Culture Influence on strategic Thinking

Culture influences managers thinking about business strategy. Other are now examining this idea in even deeper detail. Distinguished between is the British American individualistic kind of capitalism and the communitarian form of capitalism in Japan and Germany. The business systems in the latter two countries are typified by cooperation among government, management and labor particularly in Japan. Contrarily adversarial relationships among labor, management and government are more the norm in the United Kingdom, and particularly in the United States. These cultural differences reflected in Hofstede’s results – on the IDV scale the United States is 91, the United Kingdom is 89, Germany is 67 and Japan is 46.

We also find evidence of these differences in a comparison of the performance of America, German and Japanese firms. In the less individualistic cultures labor and management cooperate – in Germany labor is represented firms. In the less individualistic cultures and management cooperate – in Germany labor is represented on corporate boards, and in Japan management takes responsibility for the welfare of the labor force. Because the welfare of the workforce matters more to Japanese and German forms, their sales revenues are more stable over time. American style lay offs are eschewed. The individualistic American approach to labor – management relations is adversarial –each side takes care of itself. So we see damaging strikes and huge layoffs that results in more volatile performance for American firms.

Circa 2000 the American emphasis on competition looked like the best approach, and business practices around the world appeared to be converging on the American model. But it is important to recall that key word in Adam Smith’s justification for competition – frequently it is worth repeating here: By pursuing his own interest he frequently promotes that of society. A competitive individualistic approach works well in the context of an economic boom. During the late 1990s American firms dominated Japanese and European ones. The latter seemed stodgy, conservative, and slow in the then current hot global information economy. However, down turns in a competitive culture can be ugly things. A review of the performance and layoffs at Boeing during the commercial aircraft busts of the late 1990s and early 2000s is instructive.

It should also be mentioned that others writing in the area omitted a fourth kind of capitalism – that is common in Chinese cultures. Its distinguishing characteristics are a more entrepreneurial approach and an emphasis on guanxi (one’s network of personal connections) as the coordinating principle among firms. This fourth kind of capitalism is also predicted by culture. Chinese cultures are high on PDI and low on IDV and the strong reciprocity implied by the notion of guanxi fits the data well.

Synthesis, Relationship Oriented versus Information Oriented Cultures:

With increasing frequency studies are noting a string relationship between hall’s high / low context and Hofstede’s Individualism / collective and Power Distance indexes. For example, low context American culture scores relatively low on power distance and high on individualism, while high context Arab cultures score on power distance and low on individualism. This is not at all surprising given that Hofstede leans heavily on Hall’s ideas in developing and labeling the dimensions of culture revealed via his huge database. Indeed, the three dimensions – high / low context, IDV, and PDI – are correlated above the r = 0.6 level, suggesting all three dimensions are largely measuring the same thing. Likewise, when we compare linguistic distance (to English) and Transparency international’s Corruption Perception index to the other three with similar levels of correlation among all five dimensions. And while metrics for other dimensions of business culture do not yet exist, a pattern appears to be evident.

Dimensions of Culture, A Synthesis:

Information Oriented (IO)

1) Low content
2) Individualism
3) Low power distance
4) Bribery less common
5) Low distance from English
6) Linguistic directness
7) Mono-chronic time
8) Internet
9) Foreground
10) Competition

Relationship (RO):

1) High context
2) Collectivism
3) High power distance (including gender)
4) Bribery more common
5) High distance form English
6) Linguistic indirectness
7) Poly-chronic time
8) Face to face
9) Back ground
10) Reduce transaction costs.