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The Role of Culture in Internationalization

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Internationalizing Firms

Abstract

While internationalizing, firms face a high level of uncertainty, connected to the a lack of knowledge of the foreign market, and to the “soft factors,” which can reduce profitability and create a situation of disadvantage with regard to local or already embedded competitors. The chapter offers a key to understand the importance of market and cultural knowledge, and it explains why firms should the necessity to have culturally competent managers in order to lead international teams, and to adapt products and processes, as well as managerial practices to different markets. The content is based on a post-modern explorative approach aimed at interpreting the knowledge of local culture and values as a key to understand distant markets.

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Notes

  1. 1.

    In keeping with the RBV, strategic international alliances also offer partners the possibility to earn more profits from the combination of resources possessed; to expand the use thereof thanks to the combination of partners’ competences; to limit, on the part of the individual company, the use of resources necessary for the development of the new activity; and to reduce knowledge transfer costs, guaranteeing closer contact among the players and, therefore, greater permeability of the partners’ knowledge base (Tsang 1998). Moreover, inter-organizational relationships allow companies to improve the coordination of their activities (Buckley and Casson 1990), and offer small- and medium-sized enterprises the possibility to overcome the structural limits that characterize them, and to penetrate into highly competitive markets (Steensma et al. 2000; Tsang 1998; Lorenzoni 1990).

  2. 2.

    Koza and Lewin (2000) stress that, in agreement with March’s definitions (1991), the adaptation process may have a dual purpose: exploitation, if the company aims solely at making better and deeper use of its capacities; and exploration, if the company aims at developing new knowledge while trying out new solutions. Strategic alliances can therefore pursue a dual objective: simple exploitation of the knowledge possessed by partners, and increasing the accumulated knowledge base of the allies through the development of new knowledge-based resources.

  3. 3.

    In Korean companies, the impetus towards achieving results appears quite strong, and working hours per person are among the highest in OECD countries (45.9 hours per week in 2003) (Yang 2006). Orientation towards competition also encourages Koreans to be rather aggressive in the process of implementing projects: quite often, in fact, projects are completed even before the established deadlines (Cho and Yoon 2001).

  4. 4.

    In Korea, the concept of the group takes on a rather restricted meaning, since Koreans place enormous trust in their family members, their former classmates, and in persons from the same region, while they have very little or even no trust at all for outside individuals (Chang and Chang 1994).

  5. 5.

    Asian banks had made enormous loans to companies with the implicit assumption that the government would honour these loans in the event of bankruptcy, but as soon as they realized the state would be unable to do so, they began to limit their own debt exposure, thereby triggering the crisis (Campbell and Keys 2002). The resulting Korean bailout, coordinated by the World Monetary Fund, imposed on Korea a harsh structural adjustment plan, aimed at the country’s economic restructuring.

  6. 6.

    Companies were helped by tax exemptions, easy access to imports, an export-friendly exchange rate, and the defence of local products on the domestic market, thanks to customs policy (Rabellotti 1995). Moreover, the Korean government allowed these companies to access foreign funds, guaranteeing loan payments in the event the companies were unable to make them. Foreign investments thus financed a large portion of investment projects, particularly until the late 1970s (Hattori 1997).

  7. 7.

    Despite the proximity of these two countries, which have still played an important role in Mongolia’s history, the population is quite homogeneous and is 80% Kaer Ka (Mongols), with the remaining 20% belonging to various ethnic minorities originating chiefly from Kazakhstan, Durbat, Ba Yate, and Buryati. The national language is Kaer Ka, but Russian and English are common, and the most widespread religion is Lamaism (Tibetan Buddhism). Even today, 30% of the population is nomadic and lives mostly on herding.

  8. 8.

    The lesser spread of Confucianism than Buddhism is most likely due to the greater exchanges that, as early as the time of Genghis Khan, existed with India in comparison with China, and also to the dearth of centralized institutional structures and educational institutions that permitted the spread of a doctrine that, in China as well, characterized more the nobility than the people, and was taught in a manner trickling down from the more well-off classes to the simpler ones.

  9. 9.

    Mongolian society was dominated by semi-nomadic tribal groups that carried out periodic raids towards the territories to the south, a circumstance that led the Chinese to build the Great Wall. The name Mongolia derives from the tribe of the famous warlord Genghis Khan, who went so far as to explore India and Europe. In the fourteenth century, the Mongolian tribes saw their own decline, and China grew in strength and managed to expel the Mongolian invaders for good. Over the centuries, China embarked on a number of campaigns to colonize Mongolia, and Mongolian independence came only in 1912, just nine years prior to the Russian invasion.

  10. 10.

    Monotheistic religions profess faith in a single God, understood as creator of the world and the being that governs the destiny of individuals; polytheistic religions (all the ancient religions, and many tribal and some eastern ones to this day), on the other hand, worship a number of divinities, generally responsible for various activities or phenomena connected with the wellbeing of individuals. An intermediate conception is that of monolatry, in which a single god is worshiped without denying the existence of other divinities.

