Lily_Cross-cultural management in multinational companies

Cross-cultural management in transnational companies

Lily1

11120123153, International Economics and Trade, Beijing Institute of Technology Beijing 100081, China Abstract

Purpose – The purpose of this paper is to summarize the major researches that has been conducted regarding cross-cultural issues; show both positive and negative effects caused by culture diversity on transnational companies; and then identity specific strategies for transnational companies to carry on cross-cultural management.

Design/methodology/approach – Using Meta-analysis to summarize researches on the topic of cross- cultural management also the culture diversity. Through a literature review of papers directly or indirectly linked to cross-cultural management, and cases on the culture management of transnational companies who just finished M&A.

Findings – culture diversity indeed influence the efficiency of a multicultural team, which can be applying on transnational operation. So the cross-culture management is necessary for a transnational company to achieve success under the globalization. There are 4 types of management idea and several ways to implement the strategy. Using Lenovo as an example to understand the choosing better. Originality/value – This paper comprehensively reviews the research and practices on cross- cultural management; Implications on cross-cultural selection, training is provided based research evidence. Keywords Cross-cultural management, culture diversity, transnational companies, Lenovo

Introduction

As the increasing of globalization, the cooperation between different countries becomes a common phenomenon. Cultural diversity is an important factor that affects the teamwork greatly. So the study of the effects seems very important for a manager of multicultural team. With the progressive globalization of the workforce, business found their reliance on teams in the workplace has led to a dramatic increase in the number of culturally diverse work teams in companies worldwide, an experience that has proven to be rewarding and yet challenging. In fact, such teams – with multiple perspectives – can boost firm performance, but that potential comes with some risk. Some research suggests that teams characterized by demographic heterogeneity have advantages over teams who are not demographically diverse (e.g. added

ideas, approaches, perspectives), other research indicates that the multicultural aspect of a team creates potential for added conflict. Also according to the status quo, more and more Chinese companies begin to choose going internationally by M&A, which followed by the issue on management of cross-culture. Some further research offers that conflict itself is not a problem as long as it is constructively handled. So cross-cultural management, which means logical integration of different cultures to make the multicultural team be more efficient, becomes important.

1Cultural diversities that multicultural teams face

Culture diversity is the differences varying from country to country. There are four main aspects that a multicultural team may face.

1)Language and the way of communication

The differences exist in communication is the first shock a multicultural team faces. In the cross-cultural communication, listeners must understand what speakers say, not only the ideographical, but also the profound meaning. Otherwise, this difference will cause misunderstanding.

2)The mode of thinking and behavioral pattern

The mode of thinking is defined by different culture background, individual knowledge structure, social and working environments. Different thinking modes will surely lead to behavioral pattern. For example, Chinese prefer imaginal thinking while westerns prefer logical thinking.

3)Value conception system

The value conception systems are influenced by the conventional culture. The main differences between western and eastern countries are presented as individualism or collectivism and power differentials.

4)Nonverbal communication

Nonverbal communication includes gestures, body language etc. which also has the function of delivering information and expressing feeling. According to analysis conducted by Edward T. Hall, nonverbal communication accounts for 65%. However, nonverbal communication is different because of esthetic standard, religious faith and nation customs.

All these culture diversities in a team will cause many problems that may be good or not. Diverse teams often suffer because individuals struggle to understand, trust, or relate to people with different backgrounds or perspectives. This distrust or lack of understanding can lead to tension, hostility, lack of cooperation and poor communication that undermine team performance.

For example, language differences resulted in miscommunication, which jeopardized trust, cohesion and team identity. These complexities included the higher cost of interaction and the effects of intercultural communication on miscommunication.

Although there are many passive effects due to the conflictions caused by cultural diversity, the positive or even advantages that diversity brings to multicultural team cannot be ignored. Because of different culture backgrounds of team members, the team creativity get a chance to get great promoted also the ways to solve problems have been expanded. These advantages can be concluded as following representations. 1) Decreasing operation costs

Cultural diversity can help team leader have better understanding to the global market also more quickly which can decrease the blindness during the market development. All these will finally lead to a lower information costs and the costs of negotiations.

