UNIT-2-CULTURE AND

INTERNATIONAL BUSINESS
 introduction
In a globalised economy, cultural sensitivity is
essential. As more companies grow, and the global
marketplace becomes more accessible for small
businesses, multinational and cross-cultural teams
are becoming more common. This means that it is
crucial, now more than ever, for businesses to
understand the culture of their foreign market if
they wish to succeed internationally.
Culture is the ideas, customs, and social behavior of a
particular person or society. But how does culture affect
international business?
In a business context, culture relates to what behavior is
common and accepted professionally in one location,
compared to another. What may be acceptable business
practice in one country, may be very different from the
approach that is used by businesses overseas. Therefore,
recognizing how culture can affect international business is
something that should be understood in order to avoid
misunderstandings between colleagues and clients, and also
to make sure that businesses are presenting themselves to
their new market in the best way they can.
 Importance and Role of Culture in International Business

Culture has various definitions, but in the simplest

terms, culture refers to the norms, beliefs, ideas,
attitudes, and social behavior of an individual or
society. In a way, culture is the coming together of
different experiences, values, beliefs, and ideas
that influence the behavior and attitude of a
community, a particular person, or a group. Some
essential cultural elements are religion, language,
gender roles, social structure and dynamics,
traditions, laws, and customs.
Cultural adaptation in international business
encompasses organizational culture as well as
national cultures and traditions. It helps the
organizations to have a better understanding of
how local businesses and the workforce function.
 Entry into new markets

Conducting international business involves

entering new markets. Companies must display
sensitivity towards different cultures when dealing
with foreign clients or planning a marketing
campaign for their foreign subsidiaries. Business
executives should start by studying the local
market's beliefs, values, and customs.
 Business negotiations

Different cultures have distinct perspectives on

business negotiations. While some consider
negotiations a signed contract between two
parties, others view it as the beginning of a strong
business relationship. Therefore, you must
understand how your counterpart views a
negotiation’s purpose, whether they want to build
a long-term rewarding relationship or are looking
at it as a one-time deal.
 Personal styles

Culture in international business strongly

influences personal style, from an individual’s
dressing sense to interacting with others. Each
culture has its customs and formalities for business
negotiations and meetings. Hence, knowing the
subtleties of foreign cultures and respecting
appropriate formalities go a long way in making
the right impression and bagging crucial business
deals.
 Team organization

Culture is a decisive factor that affects how

organizations negotiate a deal. While some believe
in consensus decision-making, others believe in
the supremacy of a single leader who takes all
decisions. Whether the culture promotes
hierarchical roles or societal equality, these values
affect all parties in a business deal. Hence,
business executives should understand how teams
in different cultures organize and participate in
decision-making.
 Inclusion and diversity

An organization that welcomes cross-cultural

people, ideas, and customs create a benchmark as
an inclusive and diverse workspace. Sensitivity
and acceptance of diverse cultures help create a
dynamic and talented workforce. Plus, these
values leave a lasting impression on clients,
customers, investors, and stakeholders.
 International Business and Cross-cultural Challenges

 Understanding local business practices

One of the core cultural issues in international
business is the failure of organizations to
understand local business customs. Ignorance of
how to conduct business in a foreign country
without considering cultural, political, and
economic influences is a significant roadblock in
international trade.
For instance, in some Asian countries, culture
strongly influences how the workforce responds to
management roles. In Japan, social hierarchies are
valued, and seniors are paid the utmost respect.
However, in the US, there is a comparatively flat
organizational structure.
 Identifying regional differences

Most often, organizations focusing on the bigger

picture overlook regional differences in emerging
markets. Subcultures go beyond regional and
ethnic variations to include other elements, such as
differences in female and male consumer behavior
and thinking.
 Adapting business models to the local market

Culture strongly influences consumer attitude and

behavior. However, many companies go by the
one-size-fits-all approach without realizing that
personalization is the secret to creating a large and
diverse customer base. They must restructure their
business models to reflect local customs, habits,
and preferences of different buyer personas.
 Adapting human resource policies

Attracting, retaining, and leveraging global talent

can be challenging for a culturally ignorant foreign
company that employs local staff. Organizational
commitment, job satisfaction, motivation, and
conflict resolution vary across cultures. The key to
understanding these differences is rethinking the
human resource policies to accommodate local
cultural profiles. Human Resource teams should
be aware of the cultural differences while
recruiting and communicating with foreign
employees.
 Creating a diverse and inclusive workplace

