The Importance Of Hofstede's Theory Of Cultural Dimensions in Business

Categories: Multiculturalism

Responses to Culture-based trading Hofstede Model

Though there was full acceptance of the Hofstede model, there are some criticisms too. Various factors affect culture including the nature of human beings, social structures and economic conditions. The Hofstede Model, however, tends to neglect the significance of community and the variation that the community affects. For example, some European countries like Britain, Italy, France and Germany having general developments needs to be made the European Union. As trade and industry and political union with 27 states, it has its council, commission, court and bank which means these 27-member countries share the European Union’s culture.

Hofstede only used the limited survey to explain the values of the particular group or nation. For example, the rank for tolerance for ambiguity can also partially describe the general risk-taking tendency of people in the business.

However, nations are not the criterion for contrasting cultures as cultures are above and over countries and its borders. Many researchers believe that this model is an outdated one due to the present extensive change global business environment compared to the past.

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Some critics suggest that the dimensions are not sufficient for comparison. Hofstede also agrees that dimensions can be added to his work for proper comparison and contrast. It can also be said that the dimension of Hofstede Model is too simple and few actually to differentiate culture diversity in a country. Training opportunities, acceptable working conditions and the option of entirely using skills and abilities on the job in communism were not sufficient to gain perfect county scores for a construct.

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Williams (2002) however defended that Hofstede Model was the beauty of parsimony and has shown the large part of its petition and success within the functionalist paradigm. Mc. Sweeny’s (2002) objection of Hofstede Model’s simplicity has pointed out the national culture of an appropriate balance between parsimony for robust communication and power of explanation. Even though there are criticisms, Hofstede Model is considered as the most robust method for studying national cultures.

Effects of Daimler-Benz and Chrysler Merge

Generally, it has been detected that cross-border merger and acquisitions are a reformation of industrial assets and production structures on a worldwide basis. It enables the global transfer of technology, capital, goods and services and integrates for universal networking. Cross-border M&A’s leads to economies of scale and scope which helps in gaining efficiency. Apart from this it also benefits the economy such as increased productivity of the host country, an increase in economic growth and development mainly if the policies used by the government are favorable. This Merger between Daimler and Chrysler created a large automobile company which ranked third worldwide regarding revenue and market capitalization and fifth regarding the number of units they sold. The new corporation had 442,000 employees and a market capitalization approaching $100 billion all set to take advantage of synergy in retail sales and distribution, purchasing, product design, and research and development. They were confident that the new firm formed would exploit the considerable growth opportunities regarding the geographical coverage and product segments.

Although the Daimler-Chrysler merger showed a rosy picture, it failed. It is one of the most famous of all international alliances then ended in fiasco. Here are what went wrong and the issues that caused its failure. It is safe to approximately that one of the main reasons for the downturn was a cultural mismatch, this fact has been agreed on by analysts.

According to the Hofstede’s model of Cultural Dimensions, Individualism on the one side against its opposite, Collectivism, as a social, not an individual characteristic, is the degree to which people in a society are united into groups. On the nonconformist side, we find cultures in which the ties among persons are loose. On the collectivist side, we discovery cultures in which people from birth onwards are integrated into strong, cohesive in-groups. And if we are going t take a closer look at the organization structure, Daimler-Benz was a very well tiered organization with an indistinct chain of command and respect for authority. Chrysler, on the other cultural hand, preferred a more team-oriented and freestyle. There was a lack of management, contrasting working styles and cultural values between American and German managers. Apart from this, there was a severe lack of trust among the employees. All these issues and the attempt of Daimler-Benz to run Chrysler USA operations in the same way its German operations, lead to its failure.

Indulgence versus Restraint

Indulgence attitudes for a society that agrees comparatively free satisfaction of essential and natural human requirements related to enjoying life and having fun. Restraint holds for an organization that controls the satisfaction of needs and regulates it using strict social norms. The Americans are known to be more tolerant and outgoing. The Germans, on the other hand, are a tight bunch. Americans are also factual but use speech emphatically to give opinions and are more persuasive than Germans. In this respect, they often use hype, which Germans instinctively react against. Americans tend to show optimism and put forward best situations. Germans are more contented with an accurate, somewhat pessimistic view which envisions most unfortunate circumstances. They want a lot of setting before following a critical decision.

Germans are more formal than the Americans. When meeting strangers, they usually enter a room with a serious look on their face, different from the friendly smiles of the Americans. Germans at this stage may appear rigid and unfriendly to Americans. The parent name is used for years, and full titles are predictable. Americans go for first names from the start and have and casual way of having a discussion, using a lot of jokes and, which disconcerts most Germans, especially senior ones. Germans are used to asking serious questions to which they expect serious answers. Americans, fond of humor, often reply in a somewhat flippant or casual manner. The Germans embraced formality and hierarchy, from a well-structured decision-making process to the suit and tied dress code and respect for titles and proper names. Chrysler broke barriers and promoted cross-functional teams that favored open collars, free-form discussions and casual names.