  11. 11.

    Only later, the author’s position was less rigid, recognizing that the culture of contexts had a capacity to influence over structures and over organizational processes (Lammers and Hickson 1979).

  12. 12.

    Well aware of this were the managers of some Italian companies that, in the 1990s, attempted to make inroads into the Japanese market, learning at their own expense that success in these markets is closely connected to the ability to penetrate into the complex corporate and national cultural system. For example, it is typical of Japanese corporate culture to have a decision-making system based on widespread responsibility, which determines the participation of an enormous number of people in drafting a cooperationagreement; this considerably lengthens times in comparison with a negotiation conducted with Western companies.

  13. 13.

    Case law opinions regarding cultural change are not uniform, and three major schools of thought may be identified (Calvelli and Cannavale 2013):

    • the pragmatists, who maintain that the company, like any other social system and unlike biological units, cannot change spontaneously but requires a strong thrust towards change and a leader capable of managing this change);

    • the purists (Smircich 1983; Hatch 1993), who, influenced by anthropological studies, do not agree with the possibility of managing culture and believe that cultural change is possible only following a vital need for self-learning and for differentiation, and that it can be implemented through interpersonal relationships; and

    • the incrementalists (in the manner of Lakatos), according to whom a company’s primary strategy is to preserve its identity, and this can be changed only in the event of a crisis of survival. Therefore, change can never be revolutionary, but is incremental.

  14. 14.

    In a certain way, this appeals to the concept of evolution of the culture by “successive hybridizations,” developed by Schein (1985), which Piantoni (1990) interpreted in the sense that, over time, the culture of origin undergoes the addition of new elements that do not abruptly replace those beliefs and those values which are now strongly rooted in a certain group.

  15. 15.

    Generalization by companies to the contexts in which they operate must be interpreted not in an absolutist perspective, but in a perspective of the dominance of certain situations and, based on the discussion on the previous pages, with a vision of the company as an “actor that creates its own culture in symbiosis with the environmental context.”

  16. 16.

    It also bears noting that the logic of maximum individual benefit identifies a business model that often neglects the value of “human capital,” considered on a par with any production factor, and therefore delegated to provide the maximum output at the lowest possible cost (Guatri and Vicari 1994).

  17. 17.

    Among other things, some research efforts have shown that the two dimensions used by Hofstede, Franke, and Bond (individualism and long-term orientation) are negatively correlated with one another (Yeh and Lawrence 1995).

  18. 18.

    The benefits most frequently sought are sharing costs and investments, achieving the optimal size for being competitive, acquiring skills not previously possessed, reducing risk, overcoming the barriers to entering certain markets, limiting the freedom of action of current and potential competitors, accessing critical resources, and completing one’s own offer (Hamel et al. 1989).

  19. 19.

    It bears noting that the phenomenon of the large modern corporation has different dimensions depending on the context of reference. In Italy, for example, there are few companies with “effective” managerial control. Companies present only in formal terms a managerial structure to which decision-making power is delegated, since, in concrete terms, it is often families that dominate the organizational structure and influence, in a determinant way, the running of companies.

  20. 20.

    Emblematic is the case of Pfizer, which in 1992 took over the joint venture established with Japan’s Taito, as it had by then acquired sound knowledge of the Japanese pharmaceuticals market.

  21. 21.

    The first distinctive characteristic of the Japanese company consists of assigning control power to workers and banks, while individual investors are given lesser shareholding weight, since two-thirds of the shares are held by financial institutions and by other companies (Guatri and Vicari 1994). The bank is not a simple outside financer of the company but is linked to it by a long-lasting relationship based on mutual trust. On the opposite side, in countries in the English-speaking world, banks play a marginal role, as there is widespread reliance on such alternative instruments as the issuing of bonds, stock, and other securities. However, even in countries like Italy and France, where bank debt is rather high, banks lack control power and, often, the only way they can sway management choice is to revoke credit when the company is in difficulty.

  22. 22.

    For example, between 1987 and 1991, Mips Computer System, a Silicon Valley company, developed a network of alliances to spread its technology into the field of microprocessors. It licensed NEC, Siemens, Toshiba, and LSI Logic to make its chips, and this convinced DEC, Olivetti, Bull, Nixdorf, and Silicon Graphic to use them. The spread of technology in turn fostered the creation of business relationships with software makers and computer retailers. There are examples in other sectors, too.

  23. 23.

    In the past, Japan appeared closed to foreign investment, given its highly restrictive regulations on foreign operators. During the period between 1952 and 1964, the flow of capital, technology, and goods to Japan was subject to specific government authorizations, which governed above all the procedures for repatriating capital and profits. However, no authorization was required for investments made in what were termed “yen companies”—companies established with converted foreign capital, for which the repatriation of invested capital and profits was subordinated to the planned convertibility of the yen (which took place in 1964), and, moreover, there were no constraints on the percentage of shareholding possessed by the foreign operator. Investments made with specific authorizations, on the other hand, were subject to the condition that the initiative to be developed was in the national interest and that the foreign stake did not exceed 50% of the company’ share capital.

