Role of Culture in International Business

Culture can be defined as the acquired knowledge that people use to interpret experience and generate social behavior. It is important to recognize that culture is learned and helps people in their efforts to interact and communicate with others in the society. When placed in a culture where values and beliefs are different some people have a great deal of difficulty adjusting. Cultural differences must be understood and managers must be sensitive to them in order to be successful in the global economy.

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For example, there is recent research that shows that expatriate experience and levels of host-country language fluency as expected, do significantly improve the expat adjustment process. Traditionally international business focused primarily on dealing with economic/legal issues and organizational forms and structures in different countries. However, the importance of understanding national cultures, broadly having the elements of values, beliefs, norms, and behavioral patterns of a national group, is being increasingly recognized in the context of international business in the last two decades. This awareness is largely as a result of the classic work of Hofstede (1980).

Thesis: National culture has been shown to impact on major business activities, from capital structure to group performance and its only by understanding and analyzing one’s own culture its possible to understand foreign cultures and succeed in international business.

What is culture?

Culture can be defined in many ways. Terpstra and David (1991) refer to ‘a learned, shared, compelling, interrelated set of symbols whose meanings provide a set of orientations for members of a society’ (Johnson and Turner, 2003). Some important cultural elements are social structure and dynamics, human nature perspective, time and space orientation, religion, gender roles and language (Mendenhall et al, 1995).

Hofstede (1994) brings this array of symbols, beliefs, values, ideas, etc. into a definition, which talks of ‘a collective mental programming’. In other words, culture is the combination of acquired experience and values that feed into and influence behavior and responses of distinct groups (Johnson and Turner, 2003). National culture provides a broad context in which other cultural manifestations, including regional, religious, organizational and occupational cultures among others take place. Many of these cultural reference points also have a cross-border dimension: Catholics, for example, are subject to some similar influences whether they are Mexican, Italian or Portuguese (Johnson and Turner, 2003).

However, the impact of these differences varies according to national and other competing cultural factors. Thus culture is a learned phenomenon, the outcome of shared experience over many years that is passed down the generations.

Significance of culture to International Business

Culture plays a huge role in the conduct of international business. Entry into new markets needs an understanding of the values, beliefs and customs of the local market. Use of inappropriate advertising language or images, for example, can completely undermine attempts to enter new markets. Even fast food outlets like McDonald’s have had to display sensitivity to culture to make a successful entry into a foreign country.

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For example, in India, it was found that beef is not taken for religious reasons. So, McDonald’s had to give up using beef in hamburgers sold in India. Wal-Mart when it started its retail chain in Japan found that its own label biscuits did not sell well because they were too sweet for Japanese tastes. Furthermore, Japanese consumers set much greater store by presentation and packaging. Another way culture impacts international business in through mergers, acquisitions and joint ventures when employees of different corporate cultures are brought together. The 1998 Daimler/ Chrysler merger is frequently cited as an uneasy match between two very different corporate cultures.

The German partners’ approach to resolution of the merged companies problems was based on its traditional preference for engineering solutions and for seeking synergy via shared components and engines whereas Chrysler’s approach was deeply rooted in a tradition of using marketing promotions and price discounting. The challenge for business when deciding upon modes of market entry is to read and correctly interpret the various cultural signs. Failure to do this can result in serious problems for specific initiatives or even failure of joint ventures or mergers.

Overcoming ethnocentricity

Ethnocentricity is the tendency to regard one’s own race or social group as the model of human experience. Ethnocentricity includes perception of internal cultural conflicts as part of the norm as well. For example, women in one cultural tradition may assume that women in other cultures have the same conflicts and tensions with their societies and are seeking the same answers. This wrong assumption can lead to serious misunderstanding in the conduct of international business. Ethnocentricity is dangerous in the context of international ethical behavior as it involves contempt, blind assumptions, same as self attributions (Pasquero and Wood, 1992).

Overcoming ethnocentric and parochial attitudes begins with an understanding of one’s own culture and how it is similar or different from other cultures. The focus must be on cultural underpinnings that affect global operations. Global firms initially focus on national cultural environments and incorporate information on subcultures at a later stage (Mendenhall et al, 1995). Learning to respect the ethnocentricity of others helps in upholding the equal human value and dignity of members of other societies and of dissidents within society. In sociological terms, this orientation is commonly, known as cultural relativism.

Shaping of Culture through Attitudes, Values and Beliefs

The common values, beliefs, customs and norms of behavior that constitute culture are acquired from social institutions like families and schools. These in turn are shaped by common or shared experiences, history, and religions which determine factors like the relationship of the individual to the group, gender roles, communication rituals and even details and norms associated with eating, drinking and dress. Geert Hofstede (1984) explains the formation of culture through five dimensions. Of these, uncertainty avoidance measures the lack of tolerance for uncertainty and ambiguity (Johnson and Turner, 2003).

