The aim of this paper is to identify the impact of culture in international business environment. Understanding the influence of culture in an international business environment has been a continuous component of international businesses, internationalization, multinational corporations (MNC) and other cross-country activities. Key topics mentioned above connect inevitably to culture as broad context or specific factor that cannot be ignored. Corporate culture plays a meaningful role in corporation, affecting organizational operations and its employees. In the business context, it is crucial for employees to recognize and understand how corporate culture influences and affects international business. Thus, in this paper we explore the potential challenges that businesses face and the solution how the corporation should manage possible challenges. Last but not the least, we offer some arguments that the researchers concluded on national cultures’ influence on international entrepreneurs.
1. Introduction
As companies are expanding across the borders global marketplace becomes increasingly more accessible for small and large businesses and opportunities to work internationally increase. Culture has been a continuous component of the business environment. Key topics, such as the multinational enterprise (MNE), internationalization and cross-country activities connect inevitably to culture as broad context or specific factor that cannot be ignored (Leung, Bhagat, Buchan, Erez, & Gibson,2005). As companies continue to expand across border and global marketplace becomes more accessible to SMEs and multinational corporations, it brings more opportunities to work internationally. Thus, multinational corporations can increasingly benefit from the diverse knowledge of their employees since they offer new, perceptive approaches and solutions to the business. However, along with the benefits of expertise, corporations also face possible challenges when it comes to culture and international business. Possible challenges that most of the corporations tend to have in a corporate culture are communication or interaction, workplace etiquette and organizational hierarchy. Communication is essential to the success of the business but it is critical if there exists the risk of getting lost into translation. Even though English language might give us a professional boost globally, understanding the importance of subtle non-verbal communication like a firm handshake or making direct eye contact between cultures can be equally crucial in international business. These gestures could also be unusual or even offensive to a foreign colleague or client. Workplace etiquette for instance, the formality of address is a big consideration when dealing with colleagues and business partners from different countries. For example, do they prefer titles and surnames or is being on the first-name basis acceptable? While it can vary across organizations, Asian countries ‘tend to use formal “Mr./Ms. Surname,” while Americans and Canadians tend to use first names. Organizational hierarchy and attitudes towards management roles can also vary widely between cultures. Whether or not those in junior or middle-management positions feel comfortable speaking up in meetings, questioning senior decisions, or expressing a differing opinion can be dictated by cultural norms. While navigating cross-cultural communication can be a challenge, approaching cultural differences with sensitivity, openness, and curiosity can help to put everyone at ease.
2. Literature review
The term culture has been defined in a various way. One of the earliest widely cited definitions, offered by Edward Taylor in the nineteenth century, defined culture as ‘’that complex whole which includes knowledge, belief, arts, morals, law, custom, and any other capabilities and habits acquired by man as a member of society’’ (1871,1). While there are a number of ways to define culture, the definition that we are going to depend on with is ‘’Culture is everything that people have, think, and do as members of their society’’. The three verbs in this definition (have, think and do) help us to identify the three major structural components of the concept of culture; that is, for a person to have something, some material object must be present. When people think, ideas, values, attitudes, and beliefs are present. When people do, they behave in certain socially prescribed ways. Thus, culture is made up of (1) material objects; (2) ideas, values, and attitudes; and (3) normative, or expected, patterns of behavior (Katsioloudes,Hadjidakis, 2007).
