Cultural Impact on Business: Hofstede's Model & Cross-Border Dev

This essay provides a critical assessment of Hofstede's model of national culture, exploring its background, content, and common criticisms. It discusses alternative theories like Trompenaars' model, Hall's theory, the World Values Survey, and the GLOBE research project. The essay also examines the impact of cultural diversity on cross-border business, using the Daimler Chrysler merger as a case study to illustrate how cultural clashes can lead to business failures. Furthermore, it touches upon how individual behavior can be adapted to improve success in cross-border business development. Desklib offers a wide range of similar essays and study resources for students.

Running head: BUSINESS ACROSS CULTURE
Business across Culture
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Section 1
Critical assessment of Hofstede model of national culture
Hofstede model of national culture is also known as the Hofstede’s cultural dimensions
theory. In this model, social psychologist Geert Hofstede presented the result of his research on
the ways that the businesses are conducted between different nations and how the cultural
differences impact the businesses. This model is the result of one of the most comprehensive
studies about impact of culture on the workplace values. Hofstede defined culture as mind’s
collective programming that distinguishes the individuals of one category or group from the
others (Hofstede 2018). Hofstede carried out the research on this subject over 100,000
employees of IBM, working across the world. He categorized the cultures of people belonging to
different nationalities to evaluate the impact of culture on the working environment. The aspects
of culture are divided into six dimensions, namely, Power Distance Index (PDI), Individualism
versus Collectivism (IDV), Masculinity versus Femininity (MAS), Uncertainty Avoidance Index
(UAI), Long Term Orientation versus Short Term Normative Orientation (LTO) and Indulgence
Versus Restraint (IND). The cultural dimensions stand for the independent preferences for one
type of affairs over the other, which distinguishes the countries and not the individuals from each
other (Hofstede Insights 2018).

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Figure 1: 6 dimensions of Hofstede model for national culture
(Source: Hofstede 2018)
The dimensions of the model are as follows:
Power Distance Index (PDI): this measures the extent to which the inequality in power or
hierarchy is tolerated and if there is a strong sense of status and power among the people. In
other words, it represents the degree to which the members of a society, who are less powerful,
expect and accepts the unequal distribution of power. This shows how inequality among the
people is treated by the society. The hierarchy has more importance in countries with more PDI
score (Fang 2012). A higher PDI score indicates that the culture accepts and encourages the
national bureaucracy and pays high respect to the authority and rank in the system, while a
culture with a lower PDI score encourages a flatter bureaucracy with equal distribution of power
and more emphasis on autonomy and personal responsibility.

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Individualism v Collectivism (IDV): This aspect focuses on the importance of individuals and
the societies. Higher IDV score represents the emphasis on the individual efforts more than that
of the group effort. It has bigger implications for the financial rewards at the workplace, in terms
of individual bonus versus the profit sharing for the larger groups (Taras, Steel and Kirkman
2012).
Masculinity versus Femininity (MAS): The aggressiveness and competitiveness of a culture to
achieve something is measured by this score. This mainly focuses on decision making style of a
culture. The nation with a high MAS score is focused on aggressiveness, competitiveness,
assertiveness and material rewards for accomplishing success, while the nation with a low score
adopts cooperation, modesty, quality of work and life and compassion while making a decision.
Uncertainty Avoidance index (UAI): This score measures the risk aversion nature of the
culture. A low score indicates that people are willing to accept more risk and ambiguity and
embrace the change, representing entrepreneurial nature, while a high score indicates a rigid and
orthodox society, not much willing to take risk or adopt the entrepreneurial nature.
Long-term orientation versus Short Term Normative Orientation (LTO): LTO score
indicates how much the nation puts emphasis on long term planning and perspective in regards to
the business objectives, planning and performance and investment decisions.
Indulgence versus Restraint (IND): This score indicates how much the society indulges in the
free living and enjoys fun. Restraint stands for a culture, which suppresses the gratification of
needs and imposes strict social norms to restrict it.

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Criticisms to Hofstede model
The most common criticisms of the Hofstede model address the assumptions of
homogeneity of the country culture, simplicity due to one company approach, factors of national
culture versus non-cultural factors, inclination towards the western culture and assuming that
culture is constant. The Hofstede model assumes that the domestic population of the country is
homogeneous (Mazanec et al. 2015). It ignores the fact that the population belongs to different
ethnic units having different dimensions of culture. One nation does not have one particular
culture pattern, language, customs and norms and the model does not consider that. Even the
difference between the culture and the subcultures is also ignored in the model.
The model is too simplified. Hofstede took the employees of one particular company to
conduct his study. According to Taras, Steel and Kirkman (2012), few employees of only one
organization cannot represent the entire culture of a nation. It is also said that, in the Hofstede
model, the non-cultural factors were ignored, which have significant impact on the national
culture. There are economic, political, institutional and many social factors that have influence
on the national culture and the critics say that, studying only one company and making
conclusion based on that is not justified (Minkov and Hofstede 2012). Apart from that, using
survey as the only research instrument for constructing a theory has faced criticism too.
According to Dartey-Baah (2013), there should be other methods or strategy also to support the
results of the survey and make the theory more grounded. The study also does not take into
account the rapid changes in the global environment, that is, impact of globalization and
convergence. Due to these factors, there is a rapid change in the business environment and
organizational cultures, which also reflect the changes in the society and cultures. Cultures are
dynamic and these are changing very rapidly. These are not addressed in the Hofstede model of