Such an attitude manifests itself in a preference for highly structured formal rules and limited tolerance for groups and individuals demonstrating deviant ideas or behaviors. Hofstede identified the cultures of Latin America, Latin European and Mediterranean cultures plus Japan and South Korea as exhibiting high anxiety and uncertainty avoidance (Johnson and Turner, 2003). He further explained that in low uncertainty avoidance countries such as other Asian and other European countries business is conducted in a less formal manner, with fewer standardized rules, and individuals are expected to take greater risks and exert greater independence in the performance of their roles.

Likewise, he said that in societies where individual responsibility is encouraged there is a greater regard for individual rights and freedoms and tend to be characterized by assertiveness and competitiveness rather than by teamwork and cooperation. The most individualistic societies are to be found in Anglo-Saxon countries. Japan, Latin American and other Asian countries that are low on individualism encourage a culture of group and team work.

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Societies that place a high premium on assertiveness, achievement and the acquisition of material possessions are found to exhibit a culture of conflict and competition in the workplace whereas societies that play a high value on social relationships, quality of life and sensitivity exhibit high degrees of cooperation, negotiation and compromise. Thus, values, beliefs and attitudes of a society shape its culture and culture in turn helps in shaping the values, beliefs and attitudes of the people.

Yates et al. (Yates et al., 1989) have shown that Chinese respondents exhibit extreme overconfidence in probability judgments as well as in general knowledge, as compared with those in the US and Japan. This is explained by the fact that Chinese children are taught ‘rules’ such as memorization for approaching cognitive tasks, the fact that Chinese culture demands that people generate multiple arguments on both sides of an issue, and the typical characterization of decision problems based on the logic of historical precedence rather than on the logic of the decision tree. These cognitive customs, born out of cultural values and reinforced throughout education, may be at the core of cross-national variations in overconfidence.

Effective Strategies to adapt to a local culture

Cultural factors that powerfully shape the international business environment are a complex interplay of values, ideas, beliefs, history, custom, practice, etc. It is important for companies to exhibit culture-appropriate, specific behaviors as in gift giving, punctuality, greetings, introductions, physical contact, speaking patterns, and physical space between people during conversation (Briscoe and Schuler, 2004).

To be a world class organization, there should be synergy between the host, base and international business environments. This requires adaptations within the transnational organization’s culture to local factors of language and communication, law and politics, values and beliefs, education and training, technology and material resources and social organization. Some strategies that a company may adopt to adapt to the local culture are:

  • Formalizing cultural integration: Wherever possible, the companies recruit local managers. This strategy is based on the belief that these employees are more likely to be aware of the local culture. Unilever and Ciba-Geigy are companies that have institutionalized the process of cultural integration (Kim and Mauborne, 1987).
  • Adaptation by Local Ownership: Multinational companies can adapt to local culture through adopting the market entry method of franchising. This method allows individual creativity to adapt to local circumstances while operating procedures are tight. McDonalad’s and Kentucky Fried Chicken have been successful in this mode of foreign entry (Maddox, 1993).
  • Code of Ethics: Kruckeberg (1989) has proposed a code of ethics that takes into consideration local cultural values, to give managers direction in their foreign operations.
  • Appointment of Protocol Officers: Some companies have hired protocol officers whose responsibilities include making certain the executives of the firms are appropriately “guided through” their foreign visits and have the information they need for doing business there ( Snowdon, 1985).
  • Polycentric Orientation: In this case, firms believe that each foreign operation’s environment is unique and difficult to understand and deal with from a home base; therefore, each foreign operation is given a great deal of autonomy to run its own affairs (Maddox, 1993).
  • Six Interacting Processes: According to Ott (1989), the most effective way of changing or modifying a corporate culture is through management intervention in six interacting processes: selection and hiring of persons with the desired cultural values; socialization among members of the organization during a process of cultural change; removing members who cannot adapt into the modified culture; adapting organization’s communication systems in the context of language, jargon, myths and corporate heroes; appointing cultural integration staff to help with cultural issues; and cognizance of local culture and customs.

Attitudes to work, leisure, time, family etc and Culture

Culture can also be examined from a society’s attitude toward work, leisure, play, etc. The idea of work as a means of salvation exists in Western societies whereas Protestant society viewed work as a moral virtue and looked unfavorably on the idle (Yu et al, 1999). A similar work ethic is also found in Asian societies. Confucian and Shinto work ethics prevail in China and Japan and this explains their nature to be workaholics and for their loyalty to employers (Yu et al, 1999).

In the Columbian town of Aritama, work is despised and leisure is the goal. This has lead to a culture of distrust and envy of anyone who is economically aggressive (Johnson, 1964). France is a country with workers who “view work as a means to an end, not an end in itself” (Dumazedier and Latouche, 1997). They feel that family, happiness and health are more important than any economic pursuit. The resultant French culture reflects these attitudes excelling in its food, wine, architecture, and art.

