The Cultural Environment of International Business

Dr. Ahmad Faraz Khan

Learning Objectives

• To understand the significance of culture in international

business decisions

• To elucidate the concept of culture and its constituents

• To explain comparisons of cross-cultural behaviour

• To discuss cultural orientation in international business

• To understand cultural shock

Significance of Culture

A firm operating internationally comes across a wide range of diverse

cultural environments, which significantly influence international

business decisions. Managers operating internationally need to

appreciate the differences among cultural behaviors of their business

partners and consumers across various countries.

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Expanding Operations Across Borders

Two distinct tasks emerge:

• to understand cultural differences and the ways they manifest themselves

• to determine similarities across cultures and exploit them in strategy formulation

Self Reference Criterion (SRC)

• An unconscious reference to one’s own cultural values,

experiences, and knowledge as a basis for decision-making.

• SRC significantly influences ability of international managers

to objectively evaluate environmental factors and make

business decision.

Approach to Eliminate SRC

Step 1:Define the business problem or goal in home-country traits,habits, or norms.

Step 2:Define the business problem or goal in foreign country culturaltraits, habits, or norms. Make no value judgments.

Step 3:Isolate the SRC influence in the problem and examine it carefullyto see how it complicates the problem.

Step 4:Redefine the problem without the SRC influence and solve forthe optimum business goal situation.

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Culture Defined

Culture is an integrated

system of learned

behavior patterns that are

characteristic of the

members of any given

society.

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Characteristics of Culture

• Culture is learned, shared, and transmitted from one generation to the next.

• Culture can be passed from parents to children, by social organizations, special interest groups, the government, schools, and churches.

• Culture is multidimensional, consisting of a number of common elements that are interdependent.

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Acculturation

Acculturation is the

process of adjusting and

adapting to a specific

culture other than one’s

own. It is one of the keys

to success in international

operations.

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Elements of Culture

Language (verbal

and nonverbal)Religion

Values System

Norms

Customs and

Traditions

Aesthetics

Language

A systematic means of communicating ideas or feelings by the use of

conventionalized signs, gestures, marks, or especially articulate vocal

sounds.

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The Four Roles of Language

• Language aids in information gathering and evaluation.

• Language provides access to local society.

• Language capability is increasingly important in company communications.

• Language provides more than the ability to communicate because it extends beyond mechanics to the interpretation of contexts that may influence business operations.

Language … some lessons for managers

Even though English is considered lingua-franca for non English speaking countries, it fails to provide non-verbal cues … for example:

Coca – Cola was named Ke-kou-ke-la in China which translates in Mandarin to ‘Bite the wax tadpole’. Subsequently, Coke found a close phonetic equivalent Ko-kou-ko-Le which translates to ‘Happiness in the mouth’ after researching 40,000 Chinese characters.

The Swedish vacuum cleaner Manufacturer Electrolux introduced the same print ad which was successful in Britain in the US Market with the tag line ‘ Nothing sucks like an Electrolux’. Later they found this to be a disaster in the US because ‘sucks’ in American means ‘really Bad’. i.e. Electrolux is a ‘really bad vacuum cleaner’

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Nonverbal languageDistinctions must be made in five key topics:

Time

Space

Material Possessions

Friendship Patterns

Business Agreements

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Body Language Is Not A Universal Language

Religion

Religious beliefs significantly influence people behaviour and business decision making.

Religion encompasses three distinct elements:

•Explanation: God seen as a ‘first cause’ behind the creation of the

universe

•A standard organization: Consisting of places of worships and rituals

•Moral rules of good behaviour : concerning principles of right and

wrong in human behaviour.

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Dominant Religions

Christianity

Islam

Hinduism

Buddhism

Confucianism

Religion : lessons for managers

Considerable influences international business decisions.

For. Eg. Location of commerical buildings and office interiors need to be as per Fen shui in China and Vastu Shastra in India, as it concerns free flow of cosmic energy and keeps evil spirits away.

Advertisements and corporate communications must keep religious sentiments in mind. For eg. Islam does not permit shaving. So Shaving equipment makers like Gillette need to be sensitive while advertising their product in Islamic countries.

Value System

Shared assumptions of a group about how things

ought to be or abstract ideas about what a group

believes to be good, desirable, or right.

Value system

Value systems vary among managers across different countries :

Eg. US managers : high achievement orientation vs Japanese managers how have a growth and size orientation vs Indian Managers who have moralistic orientation.

Norms

Guidelines or social rules that prescribe appropriate behaviour

in a given situation.