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national culture, and hence, in the modern world, which is largely dominated by the
globalization, the Hofstede model does not hold significance in many cases.
Responses of the criticism (Other theories)
There are some other theories formulated by other eminent scholars in response to the
criticism of the Hofstede model. Those theories are Trompenaars' model of national culture
differences, Hall's theory of cultural context, World Values Survey and the GLOBE research
project.
In the Trompenaars' model of national culture differences, a cross cultural
communication framework was designed and applied to the general business and management.
This model has seven dimensions, namely, Universalism versus Particularism, Individualism
versus Communitarianism, Neutral versus Emotional, Specific versus Diffuse, Achievement
versus Ascription, Sequential versus Synchronic and Internal versus External control
(Beugelsdijk, Maseland and Hoorn 2015). This theory focuses on the more detailed approach
towards cultural dimensions while keeping some similarity with the Hofstede model.
Individualistic natures and approach towards the cultural aspects are addressed in this theory.
Hall's theory of cultural context addresses the high-context and low-context cultures
and the way of businesses done in those two types of culture. According to Hall, in the high-
context cultural countries, there is implicit meaning of the messages that carries more
information than the actual spoken words, while in the low context countries, messages carry
transparency in meaning and information to be conveyed. Hence, context is relative and plays a
major role in measuring the cultural metrics of the country. High–context cultures are relational,
intuitive, collectivist and contemplative (Crane, Kawashima and Kawasaki 2016). With

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increasing globalization and migration across the world, the contexts of the countries are
changing, for example, Finland, has a high-context culture, but with the influence of western
culture, it is becoming a low-context one. The organizational cultures are often influenced by the
culture context of the host countries, while individuals belonging to different countries will
display attitude of different context cultures (Deephouse, Newburry and Soleimani 2016). This
theory is similar to the universalism and particularism dimension of context, introduced by
Trompenaar.
The World Values Survey (WVS) is an international research project, focusing on the
values and beliefs of people, and the way those change overtime and the political and social
impacts of those (Stonefish and Kwantes 2014). It is carried out in more than 100 countries in the
world. This survey has demonstrated over the years that peoples’ beliefs play a crucial role in the
economic, social and political changes and development of the nation, emergence and growth of
democratic institutions, efficient government and rise of equality (Cowley and Smith 2014). For
example, motivations of various events in the past, such as, 2005 French civil unrest, 1994
Rwandan genocide can be best explained by the results of this survey, while that cannot be
explained by applying the Hofstede model (Lee-Ross 2015).
GLOBE research project is the acronym for “Global Leadership and Organizational
Behavior Effectiveness" research program, developed by Robert J. House in 1991. This program
includes nine dimensions of culture to capture the similarities and/or differences in cultural
norms, beliefs, practices, and values among different societies. This program is based on the
theories by Hofstede (1980), Schwartz (1994), Smith (1995), Inglehart (1997) and many more
authors. The nine dimensions of this theory are, Power Distance, Uncertainty Avoidance,
Humane Orientation, Collectivism I, Collectivism II, Assertiveness, Gender Egalitarianism,

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Future Orientation and Performance Orientation (Minkov and Blagoev 2012). The nations are
categorized into different clusters based on the cultural similarities and the differences in culture
increases based on how far one cluster is from the other. These have influences on the leadership
styles, which in turn has immense effect on the organizational environment.
All these theories are made in response to the Hofstede model of national culture.
Majorly these are expansion of the Hofstede model. The extra or the modified dimensions of
culture aim to address the cultural aspects in much detail. These not only focus on the national
cultural aspects, but also on the individualistic aspects, which have significant impacts on the
organizational culture.