A diverse and inclusive workplace attracts and

retains top global talent, responds to the diverse
needs of customers, increases access to new clients,
fosters creativity, and drives innovation. Diversity
and inclusion issues vary across nations, and one
shall take note that bias, discrimination, and
cultural conflicts are barriers to international trade.
 Adapting management practices

Every organization has unique management

models and practices with specific underlying
cultural principles. While it sounds perfect, the
problem arises when these practices dissipate
across cultures without factoring in cultural
variations. It becomes the organization’s
responsibility to educate its staff on how to
overcome the multiple layers of cultural barriers.
 Addressing the Cultural Barriers in International Business

Given the significance of culture in international

business and the cross-cultural challenges
involved, it makes sense to ask:
 Cultural Differences in International Business

 Interaction
Professional gestures and interactions that are
acceptable in one culture may be offensive or
inappropriate in a different cultural setup. Thus, if
you are accustomed to shaking hands, making eye
contact, and kissing people on the cheek as part of
formal interactions in your country, the same may
not apply to foreign clients and business partners.
Learning about acceptable and suitable business
etiquette becomes crucial.
For instance, while the Japanese consider
addressing someone by their first name in a first
meeting disrespectful, Americans are more
comfortable using first names in a formal setup.
 Communication

Communication methods vary across cultures. So,

understanding the language and communication
style of your target market is an excellent way to
bridge cultural gaps in the international business
arena. For example, Israeli and American cultures
emphasize straightforward methods of
communication, unlike the Japanese, who rely on
indirect communication. Likewise, Finns tend to be
brief and use direct communication strategies,
whereas Indians typically communicate in indirect
and subtle ways.
 Organizational hierarchy

Different cultures perceive organizational

hierarchy differently. When expanding into new
markets, you must realize that your host country’s
approach and attitude towards the corporate
structure may differ from yours. Hence, it could be
challenging to define roles in cross-cultural teams
or determine who has the authority on the other
side.
While Japan has a straightforward organizational
structure promoting hierarchy, Sweden has a flat
organizational hierarchy that emphasizes equality.
Furthermore, while the Chinese and Japanese
stress consensus decision-making, it is more
common for American teams to have a leader with
ultimate authority.
 Workplace etiquette

Differences in workplace etiquette are a vital

consideration when discussing culture's impact on
international business. When you engage with
multinational teams, you will encounter stark
differences in workplace etiquette, reflecting cultural
diversity. Let’s consider punctuality. You must reach
in time when dealing with American, Japanese,
Russian, or South Korean clients and colleagues. On
the other hand, arriving early for an appointment is
standard in Germany. But when in Malaysia, China,
Mexico, Ghana, or Nigeria, arriving late for meetings is
acceptable.
 Negotiation Style

While engaging in international business,

negotiation becomes a principal component. The
way people behave and communicate reflects their
negotiation style. Organizations must understand
the accepted negotiation norms in different
countries and act accordingly.
For instance, in some Asian countries, negotiations
are deemed crucial for building stronger business
relations. However, it is seen as a contract focusing
on a win-lose process in Spain.
The cultural environment is one of the critical
components of the international business
environment and one of the most difficult to
understand. This is because the cultural
environment is essentially unseen; it has been
seeking to understand these factors. Firms want
to understand what beliefs and values they may
find in countries where they do business, and a
number of models of cultural values have been
proposed by scholars.
The most well-known is that developed by
Hofstede in1980. This model proposes four
dimensions of cultural values including
individualism, uncertainty avoidance, power
distance and masculinity.
 Individualism is the degree to which a nation
values and encourages individual action and
decision making.
 Uncertainty avoidance is the degree to which a
nation is willing to accept and deal with
uncertainty.
  Power distance is the degree to which a
national accepts and sanctions differences in
power.
  Masculinity is the degree to which a nation
accepts traditional male values or traditional
female values.
While analyzing social and cultural factors, the
organization may consider the following aspects:
 Approaches of the society towards business in
general and in specific areas;
 Influence of social, cultural and religious factors
on acceptability of the product;
 Life style of people and the products useful for
them;
 Level of acceptance of, or resistance to change;
 Values attached to a particular product i.e.
possessive value or functional value in the
product;
 Demand of specific products for specific
occasions;
 Propensity to consume and to save.
 GOVERNMENT AND LEGAL
SYSTEM(POLITICAL ENVIRONMENT)
The political environment refers to the type of
government, the government relationship with
business, and the political risk in a country. Doing
business internationally thus implies dealing with
different types of governments, relationships, and
levels of risk. The political environment in a country
influences the legislations and government rules and
regulations under which a foreign firm operates. Every
country in the world follows its own system of law. A
foreign company operating in that particular country
has to abide with its system of law as long as it is
operating in that country.
Political classification of a country
Countries can be classified as free-market, centrally planned, or mixed.
 Free-market economies are those where government intervenes
minimally in business activities, and market forces of supply and
demand are allowed to determine production and prices.
 Centrally planned economies are those where the government
determines production and prices based on forecasts of demand and
desired levels of supply.
 Mixed economies are those where some activities are left to market
forces and some, for national and individual welfare reasons, are
government controlled.
In the late twentieth century there has been a substantial move to free-
market economies, but the People’s Republic of China, the world’s most
populous country, along with a few others, remained largely centrally
planned economies, and most countries maintain some government control
of business activities.
 Political system

