Impact of Culture on International Business

In this essay I am going critically to evaluate the impact of culture on the International Business. Culture is a term which could be defined in many ways. All the people have different attitudes and perceptions so when being asked what is culture for them , the answer will always have different aspects. Despite the we all believe we have impulsive knowledge on what culture mean defining it is more complex. According to Kroeber and Kluckhohn’s research culture may be defined in more than 160 ways. Best culture descriptions that were found during the research are that culture is.

Different aspects of culture help different people to find the best field for them. But there’s a case when culture affects the whole society not only individuals. According to Francis Fukuyama “the most crucial area of modern life in which culture exercises a direct influence on domestic well-being and international order is the economy. Although economic activity is inextricably linked with social and political life, there is a mistaken tendency (€¦) to regard the economy as a facet of life with its own laws, separate from the rest of society.”

The comprehensive culture’s impact on international business might be found in every international company as culture affects HRM , International marketing , supply chain , operations management , corporate strategies and especially way of doing business.

On the other hand culture’s influence may be found mainly in values , beliefs and behavior. We can simply view three cultural differences across values , beliefs and behavior (see Appendix 2)

The main summary about culture we can make is that when comparing different cultures we can define 4 key assumptions.

Cultures are not homogenous. Within every culture there are subcultures . For example the caste system in India, working class culture. Also place of residence. For example Basque people , French Canadian. Cultural heritage and its interpretation are very individual, so we cant assume that two people from one country will behave in similar way or to have common beliefs.

Separation of cultural issues from economic and political is complex as all three factors interact to influence views and beliefs.

Defining the degree of differences between cultures is not straightforward because recognition of differences is a subjective issue.

As the level of international trade and travel increases cultures become increasingly associated and the cultural diffusion may alter the significance of national cultures.

As we saw that culture influences beliefs , values and behavior , it’s likely that the culture affects also the management style. The variations of what authorizes the management are not different in black and white terms , because there’s a cross-cultural understanding of the purpose of doing business and the nature of management task. However there are differences of emphasis , priority and understanding which may create a variety of styles and practice. In fact the differences can be found by separating countries in a cluster. According to Hofstede’s Cultural Dimensions there are four kinds of them which are used in order to compare national cultures.

Individualism versus collectivism

Individual rights and freedoms are fundamental values in individualistic cultures. Special emphasis is placed on personal career and remuneration. Collectivistic cultures are built on a foundation of values: harmony between people in the group, the priority of group needs and interests. Hofstede concludes that all rich countries are individualistic and poor – collectivist. In societies individualistic relationships can be planned and either party to terminate them if they replace them with a good offer from elsewhere. In collectivist cultures are characterized by relationships of moral and emotional nature.

Power Distance

Each member of the organization defines different levels of owned by him and other members of the group’s organizational status, prestige and level in the organizational hierarchy. Various are the rights deriving from the hierarchical level. Subordinates carry out the decisions of superiors in a different way. Use categories: gender, inequality, privilege, social position, status, power, etc. podchineiie Studies of Hofstede put Asian and South American countries together with Belgium, France, Italy and Spain in the group of countries with a high index of severity of hierarchical position. Scandinavian countries and the U.S. have low values of this parametyr, Bulgaria is among the countries that are characterized by the greatest difference between managers and subordinates.

Uncertainty avoidance

There are societies in which the uncertainty of future worries people, and vice versa. For those societies are characterized respectively high or low depending on the experts in solving problems as small or large mode of individual consciousness to deal with them.Societies that do not take the risk and fear of tomorrow, develop pluralism of opinions and are willing to deal with individual problems. In other societies, people are fighting for the future, they are nervous and aggressive. They feel threatened by the world around them because they avoid the risk. Hence the characteristics of the crop in their respective organizations: subordinates seek clear instructions and managers, preferring more rules and laws. Bulgaria is among the countries in which people feel moderately stressed, are more conservative beliefs and value safety.

Masculinity v femininity

G. Hofstede defines masculinity as the extent to which dominant values in society are considered aggressive, pursuing the goals by all means. The orientation is towards money and possession of property. Cultures with a feminine nature, appreciate the relationship between people, caring for others, overall quality of life. 

Dimension masculinity femininity “is important to determine the methods of reasoning in the job, the choice of approaches to solving nl most complex tasks of conflict resolution.In Table. 5.5. reflected the consequences for organizations of prevailing “masculinity” or “femininity” in the national culture (adapt. 3, 5, 12, 15 and 18). Depending on national cultures are formed organizational value systems and behavior. Large transnational corporations are constantly confronted with the problem of national cultures, assessed the compatibility of cultures, predict the development of their interaction and assign them (incorporate). 

So for every businessperson that is going to deal for a first time with a specific country can easily to look at the clusters (see Appendix 3 , fig 1) and to get an idea whit what kind of culture he’s facing and how to deal.

These clusters show that there’s a level of cultural attraction between groups of nations so it’s easier to make a general understanding of management practice. But there are danger s of making groupings of countries. The detail of how people behave in certain situations must be discovered by own experience and discussions with people who have already worked with the particular country. Although having an understanding of a nation’s characteristics at a good level is very useful in international business because in different parts of the world there’s a different management styles and because each of the main business factors are affected by the culture and cultural differences.

