Culture Impact On International Business

Whereas traditional International Business research has been concerned with economic/legal issues and organizational forms and structures, the importance of culture has become increasingly important in the last two decades, largely as a result of the classic work of Hofstede (1980). Culture has been shown to impact on International Business, especially on the aspect of group performance (Gibson, 1999).

This paper mainly analyzes the impact of culture on International Business. And in order to analysis it well, firstly we will talk about the definition, levels and Hofstede’s theory of culture in the section 2. Then in section 3, we discuss the adverse and beneficial impact on International Business respectively in detail. Section 4 concludes.

What is culture?

Terpstra and David (1991, p.6) defined culture as , ‘a learned, shared, compelling, interrelated set of symbols whose meanings provide a set of orientations for members of a society’. And the aspects of culture include value and beliefs, communication, norms of behavior, customs and art, music, dance, sport (Morrison, 2006, p.169). It is essential for us to obtain the knowledge of culture because we communicate with each other through language; anticipate how business partners and customers are likely to respond; distinguish between what is considered right or wrong, acceptable or offensive and identify with other managers, provide knowledge to meet and negotiate with them.

There are at least three levels of culture:

National culture

Nations are distinguishable from each other by a shared cultural history, such as language, religion, ethnic or racial identity. Together, these distinguishing characteristics blend into a national culture, which influences family life, education, organizational culture and economic and political structures (Morrison, 2006, p.172).

Organizational or corporate culture

Morrison (2006, p.195) indicated that the characteristics of organizational culture include:

Common language and shared terminology;

Norms of behavior, such as relations between management and employees;

Preferences for formal or informal means of communication within the company and with associated companies;

Dominant values of the organization, such as high product quality and customer orientation;

Degree of empowerment of employees throughout the organization; and

Systems of rules that specify dos and don’ts of employee behavior.

Professional culture

Professional cultures form as people, who span individual organizations, share a set of norms, values and beliefs related to their occupation (Van Maanen and Barley, 1984; Jordan, 1990; Trice and Beyer, 1993)

Morrison (2006, p.191-192) mentioned that differences in national values and attitudes have been the subject of considerable research. Hofstede (1994) has developed a theory to categorize and quantify cultural differences between nations, which allowing us to compare national cultures. The cultural dimensions are:

Power distance: the extent to which members of society accept the unequal distribution of power inside organizations.

Uncertainty avoidance: how members of a society cope with the uncertainties of everyday life.

Individualism: the extent to which individuals perceive themselves as independent and autonomous beings (as opposed to collectivism, in which people see themselves as integrated into ‘ingroups’).

Masculinity: the degree to which people prefer values of success/competition over modesty/concern for others (as opposed to femininity, which denotes sensitivity, caring and an emphasis on quality of life).

Long-term vs. short-term orientation: people’s time perspectives in their daily lives.

How does culture impact on International Business?

International business refers to business activities that straddle two or more countries (Morrison, 2006, p.5). As the rapid growth of globalization, more and more international business such as Joint Venture have emerged and developed fast. Therefore, it is very essential to talk about the elements which influence the international business. And one of the crucial elements will be analyzed in this paper is culture.

As discussed above, cultures are different from countries to countries. For international business, grasping the cultural differences between the global and the local is the key to build long-term relationship and obtain success. For example, in Asian cultures, doing business is not confined merely to working hours, but blends into social occasions such as meals together, where bonds of trust are built and where sensitivity to cultural values and norms can be critical (Morrison, 2006, p.169).

The other example is in joint ventures, the need for cooperation and trust between partners is the key to long-term success. Blending the culture of different locations into a distinctive corporate culture can strengthen the sense of corporate identity, but poses considerable challenges for international managers. The global merger-between countries of different national cultures-is an illustration of the difficulties that can arise when strong national cultures clash (Morrison, 2006, p.195-196)

In each case, achieving a successful outcome, in both the initial agreement and the long-term business relationship, will depend on sensitivity to differences in languages, value systems and norms of behavior between themselves and their hosts. In short, being attuned to cultural differences can directly affect the success or failure of the project (Morrison, 2006, p.168).

Pothukuchi et al.’s (2002) findings suggest that cultural differences stemming from national, organizational and professional cultures have influence on international alliance performance. Li, Lam and Qian (2001) also pointed out that national culture can influence managerial decision-making, leadership style and human resource management practices and all these factors influence a firm’s performance in acquiring and deploying resources (Puffer, 1993; House, Hanges, et al. 1999).