Culture is an important characteristic that all people possess and that may have positive and negative impacts when working in a globalized business environment. Potential challenges that tend to occur in an organization are because of the communication, etiquettes and organizational hierarchy. To have a healthy corporate culture we need to integrate communication, collaboration, diversity, broadening knowledge and experience, and flat organizational structure into a corporation. These solutions are considered as structural components that an organization has to manage and integrate in order to ensure that all levels of organization are pulling together in the same direction. Therefore, a corporate culture has to have the following structural components:
The best and most creative ideas are generated when curious, passionate, open-minded people bounce ideas off, share their creative energies and filter them into brilliant ones. Corporations should provide a large informal room where employees can gather together, discuss the ongoing projects. This will allow them to engage, find creative solutions to their problems and thus maximize interactions. Second, for nurturing the creative process, social interaction is necessary. Interaction must be cooperative and collaborative. Corporations should put an emphasis on developing a community by sharing and team building. Third, corporates should recruit new team members that come from different educational backgrounds, work experiences, ways of thinking and worldviews. Another prerequisite for success in the rapidly changing environment is the global mindset which is composed of a teamwork rather than from an individual expert. Nowadays, the only way to survive this global economy is the to adapt to the changes, invent new products, build functional teams and remain flexible. Concerning the broadening of expertise and knowledge, one of the mechanisms for broadening one’s knowledge is to bring into the corporation experts from fields other than those of core interest of the business. Moreover, there are other ways to bring in outside experts into an organization, and encourage team members to broaden their experiences and knowledge. Such experiences can be done by encouraging reading and sending team-members to conferences outside their fields, encouraging foreign assignments, establishing and maintaining (electronically) networks of like-minded ‘’creative’’ throughout the world, and even swapping functional roles within the organization. Finally, the last and one of the most important component that an organization has to integrate is flat organizational hierarchy. A flat hierarchy aims to reduce bureaucracy and give employees more active roles by allowing them to become more involved in problem solving and decision making activities. One of the main advantages of a having a flat organizational structure is reducing the overall costs of operations. This type of structure contributes greatly to reducing costs. In particular, fewer levels results in fewer employees. Fewer employees mean fewer expenses for payroll and office space. Plus, since when there are fewer people each person is more accountable, a flat structure can encourage better productivity, and thus more work will get accomplished. (Rishipal,2014)
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Nevertheless, studies have shown that companies with strong corporate cultures have three distinctive advantages: (1) an enhanced ability to coordinate and control the organization from within, (2) an improved goal alignment between the firm and its employees, and (3) an increase in employee effort (Burt et al. 1994; Sorensen 2002). Having a well defined and explicit corporate culture not only increases efficiency, it also contributes to overall competitiveness (Barney, 1986).
One of the first barriers that companies face on the path of internationalization is difference in natural languages. Languages have an essential part in communication, which is important when it comes to communication in multilingual companies. When doing business internationally business people may encounter language barriers which can be defined as an obstacle of effective communication. Researchers see the language barrier as a problem for multilingual companies in that it hinders communication or causes miscommunication (Harzing and Feely, 2003). Problems can arise when speaker, or sender, and listener, or receiver, misunderstand each other, and hurdles in communication are not overcome. While misunderstandings can occur within one culture, too, cross-cultural misunderstandings can be of greater importance in international business. Tenzer and Pudelko (2012) draw on pragmatic theory to explain misunderstandings in multi-national teams, which is an approach deserving a closer look. Pragmatics is one aspect of language competence which refers to the way the meaning is transmitted into verbal interaction. In other words, how people say certain things and bring their meaning across is governed by the pragmatic rules of a language. We must also mention that English language is the lingua franca of today’s business and academic worlds. Earlier research (Marschan, Welch and Welch, 1997) saw English as a corporate language as a solution to language problems.
This paper will showcase some of the studies that are crucial in understanding the role of the culture in international business. In 1960s Hall identified two types of cultures, which are commonly used in business studies, they are low and high context cultures. Representatives of high context cultures pay a lot of attention to nonverbal communication and the cultural situational context, while low context culture representatives are very direct and focus on verbal communication. Croucher et al. (2012) based on survey results of 1795 respondents confirmed that high-context nations prefer the avoiding and obliging conflict styles more than low-context nations, whereas low-context cultures prefer the dominating conflict style more than high-context cultures.
Figure 1: Examples of low and high context cultures according to Hall Source: Adapted from Hall (1960) and Hall & Hall (1990).
Dutch anthropologist Geert Hofstede who was a social psychologist and former IBM worker conducted one of the early empirical studies of national cultural traits. His data was based on the values and attitudes of 116,000 employees at the IBM Corporation. He developed a model of four dimensions of national culture which is explained below:
Individualism versus Collectivism refers to whether a person functions as an individual or part of a group. Individualistic societies are characterized with ties among people being more loose meanwhile collectivist societies appreciate ties among individuals’ society’s position on this dimension is reflected in whether people’s self-image is defined in terms of “I”.
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