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Intercultural Leadership Issues: A Case Study of Renault and Daimler Chrysler Report

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Updated: Jul 14th, 2021

Introduction

Cross-cultural leadership plays a significant part in many modern business environments. Companies seek to expand their operations to other countries, and diversity in the workplace keeps increasing. Managers’ experiences show that it can be difficult for a leader whose values do not match those of his or her subordinates to establish effective operations. Some companies succeed in their efforts to develop foreign branches, whether through luck or by adopting superior approaches. Others, however, see their efforts falter or fail outright even though they use the same business models that made them succeed and prosper at home. There is a variety of causes for this phenomenon, many of which are associated with cultural differences and the behaviours of the managers in charge of the effort. This paper will analyse the practice of intercultural management from a theoretical standpoint and use the cases of Renault, General Motors, and Daimler Chrysler to illustrate it.

Concepts and Theory

Intercultural leadership has emerged in response to the various challenges posed by diverse corporate environments. Cultural suitability has proven to be a significant factor in the determination of one’s ability to work productively. As such, Maheshkar and Sharma (2018) highlight respect for diversity, competitive advantage aim, individual relationship capacity, organisational integration training, discrimination discouragement, intercultural skill development, communication and sensitivity promotion, and humanistic and critical direction as central aspects of cross-cultural management. The goal is to ensure that employees are comfortable working with their colleagues and participating in the organisation regardless of their culture. The concept includes both personal improvements for the managers and organisational refinement, which leaders should promote. Each of these concepts warrants additional elaboration, and the paper will expand on them below.

Respect for Diversity

Globalisation and advances in communication technology have enabled increases in migration and created the concept of long-distance teams that cooperate remotely. As a result, managers are likely to face culturally diverse teams both in their home countries and on expatriate assignments. Moreover, as Čuhlová (2018) notes, differences in values that result from the phenomenon “affect team spirit and basically all project activities and phases” (51). If the manager does not address these influences appropriately, they can impact the operation of the company adversely. Moreover, attempts to resolve the issue by having all employees follow the same set of values will likely backfire, as no culture is acceptable to everyone and advantageous in every aspect. Employees will resist such a transition and create issues, and so, managers have to learn to accommodate them and respect their preferences.

A leader has to understand diversity so that he or she can begin appreciating it in a manner that his or her subordinates can notice and find ways to use it to improve performance. Kee et al. (2017) claim that the ability to continuously update one’s knowledge and experience, humility, a global mindset, flexibility, ability to change and embrace change, integrity and cross-cultural sensitivity is essential for this comprehension. It is impossible to learn everything about an ethnicity, much less multiple ones, in a closed learning environment such as a business school. As such, a leader has to recognise his or her lacking characteristics and commit to learning more about every ethnicity that he or she encounters. Recognition constitutes a significant part of respect, and the ability to learn will eventually enable the manager to take the values of the culture into account.

Competitive Advantage Aim

The various issues that are associated with diversity may be seen as an indication that the character should be avoided through hiring practices. However, there are significant advantages to well-managed diverse teams that potentially enable them to outperform more homogeneous ones. According to Dixit and Bajpai (2015), such configurations can take advantage of their range of different viewpoints to improve creativity and problem-solving efficiency. However, as Boerner, Hüttermann and Reinwald (2017) note, poorly-organised diverse teams tend to fracture into subgroups that distrust each other and engage in conflict rather than work productively. The latter possibility makes it essential that the leader takes measures to address the situation before it becomes uncontrollable. The former entices them to try to foster a positive, creative environment to maximise productivity and outperform the competitors.

Without an orientation that aims to achieve the best possible performance, managers cannot capitalise on diversity and will likely make it a liability rather than an advantage. However, the mindset is even more critical to expatriate managers, as they are likely from a different culture than most or all of their subordinates. As such, their presence enhances the team’s diversity and creates an advantage that local competitors do not have. By taking advantage of this quality, the group can create an edge in the market and use it to succeed. It can be challenging to enter a market as a subsidiary of a foreign company, and managers have to capitalise on every opportunity they have to achieve their objectives. They have to understand and acknowledge this tendency and work to discover and use every possible strength their team possesses.

