Bachelor’s degree

Faculty of Economics and Organization of Entrepreneurship

Course : English Language 2

Business Cultures Around the Globe

Review of the Importance of Cultural Knowledge in International

Businesses

Student: Mentor:
 Content:

1. Abstract……………………………………………………………………...…. 3

2. International Culture Approach………………………………………………... 4

3. Global Cultural Positioning……………………………………………….....… 6

4. Global Habits………………………………………………………………..…. 9

5. Case One: Sony…………………………………………………………….…. 10

6. Case Two: Zara………………………………………………………...……… 11

7. Case Three: Wal-Mart………………………….…………………………..…. 13

8. Conclusions…………………………………………………………………… 15

9. References………………………………………………………………..…… 16

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Abstract

Due to globalization and international corporations, the increased efficiency in

transportation, and modern technology, the world is becoming smaller and smaller every

single day. No longer can one country only depend on itself and its neighbors, but global

expansion has called for a more unified approach.

The company or organization that steps out past the oceans can gain the relative

advantage in international markets. But in doing so, it is increasingly important to have

market awareness. The home product may not advertise as well as it does in the foreign

market. Furthermore, more and more companies are seeking a more international

approach to their business model in order to achieve maximum potential profit, cultural

understanding is one of the most important steps in creating an international company

with multiple locations. Not only must the product in sale speak to the foreign markets,

but also the company must be able to speak out to the foreign employees and work within

a new business culture.

While some companies can avoid product diversification, for example, Google, a

web search engine used across the world that requires no change in actual physical

product, being culturally aware of the business culture abroad can only help increase

profits. The marketing sector relies on knowing its consumer behavior in order to make

logical and sound advertising decisions.

So why do more companies not invest in market research and cultural

backgrounds before stepping their toes into the pond? The answer is simple: the research

is costly or they do not see the need for it in the first place. However, with the world

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getting more global and smaller every day, the importance of knowing cultural

differences becomes more pertinent to the existence of the home company’s presence in

foreign markets.

International Culture Approach

It is no secret that not all countries are alike, and in fact, some seem like complete

opposites at times. One major divide between eastern and western cultures is the pickup

of individualism and collectivism in communities.

Individualist communities, which are featured almost solely in America, Canada,

Australia, and parts of central and north Europe, work individually to bring the

community up. This community culture is motivated by positive feedback about one’s

own personal ability. The individuals within the community all are open to sharing ideas

and theories, but usually are reserved on sharing personal opinions and are close with

immediate family and values privacy and personal space.

While this cultural approach may seem offset, exclusive, and even cold at times,

the American poet Robert Frost points it out precisely in his 1914 poem The Mending

Wall, that “Good fences make good neighbors.”

In comparison to the distance in personal and work life, individualist communities

press for open dialogue when talking about issues in the work life and value honesty over

politeness. It is believed that only through blunt honesty can the problem be solved,

because in day-to-day work operations, it is valued to ‘play the devil’s advocate’ and

question even the experts in the field in order to grow from it.

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 Collectivism, on the other hand, is prominent in most other countries and values

the work of the whole community. The group is motivated and brought up by positive

feedback about benefiting the group, university, or team. The culture evokes and

encourages sharing ‘personal’ details to acquaintances. In addition to that, they are close

with extended family and put the group need above personal needs.

Christopher Earley was an American researcher who decided to test this theory of

collectivist and individualist societies, seeing if the culture would have a direct impact on

business productivity. He conducted an experiment with forty-eight management trainees

from southern China and forty-eight from the United States. They were all given

individual goals and group goals and the test groups were divided to see if the results

should be anonymous or not. Earley found that the Chinese worked best in a group and

anonymously. They performed the worst when being given recognition to their work and

also working alone. On the other hand, the Americans worked best when they were

working alone and were given recognition for their tasks.

This proved that the cultural approach to life also made a direct impact on

business productivity, giving way to the proof that being culturally aware can not only be

beneficial to international business, but it can also be essential.

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Global Cultural Positioning

However useful it is to know if a region’s culture is primarily collectivist or

individualist, it is only a generic concept on work and personal life interactions with

people. In order to understand a culture better, it is important to narrow down to the

details.

Gert Hofstede was Dutch psychologist who first coined the differences of each

culture by creating different spheres and rating them on percentage scale for

simplification. Each country in question was given a score in six different spheres in

order to determine its global positioning.