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Section 2
Impact of cultural diversity on cross border business: Example of Daimler Chrysler
merger
Cultural diversity plays a very significant role in the cross-cultural merger and
acquisitions. The cultural characteristics of the companies involved in the mergers often
influences the way of businesses and on the features of the products or services, which could be
successful or failed based on the dominance of the diversity (Fitzsimmons and Stamper 2014).
The merger between Daimler and Chrysler is one big example of a failed merger, for which
cultural clash is responsible. The chairmen of these two big automobile companies signed the
merger deal and termed it as the ‘Merger of Equals’ in 1998. However, there was no equality,
and after few years, it was called a fiasco (Devine, Lamont and Harris 2016). Clashes occur due
to difference in corporate cultures and national cultures. These two are interrelated. The
executives of Daimler and Chrysler announced that they would merge the best aspects of each
company for more superior products. However, the lack of cooperation and true sharing became
evident soon. For example, the executives in Daimler refused to use the Chrysler auto-parts in
the Mercedes vehicles. DaimlerChrysler was the name of one company, but they maintained two
separate headquarters, one in Stuttgart, Germany and another in Michigan. Differences of
cultures emerged in terms of level of formality and maintaining hierarchy, philosophy on the
issues like operating styles, expenses and pay. The German culture became highly dominant and
the employee dissatisfaction level decreased considerably. After two years of the merger, Juerge
Hubbert, Chief of Passenger Car's of Daimler said that the merging of two big automobile
companies had one company, one chairman and one vision but two different cultures (Tracy

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2017). By 2000, the companies projected huge losses and after another year, layoffs started.
Daimler sold Chrysler for $6 billion in 2007 to Cerberus Capital Management (Daimler.com
2018). It can be inferred that culture clashes had led to the fall of one of the biggest cross border
mergers of the 1990s. To mention the cultural clashes, it can be mentioned that Daimler imposed
Materials Cost Management initiative on Chrysler to reduce the cost of the interiors of the cars.
It also imposed Voluntary Termination Incentive Program, which led to mass exit of many
talented engineers of Chrysler (Pascall 2015). Although, the merging deal had produced some of
the best cars during that time, the cultural differences did not lead to long term success. The
amalgamation of the European and American culture did not enjoy success due to the high level
of cultural differences.
An analysis of the Daimler-Chrysler deal in regards of the Hofstede model of national
culture brings out some potential explanations of the failure of the deal. The Hofstede country
comparison score of Germany and the USA is depicted below.
Table 1: Hofstede model country comparison, Germany and USA

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(Source: Hofstede Insights 2018)
In terms of power distance score, a country with a high PDI score enjoys more privileges
for the people in the higher level compared to the country with a lower scores, who prefers
egalitarian system. In this example, Germany scores 35 and USA scores 40. Thus, it can be said
that, with a higher score, the level of equal power distribution in the organization is quite low.
Daimler preferred hierarchy and formality in the organizational decision making process and the
employees are also required to follow hierarchy and formal management channels. Along with
that, the German managers follow autocratic style of leadership and the subordinates follow the
managers without any question. Hence, the power distribution is mostly equal in the German
company Daimler while it is more flexible in the American company Chrysler. Chrysler
followed more flexible leadership as well as organizational culture. Daimler was extremely
bureaucratic and rigid with the Chrysler way of working rather than being informal (Dikova, D.
and Sahib 2013).
It is seen that, in the dimension of individualism versus collectivism (IDV), Germany
scores 67 while USA scores 91. It makes the USA a highly individualistic country compared to
Germany. it is seen that Daimler followed collectivism in their organizational culture while
Chrysler preferred importance in individualism. The Germans preferred to look after and protect
each others’ interests and hence, less individualistic. They perform best while in groups. On the
other hand, being an American company, Chrysler give emphasis on individual performance and
achievements, and this brings a big clash in organizational culture (Kaynak, Fulmer and Keys
2013).

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According to the figure, the Masculinity versus Femininity (MAS) score is 66 for
Germany and 62 for the USA, which is almost similar, however, Germany is relatively
aggressive and competitive than the USA. Daimler emphasized on more competition than
Chrysler. However, the sense of achievement and rewards were almost similar in the two
companies.
As per the uncertainty avoidance index (UAI), Germany scores 65 while USA scores 46.
This indicates that the Germans are much more cautious about taking any risk in the business
process, while the Americans are not scared to take risks. This aspect was reflected in the
Daimler Chrysler merger. The executives in Daimler followed complex decision making process
with great detail, and hard discussion with partners and stakeholders and doing much cost benefit
analysis before implementing any decision or strategy. On the other hand, the employees and
management of Chrysler favored an open and free discussion process without following much
rules and formalities. Casual approach, with less stress was followed by the management which
is quite opposite of what Daimler used to follow. Risk taking attitude was more common among
the Americans than the Germans.
In the long term orientation (LTO) dimension, Germany scores 83 and USA scores 26.
There is a huge gap between the two countries. This indicates that, the Germans prefer to take
decisions based on the long term goals and plans while Americans think about short term goals.
This is a big cultural difference that can have a significant impact on the organizational process.
The employees of the German company Daimler were more focused on building a long term
relationship with the company and planning for achieving success in the long run, along with
calculating the financial report on an annual basis. On the other hand, Chrysler was more focused