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36 CHAPTER 2

Cultural Foundations of International
Human Resource Management

INTERNATIONAL MERGER MISERY AT DAIMLERCHRYSLER

Global consolidation of the automobile industry has allowed manufacturers to take
advantage of economies of scale related to supplier relations, manufacturing, adver-
tising, distribution, and after-sales service. In 1998, Daimler-Benz and Chrysler, one
of America?s Big Three automakers, combined to form one of the world?s largest
global automotive companies. Before the merger, the top executives of both Chrysler
and Daimler-Benz realized that if they insisted on doing everything alone, they could
remain strong, profitable regional players but might eventually lose their advantages
in global competition. Excess capacity posed a major global problem. A year before
the DaimlerChrysler merger, automobile factories worldwide operated at only 77
percent of capacity. Automakers could not operate efficiently at this level, and as a
result profit margins shrank.

When the proposed merger between Daimler-Benz and Chrysler was announced,
everyone involved had high hopes and optimistic expectations that this $41-billion
transaction would transform the automobile industry. However, what was thought of
as a ?marriage of equals? turned out to be not so equal. Daimler-Benz employed
300,000 people who built everything from luxury cars to railroad cars and engaged
in services ranging from insurance to software. Chrysler?s 121,000 workers made
passenger cars and light trucks. Apart from the difference in product lines, cultural
differences between the Germans and Americans proved to be too difficult to over-
come to achieve the lofty expectations. Auto analyst Maryann Keller noted, ?When
it comes to the cultures of these two companies, they?re oil and water.?1 The domi-
nance of the German culture was apparent in Daimler?s control of the company?s
corporate structure and operations. Operations and management were not integrated
successfully as ?equals? because of both the very different ways in which Germans
and Americans operated and the unwillingness of Daimler employees to concede
some of their ground regarding the direction in which the company was headed.

Daimler embraced formality and hierarchy, from its intricately structured decision-
making processes to its suit-and-tie dress code and starchy respect for titles and proper

36

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Vance, C. M., & Paik, Y. (2006). Managing a global workforce : Challenges and opportunities in international human resource management. M. E. Sharpe Incorporated.
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CULTURAL FOUNDATIONS OF INTERNATIONAL HUMAN RESOURCE MANAGEMENT 37

names. Chrysler shunned barriers and titles and promoted cross-functional teams
that favored open collars, freeform discussions, and a casual, fun work atmosphere.
In other words, Chrysler favored a more relaxed, freewheeling style to which it at-
tributed a large part of its pre-merger financial success. In addition, the two units
traditionally held entirely different views on important things such as pay scales and
travel expenses. Whereas Daimler executives had larger staffs and expense accounts,
Chrysler officers had broader responsibilities and bigger salaries and bonuses. As a
result of these organizational cultural differences, Chrysler employees became ex-
tremely dissatisfied with what they perceived as the source of their division?s prob-
lems: Daimler?s attempts to take over the entire organization and impose their culture
on the whole firm. A large number of key Chrysler executives and engineers de-
parted, while the German unit became increasingly dissatisfied with the performance
of the Chrysler division.

INTRODUCTION

The opening scenario illustrates how understanding different cultures is critical to
achieving successful mergers and acquisitions in international business. Without proper
knowledge of the different cultures involved, a merged company will not be able to
achieve the synergy it expects by streamlining existing operations, but it will experi-
ence wasteful confusion and debilitating, destructive conflict. And far beyond inter-
national mergers and acquisitions, these potential negative outcomes can take place
in many other business situations?at home or abroad?where cross-cultural inter-
actions are not supported by cultural awareness training and proactive planning, in-
cluding for the increased awareness of one?s own culture and its impact on others
from different cultural backgrounds.

