Impact of Cultural Diversity on International Business Strategies and Performances

1. Introduction to Cultural Diversity in International Business

Investigating earlier studies of cultural diversity, we could find many that dealt with cultural diversity in domestic (Pratt et?al., 2006; Vorria et?al., 2008) or multinational companies (Faro et?al., 2006; Crowley and Grace, 2007; Elron and Guttman, 2008; Koopman and Wang, 2009; Miller et?al., 1999; Spielhofer, 2009) or even smaller companies along different dimensions from strategy to consumer behavior (Levitt, 1983, 1988; Soares and Farhangmehr, 2007, 2011). But as explained in section II, an explicit focus on cultural diversity in strategy from an IB perspective is lacking in general. Hence, this paper has made the argument that one way to understand the new global workplace is to focus on international business strategy in organizations and business-context interactions. As we show in these sections, the body of literature on cultural diversity in strategy is still limited. We invite fellow researchers to further delve into this field and contribute to expanding the core of knowledge on impact of cultural diversity in international business.

Cultural diversity in international business has been the subject of multiple studies, offering contradictory results (K Stahl & L Maznevski, 2021). Increasing cultural diversity in organizations and multiculturalism worldwide offer the need for a sharper focus on the understanding of cultural diversity in international business. An investigation of recent journals on cultural diversity in international business reveals a gap regarding the explicit focus on how cultural diversity affects international business strategy and firm performances. In particular, we reviewed six of the top academic journals of the field of international business (IB Research Insights) and the Strategic Management Society and we could see that, first, much work referred to the concept of “diversity” not “cultural diversity”, making our review focus on the understanding of cultural diversity to be necessary. Second, many papers investigated teams and their processes or diversity in terms of multiple attributes of interest (at times including nationality, ethnicity, gender, and race). We compared multiple studies with similar samples to avoid repeating similar perspectives. Third, we focused on international companies considering global treasure diversity not captured in domestic competitive domestic or multinational companies.

1.1. Definition

At the individual level, cultural diversity and nationality are seen as relevant impacts of corporate culture on managerial behaviors and beliefs. The survey is explained in order to test these relationships with different levels of analysis ranging from national culture to individual behavior (Nosratabadi et al., 2020). While previous research has focused on the managerial level, it can be argued that all levels of the social and organizational system should be considered when studying the relationships between cultural diversity and the organization and considering the potential cross-level relationships between them. Cultural diversity and similarity at these different levels have been explicitly considered as assets in organizational management to foster organizational effectiveness since professionals and scholars have noted that considering organizational and national culture in organizational and social behavior is mistaken (Fazelpour & De-Arteaga, 2021).

In this section, corporate culture refers to the values and behaviors shared by the people within an organization. National culture is viewed as a main source of corporate culture impacting how individuals interact and are responsible for their conduct at work (Evan & Holy, 2021). Instead of relying on national cultural indexes, such as Hofstede’s cultural dimensions, the current issue proposes to assess cultural diversity in corporate values at the managerial level by focusing on corporate cultures. Rather than assessing cultural diversity as a negative outcome at the work place, the present issue uses cultural diversity as an organizational resource. Appreciation of cultural diversity and diversity management have been highlighted in the vast literature on corporate governance and corporate strategy. They bring in the arguments that due to national cultural differences, corporate governance structures, such as the proportion of independent directors and the presence of female directors, should be interpreted with caution.

1.2. Importance of Cultural Diversity

Intercultural diversity is a key factor in international business considering the complexities in managing and learning from cultural differences that may occur when firms operate abroad (K Stahl & L Maznevski, 2021). However, it is important to specify what areas of cultural differences are important and should attract managers’ concern. First and foremost, it is the area of strategy formulation and strategy implementation. Along these lines, the most important consequence of a firm erring in a foreign culture may be an incorrect strategy itself. For example, a firm that has a competitive advantage in its home country may find that it loses its ability to compete when it operates in a new market with a different culture if it fails to adjust its strategy to the new environment. This perspective that mistakes in a foreign culture have strategic importance is possibly why the majority of authors studying culture in entrepreneurship set off from the observation that cultural differences have great significance for international business (Corritore et al., 2018). Revas and Hardin (1994, p. 342) have explained this by pointing out that a culture that is different from the focal firm’s requires management innovation in order to identify and more effectively pursue the benefits of operating in different national cultures. The decision to alter an approach that has already achieved success in the context of culture of the firm’s origin is one of the greatest innovations in business. Therefore, why intercultural diversity is particularly pivotal in optimising international business decision-making is to help assure the international competitiveness of the firm.