Communication and Culture

Verbal and non-verbal communication can foster or destroy cultural understanding. Nonverbal communication reflects the values and norms of a particular culture. For example, dress considered appropriate for women varies across cultures (Wood and Wood, 2005). There are a number of contributing factors leading to communication breakdown across cultures: differences in perception, stereotyping and ethnocentrism (Wood and Wood, 2005). Communication problems can cause frustration with the language, food and local customs; labeling of local ways o f doing things as strange and inefficient and hamper the ability to recognize the true intent of verbal and non verbal communication.

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Physical environment

Physical environments are often endowed with unique cultural meanings and symbolisms that are reflected in the design of dwellings, neighborhoods, settlements and even whole landscapes. People live in high dwelling places where hurricanes occur and dress in light cotton clothes in hot climates. In the organizational context, the physical environment of a place often reflect s the activities, values and purposes of the individuals or groups doing the organizing. An appealing and comfortable physical environment for employees may make the difference between someone who wants to come to work each day and one who wants to stay home and thus physical environment impacts culture (Altman et al, 12).

Education

Based on social identity theory (Turner, 1987) and theories of the self-concept (Markus and Kitayama, 1991) when a person views him or herself as a member of the national culture will have a strong and pervasive impact on his or her beliefs. In every culture, there are people who hold beliefs different from those typical. This is because of other sources of self-identity such as educational or professional affiliation, which may play a much stronger role in defining who they are, what motivates them personally, and which values they hold.

Culture matters more when a person identifies with the culture; for those who do less, as in the case of an educated and trained person, culture is a less potent predictor of their values (Leung et al, 2005). Self-esteem that is nurtured through education is an element that moderates the impact of culture on an important set of individual behaviors.

Technology

Several situational characteristics that moderate the impact of culture have been identified and one of them was technology (Leung et al, 2005). Research has demonstrated that people tend to respond in accordance with cultural prescriptions under conditions of uncertainty and ambiguity and uncertainty provokes rigidity (Leung et al, 2005). Thus, technological uncertainty likely amplifies the impact of culture on individual perceptions.

When there is technological certainty, or when there are very specific rules, procedures or equipment for completing a task, national culture will have less impact. For example, an aerospace product development team that Gibson and Cohen (2003) worked with was multicultural, and there were most cultural conflicts when the team confronted implementation of new technology. However, once the technology had been adopted, and through trial and error the clashes were resolved, cultural proclivities were less of a factor in provoking conflict (Leung et al, 2005).

Role of Mass media in shaping culture, public opinion, marketing and advertising

Popular culture comprises the beliefs, practices and objects that are part of everyday traditions and this includes mass produced cultures as such as popular music and films, mass marketed books and magazines, newspapers and other parts of the culture that are shared by the general population. The term mass media refers to those channels of communication that are available to wide segments of the population – the print, film and electronic media such as radio and television and increasingly the Internet.

The mass media have extraordinary power to shape public perceptions. For example, even though crime rate has actually decreased, the amount of time spent reporting crime in the media has actually increased. Sociologists have found that people’s fear of crime is directly related to the time they spend watching television or listening to the radio (Anderson and Taylor, 2006). Media also shapes a person’s experience of the world through its advertisements. It is impossible to market an endless line of products to people who are satisfied with who they are. So, the media culture shows people images that are not closely related to what reality is.

People tend to take these images as how they are supposed to be, internalizing those images as some sort of true picture of reality. Thus media culture creates an identity for an individual based on what he or she is not (Bell et al, 2004). For example, the person is not inherently attractive, and so he needs makeup and hairspray. He or she is not healthy and so needs supplements. This sort of false culture is imposed by the mass media in the context of marketing and advertisements.

Political and Legal systems

Politics and legal systems have both positive and negative impact on cultural understanding. On the positive side, politics and legal systems help in the preservation of the native culture of a region. For example, Muslim countries under Islamic law have stringent laws regarding prayers, dress, work and values. Democratic countries have laws that allow personal freedom within certain legal boundaries.

On the negative side, politics and law can also have a negative impact on culture. A country which identifies itself as a member of a Communist bloc typically is not interested in any international business which would involve foreign ownership of assets or direct management within the country. Likewise, dictatorial regimes do not allow individual freedom. Politics and politicians evince a large interest in foreign firms entering the country and set the rules to control their entry.

Conclusion

Culture is a complex phenomenon that is much more than cultural dimensions, and culture manifests itself in many levels and domains. Some cultural elements are stable, whereas others are dynamic and changing. Recent research shows that culture plays a huge role in the conduct of international business in the global economy of today. In the context of international business, there is the need to broaden analysis of culture, to perhaps take a closer look at manifestations of culture such as folklore, educational institutions, political systems, and methods of economic exchange, in order to fully assess the influence of culture on international business.

There are stark differences in behavior across cultures and this finding holds a lot of significance to companies that market products across national boundaries. Culture needs to be conceptualized in a more complex manner so as to have meaning in the global context. Business growth and expansion involve understanding different cultural needs and perceptions especially when the business operates across cultures. For international companies to be successful, in a global society they must adapt to, relate to and understand the culture of the countries where they conduct business.

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