Norms

For ex. In Japan, aggressive selling is not perceived in the positive spirit.

Eg. Indian use hands or different types of spoons for eating. Chinese and Japanese use chopsticks.

Europeans and American use forks and knives to cut the food before eating.

Lessons: International managers need to know what is acceptable, unacceptable in foreign culture. They also need to know cultural tolerance to business customs that may be grouped as:

Cultural Imperatives; Cultural Exclusives; Cultural Adiaphora

Culture Imperatives

It refers to norms that must be followed/avoided in a foreign country.

For Eg. Too much eye contact in Japan is considered to completely offensive.

On the other hand in the Gulf , strong eye contact necessary with an Arab, to establish trustworthiness.

Cultural Exclusives:

Social patterns which are considered appropriate for locals and in which foreigners are expected not to participate.

Eg. Foreigners should stay away from discussions on local country politics, social customs and practices.

Cultural Adiaphora : social customs in which a foreigner may participate (neither mandates nor forbids). So, the Intl. manager may decide whether to participate or avoid.

Eg. Bowing in Japanese culture is not expected of foreigners, but such display may be appreciated .

Traditions and Customs

Traditions: The elements of culture passed down from

generation to generation.

Customs: An established pattern of behaviour within a

society.

Traditions and Customs

International managers need to know the customs and traditions of the culture being dealt with:

Eg. Food Habits eg. Chocolate flavors preferred are different in different cultures : Eg. Americans and Germans prefer blends, French- Dark, Dutch –White.

Coffee brews: Nescafe manufactures 200 different varieties of coffee to suit local tastes.

The concept of Indian vegetarianism is very complex for foreigners to understand. Vessels used for cooking both should be different. KFC offers vegetarian dishes in its Indian outlets. Pizza Hut offers Jain Pizza in India alone.

Lessons: companies need to modify products/services to suit the local customs and traditions.

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Manners and Customs...

Manners in gift giving:

A lot of preparation and sensitivity required while giving gifts. What and when is important.

China : occasion : New Year

Preferred Gifts: Modest gifts such as coffee table, books, ties, pens.

Japan: Oseibo( January 1)

Preferred Gifts : Brandy. Scotch, round fruits such as melons

Manners and Customs in the Way Products are used should also be considered

Example Orange juice:

Breakfast item in US, Refreshment in France

Moisturizers : After bath lotion in one, beauty product in another.

Aesthetics

Ideas and perceptions that a cultural group upholds

in terms of beauty and good taste. It includes areas

related to music, dance, painting, drama,

architecture, etc.

Aesthetics

Eg. Colours have different aesthetic value in different cultures:

Africa : bright colours are favourites

Japan : pastel colours preferred as they express harmony.

China : red is lucky colour but associated with witchcraft in Africa.

America : blues and greys are perfect for official environments. But blue is evil in Africa

Death colours : Black signifies death in America, Europe; In India, Japan & other Asian countries it is white, For Latin Americans Purple means death; Dark red is the mourning colour in the Ivory Coast.

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Acquiring International Experience

Manager’s ranking of factors involved in acquiring international expertise

FactorAssignments overseas

Business travel

Training programs

Non-business travel

Reading

Graduate courses

Precareer activities

Undergraduate courses

Considered Critical85%

83

28

28

22

13

9

1

Considered Important9%

17

57

54

72

52

50

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Cultural Differences

• As individuals, we generally only become aware of our own culture when confronted by another.

• However, what we usually observe are the artifacts of cultural dissimilarity - the numerous and often pronounced differences in greeting rituals, dress codes, forms of address and taste.

• The underlying system of values is, however, neither readily observable nor readily comprehensible.

• The core differences in values between cultures go back to questions of what works for ensuring survival in relation to the natural environment.

Comparison of Cross Cultural Behavior

An appreciation of cultural differences facilitates

international managers to conceptualize and implement

business strategies in view of cultural sensitivities in

various countries.

Hofstede’s Cultural Classification

Power distance

The extent to which less powerful members of an institution accept

that power is distributed unequally.

High Power Distance Countries

•High social inequalities tolerated with differences in power and incomedistribution

•Organizational structures are hierarchical based an inequality amongsuperiors and subordinates

•Decision making is centralized

• Juniors blindly follow the orders of their superiors

For instance, Malaysia, Mexico, Arab countries, India etc.

Low Power Distance Countries

• Superiors and subordinates consider each other equal

• Organizations are relatively flatter

• Decision making is decentralized

For instance, Austria, Sweden, Great Britain, the US etc.

