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International Management

Culture, Strategy, and Behavior

Fred Luthans | Jonathan P. Doh

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THE MEANINGS AND DIMENSIONS OF CULTURE

The World of International Management

Culture Clashes in Cross-Border Mergers and Acquisitions

I n one of the largest cross-border deals ever proposed, Belgian-Brazilian beverage giant ABInBev offered US$104.2  billion to acquire British-owned SABMiller. Both companies have multiple investments and brands in every major beer market in the world. The merger brings ABInBev’s brands of Budweiser, Busch, Corona, and Stella Artois together with SABMiller’s brands of Miller, Foster, Grolsch, Peroni, Castle, and Carlton, resulting in the largest beverage company on the globe. The combined company will account for 30 percent of beer sales worldwide and 60 percent of sales in the U.S. market. In late 2015, SABMiller’s shareholders agreed to the terms of the deal.1

Mergers and acquisitions are among the most challenging strategic moves by companies seeking to grow their markets and reap hoped-for efficiencies. Many cross-border mergers and acquisitions have failed or experienced extreme difficulties in the face of cultural differences that manifest in communica- tion, work policies, compensation systems, and other aspects of strategy and operations. These cultural differences can be aggravated by geographic, institutional, and psychological distance. With operations spanning the globe, and leadership teams in both Latin America and Europe, the combined ABInBev and SABMiller company will need to address the interests of its culturally diverse constituencies. Although both SABMiller and ABInBev have recent, extensive experience with cross-border mergers and acquisitions, neither company has been involved in a deal this large. How can this integrated company fully realize the benefits of combining peo- ple, production, and brands from diverse cultures? Will ABInBev be able to achieve its aggressive sales goal of US$100 billion annually by 2020? Looking at some past cross-border mergers, both successful and failed, may provide some insight.

DuPont in Denmark When DuPont, the U.S.-based giant chemicals company, set out to acquire Danisco, a Danish producer of food ingredients, shareholders in Denmark initially voiced skepticism and disapproval. To better understand the concerns of the Danish investment community, DuPont sent executives to Copenhagen.2  Gaining

A major challenge of doing business internationally is to respond and adapt effectively to different cultures. Such adap- tation requires an understanding of cultural diversity, percep- tions, stereotypes, and values. In recent years, a great deal of research has been conducted on cultural dimensions and atti- tudes, and the findings have proved useful in providing inte- grative profiles of international cultures. However, a word of caution must be given when discussing these country profiles. It must be remembered that stereotypes and overgeneraliza- tions should be avoided; there are always individual differ- ences and even subcultures within every country. This chapter examines the meaning of culture as it applies to international management, reviews some of the value differences and similarities of various national groups, studies important dimensions of culture and their impact on behavior, and examines country clusters. The specific objec- tives of this chapter are

1. DEFINE the term culture, and discuss some of the compar- ative ways of differentiating cultures.

2. DESCRIBE the concept of cultural values, and relate some of the international differences, similarities, and changes occurring in terms of both work and managerial values.

3. IDENTIFY the major dimensions of culture relevant to work settings, and discuss their effects on behavior in an international environment.

4. DISCUSS the value of country cluster analysis and relational orientations in developing effective international management practices.

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that would dictate a unified approach to planning, information exchange, communication, and decision making. Executives believed that a unified company culture—part American, part German—would lead to a better working relationship between employees and result in improved fiscal results for the com- pany. After just a few months, however, continued cultural dif- ficulty led executives to conclude that imposing a single culture on its diverse workforce was a short-sighted strategy. Engineers between the two companies continued to disagree over quality and design, and personality conflicts persisted. Americans found Germans to have an “attitude,” while Ger- mans found Americans to be “chaotic.”8

In response to these failures, Daimler-Chrysler took a more drastic approach to altering its operations. Rather than attempting to impose the Daimler culture on Chrysler employ- ees, individual business groups were permitted to adopt whichever culture worked best for them. Essentially, two cul- tures were allowed to persist at the merged company—those of American Chrysler and of German Daimler. Though this strategy worked well for groups that were located solely in the United States or Germany, business divisions that spanned both countries continued to face challenges. Communication was often misinterpreted, and the approach to staffing was questioned by executives on both sides.9

After a decade of struggle, the merger was ultimately reversed. Daimler sold nearly its entire stake in Chrysler to an American private equity group for a fraction of its original invest- ment, and Chrylser entered bankruptcy proceedings just two years later. Roland Klein, former manager of corporate commu- nications at the merged Daimler-Chrysler, remarked that “Maybe we should have had a cultural specialist to counsel us. But we wanted to achieve the integration without outside help.”10