Culture is central to the study and preparation for managing a global workforce
effectively. As rather cynically yet accurately stated by Geert Hofstede, one of the
pioneers of the study of national cultures throughout the world, ?Culture is more
often a source of conflict than of synergy. Cultural differences are a nuisance at
best and often a disaster.? Our sensitivity to possible cross-cultural differences is
critical to avoiding such nuisance and disaster. National culture can have a perva-
sive, powerful influence in organizations, and its important influence in various as-
pects of global workforce management will be noted throughout this book. In this
chapter, we will discuss the concept of culture and its role in managing people across
borders. We also will introduce two frequently cited cultural models and their mana-
gerial implications.

UNDERSTANDING CULTURE

Culture affects and governs all facets of life by influencing the values, attitudes,
and behaviors of a society. An individual is affected and engrained with his or
her cultural society of origin. There are a number of approaches to defining cul-
ture. Culture can be examined as artifacts and behaviors (such as food, dress, and
dance), deep cognitive structures (beliefs and values, the way group members

Vance, C. M., & Paik, Y. (2006). Managing a global workforce : Challenges and opportunities in international human resource management. M. E. Sharpe Incorporated.
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38 CHAPTER 2

tend to process information), or both: Culture has both behavioral and cognitive
components. ?Culture is defined as the socially transmitted behavior patterns,
norms, beliefs and values of a given community.?2 People from the same com-
munity use the elements of their culture to interpret their surroundings and guide
their interactions with other persons. Furthermore, culture is a phenomenon de-
rived from an interaction of psychological and social factors; individuals inter-
nalize messages about rules, beliefs, values, preferences, and expectations from
the social environment. Avruch notes, ?Culture is a derivative of individual ex-
perience, something learned or created by individuals themselves or passed on to
them socially by contemporaries or ancestors.?3 Similarly, Hall defines culture
as ?a pattern of behavior transmitted to members of a group from previous gen-
erations of the same group.?4

It should be noted that culture is not just a national phenomenon. The preceding
definition of culture involving common experience shared among members of a
community also can extend to ?communities? of age groups (for example, retired
persons), disabled persons (for example, the legally blind), individuals holding
similar religious beliefs, and work professions. For example, people sharing simi-
lar working conditions and job tasks, such as in information systems networking,
can develop similar beliefs and priorities that influence their behavior. Closer to
the concept of national culture are regional and local cultures, especially impor-
tant for countries?geographically large and small?of significant social and eth-
nic diversity where there may be quite different subcultures from one region and
location of a country to another. The concept of culture can also extend to indi-
vidual organizations, as communities, that through common experience over time
develop their own distinct set of values, norms, priorities, and beliefs??the way
we do things in our organization.? In fact, many MNCs strive to develop a com-
mon cultural identity of the organization that transcends the traditional influence
of national culture. The understanding of national culture, organizational culture,
and local culture is particularly relevant to our study of global workforce manage-
ment, and these different cultural contexts will be examined throughout this book.
However, in this chapter we will focus primarily on general characteristics of na-
tional culture.

Culture encompasses information and assumptions that allow us to interpret each
other?s statements, actions, and intentions. For example, when people from different
cultures begin to interact, they often lack a ?common pool of information and as-
sumptions.?5 Typical approaches to international management attempt to promote
awareness of and sensitivity to national and ethnic culture to enhance one?s ability to
avoid misunderstanding and to better understand and predict the behavior of people
from other cultures. And in many cases the study of culture is very helpful to guide
the modification of one?s own behavior to better fit in with predominant cultural
expectations, such as ?when in Rome, do as the Romans do.? With particular regard
to managing a global workforce, the more familiar one is with the cultural values
and norms of a country, the more likely one can best interact with, understand, and
manage its people.

