International Business & Cultural Risk: Global Perspectives on Risk

Introduction:

When conducting an international business and approach a cross cultural environment, any manager must be fully acknowledged of all threats and opportunities of any other culture. A business manager may also need to learn about all cultural differences there are, and tend to grasp the essence of a culture. A business manager needs to analyze the current situation of the internal and external environment of the organization. A cross-cultural manager should be prepared to result in the marketing quote “Think global Act local” by carefully knowing what the culture he/she is facing requires, or what this culture is used to.

This paper will discuss the significance of cultures and its role in effecting businesses and how they operate in a different environment (culture). While attempting to reach the paper’s aim, the determinants of a culture in the business context should be clearly realized in order to manage business and its risks. The cultural determinants will also be discussed due to the significant effect of it on businesses and individuals.

The risks of national culture are highly significant and organizations should be fully aware of the potentials and the consciences of it. The determinants of culture and how they generate many different barriers for managers and expats working in emerging markets outside their home country, will be represented with ways of prevention. Although solutions may not be conclusive yet eliminating those risks could be beneficial. Accordingly, the risk management techniques of generated barriers and culture determinants are being clarified, in addition to the solutions represented by these techniques or (how cultural barriers could be broken in favor of the business).  

                        

What is Culture?

The definition of Culture may vary from one aspect to another, indicating that culture is a critical yet controversial concept, and it will be discussed thoroughly in this paper. It has been determined that, Culture is the combination of many elements that might collaborate together to create a unique society (Mulholland 1991 cited in Belshek, J.A. 2005). 

The main characteristics that represent a culture, is that it grants the basic norms, behaviors, traditions and verbal and non-verbal language for the major part of a particular society. The reason behind the ongoing pulse of a society’s culture is mainly communication and knowledge exchange. Therefore, it is accepted to state that culture is not created out of thin-air, only by itself or even passed down by inherited genes (Hall 1976, p. 16).

Culture’s definition was established as: “The collective programing of the mind which distinguishes the members of one group from another” by Geert (Hofstede (1980, pp. 21-23) cited in Belshek, J.A. 2005), this knowledge is inherited generation after the other, knowledge inheritance is taking place constantly. However, added-value should also be considered over time due to developments and advancements of every generation.

 

National culture

Many have claimed that the national culture may share common beliefs regarding organizational models, such as Hofstede (1991), and Scott & Mayer (1994). While Smircich (1983) and Swidler (1986) have both described it as social units incorporated and integrated into the value formations constituting the ethnicity of a society. In consistence, businesses and societies have a tendency to affect one another structurally (Inzerilli, 1981). Into the bargain, national culture dissimilarities could also significantly affect the structure and performance of any business. 

                     

What are the Cultural Determinants?

Cultural determinants is a collection of factors influencing the behavior of individuals and businesses, these determinants also have a considerable impact on enterprises while conducting business abroad. These determinants occur in almost all cultures, and affect it accordingly. So, what are these determinants?! Cultural determinants are various, however, cross-cultural determinants include language, religion, communication, and social-structure. These determinants will be thoroughly discussed later in this paper.

The individuals react normally towards their culture and by norms and traditions it is considered as human instinct. On the other hand, individuals find hard to accommodate in a different new culture. Those individuals are most likely to feel unfamiliar with the culture's values and norms, and therefore may act negatively towards it.

Many researches and studies argue the effect of language, whereas there are around 3000 used languages and almost 10000 different tongues used worldwide. Language is therefore one essential pillar of forming a culture character (Elmes D., 2013).

Considering these determinants, it should be noticed that some risks and barriers will occur here, particularly Cross-Cultural risks. Reflecting on what has been mentioned earlier, the impact of ethnocentric orientation – Individuals Use their own cultures as a scale in judging other cultures - cannot be disregarded. This trend generally leads societies to behave accordingly, as if their culture is superior to other cultures by means of religion, economy, and ethnic groups, etc. (Anon, 2007).

Of course when this concept is applied business-wise, managers are always advised to leave their ethnocentric tendencies behind, to execute polycentric and geocentric orientation. Polycentric orientation – is simply inducing managers to adapt to the culture where they practice their business in. Geocentric orientation – is the definition of comprehending the nature of any market or business with relating it to culture borders. This addresses how managers should react to such barriers (Anon, 2007).                               

Religion is basically known as the connection between individuals and the society, has always been reliant on the religious norms and traditions of a culture, whether this meant the existence of a religious norm or lacking it. Where in some cultures, economy is minimally influenced by religious impacts, meaning, that the presence of religion may have a huge effect on how certain economies behave. (Carter J., 2004).

