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In this essay I will do an critical analysis on the impact culture has on international business. I will be doing a thorough research and find out what it is doing to the world around us and business around the globe and the advantages and disadvantages to it. Hofstede has done a research which refers to cultures and their impact.
Cultural impact on international business
Culture is an important part of international business because it defines the collection of beliefs, values, behavior, customs and attitude of the member in the society. Culture is basically the behavior that people act in the community. Characteristics of culture also reflect learned behavior which is transmitted from one member to another. Some basic elements of culture are social structure, language and religion. Foreigners who want to establish their business in an other than their own and become successful, they should learn the culture and the local market.
A lot of quotations have been made towards culture one of the quotations made is by Geert Hofstede who said that:
"Culture is the collective programming of the mind which distinguishes the members of one group from another".Â (Geert Hofstede)
Culture does not only refer to doing business in another country but within an organization there are challenges for example, Managers today will need special skills in order to meet these challenges. Culture awareness, Language differences and management skills are necessary for success. These challenges often lead to a debate which is better for a company or foreign national workers. There are pros and cons to the use of each. Business accomplishments in the future will depend greatly on the ability of managers to meet the challenges of culture and its impact on international business.
Current research has shown that not a lot of companies have been successful in this. A lot of businesses still have the approach that because something is not understood, the method or philosophy used is not right. Whether these are old traditions or methods used or business practices.
Similar studies also indicates that majority of the people who are sent on a international task often fail in achieving a good working environment and have a good social relationship with the people of the foreign country. This creates problems on the individual, the family and starts taking having an effect on the productivity of the individual as the task which is supposed to be carried out successfully. The cultural differences are one of the biggest issues when it comes to working abroad and be successful.
According to the studies the main reason why managers fail is not because the persons technical or managerial competence but due to the fact that there are cultural variances. For example, if a manager is asked to do an assignment abroad in a country like China the steps to success may be very little even though a lot is known about the culture in China. The results may vary from different managers depending on how fast they adapt to the culture of the country. It is very important for a manager develop and adapt. To become successful one needs to appreciate the differences to develop and accepting the attitude on both fronts so that the necessary goals can be accomplished.
Another cultural difference in business is between the Arabic countries and the Western countries. When negotiating in Western countries, the goal is to do the business as quick as possible and come to an understanding "shake hands" which is a cultural signal of the end of negotiations and the agreement has been reached and start doing business together.
In other hand, Middle Eastern countries, a lot of negotiation takes place and also shake hands after a negotiation. However, the deal is not complete in the Middle Eastern culture. In fact it is a cultural sign that serious negotiations are just beginning.
That's the reason why it is very important to understand that culture impacts international business more than domestic business. Even though, the principles remain the same for both domestic and international business, there are slight differences that the employee needs to be trained to handle, most important of which is intercultural communication.
The term intercultural communication does not necessarily mean learn the local language it has more to it. It actually used to describe the wide range of communication problems that naturally appear within an organization. Besides language it also focuses on social attributes, thought patterns, and the cultures of different groups of people. It also involves understanding the different cultures, languages and customs of people from other countries. Most businesses see this as an important factor in the international trade and insist that their employees learn the way people socialize, the way they think even though each individual is different there are certain things that are shared within the community. When they are being send off to a country they have an idea on how to interact, communicate and socialize with people and simply blend in.
If one has not the ability to adapt quickly he/she would not be suitable for the job. Because when they get send off it is necessary to succeed and all the research has to be done in order to understand the people. Making people feel comfortable will open doors. This does not mean compromising your business values, it simply means respecting the values of others so that they respect yours and so that together, you can work productively for the success of your organization
Attitude and culture
Attitudes are positive or negative evaluations, feelings and tendencies which make an individual behave in a particular way towards people or objects. Attitude can refer to many subjects such as the role of sexes, individual freedom, justice, love etc. But the main focus is the attitude towards work, business and time in the future.
It is important to have a good attitude towards work because it impacts motivation, morale, job satisfaction, productivity and other aspects of HRM. Positive attitude towards work also referred gives that extra over the other employees because of the productivity. When there is a positive attitude towards work there are certain compensations and bonuses that can be earned. It doesn't necessarily mean that bonuses are just rewarded because of positive attitude but mainly because the job is well done. An international business firm has to devise a system of compensation that promotes work ethics, and of course is similar with the other country culture.
