The Impact of Culture on Global Business

In the classic movie The Wizard of Oz, a magically misplaced Midwest farm girl takes a moment to survey the bizarre landscape of Oz and then comments to her little dog, “I don’t think we’re in Kansas anymore, Toto”. That sentiment probably echoes the reaction of many businesspeople who find themselves in the midst of international ventures for the first time. The differences between the foreign landscape and the one with which they’re familiar are often huge and multifaceted. Some are quite obvious, such as differences in language, currency, and everyday habits (say, using chopsticks instead of silverware). But others are subtle, complex, and sometimes even hidden.

The cultural environment is the set of factors that shape the way people interact with each other and their physical and social environment. Even when two people from the same country communicate, there’s always a possibility of misunderstanding. When people from different countries get together, that possibility increases substantially. Differences in communication styles reflect differences in culture: the system of shared beliefs, values, customs, and behaviors that govern the interactions of members of a society. Cultural differences create challenges to successful international business dealings. Let’s look at a few of these challenges.

Some social scientists argue that CQ (Cultural Quotient) is the new IQ (Intelligence Quotient) and that it is an even more important measure for determining professional success than smarts measured by traditional intelligence quotient tests. Review this article “Increase Your Cultural Intelligence” for some tips on improving your cultural intelligence. Take this Test Your Cultural Intelligence quiz if you wish to know whether or not you have a high CQ.

What Is Culture?

There is no consensus among scholars of different disciplines on the definition of culture.

Social psychologist Greet Hofstede defined culture as the programming of the human mind by which one group of people distinguishes itself from another group (Culture Factor Group, 2023). But according to anthropologist Edward B. Tylor, “culture or civilization, taken in its wide ethnographic sense, is that complex whole which includes knowledge, belief, art, morals, law, custom, and other capabilities and habits acquired by man as a member of society” (as cited in Logan, 2012).

In general, sociologists define culture in two ways: nonmaterial and material. The nonmaterial aspect of culture is defined as values and beliefs shared by a group of people. In contrast, material culture consists of things made by humans, ranging from buildings and clothing to arts and literature. Emile Durkheim, a French sociologist, believes that both material and nonmaterial culture holds society together (Cole, 2019). Sociologists consider culture to be the production of social order and norms, which play an important role in how members of a society function, cooperate and interact with each other.

For the purpose of this text, we will define culture as a system of collective programming (values and norms) shared by a group of people, which, when taken together, determines a society’s way of living.

Culture as a system of values and norms guides the social behaviour of people and serves as the foundation of social structure. Therefore, ignorance of cultural differences can result in a negative return on investment or weak market share, legal challenges, termination of contracts, or even lead to outright business failure.

Values

Values are shared ideas of what a group considers good or bad, right or wrong. Individuals get values from groups in which they are members (Differences Between Norms and Values, n.d.). For example, loving animals is a value that individuals get from the group to which they belong. Some social groups will not let dogs inside the house or to touch them, while others will prosecute someone for being unkind to dogs. Furthermore, helping others, being honest, and saving the environment are all examples of values that people derive from their groups. Values play a strong role in the development of one’s personality and behaviour. They vary from one place to another and from one culture to another (Conerly et al., 2021).

Norms

Norms are social rules and guidelines that define appropriate behaviour in a specific situation (Cole, 2018). Norms can be divided into two categories:

• Mores (formal norms)  are written rules which support social institutions such as public schools, the healthcare system, the military, etc. These norms exist in all societies.
• Folkways (informal norms) are unwritten routine conventions of everyday life learned through socialization; therefore, members of the same group of people show consistency in their behaviour. Examples of informal norms are dress codes, good social manners, rituals, etc. (Crossman, 2019).

Companies conducting business internationally fail to recognize the importance of cultural literacy. To them, all businesses across the globe are the same because they share the same goal – making a profit. They tend to ignore the fact that business practices that are acceptable in one country may not be acceptable in another country. They underestimate the impact of these different practices on their company’s profitability. A little effort into learning the new market’s cultural values and business etiquette can help organizations present themselves in the best way. To better understand differences in cultures, organizations can refer to cultural dimensions theory, which was developed by a Dutch social psychologist, Geert Hofstede.