ABInBev’s Past Experiences In many ways, ABInBev’s own history may provide the best example of a previously successful cross-border merger. In 2008, Belgian-Brazilian-based InBev acquired U.S.-based Anheuser Busch, creating the world’s largest brewing company. InBev first bid $65 per share for Anheuser Bush, which was initially rejected. The final price agreed to was $70 per share. With oper- ations on every continent, the newly combined company had to quickly adapt to diverse national and organizational culture back- grounds. InBev’s organizational culture, heavily influenced by AmBev, was described as “a work atmosphere reminiscent of an athletic locker room . . . a culture that includes ferocious cost

an  understanding of the cultural and business perspectives of those shareholders through face-to-face, in-person meetings, DuPont executives were able to determine that their original offer was seen as offensively low. In response, DuPont adjusted its offer, resulting in a 92 percent approval rate from Danisco’s shareholders. Dupont’s CEO claims, “These face-to-face conver- sations were critical for the actions we took next, and, ultimately, for the successful outcome of the deal.”3

After the deal was complete, DuPont made culture a strong focus of itsintegration efforts by first hosting a “Welcome Week” with presentations to all employees about the new combined firm, adjusted to local communication styles. After this week- long celebration, designed to encourage excitement and positive thinking, the company gauged successes and failures using reg- ular pulse surveys. These surveys “created a heat map of poten- tial geographic locations where there might be confusion or miscommunication.”4  Anticipating and measuring potential places of difficulty allowed managers to address issues as quickly and transparently as possible, easing the integration pro- cess. DuPont’s CEO reflected on the successful acquisition of Danisco, saying, “If we didn’t execute and integrate well, and if we didn’t get synergies quickly, it wouldn’t be a victory.”5

DuPont’s careful, level-headed due diligence, strong com- munication, and appreciation for Danisco’s corporate and national cultures ultimately helped the firm evaluate the poten- tial success of a combined business venture and avoided deal- ending cultural conflicts. Forming the right deal and designing an integration process with the goal of maximizing the value of the deal provided the merging companies with the tools necessary to optimize their combined value and avoid the pit- falls of cultural miscommunications.6

The Daimler-Chrysler Debacle Looking at failed cross-border mergers can lend some valuable insight as well. One classic case is that of Daimler-Chrysler, two companies that came together in a US$36 billion acquisi- tion that faced severe challenges from the start. Although it was hailed as a historic “merger of equals,” enthusiasm dis- solved in the face of cultural and personality clashes.7  From the onset, German executives were uncomfortable with the lack of protocol and loose structure at Chrysler. Conversely, the American managers felt that their German bosses were too formal and lacked any flexibility. In its first attempt to resolve these issues, top leaders at the company quickly worked to establish firm-wide processes

124 Part 2 The Role of Culture

Our opening discussion in “The World of International Management” shows how culture can have a great impact on mergers. For some companies, like DuPont and ABInBev, early recognition of differences led to more successful company integration. National cultural characteristics can strengthen, empower, and enrich management effectiveness and success. MNCs that are aware of the potential positives and negatives of different cultural characteristics will be better equipped to manage under both smooth and trying times and environments.

■ The Nature of Culture The word culture comes from the Latin cultura, which is related to cult or worship. In its broadest sense, the term refers to the result of human interaction.16  For the purposes of the study of international management, culture is acquired knowledge that people use to interpret experience and generate social behavior.17  This knowledge forms values, creates attitudes, and influences behavior. Most scholars of culture would agree on the following characteristics of culture:

1. Learned. Culture is not inherited or biologically based; it is acquired by learning and experience.

2. Shared. People as members of a group, organization, or society share culture; it is not specific to single individuals.

3. Transgenerational. Culture is cumulative, passed down from one generation to the next.

4. Symbolic. Culture is based on the human capacity to symbolize or use one thing to represent another.

5. Patterned. Culture has structure and is integrated; a change in one part will bring changes in another.

6. Adaptive. Culture is based on the human capacity to change or adapt, as opposed to the more genetically driven adaptive process of animals.18

culture Acquired knowledge that people use to interpret experience and generate social behavior. This knowledge forms values, creates attitudes, and influences behavior.

