Cultural elements within a business affect the way strategy is determined, goals are established and how the organization operates as an entity. Not only are decisions made as a group/community effort, but it is stemmed from cultural beliefs/practice/ways of living, which varies on a global context. In today’s global market place cultural differences across countries have a significant impact on business decision making; this is manifested in or through most functional areas of businesses including marketing, human resources and finance.
Each function within a company has its own roles and responsibilities which contribute to the business’ overall success. The marketing function plays an integral role in every business within the global marketplace. The marketing department thrives on “thinking outside the box” and pushing the limits of consumer imagination and recognition.
To be more specific, the American Marketing Association defines marketing as, “an organizational function and a set of processes for creating, communicating, and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stakeholders” (Peter, Donnelly, Vandenbosch 3). As the role of the marketing department continues to globally expand on both a consumer and organizational level, the marketing department becomes a key player in a vast variety of decision making processes.
These decisions are subject to many internal and external elements, but most importantly the impact of culture and cultural differences. Cultural differences affect the decisions of the marketing department in a number of ways. These affects can be witnessed through the process of ethical decision making, the diverse cultural backgrounds of marketing managers, and advertising initiatives. In a multicultural marketing environment, ethical values across global boarders continue to create attention and develop a significant degree of importance in the global marketplace.
To clarify, ethical decision making is the process of identifying a problem, generating alternatives, and choosing among them so that the alternatives selected maximize the most important ethical values while also achieving the intended goal (Guy 39). Throughout the marketing department, culture heavily influences the prospect of ethical decision making. To begin with, a key element in ethical decision making within a marketing context is the concept of the establishment of relationships and trust amongst consumers.
Cultural differences can have a major impact on the development of decisions relating to such relationships and trust ideals. Marketing personnel need to ensure that when making decisions that affect potential development of relationships and levels of trust, they remain consistent with the general marketing theory. The foundation of this theory states that all exchanges are based on the concept of trust, and that conflict is most likely to occur if buyer and seller are not in agreement with respect to their ethical mindsets.
Hence, where conflict exists, trust will not grow and in turn the exchange process will cease and marketing relationships cannot fully develop. A clear understanding of this theory is vital as global competition continues to increase and consumer acquisition costs are consistently on the rise (Srnka 3). A reliance on relationships and trust can be witnessed throughout Latin European cultures (Browaeys and Price 42). Next, the marketing department is faced with making ethical decisions that reflect on the subject of value compatibility.
Values can be defined as, “basic convictions that people have regarding what is right and wrong, good and bad, important and unimportant” (Doh and Luthans 101). Compatibility of ethical values within the global marketplace is a central prerequisite for organizational success. As most values differ amongst cultures, it can be understood that this has a major impact on business decision making within the function of marketing. In many situations, marketing personnel are faced with decisions outside their own cultural boundaries and values, such as decisions regarding political and economic environments (Srnka 3).
So it is vital for marketing personnel to go beyond the call of duty to ensure their decisions not only reflect organizational needs and values but are also aligned with the needs and values of consumers in the global marketplace. Lastly, various cultural dimensions have a major impact on ethical decision making within the marketing function. These cultural dimensions affect the decision making process in this area through specific ideals that include influences of the wider cultural environment and the closer cultural environment (Srnka 2).
To be specific, the wider cultural environment includes elements pertaining to economic systems and nationality that aim to determine the stages in the affective part of the decision making process. On the other hand, the closer cultural environment is concerned with the organizational culture and has been noted to have an impact on the behavioural elements of decision making (Srnka 2). Both cultural dimensions are a key part of the decision making process that marketing personnel must refer to before making decisions in the global marketplace.
Altogether, the concept ethical decision making continues to be a key attribute to successful decision making within the marketing function. The managerial make-up of the marketing department in an organization determines the potential for success and recognition in the global marketplace. In times where cultural diversity is considered a true asset for business, it has a significant impact on the decision making processes of an organization. To start off, decision making styles amongst culturally diverse marketing managers in an organization can differ dramatically.
These cultural differences can have both positive and negative impacts on the outcome of the decision making process. Herche, et. al. (2003) has identified five effective management styles that truly capture the essence of decision making amongst marketing managers. These dimensions include: information valuation, quantitative planning, individual decision making, advance planning, and information using. It can be said that these dimensions constitute a management style, not the management style (Albaum 2).