Cultural Dimensions Theory

Geert Hofstede divides cultural differences across countries into six dimensions: power-distance index, collectivism vs. individualism, uncertainty avoidance index, femininity vs. masculinity, short-term vs. long-term orientation, and restraint vs. indulgence. Hofstede’s cultural dimensions are used in multiple areas, including business dealings and communication.

• Power Distance Index – explains to what extent members of society tolerate power and inequality. A high-power index describes a culture where inequality and power differences are accepted and there is high respect for authority. A low power index, on the other hand, indicates that a culture believes in power distribution and participatory decision-making. (Nickerson, 2023)
• Collectivism vs. Individualism – describes whether a social basic unit is “individual” or “group.” In a society where the basic social unit is an individual, the emphasis is made on individual rights and achievements. However, a society based on collectivism places importance on the well-being of a group and values loyalty and relationships. (Pitt Law Online Blog, 2023)
• Uncertainty Avoidance Index – shows how uncertainties and unusual situations are dealt with by the members of the society. A high certainty avoidance index indicates a low tolerance for risk and uncertainty. These societies implement strict rules and regulations to reduce uncertainty and risk. A low certainty avoidance index indicates that the tolerance for risk and uncertainty is high. Individuals in these societies embrace changes and uncertainties and feel comfortable with unstructured situations.
• Femininity vs. Masculinity – this index refers to gender roles and the extent to which a society values masculine and feminine roles. The high feminine index shows traditional feminine roles are more valued and will most likely have better maternity benefits and childcare services. Meanwhile, the low femininity index indicates female representation in leadership roles.
• Short-term vs. Long-term Orientation – describes the extent to which a society plans for the future. A long-term-oriented society values sustainable growth, savings, and long-term achievements over short-term success. Short-term-oriented society focuses more on the present than the future, emphasizing quick results and short-term success.
• Restraint vs. Indulgence – refers to the extent to which a society tends to fulfill its desires. Indulgence indicates that a society enjoys life and is more likely to spend money on luxury. Restraint indicates that members of society are more likely to limit themselves to absolute necessities and spend money on more practical needs.

Issues To Address in Cultural Literacy

Differences in Communication

Verbal Communication

In many countries, only members of the educated classes speak English. The larger population—which is usually the market you want to tap—speaks the local tongue. Advertising messages and sales appeals must take this fact into account. More than one English translation of an advertising slogan has resulted in a humorous (and perhaps serious) blunder.

Here are a few advertisements that were lost in translation:

• In Belgium, the translation of the slogan of an American auto-body company, Body by Fisher, came out as Corpse by Fisher.
• Translated into German, the slogan, Come Alive with Pepsi became Come Out of the Grave with Pepsi.
• A U.S. computer company in Indonesia translated “software” as “underwear”.
• A German chocolate product called “Zit” didn’t sell well in the U.S.
• An English-speaking car wash company in Francophone Quebec advertised itself as a “lavement d’auto” or “car enema” instead of the correct “lavage d’auto.
• In the 1970s, General Motors’ Chevy Nova didn’t get on the road in Puerto Rico, in part because “nova” in Spanish means “it doesn’t go”.

Non-verbal Communication

What is more important in communication is the non-verbal language, which is harder to determine. For example, business professionals in the Netherlands prefer to communicate only the essentials, while Italians like to build relationships and have friendly communication. Some nations like direct eye contact during business meetings, while others find direct eye contact intimidating. Other examples of non-verbal communication include physical distance, such as bowing or speaking closely (Pitt Law Online Blog, 2023).

High- and Low-Context Cultures

Don’t expect businesspeople from these regions—or businesspeople from most of Mediterranean Europe, for that matter—to “get down to business” as soon as a meeting has started. They’ll probably ask about your health and that of your family, inquire whether you’re enjoying your visit to their country, suggest local foods, and generally appear to be avoiding serious discussion at all costs. For Canadians, such topics are conducive to nothing but idle chitchat, but in certain cultures, getting started this way is a matter of simple politeness and hospitality.

