Understanding the Role of Culture in International Business

Understanding the Role of Culture in International Business

Introduction

Global expansion is demanding. If you're expanding into a market whose local culture is different from your home market, you may experience cultural differences that present yet another challenge: a cultural challenge.

In recent decades, cultural and international business have been inextricably linked. Thanks to globalized goods, people, and money flows, companies growing internationally must deal with cultural differences in new, local markets.

There are many ways — and reasons — international businesses need to keep culture in mind when doing business abroad, such as:

  • Marketing and promoting products and services whose prices and use differ from one market to another
  • Relocating senior managers who would need to perform several business activities abroad
  • Engaging local customers in one market to expand into a neighboring market whose access is hard to achieve directly
  • Establishing solid business partnerships with local suppliers, vendors, collaborators, etc.
  • Outperforming the competition by creating a more insightful, favorable, and enduring presence in a market instead of a distant approach where you're less involved with local customers or businesses

Whichever reason you wish to do business abroad, culture is a staple.

Knowing how to do business in a different culture means that you need to understand which cultural factors affect international business activities. This article shares what cultural barriers you need to overcome and how to do so by centering culture in your global business operations.

The importance and role of culture in international business

When you start or expand your business abroad, you come into several cultural touch points. For example, when discussing a contract with a local employee, using local language, negotiation methods, and more are critical when establishing a respectful working relationship. This is cultural sensitivity.

The importance and role of culture in international business is a long-established area of interest in business and academic research. For example, in a broad study on the role of culture in international business, cultural context is shown to substantially influence how global companies perform everyday duties in diverse cultural contexts. Specifically, going abroad makes companies adapt business procedures to local customs.  

This finding has broad implications for developing business strategies that are culturally competent on a wide scale. Notably, while each company may (or should) have a clear and actionable business strategy at home, applying this method without adopting it to local customs may fail and result in scandalous or undesirable outcomes.

Moreover, the complexities involved in doing business abroad are informed by what makes a culture, such as local languages, business practices, local dress codes, food habits, and much more. In short, doing business abroad is, in many ways, more about understanding who your customers — and, by extension, your business partners, suppliers, vendors, etc. — are in your chosen international markets of operation.

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International business and cross-cultural challenges

International business involves a range of cross-cultural challenges, which present barriers across cultural lines. Understanding cross-cultural challenges, or differences, is critical for your success as an international business.

Think of these challenges as another barrier to market entry when doing business abroad. There is, however, a primary difference between (usual) business and (and less so) cultural barriers:

Where business barriers can be overcome using business learning methods and models (e.g., marketing strategies, business negotiation, etc.), cultural barriers need to be addressed using more innovative techniques (e.g., role plays, immersive workshops, and cross-cultural programs). Such approaches can be informed by how your staff interacts with local customers, suppliers, and partners.

So what are some common cross-cultural barriers you are likely to encounter? They come in almost every shape, scope, and depth, including:

  • Cultural conflicts, primarily arising from cultural differences among your international staff members
  • Parochialism, meaning your staff might (mistakenly) believe at-home rules and ways of doing business apply equally (and literally) abroad
  • Individualism, meaning your staff members who are used to working independently might find working in teams hard to do in your foreign markets
  • Cultural distance, meaning your staff — whose culture is vastly different from your foreign market's — might be unable to adapt to new ways of doing business according to local cultural customs.
  • Culture shock is an extreme case of culture difference where your staff assigned abroad cannot adapt to local culture and habits so much that your final output as a business declines instead of grows.

Underlying each factor affecting international business activities abroad are factors informed more by culture and less by business processes. That is why you should address the cultural barriers you face or are likely to face overseas.

For example, the Wing Zone franchise overcame local barriers to certain tastes of chicken offered as standard in home markets. Tweaking Wing Zone's flavors to adapt to local preferences — by adding tandoor in Saudi Arabia, for instance — has made Wing Zone an instant success.

In a second example, Wich Superior Sandwiches has worked on supply chain management (not taste) to streamline operations outside the US home market. In doing so, this company has not only cut supply chain costs but has also managed to localize supply chain practices to adapt to local ways of managing supplies and vendors in different markets.

How creative companies can or not overcome cross-cultural barriers is not a fixed recipe everyone can cook and enjoy everywhere. Instead, a wide range of factors, defined by culture as an overarching factor, are at play in determining whether a product or a service could succeed at a given time and in a given market. Understanding who your local customers and partners are defines your cultural competency abroad as an employer and brand.

Addressing the cultural barriers in international business

To overcome cultural barriers, companies should:

  • For international projects, carefully select employees who are cultural sensitivity, have an expansive worldview and cultural knowledge, and a desire to learn about new cultures and habits
  • Assign employees compatible assignments, meaning you should send your employees to markets where local cultures are close to their home culture to avoid significant adaptation challenges, particularly on first assignments
  • Provide pre-departure training by educating selected employees about local cultural habits, geography, dress codes, etc.
  • Provide after-arrival orientation to help your assigned employees settle in and adapt to your chosen foreign market by offering assistance in housing, commuting, shopping, etc.
  • Provide financial and non-financial incentives (e.g., promotions upon returning home) for your international assignees to ensure job insecurity, soothe feelings of separation from family and friends, and fill gaps in employee engagement that may have occurred due to remote work.
  • Prepare employees for reentry cultural shocks, helping them to reorient upon returning home.

Cultural differences in international business

As your business grows internationally, cultural differences across markets you operate in grow accordingly. However, cultural differences can be considered assets to invest in instead of liabilities.

In expanding abroad, you should introduce changes to your business strategy to adapt to local ways. You may lose your company's organizational culture, but this presents an opportunity to introduce changes that strike a balance between your national corporate culture and international cultures of interest. This may help expand your business.

As such, managing cultural differences in the international market may be less challenging, bridging the gaps between your corporate culture and your chosen foreign market's culture. This can create a business process that is effective and productive with ideally less cultural friction (or strategies on hand to address any challenge swiftly).

Getting culture right in international business

Understanding cultural differences in international business is a must for any global employer. The success or failure to understand who your foreign customers, suppliers, vendors, and partners are can make-or-break your budding or established international presence.

To successfully understand foreign markets, international employers need to identify such differences, how to manage them, and what best practices can be adopted to make culture an asset.

Cultural differences could arise in many ways when doing business abroad. If you're new to doing international business, getting a foreign market's culture right is not likely — unless you get help from a global employer of record. Established employers of record, such as Skuad, have in-house legal expertise and international market exposure, providing you with the industry's best hiring practices.

If you're launching your first international presence abroad or you're already an established global business, Skuad is an excellent solution for your expansion plans. 

Skuad is a global employment and payroll platform that enables you to hire employees and contractors in over 160 countries without setting up a subsidiary. Skuad also handles payroll management, onboarding and ensuring compliance with country-specific employment laws.

Book a demo today to know more about Skuad.

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