Cross-Cultural Perspective in International Business - Essay Example

Cross cultural perspective in international business Introduction In recent years, a rapid growth has been observed with respect to number of organisations that are expanding their international operations. The world has become a unified global market for foreign corporations and new destination for business is being created for firms. However, the operational activities are becoming comparatively difficult as relatively high competition can be observed in the international market. As a corporation undertake global expansion, it comes across a number of challenges that are generally new and different in nature. It has been observed that besides various advantages, international expansions invite a series of unfamiliar obstacles in daily activities of the firm. Culture is considered as one of the crucial obstacles that has strong impact on overall performance of the organisation. The impact of cultural difference on a business can be varied in nature. During initial period, the most common issues that an organisation faces include language problem, cultural collision and cost planning. An organisation should be able to handle these issues tactically as inappropriate management may result in disrespect to foreign culture and consequently, loss in the existing business (Steers, Sanchez-Runde and Nardon, 2010; Dalton, et al., 2002). According to Root (1998), globalisation has resulted in development of business environment where it is essential for organisations to look beyond traditional business approaches that they pursue in home market and adopt global perspective to international trade. The aim of this paper is to review and access critically the international business implications of selected cultural features in Chile and the United Kingdom, as well as, provide recommendations regarding successful execution of business therein. Culture Culture can be defined from numerous perspectives and has a vast arena. It generally comprises factors such as fine arts, life style, literature, music and philosophy. A number of authors have underlined important role of culture in developing guiding principles of life that involve complexities of knowledge, moral, belief, behaviour and habit, while literatures suggest more than a hundred formal definitions of the same. Hofstede has defined six dimensions of culture that has strong impact on individual culture as well as organisational culture. One of the important aspects of culture is that it can be acquired and transmitted through interaction and learning process. Culture plays a strong role in economic, social and educational system of a place or country (Schwartz, 2006). Cultural challenges One of the important challenges related to culture in international business perspective is contradiction between cultural convergence and cultural divergence. Cultural convergence is the process when different cultures converge into one, while, cultural divergence focuses on process when one culture diverges to separate ways as a consequence of international expansion. The other challenges related to global cultural diversity include issues related to plurality of cultures and inclusion and exclusion related to cultural factors. Cultural pluralism focuses on existence of different cultures within a large group in a harmonised manner while maintaining unique essence of each culture (Steers, Sanchez-Runde and Nardon, 2010). International business and Chilean Culture The paper focuses on international business in context of two different cultures namely South American and European cultures. In this section, the South American culture has been discussed briefly followed by an elaborate discussion on Chilean culture and its international business. In recent years, South America has become a prospective choice for a number of foreign companies because of a number of promising opportunities and existence of competition between globalisation and nationalisation, market and government, capitalism and communism and technological innovation. A number of changes have taken place in South America since its democratisation in 1990. These changes have proved as a great support regarding development of international business in the South American economy. It was ascertained that role of government is an important factor in South America as the government is responsible for providing framework for functioning of private sector companies (Arbelaez and Milman, 2000). The homogenous society of Chile is highly influenced by its geographical isolation and remoteness which further play an important role in its culture. The Chilean culture reflects impact of various indigenous cultures as well as that of Spain’s colonial practices. It was ascertained that traditional culture of Chile is greatly influenced by rural and agrarian factors. Chile is geographically as well as culturally diverse in north and south with each location has its own folk culture and traditions. However, the overall culture and tradition of Chile is primarily influenced by that of central Chile. Chile is considered as one of the well-blended nations of Latin America with respect to cultural perspective and ethnicity. Unlike most Latin American countries, Chile is not prone to regionalism or a strong conflict between various regional cultures as its northern and southern regions are mostly populated by people moving from central Chile (Arbelaez and Milman, 2000). The current population as per World Bank data is 17.62 million and it is considered as one of the high income economies as per OECD (Organization for Economic Co-operation and Development) (World Bank, 2014a). Economic and political hardships of military regime between 1973 and 1990 on Chile caused a number of Chileans to settle in abroad. However, the current political condition of the country is defined by peace and stability which is one of the reasons for growth of international companies in the country. The lifestyle of Chileans is defined by a mixture of urban and urbanized rural environment. The population of the country mainly comprises Palestinian community and mixed European ancestry beside the indigenous population. The official language of the country is Spanish while a number of native languages are also spoken by individuals (PWC, 2008; U.S. Commercial Service, 2012). The gross domestic product (GDP) of the country was $277.2 billion in 2013 as per World Bank and it is one of the two countries in Latin America that joined OECD (World Bank, 2014a). Chile is the most competitive economy as per World Economic Forum with an extremely stable economy. The country is defined by a strong institutional setup, low corruption level, macroeconomic stability, low level of public debt and deficit and efficient government regulations and market structure (World Economic Forum, 2014). It was further ascertained that