Going Forward Companies from the same cultural clusters inherently understand one another’s values, expectations of leadership, and communi- cation styles better than people from different cultural clusters would. With diligent planning and education of their workforce, two firms from different organizational and national cultural back- grounds, such as SABMiller and ABInBev, can still find success through mergers or acquisitions. Although companies from differ- ent geographic regions would not have an “inherent understand- ing,” it is possible to replicate it through employee training and strong leadership, as past mergers at DuPont and ABInBev dem- onstrated. Managers and executives at a newly merged company should educate its employees on the cultural differences of the two joining firms, putting the combined company in a position to leverage the merger as an opportunity to create a new corporate culture that emphasizes elements and values common to both companies’ national cultures while preserving, where necessary, attributes of the distinct cultures of each. Despite diversity among its British, Belgian, Brazilian, and American roots, cultural commonalities and understanding may help to propel the SABMiller and ABInBev merger forward. The companies certainly face challenges ahead, but, as demon- strated by past successes, proper management and careful planning can maximize their chances for long-term success. 

cutting and lucrative incentive-based compensation programs.”11

In contrast to this, Anheuser-Busch was known as a family- friendly company founded in St. Louis in the 1800s with strong emphasis on community involvement. Anheuser-Busch “won numerous awards for its philanthropy, diversity, community involvement, and employer of choice. The company was known for luxurious executive offices and lots of perks, with six planes and two helicopters to transport its employees.”12

It was clear to leadership that these two distinct cultures— one very competitive and low cost, the other inclusive with many expensive corporate reward systems—would create conflicts in regards to communication, informal relationships between employees, employee satisfaction, and mentorship.13  In response, ABInBev formulated an integration plan that, among other actions, led to the creation of a new board of directors for the combined company, which included the current directors of the InBev board, the Anheuser-Busch president and CEO, as well as one other current or former director of the Anheuser-Busch board. The management team consisted of executives from both companies’ current leadership teams.14 Ultimately, the ABInBev merger was a financial success, with EBITDA rising from 23 per- cent to 38 percent in the three years following the deal. Despite initial cultural clashes, this merger succeeded due to the recogni- tion and education of these differences and the international management experience of the company’s leaders.15

Chapter 4 The Meanings and Dimensions of Culture 125

Because different cultures exist in the world, an understanding of the impact of culture on behavior is critical to the study of international management.19 If international managers do not know something about the cultures of the countries they deal with, the results can be quite disastrous. For example, a partner in one of New York’s leading private banking firms tells the following story:

I traveled nine thousand miles to meet a client and arrived with my foot in my mouth. Deter- mined to do things right, I’d memorized the names of the key men I was to see in Singapore. No easy job, inasmuch as the names all came in threes. So, of course, I couldn’t resist showing off that I’d done my homework. I began by addressing top man Lo Win Hao with plenty of well-placed Mr. Hao’s—sprinkled the rest of my remarks with a Mr. Chee this and a Mr. Woon that. Great show. Until a note was passed to me from one man I’d met before, in New York. Bad news. “Too friendly too soon, Mr. Long,” it said. Where diffidence is next to godliness, there I was, calling a room of VIPs, in effect, Mr. Ed and Mr. Charlie. I’d remembered every- body’s name—but forgot that in Chinese the surname comes first and the given name last.20

■ Cultural Diversity There are many ways of examining cultural differences and their impact on international management. Culture can affect technology transfer, managerial attitudes, managerial ideol- ogy, and even business-government relations. Perhaps most important, culture affects how people think and behave. Table 4–1, for example, compares the most important cultural values of the United States, Japan, and Arab countries. A close look at this table shows a great deal of difference among these three cultures. Culture affects a host of business-related activities, even including the common handshake. Here are some contrasting examples:

Culture Type of Handshake United States Firm Asian Gentle (shaking hands is unfamiliar and uncomfortable for some;

the exception is the Korean, who usually has a firm handshake) British Soft French Light and quick (not offered to superiors); repeated on arrival and departure German Brusque and firm; repeated on arrival and departure Latin American Moderate grasp; repeated frequently Middle Eastern Gentle; repeated frequently South Africa Light/soft; long and involved

Source: Lillian H. Chaney and Jeanette S. Martin, Intercultural Business Communication  (Englewood Cliffs, NJ: Prentice Hall, 1995), p. 115.

