Embarking on establishing relationship

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In the last few decades, Companies tend to expand their business outside their shore toward other nations. This write-up will be focusing on companies that would be embarking on establishing relationship with foreign Companies or extending their business outside their own culture and the challenges they will be facing if proper measures are not taking due to some factors. The core factor is the Psychic distances between foreign organization and the business partner in host country, their business strategies and organizational structures which are seen as barriers in business relationship.

As part of the issues multinational companies will be facing is awareness of Psychic distance. Companies seeking for new partnership in host country will experience psychic distance because of cultural differences. Our key focus will be on psychic distance, it components and the ways of reducing psychic effect in businesses relationships. We shall be looking at business relationship between European Companies and Asians Companies too.

Awareness of the culture differences between foreign companies and their host companies gives a clearer picture of the level of trained manpower capable of enacting successful business relationship. It goes further in telling the influence of Cross Cultural on business and the types of cross cultural training managers/staff need to embark on in achieving better relationship. Managers involved in developing foreign relationships need some certain training for different assignments. The types of culture training programmes obtained for business relationship, tells the level of psychic closeness achieved.

Concept of Business strategic fit

Establishing business task needs proper decision making that managers must analyse the threats and opportunities that it might face in adapting to external environment by using some strategies and fashion out controls towards those forces. Mellahi et al. (2005) called these forces towards unsuccessful business as PEST (Political, Social-Cultural, Economic and Technology) factors. In external environment (internalization), motives and decisions for internalization might come due to organization or environmental factor which requires knowledge of foreign markets. In foreign markets, Managers need understanding of the Culture and Cultural Bridge in relationship across boarder and also product marketing for market attractiveness, strategic adaptation and competitive advantages (Rugimbana and Nwankwo 2003).

In developing successful business relationship, the act of interaction needs to take place and lots of things are considered and measures are put in place too which are aim at forestalling a secured and long lasting business. Interaction occurs when both business partners recognize their mutual independences and are interested in each other's resources (Cunningham 2007; Macneil 1980). Therefore relationship as can be defined as the bond binding two separate macro/micro-dimensions of any long-term bilateral agreement between structure and process: Seller and buyer (Stern and Reve 1980). Dwyer et al. (1987) relate relationship based on exchange and commitment as trust which will lead to reduction in negative asymmetry effect. No wonder, the Chinese sees “Trust or Xinren” as the key element to interpersonal business relationship and cross cultural relation development by learning English in doing business as a means of communication (Fukuyama 1995; Rugimbana and Nwankwo 2003).

Relationship development across two different cultures should be taking seriously when dealing with case for example UK and Japanese or Chinese because of the challenges in cultural bridge. There is a social influence (social exchange) in-between the period of meetings and hosting of either side developing relationship which requires communication skill is counted vital (Casrnir 1999; Cunningham 2007). This occurrence is due to psychic distance in both partners.

Psychic Distance

Managers planning business relationship in a foreign nation with a different national culture should be prepared to face the problems that it poses like language difference, life style, consumer's preference etc. as a result of cultural distance. Psychic distance is determined by Cultural distance which means that psychic distance is not a factor that determines the influence of people in relationship in the same way (Sousa and Bradley 2006). Hallén and Wiedersheim-Paul (1984, p.17) defined Psychic distance as “difference in perceptions between two firms or companies or seller and buyer” or difficulty a customer experiences in perceiving the supplier's offer. Simpson and Weiner (1998) analyzed the word Psychic distance into two concepts “Psychic” and “Distance” while Psychic from Greek word Psychikos meaning mind or soul of individual which means psychic distance is the mind of individual at distance at which s/he perceived the world. People should view Psychic distance as an individual level derived from personal soul before it matures into national level. Managers are likely to negotiate business relationship with foreign firms of similar culture than firm of different culture. Hallén and Wiedersheim-Paul (1984) used a model that implies that Psychic distance occur at individual, organizational and national level with some key factors such Cultural affinity, Trust and Experience which are required in international relationship context as shown in figure 1.

1. Cultural Affinity/Empathy

Hallén and Wiedersheim-Paul (1984:18) viewed it as “the concept of expressing perceived impact of cultural similarity in different dimension such as language, cultural environment, business habits, legal environment etc” while Holden and Burgess (1994:33) defined it as “ the degree at which two interacting parties are familiar with each other”. They equally see it occur in the National level through using a high cultural affinity in reducing Psychic distance when one look at the case of Germany and Great Britain (Britain find Germany cultural affinity to be high, while Germany sees Britain affinity to be low). Swift (1990:26) emphasised on the affinity as “likeness” for a Culture is to learn the Cultural Language by using a metaphor:

     “Those who have no oxygen supply (language ability) can only explore the surface of the ocean. By contrast, those who have an oxygen supply (however limited) can go beneath the waves, where a whole new world opens up to them, and they begin to realise that those on the surface are unaware of the complexity and strangeness of life below”.