Japanese people are supposed to have a strong working ethic. And for example in India the average takes work as worship because for him/her work is everything. No worker does anything before closing his/her eyes for a few seconds to thank their almighty and expressing gratitude for having bestowed his blessing in the form of work. Which is why the Indian worker has earned appreciation from everywhere for his/her sincerity, hard work, loyalty and honestly.
In capitalist systems an individual perceives business basically as a profit seeking organization producing goods and services for the market demand. In an Islamic social system business is based upon personal relationships, trust and respect. To them business firms are not just viewed as providers of goods and services but as partners in progress and prosperity
Implications for international business
Global businesses are repositories of multi cultures. It basically means that people from many cultures from different countries interact regularly. Another word for it is MNC. It has a home country and several host countries where the head offices and subsidiaries are located. The situation is highly complex with several national cultures and subcultures interact regularly.
The 5 dimensions of Dr. Geert Hofstede
From 1967 to 1973, while working at IBM as a psychologist, Hofstede collected and analyzed data from over 100,000 individuals from forty countries. From those results and later additions, Hofstede developed a model that identifies four primary dimensions to differentiate cultures. He added the fifth dimension later.
"Culture is more often a source of conflict than of synergy. Cultural differences are a nuisance at best and often a disaster."Â (Geert Hofstede)
Geert Hofstedes research proves an insight into other cultures and can be used to analyze all cultures. The idea behind the 5 dimensions is to intera with other countries and trying to understand them more. If the dimensions are understood and applied properly it could reduce a lot of frustration, anxiety and concern because a lot is more is known about a certain culture.
Power Distance Index (PDI) - Focuses on how much a culture does or does not value hierarchical relationships and respect for authority. This basically refers to human inequality. People are downgraded when it comes to prestige, wealth and power. Cultures with high PDI scores include Arabic countries, Russia, India and China. Those with low scores include Japan, Australia and Canada. The inequality is mainly formalized in a hierarchy of boss-subordinate relationships. According to Mulders power reduction theory, subordinates will try to reduce the power distance between themselves and their bosses. And bosses will try to maintain the power that they already have or enlarge it.
According to the research done Geert Hofstede in 1977 countries with lower education and lower status tend to produce high PDI value and countries with higher education and higher status tend to produce low PDI value. Education is the dominant factor. If people are not educated they cannot get higher positions in the hierarchy so they will always end up on the bottom of the hierarchy.
Individualism versus collectivism (IDV) - focuses on the individual and the larger social group. Individualism is the single most important unit in any social setting. In individualism independence rather than independence is stressed. Individual achievement is rewarded. And last but not least the uniqueness of each individual is a vital value. According to Hofstedes research America, Australia, England, Canada, Holland and New Zealand all tend towards individualism. Coleman highlighted some of the these and also other cultures that value individualism
"People's personal goals take priority over their allegiance to groups like the family or the employer. The loyalty of individualists to a given group is very weak: they feel they belong to many groups and are apt to change their membership as it suits them, switching churches, for example, or leaving one employer for another"(Coleman)
In the United States for example, individualism is implemented by changing jobs frequently. This does not necessarily mean that they dislike the job. But it refers more to the fact that they are trying to move higher up. Which tend to happen often if there is not a position available in their company which moves them higher up the hierarchy. on the other hand in Japan employees are traditionally expected to be at the same company for their entire career. To change jobs in Japan would be disloyal to the company and other workers. Each country have their own cultural values. But being in a multicultural workplace where there are different thoughts towards job changes can cause a conflict of cultural values.
Uncertainty avoidance (UAI) - uncertainty avoidance deals with the level of worry that people have for the future of a country and also the necessary needs to protect the society trough kinds of measures: technology, rules and rituals. High anxiety leads to higher stress and a more hurried social life but also to higher energy release which means and inner urge to be busy. On the high UAI side anxiety is more released trough the showing of emotions for which society has created outlets. So basically they are more open to deal with problems and will try to solve if there is any. For lower UAI anxiety is released more trough passive relaxation, which is not a good thing because emotions need to be controlled. However there is more openness to change in low UAI. In other hand on the high UAI there is more conservatism and a stronger desire for law and order.