Individual Relationship Capacity

An intercultural leader has to be highly capable of communicating with every team member under his or her supervision and establishing productive relationships with them. Ting-Toomey and Dorjee (2015) highlight the two different paradigms of interpersonal and intergroup communication and provide a framework for the skills necessary to succeed in both of these aspects in figure 1. The former is needed to learn more about each worker and use individualised approaches to respond to their needs. The latter is required so that the leader can resolve conflicts and reconcile different groups in case they have emerged already. The core of the abilities necessary for the development of intercultural communication is similar to that of the categories above in many respects. However, some differences enable the person to establish lasting relationships.

Intercultural and intergroup communication competence.
Figure 1: Intercultural and intergroup communication competence (Ting-Toomey and Dorjee 2015)

Overall, the desire to protect one’s identity and internal culture is a significant factor in the emergence of diversity-related issues, as people may resist influences, whether intentional or not, that change their cultural values. Vătămănescu, Alexandru and Andrei (2015) propose a new leadership framework for the intercultural era that is based on five relational factors: condition, context, catalyst, concession and coexistence. Theoretically, a person who has such a view should define himself or herself based on his or her current relationships rather than an unchanging set of values. As a result, they would be able to adapt and accommodate people with whom they frequently interact better. It can be challenging to adopt this mindset, but it can benefit the manager and the organisation significantly.

Organisational Integration Training

The manager cannot prevent all of the negative implications of diversity alone, as many misunderstandings and conflicts arise from the day-to-day interpersonal communication between workers. However, as can be seen in the findings of Namatēvs, Turlais and Dubkēvičs (2016), specialists tend to value intercultural competencies significantly lower than managers. The causes are likely that non-managerial staff is considerably less likely to be sent on long-term expatriate assignments and, as such, is not the focus of various training programs. With regards to diverse environments in their home country, they are likely expected to perform as usual and leave the resolution of any significant conflicts to the manager. However, it may be beneficial for the company to change the situation and create an intercultural training program for non-management employees so that the burden on the manager is lower.

The education on intercultural topics coincides with the modern paradigm of creating workers who can learn and evolve in their roles as they work. With that said, Überwimmer, Tomović and Füreder (2016) claim that there is no single approach to the task and list a variety of methods that have seen success in the past. It falls to the leader to analyse the situation and determine which variation will yield the best results. As such, he or she should be aware of the environment within the organisation as well as the broader context and make decisions based on that knowledge. These tasks require both significant managerial competencies and advanced cultural skills, as the manager has to integrate the two into a framework to make the decision.

Discrimination Discouragement

Discrimination can express itself in many different forms, both overt and implicit, but harms the performance of the company regardless of how it manifests. Korez-Vide (2015) highlights issues such as “ethnocentrism, stereotyping, prejudice and discrimination” (p. 160), where the last item is explicitly described as actions deliberately taken to avoid interacting with another group. All of these are likely to arise in traditional societal groups but present complications in globalised, diverse societies. Moreover, many expressions of prejudice and discrimination will typically be sufficiently subtle to afford plausible deniability to the people who participate in such practices. As such, it becomes necessary to address them through preventative measures rather than wait until any issues arise. There are issues with both approaches, but ultimately, it is more productive to avoid complications than it is to try deescalating them after the fact.

Generally, overall cultural awareness education, such as some of the methods presented in the last section, should serve to challenge the stereotypes held by workers toward other cultures. However, leaders should ensure that the topic receives attention instead of passively assuming that they will be a part of the program. According to Genkova (2016), people with international experience tend to be open-minded, which is a trait that can be useful to companies that frequently send their workers on such assignments. However, the practice is not helpful for everyone, and overall, there is currently no consensus on the best method for eliminating discrimination from the workplace. Overly aggressive approaches can be received as indirect accusations of bigotry by the employees, creating discontent and making them less receptive to the training (Tompos and Ablonczy-Mihályka 2017). However, overly subtle methods are challenging to evaluate and may not succeed, and ultimately, it is up to the manager to determine the optimal balance.

