The Importance of Cultural Differences for the Global Multi-National Corporation (MNC) 

Executive Summary

This report provided an overview of the impact of cultural diversity on the Global Multinational Corporation. The report provides a brief introduction to the reason behind cultural diversity and explains the various dimensions of culture. The report also explained various determinations of culture along with some examples. Finally, the report was set to discuss the advantages and disadvantages of cultural diversity.

Contents

Executive Summary 

Introduction

Dimensions of Culture 

Determinants of culture

Language and Communication

Attitude towards relations

Manner of behavior

Advantages of Cultural Diversity

Disadvantages of Cultural Diversity

Conclusion

References 

Introduction

In the last few decades, the global economy has undergone a lot of changes and transformation and this has caused the business organizations to go for international expansion. The international expansion of businesses from different countries around the world has also contributed towards the liberalization of trade policies and the opening of new markets in other countries. This has led to the entry of a large number of international companies in the national markets. These companies that operate in an international environment have a face a cultural diversity in its employees and/or business partners and to ensure the success of these companies, it becomes crucial for them to manage the cultural diversity and maintain good business relations between various employees and business partners from different cultural backgrounds (Adamczyk 2017). Companies identifying and understanding the cultural differences have an edge over its competitors in the international market.

Dimensions of Culture

As defined by Hofstede, some of the important dimensions of culture are – treatment of inequalities among people, competitiveness vs. cooperation, the importance given to tradition, education, and innovation (Hofstede and Minkov 2010). All these dimensions determine the workplace values prevailing in organizations that form part of a particular culture. As more and more businesses are gaining entry into the international market, these businesses must understand that cultural differences can have a huge impact on their success in the target market. Lowering the language gap requires the encouragement of effective communication. Different countries have different cultures, for example, the culture that prevails in the UK and the US is a low context culture in which the communication is kept clear and open whereas countries like Russia have a high context culture where communication is not as clearer and there is more ambiguity (Rowe 2017). While one thing may be appreciated in a particular culture, the same thing may be considered as wrong or unethical in a different culture. It is quite common in Chinese culture that business partners or associates dine together as it is seen as a means of developing good relations and building trust between the parties (Rowe 2017). However, this is highly discouraged in the business culture of the United States, where it is not considered as appropriate for business partners to dine together and it is generally avoided.

Determinants of Culture

The word culture is used to describe all the morals, beliefs, knowledge, and habits, etc. that are adopted by a human being as a member of society. Culture refers to different aspects of life such as food, attire, technology, transport, economic conditions, housing, social care religion, etc. Culture refers to the attributes of a certain society that are passed on from one generation to the other. Different factors give rise to cultural diversity amongst different countries and societies. Hampden-Turner and Trompenaars discussed the different layers of culture. They divided culture into three different layers- where the first layer was referred to as the visible layer or the outer layer which included elements such as language, building, cuisine, the taste for art, and dressing styles of people (Trompenaars, Hampden-Turner 2002: 21). The second layer of culture was referred to as the middle layer entailing rules, values, and beliefs that were followed by a particular community. The last layer of the culture comprised of the core values that defined its existence (Trompenaars, Hampden-Turner 2002: 21).

Language and Communication

Each country and each culture has different attributes related to its communication process, communication style, and negotiation style. It is due to this reason that culture is considered a significant challenge when doing negotiations and concluding international deals. In a situation when parties in a negotiation are from different cultural backgrounds, there exists a higher risk of failure of negotiation as different people may understand and interpret different words, actions, and gestures in different ways (Adamczyk 2017). Hence, it is really important that when communicating with foreign business partners or customers the business managers must make themselves familiar with the culture of other party’s country.

Attitude Towards Relations

A few countries have transaction-oriented culture while others have a relationship-oriented culture. In a transaction-oriented culture, businesses only focus on achieving their goal and there is limited focus on maintenance of the relationship with business partners (Adamczyk 2017). This type of culture is prevalent in Germany, the United States, Canada, and New Zealand. In a relationship-oriented culture, the highest focus is on the maintenance of business relationships and transaction comes after good relations.

Manner of Behavior

Based on the manner of behaviour, cultures are classified into Reserved and expressive. In a reserved culture, people maintain a large distance when talking to others, do not display their emotions, and avoid being touched. This type of culture is usually prevalent in South Asian countries. Expressive culture is just the opposite of reserved culture where people do not prefer to maintain a big distance while talking, easily display their emotions, and being touch is generally accepted. This type of culture is prevalent in Latin American countries and certain European countries (Adamczyk 2017).

Advantages of Cultural Diversity

Cultural diversity doesn't just pose challenges for multinational corporations but has brought some significant benefits for these organizations in the form of higher creativity and innovation among the employees. This is because of the availability of greater learning opportunities and knowledge sharing by different teams belonging to different parts of the world (Rozkwitalska, Chmielecki, and Przytuła 2014). This has also provided greater opportunities for knowledge sharing and has also boosted productivity. The cultural diversity enables multinational corporations to have a diverse workforce that adds to their competitive advantage as they can hire the best talent across the world and even at a lesser cost. Apart from this, cross-cultural communication proves highly effective as there is a higher effort made to provide clear explanations of ideas and this leads to stronger social connections between people of a different culture which further improves the quality of communication and provides greater job satisfaction.

Disadvantages of Cultural Diversity

While cultural diversity has several advantages it has certain disadvantages as well. If there are any communication issues amongst a culturally diverse workforce, then it could lead to ambiguity and confusion (Mateescu 2017). Differences in the culture give rise to several communication barriers within the organization, hence it becomes really important for managers, officers, and employees of companies that engage which expand their operations in foreign markets, to understand the culture prevailing in those countries If cultural diversity exists along with wide inequalities in income, it can give rise to civic disengagement among certain groups (Button 2018). If cultural diversity is not managed well, it could also lead to discrimination between certain employees on unfair grounds and can be the cause of low morale, loss of productivity, and high employee turnover.

Conclusion

Based on the above discussions, it is concluded that there are several aspects concerning businesses that are impacted by cultures, such as management, negotiations, consumer behavior, and business relations. Cultural diversity is an important factor that drives the success of the Global Multinational Corporations considering the benefits it brings for the multinational corporations. However, insensitive cultural diversity management and ineffective communication can create various problems for businesses operating on an international level.

References

Adamczyk, M. 2017. The importance of cultural differences in international business. Central European Review of Economics and Management, 1(2), pp.151-170.

Button, A. 2018. The Disadvantages of Cultural Diversity. [Online]. Available at: https://www.theclassroom.com/the-disadvantages-of-cultural-diversity-12082787.html

Hofstede, G., Hofstede G. J., Minkov M. 2010, Cultures and organizations, McGraw-Hill, New York.

Mateescu, M.V. 2017. Cultural Diversity in the Workplace-Discourse and Perspectives. Modelling the New Europe. An On-line Journal, (24), pp.23-35.

Rowe, R. 2017. What Are the Cultural Problems Encountered by Multinational Companies? [Online]. Available at: https://bizfluent.com/info-12199203-cultural-problems-encountered-multinational-companies.html

Rozkwitalska, M., Chmielecki, M. and Przytuła, S. 2014. The positives of cross-cultural interactions in multinational companies.

Trompenaars, A. and Hampden-Turner, C. 2002. Siedem wymiarów kultury. The seven dimensions of culture), Oficyna Ekonomiczna, Kraków

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