Background of the Study

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CHAPTER I INTRODUCTION

This chapter explains the background that underlies this research. It also consists of research questions, the purpose of the research, and usefulness of the research and structure of the thesis.

1.1 Background of the Study

Over the past decades, the number of employees working in foreign-owned companies has significantly grown. It is resulted by the continuously expanding Multinational Enterprises MNEs around the world. Such activity has strengthening the realities of globalization UNCTAD 2016. In the case of Indonesia, the country has seen a 6.88 increase in foreign direct investment from US 253.1 billion in 2014 to 271.8 billion in 2015. This number was higher than those of Thailand, Malaysia, Vietnam, Philippines, Cambodia, and Laos The World Factbook 2016. For instance, it indicates that Indonesia is still seen as one of the promising economies in the Southeast Asia region for investors. The consequences of the rise in foreign direct investment are more intercultural interactions. Many business activities will need to have teams consisted of foreign employeesmanagers and Indonesian employees. Intercultural interactions might cause problems if they are not well planned and prepared, creating frustrations among members of the team. In order to be successful in operating business across cultures, organizations must provide proper orientations to their managers that will be placed outside his or her home country. Understanding cultural differences will help them become more effective leaders and thus will increase the chance of their success in the new countries. Culture has been recognized as a predominant factor in predicting human behavior and recent studies have shown its influences on business performance Perdhana 2014; Matveev Milter 2004 . It is defined as “the collective mental programming of the mind that distinguishes the member of a group or society to the other” Hofstede, Hofstede, et al. 2010. In order to understand, measure, and compare cultures, researchers have developed several methods known as cultural frameworks. One of the most widely used frameworks is Hofstede’s national culture dimensions. Hofstede 1980 identifies four dimensions of national culture: Power Distance, Individualism versus Collectivism, Uncertainty Avoidance and Masculinity versus Femininity. Later, in 1991, based on Bond’s Chinese Values Survey across 23 countries, Long- and Short-Term Orientation dimension was added to the original four dimensions Hofstede Bond, 1988. In 2010, Indulgence versus Restraint dimension was added based on World Values Survey findings Hofstede et al. 2010. The cultural framework allows comparisons among countries, presenting scores from each dimension ranging from 0 to 100. According to Hofstede’s findings, Indonesia is a country that is high on power distance, low preference for avoiding uncertainty, collectivist, low masculine, long-term oriented, and restrained Hofstede et al., 2010. Although Hofstede did not explain literally from which ethnicities his respondents were, there is a tendency that he presents ethnic Javanese in explaining Indonesia Perdhana 2014. Hofstede also admits his scores might be misleading in a multiethnic country like Indonesia Hofstede et al., 2010; p. 158. The need for understanding the complexity of Ind onesia’ culture, however, is not matched by the availability of the empirical study findings in the country. Most studies discussing Indonesia’s culture disregarded the cultural variations in the country e.g. Liddle 1996; Goodfellow 1997; Irawanto 2009; Irawanto et al. 2012. In response to this problem, recent studies have tried to bridge the gap. Perdhana 2014 underlines that in order to understand Indonesia’s culture, more careful approach should be taken. In this case, he proposes to draw comparisons among ethnic groups in Indonesia. Given the dearth of literature available for foreign managers and possibly local managers managing Indonesian employees from various subcultures and values, this study aims to bridge the gap by extending Hofstede’s work on Indonesian employees originating from five major ethnic groups: Javanese, Sundanese, Batak, Minangkabau, and Chinese Indonesian.

1.2 Problem Statement