Intercultural Skill Development

There are many different competencies one can develop to become better at intercultural leadership, varying in both learning difficulty and effectiveness. It is optimal to choose ones that maximise the benefits with minimal effort, though the ability to enable more natural development of other skills is also valuable. Kiznyte, Ciutiene and Dechange (2015) highlight a trait that is known as cultural intelligence and represents a generalisation of the various learning-related concepts described above. A person with high CQ can understand other ethnicities and learn the relevant aspects of their values and practices quickly and easily. Moreover, the characteristic can be developed with effort, allowing one to operate in diverse environments with limited starting information and adapt. As such, an educational program for managers and possibly other workers that focuses on cultural intelligence would be highly beneficial.

The question of the best method to develop the trait is currently open, with researchers considering and comparing various potential avenues. Many business schools have incorporated courses that focus on cultural intelligence into their curricula, aiming to produce capable managers for the era of globalism. As such, companies do not necessarily have to focus on the theoretical aspects of the concept. Ott and Michailova (2017) claim that exposure to a foreign language helps managers develop cultural intelligence faster. Contact with other elements of foreign cultures may enhance the process, as well, though perhaps to a lower degree. Overall, managers and workers should engage different cultures instead of trying to isolate themselves if they want to learn to work with them. However, it should be noted that doing so can be stressful, and people who use the practice should consider culture shock.

Communication and Sensitivity Promotion

Overall, managers should try to promote an overall culture of tolerance, where every culture can participate equally and contribute. Workers should be encouraged to engage in cross-cultural cooperation of their volition rather than at a corporate order. According to Ghatge and Dasgupta (2017), intercultural communication training helps different cultures become closer through the use of more similar language patterns. As such, it is an excellent and subtle method for improving the overall cohesion of diverse workplaces. Many companies employ communication training already, mostly when preparing their expatriate employees for their assignments. As such, they should be able to adapt current methods for use in diverse environments and for many people at once to save costs. The effort will increase the expense of hiring and educating each employee, but in many cases, the resulting benefits should outweigh the spending required.

Overall, both managers and employees should develop the competencies required to understand others’ cultures and treat them appropriately. As such, they have to learn what aspects constitute culture and sensitive aspects that need delicate treatment. Dobre (2016) highlights religion, family, national history and power relations within a community as the principal cultural factors that affect business. The first aspect can be significant for many communities with high spirituality, with many Islamic nations serving as examples. The second, along with the fourth, can cause inequality and hierarchical structures in society, which the company has to respect in all of its activities and expressions to succeed in the environment. Lastly, national history can create precedents for negativity based on various factors such as nationality and ideology, and workers should be careful when discussing these topics.

Humanistic and Critical Direction

In conclusion, leaders have to abandon the detached hierarchy-based approaches of the past and adopt a more interpersonal framework. Classical business methods disregard the person’s concerns and expect employees to address their issues themselves, preferably without compromising their work. As Melé (2016) notes, this approach can be seen as inhuman and lead to a variety of complications, particularly as the range of potential problems increases due to the emergence of phenomena such as diversity. A more humanistic direction can enable managers to pay attention to the needs and concerns of their employees. As a result, they will be able to accommodate diversity and improve the performance of multicultural teams by fostering trust and cooperation. Leaders should strive for this paradigm in their behaviour and promote this aspect in the overall culture of the organisation to succeed in the modern environment.

Due to the organic nature and continuous evolution of intercultural leadership and organisational climates, people should engage in a concerted effort to review and improve their competencies at all time. Tilakaratna and Szenes (2017) demonstrate how people can form critical thinking capacities and exercise them in business through the use of the APPRAISAL model. The framework is intended for use in educational institutions rather than business environments, but it demonstrates the general approach to critical self-review. Leaders should try to adapt the model to their needs or create a new method that is based on the particulars of corporate operations. Ultimately, self-review and continuous improvement are closely related to characteristics such as humility and willingness to learn, which are described above. As such, managers should not have much difficulty maintaining their cultural proficiencies once they begin making an effort to do so.

