Question

How does national culture affect international business? List and explain Hofstede four-dimensions model currently used to assess the impact of culture on international business.

Answer 1

Every business organization wants to expand their arms to other countries which gets possible with the introduction to Globalization. But every country has a different culture, people belonging to that country have different values, norms, beliefs, and each company who expands to the global market has to respect the culture of the people. Therefore, national culture has a direct impact on the growth & success of a company indulging itself in international business. Handling cultural diversity is like playing with fire in international business, because culture plays a game changing role in generating satisfaction & motivation to employees. International business gets successful, if & only if, it respects the culture of another country. People with different cultures have different negotiating styles, working styles, different perceptions to tackle the situation, different personalities, have different levels of sensitivity for various objects. Companies stretching their hands to cross-border have to formulate strategies by respecting all these national cultures.

For example: Whenever US based companies want to set their business in Japan, then they have to adopt & formulate expansion strategy according to Japanese culture as Japanese Culture focuses on building long term relationships, & gaining mutual trust. Japanese are process & culture oriented, follow collectivism, & usually avoid handshakes, & addressing each other with their first names, which is just opposite to the United States culture. They follow individualistic culture, usually address each other with first names, value handshakes, are very aggressive, and do not believe in establishing long term relationships.

Hofstede developed a culture framework which is used to assess the impact of culture on international business. It consists of four dimensions.

1. Power Distance Index (PDI).
2. Individualism Versus Collectivism (IDV).
3. Masculinity Versus Femininity.
4. Uncertainty Avoidance Index (UAI).

Role of Hofstede four-dimensions model in assessing the impact of culture on International business are:

1. Power Distance Index (PDI): PDI has a direct impact on the work ability of individuals. If the culture of the country is based on high power index, then it shows people respect bureaucracy & shows their gratitude to high level officials. It means, people support the vertical hierarchical system where top level management or officials have gained respect from their subordinates. But, low power index culture shows people tend to have a participating style of management that is decision should be taken mutually in the organization, and if a company follows the high power index culture in such a country, then this will result in the failure of a company in that country. So, before developing a work system for the expansion, the company should overlook the belief of people towards the Power distance Index.

2. Individualism Versus Collectivism (IDV):

Individualism and Collectivism focus on the nature of people of the country. If people follow individualism, then they would love to work alone, and like to isolate themselves from others, but collectivism focuses on the quality of individuals to work in a group. Therefore, these both factors affect the success of a company in a country because the nature & working style of workforce diversity affect the workability of the company. Individualism results in the limiting scope of work, because it focuses on ''I,'' and Collectivism enhances productivity because of innovative and unique collaboration of people, as it focuses on ''WE.''

3. Masculinity vs Femininity: If the targeted country is large and has a highly competitive environment, then the company thinking of expansion should focus on masculinity. But, if the culture of the country is smooth & focuses on quality life, then femininity culture should be adopted by the company. For success of a company in any other country, the company should integrate both femininity & masculinity culture in a suitable proportion.

4. Uncertainty Avoidance Index (UAI): If a country has a tradition of high UAI, then it implies that people are rigid, less prone to change, strongly follow their existing culture, and value system, then this increases the chance of failure for international expansion, as people won't adopt the change. But, low UAI refers to the tradition where people love to follow the practices over the principle. They are open to change, titles are less important to them, and they avoid ''show off'' culture.

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