Table 4–1 Priorities of Cultural Values: United States, Japan, and Arab Countries

United States Japan Arab Countries

1. Freedom 1. Belonging 1. Family security 2. Independence 2. Group harmony 2. Family harmony 3. Self-reliance 3. Collectiveness 3. Parental guidance 4. Equality 4. Age/seniority 4. Age 5. Individualism 5. Group consensus 5. Authority 6. Competition 6. Cooperation 6. Compromise 7. Efficiency 7. Quality 7. Devotion 8. Time 8. Patience 8. Patience 9. Directness 9. Indirectness 9. Indirectness 10. Openness 10. Go-between 10. Hospitality

Note: “1” represents the most important cultural value, “10” the least. Source: Adapted from information found in F. Elashmawi and Philip R. Harris, Multicultural Management  (Houston: Gulf Publishing, 1993), p. 63.

126 Part 2 The Role of Culture

In overall terms, the cultural impact on international management is reflected by basic beliefs and behaviors. Here are some specific examples where the culture of a society can directly affect management approaches:

∙ Centralized vs. decentralized decision making. In some societies, top manag- ers make all important organizational decisions. In others, these decisions are diffused throughout the enterprise, and middle- and lower-level managers actively participate in, and make, key decisions.

∙ Safety vs. risk. In some societies, organizational decision makers are risk-averse and have great difficulty with conditions of uncertainty. In others, risk taking is encouraged and decision making under uncertainty is common.

∙ Individual vs. group rewards. In some countries, personnel who do outstand- ing work are given individual rewards in the form of bonuses and commis- sions. In others, cultural norms require group rewards, and individual rewards are frowned on.

∙ Informal vs. formal procedures. In some societies, much is accomplished through informal means. In others, formal procedures are set forth and followed rigidly.

∙ High vs. low organizational loyalty. In some societies, people identify very strongly with their organization or employer. In others, people identify with their occupational group, such as engineer or mechanic.

∙ Cooperation vs. competition. Some societies encourage cooperation between their people. Others encourage competition between their people.

∙ Short-term vs. long-term horizons. Some cultures focus most heavily on short-term horizons, such as short-range goals of profit and efficiency. Others are more interested in long-range goals, such as market share and technological development.

∙ Stability vs. innovation. The culture of some countries encourages stability and resistance to change. The culture of others puts high value on innovation and change.

These cultural differences influence the way that international management should be conducted. 

Another way of depicting cultural diversity is through visually separating its com- ponents. Figure 4–1 provides an example by using concentric circles. The outer ring consists of the explicit artifacts and products of the culture. This level is observable and consists of such things as language, food, buildings, and art. The middle ring contains the norms and values of the society. These can be both formal and informal, and they are designed to help people understand how they should behave. The inner circle contains the implicit, basic assumptions that govern behavior. By understanding these assump- tions, members of a culture are able to organize themselves in a way that helps them increase the effectiveness of their problem-solving processes and interact well with each other. In explaining the nature of the inner circle, Trompenaars and Hampden-Turner have noted that

[t]he best way to test if something is a basic assumption is when the [situation] provokes confusion or irritation. You might, for example, observe that some Japanese bow deeper than others. . . . If you ask why they do it the answer might be that they don’t know but that the other person does it too (norm) or that they want to show respect for authority (value). A typical Dutch question that might follow is: “Why do you respect authority?” The most likely Japanese reaction would be either puzzlement or a smile (which might be hiding their irritation). When you question basic assumptions you are asking questions that have never been asked before. It might lead others to deeper insights, but it also might provoke annoyance. Try in the USA or the Netherlands to raise the question of why people are equal and you will see what we mean.21

Chapter 4 The Meanings and Dimensions of Culture 127

The explicit artifacts and products of the society

The norms and values that guide the society

The implicit, basic assumptions

that guide people’s behavior

Figure 4–1 A Model of Culture

Source: Adapted from Fons Trompenaars and Charles Hampden-Turner, Riding the Waves of Culture: Understanding Diversity in Global Business, 2nd ed. (New York: McGraw-Hill, 1998).

A supplemental way of understanding cultural differences is to compare culture as a normal distribution, as in Figure 4–2, and then to examine it in terms of stereo- typing, as in Figure 4–3. Chinese culture and American culture, for example, have quite different norms and values. So the normal distribution curves for the two cul- tures have only limited overlap. However, when one looks at the tail-ends of the two curves, it is possible to identify stereotypical views held by members of one culture about the other. The stereotypes are often exaggerated and used by members of one culture in describing the other, thus helping reinforce the differences between the two while reducing the likelihood of achieving cooperation and communication. This is one reason why an understanding of national culture is so important in the study of international management.

French culture U.S. culture

Source: Revised and adapted from various sources, including Fons Trompenaars and Charles Hampden-Turner, Riding the Waves of Culture: Understanding Diversity in Global Business, 2nd ed. (New York: McGraw-Hill, 1998), p. 25.