Application to Companies

There are examples of companies that have applied these methods and succeeded in their international efforts, such as Renault. The corporation was able to expand its business into both South Korea and Japan, substantially improving its performance. However, not all companies are as successful in their efforts, and an opposing perspective of failure is required to underline the risks of entering a new culture and the benefits of intercultural leadership. General Motors and DaimlerChrysler are similar to Renault in that they are large corporations that sell their cars worldwide. However, GM’s entry into Korea was associated with a multitude of issues, and Daimler Chrysler ultimately failed in its efforts to begin production in Japan. This part of the paper will analyse the performance of the three companies with regards to intercultural leadership in detail and highlight the differences.

Renault and Nissan

At the end of the 20th century, Nissan, a Japanese automobile manufacturer, was struggling financially due to a variety of internal concerns. Renault, its more successful European counterpart, saw the opportunity to ally with a well-known and potentially profitable brand and offered to help. The two companies entered a strategic partnership in 1999, with Renault acquiring a significant stake in Nissan and sending Carlos Ghosn, an experienced crisis manager, to help the company overcome its issues (Froese 2012). The expatriate was able to identify a variety of topics and overcome them, helping the Japanese company recover and creating a large and public success story. As a result, the partnership has remained stable throughout the years, with Renault acquiring a small additional stake in its partner eventually. Moreover, Mitsubishi, which will receive attention later, joined the alliance eventually and improved its performance, as well.

At first glance, it appeared as though Nissan’s issues were financial, with low-profit margins, inefficient purchasing practices, and low resource utilisation. However, according to Froese (2012), Ghosn identified culture as the primary concern and highlighted several issues such as the lack of urgency, excessive collectivism, and avoidance of accountability. Japanese companies were used to governmental protectionism and had no incentive to improve their performance. The engineering department at Nissan focused on quality at the expense of cost efficiency and sourced expensive components despite their meagre advantages over cheaper competing options. Managers did not review their performance due to the lack of incentive and tools, and the company sold cars without documenting whether it made profits in the process. Lastly, employees would be promoted based on seniority rather than capability, creating a culture that suppressed talent and promoted complacency.

Ghosn changed the company by combining the European practices of Renault with respect for Nissan’s Japanese employees, their dignity and their practices wherever they were appropriate. According to Froese (2012), the leader introduced cost-cutting measures, changed HRM practices, focused on cross-company and cross-functional teams, actions that serve as signs of his authentic leadership ability. Ghosn was able to identify low assertiveness, high power distance and weak performance orientation as the cultural issues that held Nissan back and addressed them without touching the aspects that improved performance. This behaviour shows that the manager made an effort to understand Japanese culture and succeeded, combining his fresh external perspective with the company’s strong points. In effect, he applied the respect for diversity, competitive advantage aim, communication and sensitivity direction and humanistic and critical direction aspects of intercultural leadership to significant impact.

DaimlerChrysler and Mitsubishi

Mitsubishi, another prominent Japanese car manufacturer, was in the same position as Nissan at the same time. At the same time, DaimlerChrysler, a substantially larger corporation than Nissan that had recently expanded into the United States through a merger of its two namesakes, was interested in entry into Asia. As such, it acquired a sizable stake in the Japanese company and sent Rolf Eckrodt there to remedy the situation in 2000 (Froese 2012). The effort received less publicity than the Nissan takeover because it produced significantly worse results. Overall, the manager’s efforts did not succeed, and eventually, DaimlerChrysler sold its stake to Mitsubishi’s subsidiaries, returning the company’s ownership to itself. Despite Daimler Chrysler’s more substantial resources compared to Renault and the most similar starting conditions for both companies, Eckrodt failed where Ghosn succeeded.

As mentioned above, many of the issues surrounding Nissan and Mitsubishi were similar in nature, with excessively high costs among them. According to Froese (2012), Nissan closed five underutilised factories, Mitsubishi shut down one, and both companies achieved a significant reduction in supply costs over the first few years after their acquisition. Neither move was received well, as the closure of facilities meant the termination of the employees who worked there, contrasting the Japanese approach of lifetime employment. However, the actions were necessary, and in the initial period after the merger, both managers possessed a high degree of authority due to the expectation that they would rescue their respective companies. Overall, as can be seen from the differences in outcome despite the similarity of Eckrodt’s and Ghosn’s actions, their financial practices were not the deciding factor in the success of the effort.