The interaction of religion, culture and the economy is simply demonstrated by the business practice of one religion’s principles and norms. For instance, Islamic countries are normally governed by the Islamic legal, social and cultural terms. In Islam the Qur’an is the guiding book for Muslims containing all essential principles of Islam. The Qur’an indicates clearly that it is forbidden for Muslim individuals to drink alcohol, gamble. As for the economy, it is prohibited for banks to work with interest for example. Social-wise, immodest exposure is not acceptable. Therefore, in several ways, religion affects behavior of business, culture and the customer. The rules of the Islamic belief influences various businesses such as the alcohol industry, resorts, banks or any institutions that give any kind of loans. (Anon, 2007)

This of course could be translated as a risk or a reward, recently many businesses are reaching for the Islamic market due to the business opportunity there, and using what could be interrupted as barrier to their interest. Alcohol firms started to produce what is now known as zero–alcohol beverages, now there is Islamic resorts in Islamic countries and banks see now that is somehow beneficial to work under and apply the Islamic economic system.

While Communication, is directly connected with language and dialect norms in one way or another. For instance, in high context cultures, gestures (or non-verbal communication) are more common than usual interaction. This kind of communication may cause some misunderstanding for foreigners and expats who intend to understand the new culture (Hall’s Cultural Factors, 2009) Examples of these high-context cultures can be found in countries such as, Japan, China, and Arab countries (Moseley A. , 2009).

On the other hand, there is low-context cultures, where using minimal gesture-wise communication and more decoded speech (verbal-communication) is the familiar way of interaction. “The speaker says precisely what he or she means” Phelan (2008) indicates. For instance, United States of America, Scandinavian countries and Switzerland are low-context cultures (Moseley A. 2009). 

         

Since communication is a determinant influenced by other determinants – such as language and religion, etc. - , it is anticipated that the attempt of communication between two individuals (or two businesses) from two different cultures might have some issues. Business- wise, communication difficulties normally take place when firms are conducting business with partners abroad (joint venture for example), or even having foreigner expats in as colleagues in the same company. Communication barriers normally arise when business negotiations are taking place or even in informal situation. However, the occurrence of these barriers normally jeopardize business opportunities or may even cause good business relationship to break (Browaeys M. & Price R., 2011).

While verbal language seems like the main barrier of cultural communication due to language variation or the way a certain culture communicates using common words, non-verbal language, on the other hand, can be a big disadvantage encountering individuals in the business environment. Gestures differ from one culture to another what might mean “perfect” (using gestures) for westerns might mean ”threatening others” for easterns. However, non-verbal language is not restricted to gestures, silence might have different meanings in different cultures, depending if it is a high or low – context culture. Accordingly, for instance, cross- cultural negotiations cannot go through without having  prior knowledge of the culture or firm that business is about to be conducted in or with.  

                        

Social Structure. Barriers of cultural difference is met (according to organizational researchers) by combining the diverse definitions of collaboration. Therefore, it is proposed that a conditional model of collaboration must be developed. Additionally, culturally varying collaboration techniques are proposed, due to the distinctions comprehended in the terms of: instrumental and expressive urges of individualists and collectivists (Chao et al 1998).

Kluckholn and Strodtbeck (1961 cited in Browaeys & price 2011) pointed that individualism cultures are cultures that favors the role of individual over the role of the group. So, when individualism is valued, societies are induced to be self- dependent and seeking to achieve individual goals. The United Kingdom Australia, Canada, and the United States of America are examples of individualistic societies.

Collectivism, on the other hand, is when the groups’ benefit take over the individuals’ benefit. Each individual contributing in a collectivist society is induced to carry out what is best for the whole group and to deny and thought or ideas that states the opposite. China, Panama, and South Korea are examples of strongly collectivist societies (Browaeys M. & Price R. 2011).

Hofstede (1991) indicated that there is no such thing as robust relations between individuals in individualistic societies. What concerns individuals in first degree in these societies is self-interest, which generates competition over resources and demand financial rewarding when wining the competition. These societies lack teamwork, selflessness and cooperation, in conducting international business individual skill alone is not enough. On the other hand, relations in collectivist societies are rather strong, and individuals are less important than the group. When conducting business, the opinions and views of individuals, as part of the group, are well taken into account. All factors of the groups is important; cooperative experience, collaboration and maintaining group harmony. Collectivist societies conducting business, will face barriers. Such as the scarcity of individual skill or the self-motivated individual by means of financial rewards.  (Hofstede, G., 1991). 

           

How to control the risks?

In order to control the risks affecting an organization, all risks should be eliminated all at once. This method is considered the most effective and successful technique. Preventing the occurrence of those risks could be a significant way to control it on the long run. Purchasing hazardous materials could be a good example of a risky decision, not to mention the equipments used,  as well as redesign the workplace of an organization could also prevent the risk. If one cannot abolish those risks, then reducing them as far as practical is a must (Worksafe Victoria, 2001).