2. Theoretical Frameworks for Understanding Cultural Diversity

(Corritore et al., 2018) (Hu & Zhu, 2022) (R. ?stergaard & Timmermans, 2023)Darling and Schkade define culture as shared mental models, or “the state-specific beliefs, norms, values, and practices held by a group of people”. With the growth of globalization, the complexity of international business operations has increased. Businesses are increasingly establishing new markets (and operations) in different countries, while at the same time needing global processes to ensure regulatory control and to manage resources more efficiently. One of the most important processes relative to international business is human resource management, that must understand, be responsive to, and in some cases adapt to different human resource environments in different countries. This is because cultural elements significantly impact international business operations, including consumer purchase intention [15,17], interpersonal communication, individual self-enhancement, aware decision-making, team interactions and firm performance and merger and acquisition support. Hofstede defines a nation’s culture in ways that are consistent with Darling and Schkade, but provides valuable insight when he identifies the dimensions of a nation’s culture: power distance, individualism-collectivism, uncertainty avoidance, masculinity-femininity, short and long-term orientations, and indulgence-restraint. Schwartz provided a similar definition of culture and even more culture dimensions than Hofstede. Overall, Hofstede’s framework provides current human resource management a thorough view of “how cultural differences affect both the employment relationship and the management of international employees” [3, p. 130] while Schwartz provides a way “to analyze similarities and differences in value expression across countries” [6, p. 82]. In the same manner, Bande and de Meij provide a fun, interactive way of considering culture value differences within classroom learning environments. Overall, understanding cultural differences is paramount in successfully doing international business. Thus understanding how the dimensions of these frameworks impact business is important to doing business successfully in parts of the world different from one country’s own.

2.1. Hofstede's Cultural Dimensions Theory

Hofstede (1983) presents five cultural dimensions and later authors would make an extension by presenting a sixth one. The original dimensions are individualism/collectivism, power distance, masculinity/femininity, uncertainty avoidance and long-term orientation. Indulgence vs. restraint is the sixth dimension. Individualism refers to the extent to which people are expected to look after themselves and immediate families only. In-collectivism refers to the degree to which people are supposed to be attached to larger collective grouping such as extended families or family businesses. In societies high in power distance, subordinates normally defer to superiors and power is sought out. In low power distance cultures, superiors and subordinates consider each other more as equals. Achievement, success, and materialistic gains are the main cultural attitudes in masculine cultures. Emotional well-being and the importance of friendships are considered to be more important in feminine cultures. Uncertainty avoidance is the cultural dimension of a society's tolerance and restraint toward risk. Long term oriented societies place emphasis on perseverance and thrift, whereas short-term oriented cultures are less patient and driven by a sense of urgency. Indulgence versus restraint raises the question whether the culture tends to allow relatively free gratification of basic and natural human desires related to enjoying life and having fun or whether it leads to controlling and regulating such gratification (V. Monrouxe et al., 2022).

Culture is possibly a shared pattern of behaviors, knowledge, and skills that influence a person's behavior (Kabir et al., 2022). For decades, researchers have tried to identify the cultural differences and adapt accordingly the business strategies. In this respect, Hofstede's cultural dimensions theory is outstanding and widely known among businesses. Although it has been the subject of rigorous analysis and critique, it still represents not only the fundamentals of research, but also the foundation of decision-making processes in various situations. Eventually, cultural factors influence completive strategy, firm's performance, and industrial characteristics as social, political, and regulatory systems (Tarhini, 2016).

3. Strategies for Managing Cultural Diversity in International Business

In international business, the relationship between strategies and institutions was researched with 20 years of data. A simple half of such studies on how beneficial to approach these interconnections kind of unselected varieties of relationships originating from economic sectors and institutional and business strategies. The name of buoyancy should be made on the relationship between management and cultural diversity for policy so that the international business is tested for GDP indicators and some applied institutions, which are driven by different designs. We are looking at how countries in terms of the scope of activities, not all institutional components that have caused the desire for international business, will be reflected in cultural diversity at the workplace. Longening the level of exploration of regional differences for the relationship will be evaluated as a contributive link to the lessons learned for the improvement of the cultural diversity and the collected relations that they have named. (Welsch et al., 2023)"