We would like to make an important note here about the distinction between gen-

Vance, C. M., & Paik, Y. (2006). Managing a global workforce : Challenges and opportunities in international human resource management. M. E. Sharpe Incorporated.
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CULTURAL FOUNDATIONS OF INTERNATIONAL HUMAN RESOURCE MANAGEMENT 39

eral cultural patterns and stereotypes. When we learn about general cultural charac-
teristics and differences between cultures, we are merely dealing with general pat-
terns. We must remember that there can be considerable variation within cultures,
and we must not expect every individual to behave in a manner consistent with gen-
eral cultural characteristics in every situation. Also, even though a general cultural
characteristic may be accurate for individuals in most situations, they are also able to
adapt their behaviors to the needs of a particular situation. Although there is value in
learning about general cultural characteristics and tendencies to help guide our mak-
ing sense of otherwise puzzling or even offensive behaviors we encounter, we also
must be careful not to form rigid perceptions and fall into the mistake of simply
relying on stereotypes. Group stereotypes, which can be positive or negative, are
based on the assumption that all individuals in a certain group have the same charac-
teristics. Decisions based on stereotypes risk being inaccurate, not to mention unfair,
when individuals at the focus of the decisions do not conform to the stereotype, as
may often be the case. Although general cultural patterns may be useful, especially
in first learning and gaining insights about a given culture, these patterns must be
challenged and refined continually. Ultimately, to be effective in managing human
resources at home and abroad, we must get to know, manage, and assess employees
on an individual level.

MAJOR MODELS OF NATIONAL CULTURE

In this book, culture is defined as a system of values and norms that are shared
among a group of people and that, taken together, constitute a design for living.6

Although values are abstract ideas and convictions about what people believe, norms
are prescribed behaviors that are acceptable in a specific society. Both values and
norms are influenced by many factors such as religion, language, social structures,
education, and so on. Values are more difficult to learn than norms because they are
not easily observable. Yet, it is essential for business managers to study values in
order to understand the reasons and motivations behind specific behaviors and cul-
tural norms. The following section will introduce two commonly used models of
culture with their managerial implications.

HOFSTEDE?S CULTURAL DIMENSIONS AND MANAGERIAL IMPLICATIONS

Geert Hofstede defined national culture as the set of collective beliefs and values
that distinguish people of one nationality from those of another.7 His original com-
prehensive study, which he conducted while working at IBM as a psychologist, in-
volved over 100,000 individuals from fifty countries and three regions. In the study,
Hofstede identified four important dimensions in national culture. The validity and
reliability of these four cultural variables have been tested and found to be very
strong in subsequent studies.8 Later he added another cultural dimension, ?Confu-
cian dynamism,? which captures the difference between a long-term and short-term
orientation.9 Figure 2.1 summarizes Hofstede?s cultural dimensions along with their
managerial implications.

Vance, C. M., & Paik, Y. (2006). Managing a global workforce : Challenges and opportunities in international human resource management. M. E. Sharpe Incorporated.
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40 CHAPTER 2

Uncertainty Avoidance

This Hofstede dimension refers to the extent to which people feel comfortable when
they are exposed to an ambiguous or uncertain situation. People in a low uncertainty
avoidance society are more willing to take risks and appreciate flexibility and infor-
mality in the workplace. In contrast, people in a high uncertainty avoidance society
tend to be risk averse and favor rigid and formal decision-making processes in the
workplace. Under high uncertainty avoidance, security is a strong motivator relative
to achievement or self-fulfillment, and order and predictability are paramount. Rules
are important and must be obeyed to avoid chaos. Communication is direct and un-
equivocal to avoid confusion. Often this directness in high uncertainty avoidance
countries such as Germany is mistaken for rudeness, when in reality it is an effort to
ensure the clarity of a message of rule observance to preserve order. It is no surprise
that Germany is a world leader in precision engineering and manufacturing.

The perceived difference in tolerating uncertain situations has several important
implications at both the macro and micro levels. First, at the macro level, the accep-
tance of uncertainty is essential for innovation because it requires a tolerance for risk
and change. Technological innovation is critical for economic growth and enhanced
competitiveness in the global market. However, the development of technology or
innovation itself is a risky adventure because it requires a long-term resource com-
mitment. The U.S. culture of low uncertainty avoidance and tolerance for risk and
change has often been mentioned as a main source of the country?s technological
leadership in the world.10 Conversely, people who are culturally inclined to avoid the
risks and uncertainties of life tend to think that developing a new technology from
the ground up may be too risky.11 In cultures where individuals are reluctant to ac-
cept a certain amount of uncertainty and risk, a relentless attempt to develop new
technology may end up only depleting their limited national resources. Accordingly,
high uncertainty avoidance countries tend to represent a less favorable environment
for technology development than low uncertainty avoidance countries.

