Cultural Barriers to International Business
Published 03 Aug 2016
Overseas expansion is a trend among business organizations nowadays. Before jumping on the bandwagon, every business organization must learn to deal with the cultural differences that may hinder and serve as a barrier in a business organization’s international operations. The key is to understand cultural differences and diversity. Any business organization which can take advantage of cultural differences and harness the unique skills, knowledge, and experiences brought about by the diversity of people and culture has greater chances of thriving in the intensely competitive business arena.
International expansion is considered as the most proactive and strategic response to challenges brought by increased domestic competition. Since the last few decades, domestic competition has increased tremendously as a result of technological advancements and globalization. While this may be beneficial to the consumers, as it entails better prices and better quality of products, business organizations have been severely affected by the decreasing profit margins for their products. As competition increased, business organizations have to either lower their price or improve the quality of their product. Either way, the effect is the same – reduction of profit margins and revenues.
The need to stay ahead of the competition has led these business organizations to make their presence felt in the international market. It is common to hear companies establishing branches overseas – Wal-Mart, McDonald’s and Starbucks. The International expansion offers a great opportunity for growth for a business organization. It also improves the company’s brand name recognition and creates a positive impact on its sales and revenues.
The decision to expand internationally, however, is not easy. For one the company enters into an unfamiliar territory which exposes it to certain risks not present in its domestic operations. Among these risks the business organization has to deal with prior to establishing the business in another country are the licensing and regulatory requirements, the labor laws, the taxes imposed, the peace and order situation, the kind of government, and the business environment.
While these variables have kept on changing, business organizations oftentimes make a mistake in not including the most covert and most constant factor in establishing business overseas – cultural differences. This term paper seeks to discuss the concept of culture and the different cultural barriers existing in international businesses. Articles from scholarly journals and opinions of different authors will be used for this paper. The purpose of this paper is to prove that while culture may be considered a barrier in business, it may also be utilized as a source of competitive edge for a business organization.
“Foreign banks encounter the cultural barrier in Vietnam.”
One cultural barrier is a person’s level of trust to financial institutions. There are individuals who are more trusting than others. There are also individuals who are more cynical than others. In Vietnam, the people do not trust banks. They do not deposit their money and gold in banks. They also prefer to obtain loans from informal groups such as friends and relatives rather than going through a formal process with banks. As a result, foreign banks are facing a difficult time penetrating Vietnam. As a developing country, Vietnam is a strong potential for establishing banks but financial institutions have to learn to deal with this cultural barrier. They must be able to get themselves closer to the Vietnamese people so that the locals would learn to trust them and deal with them rather than transact with individuals.
Breaking the cultural barrier
Another cultural barrier is the level of trust to individuals. China is the currently the target of every business organization desiring to improve their global presence. It is understandable since it comprises 20% of the world’s population and is one of the world’s fastest growing markets. Business organizations must understand that Chinese people are not like the Americans when they do business. Chinese people mostly rely on relationships. They have to like the people whom they are working with and they have to trust and have faith in them. Business organizations must learn that it is very important to establish a connection with Chinese people before any business proposal is discussed.
Cultural and Language Barriers in the Workplace
Body language and personal space are as important as oral communications. They are in fact non-verbal communications which other persons may give more weight than actual verbal communications. Any business organization desiring to explore business opportunities in China, Philippines and Vietnam must realize that in these countries foreign businesses must pay particular attention to gestures, signs and body movements. For example, while Americans and those in Western and European countries may not find it uncomfortable to start and end their conversation with a kiss on the cheek to a woman executive, Chinese, Filipinos and Thai women Executives feel uncomfortable with this kind of greeting. The same is true when they converse with other people. As much as possible, they want the other person to respect their own personal space and comfort zones.
“The manager’s response to cultural barriers.”
A person’s family-centeredness can also be a cultural barrier. It is part of Western culture to have the casual and noncommittal attitude towards friends, neighbors, colleagues, and co-workers. They also prefer not to abut their wife and their family to their colleagues in the workplace. Asian culture, however, is different. Asians are closer, warmer, friendlier and more affectionate. This is most evident especially in workplaces were pictures of almost the entire member of the family, even their dogs, and cats, are displayed on top of the employees’ office table. Oftentimes, they will also invite their family members to visit their offices and workstations and introduce them to their colleagues. International business organizations which want to establish businesses in Asia should be able to understand and deal with this peculiarity in Asian culture.