"Cultural differences could be a barrier to business success such as international negotiation process, cross-cultural management etc. Because of these reasons, companies taking steps more effectively manage cultural differences and cultural synergies by sharing social networks, job assignments, etc. Across countries, companies should function well to create a global vision for staffing to recruit with diverse learning and experiences (Hu & Zhu, 2022). Multinational companies typically follow two types of strategies to manage cultural diversity due to certain patterns: transnational strategies and multinational strategies. The transnational management approach relies on the understanding of particular culture values as well as nonculture factors. Multinational companies had elaborated global corporate culture, had successful control systems and managed with local initiatives. Both strategies enabled top-class managers to allocate important recourse for multinational companies and evaluated necessary collateral institutional terms for multinational operations to be able to follow the logic and implementation of both headquarters and work abroad.

3.1. Cross-Cultural Training and Education

Acting in this manner, the research safeguards the external validity of the research findings (Parlaungan Nasution & , 2019). Furthermore, considerations are usually not based on needs perceived by the target, yet not yet identified, group. Moreover, the concatenation of the three different types of training conceived as cascading could increase cross-cultural adaptation. At organizational level, a proactive long-term cross-culture education strategy increases the efficacy of interventions due to a better predictability of the expatriates outcomes.

Referring to the essentiality of cross-cultural training and education, the focus around which the cultural challenge gets comprehended and managed within the organization. Participants of the cross-cultural learning approach significantly increased their cultural knowledge, intercultural attitude, and cross-cultural skills (Corritore et al., 2018). The latter significantly correlate with business performances in an international context. The benefits of a well-structured cross-cultural education strategy are related to higher individual performance, group effectiveness, job satisfaction, and learning transfer in an international context (Li et al., 2021). The expatriates training program is an essential segment of the cross-cultural education strategy, based on a more general three-level cross-cultural management training model: cultural basic orientation, culture-specific courses or seminars before the international experience, and specific international skills training in order to accumulate cultural experience. Relevant findings of the research demonstrate how a long-term planning may provide opportunities to overcome Alt and Ferrara’s criticism regarding stated preferences in their area of common knowledge.

4. Case Studies of Successful and Failed Business Strategies in Diverse Cultural Environments

The article [2941...7ce1b] represents a complex model that furthered research on cultural dynamics in multicultural groups and teams. The model – labelled the "culture-strategy dynamic" – helps understand the impact of cultural diversity on expenses outcomes. For instance, it explores how performance depends on original strategic fit on one hand, and on the cultural ties/cognitive geography, and transactive knowledge sharing in another. What the authors highlight, is that a focus on cultural diversity in International Business (IB) research has led to an overemphasis on negative influences. Instead, they aim to unpack positive dynamics in present relationships. Such an approach is deemed necessary to investigate under what conditions cultural differences positive influences can be brought to bear in teams.

Article [589f...0a08] is dedicated to the importance of alignment of business strategies with the surrounding culture. It specifically mentions two cases - that of Samsung, that has succeeded due to effectively adjusting its strategies to several important cultural traits: adaptability and conservatism, and the reactions to hierarchy that are present in South Korean society, and that of Google, which had to significantly alter it's initial "Do no evil"/"Focus on the end users" strategy, after it turned that Chinese culture greatly differs in the very definition of what is "evil", as well as, indeed, what should define a user’s and a company's focus. What the article stresses, is that localization is crucial in order for a business strategy to function effectively in a foreign culture.