Interestingly enough, marketing managers from the Philippines, Australia, and New Zealand are characterized as being relatively low on information valuation and quantitative planning in comparison to marketing managers in Vietnam (Albaum 6). A clear and concise understanding of the impact of culturally diverse decision making styles can help not only the marketing function, but the entire organization to improve their decision making processes. Next, cultural differences regarding worldviews or paradigms for processing information has an impact on the decision making processes within the marketing department (Albaum 1).
Data interpretation is an integral element of marketing that helps to mould many decisions relating to a company’s future. Data interpretation can take place in the form of analysis in such cases as analyzing customer questionnaires or surveys. If cultural differences regarding views of processing information are not addressed, a company may be faced with consequences that could result in ineffective decisions, a loss of customers or profits, or even internal conflict in the managerial department. Lastly, a consistent understanding of corporate culture” amongst marketing managers with different cultural backgrounds is vital when making business decisions. A corporate culture can be identified as the summation of the cultural backgrounds possessed by company managers (Albaum 2). While it is likely that cultural differences exist, it is important for marketing managers to align decision procedures within their department, organization, and corporate culture. With a high degree of consistency in place, the marketing department and their organization can be viewed as having a management style that is collective of its individual managers (Albaum 2).
This then has the potential to clearly identify the meaning of “corporate culture” within an organization. Overall, cultural differences in marketing management have a significant impact on decision making. Cultural differences have notably made an impact on decision making in relation to advertising initiatives within organizations worldwide. Advertising can be identified as, “the channel of communication used not only to inform the public, but also to persuade the consumer to buy a product or service” (Browaeys and Price 204). In many cases, the marketing department is solely responsible for advertising initiatives.
To start off, cultural differences of perceptual barriers of advertising messages can have a significant impact on decision making within a marketing department. A perception is a person’s view of reality and has the potential to influence their judgment. On a global scale, perception can prove to be a major problem when advertising messages are misinterpreted. Although an organizations home-country may perceive advertising messages one way, other countries may perceive the messages in a different way, often resulting in disastrous outcomes (Doh and Luthans 196).
A popular example of advertising misinterpretation involves Mercedes-Benz and their introduction of the Grand Sports Tourer, or Mercedes GST in Canada. Canadian citizens were unimpressed by Mercedes attempt to use the letters GST to refer to Canadian socialism (Doh and Luthans 196). Marketing personnel must take perceptual barriers into consideration when making advertising decisions within a global context. Next, cultural differences pertaining to language have a major impact on marketing decisions in the global marketplace.
With approximately 6000 plus languages used in our world today, marketing personnel need to take special consideration when making advertising decisions (Anderson 2). Language barriers have the potential to cause major repercussions for an organization when it comes to indentifying behaviours common to different nationalities and assessing the meanings of translated words (Browaeys and Price 197). If language barriers are minimized or removed, the quality of marketing decisions have the potential to improve and the organization has a chance to thrive.
Finally, cultural differences in communication styles have a momentous impact on global decision making within the marketing function. This impact heavily translates into the areas of advertising. A true understanding of the way different cultures communicate allow the marketing department to advertise in such a way that the potential consumer understands and appreciates the advertising campaign. In many cases, when making decisions regarding advertising and cultural communication, it is important to identify the two major types of context cultures.
The first type is a high-context culture. In high-context cultures, messages are implicit and indirect and those who are communicating tend to have both close personal relationships and large information networks. An example of a high-context culture would be the Japanese culture. Next, a low-context culture is where people often meet only to accomplish objectives and have the tendency to be direct, focused, and explicit. An example of a low-context culture would be the United States (Doh and Luthans 187-188).
In general, cultural differences in regards to communication standards are crucial for marketing personnel to understand when making advertising decisions. Human Resources’ is a commonly used term to define a function within a company that is responsible for the implementation of strategies and policies that relate to organizing and, managing individuals. A common known theory is that employees are a significant part of a company’s success. Recruitment and selection, is vital to a company’s success because it is the task of allocating and hiring of employees to particular positions and responsibilities within a company.
Culture impacts recruitment and selection because the person who is responsible for finding these competent people are mainly focused on finding people that will fit within the corporate culture. This can be impacted if the person who is responsible for the recruitment is of one particular culture. For instance if the recruiter is of Japanese descent, they are likely to be more focused on the amount of experience an individual has and the seniority level in the applicants present occupation as opposed to the amount of related education, which then affects their decision as to who to hire.
According to Michael Morris from Colombia University School of Business, he believes that “one of the strongest patterns of culture is that people tend to favour people who are similar to themselves. ” Corporate culture is a frame work in the human resource management department for the implementation for change and the involvement of the people in the process. It is especially important because if the corporate culture tends to be one of a more relaxed environment then individuals within the firm will follow similar suit.
