Cross-Cultural Management
Summary
The paper describes in detail the cross-cultural management issues when company seek to
expand their business beyond the UK. In this report we have chosen, IKEA furniture
manufacturing company starting their business in Nigeria. The purpose of this report is intending
to understand how the diverse culture impacts on the operation of the company in the global
business. Meanwhile, it is also aiming to come up with an effective solution of dealing with the
cultural differences for managing the cross national activities. As HR Director, it is important to
determine about the national culture and what is its impact on the way of doing business. In the
most general sense of national culture can be defined as a system of norms and values of life of a
people or ethnic group. As companys focus is on business initiatives that drive real value for our
customers, including adapting proven technologies and developing capabilities critical to future
success. IKEAs ability to succeed in the global marketplace requires a skilled, well-trained and
dedicated workforce; a stable fiscal, tax, and regulatory environment; and the ability to export
our products to Nigeria. IKEAs strengths are their efficient manufacturing process and low price
strategy, and their weaknesses lie with their branding strategy. Right strategy can do well to their
business as there are countless opportunities available. Thus, from analyzing the theories
presented by Holfstede and Hall, one can say that they were able to more clearly study the
similarities and differences. Their theories has analyzed in depth the various challenges faced by
the companies due to different multicultural employees, apart from the issues coming in an
organization as well.
Cross-Cultural Management
Cross-Cultural Management
Introduction
IKEA is the world's most triumphant global enterprise. According to the statistics, in
2007, IKEA had established around 300 home decorating retail stores in 35 countries. It has been
visited by around 583 million customers. IKEA's inexpensive, smartly designed products,
exhibited in huge depot stores, made sales of 21.2 billion only in the year 2008 compared to
4.4 billion in the year 1994. Although IKEA has refused to issue statistics of its profitability, the
net profit margins of IKEA were believed to be around 10% higher than an average retailer.
Ingvar Kamprad, the founder of IKEA, is believed to be one of the richest men in the world.
IKEA was founded in 1943 in Sweden by Kamprad when he was only 17 years old. The
young organization sold Christmas magazines, fish, and seeds of his family ranch. His primary
business was trading matches (Boniface, 2002, 12-23).
Cross-Cultural Management
IKEA
Cross-Cultural Management
Cross-Cultural Management
commodities into the market at a comparatively cheaper price, IKEA goes for a stripped-down
and even cheaper policy to compete with its competitors (Capron, 1987).
Demand Conditions
Related Supporting Industries
Factor Conditions
Cross-Cultural Management
Demand Conditions
Related Supporting Industries
Factor Conditions
IKEA in Nigeria
The reason why the company choosing Nigeria to be strong manufacturing focus is that
Nigeria business culture places a great value on hierarchy. Nigeria businesses therefore follow a
strict hierarchical structure, where decisions tend to be made at the top and communication is
usually vertical. As an Hr director, I need to perceive the procedure and policies for excessively
creating a greater impact o the business.
Cross-Cultural Management
implementation. Changes in the company are accompanied by painful processes, which include
adaptation by the personnel (Robert, 2007, pp 56-90). In many cases, this adaptation can
successfully manage by reducing the degree of resistance to change, speeding up these processes
and getting a better return on their implementation.
Cross-Cultural Management
There are areas or cultural difference that may be the source of misunderstandings. This
is particularly the case in relation to the contract. The Universalists, whose contracts are
characterized by their completeness, consider the contract in effect as an indispensable element
of the business relationship. The particularistic them attach more importance to personal contact
and the relationship that formal contract (Cole, 2011, 90-123).
According to Trompenaars, in individualistic cultures, people often place the community
after the individual as it is contrary in the communitarian culture. He believes that people in an
efficient culture shows up three emotions and their feelings (Baum & McGahan, 2004, pp 3467). It is often analyzed that Trompenaarss system basically appeared to be more focus oriented,
and its investigation basically lies under the surface of investigation of the persons culture.
Cross-Cultural Management
10
individual. Cultures that are individualistic attach importance to the achievement of personal
goals.
