Global Business Study – The Hofstede Study

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Table of Contents

Problem Statement
Hofstede’s Cultural Dimensions and Azure Sky Tea
Compare two locations for Azure Sky Tea
Risks of Relocation
References

Problem Statement

Expansion of business operation to global geographic locations is an issue that Azure Sky Tea has to consider. Globalization ushers a unique problem for most companies i.e. to acclimatize with other cultures before starting a business in foreign countries. The difference in natural cultures brings forth changes within the organizational culture and the mode of operation of the companies.

For instance, a company operating in the US has a different set of organizational culture than that operating in China. Differences in national cultures affect the nature of organizational culture largely. Azure Sky Tea in its attempt to expand their operation globally has to determine their ingrained culture in accordance with the national culture i.e. the culture of the US.

Depending on this, and the culture of the host foreign country, Azure Sky Tea has to alter their culture. The company has to embrace certain traits of the foreign culture to acclimatize the company’s culture to that of the host country. Hence, the main problem that Azure Sky Tea faces is altering its organizational culture in accordance with the cultural traits of the foreign country.

The firm and the characteristic of the foreign country influence the entry decision making of the firms into foreign countries. Therefore the problems that Azure Sky Tea will face in its endeavor to expand business are as follows:

The differences in the core culture between the national cultures.
The difference between the corporate culture induced by the difference in national culture.
The difference in working environment because of these two differences.

The main aim of the company will, therefore, be to able to reduce the cultural difference between nations and establish a clear understanding of the mode of corporate culture that has to be adopted in foreign countries.

Hence, the problem statement for Azure Sky Tea is the company’s entry strategy in foreign countries and the mode of expansion to be chosen (i.e. wholly owned subsidiaries or franchisees) based on the differences in the national culture.

This paper discusses the possible obstacles that Azure Sky Tea may face while expanding to foreign countries. The problem that Azure Sky Tea presently faces is to understand workplace culture worldwide. This may be handled more deftly with the aid of Hofstede’s model of cultural dimensions.

Hofstede’s Cultural Dimensions and Azure Sky Tea

This section provides a brief summary of the dimensions presented in Hofstede’s model. The cultural dimensions that Hofstede’s model specify are as follows:

Power Distance: This dimension shows that the less powerful members of the institution are inclined to believe that power is distributed unequally within the organization (Hofstede, 2011). Thus, this dimension shows that in some societies, the inequality in power distribution is endorsed not only by the leaders but also by the followers. According to Hofstede’s power difference index, it is higher in East Europe, Asia, Africa and Latin America (Hofstede & Minkov, 2010).
Uncertainty Avoidance: This dimension gauges society’s tolerance towards ambiguity (Hofstede, 2011). This dimension demonstrates how culture molds its members to handle situations, which are beyond the natural structure and fiber of society. Uncertainty avoidance is often reduced in many cultures through discourses of strict behavioral codes, rules, and regulations, and strong societal constructs of moral code and ethics.Uncertainty avoidance is found to be higher in Central European and Asian countries especially in Japan and German-speaking countries (Hofstede & Minkov, Cultures and Organizations: Software of the Mind (Rev. 3rd ed.), 2010). It has been found to be lower in Chinese and Nordic cultures (Hofstede & Minkov, Cultures and Organizations: Software of the Mind (Rev. 3rd ed.), 2010)
Individualism: This dimension gauges if the society tends to be individualistic or collective in essence (Hofstede, 2011). This dimension tries to ascertain how the people in the group are conjoined in groups. According to Hofstede’s studies, western countries have been found to be individualistic and eastern countries tend to be collective in nature.
Masculinity-Femininity: The degree of difference between genders is gauged through this dimension. The assertiveness of men in society and the place of women show a lot about the national culture. Hofstede’s study has identified masculinity to be high in German-speaking countries, in Japan, and Latin speaking countries like Italy and Mexico. It is low in Nordic countries like Netherland and moderately low in Asian countries like Korea and Thailand and other European countries like France, Spain, and Portugal.
Short and Long term orientation: Long term orientation is the dimension in countries which make the culture more inclined towards perseverance, thrifty, strong values, and traditional while countries with short term orientation are completely opposite in nature. East Asian countries are believed to be more long term oriented. Other countries with this trait are eastern and central European countries. USA, Australia, Latin America, Africa, and the Islamic countries are believed to be short-term oriented.

