Understanding the importance of analysing cultural dimension for companies
In the age of globalisation, there are many companies which have expanded in the overseas nations. In order to improve their position at the international level, it is crucial that a company manages their operations at the international level in a well-defined manner. In multinational organisations, several people with different cultural backgrounds work at the same. This creates or might create problems related to cross-cultural communication which could be very harmful for the organisation (Hofstede, 2011). There are several theories suggested by researchers. Hofstede’s cultural dimension is one of the best frameworks that elaborates the effect of culture of society on the member’s value and way in which it relates to behaviour. Living in Kenya, I choose Kenya as my home country. The two other countries that has been selected for this analysis are India, which is a developing nation, and United Kingdom, a developed nation. This report compares India, Kenya and UK based on Hofstede’s cultural dimension. It also explains the background of these two companies and the entry mode that they have selected for themselves.
In the modern-day business environment, it is essential that companies analyse the business environment that is present in any country. Along with this it is also crucial that company understands the culture of the country before entering it. This is essential because of improper understanding of the other culture might lead to business disruption. Every company must understand the changes in the culture which is necessary for the growth of the organisation. It is crucial that a company builds its organisational culture in a manner that aligns with the culture of the host country. Hofstede’s five dimensions is one of the best tools in this regard. As it gives the idea of the overall aspects related to cultural dimension.
Kenya is a developing nation and has a very distinct culture in the African region. Its capital is Nairobi. This part of the East-African region has a warm and humid climate. The population is 48 million and consists of 42 tribes. It was under colonial rule and got independent in December 1963 and is a member of the Commonwealth. This country has been facing political and tribal violence over the years, especially in 2007 and in 2017 during the campaign of the presidential elections. Still it is largest economy in the eastern and central Africa (Bwisa & Ndolo, 2011). Agriculture is the major sector in the nation with major products such as coffee, tea and other traditional cash crops. Kenya is having major part of its population as youngsters with 73% of residents being below 30 years. It is having a diverse population with almost all the major linguistic and ethno-racial groups found in Africa. The 42 tribes have their own mother tongues. Kiswahili is the common shared language. In the midst of the 2017 presidential election, the government declared the Muhindi, Kenyans of Indian descent, as a tribe of its own, even though they don’t identify themselves as a tribe.
Kenya: A Cultural Overview
India is the second populous and most populous democracy in the world. It is one of the super powers in the Asian region. India is considered as one of the fastest developing nations in the world. It is known for its cultural diversity (Zimmer, 2013). A lot of language are spoken in different regions of India. Hindi and English are the two major languages in the country. India won its independency in 1947. Traditions have been their cultural identity and are also reflected in the business environment within the nation. This country has made many changes in their economic and social orientation so that they can attract more investors into the country.
The UK is situated in Western Europe and its capital is London. It has been a major colonial power over the centuries. This kingdom is a parliamentary democracy. It is a developed nation with many cities acting as the centre for trade and economics (Wilson & Game, 2011). It is the fifth largest economy in terms of GDP and in Human Development Index it stands on the 14th position. Because of its colonial past, the UK is a melting pot of people with different racial backgrounds. They all share English as their common language. The UK has been one of the super powers over the years. But in the recent times it is facing many types of economic challenges especially after the recession of 2009 and the austerity measures. Currently it has taken the decision to leave the European Union. This so-called ‘Brexit’ which will not only affect the operations of the UK-based companies but at the same time it will affect the economy in the whole European Union. It is also facing challenges like Scotland considering leaving the United Kingdom. Those aspirations have been revived by the Brexit, since most Scots wish to remain within the EU.
Kenya being a culturally vibrant country has effect on its business operations. Hofstede’s five dimensions applied on Kenya looks as follows:
Power Distance
It is the dimension that suggests that all individuals in the society are not the same. It showcases the cultural attitude towards these inequalities among us. This dimension states that power, or the lack of it, is derived from belonging to an organisation, institution of other group of society. It is expected and accepted the power is dispersed unevenly. (Yoo, Donthu & Lenartowicz, 2011).
