Chapter 14 Multinational Companies and Influence of Country Differences

With globalization and the progressive integration of national economies, the modern company can hardly approach, without the support of local partners, the new growth opportunities. The most attractive of which are now to be found in the Middle East, Asia or Eastern Europe.

14.1 Ghemawat’s CAGE model (2001)

14.2 Three points to remember

  • Managers are not necessarily trained to manage these multicultural situations that are developing at an unprecedented speed in the 21st century.

  • If the art of management is traditionally understood as the art of exercising power and responsibility, it is more about the ability to manage differences in the case of encounters between cultures.

  • The question that arises is not only how to modulate one’s own culture and management methods to make them acceptable to the culture of the other, but also how to seek leverage in the national culture of the other company.

14.3 Taking into account the cultures?

The use of foreign companies?

  • or through a transfer of skills through trade agreements,
  • or by means of mergers and acquisitions

… raises the question of taking into account national cultures.

14.4 The end of cultural differences?

Prime, N., 2001:

  • “The hypothesis, that the diffusion of (some) Western models of consumption or management throughout the world creates a universal civilization, is based on a historical propensity of the West to believe in the universalism of its culture.”

  • Since the 1970s, the “hypothesis of convergence”, according to which managerial values and practices are intended to converge towards a single, universal model, has been fading away, giving way to the “convergence hypothesis”. “Theory of Cultural Relativism”.

14.5 Globalization and culture

  • Globalization is indeed a very recent phenomenon by The relationship to the historical construct specific to each country.

  • National specificities remain, expressing in a large part measurement (d’Iribarne, P., 1998):

    • a story,

    • a mode of social organization,

    • a political and legal context specific to each of these companies

14.6 Cultural distance

  1. It indicates the degree of remoteness between two cultures

  2. It is now one of the key concepts in the literature on multinational firms (MNFs).

  3. In particular, it is mobilized to explain:

  • ex ante the investment decisions of these firms, both in terms of location and mode of entry (Colovic and Mayrhofer, 2008; Quer et al., 2007).

    • Other studies analyze ex post its impact on MNF performance (Evans and Mavondo, 2002; Tihanyi et al., 2005).

14.7 The paradox of cultural distance

14.7.1 Negative forces

  • It disrupts communication between headquarters and subsidiaries, increasing the costs of coordination and skills transfer (Quer et al., 2007).

  • It alters MNF’s ability to operate in foreign markets, as it increases the lack of knowledge of local values (Gomez- Mejia and Palich, 1997).

  • Cultural distance complicates MNF activities (Wang and Schaan, 2008).

14.7.2 Positive forces

  • It gives them access to new resources that are difficult to imitate (Wang and Schaan, 2008).

  • It is therefore a structuring element of the internationalization process.

Yet cultural distance interacts with other factors in shaping MNF development choices, be it language, religion, or the political and institutional system (Dow and Ferencikova, 2010).

14.8 The articulation between the different cultural spheres

14.8.1 National culture: a universe of meaning

  • Thus, sharing a culture means mobilizing common points of reference to give meaning to the realities of the world, NOT valuing the same realities.

  • Therefore, culture is NOT a sum of stereotyped behaviors, nor is it common sense. The categories of the mind to which it refers can in fact result in different and sometimes opposing interpretations of the same situation (d’Iribarne, 2009b).

14.8.2 Organizational culture: the metaphor of the message

  • The use of subtle forms of organizational control is a central feature of MNF operations (Beddi, 2008).

  • These forms are based on the existence of a common socialization within the different entities of the firm, which produces an adherence to the values and principles of the organization (Ouchi, 1979).

  • Corporate culture has long since entered the field of practices (Godelier, 2009):

  • It thus corresponds to the reality of many organizations, which consciously manage a set of key values, sometimes transmitted through symbolic elements, and on which other more formal elements such as strategic choices or management practices are based.

14.8.3 Craft culture: the technical substrate

  • While sociology has long shown that the organization is a place of identity construction where multiple cultural logics coexist, some of which are based on professional affiliation (Frankfurt et al., 1995), professional culture is little studied in management sciences.

  • With reference to Trice (1993), it is generally defined there as a set of values and norms that underlie professional practices (Sirmon and Lane, 2004).

  • The culture of the profession then refers to:

    • a set of distinctive competencies,

    • a language,

    • as well as shared representations and ways of thinking (Chevrier, 2004; Leonardi et al., 2005), which develop from a common technical core (Viegas Pires, 2008).

At the time of agreement, a lot of hope and optimism prevails.

14.9 Case Study

14.9.1 Costs

  • Distance culture

14.9.2 Benefits

  • Acquisition of talent or know-how

  • Access to new segments

  • Geographic diversification

  • Economy of scale

But the rhetoric often gives way to disillusionment (Connolly, S. and Klein, L., 2002): more than one merger out of two fails, two out of three does not produce the value creation promised during the operation.

A worldwide study conducted by AT Kearney in 1998-1999: on 115 merger operations, shows that the question of HR and corporate culture, to which a national specificity is grafted according to the case, is by far the first cause.

Shrivastava (1986) identifies three types of merger integration:

  • procedural integration (information and management systems)

  • physical integration (the premises)

  • Socio-cultural integration (values)

  • The author points out that while the first two types of integration have been well studied in the management and accounting literature, socio-cultural integration is relatively unknown.

  • While the purchaser is certain to obtain intangible resources such as patents, the same is not necessarily true for skills, as they are associated with a group of men/women.