2. Trust

The important aspect of a successful business relationship is trust. Hallén and Johanson (1985) suggested that trust is a vital tool in reducing Psychic distance and believed to offset low Cultural affinity while Morgan and Hunt (1994) see trust as social variable in explaining inter-firm corporation and long time relationship. Dwyer et al. (1987) defined trust as the willingness to rely on exchanging partner in whom one has confidence upon. Conway and Swift (2000) in their research work found that the influence of trust on the later stage of relationship development is important and it has an influence on affinity and experience development. Trust is a tool for interaction and solely belongs to an individual and organization level, Ford (1989) also sees trust important, and suggests that it dependent on experience gained through business interaction.

Marsh (1995) gave two types of trust namely basis and situational trust as explained below: Basic (general) trust is an individual or personal trait to trust or not which is influenced by past event or experience while Situation trust is a trust of situational cues that comes from interaction between people over time and is a function of general trust. Lewicki and Bunker (1996) gave three categories of situational trust, calculus-based trust (CBT), Knowledge-based trust (KBT) and Identification-based trust (IBT) which are linked in development to one another as shown in figure 2.

At JI- Some Calculus based Trust becomes Knowledge based trust relationships

At J2- Many Knowledge based trust in the presence of positive effect goes to become identification based trust relationship

Calculus-Based Trust (CBT) is a trust that grows from an individual from the general trust level of relationship. Knowledge-Based Trust (KBT) is a trust based on history and prediction about each other through interaction. Identification-Based Trust (IBT) is a trust that is based on understanding and appreciating each other wants by substitute through interpersonal interaction.

3. Experience

As the saying, “experience is the best teacher”, previous experience tends to speak for the future event especially in business relationship development. Moreover, experience can be gained or lost during the course of interaction. Experience about a Country or Firm or an individual in relationship has an influence in determining the Psychic distance (Cunningham and Homse 1986). The decision to continue a relationship depends on congruity between relation expectations and performance obtained (Jackson 1985). Experience is another factor for developing successful business relationship that occurs at the individual level which is a determinant of Psychic distance but not solely a facet of cultural distance (Hallén and Wiedersheim-Paul 1984) as shown in figure 1.

Relationship between Cultural, Social and Psychic distance

In relating Cultural distance and Psychic distance, analysis ford's concept of cultural distance with Hallén and Wiedersheim-Paul concept of cultural affinity as separate items. Hofstede (1980:25) defined Culture on its own as, “the collective programming of the mind that differentiates the members of one human group from another”. Cultural affinity and Cultural distance are seen as two opposite concepts but its examination will tell. Cultural distance concept refers to cultural level in accessing cultural values and norms, just like affinity which deals with national level but relating it to Psychic distance concept which deals with individual level (Sousa and Bradley 2006). Swift (1990) and others have argued that Cultural distances among nations have influence on an individual perception which makes it possible to have an influence on individual Psychic distance. Swift (1999) looked at the word perception from Hallén and Wiedersheim-Paul definition of Psychic distance, he then concluded that perception been interpretation of data which is subjective to individual experiences and value systems; as value systems are members of Cultural background, then Culture has an influence on perception. Having view Perception as the core issue in Psychic distance, then Culture as an influence on Psychic distance.

Still going back to Fords concept on Social distance and Hallén and Wiedersheim-Paul concept on Experience, we found that interaction is their core issue in which both occur at individual level. Social distance is a product of Cultural distance that sets to familiarise oneself with the people and environ. Ford's concept tends to bring-out Social distance has a major factor for Psychic distance. Holden and Burgess (1994) relates Fords concept with Hallén and Wiedersheim-Paul concept as Trust and Cultural affinity are associated to Psychic closeness while mistrust and Cultural distance are associated with Psychic distance. That is to say, trust and mistrust are key factors for factors for closeness and distance as shown in figure 3

The objective of this relationship between Psychic distance and Closeness is to bring awareness on how to attain successful business relationship by being aware of the Cultural differences which can be obtained through individual interaction. Sousa and Bradley (2006) see the interaction approach in business development as a form of understanding of partner's requirements as a way of closing their differences. A manager perception differs because of their individual levels differs and so s/he adopts a business strategy that will suit the changes, failure to do so brings about unsuccessful business relationship. Holden and Burgess (1994) gave two cases of two Japanese Companies in relationship with UK Companies (a paper industry called PIT and a chemical industry called Anglochem Plc). PIT Chairman suspected xenophobic and mistrust attitude from the Japanese partner and so this led to business failure while on the other part of Anglochem Plc who went into business relationship with Japanese Nippon Trading Company (NTC), with both seeing each other as important partners, trust and loyalty were seen and the business relationship was successful. The implication for PIT was lack of trust while Anglochem maintain trustful relationship through acquired knowledge on Culture training.

