the best possible approach for international human-resources-management in MNCs. Any manager who has a keen knowledge on either one framework or on all three and may be on other aspects of this regards with right set of management skills will be able to build highly appropriate human resources practices to manage the employees in MNCs. “How an organization can recreate validity of Cultural frameworks in a way that it will be a better fit to modern day business practices” is suggest as a potential area for future research purposes.