2) Increasing the management innovation

Cultural diversity can help the team broaden the market space and break the society structure in order to achieve resource sharing and complementary advantages. Also facing the trend of globalization, international competitors and clients, cross-cultural management can increase the management innovation, which can help team be more flexible when they meet the changing environment and demand.

3) Improving the international competitiveness

Different cultures will bring the team various thoughts, which will finally form a characteristic management idea. This specific idea is good for the expanding of international market also improving the international competitiveness.

2Cultural diversities in transnational companies

When the multicultural teams turned into more specific, it must be transnational companies. as the globalization processing increasing, the cases of M&A increased rapidly which bring out many transnational companies. For example, the reform of the China economy from heavy state intervention to market orientation as well as membership in the World Trade Organization (WTO) has forced China to become integrated into the global economy. In the past two decades, more and more international operations have been widely adopted in China, whereas many Chinese firms have established new business in other countries.

1)Culture diversities’ effects on transnational companies

i.Market demand

Culture may have effects on consumption demand and behavior. Consumers under different cultures usually have unique consumption demands, which can be presented as special products or can be particular consumption pattern.

ii.Management

a)The difficulties brought by culture diversity can be concluded as following

!Employees from different culture have characteristic demand and expectations

!Culture diversities makes managers have difficulties in reaching agreements when they have conflictions

!Stuffs may have various understanding and executing of decision and management systems

b)The diversity of culture also brings opportunities. Culture diversity and multicultural help

transnational companies think problems from different aspects, which can provide more solutions for a particular issue. Moreover, culture diversity can offer company complementary advantages in knowledge and thinking which facilitate the forming of new idea and new thought that can improve efficiency and competitiveness.

c)Different management characteristic under different culture

!China: “half-way path” culture

Chinese corporations often emphasize that collective interests are the first, national interests are the first. Individual achievements should also be shared.

!German: expert culture

Under Germany culture, workers should take strict training on their major and make every effort to improve working skills. In this kind of environment workers are consistent with their skill level.

!Japan: Team work and Lean culture

Japanese corporations emphasize the importance of teamwork.

!America: personal value and contract sanctity

Americans pay lots of attention on chasing individual achievements. As for the relationship between employees and corporations, corporations focus on law and contract.

iii.Externalities

The effects can be concluded as following

!Different countries have various political and economic systems

!The legal culture are also different

!The social culture also influence transnational companies’ management

!Natural factors vary from country to country which can have influences on transportation costs, communication costs and resources allocation etc.

2) Status quo of culture diversity in transnational companies

https://www.sodocs.net/doc/4710123277.html, reported that 83% of transnational companies cannot make economic profit, however, most people charge this on wrong analysis of markets and neglect the factor of culture and human resource after the M&A. Mazzoline1investigated on the senior manager of transnational countries and found that the conflictions after M&A are various, among which human resources are the major one which obviously cannot depart from culture. Olie2thought that the success rate of cross-nation combination is between 40% and 60%. Muller3investigated in more than 8000 merged companies and purchased companies, also found only 15% of them made great profits. Benz Daimler merged Chrysler in 1998. However, in the following 3 years the stock price of Chrysler decreased more than 50% compared with large stuff reduction. Also many senior managers left their jobs. Stallkamp was the former CEO, he said that a successful merged company should abandon each culture and form a new culture instead. However, we didn’t integrate our culture, on the contrary we were discussing about which one we should choose from the old ones.

3Strategies on cross-cultural management for transnational companies

Cross-cultural management is the key for global competition and development of transnational companies. Under the circumstance of globalization, if transnational companies want to achieve success, they have to operate cross-cultural management.

1)Identity culture diversity, develop culture recognition and improve the aware of cross-cultural

management.

