The term ‘culture’ holds a significant importance in every person’s life. It is an integral part of the identity of every individual. There is no single commonly accepted definition for ‘culture’ but one particular definition which stands out is "Culture is the shared knowledge and schemes created by a set of people for perceiving, interpreting, expressing, and responding to the social realities around them" (J.P. Lederach, 1995). Culture consists of the various social and moral values which are a part of any society. These are the shared values which are present in the society and are passed on from one generation to another, and it is these shared values which not only help to identify the members of a particular culture group but also help to distinguish them from some other group. Culture not only refers to the religion a set of people practice, but also the languages they speak, the way they dress, the way they greet each other and many more. Culture not only varies from country to country, but it is also highly diverse within the different regions of any country.
Globalization has led to international integration due to the exchange of ideas, products and other aspects of culture. It has brought the countries of the world very much closer. Although the term ‘Globalization’ is regarded as a relatively new concept arising only in the past few decades, but international trade has been taking place for many centuries. An early example of this is the ‘Silk Route’ which was important for the cultural interaction of the various parts of Asia. It joined the West to the East and was used by merchants to travel across different countries and sell their goods. This had led to the increasing exchange and understanding of the different aspects of the various cultures of the world (Vadime Elisseeff, 2001).
Globalization has brought the world closer, such that it has increased the interdependence among the different economies of the world. With the improvements in transportation and telecommunication, the International Business has grown rapidly and has led to the creation of Multinational enterprises. The multinational enterprises are the companies that have their operations in more than one country in the world.
When a company decides to expand its business and enter a new country, it not only has to cross national boundaries but also has to cross cultural boundaries. One of the most critical problems faced by a multinational enterprise is the cultural difference between its home country and the country it has entered. Geert Hofstede has done extensive research in the field of cross-cultural management and has identified five dimensions based on which the cultures of two countries can be compared. The five dimensions are:
1. Power distance: the attitude of a person towards their seniors and juniors.
2. Uncertainty avoidance: the tolerance of a person towards any uncertainty.
3. Individual vs Group orientation: the loyalty a person shows towards...