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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