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Understanding The Role Of Culture In International Business

Understanding The Role Of Culture In International Business

The modern-day global economy is a potpourri of diverse cultures, etiquettes, ideas, customs, and social behavior. As the global marketplace grows and accommodates cross-cultural and multinational businesses and teams, cultural sensitivity is a priority to ensure international success. Understanding the role and importance of culture in international business is essential to overcoming cultural barriers that impede business growth and development.

According to the Business Culture Complexity Index, Denmark has the most business-friendly culture. In fact, many EU countries like Norway, Finland, Austria, and the Netherlands rank higher in the index. These countries with stable economies believe in keeping an open mind while developing business relations. It speaks volumes about their welcoming and trusting attitude. 

Since the international economy transcends borders and cultures, the cultural dimension of global businesses significantly impacts the strategic direction businesses take. However, business culture has a broader connotation and encompasses an organization’s visions, ethics, etiquette, beliefs, and working styles.  

In business, culture refers to an organization's values, beliefs, goals, practices, behaviors and communication patterns that impact its business operations, decisions, and relationships. Essentially, business culture has a broad meaning - it encompasses different elements, including workplace etiquette, client relations, office dress code, setup, etc. National cultures and traditions, international trade, economic trends, and the company’s nature and size influence its business culture.

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.  

Let’s look at some aspects of the significance of culture in international business to better understand how it shapes global companies:

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

The relationship between culture and international business has its rough patches. Below we have enlisted a few of the cross-cultural challenges that affect businesses globally:

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: 

How do we overcome the cultural barriers in international business?

Effective and successful cross-cultural management in international business can be daunting. It is not enough to be aware of the cultural barriers disrupting international business relations - you must also be prepared to tackle the issues. 

Create a culturally aware workplace

One of the best ways to overcome cultural differences in global business is to create space for the cultural requirements of your colleagues and employees in a foreign country. For instance, factor in cultural and religious holidays, customs, and dietary needs and integrate them into your organization’s policies to make everyone feel included. 

Promote open communication

International business and cross-cultural communication go hand-in-hand. Promoting a culture of open communication is the only way culturally diverse teams can overcome their differences and work together. Global leaders must lead by example. They should promote open communications, listen to everyone’s opinions, and create a safe and transparent workspace. Employees should have a safe space to talk about their challenges without any judgment.

Engage in diversity training

When companies try to include and accept people from diverse cultural backgrounds, they take one step in the right direction of overcoming cultural barriers in international business. Diversity training is an effective tool that allows employees to identify hidden prejudices, biases, and other obstacles and create opportunities wherein employees can learn how to embrace diversity. 

Cultivate a shared company culture

When you have a culturally diverse team, the best way to unite the members is by establishing a strong company culture reflecting the interests of all team members. As a team leader, you must ensure that your team functions like one unit to discuss differences, voice grievances, and find solutions to business challenges. When members work remotely, it’s crucial to create a team culture beyond stereotypes. 

Understand the local culture

Before you get busy conducting business operations in a new market, focus on understanding the region’s business practices. Instead of taking a full-blown global approach, start with a localized mindset and gradually implement changes in your business.

Cultural Differences in International Business

Recognizing how culture influences international business is indispensable to avoiding misunderstandings among employees and clients and create a stellar image in new markets. Accepting cultural diversity in global organizations gives you a broad spectrum of business experience and novel insights to tackle real-world business problems. 

Culture in international business differs from the general meaning of culture per se, affecting global companies in five broad areas: interaction, communication, organizational hierarchy, and workplace etiquette.

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. 

How Multiplier Can Help?

Expanding to a new country has its challenges, and overcoming cultural barriers is one. Often, companies expanding overseas become overwhelmed and entangled in international laws and regulations around employee hiring, payroll, taxes, etc. 

Multiplier helps businesses expand overseas, taking care of payroll, taxes, employee benefits, and other HR functions of global teams. Our integrated PEO and EOR services help you manage international hiring, payroll, and benefits seamlessly while ensuring compliance with local laws.

FAQs

What is culture in international business?

Culture in international business refers to the beliefs, values, practices, and attitudes of organizations that impact business functions and the strategic direction enterprises take. Business culture influences management and employees’ professional interaction within and outside the organization.

Why is culture influential in international business?

Culture is essential in international business because it influences how multinational and cross-cultural teams interact and collaborate. It dictates the business world’s values, etiquettes, thinking patterns, decision-making, practices, and processes.

What are the major cultural factors that affect international business?

The major socio-cultural factors that significantly impact international businesses are culture, etiquette, religion, language, customer preferences, education level, customs and taboos, and attitude towards foreign goods and services.

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