Both managers were also able to recognise the deficiencies of Japanese human resource management policies, which prioritised age, tenure and attendance over performance. A significant change was necessary to address the situation, and the two executives used similar approaches when rectifying the issues. Using the European model, they eliminated lifelong employment and introduced merit-based promotions. However, the first difference that may explain the differences between Nissan and Mitsubishi emerged during the process of hiring the first new managers. As Froese (2012) notes, Ghosn chose a Japanese person who had not worked at Nissan prior for a senior position while Eckrodt forced a significant part of local executives to retire and brought in four relatively young Germans to fill some of the freed spots. As a result, Nissan employees accommodated the change better than those of Mitsubishi, who was startled by both the introduction of unknown foreigners and their lack of respect for seniority.

As a result of Eckrodt’s failure to integrate into the company and dependence on foreign assistance, Mitsubishi’s employees never accepted him or the other German managers entirely. As Gill (2012) describes, they expected the foreigners to go away eventually, while Japanese management staff would remain. As such, from their standpoint, it was better to disregard the directions of a DaimlerChrysler executive than different ones from a local superior, and a compromise was never considered an option by either side. Many of the issues that affected Mitsubishi remained unresolved and eventually led to the failure of the initiative. As such, this lack of acceptance can be seen as the principal cause of Eckrodt’s failure. However, the Daimler Chrysler representative’s hiring decisions were not the only cause behind this failure to connect, as several other leadership aspects show an inability to integrate.

In part, Eckrodt never integrated into the company because he never made any significant effort to do so. As Froese (2012) states, many of the German managers were on temporary contracts but made all of the critical decisions without involving Japanese executives regardless. As such, they were viewed as outsiders with little interest in how the company worked or what the best ways to improve it were. Instead, they tried to reorganise Mitsubishi to be similar to how the rest of DaimlerChrysler worked without concern for the local circumstances. Local staff were able to recognise this tendency and engaged in passive resistance, delaying changes and eventually ignoring them altogether. They struggled to present objections due to both their exclusion from management decisions and the traditional Japanese culture of silence (Froese 2012). In the end, most of the German managers confirmed their lack of involvement in Mitsubishi by returning home and taking positions with Daimler Chrysler, showing that they never risked anything.

This lack of interest is contrary to Ghosn’s efforts to integrate into Nissan, as the Renault executive stated that he would resign if the acquisition failed. As Froese (2012) claims, this declaration was part of the overall transparency effort he started, unlike Eckardt. Nissan employees were made aware of how bad the company’s financial situation was and accepted change because they knew it would be beneficial. By contrast, most Mitsubishi staff did not know how bad the company’s state was and assumed that the threat was not severe and resisted what they saw as arbitrary initiatives by managers. All of the factors listed above served to separate the two ethnicities within Mitsubishi into two groups that engaged in conflict, as described in the theory section. As a result, issues went unresolved, and the entire effort ultimately failed.

Renault and Samsung

Samsung, a large South Korean conglomerate with subsidiaries in many different manufacturing industries, decided to leverage its production capacities to enter the automobile industry in the 1990s. By 1994, it settled on creating its brand instead of acquiring another and partnered with Nissan to open a new branch, named Samsung Motors. However, the Asian financial crisis began shortly after, and Samsung started looking to sell the division to another company. No local buyers ultimately emerged, and Renault, which was mostly unaffected by the situation, decided to purchase a majority stake in the organisation in 2000. It then began making changes to improve the organisation’s performance without disrupting its operations too much. As a result, the acquisition was highly successful despite its style being significantly different from what happened in Japan a year prior.

The managers sent by Renault recognised the ability of Samsung Motors’ personnel and decided to cooperate with them and introduce the changes naturally and gradually. According to Gill (2012), the new owners did not lay off any employees and worked closely with the native management. They began with technical production aspects such as sourcing and manufacturing and eventually moved on to human resources management. As a result of their respect for the local staff’s achievements, morale remained high at Samsung Motors, and workers there were receptive to the improvements. Renault was able to make the necessary changes quickly and efficiently, turning the Korean company into a highly profitable business. The case became well-known due to the smoothness and overall success of the endeavour, outperforming similar acquisitions in other countries (Gill 2012).

