International Business Analysis Report: Cross-Cultural Management Case Study
Executive Summary
Cross-Cultural Management (CCM) is a vital component of international business operations of global ventures. The significance of CCM in multinational corporations (MNCs) can be realized from the evidence that failure to develop effective CCM strategies and practices has resulted in catastrophic consequences for various MNCs around the world. For the current CCM report, the troublesome situation faced by McDonald’s in India is selected as the case study. The popular fast-food chain has enjoyed continued success in various parts of the world. However, the company faced severe boycott threats as it served ‘halal’ meat, and did not provide beef and pork dishes to abide by the religious beliefs and practices of Muslims. The Muslim population is a minority when compared with the huge population of Hindus in India. McDonald’s failed to realize the massive Hindu-Muslim enmity that has prevailed in the Indian culture and society for centuries. Adhering to the demands of Muslims and failing to offer non-halal meat ignited heavy criticism from the Hindus. The Hindus believed that they were discriminated and their social values were overlooked by McDonald’s business strategies in India. The Hindus gave boycott threats to McDonald’s in case of failure to address the demands of Hindus in all of their serving outlets across India.]A critical analysis with the support of theoretical concepts revealed that the hostile response from the Indian Hindus is coherently interlinked with the underlying hierarchical and caste systems, power inequality, collectivism and profound emotional affiliation of Hindus with their religion. The dilemma pointed out the CCM shortcomings in the McDonald’s management thinktank in India. Potential solutions and recommendations for addressing the CCM issues have been evaluated. There is a pressing need to identify and understand the complicated norms and values of India’s culture and society.
Introduction
Rapid globalization has driven the market expansion of global corporations to various parts of the world. It has played a pivotal role for the organizations in unveiling untapped market potential. It has enabled the multinational corporations (MNCs) to build brand awareness and recognition, and enhance their profitability. However, this is not always the case as the prospects of new markets are accompanied by stern challenges. One such challenge is the cross-cultural management (CCM) of MNCs, where the managerial thinktank strives to accommodate the variations in cultural practices while operating in foreign countries (Bird and Mendenhall, 2016). One of the earlier researchers of the concept of CCM, Hofstede (1980) envisioned to demonstrate the importance of culture in organisational management. The significance of CCM can be comprehended from the fact that the knowledge and awareness of customer behaviour and preferences, societal norms and values, ethnicity, localized rules and regulations, beliefs, and local languages can play an instrumental role in designing suitable policies that are well-reflected in organizational operations and practices (Swarnalatha and Mendenhall, 2014). It is vital to know that CCM is a product of cross-cultural organizational behaviour that is governed by the dynamics of cross-cultural boundaries in multicultural local and foreign contexts (Gelfand et al., 2007). Shortcomings in understanding the various cross-cultural factors can prove detrimental for conducting business operations smoothly. In this regard, the purpose of this report is to perform a critical evaluation of McDonald’s cross-cultural misadventure in India, reported by Kuchay (2019), in light of relevant theories of CCM.
Article Synopsis
The famous fast-food chain, McDonald, faced a severe challenge in running its business operations in India last year. Kuchay (2019) reported (See Appendices) that the globally-operating company was rocked by the boycott threats from the right-wing Hindus for serving ‘halal’ meat that was prepared on the guidelines provided by the Islamic law. McDonald’s declaration of halal certification online fuelled the ensuing boycott intimidations that demanded reasons for providing halal meat in a country like India, where 84% of the population comprises of Hindus (80%) and Buddhists, Sikhs and Jain (4%). The halal certification indicated that animals were slaughtered according to the traditions of Muslims, which the Hindus deemed ‘insensitive’. Moreover, the absence of pork and beef products in McDonald’s menu further angered the Hindus as chicken, fish and vegetarian options were available. The Hindus argued that this was a deliberate assault on Hindu values and beliefs. They raised questions on why the animals were not slaughtered by severing their heads in one blow, or the ‘jhatka’ method. While the Hindus portrayed that their cultural norms and customers were attacked and McDonald was completely insensitive to their beliefs, several activists declared it as an opportunity for the right-wing extremist Hindu groups to launch an assault on Indian Muslims as part of their historic enmity. However, not all the non-Muslims shared the same opinion as several of them were unbothered by McDonald’s ‘halal’ menu. Regardless, McDonald's was threatened by the majority of Hindus, who gave the ultimatum that if that both, halal and ‘non-halal’ (meat derived from the jhatka method) options were not available in all the McDonald’s outlets across India, they would hold street protests against the renowned fast-food chain.