Index uncertainty avoidance: A society of tolerance for uncertainty and ambiguity. This is
a dimension that measures how a society deals with unfamiliar situations, unexpected events and
stress change.
Indulgence against containment: This dimension measures the ability of a culture to meet
immediate needs and wants of its members.
Long-term orientation against short-term orientation: This dimension describes the
horizon of a society. Cultures with a short-term orientation value the traditional methods, devote
a considerable amount of time to develop relationships and generally consider time as a circular
dimension (Heather & Sarah, 2010, pp 67-89).
Hall's Theory
The work of Hal basically led to cover the issues of cultural and hegemony studies. His
point of view stets that people are producers and consumers for culture at the same time. As hall
mentions that culture is something that simple study or appreciate.
It is a fact that Hofstede's cultural dimensions are merely a framework to help assess a
particular culture and, thus, better targeting decisions. Other factors should be considered, such
as personality, family history or personal wealth (Chung & Amber, 2009, pp 45-67). The
proposed dimensions not predict individual behavior, nor take into account the personality of
each. Thus one can often say that the Trompenaars, Hall and Hofstede cultural dimensions are
more useful tool for various themes, within the organization and also for the structure of the
company while trading with other countries (John, 2009, Pp 93128). Thus, those that are
Cross-Cultural Management
11
involved in working for international business are important to know regarding the difference
between culture and countries.
Conclusion
After analyzing every situation we come to a conclusion that risk of entry by a potential
competitor and competition in the industry is low which a good thing for IKEA. Bargaining
power of suppliers is low due to the history of making wood related products. Bargaining power
of buyers is high because of the fact that real estate is considered as an investment.
One can conclude by saying that in reality Hall and Holfstese were able to study the
cultural differences Thus, analyzing from many countries, they were able to more clearly study
the similarities and differences. From their theories, we can observe that there were many
challenges because of different multicultural employees, apart from the issues coming in an
organization as well. The individual differences is one thing that can affect the entire
organization, as culture plays a strong and complicated role, it has also led to failures for many
organizations, however the ability for managing the cross culture and balance should be kept
with the company.
Cross-Cultural Management
12
Political and economic factors are in favor of starting this new trend of real estate
business because the opportunity is wide open. Social factor is also in favor of investing in
IKEAs prefabricated houses because of the changing trend in the general population.
Technology has not done any good to real estate yet because the technological process used in
real estate industry is more or less the same as it was hundred years ago. This is the first step of
evolution of this industry (Ishmael, 2005, pp 56). IKEAs strengths are their efficient
manufacturing process and low price strategy, and their weaknesses lie with their branding
strategy. Right strategy can do well to their business as there are countless opportunities
available. It is important to avail opportunity for entering into the hotel market and improve their
market strategy to make a good brand name in the industry. Although the industry is irrational,
however by using different ways of advertising and reaching out to target market can ensure a
stand in the industry (Ishmael, 2005, pp 56). In the near future, IKEAs sound expansion in the
retail business emerges as the focal point of the organization, with strategies not likely to
incorporate aggressive expansion into new markets, but would consider structuring and nurturing
in the existing market (Boniface, 2002, 12-23). Yet, certain alterations may be possible with the
introduction of information technology, which in the foreseeable future, will have unfavorable
effects on the revenues of some IKEA warehouses, but will lead to the positive effects on
revenue for the company as a whole. Therefore, this is the main illustration of the way in which
IKEA is trying to align itself in order to face the potential threat to its conventional store
(Brookhart, 2008, pp 45-67). Buyers may prefer shopping online, as IKEA has established its
reputation for quality and craftsmanship in its goods, contrasting to the current principle of IKEA
that quality of products should be felt by the buyers before the purchase.
Cross-Cultural Management
13
References
Baum, J. & McGahan, A. (2004), Business Strategy over the Industry Lifecycle, JAI Press,
Oxford, pp 34-67
Boniface, Ahunwan, (2002), Corporate Governance in Nigeria. Journal of Business Ethics, pp
12-23
Brookhart, Susan M. (2008)."Portfolio Assessment." , 21st Century Education: A Reference
Handbook. SAGE Publications, pp 45-67
Byars, L. (1991) Strategic Management, Formulation and Implementation Concepts and Cases,
New York: HarperCollins, pp 12-45
Capron, N. and Glazer, R. (1987), Marketing and technology: a strategic co alignment, Journal
of Marketing, Vol. 51 Issue 3, pp.10-21.