The relative score of Kenya on this dimension is 70. Social hierarchy is considered important is the Kenyan. It describes that the population appreciates a hierarchical order in which everyone receives a position and requires no further explanation. Organisational hierarchy reflects inherent inequalities, subordinates expect to be told to do something, centralisation is popular. The ideal boss is always someone that acts as a benevolent autocrat and instructs everyone to do something in a defined manner (Sartorius, Merino & Carmichael, 2011).
India: A Cultural Overview
Individualism
The major and the basic challenge addressed by Individualism is the degree of interdependence a society upholds in between their associates. Individualism is reflected by whether the individual’s self-image is elaborated in the form of ‘we’ or ‘I’. In such society people only look after themselves as well as their family. On the other hand, in the collectivist societies, individuals belong to ‘a group’ which defines them, takes care of them, this in exchange for faithfulness (Minkov & Hofstede, 2012). In this dimension it is having a score of 25. Kenya is understood to be as the collectivistic society. It is evident from the facts that people of Kenya make a long-term commitment with the members of the group, in the case of Kenya, the tribe people belong to. Loyalty is most superior in the collectivistic society and it is above all the societal, or tribal rules and regulations. Society has a strong relationship with everyone from the tribe and hence they take the responsibility for other members, for example at the workplace. In collectivist societies any mistake leads to shame or image failure (Mungai & Ogot, 2012). Employee and employer relationship are understood in moral terms. Recruitment and appraisal decisions consider employees within the group. Even the management is a management of groups.
Masculinity
Scoring high on Masculinity describes about the society that is driven by achievements, success and competition (Venaik & Brewer, 2013). The success is defined by winners in an area that is governed by a value system which starts in early age education and stays along the organisational lifetime. On the other hand, scoring low on Masculinity suggests that values that are dominant in the society are quality of life and caring for other people. Society that is feminine is the one where quality of life is understood to be as the symbol of success and staying at distance from the crowd is not appreciated (Dartey-Baah, 2013). Major challenge here is what inspires people, i.e. demanding to become the best.
It scores 60 and is measured to be high on masculinity and hence understood to be a “Masculine” society. People struggle to be the finest and the champion takes all the advantage (Hofstede Insight, 2018). It acts as a basis through which recruitment and appraisal decisions are to be made at the workstation. Conflicts are taken care of at the individual level with an objective to win.
The UK: A Cultural Overview
Uncertainty avoidance
Uncertainty avoidance is linked with the way society deals with the unpredictable circumstances of the future. Should an institution attempt to regulate the future or just let it occur? This kind of uncertainty can generate anxiety and various cultures might have their own approach or strategies to deal with this anxiety (Cox, Friedman & Tribunella, 2011). Levels to which the members of a culture are defenceless by unknown or the ambiguous conditions. Organizations that escapes these parameters get it reflected back in their score of uncertainty avoidance. The score of 50 illustrates it as they have no common or clear choice in uncertainty avoidance (Hofstede Insight, 2018).
Long term orientation
Long Term Orientation says something about the way in which a society needs to uphold its relationships with its own history while dealing with the issues of the present and future. Societies can prioritize these two existential objectives in totally different manners (Bian & Forsythe, 2012). Societies that are normative score low on Long Term Orientation like, aiming to balance customary traditions and values while seeing societal alterations with doubt. The culture that is scoring high has adopted a more pragmatic approach. These societies strive for standard education as a method to get ready for the future.
Five-dimensional analysis of India is as follows:
Power Distance
On this dimension India scores high 77. This indicates that there is acceptance for hierarchy and top down structure in the organisation and society. If any person has to adopt Indian attitude, they might use subsequent phrases and words. For example reliant on the leader or the power holder for directing them, receiving of uneven rights among the power-privileged and the ones that are lower down the command. Along with this it is also reflected in management directs, paternalistic leader, provides appreciation to ones rewards and work-life in interchange for loyalty from workers (Migliore, 2011). There is centralisation of real power even when it may not seem to be and obedience of the participants of group is the thing on which a manager counts. Workers assume to be informed in a proper manner as to their function and what is expected of employees. Controls are common, even an attitude towards leaders and psychological security are formal. Communication approach is top down, and the style of communication is directive (Brewer & Venaik, 2011). Feedback is harmful and is never given up the hierarchy.