High-context and low-context cultures refer to different approaches to communication: High-context cultures rely on implicit messages, body language, and context. High-context cultures are often found in Asia, the Middle East, and Latin America. Low-context cultures prioritize explicit verbal communication and clarity. Low-context cultures are typically associated with Western countries like the United States and Germany.

Different cultures have different communication styles—a fact that can take some getting used to. For example, degrees of animation in expression can vary from culture to culture. Southern Europeans and Middle Easterners are quite animated, favoring expressive body language along with hand gestures and raised voices. Northern Europeans are far more reserved. The English, for example, are famous for their understated style and the Germans for their formality in most business settings. In addition, the distance at which one feels comfortable when talking with someone varies by culture. People from the Middle East like to converse from a distance of a foot or less, while North Americans prefer more personal space.

While people in some cultures prefer to deliver direct, clear messages, others use language that’s subtler or more indirect. North Americans and most Northern Europeans fall into the former category and many Asians into the latter. But even within these categories, there are differences. Though typically polite, Chinese and Koreans are extremely direct in expression, while Japanese are indirect: They use vague language and avoid saying “no” even if they do not intend to do what you ask. They worry that turning someone down will result in their “losing face”, i.e., an embarrassment or loss of credibility, and so they avoid doing this in public.

Business Etiquette

Before meeting with their business counterparts from another country, it is recommended that organizations do some research about basic business etiquette and be as prepared as possible. For example, when meeting with business professionals from the U.S. or Canada, a firm handshake, good eye contact and keeping a proper distance are in order. On the other hand, if the meeting is with business leaders from Russia or Brazil, for example, be prepared for at least three kisses on the cheeks. Being considerate of workdays and holidays is also important when scheduling business meetings. Different countries have different work weeks. For example, most traditionally Christian countries have Saturdays and Sundays as non-working days. Still, in Judaism, the sabbath falls on Fridays and Saturdays, so the “weekend” days in Israel are different.

Time and Sociability

North Americans take for granted many of the cultural aspects of our business practices. Most of our meetings, for instance, focus on business issues, and we tend to start and end our meetings on schedule. These habits stem from a broader cultural preference: we don’t like to waste time. (It was an American, Benjamin Franklin, who coined the phrase “Time is money.”) This preference, however, is by no means universal. The expectation that meetings will start on time and adhere to precise agendas is common in parts of Europe (especially the Germanic countries), as well as in Canada, but elsewhere—say, in Latin America and the Middle East—people are often late to meetings.

Negotiation

As the most delicate part of business, negotiation is an art and requires strong social skills, even when dealing with people from the same culture. Adding cultural differences can make it even more difficult. However, studying other cultures, especially applying Hofstede’s Cultural Dimensions Theory, can be very handy when preparing for negotiation with other countries’ business parties.

Managing Culturally Diverse Teams

With the globalization of production and services and companies operating around the world, having to manage culturally diverse teams is inevitable.

Diversity is great for bringing different perspectives and creative ideas to the project and can help solve the problem faster and better; however, managing diverse teams can also be challenging. (Taras et al., 2021). Acknowledging differences, making an effort to listen to and understand team members, showing respect and empathy, providing clear expectations right from the beginning and being transparent in explaining those expectations are some of the strategies managers use to address challenges associated with diverse teams (Marzullo, 2022; Brett, Behfar & Kern, 2006).

Organizations with managers and workers who have high cross-cultural literacy are more agile. These organizations can quickly and easily adapt to different processes, capture new opportunities, and respond to changes across diverse markets.

In summary, learn about a country’s culture and use your knowledge to help improve the quality of your business dealings. Learn to value the subtle differences among cultures, but don’t allow cultural stereotypes to dictate how you interact with people from any culture. Treat each person as an individual and spend time getting to know what he or she is about.