  24. 24.

    Guanxi relationships are the most obvious manifestation of the Confucian principle that identifies the individual as “self in relation to other.” Guanxi may be defined as a dyadic relationship based upon the existence of specific interests and the obtaining of mutual benefits (Yang 1994). It bears noting that guanxi has a transitive effect.

  25. 25.

    Taoism’s only divine figure with personal characteristics is Laozi, representing the body of Tao, both male and female, who lives by successive transformations yet remains identical because his forms, according to tradition, are phases in a self-perpetuating cycle. This means that China, although showing a high level of masculinity, does not present discriminatory practices against the female sex, and women can pursue careers and become top managers at major Chinese firms.

  26. 26.

    In the West, the level of generalization makes it possible, for example, to translate abstract principles into business strategies, essential guidelines for specifying the details of the agreement.

  27. 27.

    In the aftermath of the Korean War, a great deal of financial aid arrived, not only from the USSR and from the other countries governed by Communism but also from China itself, which committed mainly to cancelling the debts and to reconstructing the transport system. In the 1980s, the dissolution of the Soviet bloc and the sharp decline in economic aid from it and from China further undermined the country’s already fragile economic stability, leading it into a recessionary spiral.

  28. 28.

    In Korean, the term “chaebol” means “financial group” and identifies both the group of companies controlled by a family, and its owner. In most cases, chaebols are themselves controlled by the founders or the members of their family (brothers, sons, or daughters), who play key roles within the organization and are little inclined to stock market listing (despite the companies’ large size) out of fear of losing control over the companies (Chung et al. 1997). This characteristic represents one of the essential differences from the large Japanese conglomerates, the keiretsu, which are to a great degree run by professional managers.

  29. 29.

    Foreign financing was used, in particular, for the creation of the companies’ basic production facilities: for example, the purchase of Boeing 747s by Korean Air Lines, the construction of a car assembly plant for Hyundai Motors, and the building of a factory with Diesel systems by Daewoo Heavy Industries, during a serious crisis in 1997. Starting from the financial crisis, the Korean government sought to induce these conglomerates to focus on their core competencies, through operations to purchase investee companies (carried out, in particular, via the chaebols); it improved accounting standards and sought to take power away from the families that owned these conglomerates. The reform was hoped for by a number of parties, including public opinion, which was concerned over the strong gap between the owning families’ wealth and power, and the rest of the country. One need only consider that in the late 1990s a mere ten families controlled one-third of the Korean productive system (Claessens et al. 2000)

  30. 30.

    Creating jeong is essential when wishing to establish commercial relationships with Koreans. The government itself, through the Korean Business Information Services (KBIS), encourages foreigners to organize after-work meetings with their interlocutors, or to attend personal events like weddings and funerals, to show empathy and support, in order to establish personal relations with Koreans, which are necessary for building long-term economic relationships (Yang 2006). No one should sign a contract with a Korean partner unless they are willing to maintain a relationship—and even a personal relationship—for the entire duration of the contract and beyond (Alston 1989).

  31. 31.

    In the late 1970s, when Samsung decided to go into electronics, it had its technicians “dismantle” colour televisions from the United States, Japan, and Europe, with the aim of understanding how they were made, and then copying them (“reverse engineering”); Samsung thus took no less than three years to enter the electronics sector.

  32. 32.

    In many aspects, the nature of the ultimate reality is the bedrock principle of Hinduism. Hindus believe in an ultimate transcendental reality that they aim to reach, and that goes beyond reason.

  33. 33.

    The term “varna” is not a synonym for “caste,” although in the West, there is certainly some confusion over this. The two concepts are to be maintained separate; in fact, there is no Brahmin caste, but a multitude of castes within the “category” of the Brahmins.

  34. 34.

    Harijan literally means “children of God.” This term was introduced by Gandhi to designate pariahs or Dalits, which is to say all those who were considered untouchable.

  35. 35.

    Power, in fact, belongs to the warrior varna and not to the Brahmins, who are at the top of the hierarchy in terms of purity, but can in no case take power (in the political and economic sense). Entrepreneurial activities are seen, in fact, as a privilege belonging to the varna of the Vaishyas (merchants) and chiefly to certain castes in that category.

  36. 36.

    For Albert, the Rhine model, unlike the American one, has no “golden boys” or alluring speculation; capitalism is in the hands of the banks, and there is no playing in the trading pit. Essentially, banks have the role that is played by the financial market and the stock exchange in the English-speaking world.

  37. 37.

    There may clearly be situations of conflict when Italian companies, at times run by an entrepreneur/manager with little technical and professional preparation, come into contact with German firms led by “technicians.”

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Calvelli, A., Cannavale, C. (2019). The Role of Culture in Internationalization. In: Internationalizing Firms. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-91551-7_6

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