Second, at the micro or organizational level, in high uncertainty avoidance societ-
ies, numerous formal internal rules and regulations exist to control the work process of
employees. Roles must be specified and instructions detailed. In low uncertainty avoid-

Figure 2.1 Hofstede?s Cultural Dimensions and Their Managerial Implications

Cultural Dimensions Interpretations Managerial Implications

Uncertainty Avoidance Rigidity vs. Flexibility Formal vs. Informal Procedures

Power Distance Equality vs. Inequality Centralized vs. Decentralized
Decision Making

Individualism vs. Collectivism Self vs. Group Individual vs. Group Rewards

Masculinity vs. Femininity Material Success vs. Concern for Competition vs. Cooperation
Others

Confucian Dynamism Virtue vs. Truth Long-term vs. Short-term
Orientation

Source: Adapted from G. Hofstede, Cultures and Organizations: Software of the Mind (New York: McGraw
Hill, 1997).

Vance, C. M., & Paik, Y. (2006). Managing a global workforce : Challenges and opportunities in international human resource management. M. E. Sharpe Incorporated.
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CULTURAL FOUNDATIONS OF INTERNATIONAL HUMAN RESOURCE MANAGEMENT 41

ance societies, managers are allowed to exercise more latitude and discretion in their
decision making rather than relying on rigid internal rules and regulations. The open-
ing DaimlerChrysler case highlights the challenges global managers face in overcom-
ing such differences between two companies. With its reputation for rigid, no-nonsense
management, Daimler-Benz had to find a way to work with the shoot-from-the-hip,
less formal Americans at Chrysler. One of the most recent studies on international
joint ventures found that differences in uncertainty avoidance has a negative impact on
International Joint Venture (IJV) survival, and certainly the cross-cultural conflict chal-
lenges noted with the DaimlerChrysler merger are a testimony to this claim.12

Power Distance

Power distance refers to the extent that people have an equal distribution of power. In a
large power distance culture, power is concentrated at the top in the hands of relatively
few people whereas people at the bottom are subject to decisions and instructions given
by superiors. Conversely, in a small power distance culture, power is equally distributed
among the members of the society. It is important to note that the particular predominant
perspective on power distance is held and reinforced by most members of the society.
Even in high power distance countries such as Mexico and India, both those in positions
of power and authority and those at the lowest organizational levels accept without ques-
tion the wide gap in power and authority with accompanying status, privileges, and wealth.
Lower-level employees often feel uncomfortable with expatriate managers from moder-
ate to lower power distance countries (such as the United States) who may attempt to
establish more participative and egalitarian management practices.

Managers in high power distance societies tend to believe in giving subordinates
detailed instructions with little room for interpretation. Subordinates are supposed to
respect the authority and superiority of upper management. Thus, the ?mechanistic
characteristics? of high power distance cultures, such as inequality among the mem-
bers in the society, lack of free communication across different levels of the hierar-
chy, and centralized control, can stifle employee creativity and new ideas. Multilevel
hierarchies effectively widen the social gap between superiors and subordinates.
Such structures tend to stifle the innovation process and send clear messages to em-
ployees not to operate outside their domain.13 Quinn argued that policies that foster
inequality among the members of an organization impede innovation.14 Standard-
ized organizational procedures and rigid centralized control have been found to hinder
the flexibility needed for innovation.