The first of Hofstede’s spheres of positioning was the power distance scale, which

expressed the degree in which the lower members of society accept and respect the higher

members of society. How much more important is the boss to the employee? Is it

appropriate to call in question the boss’ actions when the employee feels that a mistake

has been made by the hierarchy?

The next sphere was the individualism or collectivism, a notion already widely

accepted by researchers. It presented the basic “I” vs. “We” argument to determine if the

whole worked for individual improvement or group improvement.

Hofstede also ranked the cultures on a masculinity or femininity scale. This is not

to say that one sex dominates the culture, but which attributes are most valued as a group

for the community. Are achievement, material rewards and assertiveness most important?

Or are cooperation, caring for the less, and enjoying your job more important?

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 Uncertainty avoidance was also calculated in the scale of positioning to determine

how acceptable it was for the community to go out for unorthodox ideas. Hofstede

wanted to see if they wanted to try to control the future or let it simply occur.

The fifth global sphere was long/short term normative orientation, and it

measured the importance of time-honored traditions when put into combat with modern

expansion. This was to judge how much the community valued traditionalism.

Finally, the last sphere of positioning was indulgence/restraint. How often is day-

to-day life regulated and restricted by strict social norms? How important was it for the

whole community to act the same as to not be offensive?

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 In the chart above the Hofstede comparison of Russia with the United States is

illustrated. While the power distance is extremely high in Russia, it is not at all in

America, making subordinates in almost equal comparison to their bosses. Russia favors

collectivism; America leans extremely individualist. Russia strives for liking what one’s

own job and cooperation in the work force, while the United States is assertive and values

self achievement. Russia exhibits a high level of discomfort with uncertainty, wanting to

control the environment around them. In long term orientation, America scores very low,

maintaining levels that are unwavering of what is ‘evil’ and ‘good,’ and this shows up

extremely in politics facing issues such as: abortion, drugs, euthanasia, and weapons. On

the opposite side of the wall, Russia is a country with a pragmatic mindset, living in the

belief that truth is dependent upon time and setting. In the sphere of indulgence, Russia

scores low, believing indulgence to be a bad thing, and following a route of cynicism.

America, however, follows a rule that if one works hard, they deserve time off.

America’s indulgence score in comparison with the rest is very contradictory. For

example, in the United States a very prudish society exists, but the television stars appear

‘immoral,’ or that the war on drugs is raging on, but drug addition in America has never

been higher. This puts extreme ‘taboo’ labels on certain people or activities, but because

of the indulgent sphere, these ‘taboo’ behaviors and activities are high in percentage.

Hofstede longed to certain a global percentage and ranking for each and every

country to make global cultures easier to understand. In doing so, he was able to get a

general perception of each country’s behaviors and map them in a mathematical process

that businesses still use today.

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Cultural Habits

If graphing each country’s global positioning chart was enough, then a lot of

cultural misunderstandings would be solved, and companies would save a lot of money

simply by using Google to search for Hofstede’s global positioning charts. But that is not

enough. Each culture has their own distinct habits in addition to the culture’s values and

generic attitudes to situations and business culture processes.

For example, in Japan, business cards are seen as a sign of respect and are given

out all the time. In addition to this, the length of a bow shows the amount of respect and

power difference between the two in meeting. Formalities are also a must. Speaking to

your subordinate or mother or boss are always different.

In America, business culture is casual. In some companies, shorts are acceptable

in the summer. Business interviews are sometimes conducted in a local Starbucks. The

company puts an emphasis of a friendly, casual environment and exhibits the desire to get

to know the ‘real you.’ However, the person interviewed usually maintains a certain

sense of formality until a while into the company and getting to know the company

culture and their colleagues.

In Russia, business culture is very formal. Suits and top dress is always expected

and no less. Business interviews would never be conducted in a coffee shop. Instead,

coffee is seen as a leisurely commodity, and not a necessity, like in America. Coffee

would be enjoyed with friends or at home. In businesses, usually there is no such thing as

a win-win scenario. There is only win-lose, and compromising from the company’s

original standpoint is seen as a weakness.

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 There are many little ‘ticks’ and differences with each and every country in

question. A global positioning chart is simply not enough to determine what the proper

route of interaction is in each country. It is advisable that the company fund proper

business culture research and consumer research before entering any foreign market.

