Impact of culture on international Business

Ali
Muhammad
MBA,
ACCA
Muhammad MBA, ACCA (UK)
Sr. Accountant

(UK)FollowAli

Introduction
Readily available information, rapid advancement in
technology, labor cost factor, trade agreements,
standardization, sophisticated distribution methods and
channels along with other managerial and operational
innovations have gave way to a wave of globalization in
the past decade.Many large and medium sized
organisations have gone global through organic and
inorganic expansion. Companies expected to go global
are closely monitored by stakeholders and expert views
are sought on future positions of companies (Forbes,
2012)& (Ventures, 2013)
Along with its advantages, globalization also results in
some barriers which need to be barriers in order to
perform and meet the targets set. One of the many
hurdles is difference of cultures and how to cope with the
differences in such a way that there is harmony among
business units performing internationally. The most

common barrier is that of communication. Different

languages automatically create challenging situations for
international companies. It is the responsibility of
management to understand the differences in cultures in
order to develop strategies which are equally acceptable
in different cultures.
Although communication is the most common barrier, it is
not the only one, the basis of cultures developed need to
be understood in order to strike the right balance
between what is culturally accepted and what is
beneficial for an organisation. Based on the above
narrative, it can be argued that managers should have an
understanding of different cultures in order to perform.
However, concluding remarks can only be made after an
in-depth analysis of impact of culture on international
businesses.
Definition of culture in the context of an organizations
and organizational behavior along with components that
shape a culture are discussed below followed by analysis
of impact of culture on international business.
Culture:
The most basic definition of culture is the way we do
things around here by Deal & Kennedy (1982). Although
the definition is self-explaining, it needs expansion to
cover the areas that develop culture. Numerous different
definitions of culture have surfaced in the past. Kroeber
and Kluckhohn managed to compile a list of more than
one hundred and sixty definitions of culture and that too
in 1950s (Adler, 1997) great deal of research has gone
into this subject since then and many experts have
researched and written heavily on culture.

Two different definitions of culture that have gained wide

acceptance are quoted below:
Culture is the collective programming of the mind which
distinguishes the members of one group/ category of
people from another. (Hofstede, 1994)
Culture is a fuzzy set of basic assumptions and values,
orientations to life, beliefs, policies, procedures and
behavioral conventions that are shared by a group of
people, and that influence (but do not determine) each
members behavior and his/her interpretations of the
meaning of other peoples behavior. (Spencer, 2008)
An important feature of culture is that it is learnt and not
inherited. Culture lies somewhere between individual
personality and human nature because these two traits
are unique for every individual, the behavior in-between
these two extremes is identical to groups as it is learned
and acquired through others. A culture is also shared
i.e. it exists in groups and societies, beliefs of an
individuals can be classified as ideas but do not
necessarily form part of the overall culture. Collection of
ideas however, if similar in nature, become constituents
of a developing culture.
Organisational Culture:
Every organisation has its distinct culture; managers
should ideally have good understanding of organisational
culture to develop meaningful strategies. According to
Barney (1986) organisations that give due consideration
to culture are able to increase their efficiency and
competitive position.

According to Schein (1990), organisational culture is

developed at three different levels, i.e. observable
artifacts, Values and Underlying assumptions. Observable
artifacts mostly consist of tangible and observable things
like dress code, success stories, value statements, rituals
and ceremonies etc. Values can only be observed
overtime in order to understand why certain things are
done in certain distinct ways. Underlying assumptions are
the dos and donts that lie in subconscious mind of
individuals. Organisational culture is manifested through
a combination of these three features.
It should be noted that the visible aspects of a culture can
have different meanings in different cultures e.g. identical
hand gestures could mean different meaning in different
cultures. So the visible part of the culture i.e. artifacts
etc. can be understood if their interpretation is based on
the culture in which they exist.
Every culture undergoes gradual changes, this is known
as cultural diffusion, and cultural values which have
proven beneficial are adopted and incorporated into
different cultures through intelligent selection. A fine
example is that of Ouchi theory Z, which took the best
features of Japanese culture and American culture of
management. International organisations also look to
adopt and unify culture so that there is less friction
between different business units.
Analysis of impact of culture on international businesses
is made in the following text in order ascertain the level
of cultural understanding manager should possess in
order to perform successfully.
Impact of culture on international business:

A business cannot simply rely on its current method of

conducting business when it decides to take its business
at international level. Every country has a set of different
variables which can be new for an offshore company e.g.
rules and regulation, taxation, different currency,
different
holiday
periods
etc.
Most
important
consideration in this regards is the difference in culture.
In a study on international negotiations between
organisations,Korobkin,
R.
(2000)
maintains
that
successful negotiations not only require technical
proficiency i.e. communication technique, but also needs
to understand the context in which those negotiations are
being done in order to secure profitable contracts.
Business expansion into international territories can be
either through internal growth or by mergers and
acquisitions. There can be a cultural mismatch In the case
of internal growth and the decision to set up basis in a
new country from scratch because it takes time learn the
culture and adopt its traits. A merger or an acquisition of
an already established company is more beneficial
method of growth internationally as the parent company
can gradually learn the norms and beliefs of the target
company through the acquired unit which is being
operated according to the local cultural preferences.
(Morosini, 1998)
Lee et al. (2011) studied the impact of culture in
international organisations in the context of expansion
into newer regions with different prevailing cultures and
concluded that it is vital for any such organisation with
the intention to move into new areas that the cultural
differences are understood and mapped in order to bridge
the gap between business units performing in multiple