Hofstede’s Cultural Dimensions and their application on Kenya
Individualism
On this dimension, India stands on the score of 48. It is having a society with both individualistic and collectivistic traits. People are expected to work in larger social network in which individuals must work to the greater good. The activities of the person are affected by different types of ideas like family opinion, neighbours and work team as well as other larger networks (Son, Jin & George, 2013). For a collectivist, being rejected by team mates or perceived as less valuable within the group can lead to a feeling of intense emptiness. Employee-employer relationship is based on the expectations. Indian society’s individualist aspect is understood as an outcome of its dominant religion which is Hinduism. Deeds are given higher value. Hence both the aspects gains are present and an intermediate score can be gathered.
Masculinity
India scores 56 on Masculinity and is basically understood to be as a masculine society. In the display of power and success this country is very masculine. For success, brand labels, ostentation and flash are used in the advertising. India has a long cultural history and is a spiritual country (Corbridge & Harriss, 2013). This prevents people from indulging in masculine displays. In a masculine country the emphasis is on one’s achievements and profits which is authenticated by solid gains.
Uncertainty avoidance
India is having a score of 40 on Uncertainty Avoidance and hence has an intermediate low preference for avoiding insecurity. There is recognition of defectiveness and everything must be done as planned. India is traditionally highly patient. People are not generally driven and comfortably settled in the routines and roles with questioning (Hofstede Insight, 2018). Rules are frequently made just to be avoided and one trusts on innovative measures to evade the system.
Long term orientation
51 is the score of India on Long Term Orientation, an aggressive preference in the culture of India is not easy to find. Indian society believes in karma and it drives their philosophical convictions. This country has a great tolerance for religious views. Hinduism is understood as a philosophy rather than a religion. Indian believes that there are several truths and depends on the searcher what they choose to appropriate. Since the Indian society is quite pragmatic, a lack of punctuality is often forgiven. (Hofstede Insight, 2018).
Even though I don’t review the US in this paper, I consider it interesting to compare the results of India with those of the US. It is visually educational.
Hofstede’s Cultural Dimensions and their application on India
Power Distance
It just scores 35 and believes that inequalities in between the people must be minimised. Although British culture knew a time when birth rank was significant, it has also a deep rooted faith that the place where you are born must not restrict how far you can go (Saroglou, 2011). They believe that everyone should be treated equally and as equals.
Individualism
On this dimension UK scores 89. This is because these people are highly individualist and are private in nature. Children from very early age are taught to care for themselves, to be independent and how they can contribute to the society (Hofstede Insight, 2018). Personal fulfilment is the route to happiness. There is a rise of rampant consumerism.
Masculinity
The society of UK can be considered masculine. and is highly success driven. Major factor of misunderstanding lies in the apparent flaw among British culture of understatement and modesty. This is at odds with the basic success driven value system in the culture. What is said is not what is meant (Shenkar, 2012).
Uncertainty avoidance
The United Kingdom scores just 35 on this dimension. They can make changes in their plans in the light of some new information. The British are comfortable in ambiguous conditions. They do not make many rules but are adhered to whatever present. The end goal is clear but the way in which one can reach is flexible as according to the changing environment. They have craze for innovation and thrives in marketing, finance and marketing engineering (Dartey-Baah, 2013).
Long term orientation
They maintain the link between the past and future when they face challenges. In long term orientation they scored 51 as the leading preference in British culture cannot be strong-minded. They also believe in fostering education to prepare their society for the challenges of the future (Hofstede Insight, 2018).
There are many international organisations that are moving into other countries for their expansion. They have their own market entry strategies. This paper presents the case of Ikea and Zara
IKEA is originally a Swedish multinational firm. It designs and sells ready to assemble furniture, kitchen appliances and home accessories. Ikea is one of the biggest furniture retailers. The furniture design is modernist, and the interior is designed with eco-friendly simplicity. This company is also known for its cost control measures, lower pricing (Pawar & Veer, 2013). This group has a complex corporate structure. It is having more than 425 stores in 49 nations.
Hofstede’s Cultural Dimensions and their application on the UK
In order to enter the Indian market, they have adopted equity as an entry mode. They have adopted 100% Foreign Direct Investment in single brand retail. This is a sole ownership investment. In their entry strategy they have adopted a fully integrated production. Ikea opened their stores in different locations of India. Since the company follows an integrated approach, Ikea is dependent on others for their business operations. In most of the countries they have followed the same entry mode and have been successful in their business (McNamara & Descubes, 2016).
