Cultural Differences’ Impacts on International Business

Introduction

Culture is the acceptable way of doing things in a given society. Members of the society learn to conform with the cultural norms as they grow up. Cultural patterns in a society dictate the appropriate responses to different social situations. Culture encompasses people’s thoughts, words and actions. There are many different cultures and sub-cultures in the nations of the world. Thus, effect of culture on international business cannot be underestimated. Understanding the effect of culture on business is no longer a source of competitive advantage in International Business. Rather, it has become a core competence, without which a multinational company should conform to survive in business (Sealy and Hooley, 2009).

Importance of Understanding the Effect of Culture on International Business

Business operations are increasingly becoming global in nature. Trade, transport and communication are drawing world economies closer to each other than before. This is evident in the increased number of multinational companies in operation today. Any company that wishes to take advantage of this shift towards globalization must understand the effect of culture on its operations. A company may be forced to adopt local practises in order to succeed. This can only be done with a proper understanding of the area’s culture.

Human capital has become highly mobile. Technological and transport development has enabled people to work in different countries with ease. Sometimes, this can even be done simultaneously. Consider the case of a CEO of a group with operations across the continent. This executive may be required to be in different countries within the same week to represent his company. This increases the need to understand different cultures and their effect on the business. This knowledge will prevent such individuals from making mistakes that would cost their companies business. What is normal and acceptable in one’s home country could be considered offensive in another (Kershaw, 2009).

Companies are choosing to enter foreign markets via global alliances. The success of these alliances depends on good relations between the parties involved. A company needs to understand the cultural practises of all potential partners in order to choose one with whom to work. This will enable the company to choose suitable partners and therefore benefit from synergy. Knowledge about culture and business also aids in negotiations for deals. Cultural practises could make the difference between who gets the deal and who does not (Singer, 2000).

The domestic workforce is also becoming increasingly diverse. The major contributing factor is immigration. People can travel to other countries and choose to stay for life. It is possible to have dual citizenship thus enjoy the privileges of citizenship in more than one country. In countries such as America, the population is so diverse that it would be impossible to attach one culture to the whole population. Understanding employees’ cultural background can help management in designing motivational reward packages (O’Neill, 1998).

Components of Culture

Culture penetrates almost all aspects of human life. Scholars have attempted to identify the different components of culture. This paper will concentrate on the classification provided by Terpstra. The first aspect of culture is social interactions. This refers to the relationship and interactions between individuals and society, including their families. For example, it is common practise in India for parents to pick out a spouse for their child. However, in other countries, this is not so (Shaw, 2003). A company selling wedding planning services in India would thus focus its advertising on the older generation since they have a major stake in the wedding ceremony. In America, such a company would focus on the youth who are likely to be marrying since they make their own decisions. Extended family is also extremely important in African societies. It is common to find large extended families living together. This is not so in other parts of the world (Porter and Millar, 1985).

Language is the second aspect of culture. This is the spoken part of a society’s culture. Some words or phrases are unacceptable in particular societies. It is a taboo to mention reproductive organs by name in African societies. In contrast, sex sells a lot in the western countries. An American multinational seeking to enter an African market would not use similar advertising campaigns at home and abroad. Such a move would result in bad publicity for the company in Africa thus loss of sales (Kraakman et al. 2004).

The third aspect of culture is religion. This refers to a society’s beliefs in the supernatural that cannot be proven except by faith. The influence of religion on business is evident mostly in the Middle East where most countries are Islamic and governed by Sharia Law. Consider a multinational that specializes in manufacture and sale of bikinis. The Middle East would not be an attractive market since religion dictates that women should cover their bodies completely with Buibuis. However, a company manufacturing this traditional dressing for women is likely to succeed here. Banks in the Middle East would also find it necessary to design products that do not involve interest. Banks would avoid interest since Islam forbids giving and receiving of interest (Graham et al. 1951).

Values system consists of what people believe to be right and wrong. This aspect of culture influences businesses as it can dictate what consumers would or would not buy. Indians consider cows to be sacred animals, thus opening butcheries in Indian towns would be considered very offensive. None of the natives would buy the beef and the company would have to close down. In contrast, butchery would be a great business in Africa where beef is taken with most meals.

