Culture and International Business 1

Running-Head: Culture and International Business

Title

Role of Culture in International Business

 Culture and International Business 2

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. 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
 Culture and International Business 3

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. 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
 Culture and International Business 4

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).

 Culture and International Business 5

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-
 Culture and International Business 6

Saxon countries. Japan, Latin American and other Asian countries that are low on

individualism encourage a culture of group and team work. 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
 Culture and International Business 7

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;
 Culture and International Business 8

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.

 Culture and International Business 9

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.

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
 Culture and International Business 10

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:
 Culture and International Business 11

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
 Culture and International Business 12

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

 Culture and International Business 13

global society they must adapt to, relate to and understand the culture of the countries

where they conduct business.

 Culture and International Business 14

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