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International business includes all the situations of
business transactions across various country borders. These transactions are in
the form of imports and exports. Exchange of goods, intellectual property,
people, technology and services are also included in the international
business. “International Marketing” and “Global Business” are the other terms
used for International business. At present, multinational companies are spread
all over the world. Not only large firms but one person companies are also
doing international business in the import-export form
International business,however, is quite different from the
domestic business because of the across border differences. Every country has
its own governmental laws and systems, different currency, rules for duties and
taxes. Therefore, a company has to face total environmental changes when
borders are crossed
Impact of cultural
differences on multinational companies of International Business 2018-2019
(Impact of Culture)
All the large firms have good understanding of their
country’s legislations and environment, but are totally or partially unaware of
the business trends in outside world. Some of the important challenges that a company
has to face while expanding its business to international level and choosing
countries for are:
Political barriers
Economical issues
Currency
Communication
Culture
Innovative technology
While choosing location and country for the international
expansion of business mangers keep in mind various aspects of different nations.
One of which is culture.Culture has a huge impact in making a business failure
or success in a country. And this is always kept in mind by managers of firms
while selecting a location.
Culture is basically a shared set of values and beliefs
which are held by a specific group of people. It also includes the rules and
institutions set by a common category of people. Each culture is further
divided into many sub cultures with same general beliefs. Religion, history,
language, government, level of education and geographical location are some of
the aspects controlling the cultural beliefs of people as well as nation
While choosing the location of subsidiary, cultural
environment of that area should be kept in mind. Language, customs, social
behavior and technology are some of the critical variants of culture which
affect the choice of location greatly
“Culture is more
often a source of conflict than of synergy. Cultural differences are a nuisance
at best and often a disaster”
~Hofstede
Hofstede, full name Gerard Hendrik Hofstede, is a social
psychologist from Denmark , known for his work on cross-cultures.By doing many
researches on cross-cultural groups and organizations, came with the “theory of
cross-cultures”
Although, while expanding business,large firms eye on the
international market to make their business more flourished.However,most of
times these companies are unaware of the other countries cultures, which may
lead to a lot of misunderstandings among people and organizations
The world is becoming a “global village” due to the
convergence phenomenon. This means that with increasing globalization
information technology is becoming available to every person, people are
interested in using same type of goods world-wide, people are up-to-dated, and
international markets are flourishing
The idea of Geert Hfstede on cultural barriers has a big
problem. Although it is generally believed that cultures keep the groups of
people of same culture together, but there is no denying in the fact that these
cultural trends make people, of different cultures, very distant. Same is the
case in business world; cultural variations cause a lot of problems for
international business-me(Tarhini, Hone, & Liu, 2015).
For example, in America obedience of time commitment is
considered a sign of professionalism and Americans take business commitments
quite seriously and therefore prefer having a detailed agreement. However,
Asian trends are different as they have quite flexible approachin terms of time
as well as agreements
Similarly, McDonald’s had to face cultural variations while
operating in different countries. Two major issues McDonald’s had to face were
religious variations and cuisine variations. McDonald’s had to agree to stop
the pork and beef burgers and other items in order to show the respect to
Indian culture as pork is prohibited in their religion. Indians prefer
vegetarian food so McVeggie was introduced to please their customers in India
keeping in mind their cuisine differences.
Social habits also vary from nation to nation. For instance,
you are never supposed to hold Japanese’ hand while making business dealings
with him. You cannot pat a Japanese man on the shoulder and you are supposed to
be in very polite and kind manner whole talking to them. In Saudia, kissing
three times on cheeks is considered a sign of good attitude. You should wear
formal dresses always during business meetings in France or with French people
Due to all these cultural variations Hofstede considers
culture a cause of conflict causing huge impact on society’s business behavior.
Hofstede is a pioneer researcher of organizational cultural studies and cultural
economics. He developed a framework which can be systematically applied to know
and study the differences in cultures, and is can be used in the assessment of
groups and organizations of across borders. His given model tells about the
differences in cultures of nations as well as the consequences of these
cultures. Therefore, his model is very important for understanding
cross-cultural politics and economics
This model has 6 dimensions:
Power Distance of International Business
2018-2019 (Impact of Culture)
This term expresses the reaction and acceptance
of powerful members of the society to the idea of equality or inequality of
money distribution and power in a society.
High power distance society is one in which
inequalities of power are considered a normal phenomenon and they do nothing to
equalize the power distribution. Example is Saudia and China which still belief
in cast system denying the need of upward mobility of its people.
Low power distance society means that people
have same opportunities and are considered equal.
Individualism/Collectivism of International
Business 2018-2019 (Impact of Culture)
It gives idea about the relative importance given by a
society to interests of individuals called individualism versus group
interests.
High individualism means a society prefers individuality and
separate rights for each person.US is an example of high individualistic
society.
Low individualism means a society is more collective in
nature and a person has to remain in groups and take care of their close family
members as well
Masculinity of International Business 2018-2019 (Impact of
Culture)
The Masculinity/Femininity focuses on the preferences of
society towards a male v/s female dominant society
High masculinity means a society is male dominant and
presents a society of gender differentiation. These societies are more
competitive and heroic. Japan is an example.
Low masculinity tells that a society has less gender
discrimination and females are treated like males. These societies are more
modest and prefer co-operation. Norway comes in this category(Mareki De
Mooji,2015).
Uncertainty Avoidanc of
International Business 2018-2019 (Impact of Culture)
It gives idea about the acceptance for
ambiguity and uncertainty among people of society.
High Uncertainty avoidance is seen in societies
which have more rules and legislations and are rule oriented.Argentina has high
uncertainty avoidance.
Low Uncertainty Avoidance is seen in relaxed
societies with less concern about ambiguity and risk taking societies
Long term Orientation of International Business
2018-2019 (Impact of Culture)
It shows the orientation of society towards its
traditions, norms, past and future.
High Long Term Orientation means that society
has respect for tradition and value long term commitments. However, business in
such societies takes time to flourish. Japan is one such country
Low Long Term Orientation is seen in societies
which have no traditional orientation and their culture changes rapidly and commitments
made by such societies are short term and never impede changes to culture.
Morocco is an example.
Indulgence of International Business 2018-2019 (Impact of
Culture)
This dimension tells about the extent of control of people
on their desires.
Indulgence means weak control over desires. This kind of
society allows people to satisfy their desires just to please themselves and
enjoy their lives.
Restraint means strong control over desires .Societies of
this type suppress their desires and all their actions are mainly governed by
social needs and values.
Hofstede’s given model tells about the differences in
cultures of nations as well as the consequences of these cultures. Therefore,
his model is very important for understanding cross-cultural politics and
economics(Erich B.
Bergiel, Blaise J. Bergiel, John W. Upson,2012).
Conclusion on
International Business 2018-2019 (Impact of Culture)
With increasing globalization and mobility it is necessary
to shape business according to the needs of future. While working in
international market, understanding of cultural design is very important.
Cultural variables like customs, language, and social behavior affect
international market greatly leading to conflicts among nations. Cultural
variations demand modification of business etiquettes according in each
country, which is quite a difficult task. Hofstede tried to make cultural
understanding better for people by his theory which has provided ease to
business, but still cultural diversifications are biggest challenge for the
international business men.
Culture affects everybody around it. Culture is a form of
emotion and it should not be stopped from entering in the work place. Culture makes
different fields interesting and unique by its diversification. Therefore,
culture should be embraced whole-heartedly.
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