Attitude towards Punctuality
Attitude towards time may also differ depending on one’s cultural affiliation. In Western societies where time is very precious promptness and punctuality are the norm such that arriving an hour late for a job interview or business meeting is a serious mistake. On the other hand, in other countries such as Africa, Latin America, Middle East and the Philippines, arriving half an hour late for a job interview or a business appointment is still not considered late. These considerations must also be taken into account by international organizations seeking to establish their operations in these countries.
The Impact of Cultural Differences in Global Workforce Relationships between US and India.
Since Americans are strict with time, they emphasize on deadlines and finishing work on or before the deadline. Failure to finish work on the deadline stated is considered as a sign of lack of professionalism. On the other hand, Indians tend to value flexible deadlines over rigid and strict deadlines (Suki Iyer, p.1). They will in all probability not view a deadline as important unless it has been emphasized.
The research-based methodology was used for this term paper. Articles from scholarly journals and other published and reputable journals were used as the basis for the opinions written in this term paper. Studies on the effect of cultural differences were also used as the basis for this term paper.
The results of the study show that cultural barrier is one of the most important considerations any business organization must take into account in establishing its operations outside of the country where it is incorporated. Culture essentially means a person or a group of persons who share the same ways of thinking which include their ways of seeing, hearing and interpreting the world. It can be manifested in different ways such as dress, language, food, gestures, and manners. Culture is very important because it has an impact on a person or a group of person’s lives, perceptions and even their expectations of others.
The diversity of cultures among different countries is an important factor to be considered in international business expansion. It is a business nuance which must be dealt with by every business organization. Its importance is highlighted by the fact that even if the license requirements and taxes have been adequately settled by the business organization, cultural barriers present a serious obstacle that may get in the way of the success of the business organization. Sound business management dictates that culture should not be seen as a barrier but as an element which can be a potential source of competitive advantage of a business organization.
The results of the study show that there are a number of cultural barriers a business organization has to seriously consider in international business expansion. Among these cultural barriers is the level of trust a person has for the institution, the level of trust a person has for individuals, the importance of personal space and comfort zones, family-centeredness, promptness, and punctuality. Other cultural barriers could also be religion, social status, sex, body language and personal appearance. Communication can also be considered as a cultural barrier.
The importance of understanding cultural barriers and differences is highlighted by the fact that its failure can lead to frequent disagreements, quarrels, and fights among employees in the workplace; increased cases of on-the-job accidents caused by the failure to understand safety rules and procedures; loss of productivity of employees and the organization as a whole; and lack of cooperation and teamwork within the business organization.
As such, it is often suggested that business organizations must do extensive research or seek the help of locals in the country as they get acquainted with the culture of a particular country. As a business organization gets more acquainted with cultural differences there is the greater likelihood of ensuring the success of the business venture. Further, it also helps in managing the business organization better.
It may happen that inexperienced business organizations may neglect cultural differences in international expansion. They may think that business behavior and practices are essentially the same regardless of geographical location. This baseless assumption only increases the likelihood that the business organization may fail in its business venture. It is when business organizations neglect cultural differences that culture becomes a barrier in international business.
It is the contention of this paper that cultural differences should not be seen as a barrier to the success of the business organization. The 21st Century is an era where globalization and information technology have helped destroy boundaries that previously divided nations and countries. It is very common to see nowadays business organizations composed of people with diverse cultural, ethnic and racial backgrounds. While this may bring considerable difficulty for the company at first, proper management of cultural differences may also bring in the competitive edge for the company which is not present in a homogenous group. Diversity brings different skills, knowledge, experiences, and attitude for the company. With proper management of cultural diversity, companies can have the better chance of surviving the intensely competitive business environment.
Cultural differences can indeed pose significant problems for the business organization if it fails to give proper attention to the cultural diversity that exists among different people and nations. Cultural differences may affect employee performance which has an impact on organizational performance.
Cultural diversity and differences may also be an edge on the part of a business organization who understands its importance in the business organization. Cultural Diversity is essentially an understanding that people are different and that sound business management demands that business strategies should also be adjusted taking into account these differences.
Cultural diversity among employees within the workplace is essentially one of understanding and acceptance. It means an understanding and acceptance that the workplace is composed of individuals who are unique and different. Employees are all unique in the sense that no two persons are alike. Employees are also different because they have different languages, races, and ethnicity. They also exhibit differences in the way they dress, their political values, religions and religious practices and in the manner, they interact with each other.