Case One: Sony

In 1994, the NAFTA free trade agreements were set. While some businesses were

happy, others were not, seeing that the agreements might potentially drive home

manufacturers away towards foreign plants, where the price of labor was considerably

lower. NAFTA certainly did encourage multinational markets by definition and in 1990s,

Sony starting flooding Mexico’s cheap labor force with factories and new jobs. The

difference in price from the payment of an American worker was considerably higher at

that time, and without thinking twice, Sony moved a large portion of its production to

Mexico, ready to reap the benefits of free trade.

Prior to NAFTA, Sony would use an import-and-assemble strategy, one that took

advantage of the United States’ free trade zones, where foreign importers could import

pieces of a product into the United States at a designated trade zone, assemble the pieces

in the United States, and then sell the item, thereby avoiding high import taxes. It was

more costly to import a whole television from Mexico than to import the pieces of a

television, assemble in the United States, and then sell, because the pieces of the

television were held at a much lower import tax. However, NAFTA cancelled all of this

out. Now companies could import into the United States from Canada and Mexico

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without an import tax. So it was more logical to import the whole bike. Therefore, the

United States lost the jobs produced by assembling the televisions on United States soil.

With the new trade agreement, Sony obviously took the advantage. However, the

road to market integration was not a smooth one. The company began imposing Japanese

work ethic traditions onto the employees: worker uniforms, early morning exercises, etc.

After seeing the failure of bringing their business culture to the Mexican workforce, Sony

promptly stopped these traditions. In fact, the company even began hiring local managers

to seek to the employees’ satisfaction.

Although all of this seemed to head in the right direction, the company later was

sued under multiple lawsuits for human rights violations. Apparently Sony figured out

that work laws were not so often enforced in Mexico and took advantage of that as well.

Sony was accused of discouraging the right for workers to unionize. NAFTA took up the

case for review but found it upon Mexico’s government to enforce the situation, causing

no significant stop in the human rights violations.

Case Two: Zara

It’s no secret that Zara is one of the most successful multinational fashion

companies. But why is it so successful? Zara was the first of their kind to accept and

adapt to a full-house market differentiation strategy. It is estimated that Zara outputs

nearly ten thousand designs every year. There are three major components to Zara’s

business model that makes it such an international success.

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 First, Zara produces new designs based on their markets. What is advertised on

Zara’s Russia website will not be the same on what clothes are offered on Zara’s Spain

website. This is because consumers in Spain have different tastes than those in Russia,

who in turn have different tastes than those consumers in Japan. It may seem like a no

brainer to assume this, but achieving differentiation strategy can be very costly and

difficult to achieve.

Secondly, the next step in achieving this strategy was making sure that all

clothing products were at a relatively cheap price, making Zara all-market accessible.

Thirdly, Zara adapted a marketing strategy of quick product rotation. This means

that Zara outputs new designs much quicker than their competitors do. This keeps

customers coming back and creates a loyal chain of Zara shoppers. In order to minimize

risk, Zara also keeps stock low and brings in new products soon. This means that if a

certain style or round of clothing did not sell too well in the market, the cost risk is low,

because the stores weren’t heavily stocked in the first place. In addition to this, the fact

that consumers are aware that the current styles will only stay momentarily and might sell

out provokes them to shop often and puts immediate pressure on them to buy products

soon before they either disappear from the shelves or are bought out. If the clothes are

new, fresh, tailored to their geographic and cultural environment, and relatively cheap in

comparison, the consumers come back to buy more and stay in style.

Zara was the first of their kind to jump on board with such a diverse business

model, revolutionizing the fashion retail world. Nowadays high-end fashion companies

are coming out with product lines four to six times a year. Economists and fashion

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consultants alike attribute this to Zara, saying that the company changed the fashion

industry entirely.

Case Three: Wal-Mart

It is no secret that Wal-Mart is one of the most successful business models in the

United States, but Wal-Mart did not have so much success in other international markets

at first. In 1996, Wal-Mart bought out a chain of Wertkauf stores. However, in doing so,

they completely ignored a lot of the German culture and simply transferred their same

American business model to Germany.

There are a number of reasons why the business model in Germany failed, but it

can all be chalked down to cultural unawareness.

A lot of researchers point a major business model failure in Wal-Mart’s ideology

of giving one million bags to each customer. In other words, having the customer come

back a million times and therefore giving out that many bags. That business model failed

due to Germany’s very proactive and green outlook on life.

