Role of Culture in International Business

SWISS MANAGMENT CENTER

THE ROLE OF CULTURE IN INTERNATIONAL BUSINESS

Research Paper presented in partial fulfillment of MBA course in International Business and Trade to Professor Manfred Brauchle

DOfori

6/1/2011

Abstract: This paper reviews the role of culture in international business, the evolution of globalization and cultural changes, and the characteristics of culture. The paper examines the impact of culture and the importance of culture, and finally the elements of national cultural similarities in international business.

Key words: Culture and international business; evolution of globalization; cultural changes; elements of national culture.

Introduction

In this era of globalization, only few entrepreneurs' can rely on domestic business opportunities without thinking about the global commercial environment, knowledge of culture impact will promote international business success across the globe. The emergence of globalization and the removal or reduction of trade restrictions and barriers on international trade has promoted businesses across nations. There are various cultural practices across the globe therefore international businessmen need to understand how cultural elements can undermine business if ignore, and how they can impact growth when integrated into international trade. (P.Kotter & Heskett, 1992).

Societies are governed by certain rules. These rules are linked to the countries culture hence international firms should be aware of the values, customs and believes that shapes the life of the people within those societies.

National cultures impact greatly on international trade, as cultural values are highly perceived and recognized by each national boarder. Geert Hofstede's identifies five different dimensions that can be used to evaluate differences in cultural practices and these differences among cultures may have effects on international trade.

Due to trade liberalization and globalization, international trade has broadened the minds of entrepreneurs across the globe to operate businesses outside their home country. This has spurred the need for cultural awareness and integration for the purpose of conducting effective business across nations.

The importance of national culture has become relevant in recent times as a result of the work of Geert Hofstede, The improvement in cultural awareness recently has impacted greatly in promoting international competence in conducting business globally. (Hofstede, 1980)

Culture is the collection of values, beliefs, behavior, customs and attitudes that distinguishes one society from another. The elements of culture are interrelated and complimentary to each other and international firms should integrate these elements of culture into its management style in order to operate successfully.

Major elements that define culture include language and communication, religion, personal achievements, social behavior and socialization among cultures.

Language is an important element in national cultures and there are various languages spoken across the globe. An international marketing manager should be able to promote products in national cultures by first identifying the suitable means of communication and dissemination of information across national borders.

This paper examines the evolution of globalization, cultural changes, the impact and characteristics of culture and the element of national culture in international business.

The evolution of Globalization and culture;

Cultural globalization is a term used to mean the free flow of goods, services, technology, images, ideas, and people around the world that has been made possible by the process of economic globalization. Cultural evolution is due to the cumulative effect of culture. Globalization refers to a 'growing economic interdependence among countries, as reflected in the increased cross-border flow of three types of entities: goods and services, capital, and knowhow' (K.Gupta & Govindarajan, 2001). Advancement in Technology has been the other principal driver of globalization. The improvements in information technology has immensely contributed to the growth of international trade and hence impacted the need for global national cultural consciousness.

Globalization has promoted international trade through trade liberalization and advancement in technology has changed the economic systems of nations, for instance the creation of regional trade blocs such as the North American Free Trade Agreement (NAFTA) and the European Community; global organizations such as the International Organization for Standardization (ISO); multinational companies (MNCs); and cross-border alliances in the form of joint ventures, international mergers, and acquisitions. These inter-relationships have enhanced participation in the world economy, and have become a key to domestic economic growth and prosperity across countries in the world.

Globalization theory examines the emergence of global cultural system. One of the results of globalization is that it opens up doubts about the originality and authenticity of cultures. Culture has close correlation with globalization and they hardly independent from the global processes.

Cultural changes

Throughout the world, there has been a significant transformation concerning cultural changes, Researchers are still discovering similarities in cultural practices across the globe, but the evidence is that culture always differs from one continent to the other hence making it difficult to conducting international business. The continuous practices and adoption of new culture and subtraction of cultural traits results in cultural change. All cultures change over time. However, the rate of change and the aspects of culture that change varies from society to society.

In order to develop a more accurate understanding of cultural change around the world, we must analyze the following assumptions; national cultures are not homogeneous and the impact of globalization on heterogeneous cultures is not easily predicted. This assumption is built on the fact that when we take the culture of China for instance, it is different from that of Ghana and for that matter the process of interaction and integration among nations will still be difficult. Secondly, culture is not the same as cultural practices. The