As markets expand globally, the management of an organization must adapt to various environmental issues. Environmental laws that work to protect a country’s natural resources such as air, water, and land, vary between countries. The biggest challenge is to develop a strategy that is acceptable to all countries involved. As more companies expand internationally in both service and manufacturing industries, there are many global issues that must be dealt with — local currency and economy, varying legal practices, and overcoming cultural barriers.
Understanding Cultural Differences
“Ultimately, the international success of an organization comes down to its employees and how well they understand and respect the values and traditions of the countries they are doing business with,” stated Thay Humes, Co-founder of Humes McCoy Aviation, a minority owned and operated aviation transport company that helps their clients escape the hassle of flying commercially while giving them the ease and reliability of a name they can trust.
Some may consider social and business behavior that seems normal to one culture rude or demeaning. For example, in some cultures, the offer of a handshake is considered offensive. Unintentionally offending your colleagues is not a good way to build solid business relationships. Managers and employees must know the correct business etiquette concerning business cards, gift giving, communication and personal space to be accepted in the international marketplace. When expanding globally, other factors to be considered include differences in language, business structure, and marketing opportunities within various countries.
Some words may have different meanings in various cultures, and in some, it could cause offense. Local slang and jargon can be hard to learn and may lead to misunderstandings in business relationships. Familiarity with the local language is vital so that the managers and workers can communicate effectively. People who have grown up in that culture or have lived in it for many years are usually the best choices for marketing managers, especially when a business is moving into a new cultural market. The business structure is another factor to be considered. The hierarchy of a business and how decisions are made can be different from the traditional methods used by other cultures and organizations. Decisions may be made by a group consensus, which may slow down marketing efforts and give an advantage to competitors because of the lack of a quick decision. In other cultures, an individual may make the business decisions. To ensure that your organization can do business successfully in an international market, marketing research must not be overlooked.
Extensive market research must be done to determine whether the company’s product or service is one that the citizens of that country will find desirable. For example, selling beds to people who live in countries where they prefer to sleep in hammocks or on mats would probably not be a successful venture. A culture may have strongly held beliefs against the use of alcohol or eating meat. Understanding the traditional lifestyle as well as the traditional religious and moral values of a culture can prevent wasted marketing efforts.
Ethical issues can create challenges for businesses that want to go global and expand into international markets. Accepted business practices in foreign countries may be different than those of U.S.-based organizations. In some countries, bribery and extortion are common ways of doing business and these types of issues must be handled with caution. The U.S. Foreign Corrupt Practices Act does not allow American companies operating abroad to make such questionable payments to foreign businesses. The clash between ethical business practices and common practices in foreign cultures can create problems for international managers.
International managers must also be aware of the challenges involved in doing business within the political and legal culture of a particular country. Well-developed countries generally follow standards, ethical business practices. Less developed countries are more likely to have unstable governments, and organizations face the possibility of expropriation and the loss of their business holdings within that country. In 1979, for example, Iran seized American holdings (including those of Xerox, United Technologies, and R.J. Reynolds) valued at approximately $5 billion. Such events demand that international managers know the political and legal elements of doing business internationally. They must be also aware of tariffs and import quotas, as well as trade barriers that make it difficult to do business in particular countries.
Risks and Opportunities
Another challenge that an organization must consider when expanding globally is that managers must recognize the importance of potential as well as immediate opportunities available within a particular country. While there are risks associated with operations in less-developed countries with poor economies and little industry, these countries may offer lucrative business opportunities and should not be overlooked by managers. Newly industrialized countries such as Taiwan, South Korea, and Vietnam have become major manufacturers and exporters of consumer products.
Choosing the best management approach for international business is another challenge. There are three approaches commonly applied to businesses: ethnocentric, polycentric and geocentric. All three approaches have advantages and disadvantages. To make these approaches work effectively, it is important that managers fully understand the critical points of applying them. With the ethnocentric approach, the same styles and practices are used in both the home country and the foreign headquarters.
However, what works in one country may not work in another because of the cultural differences and can lead to misunderstandings among managers. In the polycentric approach, the international organization hires a majority of local people, who know the culture and language best, to work at the headquarters. This approach may work well in more developed countries but not as well in underdeveloped countries whose people have not developed business the skills necessary to run a successful organization. In the geocentric approach, individuals are placed in management positions based on their skills and knowledge, and not because of their country of origin. The theory assumes that business problems are the same all over the world and doesn’t take cultural issues into consideration. Of the three approaches, the geocentric theory may be the most difficult to put into practice because managers must fully understand both the local and global aspects of the business.
As more businesses expand into the global marketplace, the businesses will face new environmental, ethical and cultural challenges. As many new jobs open up for international managers, training and education must be implemented to overcome the obstacles faced in global partnerships. Whichever approach a company chooses to use to prepare its managers for the international marketplace, proper training is an essential part of the organization’s success.
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