Concept of Cross Cultural Training

Havelock (1963) and Conner (1993) shows a model of Cross-Culture cycle of a business development Manager (Sojourner) in a host nation comes across a new Culture; he experiences Cultural shock due to culture differences (acculturation) which depends on the level of experience and cultural training obtained which helps in effective intercultural communication for a successful/unsuccessful business development as shown in figure 4.

Tung (1981) defined Cross-Cultural Training as the procedure used in increasing an individual pattern of adapting and working in a foreign Culture. Cross-cultural training has been advocated as a means of providing effective cross-cultural interaction and awareness in key areas of norms, valves, behaviours etc. in the territory assign to (Landis and Brislin 1983; Mendenhall and Oddou 1986; Tung 1981).

Benefits of Cross-Cultural Training

As part of main goal towards archiving Psychic closeness, the following benefits can be achieved through Cross-Cultural Training for Managers in international business relationship as stated (Hofstede 1980; Giacolane and Beard 1994):

  • Rapid adjustment and better Cultural interaction.
  • Have ability to be flexible, display empathy, tolerance in ambiguity and acceptance of one's own knowledge and perception.
  • Better business or working relationship advantage.

Types of Cross-Cultural Training

The following are the types of Cross-Cultural training program proposed by Tung (1981:70) as part of impacting knowledge and understanding of foreign Culture:

  • Area studies training. These include factual information (environmental briefing) and Cultural orientation. They are used in providing Managers information about a particular country and its cultural institute. The impact is to increase knowledge by increasing affinity, as result of that, behaviour is modify which later improves interpersonal relationship.
  • Cultural assimilator program (Scenario Method). It gives details of intercultural encounter which aids Managers' intercultural adjustment and improve interaction among different cultures.
  • Language training. This method aim at teaching foreign language to new visitors.
  • Sensitivity training. This is aim at learning attitudinal flexibility for awareness of unfamiliar modes of behaviour, value systems and also acts to reduce ethnic prejudice.
  • Field experience. This is a method exposing the candidate to country of assignment via experiential learning where s/he can undergo some emotional stress of living and working with different culture.

The following were taking from Landis and Brislin's (1983) and Punnett (2004:242) as categories of cultural training methods:

  • Attribution training. It aims at helping Manager determine the way the host country behave the way they do through learning of their norms and perceptual map by evaluation.
  • Cultural awareness training. It focuses on determining the manager's environmental values, attitudes and behaviours that are common in his or her culture which aims at determining how culture affects the host country.
  • Cognitive -Behaviour modification training. This aids manager's approach of what is punishing and rewarding norms in his or her country by comparing it with the host nation. This will make the manager plane a business strategy that will attract reward rather than punishment.
  • Interactive training. Managers learn from returning Managers or native of that country as a means of first hand information in other to be more comfortable with the host nation.
  • Simulations. They are cost effective and complex role plays that tend to replicate the reality of cultural situation by giving the manager sense of what the host nation will be like.
  • Expositive instruction. These are programmed instruction in form of films, books, lectures, Audio presentations etc.

Using Cross Cultural Training in reducing Psychic Distance in Business Relationship.

Cross-Cultural differences create Psychic distance which threatens the success of developing Business relationships. The vital aspect of cross cultural business are trust, commitment, experience, empathy and communication require time and efforts for any level of psychic distance in other to gain a successful business relationship (Conway and Swift 2000). Cross-Cultural training has been view has a tool in resolving cultural difference by Tung and so can be use in dealing issues in psychic distance.

Managers involved in Business development should be aware of the cultural difference level and so assign the appropriate training methods that are needed. Tung's (1988) framework together with Social learning theory on selecting an appropriate cultural programme for successful business relationships between UK and Asian nations are based on using the dimensions of level of interaction and cultural novelty for. Managers involved should use his knowledge based on Cross-Culture training in relation with components of Psychic distance to determine the choice of training that will require the nature of his business development as follow:

  • Area Studies increases environmental skills which increases affinity, as result of that, behaviour is modify which later improves interpersonal relationship and thereby brings closeness in business relationship (Campbell 1969).
  • Language training is believe by the Japanese as a sign of trust based on Holden and Burgess (1994) and Miller (1961) who see language as a tool in exploring the market of business in achieving closeness.
  • Cultural assimilator and cognitive & behaviour modification methods which are based on information acquired for adaptation in other to aid experience in achieving closeness (Landis and Brislin 1983).


The key issue is the presence of psychic distance in international business relationship because of the cultural differences. Culture has been seen as the greatest challenge that most Companies face due to differences in perception of sellers and buyers in form of trust, empathy and experience which will determine the success/failure of business. Trust has being seen as the key root of cultural differences.

For Managers developing business internationally to overcome this problem of cultural differences, s/he needs sound knowledge on Culture of the host business partner. The need for Cross cultural training comes in play which gives room for learning about the other host business partner's culture and the ways to adapt and apply the right training in other to achieving psychic closeness in business relationship.


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