For India it is one of the best entry modes. This is because India has been a market where local players have greater control in the furniture retail. Quality can be the only thing that can help the company in their business operations. The reason for this market entry strategy is the resource-based view in which they have high contact and control (Goyal, 2017). It allows the company to directly make the contact with the customers. Due to political support FDI is highly appreciated.
Apart from this, India is considered a developing economic environment. Its government supports any new business coming into the country with direct investment. Sole ownership is supported by the investment on every aspect of the operations (Swoboda, Elsner & Olejnik, 2015). There is an almost unlimited availability of low-cost workers, or in other words, cheap labour. Ikea employs equally men and women, both good for 50%. Ikea controls all processes, and this allows them, along with the cheap labour, to be consistent with their lowest pricing strategy. In their entry into India, IKEA lobbied hard with the government to tweak the original rider that stipulated 30% local sourcing from SMEs. Now they can source from any Indian entity. They have also focused on 30% local sourcing by getting their supply chain right. This entry mode can further be justified by the fact that it gives the leverage to the company about making decision related to various retail operations (KUMAR, 2013). They have made investment in multi-channel retail strategy with both online and offline modes of business. Since products are available on both online and offline stores.
In order to contrast entry mode, the case of Zara entering India has been elaborated. This will help to understand how and why the other retail giant entering the same country chose another entry mode.
Zara is a Spanish fast fashion retailer. It is the major brand of Inditex group and is the world’s biggest clothing retailer. Zara in 2017 was able to manage up to 20 clothing collection in a year. It is having a highly responsive supply chain management system which helps them in shipping new products to the stores twice a week. Different suppliers produce 450 million items in a year on behalf of Zara. It is having a zero advertising policy and the money saved is used in opening new stores. Zara makes changes in their product portfolio based on customer’s feedback and demand. Since the online market is expanding at much faster speed, it has become essential for the company to shift their focus to online business (Mann & Byun, 2011).
Conclusion
Zara planned to enter the Indian market with different modes. It came to the India in 2009. Since India did not allow FDI in single brand retail at that time, the company had to choose a different kind of entry strategy. The entry strategy that Zara opted was a joint Venture. Zara teamed up with the Tata group (Trent Limited). Within this alliance, Zara had 51% and Tata 49% of the shares. This mode of entry can be challenging for company to manage. The benefit however is that is allows a company to handle the different cultural values of the host country, in this case India. A joint venture allows the organisation to understand faster and better the organisational behaviour and the cultural values that is present within a country (Lu, Karpova & Fiore, 2011). An additional and essential argument was the position of the Tata Group as a strong holder of the supply chain management of the company. Since India has a huge cultural diversity, transforming the business that suits each of these cultural variances is not an easy job. There are many local vendors who had a higher control over the market hence taking the help of local distributer like Tata group was highly essential. A joint venture is usually most effective when a company is new to an entirely different country with a very mixed cultural background.
In my opinion, both the entry mode selected by both the retail giants is as per the situation of the country. Still I believe the entry mode of Ikea is better than Zara, who had not the same opportunity. This is because India is a developing nation and it will support the expansion of the company within the country. Since sole ownership allows the company to control the decision making process, it does not depend on others. This might facilitate a faster expansion. This is also evident from the fact that the development of Zara was quite slow due to the challenges that both the companies faced while working in collaboration (Crofton & Dopico, 2012). Ikea, on the other hand, plans to reach every corner of the country by the end of 2030 with more than 25 shops. It can be achieved more easily, since Ikea has complete autonomy over the plans and the resources to execute them.
Conclusion
From the above based report, it can be concluded that organisations have their own plans for the process of internationalisation. It is essential for any firm to understand the culture that is present in a host country. Hofstede’s cultural dimension is an excellent tool to understand the cultural orientation of any country. Ikea and Zara are the two major retailers that are have invested in India in the past 10 years. The entry strategy that both chose was in line with the at that time current legislation and possibilities. Zara could not benefit from the 100% FDI option as Ikea did. It is hard to say if Zara would have been equally successful and fast in its expansion if it had the same opportunity.
References
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