The adverse effect of culture in International Business

Sirmon and Lane (2004) explained that the influence of national culture is strong and long lasting. For example, Hofstede (1991) found that national culture explains 50% of the differences in managers’ attitudes, beliefs, and values. Thus, national culture differences between alliance partners can challenge the development of successful relationships. Park and Ungson (1997) supplemented that these challenges result partially from the lack of shared norms or values and this lack of common understanding may undermine the partners’ interpretation of each other’s strategic intent, which is crucial in global markets and partnerships (Hitt et al., 1995). Further, a lack of shared norms and values may reduce effective communication (Rao and Schmidt, 1998), trust (Aulakh et al., 1996; Doney et al., 1998) and knowledge sharing in joint ventures (Parkhe, 1991; Mohr and Spekman, 1994; Lyles and Salk, 1996). These problems, in turn, have been found to lead to lower alliance performance (Lane et al., 2001).

What’s more, differences in national culture can disrupt collaboration and learning between alliance partners (Lane and Beamish, 1990; Parkhe, 1991; Lyles and Salk, 1996; Hennart and Zeng, 2002).

Sirmon and Lane (2004) explained this opinion in detail as following: an international alliance’s performance is driven by the alliance’s effectiveness in achieving its primary value-creating activities. Resource complementarity between alliance partners is often a necessary condition to optimize this value creation (Harrison et al., 2001). However, in order to share, combine and leverage complementary resources, the partners’ employees must interact effectively. And the cultural differences inhibit international alliance partners’ employees’ ability to interact effectively.

Not only that national culture differences between alliance partners can challenge the development of successful relationships and the achievement of effectiveness in the alliance’s primary value-creating activities, but also the organizational culture differences can.

Whereas national culture relates primarily to deep-seated values, organizational culture relates primarily to shared beliefs in organizational practices and processes (Hofstede et al., 1990). Sirmon and Lane (2004) found that organizational culture is important to the success of mergers and acquisitions. Weber et al. (1996) found that dissimilar organizational cultures between acquirer and target decreased top managers’ cooperation and increased negative attitudes toward the merger.

Generally, similarity of partners’ organizational culture increases partner learning, satisfaction and effectiveness of interactions, whereas differences in organizational culture decrease these positive outcomes. In short, decreased learning, satisfaction and effectiveness of interactions impede the business processes used to share combine and leverage resources such as knowledge, relationships and physical assets. Thus partners with dissimilar organizational cultures will be less likely to effectively achieve the alliance’s primary value-creating activities.

Research suggested that national and organizational culture differences between the employees of international companies affect their interactions, but Sirmon and Lane (2004) expanded the consideration of cultural differences to include professional culture differences. They stated that professional culture differences are often the most relevant and salient cultural differences that the interacting employees face, and thus professional culture differences are the most disruptive to the alliance’s effectiveness in achieving its primary value-creating activities.

Professional cultures develop through the socialization that individuals receive during their occupational education and training (Van Maanen and Barley, 1984; Jordan, 1990) This initial socialization is then reinforced through their professional experiences and interactions that lead to a broad understanding of how their occupation should be conducted (Brown and Duguid, 1991; Lave and Wenger, 1991).

Sirmon and Lane (2004) stated that it is disappointing when international alliance partners require employees from different professional cultures to interface in the primary value-creating activity of the alliance. The reason is because these employees lack a common basis from which to interact effectively due to their distinct occupational socialization and resulting professional cultures. First, individuals from separate professional cultures lack a shared set of basic knowledge because their occupational socialization involved different content material, which is reinforced by different professional experiences. Second, these individuals often lack experience communicating with an auditing audience outside their professional culture. Thus communication between individuals from separate professional cultures is impaired. Both of these factors impede the finding of common ground from which the relationship can develop and produce value (Lane and Lubatkin, 1998). In such cases, the development of basic routines is required to help establish a base of shared knowledge in order to communicate adequately. Developing such routines requires time, which leads to increased expenses and could lead to increased frustration (Park and Ungson, 1997).

Even if these two obstacles can be adequately overcome, individuals from different professional cultures may still have deeply ingrained preferences in their approach to solving problems (Brown and Duguid, 1991; Lave and Wenger, 1991). These differences may be difficult to overcome, as the employees may reflect the ‘not-invented-here’ syndrome, which is the resistance to the utilization of knowledge created elsewhere (Michailova and Husted, 2003). Further, attempts to compromise in the approach taken in problem-solving is likely to lead to less desirable outcomes. For example, if a compromise is reached, and members from both professional cultures abandon their preferred problem-solving approach, both effectively eliminate a significant amount of their valuable tacit knowledge. Likewise, if either member abandons their preferred problem-solving approach, the alliance has effectively lost the expertise of one half of its contributing members.

The challenges discussed above inhibit the effective interaction of individuals from different professional cultures within an international alliance. This then decreases the likelihood that the alliance’s pooled complementary resources will be shared, combined and leveraged in a manner that effectively achieves the alliance’s primary value-creating activities.