In contrast, ?organic characteristics,? such as lack of hierarchical authority and
less centralization, tend to promote employee interaction, lateral communication,
and less emphasis on the rules. Nondirective, hands-off monitoring systems have
often been implemented to allow the creativity and exploration necessary for suc-
cessful innovation.15 Hauser argued that the technical and social complexities of
innovative projects demand extensive communication.16 Unstructured, freewheel-
ing, multidirectional communication across levels of an organizational hierarchy
will facilitate innovation. Conversely, people in high power distance cultures rarely
partake in informal communication between different levels of hierarchy. A lack of

Vance, C. M., & Paik, Y. (2006). Managing a global workforce : Challenges and opportunities in international human resource management. M. E. Sharpe Incorporated.
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42 CHAPTER 2

informal communication in high power distance cultures can impede the free flow of
necessary information and the constructive communication needed for innovation.

Individualism versus Collectivism

Individualism means that people seek and protect their own interests over the com-
mon goal of the society and their role in the society. In an individualistic culture,
people are comfortable with having the authority to make a decision based on what
the individual thinks is best. In a collectivistic culture, people tend to belong to groups
or collectives and look after each other in exchange for loyalty. Two major elements
in Hofstede?s concept of individualism include autonomy and variety.

In individualistic societies, employees are provided with a great deal of personal free-
dom and autonomy. First, many researchers believe that freedom and independence are
essential for effective research and development (R&D) and innovation.17 IBM?s main
theme, ?how to build individuality into firms in the interest of innovation,? reflects the
same view. However, collective cultures do not usually allow the same amount of free-
dom and independence necessary for organizational members to think creatively and,
thereby, fail to cultivate an environment that fosters an innovative spirit.

Another element in a collective culture that discourages innovation is the reluc-
tance to accept variety and diversity in society. Innovation means doing things dif-
ferently. Variety in an organization must be sufficient to foster experimentation,
learning, adaptation, pursuit of new roads, and generation of opportunities. Promot-
ing and maintaining multiple perspectives are essential to the innovative process.
Collective cultures put a great deal of pressure on their members to conform to one
another without their being aware of it. The overwhelming and unconscious pressure
for conformity and uniformity in collective cultures does not cultivate an environ-
ment for diversity and provides less room for people to deviate from established
norms, thus impeding the innovation process.

As will be examined later in our chapter on global performance management, the
distinction between individualism and collectivism also can influence performance
evaluation systems of employees. While an individualistic culture tends to empha-
size individual merit or achievement, a collectivistic culture measures contributions
to teamwork and group achievement. It is also believed that people in a collectivistic
culture like Japan are willing to show a higher level of loyalty to their organization
compared to people in an individualistic culture like the United States, where the
general sentiment holds job mobility for personal career advancement as more im-
portant than organizational loyalty.

Masculinity versus Femininity

Hofstede believes that the masculine dimension is very closely related to the concept
of achievement motivation introduced by McClelland and Winter.18 A masculine
culture is basically a performance-driven society where rewards and recognition for
performance are the primary motivational factors for achievement. In masculine cul-
tures some major innovations are simply the outcome of financial rewards, prestige,

Vance, C. M., & Paik, Y. (2006). Managing a global workforce : Challenges and opportunities in international human resource management. M. E. Sharpe Incorporated.
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CULTURAL FOUNDATIONS OF INTERNATIONAL HUMAN RESOURCE MANAGEMENT 43

and a sense of accomplishment. In masculine societies, people are supposed to be
competitive, ambitious, assertive, and risk taking in order to achieve their goals. This
type of culture tends to give the utmost respect and admiration to the successful
achiever who fulfills his or her ambition and demonstrates assertiveness and willing-
ness to take risks in order to achieve goals. Top management positions are usually
filled with men who tend to display dominant and assertive characteristics?which
tend to be discouraged among women by societal gender norms. Expressing this
behavior, men are perceived in a positive light as assertive, whereas women are seen
in a negative light as aggressive.