Aesthetics in culture refers to a society’s perception of beauty. The fashion industry has flourished in France due to the natives’ fascination with beauty. However, what is beautiful in one nation may be considered outright ugly in another. This knowledge helps countries to adapt their products to the country’s beliefs. In the western countries, petite women are considered pretty. Thus a pharmaceutical company selling diet regimes would prosper. In Africa, plus sized women are considered beautiful. In some parts, a man’s success is signified by his wife’s size. Thin women are considered malnourished and it could be associated with poverty. An attempt at selling diet regimes in such countries would fail miserably.

Education is the means by which one generation passes on its wisdom to the next. The attitude to education would influence the purchase of goods such as books. Some countries consider children’s education as a priority more than others. Selling children’s books in countries which do not consider child education a priority might prove to be difficult. It is also true that particular countries are predisposed to sciences while others enjoy arts more. Germans are thought to excel at engineering and other science subjects. Thus establishing a university that offers such education is likely to succeed.

Effect of Culture on Management of International Business

Management of international businesses involves bringing together people from diverse backgrounds in order to achieve the goals of one organization. This can prove quite tricky because of the huge impact culture has on business. Managers have to adjust their management practises to suit the country in which they are operating. The management style must be aligned to the society’s culture if it is to succeed. Hofstede identified four different perspectives from which management is viewed by different societies (Scott, 2007).

Power distance is a measure of how people in the society perceive the difference in power between leaders and their subordinates. In countries such as Israel, people expect to be treated as equals. The difference in power between bosses and their subordinates is downplayed (Sheffrin, 2003). An autocratic or dictatorship method of management would be rejected by workers in such countries. This is because they are used to relating on first name basis with everyone. Employees can participate in decision making and are allowed to critique management’s decisions. Malaysian workers on the contrary are used to autocratic and dictatorial leadership styles. They are good at following orders and rarely question top management. Attempting to use consultative leadership styles in such a country would be time consuming and may prove to be ineffective (Machan, 2007).

Masculinity versus femininity indicates whether people prefer the quantity of life or the quality of life. Masculine tendencies such as competition and aggressiveness are highly valued in United States of America. However, in Muslim countries, family and relationships are highly valued. Therefore, products promoting relationships and values would perform better in the Middle East than in America. A company should adapt to the society’s views if the members of the society are to buy its products (Pinnington et al. 2007).

Uncertainty avoidance is a measure of how much risk a society’s members are willing to take on. Members of certain societies are drawn to risk more than others. Americans in particular have been known to enjoy exciting and probably dangerous activities. Bungee jumping and Scuba diving are two such activities. This trend is also observed in the young people who tend to switch their jobs frequently. Societies with weak uncertainty avoidance would prefer less risky investments and people would stay in one job till retirement. This knowledge is vital in Human Resource planning (Joshi, 2009).

Individualism versus integration measures how much people are concerned with their society’s well being. Africans have been known to care about community more than individual well being. On the other hand, people from western countries are more individualistic than Africans. Scholars have shown that as the national wealth increases, so does the integration attitude decrease. A multinational company needs to establish where the country it seeks to operate in lies. This aids in establishing remuneration packages that will motivate employees. Family medical insurance would be motivating for an employee in a society that values integration (Jones et al. 2005).

Culture and International Marketing

Language

Language consists of both the spoken and unspoken messages sent and received between members of a society. There are high context cultures where verbal communication is more important than non verbal and low context cultures where non- verbal communication and body language are most important. An international marketing manager would design an advert with fewer words in a low context culture than a high context culture. The words in an advert to be run in a high context culture society would be picked out very carefully (Frederic, 2002).

Technology

The level of development in the target market is a huge influence on marketing. It dictates which products would be suitable for which markets. Marketing managers must conduct consumer surveys to find out whether their products would be functional in their societies. E.g. washing machines have not performed well in the African market due to the high cost of electricity. Mobile phones on the other hand have taken the market by storm. Nokia has gained large market shares because it produces affordable, durable and user friendly phones.