Another way that culture can impact decisions regarding recruitment and selection is if the recruiter is looking for someone to cover Saturday over night shifts and the person who he is interviewing is perfectly capable and suitable for the job but is a Catholic and is required to attend church on Sunday mornings. The recruiter will have to make a decision that is purely affected by culture because this person is not able to cover those shifts due to a religious commitment, this does not mean that he will not obtain a job at that firm, just means he is not suitable for that particular shift.
Training and development is another aspect that is crucial to the proper implementation of a company’s human resources function. Training and development can be affected by different cultures as well. What is meant by this is that some managers who are performing or are responsible for the integration of training and development are sometimes biased to their own cultures. This can impact Human Resources decisions in terms of what types of training and development should be applied.
Sometimes when it comes to training, employees are required to work together or sometimes apart, depending on the cultural diversity of the group of trainees, this can prove to be advantageous or disadvantageous. For instance, Japanese trainees prefer to work together as opposed to separately, this affects the leader’s decision as to how they want to further plan and organize future training seminars or procedures to tailor to cultures that show signs of collectivism like the Japanese do. Another important factor about culture and how it affects the decisions that managers make when it comes to training, is the system of eward and punishment, in order to encourage the desired behaviour and discourage the bad, managers will praise the trainee when they have done the right thing but the managers need to keep in mind which culture that trainee is from. If the trainee is of Japanese descent, than he/she will not react positively to the praise given. The reason for this is that Japanese are humble people and do not feel comfortable accepting praise in front of an audience. The manager needs to alter his decision as to how to find another way of encouraging the desired behaviour.
The way in which a company performs evaluations and distributes promotions are also affected by culture. For example, in Japan if an employee contributes to a project and it is very successful and profitable, he/she will not likely achieve a promotion but rather the person who has been there the longest will, seniority is more important than competencies in Japan. Whereas in Spain, personal relations trump competencies, a candidate will most likely receive a promotion for succeeding from utilizing his/her networking contacts, a culture that shows signs in believing that sometimes it’s not what you know, but who you know.
This sort of characteristic of the culture is also apparent in Latin America, particularity Chilean companies, it is similar in which those residents are given more respect dependent on their age and genders as opposed to anything else. Lastly, the working environment and work practices of employees is another essential aspect that culture impacts in terms of Human Resources. For example, in Latin America, where there is a strong religious culture, employees feel better and will work harder if they are working in the presence of a religious statue.
Latin America work ethics for the most part, closely resemble the definition of collectivism provided by Hofstede. Collectivism is defined by the extent to which the interests of the group prevail over individual interests. Each person in a collective society is encouraged to conform and to do what is in the best interests of the group. This can influence decision making because if an idea that could prove to be beneficial will not be followed through if it does not conform to the collectivist society of organization, further, a loss of profits or insufficient training may occur.
The finance department of a company is responsible for all of the monetary aspects of a company. This function ensures that there is money for day-to-day operations, oversees investments strategies for future growth, selects projects and capital expenditure analysis, gathers financing on the most favourable terms possible, distributes dividends to shareholders and manages inventory, accounts receivable and payable. Cultural differences greatly influence business’ financial decisions. It is the culture that affects how each individual thinks and behaves within one unit/company, and it influences a company’s decision making process as a whole.
Cultural differences lead to “systematic deviations from rational decision making that lead to cultural differences in risk taking, negotiations for direct investment, mergers and acquisitions as well as in returns of bonds and stocks at local markets” (Hens). There are many researchers who have attempted to provide a composite picture of culture by exploring its dimensions. However, Hofstede’s cultural dimensions seem to be most applicable to examine the areas of financial decision making.
Power distance, uncertainty avoidance and individualism dimensions are clear indications to why culture has such an impact on the business’ financial decision making. As a cultural dimension, power distance is the degree to which inequalities are accepted in a society; it indicates the level of formal hierarchy of authority in a society (Hofstede, 2004). In high power distance societies (Japan, Middle Eastern countries), organizations are generally used to reinforce strict obedience and develop a concentration of power; people follow the orders of their superiors without questions.
The decision making is centralized, meaning the employees are more likely to depend on the top management to make decisions (Hofstede, 2004). One of major functions of the financial department is to control costs and profitability level. In Canada, an employee is entitled to walk up to his manager and question the manager’s decision regarding certain purchases, cost to produce a product or budget, but if an employee does the same thing in South Korea, he might lose his job over it. In high power distance countries subordinates should expect a clear differentiation between themselves and their superiors.