Companies should admit the objective differences between different cultures, pay attention t foreign language, culture, economy and legal system. Senior managers should acknowledge and accept new culture by understanding, respecting, trusting. Building communication mechanism to decrease the risks and conflictions that caused by culture difference. Meanwhile, the effective communication can

1 Mazzolini, R. E uropean T ransnational C oncentrations[M]. N ew Y ork: M cGraw--‐Hill, 1974.

2 Olie, R. C ultural e xchange i n m ergers a nd a cquisitions. I n J ackson T (Ed.), C ross--‐ C ultural m anagement [C]. B utterworth Henemann, 1995.309--‐325.

3 Muller, E. o nly 15% o f t he m ergers a re r eal w inner [J/OL]. H ttp://https://www.sodocs.net/doc/4710123277.html,fe/daily/199890812/ 22455794.html, 1998--‐08--‐12.

also facilitate better understanding of own culture. Under this kind of mechanism, understanding---respect---trust ---communication---better understanding which is a virtuous circle.

Through this circle, transnational companies can decrease the risks and conflictions that caused by culture diversity also build a new corporation culture.

2)Strategy of share value

Build shared value within companies. As an important component of culture, value system can assure the behavioral pattern, principles of communication. In cross-cultural management, managers from different countries should eliminate the ethnocentrism and respect each other’s culture. On this basis, find the combination way of different cultures and exert each advantage, finally to build a shared value.

3)Localization

Eliminating the culture diversity and adopting management pattern to local culture is the assurance of cross-cultural management. Develop new products that meet the local taste and make relative marketing strategies, also let the operation be more suitable for local culture and needs.

4)Integration and creation

Culture confliction is an objective phenomenon that cannot be avoided. On the other hand, culture confliction also facilitates the development of different cultures and achieves the combination different cultures. When a transnational company faces the culture confliction under globalization, it has to find the culture characteristics in order to take particular strategy to deal with it. Basing on the combination, integrate and build a new management pattern that can be accepted by both sides.

5)Training of cross-culture

The training is an effective way to prevent and solve the confliction. The training is also a way of study, the main context concludes language study, understanding of own and heterogeneity culture, cross culture communication and dealing of confliction. Managers can be conducted to understand and respect other’s culture to decrease conflictions.

4 A case study on cross-culture management --- Lenovo merger IBM global PC business

In December 8th, 2o04, Lenovo claimed purchasing IBM global PC business in order to become a well known and technology advanced transnational company. Federal trade commission permitted the foreign investment in 2005, and the M&A finished on May 1st, 2005 with the amount of 1.25 billion dollar. After the merging, two companies would have long-term cooperation in PC selling, service and consumer financing.

1)Operation condition after M&A

i.Changing CEO for three times in 5 years

Although the the merging was impressive, the integration process was rather tough. Lenovo appoint Stephen Ward who used to be the vice CEO of IBM to be new CEO of new Lenovo. However, the financial report shown the result of 0.9 billion-dollar losses. Then in 2005, William J. Amelio was appointed as new CEO, unfortunately, more losses were shown in 2008-2009 financial report for the amount of 0.2 billion dollar. In 2009, the founder of Lenovo Chuanzhi Liu took charge of Lenovo again.

ii.Fluctuations in

iii.business performance

Until 2006, Lenovo lost 0.32 billion HK dollar and 0.23 billion dollar in 2008-2009. The stock price often fluctuates after merging. Chatterjee & Lubatkin (1992) judge the capital market attitude of merging according to the stock price before and after merging. Their empirical research presented that investors often hold negative attitudes to the apparent culture diversity M&A. The price of Lenovo stock decreased sharply after the merging, which means that most investors hold the pessimistic expectation of purchasing.

2)Analysis on cross-culture management

There are still many problems about the cross culture integration in new Lenovo.

i.Cross-culture management obstacles

a)Effective communication obstacles

The first stumble Lenovo faced was effective communication obstacles. Firstly, the mother

tongue of two countries’ employees is different which cause communication difficulties

directly. Secondly, Chinese is more contextualism that caused misunderstanding.

b)IBM has low degree identification of Chinese corporation culture

During the process of purchasing, employees and investors of purchased company still used

doubtful attitude on valuing Chinese companies. Low price products and low efficiency

management are still the image of Chinese companies. Low recognition degree requested

Lenovo to develop a new culture.

ii.Double culture differences

a)Culture difference between China and America

According to Hodstede (1980,1991) culture dimension theory, we can take five aspects of

differences into consideration.