  • The national culture

  • Organizational culture

  • The culture of the profession

14.9.3 Case Study 1

La fusion de Daimler-Benz avec Chrysler en 1998 est probablement le plus célèbre des cas de fusion qui se solda par un échec. Cet échec a mis pour la première fois l’accent sur les facteurs culturels qui ne peuvent pas être ignorés à l’échelle internationale.

Un groupe deux cultures…

  • Daimler était une compagnie décrite comme “conservatrice, efficace et sure”

  • Chrysler était connu comme “audacieux, différent et créatif” (Appelbaum, Roberts et Shapiro, 2009:44).

  • Problème de confiance : des deux côtés les employés étaient réticents à travailler avec leurs nouveaux collègues.

  • Hiérarchie différente.

    • Daimler était une compagnie très hiérarchisée avec des notions de commandement et de respect bien définies en ce qui concerne l’autorité.
    • Chrysler, de l’autre côté, était plus en faveur d’une organisation par équipes et d’une approche égalitaire.
  • Approche client différente

    • Daimler cherchait la fiabilité, le sérieux et le plus haut degré de qualité,
    • Chrysler misait plutôt dans des designs attractifs et des prix compétitifs.

Les deux groupes n’ont pas réussi à faire travailler ensemble des salariés dont les cultures nationale et organisationnelle étaient opposées.

14.9.4 Case Study 2

  • En 2002 P&G a annoncé une OPA amicale sur son concurrent nord-américain, n°1 du marché mondial du rasage, Gillette.

  • Fusion de 2 groupes nord-américains

  • Deux groupes nés autour du même métier des produits de l’hygiène.

  • « Une fusion idéale» selon les analystes

  • Mais des obstacles culturels…

Un groupe

deux cultures…

  • Équipe globale vs équipes diversifiées

    • Gillette travaille comme une seule équipe globale
    • P&G préfère segmenter en équipes pour répondre aux attentes variées des consommateurs.
  • Centralisée vs autonomie

    • La culture Gillette est fortement centralisée : cadre mondial
    • P&G laisse une large marge de manoeuvre aux régions (autonomie)
  • Communication différente des valeurs et principes

    • Chez Gillette, les deux piliers valeurs et excellence en terme d’organisation sont mis au service de l’innovation.

    • P&G fait reposer principes et traditions sur les individus et la nécessité de bien faire, en tous points, à long terme.

  • Une approche différente du marketing client

    • P&G considère qu’il n’existe pas de consommateur "transfrontière »

    • Gillette privilégie la notion de consommateur global

Les deux groupes ont réussi à faire travailler ensemble des salariés dont la culture organisationnelle était opposée.

14.10 What teachings?

14.10.1 Recognize the existence of cultural differences.

  • The example of Renault is revealing in this respect. The attempt to merge in 1993 with the Swedish company Volvo ended in failure, insofar as the two parties involved wrongly made the implicit assumption of cultural proximity because of their common belonging to Europe.

  • On the other hand, Renault’s management meticulously prepared for the merger with Nissan in 1999, in particular by making Renault executives aware of Japanese cultural specificities and by creating Franco-Japanese working groups charged with reflecting on specific points of the merger.

14.10.2 Understanding differences as sources of enrichment

  • While Renault was in a strong position in the merger with Nissan, the two parties signed an “Alliance Charter” that expressed their commitment to the merger. awareness of existing cultural differences and their willingness to learn from each other.

  • This initiative has been innovative in the field of mergers and acquisitions, which is more accustomed to seeing “business plans” rather than “cultural plans” being put in place.

14.10.3 Pay special attention to the symbols

  • The head office example is very significant for at least two reasons.

  • First, its geographical location is not insignificant. The choice of a neutral location can testify to the purchaser’s willingness to balance the forces at play. Aventis has established its headquarters in Strasbourg, France, a symbol of union between the German and French cultures.

  • Ensuite, il importe de représenter au siège les multiples nationalités. Unilever s’est ainsi employé à briser l’image « coloniale » de son conseil d’administration qui était exclusivement anglo-saxon.

  • Désormais, de multiples nationalités sont représentées au siège, le rendant ainsi plus sensible à l’existence des cultures nationales des filiales (Bournois, F. et Voynnet-Fourboul, C., 2000).

14.10.4 Promote cultural diversity

  • Mixing of cultures at several levels is desirable.

    • Firstly, the preparation of the merger should be based on working groups in which both cultures are represented.

    • Secondly, the distribution of positions of responsibility should not be reserved exclusively for the actors of the absorbing company.

    • Finally, the mix of field teams should be favored, especially if the tasks to be performed are of a complex nature, since cultural mixing is particularly effective in non-routine situations requiring a certain creativity.

14.10.5 Affirm a strategic vision

  • To avoid falling into the trap of “soft consensus”, the absorbing company must be able to demonstrate its power without prevaricating, not in regalian behavior, but in the affirmation of a strategic vision.

*The success of the Renault-Nissan merger is due in part to the fact that Carlos Goshn, from the moment he was appointed, showed the urgent need to challenge Japanese habits and traditions in terms of jobs (14% of the workforce was eliminated in a country known for its “lifetime jobs”), relations with suppliers (their number was halved and 20% discounts were demanded) and relations with banks (competitive bidding).

  • At the same time, Carlos Goshn committed to resigning with his team in the event that the ambitious economic targets he had set were not met a year later.

  • In doing so, he demonstrated his convictions and commitment in a way that commanded respect and contributed to Japan’s belief in Nissan’s renewal.

14.11 Conclusion