the business culture of Chile is supportive to international business as the country has open and free trade system with negligible amount of trade barriers. It was ascertained that the country has withdrawn from Andean Common Market (ANCOM) so that the economy and its business activities are free from trade restrictions of ANCOM regarding foreign investment (PWC, 2008). The Chilean government has issued special statutes which are also denoted as foreign investment statute for the purpose of promoting foreign investment. For further convenience, the taxation policy of the country for foreign investment entities is same as that of the residential businesses so that favouritism is not perceived by foreign companies. Chile has a fair credit rating in context of macroeconomic stability and integration with the global capital market. The local competitors has a positive and welcoming attitude towards foreign investors as international expansion in the country is perceived as greater access to external market and advance technologies. Additionally, labour market of the country has an open attitude towards foreign investors as foreign firms provide good employment opportunities and health work environment (U.S. Commercial Service, 2012). Hofstede review on Chile suggests that the work environment in the country is defined by high power distance indicating towards tall social structure and low level of delegation in organisations. In Chile, masculinity is not highly favoured and success at work and concern for others is balanced in a harmonised manner. Additionally, low level of individualism can be observed in the country resulting to greater emphasize on culture driven by collectivism. Chile scores high in uncertainty avoidance and low in pragmatism which suggest that the residences are followers of normative culture and prefer elaborate legal system. Chileans exhibit high propensity towards expenditure and less towards saving as suggested by high indulgence score (The Hofstede Centre, 2014a). International business and the British Culture The United Kingdom is a sovereign state located in Western Europe and comprises England, Wales, Scotland, Northern Ireland and some parts of Northwest France. The UK is governed by the parliament located in London. The culture of the UK is otherwise known as British culture often because of its close proximity to Great Britain. The UK is considered as one of the high income economies in the Europe having total population of 64.10 million as measured in 2013 by the World Bank. The population comprises English, Scottish, Welsh, Northern Irish, Indian, Pakistani and other nationals resulting to development of multiple ethnic identities in the country. The country does not have a constitutionally defined official language; however, English is the most spoken language and is considered as main communication language therein. Along with English, a number of native languages such as Welsh, Irish, Cornish and Gaelic are also used by natives for communication purpose (World Bank, 2014b; Kwintessential, 2013). Prior to World War II, the UK had a very homogenous population but over the years, it has increasingly accommodated large number of immigrants from various countries all over the world resulting to development of a multicultural society. Despite multicultural environment, the British culture can be differentiated from the other cultures in terms of specificity in customs and traditions of the local residences. The British individuals are characterized by privacy as they are very reserve by nature and have equal respect for other’s privacy. The work culture in the UK is defined by long term business relationship, formal code of conduct and protocol adherence (Kwintessential, 2013). In the European Union, the UK is a major international business power and the third largest economy in the community. The UK is also the sixth largest economy in the world having a GDP of $2.522 trillion as per World Bank data. The UK is also an OECD country that is categorized in the high income group (World Bank, 2014b). From geographic perspective, the UK is a small country but it has a well developed, diversified and sophisticated market for export and import activities and is considered as an entry market to European Union. The business potentials of the UK is considered as one of the highest in the world due to open economy, efficient labour market and high degree of financial development. It has been also established that the economic performance of the UK is improving slowly and the country is also gaining from low level of public debt and fiscal deficit (Kwintessential, 2013; World Economic Forum, 2014). The British culture has been evaluated in the context of international business using the six dimensional model of Hofstede whose outcomes are explained as follows. The power distance dimension represents the extent to which less powerful members of an institution accept power distribution among more powerful members. The power distance score of the UK is at 35 representing that sense of equality and fair play is given high priority among individuals in the UK. Individualism reflects the extent to which interdependence is maintained among various members in a society. For instance, in a collective society the score of individualism will be relatively low. Contrastingly, in UK the score is fairly high, positioned at 89. The score suggests that the British are extremely individualistic and reserved people and does not prefer intrusion in their personal space. A strong individualistic culture is considered as one of the reasons behind high degree of unchecked consumerism in the UK (The Hofstede Centre, 2014b). Unlike Chile, masculinity is highly preferred in the UK. Masculinity aims at recognizing factors that motivates individuals; high masculinity reflects aspiration of individuals to be the best while low masculinity denotes preference towards doing things that are enjoyed by an individual. The masculinity score of the UK is around 66 which suggest that the British society is driven by competition, high performance and achievement. The uncertainty avoidance score of the UK is comparatively low which reflects that the nationals have high risk taking abilities. Due to low risk avoidance propensity, it can be ascertained that work environment is driven by innovation and creative even if that occurs with certain protocols. The British society scores 51 in pragmatism which establishes that it encourages thrift and is prepared for societal changes. Most cultures are classified as indulgent and restraint depending upon ability of its followers to control their impulse. British society is considered as an indulgent because it scores around 69 in the indulgence dimension. This suggests that British culture is driven by positive attitude and optimism and individuals place relatively high importance on leisure activities