 

Solutions

Since cross–cultural communication and language are highly connected, then recommended solutions for arising barriers and risks are mutual. Different values, attitudes, interests, behaviors, and languages may produce different negotiation styles, which, if not properly coordinated, can cause misinterpretation or disagreements and may also end potential, robust and beneficial business relationships. As suggested earlier these risks can be easily prevented or avoided by simply eliminating them. Accordingly, firms conducting business abroad will have to take safety measurements and be fully prepared for the new environment. For instance, make a full report or study on the social norms, awareness of high and low-context cultures definitions, employee training, and seminars for less experienced potential expatriates. (Lloyd et al, 2004)

Religion, as discussed earlier, holds a risk to be delicately handled. This cultural-barrier risk if well-handled could be turned into an exceptional business opportunity for the firm. The “how-to” of this process was mentioned earlier in the Islamic culture example.

Social structure is more connected with political risk and country (cultural) risk Anon (2007). And since no actual political risk was mentioned earlier, only addressing of the advantages and disadvantages of each model (collectivism and individualism) and the applications of the two in businesses. But ofcourse like any other determinant social structures can be used for beneficial purposes or can even be an obstacle against conducting business abroad, depending on how familiar are these firms with cross-cultural skills usage in avoiding various global risks. Simple collaboration between opposite culture and benefiting from the experience, can help combine the expertise and practice of collectivism and individualism to the better interest of business. A great example of social- structural culture is the Scandinavian countries.

 

Conclusion

As a result, a cross-cultural business must tend to learn other cultures determinants nature and develop new techniques to accommodate and benefit from the business itself. The risks of such business are critically high and may cause significant damages to the business. Therefore, adopting new techniques and methods to prevent or eliminate those risk are highly suggested to all cross- cultural businesses.

Decisions could be a risk on its own. Choosing the right materials, equipments, timing, as well as methods used in risk prevention (identifying, assessing, and controlling risks). There are firms nowadays which are involved entirely in applying these methods in their decision making.  Still, until now national culture and diverse clusters of people doesn’t exist, when conducting business abroad. These cultures are separated geographically, historically or even socially; for instance, a business may conduct a particular business opportunity rather than any other one due to its culture, traditions, and values.

When firms are conducting businesses abroad, cross–cultural barriers will surly arise, generating various risks for businesses if not well handled. Accordingly, a method of controlling risk was discussed earlier, it is ofcourse under the usual process of identifying, assessing and handling risk. However, since controlling risks affecting an organization should be eliminated altogether, then why not take these risks and turn them around for the better benefit of the business. On the other hand, controlling risks for different businesses acquire different measurements, due to a firm’s level of experience and knowledge in cross -cultural risk management.

 

 

 

References:

-          Belshek, J.A., (2005). The influence of culture on the negotiation styles of British students, Newcastle University.

-          Browaeys M. & Price R. (2011).Understanding Cross- Cultural Management. Prentice Hall.

-          Carter J., (2004). Religion and culture: the individual and the community. Castle Rock Institute.

-          Chao, C. C., Chen, X. P., & Meindl, J. R. (1998). How can cooperation be fostered? The cultural effects of individualism-collectivism. Academy of Management Review, 23, 285-304.

-          Elmes D., (2013). The relationship between language and culture. National Institute of Fitness and Sports in Kanoya International Exchange and Language Education Center.

-          Hall, E.T., (1976). Beyond culture. New York: Anchor Books/Doubleday.

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-          Kulckholn, F. and Strodtbeck, F.L. (1961). Variations in Value Orientations, Westport, CT: Greenwood.

 

-          Lloyd, S. L., Hartel, C. E. J., Youngsamart, D., (2004) Expatriate; Intercultural Experience; Intercultural Competencies, Doing Business Across Borders Journal.

-          Moseley, A., (2009). Improving Cross-Cultural Communication Skills: Ask-Seek-Knock. Leadership Advance Online.

-          Mulholland, J., (1991). The language of negotiation. London:
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-          Scott, W. R. and Meyer, J. W. (1994) Institutional Environments
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Thousand Oaks, CA.

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Online References:

 

-          Anon (2007). The Cultural Environment of international business. [Online] Available from the World Wide Web: http://www.prenhall.com/behindthebook/0131738607/pdf/Ch.%205%20revised.pdf [Accessed 3 Nov. 2013]

-          Hall’s Cultural Factors (2009). [Online] Available from World Wide Web: http://changingminds.org/explanations/culture/hall_culture.htm
[Accessed  25 Oct, 2013]

-          Phelan, S. (2008). Cross-cultural communication and negotiations. [Online] Available from World Wide Web: http://faculty.unlv.edu/phelan/MGT480/Lecture%205.ppt#258,1,cross-cultural communication and negotiations.
[Accessed 25 Oct, 2013]

-          Worksafe Victoria (2001). A guide to risk control plans. [Online] Available from world wide web: http://www.alia.com.au/hotissues/Vic_Guide_to_RiskControl.pdf