Lessons: In view of the power distance, the international manager has to asses the

organizational dynamics, identify the key decision makers and accordingly

formulate their business strategy for different countries.

Individualism vs. Collectivism

Individualism:

The tendency of people to look after themselves and their immediate family.

• Strong work ethics

• Promotions based on merit

• Involvement of employees in the organization is calculative.

• Ability to be independent of others is considered to be the key criterion for

success in individualistic societies.

Countries with high individualism include, the US, Great Britain, France, South Africa

etc

Collectivism:

The tendency of people to belong to groups and to look after each other

in exchange for loyalty. In such cultures, interest of groups have

precedence over individual interest .

For instance, Guatemala, Pakistan, Singapore, Malaysia etc.

Lessons: International Business strategy is greatly influenced by

individualism vs. collectivism in terms of decision making and market

communication. For a product to be successful. In collective societies, it

should have group acceptability unlike in the individualistic societies.

Masculinity vs. femininity

In masculine societies, the dominant values emphasize on work goals,such as earnings, advancement, success, and material belongings. e.g.Japan, Switzerland, Great Britain, the US etc.

In feminine societies the dominant values are achievement of personalgoals, such as quality of life, caring for others, friendly atmosphere,getting along with boss and others.

e.g. Sweden, Norway, Denmark, Thailand etc.

India falls in between.

Summarily, in masculine societies, people ’live to work’, whereas infeminine societies people’ work to live’.

Uncertainty avoidance

The extent to which people feel threatened by ambiguous situations.

In high uncertainty avoidance societies there is lack of tolerance for

ambiguity and the need for formal rules. For instance, Greece, Portugal,

Japan, France are the most uncertainty avoidance countries.

Low uncertainty avoidance countries include Singapore, Denmark, India,

the US etc.

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Cultural Dimension Scores for 12 countries

Uncertainty

AvoidanceIndividualism

Power Distance Masculinity1000 0

100 100

50 50

50 50

JapanFrance

MexicoBrazil

Germany

Netherlands

U.S.AGreat Britain

Arab Countries

West Africa

Indonesia

Hong Kong

Japan

Arab Countries

Mexico

Brazil

France

Germany

Great Britain

U.S.ANetherlands

Hong KongWest Africa

Indonesia

Trompenaars’ Cultural Classification

Universalism vs. Particularism

• Universalism: The belief that ideas and practices can be defined and

applied everywhere without modification

e.g. the US, Australia, Germany, Sweden etc.

• Particularism: The belief that unique circumstances and relationships,

rather than abstract rules are more important considerations that

determine how ideas and practices should be applied

e.g. Venezuela, the US, Indonesia, China etc.

Individualism vs. Communitarianism

Individualism: people regarding themselves as individuals.

For instance the US, Czechoslovakia, Argentina, the CIS, Mexico, and the UK .

Societies with high individualism make frequent references to ‘I’ and ‘me’. And

achievement and responsibility are personal.

Communitarianism: people regarding themselves as part of a group.

For instance, Singapore, Thailand, Japan, and Indonesia.

In collectivist societies ‘we’ is used more frequently than ‘I’ and achievement is

considered group achievement.

Neutral vs. Affective

Neutral Cultures: Cultures in which people tend to hold back their emotions and try

not to exhibit their feelings.

For instance, Japan, the UK, Singapore, Australia, etc.

Will consider anger, delight or intensity in the workplace as ‘unprofessional’

Affective Cultures: Cultures where emotions are expressed openly.

For instance, Mexico, Netherlands, Switzerland, China, Brazil, etc.

Will consider holding back of emotions by colleagues to signify ‘emotionally dead’ or

a ‘mask of deceit’.

Specific vs. Diffused

The relative size of ‘Public space and Private space ‘ and the degree to which

individuals feed comfortable sharing it with others differ considerably across

societies.

Specific Cultures: Cultures in which individuals tend to have a large public space

which is readily shared, and a smaller private space.

For instance, Australia, the UK, the USA and Switzerland.

Diffused Cultures: Culture in which public and private space are more or less similar

and public space is guarded more carefully.

For instance, Venezuela, China and Spain

Achievement vs. Ascription

Achievement Cultures: Culture in which status is accorded to high

achievers and high performers.

For instance Austria, the USA, Switzerland, the UK, Sweden and Mexico

etc.

Ascription Cultures: Culture in which status is accorded to those who

‘naturally’ evoke admiration from others such as elderly, seniors, highly

qualified and skilled people.