It should be noted that Renault’s managers displayed a high degree of creativity and personal initiative in their management, not relying on a pre-set framework. Gill (2012) claims that the company did not have a specialised knowledge centre nor an integration team as well as that its Japanese and Korean managers rarely communicated despite working with the same tasks at the same time. These facts show that Renault’s managers were adequately trained in intercultural leadership, following the practices described in the theory section. As a result, they could adapt to the local situation and find approaches that both satisfied the local personnel and improved the company’s performance. They were able to turn cultural differences into advantages rather than liabilities and convince their partners to abandon the aspects of their culture that harmed performance.

GM and Daewoo

General Motors’ entry into South Korea was ultimately a success, unlike the collaboration between Daimler Chrysler and Mitsubishi. However, substantial issues emerged in the process, and overall, the company did not perform as well as Samsung Motors did under Renault. The acquisitions happened at the same time, as Daewoo had initially intended to purchase SMI but then suffered from the Asian financial crisis enough that it required rescue. GM showed an interest in the acquisition and bought a 44.5% stake in the Korean company. Notably, as Gill (2012) states, the American corporation brought internal and external experts to make the transition process faster and easier. However, they still struggled more than Renault’s less experienced managers, likely due to their lack of intercultural management capabilities. With that said, GM was eventually able to stabilise the relationship and achieve mutual satisfaction, showing a capacity to learn from its mistake and improve.

Similarly to Daimler Chrysler, expatriate management began implementing policies that were familiar to them without considering Korean culture. As a result, they laid off 1,700 people in the first year in contrast to Renault’s refusal to do so, lowering morale and increasing resistance (Gill 2012). Moreover, the company’s performance became worse due to its reduced staff, exacerbating the staff’s worries. GM executives showed no interest in appeasing local employees, preferring the results to speak for themselves. The decision was at least partially correct, as the performance improvements that followed in the second year convinced many sceptics of the benefits of the new systems (Gill 2012). Nevertheless, the initial period was associated with issues, and it is likely that a more culturally sensitive approach, such as that of Renault, would achieve better results.

Overall, GM’s approach appears to be similar to that of Daimler Chrysler and would likely fail if it were applied in Japan. However, the differences between the two Eastern countries and their cultures probably informed the disparity in outcomes. First of all, as can be seen above, Daewoo had a financial performance management system in place, and its difficulties were external in large part. The company did not need a sweeping overhaul such as what was required of the Japanese manufacturers. As a result, there were fewer chances for the management to oversee and push to completion. Moreover, local employees enjoyed a degree of transparency through the ability to access financial records, which ultimately served to convince them that the management’s ideas were correct. As a result, the project succeeded in the long term despite the initial resistance.

With that said, if employee resistance sabotaged the management’s initiatives to a significant degree, the company may not have seen improvements in the second year onwards. As Gill (2012) claims, Koreans were more used to authoritative leadership and less resistant to change in addition to having less rigid internal ties than the Japanese. As a result, they hindered the progress of the changes less than those in Mitsubishi, allowing the foreign management a chance to introduce improvements quickly and decisively. Their concerns and resistance likely escalated in the second year, but at that point, many of the initiatives were already complete and contributed to the performance increases expressed in the end-of-year report. The result may be seen as an indication that swift, large-scale changes may be useful in some countries, though the development of a robust intercultural leadership framework is preferable.

Conclusion

Overall, intercultural leadership can be applied both in expatriate assignments and in diverse environments at home. It requires the development of an overall set of competencies of the manager rather than the accumulation of any specific knowledge. Renault demonstrates the successful application of the framework through two independent integration efforts in Japan and Korea, which succeeded despite the lack of resources on the company’s part. GM shows that it is possible to prosper in some countries without concerning oneself with intercultural leadership, but this disinterest will create problems. However, Daimler Chrysler serves as an example of how wilful ignorance of the approach can directly lead to failure and create massive losses. Companies should avoid risk and teach their managers intercultural leadership to improve their performance.

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