cultures. The study further proves that a multinational

company with presence in many different cultures will
have a smaller cultural gap than an organisation which is
just operating few different cultures; the reason the
abridged gap is the learning factor from working in
different cultures. The results of Lee et al. (2011) study
are not similar to Morisini (1998) as it is shown in the
study that multinational organisations prefer to have new
business establishments than acquisitions or mergers.
There can be many similarities in two cultures along with
the obvious differences. The levels of similarities between
cultures vary for different countries.According to
international business theory, multinational organisations
try to expand into countries which have more similarities
and fewer differences in two cultures so that cultural
mismatch can be avoided. (Bilkey & Tesar, 1977)
It is hard to make an outright assumption that expansion
into territories with higher cultural differences will
adversely affect the performance. There is no conclusive
evidence in this regard.In fact some researches have
shown positive performance as a result of moving into
countries with greater cultural differences. (Pothukuchi, et
al., 2002)
Knowledge of organisational culture is vital for managers
and should be considered in the process of feedback,
intrinsic and extrinsic rewards etc. E.g. the relation
between level of pay and job satisfaction is strong in the
US but weak in Japan, so an international manager will
find it hard to motivate staff through increments in Japan.
(Money & Graham, 1999).

The importance of cultural understanding in successful

international companies is reflected from their marketing
strategies which are grounded in the cultures of the
target industries. Alternatively, a company with weak
understanding of the target companys local culture can
commit disastrous mistakes in developing the marketing
strategy through designing advertisements which offend
people because of culturally unacceptable content.
Companies which do not completely understand the
culture of target regions culture often devise marketing
strategies which do not attract consumers attraction and
fail right from the start. There are many past examples of
culturally incompatible marketing content e.g. using an
owl in an advertisement in India where it is thought to be
a bad luck symbol and animals wearing eye glasses in an
advertisement designed for Thailand market where
animals are thought to be lower forms of life.
(WinTranslation, 2014)
Greater cultural distance in international companies can
have negative effects which hurt the reputation of
company and overall business in the long run. A cultural
blunder can result in loss of customers as they shy away;
it can create problems for a company through pressure
groups and general public outrage, attracting negative
feedback in the process. Loss of customers means lesser
revenues and eventually lesser profits;people offended by
cultural mistakes committed by companies can file
lawsuits which can result in fines or settlement pay-outs.
In a study about the cultural sensitivity and how it affects
business relationship with special reference to exports
(Alteren, G. 2007) it was confirmed that having an
adaptive business model with an open minded approach

is crucial for success in the case of operating in different

cultural territories, these traits facilitate flow of
information to and from customers.
The importance of understanding different cultural values
and the methods to operate effectively and efficiently in
the bounds of those cultural values can be gauged from a
student survey which resulted in a lot of students
demanding more learning material on different cultures,
most students maintained that they only learn about
different cultures and how to cope with the problems of
new cultures through student exchange and internship
programs. (Calvert, 2007)
Conclusion:
This essay considers the impact of culture on
international business through various different angles.
21st century is dubbed as the century of globalization
where trade and other barriers have been put down
either willingly to support business or unwillingly after
notwithstanding the wave of technological advancement.
Flow of information is more than ever, markets are
approachable and the company with the right product will
always want to cater as many consumers as possible.
This is where the problem starts.
As an organisation moves into a region with different
culture it faces many hurdles such as different language,
norms and beliefs, tastes and preferences etc., if the
organisation does not align itself with the prevailing
culture then it cannot reap benefits of expansion. It was
observed that effective cross cultural communication can
only happen it the context of communication is
understood. In the case of expansion method, it was

observed that although it is beneficial for companies to

acquire subsidiaries in order to understand the culture
from on-going operations rather than setting up entirely
new units. The later however, is still more favored.
The importance of cultural understanding with regards to
marketing strategy was analysed and it was found that
culturally incompatible marketing can backfire and
damage an organisations reputation in many ways.
Based on the literature reviewed and the analysis made,
it can be safely assumed that managers who do not
understand other culture have a high probability of failure
in the case of operating in other cultures.