 Democracy
 Monarchy
 Oligarchy
 Authoritarianism and Totalitarianism
 LEGAL SYSTEM
The legal system of a country is significantly important to international
businesses. Differences in legal systems can affect the attractiveness of a
country as market or investment site. A country’s law regulate business
practices, defines business policies, rights and obligations involved in
business transactions.
The government of a country defines the legal framework within which
firms do businesses. Therefore laws differ from country to country.
For example, China has Communists government where business laws
are strictly controlled by government to controlled business sectors.
Where as India has democratic government and business laws are made
to protect small businesses and consumers. Although different countries
have different laws and regulations, knowledge of common law, civil
law, contract laws, laws governing property rights, product safety and
liability for a country helps business people to make business decisions.
 The common law system
The common law system is commonly found in
former Great Britain’s colonies and is based on
country’s legal history, past court rulings on cases
and ways in which laws are applied in specific
situations. Judges in a common law system have
power to interpret the law under unique
circumstances for an individual case. Countries
like United States, Australia, India uses common
law systems. It is very important for international
business to interpret law according to country
and its impact on their commercial activities.
 civil law system

In civil law system, laws are based on detailed set

of written rules and codes. Judges have less
flexibility and have power only to apply the law.
France, Germany, Russia operate with a civil law
system
 Religious teaching
Some counties have legal system, which is based
on religious teachings. Countries like Pakistan,
Saudi Arabia, Iran and Middle Eastern nations
follow Islamic laws, which is based on holy
principles of Koran.
It is very important for international business to
interpret law according to country and its impact
on their commercial activities.
 Many business transactions are regulated by contract, and contract law
governs contract enforcement. It is very important for international
business Managers to have good understanding of country’s contract
laws. Contracts drafted under common law system are tend to be very
detailed, where as contracts are much shorter and less specific in civil
law system due to already drafted civil codes. Therefore
common law a system has long and expensive jurisdiction process.
However it has advantage of greater flexibility and allows judges to
interpret a contract dispute in particular situation as compare to civil
law system. Businesses should consider these differences while dealing
with contracts. Most of countries have laws to protect property rights
but in reality local authorities do not enforce these laws. Property rights
can be violated through private action or by public action. Private
action refers to piracy, theft, blackmail and threats from individuals and
groups.
A weak legal system might not able to protect businesses from
wrong doings. For example, after collapse of communism in Russia,
weak legal system and local authorities were failed to protect local
as well as international businesses from “Russian Mafia”. Business
people often have to pay these mafias to protect their businesses.
Public actions involve violation by local authorities or government
bureaucrats for some favor or as a part of corruption for monetary
benefits. Corruption in government is very common in countries
like India and Mexico. The protection of intellectual property rights
differs from country to country. Weak enforcement encourages the
piracy of intellectual properties like patents, copyrights and
trademarks. Pirated software is widely available in China, where as
selling of Rolex watches, Levi’s jeans and computer software on
streets is very common in Asian countries.
 Thus, in analyzing political-legal environment, an
organisation may broadly consider the following
aspects:
 Political system of the business;
 Approaches of the Government towards business
i.e., restrictive or facilitating;
 Facilities and incentives offered by the
Government;
 Legal restrictions such as licensing requirement,
reservation to a specific sector like public sector,
private or small-scale sector;
 Restrictions in importing technical know-how,
capital goods and raw materials;
 Restrictions in exporting products and services;
 Restrictions on pricing and distribution of
goods;
 Procedural formalities required in setting the
business.