Social Organizations

This refers to how societies are structured. In countries where there is a cast system or social classes exist, the marketing manager may have to design different promotion methods for each subculture.

Religion

Marketers must be careful not to interfere with the religious beliefs of the customers. E.g. advertising with images of pigs was illegal in China in 2007.A marketing manager who decides to run an advertisement with near-nude women in Muslim countries not only create a bad image for the company, but could also attract serious penalties. The use of obscene language may be acceptable in permissive societies but not in conservative ones (Drahos, 2002).

Values and Attitudes

These impact on consumer’s opinions about products. Advertisements can be banned if they conflict with the host nation’s cultural values. E.g. adverts featuring teens using condoms as contraceptives would not be welcome in Africa where teens are not expected to be sexually active. An advert featuring a basketball star wrestling with Kung Fu was banned in China as it was considered an insult to the national heritage. Careful consideration of this aspect of culture in marketing could save the company a lot of money and public humiliation.

Education

The level of education in a nation dictates the medium chosen to carry a company’s advertisements. It would not be advisable to choose mediums that require the consumer to read if the literacy levels of a country are low. This medium would limit the number of potential customers that can be reached. Audio and video methods would be preferred over brochures and flyers in cases of low literacy levels. International Marketing managers must consider this cultural aspect when designing promotional campaigns.

Culture influences all the aspects of the marketing mix. Product policy is influenced by culture since members of certain cultural groups do not use particular products. E.g. Muslims do not eat pork, thus building a pork factory in a Middle Eastern country will be a futile effort. Promotion is also dictated by cultural views. Muslims consider dogs unclean animals that one should not associate with. However, in the Western Hemisphere, dogs are the pet of choice. Thus running an advert that portrays the dog as man’s best friend in America would be welcome but in Libya, it would be frowned upon (Travis, 2007).

Culture and International Business Practises

Business practises and relationships vary from nation to nation. Americans tend to focus more on the product itself than the business relationship whereas the Chinese and Japanese value relationships more. The dinning and dietary customs of a society will dictate how business dinners and lunches are carried out. Guests are expected to adhere to the host nation’s code of conduct. Failure to do so may lead poor impressions of the guest being formed by the host. It is thus important for business leaders to research thoroughly before attending such events (Murphy, 2002).

Gifts are an expression of hospitality and friendliness. It is a taboo in African culture to go visiting without a gift. In other nations, hosts do not expect their visitors to come bearing gifts, rather, they present the visitors with gifts to take back home. It is important to know whether or not gifts are expected when going for international meetings. The International Manager also needs to be aware of what kind of gifts he is expected to present. Wrong choice of gift creates poor first impressions (Sullivan et al. 2003).

Culture dictates dressing. International Managers need to pick out their dressing according to the setting ad the occasion. Religious and conservative countries do not appreciate exposing dressing. Female executives participating in negotiations with members of such cultures would be advised to dress in a decent manner according to the second party’s standards. This will help to prevent distractions during communication.

Business communication is also influenced by culture. Communication styles in various countries vary. International Business executives and employees need to learn how to cope with each different style. They must also understand what is meant when certain words and symbols are used by other people. Non-verbal communication is extremely important in some nations. Thus, foreign employees and executives are advised to carefully watch their body language (Davies, 2007).

Culture imposes boundaries that must be respected in International Business. Some societies consider it offensive for members of the opposite sex to hug or have close body contact. In dealing with such cultures, it is best to avoid public displays of affection. However, in America, it is considered friendly to greet someone with a warm hug or handshake. Business executives may also refer to each other by their first names. This is generally not acceptable in China where things are more official (Daniels et al. 2007).

Conclusion

This paper has shown the great impact cultural differences can have on international business. These effects cut across the entire organization. However, cultural differences can be beneficial to businesses. Multinational businesses stand to benefit from the pool of talent created by cultural diversity. A company with operations in France and Germany benefits from the scientific insight of the Germans and the Artistic taste of the French. If the company manages this talent well, then it can benefit greatly from the synergy created. Innovative ideas can also be exchanged. This would result in faster growth for the business (Boldrin et al. 2008).