Answer International Marketing and Culture

A Cultural Analysis of China
Language
The national and official language of the Peoples
Republic of China (PRC) is Mandarin Chinese (Putonghua)
with 1.3 billion speakers. There are a further 200
languages in use as well as a countless number of
dialects. People from differing provinces often have
trouble understanding each other.
Values and attitudes
Chinese culture is influenced by the philosophical
principles of key thinkers. Despite the ideological changes
encountered during the Cultural Revolution and more
recent market orientation, Confucianism still has a strong

cultural impact upon Chinese society (Chan 1999). The

culture in China strongly respects a good education and
degrees and diplomas enhance a virtuous education (Oh
1991). The Chinese have a value orientation (Zhu and He
2002). Communism, materialism and Post-materialism
are the three competing value orientations. The
communist values see a selfless dedication to the wellbeing of society and mankind. The materialism values see
the pursuit of immediate rewards and physical happiness.
The post-materialism values see a way of life where the
importance of material rewards is downplayed and there
is an emphasis upon harmony between people and nature
( Inglehart, 1979). To understand the place of education
in the GRC one need only to look at the expansion of
education in the GCR and the increasing number of
Chinese learners gaining Western qualifications.
Whichever value the student subscribes to, education is
highly regarded.
Aesthetics
There are a series of cross-cultural differences between
Western designed websites and Chinese developed sites
(Hedberg and Brown 2002). The results of their study into
visual media and cross cultural meaning holds some
interesting results for websites that undergo a straight
translation from English into Putonghua. For example the
left edge of the page may not be the point where the
student begins to read. The aesthetics of Chinese art may
hold the key to web design that suits Chinese learners.
The Chinese are keen gamblers and game players.
Games tend to be rich in colour and appear very
complicated to the Western eye, and this is reflected in

the popularity of Internet gaming. The cultural

understanding of colour and images could also lead to
confusion in communication. For example parts of
Chinese culture see people marrying in black and being
buried in white. Logos and symbols associated
in marketing may not carry the same impact to Chinese
learners as they do with their Western counterparts.
According to the Chinese Peoples Daily top Chinese
brands include Hongtashan (cigarettes), Haier (household
appliances) and Wuliangye (liquor).Chinese branding and
images need to be considered when constructing case
studies or using examples.
Law and Politics
The National Peoples Congress is the highest organ of
state power in the PRC. The Government is controlling
and this makes commerce very different to that in
Western culture. The recent problems encountered during
the SARS virus outbreak may make the Chinese
government less prone to holding back information that is
in the public interest. Copyright remains a huge grey
area. This means that website content could be copied or
reproduced without permission. Censorship still exists if
one wishes to publish an educational text in China. The
Asian Law Centre links to resources on Chinese law and
banking and finance, competition law, commercial law
and e-commerce law, amongst many other legal areas.
China has its own laws on e-commerce and etransactions, privacy and information security that need
to be considered especially if an e-learning project is to
collect information, collect fees or protect any intellectual
property.

Technology and material cultures

Filtering is a problem for Western websites. Effectively the
Chinese government censors websites by blocking access
from China. The Chinese government maintains an active
interest in preventing users from viewing certain web
content. It has managed to configure overlapping
nationwide systems to effectively block such content from
users who do not regularly seek to circumvent such
blocking. Such blocking systems are becoming more
refined (Zittrain and Edelman 2003). Blocked sites tend to
fall into one of a number of categories including
democracy, health, news, government, religion, Taiwan,
Tibet, entertainment and education. Indeed both the
Western and GCR Marketing Teacher websites suffer from
filtering. They share this disability with MIT and the
Learning Channel as well as almost 700 sites list in
Yahoos education directories (Zittrain and Edelman
2003). The Chinese government does not co-operate on
the issue of filtering and this makes it difficult to
accurately represent the extent of this problem. Until its
extent is understood, strategies for overcoming the
problem cannot work. This is a huge problem for
providers of free or chargeable content. One could invest
time and effort in created online materials and promoting
their existence only to find that your site has been filtered
and that no right of appeal exists. As technology develops
apace there is a sources of very up-to-date information on
China and technology.
Education
An overview of the educational system of China is offered
by Surowski (1996) and includes systems for primary,

secondary, higher and adult education. E-learning is one

aspect of blended learning and has its own series of
issues that are evaluated as follows. A simple text
translation into Mandarin has a series of problems. It
should be appreciated that learning is an
active process and teaching materials should be
variegated (Liu, Lin and Wang 2002). The activity
associated with online learning is seen as a clear
advantage. It is the critical engagement with the World
that ensures that learning takes place (Dewey 1916). The
system of education in the PRC is demanding and often
begins at a young age. Learning Putonghua demands a
good deal of effort as well as time consuming rote
learning. Chinese culture is collectivist and often depends
upon informal chains of communication. Therefore open
discussion albeit in forums or web casts could see an
infringement of cultural values (Can 1999). Western
educators need to be sympathetic to the successful
teaching strategies used by Chinese teachers, and embed
them into e-learning projects. Levy (2003) explains that
most learning in China takes place in classrooms. Even
where technology such as television or software is used it
tends to be heavily instructor lead.
Social organization
Liu, Lin and Wang (2000) advocate that the individual
learning styles and preferences of e-learners need to be
taken into account since a simple text translation may
suit some learners whilst a multimedia approach is
beneficial to others. Indeed it is possible to take a deeper
look into the learning styles of Chinese students.
Confucian philosophy has a role in shaping Chinese

thinking and learning styles (Chan 1999). So there is an

opportunity to conduct leaning styles surveys (Kolb 1984,
Mezirow 1991). This may give an indication of the
preferred learning environment of the Chinese e-learner.
Then web content can be developed to suit the
preferences of a number of individuals. There is a need
for further research into the learning styles of e-learners
from the Greater China Region.