Chung A. & Amber L. (2009), Establishing Organizational Ethical Climates: How Do
Managerial Practices Work? Journal of Business Ethics, pp 45-67
Cole, G A. and Kelly, P, (2011), 'Management Theory and Practice', Ed. 7 Cengage EMEA, Pp
90-123
Heather S. & Sarah J. Freeman, (2010), Corporate Social Performance and Attractiveness as an
Employer to Different Job Seeking Populations, Journal of Business Ethics, pp 67-89
Ishmael P. (2005). Differences in Research Ethics Judgments between Male and Female
Marketing Professionals, Journal of Business Ethics, pp 56
James A. & David C, (1999), Ethical Work Climate Dimensions in a Not-for-Profit
Organization: An Empirical Study, pp 112-145
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14
John. Barlto, (2009), Business Ethics: A manual for managing a responsible business enterprise
in emerging market economies, Pp 93128
Judith A, (2009), Dignity in the Workplace Can Work Be Delineated? Journal of Business Ethics
Koehn, D. (2008), Ethical Issues in Human Resources, In N. E. Bowie (Ed.), The Blackwell
guide to business ethics, Oxford: Blackwell ISBN 0-631-22123-9, pp 225243
Pinnington, A. H. and Lafferty, G, (2002), Human Resource Management, Melbourne: Oxford
University Press ISBN 0-19-551477-7, pp 223-245
Robert C. Solomon, (2007), Ethics and Excellence: Cooperation and Integrity In Business, ISBN
Number: 0195087119, pp 56-90
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15
Appendix
Profile of India
PESTEL
Political
The political relationship of
Japan with India has always
been strong and friendly
since Indias independence.
There are many Japanese
companies including Honda,
Sony and other big
companies, have
manufacturing facilities in
India. With the steady
growth of Indian economy,
India has become an
opportunity for many
Japanese firms.
During the year 2006, the
Indian Prime Minister signed
an agreement called Joint
Statement Towards JapanIndia Strategic and Global
Partnership. Other than that,
Japan has funded and
finances the infrastructure
projects in India and the year
2007 has been the time of
India-Japan Friendship Year.
Economic
According to CIA Factbook,
the GDP (Purchasing Power
Parity) of India during the
year 2011 was $4.421
trillion.
Now a day, Indias economy
is booming up and people are
getting more opportunities in
Indian market and now, it is
one of the leading economies
of the world.
The concept of globalization
took place in 1990, which let
Euro money
Country
Risk
ECR of India
in the year
2011 is 58.6
and is ranked
52nd state
among 186
countries in
the world.
It has been
estimated that
the year
2012, Indias
ECR has been
decreased to
52.95.
Economic
Rating &
Currency
Exchange
Exchange rate:
46.67
Debt: $287.5
billion
Unemployment
Rate: 10.5%
Credit Rating:
BBB- Negative
Ease of Doing
Business: 132
Starting a
business: 173
Getting credit:
23
Protecting
Investors: 49
Trading Across
Borders: 127
Enforcing
Contracts: 184
Paying Taxes:
152
(http://www.doi
ngbusiness.org)
Cultural Aspects
Hofstede
ONDD
Entry
Strategies
Power Distance
India has achieved 77,
the highest score in this
dimension revealing that
people encourage the
hierarchy structure of
organization.
Export
Transaction
Political Risk
Special transaction2
Joint Venture
Commercial Risk:
B
Wholly Owned
Subsidiary
Individualism
With the score of 48,
indicating that Indians
are more collectivist and
strive to have social
bonds with coworkers
and managers in the
workplace environment.
Indians grow up in such
a system where family
relations and belongings
are the top priority.
They take management
system lightly and ignore
the work pressure and
management practices
and thus, managers must
give them job fear in
order to make them
serious about their work
and working
environment and it
would be easier for
managers to control
them effectively.