!American gets the highest point on individualism, while the Chinese have a particular low point in this.

!US have a relatively low acceptance of power distance, which presented as equality among people. On the other hand, Chinese have a higher acceptance. Lenovo employees

prefer to get away form the power center and respect the senior managers, however, IBM

stuffs are more likely to bring up doubts and the senior will also try to negotiate.

!IBM stuffs prefer to take risks and hope managers can give accurate description of requests. Chinese employees, on the other hand, would like to understand the ambiguous

indicates.

!Compared to Chinese, Americans pay more attention on life quality, so they won’t use extra time for work.

!IBM is short-term orientation while Lenovo Chinese stuffs are more likely long-term orientation.

b)Corporation culture difference between Lenovo and IBM

IBM and Lenovo have big difference in culture. The development history of Lenovo is 80

years shorter than IBM’s. Lenovo’s main business area is Asia-Pacific region while IBM has

PC branches in more than 60 countries. As for the management style, Lenovo highlights the

power distance and hierarchy while IBM is more democratic.

3)Strategies for cross-culture management

i.Build comprehensive corporation culture

PC business should following the “strategies go globally, executing localized” to operate cross-culture management. IBM PC business part should not follow Chinese Lenovo culture completely. Instead, it should reserve its own culture and absorb Lenovo culture. Two kinds of culture can compensate each other and take fully advantage of cross culture. New Lenovo should not force IBM to adopt Chinese management model, it ought to treat each region as a independent individual and make strategies according to local culture.

ii. Cultivate globalized managers

The more effective way for Lenovo to spread corporation culture is cultivating globalized managers

who also familiar to Lenovo culture, they indeed are those who execute cross culture management.

Lenovo can base on own development strategies to choose proper employees and give them cross-cultural training and chance of working overseas.

iii. Build a cross-cultural management mechanism

Cross-cultural management mechanism concludes three main aspects, which are training of understanding culture, combination of cultures and feedback systems.

a)Training of understanding culture

The main purposes of the training are

!Avoiding the confliction for foreign managers and help them adopt local environment

!Help local stuffs to understand and support parent companies’ culture and operation model

!Keep good relationship with the merging companies (Shuming Zhap, Jie Zhang, 2005)

Lenovo should give training in acknowledging, emotion and behavior three aspects and bring

up three core skills which are ability of stress tolerance, skill of communicate effectively and

interpersonal skill.

b)Facilitate combination of cultures

In order to achieve success of integration of cultures, two parties should achieve agreement on

which kind of cross-culture management model they will choose. Among assimilation,

reservation, combination and introducing, which one suit new Lenovo best depends on the

relevancy and the degree of multicultural. As for the relevancy, Lenovo and IBM are

apparently relevant, they are both serving as computers manufacturing. Yuanqing Yang, CEO

of Lenovo, claimed that dealing with culture diversity, Lenovo would follow the idea that keep

the parent company culture as basis, meanwhile respect the culture of purchased company.

The model of culture integration of two companies should be flexible and step-by-step.

Parsons (1967) advanced when the origin culture was threatened by external culture, it will

exclude and filtrate.

New Lenovo should follow the step of reservation--- introducing--- combination, which is

shown in the following graph.

Assimilation: Lenovo dominate Assimilate Combination: Lenovo and IBM combine Transform

Reservation: Cultural isolation Multicultural Introducing:

IBM dominate

Assimilate

Process of

combination and

innovation

optimal blend of values coming from both the home and host countries. Finally, the paper does a simple case study on Lenovo to understanding the cross-cultural management theory better. The context of cross-cultural interactions, individual difference among trainees and the evaluation of the training should also be taken into consideration.

References

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