Figure 4–2 Comparing Cultures as Overlapping Normal Distributions

128 Part 2 The Role of Culture

■ Values in Culture A major dimension in the study of culture is values. Values are basic convictions that people have regarding what is right and wrong, good and bad, and important and unim- portant. These values are learned from the culture in which the individual is reared, and they help direct the person’s behavior. Differences in cultural values often result in varying management practices. 

Values in Transition Do values change over time? Past research indicates that personal value systems are relatively stable and do not change rapidly.22 However, changes are taking place in man- agerial values as a result of both culture and technology. A good example is provided by examining the effects of the U.S. environment on the cultural values of Japanese managers working for Japanese firms in the United States. Researchers, focusing attention on such key organizational values as lifetime employment, formal authority, group orientation, seniority, and paternalism, found that

1. Lifetime employment is widely accepted in Japanese culture, but the stateside Japanese managers did not believe that unconditional tenure in one organiza- tion was of major importance. They did believe, however, that job security was important.

2. Formal authority, obedience, and conformance to hierarchic position are very important in Japan, but the stateside managers did not perceive obedience and conformity to be very important and rejected the idea that one should not question a superior. However, they did support the concept of formal authority.

3. Group orientation, cooperation, conformity, and compromise are important organizational values in Japan. The stateside managers supported these values but also believed it was important to be an individual, thus maintaining a balance between a group and a personal orientation.

values Basic convictions that people have regarding what is right and wrong, good and bad, and important and unimportant.

French culture

How the Americans see the French:

• arrogant • flamboyant • hierarchical • emotional

How the French see the Americans:

U.S. culture

• naive • aggressive • unprincipled • workaholic

Source: Revised and adapted from various sources, including Fons Trompenaars and Charles Hampden-Turner, Riding the Waves of Culture: Understanding Diversity in Global Business, 2nd ed. (New York: McGraw-Hill, 1998), p. 23.

Figure 4–3 Stereotyping from the Cultural Extremes

Chapter 4 The Meanings and Dimensions of Culture 129

4. In Japan, organizational personnel often are rewarded based on seniority, not merit. Support for this value was directly influenced by the length of time the Japanese managers had been in the United States. The longer they had been there, the lower their support for this value.

5. Paternalism, often measured by a manager’s involvement in both personal and off-the-job problems of subordinates, is very important in Japan. Stateside Japanese managers disagreed, and this resistance was positively associated with the number of years they had been in the United States.23

There is increasing evidence that individualism in Japan is on the rise, indicating that Japanese values are changing—and not just among managers outside the country. The country’s long economic slump has convinced many Japanese that they cannot rely on the large corporations or the government to ensure their future. They have to do it for themselves. As a result, today a growing number of Japanese are starting to embrace what is being called the “era of personal responsibility.” Instead of denouncing indi- vidualism as a threat to society, they are proposing it as a necessary solution to many of the country’s economic ills. A vice chair of the nation’s largest business lobby summed up this thinking at the opening of a recent conference on economic change when he said, “By establishing personal responsibility, we must return dynamism to the economy and revitalize society.”24  This thinking is supported by past research, which reveals that a culture with a strong entrepreneurial orientation is important to global competitiveness, especially in the small business sector of an economy. This current trend may well be helpful to the Japanese economy in helping it meet foreign competition at home.25

Other countries, such as China, have more recently undergone a transition of val- ues. As discussed in Chapter 2, China is moving away from a collectivist culture, and it appears as though even China is not sure what cultural values it will adhere to. Confu- cianism was worshipped for over 2,000 years, but the powerful messages through Con- fucius’s teachings were overshadowed in a world where profit became a priority. Now, Confucianism is slowly gaining popularity once again, emphasizing respect for authority, concern for others, balance, harmony, and overall order. While this may provide sanctu- ary for some, it poses problems within the government because it will have to prove its worthiness to remain in power. As long as China maintains economic momentum, despite its recent slowdown, hope for a unified culture may be on the horizon.26

■ Cultural Dimensions Understanding the cultural context of a society, and being able to respond and react appropriately to cultural differences, is becoming increasingly important as the global environment becomes more interconnected. Over the past several decades, researchers have attempted to provide a composite picture of culture by examining its subparts, or dimensions.

Hofstede In 1980, Dutch researcher Geert Hofstede identified four original, and later two addi- tional, dimensions of culture that help explain how and why people from various cultures behave as they do.27  His initial data were gathered from two questionnaire surveys with over 116,000 respondents from over 70 different countries around the …