They must also conduct
training programs,
family welfare schemes
in order to get their
Short term- 2
Medium/long
terms- 3
Direct
Investments
War risk- 3
Risk of
expropriation and
government action3
Transfer risk- 3
(http://www.ondd.b
e)
Franchising
Strategic
alliance
Licensing
Agreement
Cross-Cultural Management
many multinational
corporations to invest in the
country and thus, made it as
world outsourcing center.
Social
Indians grow up in such a
system where family
relations and belongings are
the top priority.
They take management
system lightly and ignore the
work pressure and
management practices and
thus, managers must give
them job fear in order to
make them serious about
their work and working
environment and it would be
easier for managers to
control them effectively.
Technological
New technologies produce
new products and innovative
processes.
It is considered as
masculine in terms of
power and success of
men over women.
Technological advances in
India particularly upgrading
different technology based
products such as MP3
players, computer games,
LCD TVs and mobile phones
are increasingly growing in
electronic market.
Uncertainty Avoidance
India got 40 scores on
this aspect of culture and
hence, represents that it
has medium low
preference for
uncertainty avoidance.
Imperfection is
acceptable for Indians as
they believe that nothing
is perfect. They accept
change and complex
situations.
Long term orientation
The score of 61 on this
dimension shows that
India has pragmatic
culture.
The most dominated
concept of Karma
dominates Hinduism
religion and it is
considered as a
philosophical thought.
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Cross-Cultural Management
international companies need
to consider this external
factor in order to perform
more effectively in the
market.
17
Profile of Brazil
PESTEL
Political
Brazil is politically stable
country.
The main focus of the
government is to improve
the economic conditions
of the country.
The government has
established strict rules and
policies regarding
controlling the inflation
rate in the state.
Economic
Brazils economy is one
of the largest economies
Euromoney
Country Risk
ECR of Brazil is
recorded as 63.22
in the year 2011
and is ranked as 41
among 186
countries.
It is estimated that
during 2012, the
ECR is recorded as
60.73.
Unemployment Rate:
5.3%
Ease of Doing
Business: 130
Starting a business:
121
Getting credit: 104
Cultural Aspects
Hofstede
Power Distance
With the score of 69,
Brazilians believe in
high power distance and
encourage power and
inequalities among
people in the workplace.
The power holders have
more benefits than the
less powerful people in
the society. Also,
Brazilians tend to respect
elders and status symbol.
Individualism
Brazil has achieved a
score of 38 which shows
ONDD
Export
Transaction
Political Risk
Short term- 2
Medium/long
terms- 3
Special
transaction- 2
Commercial Risk:
C
Direct
Investments
War risk- 2
Entry
Strategies
Joint ventures
Franchising
Direct
Exporting
Cross-Cultural Management
among South American
countries.
Protecting Investors:
82
Trading Across
Borders: 123
Enforcing Contracts:
116
Paying Taxes: 156
(http://www.doingbus
iness.org)
Risk of
expropriation and
government
action- 3
Transfer risk- 3
(http://www.ondd.
be)
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Cross-Cultural Management
Technological
Recently, Brazilian
market has implemented
many changes in its
technologies and
innovations.
Government is trying to
improve the living
standard of people and
making it more developed
nation in terms of
technology.
Also, the government is
highly focused on
spending heavy
investments in technology
sector for the military
field.
Environmental
Environmental factors
have exceptional
significance when it
comes to the business
performance of the
company because the
state in which a branch of
the company is located
will decide the companys
ability to sustain in the
environment, regardless
of the governmental
actions.
The company should
operate in a manner that it
must comply with the
laws of each state, not
deviating from the rules.
Legal
In todays corporate
world, every company has
to maintain its legal and
ethical requirements.
If, it does not fulfill the
requirements then the
company is questionable
for its ethical concerns.
The company is then
accountable to the state
and the public affected by
the society.
Safety is an important
aspect which must be
implemented in the
country in order to make
the environment safe
from conflicts and
violence.
Due to their high score
on this dimension,
Brazilians are passionate
and expressive as their
emotions are expressed
and shown through their
body language.