Studies have shown that work efficiency increases with increase in cultural diversity of workers. This is attributed to the increase in skills and experience available. New processes can also be developed. These could be the key to a business’ success in a given market. The problem solving efficiency also increases. Language skills improve since employees have to learn to cope with others who may not speak English.

The effort involved in creating synergy in a culturally diverse organization may divert resources from the major aim of the business. Training and awareness programmes take up time that should have been spent working. Employee resistance could cause the failure of such initiatives. The diversity in workplaces could also slow down the decision making process since everyone has their own idea of how things should work. This could have been avoided by doing business locally where the people share the same culture (Cooper, 2006).

Business organizations which operate across borders should invest time and other resources to study the culture of their operating environments. This will save such companies money that could have been spent paying fines for committing cultural offences. The organization will also be spared the bad publicity that comes with disregarding peoples’ culture. Knowledge about the society’s culture will also enable such an organization to design customer responsive products. These products will lead to growth in sales revenue and eventually profit. However, disregarding cultural differences can have devastating effects on a multinational company. Sales revenue could be lost due to cultural ignorance. Potential customers are likely to avoid businesses which are not operating in line with their norms and values. One could conclude that the very success of an international business depends on the adaptation to local cultures and sub-cultures (Machan, 2007).

References List

Boldrin, M. et al. (2008) Against Intellectual Monopoly. Cambridge: Cambridge University Press.

Cooper, B. (2006) Intellectual Property Rights: Innovation, Governance and the Institutional Environment. London: Edward Elgar Publishing.

Daniels, J. et al. (2007) International Business: Environment and Operations. New York: Prentice Hall.

Davies, M. (2007) Property: Meanings, Histories, Theories. Oxford: Routledge-Cavendish.

Drahos, P. (2002) Information Feudalism: Who Owns The Knowledge Economy? London: Earthscan.

Frederic, R. E. (2002) A Companion to Business Ethics. Massachusetts, Blackwell: Prentice Hall.

Graham, B. et al. (1951) Security Analysis. London: McGraw-Hill Book Company.

Jones, C. et al. (2005) For Business Ethics: A Critical Text. London, Routledge.

Joshi, R. (2009) International Business. Oxford: Oxford University Press.

Kershaw, D. (2009) Company Law in Context. Oxford: Oxford University Press.

Kraakman, R. et al. (2004) The Anatomy of Corporate Law. New York: Oxford University Press.

Machan, T. R. (2007) The Morality Of Business: A Profession For Human Wealth care. Boston: Springer.

Murphy, P. E. (2002) Marketing Ethics at the Millennium: Review, Reflections and Recommendations. Blackwell Guide to Business Ethics. Oxford, Blackwell: Prentice Hall.

O’Neill, J. (1998) The Market: Ethics, Knowledge and Politics. London, Routledge.

Pinnington, A. et al. (2007) Human Resource Management: Ethics and Employment. Oxford: Oxford University Press.

Porter, M. & Millar, V. (1985). How Information Gives You Competitive Advantage. New York: Harvard Business Review.

Scott, R. (2007) Organizations and Organizing: Rational, Natural, and Open Systems Perspectives. New York: Pearson Prentice Hall.

Sealy, L. & Hooley, R. (2009) Commercial Law: Text, Cases and Materials. Oxford: Oxford University Press.

Shaw, M. (2003) International Law. Cambridge: Cambridge University Press.

Sheffrin, S. (2003). Economics: Principles In Action. Upper Saddle River, New Jersey: Prentice Hall.

Singer, J. W. (2000) Entitlement: The Paradoxes of Property. New Haven: Yale University Press.

Sullivan, A. et al. (2003) Economics: Principles in Action. Upper Saddle River, New Jersey: Pearson Prentice Hall.

Travis, T. (2007) Doing Business Anywhere: The Essential Guide to Going Global. Hoboken: John Wiley Sons.