The employees should not question the management’s decision nor suggest their opinion; they are there just to carry out tasks given to them. In low power distance cultures (Canada, United States) managers exhibit less control over subordinates, and subordinates are expected to gather information and make decisions independently. For example, when collecting payments from clients or making payments to suppliers the employee has access to most information as the knowledge is decentralized. There is free flow of information which allows a wide communication among employees and their superiors.
The employee can use his own judgement to decide if a client wants to delay his payment or change the payment period. Each different cultural or individual preference has the potential to affect the use of accounting information in making investment decisions. For example, managers in Canada may tell their staff to consider damaged returned items as inventory rather than as a return against sales, because it will reduce the sales figures for which they are responsible. Returning damaged returned items to the inventory account increases inventory, even though the goods are unavailable for resale.
In turn, an overstated inventory balance could impact on ratios and decisions made by investors that rely on the value of the inventory account. Based on given facts, it is safe to assume that individuals in higher power distance cultures are more likely to base their accounting practices and investment decisions on directions from superiors. Employees in lower power distance cultures are more likely to base their accounting practices and investment decisions on norms and standards as well as accounting and financial documents, rather than on directions from their superiors.
Uncertainty avoidance indicates “the extent to which people feel threatened by ambiguous situations and have created beliefs and institutions that try to avoid these” (Luthans, 2009). Cultures higher in uncertainty avoidance (Japanese, German and Spanish) are unwilling to accept failure, ambiguity, or risk and ambition is accepted only for the achievement of the groups’ goals (Hofstede, 2004). Low uncertainty avoidance cultures (Danish, British) are able to cope with conflict, innovation, deviation, competition, and risk.
Therefore, in societies with lower uncertainty orientation, the companies’ management is not afraid to invest in riskier projects that are associated with the unknown or to enter/expand to a market with greater competitors. A great example can be seen through U. S. companies such as Microsoft or Wal-Mart who made a decision to invest in the Chinese market through acquisition or joint venture. They have taken great financial risk by operating in foreign countries with such different cultures.
And in reverse, low uncertainty avoidance societies have a great deal of structuring of organizational activities, more written rules and less risk taking by managers. In Japanese culture, when presenting a proposal one needs to give the Japanese side a lot of space and opportunity for investigation, risk assessment, and clarification before even discussing next steps. All risk factors, no matter how big or small, will have to be identified, assessed, and managed throughout the business transaction or partnership.
This approach has proven to be very effective as it promotes superior product quality and reliability, examples are present at Toyota and Honda. Hofstede’s individualism/collectivism dimension indicates the degree to which the individual or the group has prominence in a society (Browaeys, 2008). According to Hofstede, individualism has a strong impact on risk aversion and risk perception. Individualistic cultures are typically characterized by high degrees of freedom and independence (individual goals are more important than group goals) and encourages reward through individual initiative.
Characteristics of collectivist cultures, including limited personal freedom and autonomy for decision making (group goals are more important that individual goals), are typically believed to be “detrimental to innovation, and would be more conducive to adaptive efforts” (Browaeys, 2008). For example, there is a need to come up with major capital-raising strategies to support the firm’s expansion. Employees in a Canadian individualistic culture will be encouraged to come up with ideas and strategies on their own and the person who manages to execute his strategies to achieve firm’s objectives will be rewarded or promoted.
On the other hand, employees in Japanese collectivistic culture are expected to cooperate to come up with a solution. They do not expect to be rewarded or promoted as their main goal is to achieve the firm’s objectives. Hofstede found that wealthy countries such as Canada, Australia, Sweden and Denmark have higher individualism scores and poorer countries such as Pakistan, Indonesia and Mexico have higher collectivism scores (Luthans, 2009). As explained above, individualistic societies have a higher tolerance towards risk in regards to business investments.
Companies from France or Italy are not afraid to invest in new products or expand into new territories. Firms in Panama or Guatemala have an opposite approach as they do not rush into investments that they observe as risky; they are cautious towards risks and losses that might arise from financial transactions and business operations with unknown product; they prefer investment decisions that link their core group with compatible and/or known groups; the trust is in the group rather than the accounting and financial documents. This approach can be compared to an investment.
Investment in stocks is riskier but generates a higher return, while investment in GIC is very safe but the return is at minimum. In conclusion, culture has a significant impact in an organization once it comes to decision making in a global context. The three most functional areas of business include marketing, human resources and finance. These areas deal with a variety of cultural differences in order to make the decision making process successful. Incorporating these areas in a business, takes a lot of time and effort to mend all the pieces of the cultural puzzle to make them fit.
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