With time the Germans learnt to be less formal and to cut down on paperwork; the Americans, for their part, learnt more discipline in their meetings and decision-making. German and American commonalities such as work ethic, bluntness, lack of tact, a linear approach to tasks and time, punctuality, following agendas, results-orientation and emphasis on competitive prices and reliable delivery dates created a potential modus operandi, but two different mindsets led to irritation and misunderstanding on both sides. According to the German board member the Americans had no understanding of the German way of doing things and working culture finding them a bit too intense, too much by the book and killing the American spontaneity. German meetings were boring, American conferences were exciting; the German drive towards conformity clashed with American invention, innovation and opportunism. Americans did not like the Germans way of offering constructive criticism, and the Germans were old fashioned. The Americans did not appreciate the long holidays the Germans had a custom of taking. For one year the group had two chairmen, Mr. Schrempp from Daimler and Bob Eaton, who had been boss of Chrysler. Within one year Eaton was fired, and his American successor lasted less than 12 months.

DaimlerChrysler’s part price fell from $108 in January 1999 to $38 in November 2000. Nobody was quite sure how the joint companies should be run. Cultural differences led to divisions of opinion and methods at all levels. In German eyes, Chrysler was a company with problems in every department, not least productivity. The Germans, with their importance on, the value found Chrysler quality control way out of line. Even worse there was no plan in place to improve it. Chrysler swung from a profit of $2.5 billion in the first half of the merger year to a loss of $2 billion in the second.

Organizational Culture Inventory OCI, the role of corporate culture

The standard Organizational Culture Inventory measures the current culture of an organization regarding shared behavioral norms—that is, the behaviors that members believe are required to “fit in” and meet expectations.

The culture of Daimler-Benz was described as being conservative, efficient and safe, Chrysler’s culture was more daring, diverse and creative. There was little attempt to incorporate the two cultures or to take into consideration the emotions of the two parties involved and the focus was instead purely on the formal structures and processes. They share the prices plummeted, many of Chrysler executives and engineers resigned, Daimler-Benz employees were unhappy with Chrysler division performance, the two previous companies did not enjoy working together, and there was little or no trust between them. It’s, therefore, no surprise that the survey found that 46% of respondents were worried about the risk of top talent leaving following the merger. As this example shows, failure to align organizational cultures can ruin the whole merger process.

Dimensions of National Culture, Influence

The particular focus on the general theory of international trade first developed by Eli Heckscher and continued by his disciple Berlin Ohlin considers that the cause of global business lies mainly in the differences between the factor endowments of different countries. In particular, a state has a comparative advantage in the production of that good that most intensively uses the most abundant factor in the nation.

There are many assumptions of the Hofstede theorem: The model assumes two countries, two goods and two factors of production. The technology is the same in both countries. Constant returns to scale, each product is produced under steady returns to mount. Strong intensity of factors, a good, say cloth, is always intensive in the use of the word about the second best. Incomplete specialization, no country specializes entirely in the production of a single good. Perfect competition, this regulates all the markets of factors and products.

Effect of national culture on trade

Free trade benefits all the countries that participate in it. Given the mutual benefits derived from free trade, one would expect the flow of trade goods across national and international borders to be free from government interference. However, for hundreds of years, the nations of the world have impeded the free flow of international trade through various instruments, such as tariffs, quotas, rules and technical or administrative procedures, and exchange control. Such policies, designed to affect a country's trade relations with the rest of the world, are commonly referred to as Trade Policies. These are prejudiced by political, sociological and economic considerations. As a result, the domestic production of the industry that competes with imports widens, while domestic consumption of imported goods contracts. The country that enforces the tariff is a vast country, its trade policy necessarily distorts the world markets and generates a change regarding trade. Its net supply curve shifts to the origin, its trade volume decreases in all terms of business. When the country that imposes the tariff has a monopoly at the international level, the tax makes the imported goods relatively cheaper in the rest of the world.

When conducting business, companies do a study of external and internal factors of the decision process. As the strategic plan of the company, which appears to compose the SWOT matrix, widely disseminated in the professional and academic environment, where the company produces its opportunities and threats, positives and negatives. However, Hofstede cites the presence of the Hofstede dimensions above external and internal factors, making it clear that cultural factors are responsible not only as an influence in the process, but is a fundamental initial factor since through it the whole process of the coin is changed. It is important to emphasize that in this model, cultural factors would assume a strategic and not just anthropological character. Thus, marketing plans and strategic planning should begin to adopt cultural study as a prior variable for the entire process, since culture not only applies to international negotiations but any current method. However, in the present global process, cultural interactions happen in real time and at any time.

Summary and Conclusion

It is authoritative to know the culture of a country when it intends to enter the local market since it is founded on cultural, economic and social variables that are combined in the external market. There is no correct method of management, but it is possible to identify the local aspects and thus adapt the organizational culture of the company in a way that does not approve the culture of the host country. The application of the Hofstede method is used to help understand the factors of cultural origin, as well as to understand the behavioral aspects of people in the commercialization process.

A company that intends to enter the American market must be attentive to Hofstede's theory of cultural dimensions, the aspects attributed to each size and the values that are agreed on these aspects. For example, Germany has 38 points for individualism, while the United States ha 91. The study of culture is a vast field that helps us to understand the interrelationships between people, working, primarily as a facilitator for companies that need to expand their commercial area. Understanding the role of culture and the model presented is to guarantee a secure negotiation for companies that wish not only to act internationally but also to update the planning models to a global scenario.

Updated: Feb 20, 2024
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The Importance Of Hofstede's Theory Of Cultural Dimensions in Business. (2024, Feb 20). Retrieved from

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