When a company is creating its international strategy , it should consider where and what is going to sell , also to evaluate if the product will be accepted , because the future of the product’s success depends on the cultural understanding of the people who are going to buy it. For example for a company selling pork meat will be impossible to sell in Islamic countries because of the religion restrictions. Also staff should be employed in a variety of adequacy in the foreign locations. So human resource management need to be sensitive to any cultural need that might to individual countries. Similarly if a company wants to establish overseas plants , the culture and cultural difference can easily affect the way of production and content and format of any financial reports produced to report the firm’s performance. It’s important to look how culture affects the operations management , international marketing , human resource management and finance functions.

Impact of culture on International Marketing

It’s clear that the cultural differences across the world offers not only challenges but also opportunities for the international marketing. When being on a business trip it’s interesting to face products and facts that might be regarded as “strange” . For example advertisements of well-known brands completely different than those ones at home , or even opening hours for shops. All of those simple facts are of a great importance for marketing managers and pose potential threats for them when developing a strategy.

When a company which is going to expand overseas is developing its strategy there are four alternatives for it:

• selling the product without changes on international markets.
• modifying products for different countries or regions.
• developing new products for foreign markets.
• incorporating all differences in a single product and introducing a global product

Having categorized cultural groupings and cultural characteristics , managers are able to seek new overseas markets to expand their firms , to sell more goods , and to raise profits. Even culture might be suggested as a tool for marketing segmentation because if the culture in the target country is similar to the culture in the existing markets , it’s a precondition that selling the product in the target country might be successful.

Products sold on foreign markets are influenced by the local behavior, tastes, attitudes and traditions in each market. The Coca Cola Company’s attempt to sell Diet Coke product on the Japanese market was not successful because the Japanese do not consider themselves overweight and Japanese women do not want to admit they are dieters turning to products whose label specifies that. The company was forced to change the product name in Coke Light, and the promotion emphasized keeping in shape by consuming the product, and not losing weight.

Goods intended for consumers are more likely to suffer changes because they need to be adopted to meet the customers expectation in the target market and to meet the economic conditions of it. There are many examples of international firms that adjust their products to meet the specific expectations of the overseas markets. For example, McDonald’s was forced to remove their menus including pork and beef meat and to create menus especially for the Indian market. The company has also developed rice-based menus in China, started selling beer in Germany, wine in France, and in Japan the character Ronald McDonald was called Donald McDonald to be easier to pronounce by the Japanese.

Another cultural issue that is effecting the international business is the price because it needs to match exactly the level of economic development in the target country. McDonalds is an exact example of that. When McDonalds opened in India , the company wasn’t forced only to remove the beef and pork menus but also to reduce the prices of all goods which were sold in the restaurants. But still despite the fall in prices recent statistics show that McDonalds in India raised their profits by 8,9%.

Human Resource Management

In every company the HRM Manager is in charge to care for recruiting and training staff , working methods and time. For every company dealing across the world , it’s very likely to have staff of mixed nationalities which could lead to cultural confounding.

When recruiting staff , some cultures will apply more conducted approach. For example the approach will be based on accurate qualification for the job and also test in order to asses the potential ability of the candidates. Other cultures will act differently by applying more easygoing approach. For example this approach is based on education, personal recommendation or employer networks.

A main concept that is also relevant to the HRM is Hofstede’s concept of ‘power distance”.

It’s relevant because it’s related to man’s attitudes to hierarchy and also the way in which this might be translated into different ranges of pay levels of the highest and the lowest in the company. For example in France which Hofstede defined in the Power Distance group , there’s a great gap between lowest and highest paid employee while in contrast the more collectivist and low power distance countries the gap is much smaller.

Finance

In order a company to pursue its goals and objectives it must be ensured with sufficient funds. Also need to be monitored if funds are used efficiently and correctly , if financial performance is reported to then management and shareholders. These are the main functions of the finance within every business. But elements mainly influenced by culture are sources of finance and reporting practice.

Sources that might be used for companies expanding vary between different countries , as sources reflect not only on the political economy of the countries but also on their state of economic and financial development. For example in countries as japan and Germany usual form of sourcing business is by having loan from a bank while in the USA and UK businesses rely more on raising money by selling equity shares on the stock market. In order to expand overseas , companies may choose to find the money from the host or home country or even from third country. For example, when McDonalds decided to open their first restaurant in Moscow in 1990 during the Soviet Union. The company has used a joint venture with the Moscow City Council. Despite all the funds came from the franchisor from Canada and the US headquarters , the deal was to pay to the City Council in order to be allowed to operate in Moscow. So the agreement reflected the Soviet/Russian political system where business and state are closely connected. So it’s fair to say that the financial arrangements were partially influenced by culture.

Similarly there isn’t an unified approach for reporting financial results by annual reports. For example nations as Germany , Italy and France use “continental” approach and is heavily influenced by tax regulations. The report’s information is designed to allow the tax authorities and government to compute and monitor the liability. While Australia , USA and UK use Anglo-Saxon approach. It’s assumed that the shareholders are the main users and the information provided in the report allows them to asses the company’s performance and their investment’s performance.

These differences are of a great importance for international companies because when they enter the international market and build their branches they will be challenged to agree to the local terms and rules. Also the financial information from all the branches should be combined in addition to create consolidated accounts. Common practice for international companies is to create unified reporting system based on home country’s rules and terms. So then the international branches use this system in order to prepare their financial reports. After reports are finished then the local staff in the international branches “reworks” the reports in order to meet the local regulations.

Appendix 1

” shared patterns of behavior (Mead) ; “Collective mental programming” (Hofstede); A set of base assumptions – shared solution to universal problems€¦ handed down from one generation to the next ( Schein) ; The essential core of culture consists of traditional ideas and especially their attached values (Krober and Kluckhohn)