4.1. Successful Case Studies

(Dimitrov, 2018) (Minbaeva et al., 2021)IBM is the most publicised multicultural model in the world, and after 51 years of implementation of diversity, they became a highly successful company. In a recent interview, International experienced managers of Interfaith, globality and multicultural product managers, as well as regional multicultural managers, stated the following: "In IBM, as a multicultural construction, the blend is more in the management of multiculturalism. Multiculturalism at IBM is not at the operational level but at the management level. We do have a number of countries represented in the operations for future planning and execution. Major personnel have had specific global training programmes (Crick 2003), multinational resource is controlled in the form of permanent and temporary employees. The temporary resource is managed in a way that as soon as the task is complete, they are not kept for waiting. They are again send to one or another place which needs them. The constant mingle and interaction of people in temporary status gives them very important experience of coping up with the changed perspectives. Multinational operating company with over 450,000 employees, more than 20,000 of whom are Asia Pacific staff - with about 1/3 of those based in Asia, IBM exhibits a significant commitment to the development of its people and their professional careers (Johnson 2000). (Minghua, 2022)The policy passes the need: for IT application services the requirement is principal neuroscientific skill sets involving people who can comprehend neurological and neurophysiological problems, and program cognition accordingly. During the marketing of IT software a lot of neuro-marketing principles are applied by the company and this is taught to the employees to make them understand consumer aptitudes better. IBM hires employees from various countries to provide an international feel and understanding in the products, services and fulfilment. So IBM has a multi-ethnic clustering department named Business Resource Groups (BRGs) which are global and there are four major focus areas Asia Pacific, China, South America and Northern African / Middle Eastern BRGs. Now all these departments have number of managers adequately trained and experienced in global attributes, language proficiency and cultural compliance. IBM has skilled employees from BRG clusters nurturing a suitable transferability of workforces and talent as they globally manage in varied regions.

5. Measuring the Impact of Cultural Diversity on Business Performance

Losses of business face, fear of political intervention, fear of investor backlash, the difficulty of quantifying the benefits of international diversification to various shareholder groups, the complexity of the problems, and inconsistencies in national reporting requirements have retarded progress in measuring the international business performance. Indeed, of the wide variety of international business performance indicators that some academics have put forward, none have emerged as the most appropriate. Even commonly used measures of financial performance such as return on assets can be affected by international capital mobility and the denomination of assets in a variety of currencies, rather than performance.

As performance data are typically regarded as being highly sensitive, it is generally difficult to obtain reliable information because businesses generally do not wish to publicly disclose them. The problem becomes even worse if the business data are international. One reason for this is that, if a business has a poor international performance, alleging foreign nationals to be the cause of such poor performance could lead those in control of the business to be accused of being racist.

Although each of these models provides valuable insights into the impact that cultural diversity may have, none of the models enable one to assess the actual effects of cultural diversity on international business performance. Measuring the impact of cultural diversity on business performance is a difficult task for two main reasons, namely, locating reliable performance data and identifying the most important forms of cultural diversity.

5.1. Key Performance Indicators

Economic growth and gross capital formation show the positive impact of international business on a country. Inflation rate and general government debt show the opposite. A negative inflation rate will lead to price increases in the international market, whereas a higher general government debt reflects the risk of the country.

The key performance indicators analyzed are economic growth, gross capital formation, inflation rate, net forex reserves, general government debt, total international trade, FDI inflows, and credit to the private sector. Economic growth, inflation rate, net forex reserves, and general government debt are the main performance indicators of a country. These indicators may have a significant impact on the total international trade and FDI inflows of a country. A good economic scenario will drive good performance in all sectors. Gross capital formation measures the investment of a country. Credit to the private sector measures the risk of the country for further investments. Positive forex reserves of a country will encourage more FDI in the country, which all leads to a good double-digit growth of a country.

Conclusion

At the same time, with the introduction of internal procedures and rules that support the monitoring and measurement of the results, we also recognize the quality of management. A stimulus in order to innovate the analysis and the research on the dynamic scenario in which the international organizations risk being called to operate in the near future was inherent. Complexity, uncertainty, conflict, but also change, new path, and new opportunities: the globalization paradox also calls for a reflection that goes beyond the pessimistic hypotheses of the decline. Only by trying to place diversity in the center of our attention, from both a methodological and content point of view, is it possible to test the potential assumed by companies, as well as to verify the hypotheses. This chapter represents our contribution with the analysis of cultural diversity, corporate strategies, and performance in large companies on a global scale.

This chapter aimed to contribute to the understanding of the relationship between cultural diversity, business strategies, and performance. In particular, we wanted to offer some evidence of the conditions under which cultural diversity represented an advantage for international companies. The main benefit of our contribution derived from the fact that the international dimension required a more complex relationship and a different reasoning. We focused on the compositional effect of diversity and studied the three issues, strategies, and performance of the company simultaneously using an innovative database obtained from the evolution of the top management teams of 176 of the largest companies operating worldwide. The surfacing of national, international, and intercultural human resources management (IHRM) strategies in all the various HRM functions determines at least a triple conceptualization of the strategic role of diversity. The governance and the intermediate logic that supports it allow us to detect also indirect effects, secondary or mixed, to which the governance structure or the related incentive systems contribute.

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