strategy+business is published by PwC Strategy& Inc.
 
or, sign in with:
strategy and business
Published: June 17, 2011

 
 

Optimal Decision Making in Foreign Markets

The secret to success is to control the impact of national culture on operations abroad.

Title: Strategic Decision-Making Processes in Internationalization: Does National Culture of the Focal Firm Matter? (Fee required.)

Authors: Pavlos Dimitratos (Athens University of Economics and Business), Andreas Petrou (Cyprus International Institute of Management), Emmanuella Plakoyiannaki (Aristotle University of Thessaloniki), and Jeffrey E. Johnson (St. Mary’s University)

Publisher: Journal of World Business, vol. 46, no. 2

Date Published: April 2011

When companies enter foreign markets, their decisions are typically shaped by the cultural values they bring with them from home. But the most successful firms, according to this paper, ease their entry into a new environment by consciously controlling the impact of their national culture on decision making and by adopting approaches that sometimes run counter to their traditional beliefs.

The researchers examined questionnaires completed by the CEOs of 528 small and medium-sized companies based in the United States, the United Kingdom, Greece, and Cyprus. A wide range of industries and service sectors were represented in the sample. The companies were all engaged in key internationalization projects — ventures that involved significant commitments of resources. Elements of the projects were often “unplanned or spontaneous,” and managers made decisions on the fly. Those decisions, the researchers found, often reflected the managers’ cultural values, which sometimes put the companies at odds with their new markets.

The authors chose the four countries listed above because they belong to different cultural groups that place very different values on individualism, uncertainty, and the distribution of authority — all key components of strategic decisions. Anglo-Saxon cultures place a high value on decentralized decision making, strong individual personalities, and a willingness to let employees think creatively. By contrast, Greek and Cypriot cultures (similar to each other, but not identical) are characterized by more autocratic institutions, better teamwork and group decision making, and more formalized training procedures that employees are urged to follow.

In addition, the researchers noted, the countries’ markets, demographics, and levels of economic development vary widely, which increases the applicability of the study’s findings.

The researchers looked at three elements of strategic decision making: the distribution of authority throughout the organization; communication across different departments; and whether the firm’s policies, rules, charts, and plans were formally spelled out and adhered to. They measured performance on a five-point scale that asked CEOs to compare their own firms with their direct competitors in terms of sales, market share, return on investment, profitability, and overall satisfaction with performance.

The companies that performed best in foreign markets adopted a blend of cultural approaches that was very similar across markets despite the differences in their national origins, the researchers found. Performance was highest in firms with decentralized power (in line with Anglo-Saxon values), where managers were expected to communicate across different levels and departments. This approach allowed companies to engage with locally hired managers to find out more about a foreign market’s challenges and opportunities. But the most successful firms also used, in line with Greek/Cypriot values, a formal process to shape their decisions — thus reining in the propensity for managers on the ground to fall back on their cultural roots when calling the shots.

“Companies should consciously adopt a blend of approaches that help optimize performance, while always being aware of their cultural traits,” said lead researcher Andreas Petrou in an interview. “If managers do not do that consciously, they most likely will revert to their cultural characteristics” in unanticipated ways, which could well have negative consequences in a foreign market.

The researchers found that when firms used a blend of approaches, they were better able to collect and analyze information, create common goals throughout the company, and implement strategic decisions. What’s more, the researchers said, enhanced international performance could have a long-term effect on strategic decision-making processes throughout the firm, leading to success in future international endeavors.

 
 
 
Follow Us 
Facebook Twitter LinkedIn Google Plus YouTube RSS strategy+business Digital and Mobile products App Store

 

 
Close