Cultural Gaps
McDonald’s origin in the United States of America (USA) and its expansion to India is influenced by the major cross-cultural differences between the two countries. According to Hofstede’s theoretical typology, the cultural differences between the USA and India are depicted as a set of five cultural dimensions in Figure 1 (See Appendices). These dimensions are termed as Power Distance Index (PDI), Individualism and Collectivism, Masculinity and Femininity, Uncertainty Avoidance, and Long Term Orientation (Andreassi et al., 2014; Browaeys and Price, 2008). According to Hofstede (1980), PDI is the extent to which the powerless individuals of society acknowledge the power inequality in that society. In this regard, Figure 1 shows that PDI in India is twice as high as the PDI in the USA. This implies that India’s culture is facing a severe problem of social inequality which is widely recognized by members of the lower castes and religious minorities. The right-wing extremist groups and activists who threatened McDonald’s on selling halal meat expose the power inequality in India (Kuchay, 2019). Unlike India, PDI in the USA is low due to the strict enforcement of the law by the higher authorities. Moreover, the concept of Individualism and Collectivism is based on the value of working independently (Individualism) and collectively (Collectivism) in a society (LeFebvre, 2011). India’s societal values are strongly built on collectivism, where hierarchical systems and relationship-building are integral parts of the business of the social norms (Kumar and Sethi, 2016). In this regard, McDonald’s halal certifications were an attempt to boost their relationship with its Muslim customers in India. However, USA’s societal norms encourage independent work and accountability. Therefore, Figure 1 indicates that the level of individualism in the USA is twice as high as the individualism level in India. Furthermore, the concept of Masculinity and Femininity indicates the extent to which male (Masculinity) and female (Femininity) roles are established in a society (Andreassi et al., 2014). According to Figure 1, the role of males in American society is slightly more established than the Indian males who also occupy powerful roles in society. In this regard, Kuchay (2019) has reported that the national president of the right-wing extremist group, Vishnu Gupta, used his political power to give boycott threats to McDonald’s on serving halal meat. Uncertainty Avoidance is the extent to which a culture exhibits tolerance for uncertainty about the future. The higher the extent of Uncertainty Avoidance, the stricter are the rules of behavioural conduct (Hofstede, 1984). Figure 1 illustrates that the level of Uncertainty Avoidance in the USA is slighter higher than that in India. Therefore, the Hindu right-wing activists dared to neglect the rules concerned with behaviour conduct and give boycott threats to McDonald’s in India. Lastly, Long Term Orientation (LTO) is a cultural feature that enables a society to adopt a pragmatic approach to address-modern day challenges (Hofstede Insights, 2020). Figure 1 depicts that the extent of LTO in India is relatively much higher than that in the USA. This implies that Indian society encourages the use of modern-day tools, such as education and technology, to counter the societal challenges. India’s cultural norms encompass a high PDI, collectivism and powerful leadership that is depicted in the McDonald’s mishap in India.
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Moreover, the Lewis Model involves country-based cultural classifications, namely, Linear-Active, Multi-Active and Reactive, as shown in Figure 2 (See Appendices). Figure 2 illustrates that India lies in the middle of Multi-Active and Reactive categories, thereby encompassing a balance of the characteristics of the two classifications as visualized in Figure 3 (See Appendices). Some of these characteristics include a more verbal talk in social and business settings, multi-tasking, emotional personalities, people-oriented mindset, impatience, and the mixing of social values with professions (CrossCulture, 2015). These characteristics are evident in the response of Hindus to the selling of halal meat in McDonald’s outlets in India. On the other hand, USA lies in the proximity of the Linear-Active category that is characterized by less verbal talk in business and social settings, planning, politeness, directness, partial concealment of emotions, logical mindset, job-oriented attitude, rarely impatient, composed body language, and separation of professional work ethics from social norms.
Furthermore, Trompenaars asserted that culture is how society members address their problems. Trompenaars defined a unique set of cultural dimensions, namely, Universalism versus Particularism, Neutral versus Emotional, Individualism versus Collectivism, Specific versus Diffuse, Achievement versus Ascription, Attitudes to Time, and Attitudes to the Environment (Hampden-Turner and Trompenaars, 1997). Firstly, Universalism is a cultural characteristic, usually found in the USA, where people focus more on the rules and global standards when defining company policies. On the other hand, Particularism emphasizes relationships, contracts and policies that are beneficial to the company: cultural characteristics that are common in India (Hampden-Turner and Trompenaars, 1997). As discussed earlier, Indians are more Emotional and Collective, while Americans are more Neutral and Individual in their approach towards business and societal matters. Moreover, Americans are more Specific in keeping their private and business matters separate. In contrast, Indians often mix their private and business agendas, thereby exhibiting a ‘Diffuse’ approach. Americans are more Achievement-Oriented than Indians who exhibit Ascription-Oriented attitude that is characterized by the respect of members belonging to the upper castes and hierarchical levels. Also, Americans are more Present-Oriented and Future-Oriented compared to Indians who adopt Past-Oriented cultures due to a rich and painful Indian history. Lastly, Americans exhibit a more dominant attitude towards environmental challenges, more willing to compromise, and are more comfortable with making the necessary changes for addressing the problems (Hampden-Turner and Trompenaars, 1997). On the other hand, Indians are more uncomfortable in adapting to new changes to tackle environmental problems. Instead, they prioritize the company’s agendas and are reluctant to compromise their aims for the sake of environmental protection.