Long Term Orientation
The score of 65 has
placed Brazil in the long
term oriented society.
Like Asians, people in
Brazil are followers and
can believe more than
one truth at one time.
They are highly flexible
and understandable as
they easily accept
change in their life
(http://geerthofstede.com).
19
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20
Profile of China
PESTEL
Political
China is considered as a
communist society with
economic power house.
The government is spending
huge investments in product
market and expansion
throughout the country.
It is worlds largest economy
and has highest population in
the world.
Economic
Since 1970, China has been
shifted from a closed system to
the market oriented.
China is playing dominant role
in international markets around
the globe.
During the year 2010, it has
become the worlds largest
exporter.
The countrys interest rate is
relatively high about 6.5% as
compared to other developed
western nations which are
facing severe depression.
This interest rate encourages
small business loan and low
risk in repayment of loan.
Social
Lifestyle and trends keep
Euromoney
Country Risk
ECR of China is
recorded as
63.55in the year
2011 and is
ranked as 40
among 186
countries.
It is estimated
that during 2012,
the ECR is
recorded as
59.64.
Economic
Rating &
Currency
Exchange
Exchange rate:
6.4615 USD
Debt: US$1.66
trillion
Unemploymen
t Rate: 6.5%
Credit Rating:
A+ Stable
Ease of Doing
Business: 91
Starting a
business: 151
Getting credit:
70
Protecting
Investors: 100
Trading Across
Borders: 68
Enforcing
Contracts: 19
Paying Taxes:
122
(http://www.do
ingbusiness.or
g)
Cultural Aspects
Hofstede
Power Distance
China has achieved 80
scores in this dimension
which represents that
inequalities among
people is high acceptable
in the workplace
environment.
People who work under
authority are highly
influenced by the formal
authority and are needed
to supervise in every
field work.
Individualism
China is highly
collectivist society as its
20 scores shows that
people are likely to work
in a group or team.
Employees are not
highly committed
towards their work and
organization whereas
relationship with peers
and coworkers are the
great importance to
Chinese.
In this way, social and
personal relationships
are more important over
their job and company.
Masculinity /
Femininity
ONDD
Entry Strategies
Export
Transaction
Political Risk
Licensing
Short term- 1
Medium/long
terms- 2
Joint Ventures
Special
transaction- 1
Commercial
Risk: C
Direct
Investments
War risk- 3
Risk of
expropriation
and government
action- 4
Transfer risk- 2
(http://www.on
dd.be)
Indirect Exporting
Cross-Cultural Management
changing the consumer
attitudes towards the particular
products and brands.
Since China highly encouraged
its local investors and
businesses to participate in the
Chinese market, therefore, the
exposure of consumers
towards imported brands is
slightly lower than other
countries. People are family
oriented and more into social
gatherings within their
relatives and family friends.
Due to low wage, people
cannot afford expensive
products and their purchasing
power is relatively low than
other countries.
Technological
Access to technology is the
strength of Chinese companies
operating in the technology
sector.
The country is known for its
advanced technology and
electronics advancement and is
the largest exporter of
technology products in the
world.
Since 1985, China has started
expanding its production base
and with the steady growth in
investments, the production
processes and capacity is
technology based.
This way, Chinese companies
are able to diversify their
business in other related
products.
Environmental
China has a vast variety of
forests and has good wildlife.
The climate and natural
environment is highly affected
by industries and factories with
a waste material and products.
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Cross-Cultural Management
This also affected the wildlife
and greenery of the country.
Due to technologically
advanced nation, pollution is
almost everywhere in the air
which has affected human life
as well.
Legal
The stability of China
government is moderate and
more stable because the
administration has high control
over the policies and laws of
the country.
The government imposed strict
laws against the publicity of
Chinese products on internet
and press.
However, these policies and
laws are very effective in
improving the economic
conditions of the country.
During the year 2001, Chinese
government joined World
Trade Organization which has
opened gates for foreign
companies to invest in the
Chinese market.
But still, some foreign
companies are facing many
problems in managing Chinese
in the workplace and the
diversity is low among them
which lack the innovations and
creative ideas.
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