The importance of culture

Table of Contents

Abbreviations

1. Executive Summary

2. Introduction and Background

3. Findings
3.1 Definition of Culture
3.2 Cultural Dimensions
3.2.1 High–versus Low–context Culture
3.2.2 Monochronic versus Polychronic Time
3.2.3 Silent Language
3.2.4 Hofstede’s five cultural Dimensions
3.2.5 Maruyama’s epistemological Types
3.3 Culture and Business
3.3.1 Face to Face Level
3.3.2 Company to Company Level
3.3.3 Company to Customer Level

4. Conclusion

Abbreviations

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1. Executive Summary

This report provides an analysis and evaluation of the significance of a study about cultural diversity in cross-border business. Additionally, it identifies the possible advantages and disadvantages that companies will be confronted by when deciding to sell internationally. The method of analysis for this report included a review of the current literature available in libraries and on the internet.

The major findings indicate that an understanding of cultural diversity is of paramount importance in order to be successful in exporting, since people’s behaviour and tastes differ widely from country to country. Thus, culture has a strong impact on communication, products and their promotion. Conducting a study regarding culture enables companies to meet consumer needs, to use the marketing mix more efficiently and to set up successful foreign network channels.

On the other hand, by exporting, companies may meet the challenges of face to face communication with foreign people, collaborating with foreign companies and convincing foreign consumers about their products. Beyond this, companies should overcome the temptation of ethnocentrism and adapt their business method to local requirements.

In detail, companies should conduct a study concerning culture which should be included in a PEST framework (political, economic, social and technological analysis). Companies should, based on the culture and PEST analysis, adapt their business methods to each culture. Moreover, employees should be prepared to engage in international business. They should be able to speak different languages and handle diverse cultures effectively. They also need to foster a consistent level of understanding and application of cultural diversity. Additionally, foreign distributors should be engaged and foreign partners should be found. Further, before starting negotiations the companies’ negotiating teams should gather background information about their counterparts.

This report also investigated the fact that cultures shift over the years. Thus, companies should regularly analyse markets and react to any changes over the years to come.

2. Introduction and Background

This report critically outlines the importance of a study of “culture” in conducting cross-border business and it identifies how culture may affect companies. The report commences by presenting the significance and opportunities of international trade for UK companies. Following, the main findings are outlined in section three. To begin, the cultural elements are shown before the cultural dimensions are pointed out and analysed in detail. Subsequently, possible problems of exporting are stressed. This report concludes by summing up the most important findings and suggesting some recommendations for the future. The research for this report included a review of the current literature available in libraries and on the internet and aims to explain the importance of a study about “culture” and how companies may be affected by this.

International trade is of particular importance for UK companies^[1]. According to the national statistics, the value of UK trade in exported goods and services over the period of October 2005 till October 2006 accounted for approximately £323 billion (National Statistics, 2007). In this context it should be mentioned that during the same period Welsh companies realized about £9.2 billion by exporting. This was an increase by 4.9% compared to the previous four quarters. Thereby, the US (18.3%), Germany (14.2%) and Ireland (10.5%) provided the largest export markets for Welsh products. Additionally, metals was the highest value export product sector for Welsh companies. It amounted totally to £1.9 billion, which was a rise by 11.8% to the previous twelve months (Statistical Directorate, 2007).

These above-mentioned figures demonstrate that there are already many Welsh companies that are successfully conducting cross-border business. Selling goods internationally would provide several opportunities for companies. Exporting might boost their stagnated profit and may turn around their declining turnover. Further, as a consequence of additional overseas demand and gaining competitive advantage, potential higher sale figures, selling profitably excess capacity and elongating the length of product life cycle might be achieved. Moreover, by marketing goods internationally companies have the possibility of diversifying their business. Thus, the overall business risk can be minimized since they will less rely on their UK home market. Beyond this, products that are prohibited to sell in the UK may be distributed in foreign markets where such a restriction does not exist. Further, as a result of exporting in growing markets, companies will have to increase their produced number of pieces. Consequently, economic of scale and scope can be generated as unit costs will fall and bargain power will increase (Darling and Seristö, 2004).

However, the reverse side of exporting is that companies will be confronted with different customers’ behaviour. With the aid of a PEST^[2] analysis companies can assess potentials foreign markets^[3]. This term stands for political (regulations, tariff and non-tariff barriers, and political stability), economic (size of population, GDP, per capita income, inflation, taxation system), social (languages, religions, values and attitudes) and technology (the way of distributing, advertising, and ordering products) analysis (Whitelock and Jobber, 2003). All these four factors are strongly affected by the dominated culture prevailing in each country. Thus, in the following, cultural differences are outlined as it may be the most critical aspect for companies to be successful in conducting international trade.

3. Findings

It is necessary to fully define the term “culture” and additionally to outline the elements of it.

3.1 Definition of Culture

Geerd Hofstede defines the term “culture” as:

“the collective programming of the mind which distinguishes the members of one human group from another….Culture, in this sense, includes systems of values…” (Mead, 1998).

Hofstede then, emphasises that people’s behaviours are simply different from each other due to their diverse cultural influences.

The term “culture” generally comprises language, religion, customs and manners, material goods, aesthetics and education. Language^[4] is considered as a particularly important key for understanding foreign cultures as information is transferred by this. Speaking the same language makes direct access to diverse cultures possible. However, differences also exist within one language. For instance, some words in American English have other meanings in British English.

The dominant religion embodies a system of ethical belief and can provide a sound understanding of culture as it influences people’s values and attitudes to a great extent (Fam, Waller and Erdogan, 2004). For example, the huge differences between Christians and Muslims were shown recently by the now notorious cartoon controversy^[5]. It was clear that many Christians believed that in Muslim countries religious faith does not have a higher significance than the freedom of press. On the other hand, customs and manners describe how things are done by people. For instance, it is common practice in Asian countries that before ‘jumping’ straight into business it is polite to talk about personal matters: contrastingly, in Germany there is a clear division between business and privacy (King, 2000).

The term “material goods” summarizes arts, crafts and technology. Above all the marketing strategy and the methods of distribution depend to a great extent on available technology. Aesthetics expresses good taste and defines what is beautiful in one culture. For example, kinds of music, dance styles and colours are determined by cultural aesthetics. Finally, the level of education varies between cultures. The rate of literacy largely defines the appropriate advertising programmes and labelling in each country (Mead, 1998). For instance, according to UNESCO, only 12% of the children growing up in Ethiopia enrol at secondary school, whereas in the US this percentage rate is over 97%. Clearly the term “culture” is a complex one. No less complex are people’s patterns of behaviour and some of these are examined below.

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^[1] In 1998 UK merchandise exports amounted to 25% of gross domestic product at 1990 prices (Nobes and Parker, 2006).

^[2] The UK government is a great help to undertake a PEST analysis. For instance, the Department for Trade and Industry (DTI) provides information on almost all foreign markets (Dawes, 1995).

^[3] This analysis is of paramount significance as one reason for failure of exporting is to identify target foreign markets (Fillis, 2002).

^[4] Approximately 6000 different languages are spoken globally (Parker, 1998). By this, English has become to the most important business language worldwide. However, despite the importance of speaking the same language, even greater importance is placed on non verbal communication (like tones of voice, gestures, eye contact, and appearance). In fact, it is estimated that over 50% of our communication is non verbal (Mead, 1990).

^[5] See BBC News (2005).