On the other hand, in feminine cultures people tend to emphasize the quality of
the ?whole? life rather than money, success, and social status, which are easier to
quantify. They are willing to reach out to the underprivileged and share their wealth
with them. Accordingly, the pursuit of sustained economic development, keeping
the balance between industrialization and environmental preservation, is consid-
ered more valuable than the simple gross national product (GNP) growth. Overall,
organizations with a feminine culture are not as competitive as those with a mas-
culine culture, because the former places higher priority on concern for others and
little distinction is made between men and women in the same position. Scandina-
vian countries have long been considered feminine cultures. It is no surprise that
they tend to be world leaders in personal taxation to support social security and
support needs.

Confucian Dynamism

This dimension was added later to Hofstede?s original research findings. Using a
different survey instrument called the Chinese Value Survey (CVS), Hofstede and
Bond identified a new cultural dimension, ?long-term versus short-term orientation,?
that strongly reflects Confucianism, a cultural backbone of East Asian countries.19

Long-term orientation captures the following elements: adaptation of tradition to the
modern context, high savings ratio driven by thrift, patience and perseverance to-
ward slow results, and concern with respecting the demand of virtue. They claimed
that these characteristics, unique to people in East Asian countries such as Japan,
Korea, and China, explained the cultural ethos strongly associated with the region?s
remarkable economic growth in the 1970s and 1980s. On the other hand, a short-
term orientation contains the following aspects: respect for traditions, lower savings
rate, quick-results orientation, and concern with possessing the truth.

Hofstede emphasized that this particular cultural dimension was missing in his
original study and was relevant only to countries in East Asia. Confucian dynamism
may reflect a society?s search for virtue rather than truth, truth being driven by reli-
gious ethics in Western countries. Along with the different proclivity toward uncer-
tainty avoidance, short-term versus long-term orientation also has been identified as
a main source of conflict resulting in decreased performance in international joint
ventures (IJVs).20 In IJVs that involve considerable cross-cultural interaction and
where managers? perceptions about time orientation differ significantly (for example,
in one IJV partner the focus is on short-term gains whereas the other partner empha-

Vance, C. M., & Paik, Y. (2006). Managing a global workforce : Challenges and opportunities in international human resource management. M. E. Sharpe Incorporated.
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44 CHAPTER 2

GLOBAL WORKFORCE CHALLENGE 2.1

CHINA AND THE CROSS-CULTURAL TRAINING IMPERATIVE

The Chinese have a saying that ?he who knows two cultures lives two lives.? This is an apt expression
to keep in mind as we continue to integrate with China as a central player in the global marketplace.
Greater cross-cultural understanding and sensitivity will continue to be in high demand on the part of all
participants. Although convergence in broad economic and strategic practices will continue, deep-seated
differences will still exist between Western and Eastern management styles and specific practices involved
in implementing economic policy and company strategy. There are fundamental differences in personal
worldviews, including those regarding the role of family, government, religion, age, and so on, and the
impact of family and educational environment on individual development is huge. It would be fanciful to
assume that all Chinese managers who received Western-style management training will be immediately
transformed and behave like Western managers. Cross-cultural training programs for Western profession-
als working in China should have a set of personality traits identified as most suitable for the proposed
cultural environment, and trainees should be screened for at least potential promise in those traits. Besides
these specific traits and associated, supportive behaviors, cross-cultural training should also concentrate
on general skills in cross-cultural adaptability and ability to observe and read cultural differences, which
are so essential at the critical early stages of preliminary negotiations and cross-cultural encounters.

Cross-cultural issues are further challenged by internal cultural disparities that have nothing to do
with East-West differences. For example, in China there are considerable disparities between
entrepreneurs from peasant stock, who have suddenly flourished with China?s ascent in embracing
the global market economy, and the more established technocrats with a college education who are
dominant in the fields of engineering and natural sciences. In addition, there are major differences
between Western national cultures, based on different basic value systems, which can add complex-
ity and potential confusion in multiple-party transactions in China.

Three key priorities for guiding cross-cultural training efforts to help bridge the cross-cultural divide
and support future successful business operations in China and with Chinese partners worldwide

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