In one noteworthy study, Barkema and Vermeulen (1997) examined the influence of differences in partners’ national cultures on international alliance performance using Hofstede’s (1980, 1991) dimensions of national culture. They found that partner differences in two of the dimensions (uncertainty avoidance and long-term orientation) had a strong negative relationship with the survival of the collaboration over several different periods. However, the other three dimensions of national culture (individualism, power distance, masculinity) did not. Differences in uncertainty avoidance and long-term orientation could represent differences in how partners perceive and adapt to opportunities and threats in their environment (Schneider, 1991; Schneider and De Meyer, 1991), and thus may be more difficult to resolve than differences along the other three dimensions, which represent attitudes towards personnel.

In conclusion, cultural differences have adverse impact on the performance of international business.

The beneficial effect of culture in International Business

Sirmon and Lane (2004) stated that other evidence suggests that differences in national culture can be beneficial. Because managers tend to be more aware of the potential challenges when working with foreign partners, they may be more willing to spend effort on avoiding misunderstandings in international alliances than they would in domestic alliances (Very et al., 1996). In such cases, differences in national culture can lead to high-level communication and a more sustained collaboration (Shenkar and Zeira, 1992; Park and Ungson, 1997). Thus, in some cases, increased national culture differences can lead to higher international alliance performance (Morosini et al., 1998).

In addition, societal culture per se may also be seen as part of a firm’s resources, leading to a competitive advantage (Porter, 1991; Dunning and Bansal, 1997). Porter (1991) pointed out that the competitive advantage of firms could be derived from the greater commitment. Dunning and Bansal (1997) further suggested that this greater commitment might well be based on cultural values observed in some countries, and not in others. For example, many individualistic cultures, such as US, may have an advantage in technological assets, whilst many collectivistic cultures, such as Japan, may benefit from the ways in which they organize their workforce and establish relations between contractors, suppliers and joint venture partners (Dunning and Bansal, 1997). With their different competitive advantages, firms may adopt different strategies. If manager of these firms adopt appropriate strategies by making use of the competitive advantages derived from cultural values, these firms may achieve great success.

There is another example exhibit the beneficial effect on the International Business. According to Hofstede’s dimensions of national culture Li, Lam and Qian (2001) stated that, long-term orientation means focusing on the future. With this long-term orientation, people in East Asia such as China are more likely to emphasize education and training, and practice persistence, thriftiness and the delay of immediate gratification.

Wuhan City, which is known as “Chicago in China” contacted New World, a major Hong Kong developer, to negotiate a loan to complete an airport-linking expressway project. Focusing on building a long-term relationship with Wuhan City, New World soon agreed to provide the loan without discussing details traditionally seen in western-style negotiations. According to Cheng (1997), “an impassioned plea for help from Wuhan’s public work chief, Zhang Ke Xiao, led to a handshake gamble without sight of a feasibility study or a contract.” (p.30). With this relationship-oriented negotiation, New World set up good ties with the government in Wuhan City and other Chinese cities. These relationships proved very helpful during later negotiations in China. In fact, many overseas Chinese firms adopt a similar approach.

Tung (1982) has also observed this long-term perspective, claiming that “the Chinese have a different concept of time, as compared to that of the Western world, they are interested in building the basis for long-term relationships. Essentially, this means that once a foreign firm has gained their trust and has demonstrated its goodwill and willingness to lend assistance to the country, the Chinese will try to reciprocate in kind, whenever possible.” (p. 30)

In conclusion, cultural differences also have beneficial impact on the performance of international business.

Conclusion

This paper analyzes how culture impact on the International Business. It turns out that culture has either adverse or beneficial effect on the International Business performance.

On the adverse aspect of culture, Sirmon and Lane (2004) indicated that national culture differences between alliance partners can challenge the development of successful relationships. Further, a lack of shared norms and values may reduce effective communication (Rao and Schmidt, 1998), trust (Aulakh et al., 1996; Doney et al., 1998) and knowledge sharing in joint ventures (Parkhe, 1991; Mohr and Spekman, 1994; Lyles and Salk, 1996). These problems, in turn, have been found to lead to lower alliance performance (Lane et al., 2001).

What’s more, Weber et al. (1996) found that dissimilar organizational cultures between acquirer and target decreased top managers’ cooperation and increased negative attitudes toward the merger.

Sirmon and Lane (2004) expanded the consideration of professional culture differences, which are often the most relevant and salient cultural differences that the interacting employees face. And it is disappointing when international alliance partners require employees from different professional cultures to interface in the primary value-creating activity of the alliance. The reason is because these employees lack a common basis from which to interact effectively due to their distinct occupational socialization and resulting professional cultures.

On the beneficial aspect of culture, managers may be more willing to spend effort on avoiding misunderstandings in international alliances than they would in domestic alliances. In such cases, differences in national culture can lead to high-level communication and a more sustained collaboration (Shenkar and Zeira, 1992; Park and Ungson, 1997).

In addition, Porter (1991) pointed out that the competitive advantage of firms could be derived from the greater commitment based on cultural values observed in some countries, and not in others. For example, the long-term orientation in China leads to a helpful long-term relationship between international businesses.