Cultural Diversity Is a Source of International Competitive Advantage. Critically Evaluate!

MODULE: BUSINESS MANAGEMENT AND CULTURAL DIVERSITY

SEMESTER: 2005/2006, YEAR 3

CULTURAL DIVERSITY IS A SOURCE OF INTERNATIONAL COMPETITIVE ADVANTAGE.

CRITICALLY EVALUATE

Today's businesses are more and more expanding into other countries and thus becoming global. Operating outside the "country of origin" means adapting to national and local aspects. Therefore, it is evident that companies, factories and offices consist of very different people with various attitudes and backgrounds. Doubtlessly it has become normal that people of different countries and needlessly to say of many different cultures are working together. It is evident that appreciating and knowing how to manage these different aspects is becoming more and more a part of international businesses all over the world.

There are various big cities that are inhabited by many people of different countries and cultures. Each culture possesses its own unique lifestyle which is "import" by the people. Singapore for example hosts four cultural and linguistic groups: Chinese, Eurasian, Indian and Malay. Switzerland has four ethnic communities: French, German, Italian and Romansh. (Adler, 2002, p. 137).

The world is constantly becoming smaller through globalisation. Communicating with people from other cultures has become essential. Cultures are mixing together. People dress differently, they have different languages and traditions, their food differs, otherwise would there be Pizza, Sushi, Doners, Burgers and Chicken Tikka in our country? This essay will attempt to examine the effects of cultural diversity on businesses.

People do not realize how much different cultures influence their lives, partly because they have become so used to them and partly because they simply lack the ability to determine them. But people are confronted with them on a daily basis. Multiculturalism, as it is called, has emerged as a dominant factor of people's lives. It is necessary to assess the potential impact of culture because it indeed has a great impact on the effectiveness of organisations and managers as well as on work and businesses.

Therefore, same situations can and will be interpreted differently across the world, depending on the culture. Being aware of this and understanding them can help businesses seek ways to use cultural differences in their favour: as a source of competitive advantage.

"A competitive advantage is an advantage over competitors gained by offering consumers greater value, either by means of lower prices or by providing greater benefits and service that justifies higher prices". (http://www.tutor2u.net/business/strategy/competitive_advantage.htm)

Culture is one of the most important factors influencing the success of businesses. Realizing its importance is imperative. However, culture is intangible and therefore hard to pin down.

Trompenaars and Hampden-Turner (1997, p. 26, 196, 242) argue that culture can be described as a way in which people solve problems and that national differences in value orientations are a major source of cultural diversity. Cultural awareness would be understanding states of mind, not just that of others but of oneself's too.

Schneider and Barsoux (2003, p. 7-11) claim that according to a survey, cultural differences are the biggest source of difficulty in integration. People tend to use their own culture as a "reference point". This is also called "Ethnocentrism" and means "our way is the best". One's own culture is the centre, everybody else is judged on this basis (Adler, 2002, p. 155). Lacking to recognize culture can have ruinous effects. An American company set up a company on a Pacific island and hired local labour, not knowing that placing a younger foreman in front of elder workers was inacceptable in that culture.

Hofstede's findings are helpful. His dimensions provide guidelines for identifying cultural situations. The situation above would be allocated in the power distance dimension. If the situation would have been examined through the "culture glasses" the problem could have been avoided.

Marx (2001, p. 101-102) portrays that it is most important for culturally diverse teams to spend time on communication and evening out stereotypes, which on one hand can be helpful but on the other hand harmful too. Openness needs to be practised. To turn cultural diversity into an advantage the whole group must respect eachother's view and clarify problems.

So is cultural diversity positive or negative? Does it help or prevent companies from being successful? Should diversity be considered as a threat rather than as an opportunity? Or can we assume that it provides organisations with a competitive advantage?

Cultural diversity affects the behaviour and that again affects the functioning of a company, be it good or bad, will be examined in the further process. By ignoring cultural differences companies loose a valuable source of success, this is called "cultural blindness" (Adler, 2002, p. 107)

"Diversity is taking people from different backgrounds, with different expectations and at different stages of life and melding the into a force that will drive the company's profitability and competitiveness." (Schneider & Barsoux, 2003, p. 277)

According to Adler (2002, p. 108-114, 141-145) there are a number of negative aspects. On the one hand, cultural diversity causes communication problems, people do not only have difficulties understanding each other due to language differences but things are also misinterpreted or misevaluated, this can be fatal. Ambiguity and confusion can occur as well as errors. A reason for this is because things have different meanings from culture to culture and people will differently approach situations.

A consequence is stress and frustration. Mistrust is a big issue too. People will readily trust colleagues from own cultures but hesitate to mix up with or trust other nationals. Different cultures involve different ways of working and at a different speed.

In diverse groups agreements tend to be harder to reach and thus delayed. All this only increases the diversity and distance between colleagues.

Diversity is a source of tension and there will be less accuracy in such groups. Unfortunately, there is often a lack of cohesion too. All these factors result in cultural diverse