According to Hofstede's research Greece is the most risk-averse culture while Singapore the least. Generally speaking Protestant countries and those with Chinese influences score low. Catholic, Buddhist and Arabic speaking countries tend to score high in uncertainty avoidance
Masculinity versus Femininity (MAS) - Â
"Masculine cultures use the biological existence of two sexes to define very different social roles for men and women. They expect men to be assertive, ambitious, and competitive, and to strive for material success, and to respect whatever is big, strong, and fast."(Geert Hofstede)
Masculinity refers to how many a society sticks with, and values, traditional male and female roles. Countries that have High MAS scores tend to give the man a more superior role than the women. Men are thought to be the providers, assertive and to be strong. For example in Arabic countries it is likely that a women is seen working in a male environment. Or have the same profession as a male. Females do not have the same right as men. Especially in Saudi Arabia women are not even allowed to drive a car. In these countries it is very hard for a female to do business because it's a male's job because they are not allowed to have physical contact with a man they are also not allowed to wear certain types of clothes. This does not refer to all the Arab countries. In some of the countries female are getting more rights and are working themselves up the hierarchy. In a low MAS society the situation is different and men and women share equal rights, which means that men and women have the same profession without one being discriminated due her gender.
In international business the cultures can clash for an example a country like Netherlands there are female businesswomen who might have a better negotiation, business skills than her male colleague. But the fact that she is a female there is little chance that she will succeed in Arabic countries. Even though she is from a low MAS society doesn't mean that she can take her culture along to another society. These clashes can be troublesome because the female might feel downgraded even though she is in a low MAS society.
Long term orientation versus short term orientation (LTO)
This dimension was added later by Hofstede. Over the years people have had a critical view on Hofstede's 4 dimensions. To overcome this problem Hofstede introduced a fifth dimension. In this dimension he was trying to find out the different thinking between the east and the west. He used the information from the original IBM study. It was a difference that could not be figured out. To do this dimension a research was carried out on 23 countries and was called the Chinese Value Survey (CVS).
"Long Term Orientation stands for the fostering of virtues oriented towards future rewards, in particular perseverance and thrift. It's opposite pole, Short Term Orientation, stands for the fostering of virtues related to the past and present, in particular, respect for tradition, preservation of 'face' and fulfilling social obligations." ( Geert Hofstede)
Cultures with a high long term orientation such as China, Japan and South Korea would most likely have a strong work ethic and show great respect for status differences. People who live in these societies mostly value the social order and long range goals. However the cultures that show a low long term orientation often do not place a high priority on status and are concerned more about short term results and also seek quick satisfaction of their needs. Low long term orientation countries are: United States, UK and Canada. A notable point that has been states by Hofstede was the difference between a German and a Chinese business man. In genera Germany is regarded as the individualistic culture known for its emphasis on self expression, self fulfillment an self reliance. They value equality of opportunity and risk taking. On other hand, china is a collectivist society characterized by close within group ties. They are low on individualism and masculinity and high on power distance and uncertainty avoidance. While Germany is more of a individualistic country with high scores on masculinity and individualism and low on power distance and uncertainty avoidance. According to hofstedes research Chinese and German business man differ on all dimensions of culture.
Trompenaars 7ds model
Trompenaars is a European researcher he conducted a research with 15.000 manager from 28 countries, representing 47 national cultures. He described cultural differences using 7 dimensions. The 7 dimensions were: universalism versus particularism, individualism versus collectivism, specific versus diffuses, neutral versus affective, achievement versus ascription, past versus present and internal versus external control. The first five dimensions deal with how people relate to each other. The other two deal with how culture manages time, and how it deals with nature.
While doing this essay I have found out a lot more about culture. I did not expect culture to have such a large impact on international business. Culture is not just the way people dress or the way they behave but have various types of stages that majority of the people don't know. At first I only knew about Geert Hofstede's 5 dimensions but I also found that there are a lot more theories that refer to culture. This essay thought me that if I am ever going to work abroad there is a lot I need to learn and to make sure that I know a lot more of the country than just the language. And also trying to understand the people and try to adapt to it.
I now believe that culture is one of the main aspects that has to be understood before planning to establish a business abroad or doing an assignment abroad.