and time (The Hofstede Centre, 2014b). The prospect of international business in the UK is favourable because the pragmatic nature of British culture emphasizes on entry of foreign organizations and establishment on long term business relationship. The British government further enhances the scope of international business through transparent taxation system where local and foreign entities are taxed in a similar way. Furthermore, the government policies facilitate free flow of trade and capital, low level of corruption and macroeconomic stability which enhances the scope of international business in the country (World Economic Forum, 2014). Recommendations The analysis of culture of Chile and the UK from international perspective suggest that a significant cultural difference can be observed between both the countries in context of various aspects of culture such as power distance pragmatism and others. However, recognition of basic cultural differences may not be sufficient to provide recommendations regarding conducting operations in both the nations in a harmonized manner. For this purpose, it is essential to understand the challenges that are generally faced by managers because of the above mentioned issues. The challenges that a global manager can face while operating in these countries are communication skills, power hierarchy, chain of command and business practices. For instance, in the UK, organizations emphasize heavily on inclusion of corporate social responsibility in sectors such as workplace issues, environment and contribution to the community which may or may not be considered in Chile. Planning is considered as the cornerstone of effective organizational management is very essential for professional development. Therefore, it is important for managers to develop learning approach that facilitate short term as well as long term professional development. Innovation is very important for developing cross cultural learning approach and determination of managerial skills and responsibilities. Chilean culture is reflected by homogenous society while that of the UK is highly diversified. In this context, it is important for a manager to understand and assess core cultural dimensions and recognize the differences so that strategy is formulate to facilitate smooth functioning across the different environments. Chile and UK do have certain similarity in their culture which need be highlighted by the firm for motivating employees in different locations (Cullen, 2002). It was ascertained that in Chile the power distance is high compared to the UK which indicates that employees prefer to be directed. In such situation, workplace roles and responsibilities should be defined differently. Alongside, methods of information dissemination should be different in Chile and the UK because significant degree of variance in terms of formality at workplace can be observed in both the countries. An internationally operating firm often faces conflict among local cultures and global culture because at some point the firm is entitled to encounter problem in cultural diffusion. Acculturation is not an easy process despite the fact that the culture can be adopted and learned over the time. Individual resistance is a major problem with respect to acculturation and can be resolved through development of communication skills and cross cultural training. Job rotation can also be useful for greater exposure to cultural diffusion but appropriate training should be imparted to employee prior job rotation (Schneider and Barsoux, 2003; Hofstede, 1980). Organizational design differs across the globe and it is the responsibility of the management to diffuse the local culture in the global culture of the company in such a manner that cultural sentiments of no employee is disrespected or hurt. Cross cultural communication skills are very useful in this context. Language training and interpretation facilities may act as source of encouragement for employees. Additionally, the firm should incorporate technological innovation for facilitating greater cultural diffusion. The assessment further suggested contrasting level of individualism was noticed between Chile and the UK which may contribute in increasing cultural gap. This cultural gap can be mitigated by an act of balancing degree of masculinity in the organization at both the location. Creation of virtual teams comprising employees from both locations is recommended for fostering greater degree of cultural assimilation (Cullen, 2002; Schwartz, 2006). Leadership plays an important role in achieving synergistic outcome from employees across different cultures. The perspective of a leader should be flexible enough to recognize the differential points among cultures and act accordingly. Leaders play a critical role in cross cultural organisational environment because leadership approaches differ from culture to culture and a wrong approach may result in disaster. Global leaders are primarily responsible for maintaining cohesiveness among group members in the global virtual teams and managing conflicts related to work habits, problem solving approaches and decision making. Acculturation should not only be reflected in behaviour of global team leaders but also in that of global managers. Global managers are delegated the responsibility of selecting right people, technology and reward system so that employees are motivated in the right manner irrespective of their location (Schwartz, 2006; Walumbwa, Lawler and Avolio, 2007). The ethical practices differ among countries therefore, certain practices of UK may consider unnecessary or unethical in Chile. However, a global firm need to incorporate ethical practices of all the locations it is operating in. this approach may create confusion among employees in both the location which need to be managed by the management. The management should inform all the employees various ethical practices of the company and the reasons behind implementation of the same through proper communication channels (Trompenaars, 1993). Conclusion International business is a complicated process because besides resources and macroeconomic factors, culture has an important role in determining success of the business. There are six dimensions as per the cultural model of Hofstede that has a great impact on organisational culture. In this paper, the Chilean and British culture have been contrasted and compared so that international implications of culture can be understood with respect to a firm that will have operation in both the countries. The paper has discussed cultural dimensions of both the countries and impact of the same on the international business. Alongside, a number of recommendations have been provided in the paper so that cultural complications are minimised and acculturation is encouraged among employees. 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