Cross-Cultural Issues
McDonald’s shortcomings in understanding the social norms and values of Hindus proved detrimental as the fast-food chain faced boycott threats. It is essential to know that the Indian population is dominated by Hindus (79.8%) and seconded by Muslims (14.2%) (Business Standard, 2015). In a land dominated by Hindus, McDonald’s made a mistake by overlooking the demands Hindu majority and discriminating them by adhering to the religious demands of Muslims. Moreover, McDonald failed to incorporate religious beliefs and the eating preferences of Hindus in their operation strategies. The company was also unsuccessful in realizing the potential implications of the historic Hindu-Muslim enmity. By ensuring halal certification to attract and satisfy their Muslim customers, the Hindus felt that their religious beliefs were attacked as McDonald failed to address the immense emotional attachment with their religion (Kuchay, 2019). Failure in providing beef and pork dishes was also a let down as Hindu eating preferences were overlooked. The most challenging task for McDonald is to address the mistakes made in their operation strategies on an immediate basis, amidst the high pressure and boycott threats from the Hindus. The company needs to make alterations to their meat sources in a manner that the social and religious beliefs of both, Hindus and Muslims, are respected, and their demands are fulfilled. McDonald’s must also be wary of the consequences it may face if the Hindu demands are not satisfied. However, another critical issue for McDonald’s would be to control their food pricing once halal and non-halal meat is provided for Muslim and Hindu customers, respectively. Obtaining the non-halal meat would increase the operational costs associated with butchering (via the jhatka method), handling, and storage of meat separately to prevent contact with the halal meat that would otherwise offend the religious and social beliefs of Muslims.
Potential Solutions
McDonald’s must take immediate measures to address the current cross-cultural challenges it faces in India. Since the Hindus dominate the Indian population, it would be imprudent to overlook their needs and demands again. In addition to the provision of halal meat, the ‘jhatka’ method must also be implemented at McDonald’s butchering plants to fulfil the demands of Hindu customers and subside their boycott threats. Once the external pressure is dealt with, McDonald’s group must follow the footsteps of other renowned MNCs, such as Coca Cola and Nestlé, to enhance their operations and marketing strategy. Firstly, McDonald’s must create a domestic audience comprising of all the cultural groups in their advertising strategies. In this way, these cultural groups would feel included in the company’s future plans (Mohammadian, 2017). Secondly, McDonald’s must employ members belonging from the rich Indian culture to obtain social advertising and cultural information to enhance the market penetration of McDonald’s in India. As a result, McDonald’s can regain customer trust and rebuild its brand image across India (Mohammadian, 2017). Thirdly, McDonald must embed core ethics and morals found in India’s culture and society. The company can use the strong family bonds of Indian families to foster team-building initiatives (Mohammadian, 2017). Moreover, culture-specific managerial training programmes must be conducted to understand the norms and values of India’s society and culture. In other words, McDonald’s managerial thinktank must have intercultural competencies (Mohammadian, 2017). Lastly, McDonald’s intercultural management must develop cultural sensitivity which is crucial for realizing, comprehending and respecting the different religious, social and cultural beliefs of the Indian population.
Conclusion
CCM has become one of the most daunting challenges for MNCs operating around the world. There is a dire need to identify, understand and incorporate the social and cultural norms of the regions where global organizations conduct their businesses. McDonald’s failure in analysing the intricate Indian culture and society exposed the company’s brand image due to the boycott threats that could have had disastrous implications for the brand’s future in the country. The theoretical concepts related to CCM reveal that the aggressive response from the Indian Hindus is strongly correlated with the underlying hierarchical and caste systems, power inequality, collectivism and deep emotional connection of Hindus with their religion. McDonald’s must integrate these crucial cultural and social aspects in their existing operation and marketing strategies and practices to prevent a similar confrontation in the future.
Recommendations
There is a strong emphasis on the development of leadership competencies for tackling the CCM challenges faced by global ventures. Kennedy (2012) articulates that nations, relationships, cultures, common interests and technologies must be integrated into the workplaces of the twenty-first century. The art of leadership in diverse cultures requires a particular set of skills and MNCs must ensure that formal training is provided at the managerial level in addition to expatriate tasks to enhance leadership skills. In this way, desirable results can be attained in the demanding global market (Mathis et al., 2013). There would be an increasing demand for cross-cultural leaders due to the swift rise in globalization. MNCs must ensure that they can identify and develop effective cross-cultural leadership for different social and cultural contexts. These leaders must be well-aware of the social and cultural variations to avoid societal conflict. Moreover, this is also a compelling need for MNC, such as McDonald’s, to perform extensive research on consumer behaviour, shopping patterns, decision-making and preferences to align their products with these crucial consumer-related aspects.
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