For instance, Venezuela, Indonesia, China, the CIS, and Singapore etc.

Other Cross-Cultural Classifications

High Context vs. Low Context

High Context Cultures: Culture in which high significance is given to

implicit communications, such as non-verbal and subtle situational cues.

For instance, China, Korea, Japan and Arab countries.

Low Context Cultures: Cultures in which communication is more explicit

with heavy reliance on words to convey the meanings.

For instance, Germany, Switzerland, Scandinavia, North America and

Britain.

Homophilous vs. Heterophilous

Homophilous Cultures: Cultures where people share beliefs,

speak the same language, and practice the same religion.

For instance, Japan, Korea and Scandinavian countries.

Heterophilous Cultures: Countries that have a fair amount of

differentiation in languages, beliefs, and religions followed. For

instance, India and China.

Relationship vs. Deal-focused

Relationship-focused Cultures: Cultures in which strong

orientation towards building relationships and developing mutual

trust.

For instance, India, Japan, China, Singapore, Saudi Arabia, United

Arab Emirates, Egypt, Brazil, Mexico, and Russia.

Deal-focused Cultures: Task-oriented cultures with openness to

hold direct business talks with strangers.

For instance, Britain, USA, Germany, Denmark, Australia, Canada,

Finland etc.

Formal vs. informal cultures

Formal Cultures: Status differences are large and valued and formality is

used to show respect.

For instance, India, UAE, Egypt, Brazil, Russia, Poland, Japan, China,,

Singapore, France, Belgium, Britain, Germany, Denmark, Finland etc.

Informal Cultures: Status differences are not valued and Informal behaviour

is not considered disrespectful. For instance, the USA, Canada, and Australia

etc.

Polychronic vs. Monochronic

Polychronic Cultures: Cultures in which time schedules and deadlines are

flexible and relationships take precedence. For instance, India, Thailand,

Philippines, UAE, Egypt, Brazil, Russia etc.

Monochronic Cultures: Cultures with rigid time schedules and deadlines

with high emphasis on punctuality. For instance, Japan, China, Singapore,

Britain, USA, Canada, Australia, Germany, Denmark etc.

Expressive vs. Reserved Cultures

Expressive cultures: people are more expressive with direct

eye contact.

For instance, Russia, Poland, Romania, USA, Australia, and

Canada

Reserved cultures : people restrain their facial expression

and gesturing.

For instance, India, Japan, China, Singapore, Britain,

Germany, Denmark, Finland etc.

Parochialism vs. Simplification

Parochialism: Belief that views the rest of the world from

one’s own cultural perspective.

Simplification: Exhibiting same cultural orientation towards

different cultural groups.

Cultural Shock & Management Approaches

56Months Living in New Culture

1 2 3 4 5 6

Acc

epta

nce

of

New

Cult

ure

High

Low

Frustration

Understanding

Elation

Stages of Culture Shock

EPRG Approach

Ethnocentric orientation

The belief which considers one’s own culture as superior to others.

The belief that the business strategy which has worked in the home

country would also be suitable in alien cultures.

Polycentric orientation

It is based on the belief that substantial differences exist among

various countries. Therefore, a single business strategy cannot be

effective across the world and customized business strategies need to

be adapted in different countries.

Regiocentric orientation

A firm treats the region as a uniform cultural segment and

adopts a similar business strategy within the region but not

across the region.

For example Mc Donald’s strategy is to not serve beef based products in India, but

serves beef based products in other countries. Also in the Middle East, it does not

serve pork and all meat based preparations are made out of halal process only.

Geocentric orientation

The approach considers the whole world a single market and attempts to

formulate integrated business strategies. A geocentric firm attempts to

identify cultural similarities across countries and formulates a globally

uniform business strategy.

Examples: the Harry Potter series of books and films, cartoon characters

and their serials, apparels like Jeans, T-shirts etc…

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Cross-Cultural Training

•Cultural training programs should include:• culture-specific information• general cultural information on

values, practices, and assumptions

• self-specific information that identifies one’s own cultural paradigm

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Cross-Cultural Training (cont.)

• Additional forms of training include:• mentoring

• area studies programs

• cultural assimilator programs, in which trainees must respond to scenarios of specific situations in a particular country

• sensitivity training

• field experience

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Tips for Making Culture Work for Business Success

• Embrace local culture

• Build relationships

• Employ locals to gain cultural knowledge

• Help employees understand you

• Adapt products and practices to local markets

• Coordinate by region

Dhanyavaad!