But not only did the American Wal-Mart company waste plastic bags, it also

wasted plastic smiles. The German markets and people did not take well to the Wal-Mart

employees who were forced to smile at the consumers. It all seemed fake and unnerved

the consumers. Smiling obscenely is not seen as a positive culture attribute in Germany.

Wal-Mart also failed to assimilate with the employee community. They never

made contact with labor unions. In Germany, people and companies are very close. The

employees had many concerns and the community never felt that Wal-Mart addressed

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these. Wal-Mart also tried to instill a policy that prohibited sexual intimacy between

employees. This was seen as a company’s infringement into private life, and in 2005, a

German court took out Wal-Mart’s so-called ethics code.

Another mistake was selling packaged meat. The average German goes to the

market more often and does not buy in bulk, like the average American. Fresh goods are

valued, and therefore, Wal-Mart’s buy-in-bulk and buy packaged business model failed

here.

Towards the end of its lifetime in Germany, Wal-Mart tried to change its policies.

The company got more involved in labor unions by establishing connections and

discontinued its policy of making employees smile at every customer, but it was too late.

In 2006, Wal-Mart withdrew from Germany. Although the business model worked in

America, it did not work in Germany as well. And this was not the first of Wal-Mart’s

lack of cultural research. Wal-Mart also struggled in South Korea, Japan, and Brazil.

However, the company did learn from its mistakes, and Wal-Mart now ranks third

in Brazil. In addition to this, they dropped the need to name everything after their

founder, Sam Walton. The company now owns many different subsidiaries under

different company names such as: Asda in Britain, Seiyu in Japan, and Bompreço in

Brazil. Now these sister companies are thriving under Wal-Mart with a different business

culture, tailored to the country’s culture.

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Conclusions

Taking a look at cultural differences between businesses can be extremely useful

and essential to any business plan. It is important to know what kind of social, economic,

political, and cultural sphere a company is trying to expand to before actually expanding.

Researchers like Hofstede aim to make the gap between cultures easy to see and predict.

Companies like Zara took the initiative to find that gap and close it with extensive

research on local tastes and trends before launching. Wal-Mart, on the other hand, did not

and their business model tanked.

This goes to prove that one’s business model in foreign markets determines how

successful the home company operates. The company must learn to become volatile to

international cultures, and if the company cannot adapt to the consumer tastes, then the

multinational enterprise into that country is not worth the risk.

However, if a company can adapt and change to react to the foreign market’s

culture, then globalization is worth the financial battle for the market, because being first

in the market or having a certain relative advantage to the foreign market’s taste gives the

company a leg up. Market awareness is essential to any business plan and moving to

foreign markets is no excuse for excluding market and culture research. This allows the

home company to achieve maximum profit in all markets its product is marketable in.

The world around is becoming smaller with globalization and bridging the gap between

‘them’ and ‘us’ and here and there is only achievable through the understanding and

volatility towards culture.

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References:

 Geert Hofstede, Gert Jan Hofstede, Michael Minkov, Cultures and Organizations:
Software of the Mind. Revised and Expanded 3rd Edition. New York: McGraw-
Hill USA 2010

 Geert Hofstede, Culture’s Consequences: Comparing Values, Behaviors,

Institutions, and Organizations Across Nations. Second Edition, Thousand Oaks
CA: Sage Publications, 2001

 Landler, M., & Barbaro, M. (2006, August 01). Wal-Mart Finds That Its Formula
Doesn’t Fit Every Culture. Retrieved March 02, 2017, from
http://www.nytimes.com/2006/08/02/business/worldbusiness/02walmart.html

 Home. (n.d.). Retrieved March 02, 2017, from http://www.commisceo-

global.com/country-guides/russia-guide

 Macaray, D. (2011, August 29). Why Did Walmart Leave Germany? Retrieved
March 02, 2017, from http://www.huffingtonpost.com/david-macaray/why-did-
walmart-leave-ger_b_940542.html

 Lutz, A. (2015, June 13). This clothing company whose CEO is richer than
Warren Buffett is blowing the competition out of the water. Retrieved March 02,
2017, from http://www.businessinsider.com/zaras-retail-strategy-is-winning-
2015-6

 Stein, E., & Spar, D., (1998). Regarding NAFTA. Boston: Harvard Business

School.

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