Based on the above discussion of the Hofstede’s model, the relative position of the USA (where Azure Sky Tea is based) on the Hofstede’s scale is shown in the following paragraphs. The power distance in the USA is not very high in the USA (Hofstede Centre, 2014). On the Individualistic index, USA assumes a high position. The lack of power distance in American organization is evident with flat and less hierarchical organizational structure.

Further, the hierarchy established is more for convenience rather than as a norm, as superiors and subordinates have easy access to one another and work as a team (Hofstede, 1994). Further, American society is loosely knit, where individualistic nature of people is evident. Masculinity is high in America as the national culture is more individualistic in nature (Hofstede, 1994).

Uncertainty avoidance is low in America as Americans show a high acceptance for new ideas and innovations. Further, the American culture has a short-term orientation where importance is more on present work rather than future values.

Compare two locations for Azure Sky Tea

National cultures differ which creates differences in corporate culture. Based on this axiom, this paper proposes two countries where Azure Sky Tea may enter for business expansion. The countries are the United Kingdom and China. The reason to choose these countries is that the UK is most compatible culturally with the US and China, though not highly compatible culturally, provides a large, optimistic business opportunity.

Table 1: Comparison of the USA with two other countries based on Hofstede’s Dimensions.

	USA	UK	China
Power Distance	Moderately Low	Moderately Low	High
Individualism	High	High	Low
Masculinity-Femininity	Moderately High	Moderately High	Moderately High
Uncertainty Avoidance	Moderately Low	Moderately Low	Low
Short/Long-Term Orientation	Short Term Orientation	Short Term Orientation	Long Term orientation

The dimensions that need to be considered most in case of expanding an US-based company to foreign countries are power distance, individualism, and long/short-term orientation. In the case of the UK, the USA is found to be compatible in case of most of the dimensions. The UK provides a good entry point into the European market, and due to its high cultural compatibility with the US, it becomes an easy entry point.

In order to enter the market in the UK, Azure Sky Tea does not need to alter its corporate culture greatly. However, in the case of China, the issue may be different. China provides a huge opportunity for any company as it has one of the largest markets in the world, with increasing spending power among people.

Hence, entering the Chinese market would be a challenge as it will help Azure Sky Tea to gain presence in a large market but one which shows high culture difference. US and China are completely different culturally. Hence, Azure Sky has to mold its corporate culture to suit the culture in China.

In the UK, Azure Sky Tea can enter as a wholly owned subsidiary as the cultures of the two countries are compatible but in China, the company should rely more on franchising and gaining local help as they have to acclimatize with the new culture.

Risks of Relocation

The risks of relocation are inherent for any business. Cultural incompatibility may lead to bad investment and expansion can become unsuccessful (McSweeney, 2002). The difference in the cultures between China and the USA are high and people may not accept the mode of operations that were in place in the US as a rule in China because of the core cultural difference.

Azure Sky Tea may not be able to accustom itself to the different cultural requirements in the two different countries and fail to establish a process to bring in cultural change within the organization. Working in different geographical locations require the establishment of certain flexibility within the corporate system in order to become more amenable.

References

Hofstede Centre. (2014). United States. Web.

Hofstede, G. (1994). The business of international business is culture. International business review, 3 (1), 1-14.

Hofstede, G. (2011). Dimensionalizing Cultures: The Hofstede Model in Context. Web.

Hofstede, G., & Minkov, M. (2010). Cultures and Organizations: Software of the Mind (Rev. 3rd ed.). New York: McGraw-Hill.

McSweeney, B. (2002). Hofstede’s model of national cultural differences and their consequences: A triumph of faith – a failure of analysis. Human Relations, 55 (1), 89–118.

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