As a business sets its sights on new international markets, it’ll soon be obvious (if it’s not already) that success isn't just about understanding the global marketplace or having a solid expansion strategy in place.
Success also hinges on overcoming cultural barriers and embracing societal diversity in a global business environment.
Culture in international business highlights the shared values, customs, and behaviors that shape how people interact and conduct business globally. From unique communication styles to distinct decision-making processes, cultural differences manifest as challenges and opportunities.
Strategy is often the central focus for a growing organization, but adapting to cultural nuances can make or break its global expansion efforts. By recognizing the role of culture in international business and developing systems to overcome hurdles, teams can position themselves to thrive in the global marketplace.
How does culture influence international business?
Culture permeates every aspect of international business, shaping how companies operate, communicate, and win in foreign markets. When venturing into new markets, organizations encounter a myriad of cultural factors that can impact aspects of their operations and objectives.
New market entry
When entering a new market, accepting local customs, consumer preferences, and business practices is essential for tailoring products, services, and marketing strategies to resonate with target audiences.
Take advertising in foreign markets, for instance. In some Middle Eastern countries, ads featuring women must adhere to discretionary guidelines. Companies entering these markets must often reposition their marketing materials to respect local cultural norms and avoid offending potential customers, vendors, or partners.
Businesses can avoid costly missteps and enter new markets more effectively by conducting thorough cultural research. This research should go beyond surface-level observations and delve into the underlying values, beliefs, and customs that shape consumer behavior and business practices in certain target markets.
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Business relationships and negotiations
Cultural differences greatly influence how to build and maintain business relationships across borders. Some cultures prioritize personal connections before conducting business, while others favor efficiency and professional directness.
For example, in Japan, the concept of "nemawashi" involves building consensus through informal discussions before formal meetings. In the U.S., decisions are often made more quickly and directly during official negotiations.
Recognizing these dynamics can help teams handle negotiations smoothly, build trust with partners, and avoid unintentional blunders that might jeopardize pivotal business deals. By developing cultural intelligence and baking flexibility in an organization’s negotiation strategy, it can build stronger, more productive business relationships.
Employee recruiting and retention
Different cultures have unique expectations around work-life balance, management styles, and career paths. Some cultures value employee benefits like parental leave and paid time off, while in other countries, long working hours and dedication to the company are more of the norm.
Businesses can exercise their global fluency in employee recruitment and retention by:
- Developing culturally sensitive job descriptions and recruitment materials that resonate with local candidates
- Adapting interview processes to accommodate cultural differences in communication styles and expectations
- Tailoring unique employee benefits packages that align with local values, such as extended family leave in family-oriented cultures or flexible working hours in countries that prioritize work-life balance
- Implementing diversity and inclusion initiatives that respect and celebrate cultural differences within the organization
- Providing cross-cultural training to help employees from different backgrounds work together effectively
By aligning HR practices with local cultural norms, organizations can foster an inclusive work environment that draws in top talent and promotes employee loyalty. This cultural sensitivity will help teams design effective upskilling programs and performance management systems.
Business reputation and value
How a company approaches cultural diversity is not just a matter of policy; it's a primary factor that can shape its reputation and value. Organizations that demonstrate cultural intelligence and adaptability often earn greater respect from stakeholders in various markets.
A prime example is Airbnb, which has built a strong reputation in international markets by adapting its platform to meet local cultural expectations and prioritizing genuinely local experiences. This approach has helped Airbnb build trust and satisfy international users across diverse markets.
Adopting local customs, celebrating cultural differences, and respecting diverse perspectives cultivates trust and credibility with international partners, customers, and investors. Beyond boosting brand image, this cultural sensitivity can help capture larger market share, forge stronger partnerships, and improve financial performance abroad.
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Examples of cultural differences in international business
Imagine entering a business meeting in Tokyo, only to realize that a firm handshake and direct eye contact—which is perfectly normal in the U.S.—baffles Japanese counterparts.
Or picture being puzzled when a group of German colleagues seems frustrated by "inefficient" small talk, which is considered polite in many other cultures. These scenarios highlight how cultural differences can create unexpected challenges in international business. Here are several examples.
Communication styles
Communication styles can range from direct to indirect, depending on the culture. For example, Americans tend to be more direct and explicit, while Japanese culture often values indirect and implicit communication.
Similarly, people prefer clear, detailed information in low-context cultures like Germany or the Netherlands. Conversely, high-context cultures like China or Brazil rely more on non-verbal cues and shared cultural understanding.
Negotiation tactics
Negotiation approaches can differ greatly across cultures. In some countries, like the U.S., negotiations are often a problem-solving process to reach a mutually beneficial agreement. Negotiators from countries like Russia or Spain view negotiations more competitively.
Additionally, the pace of negotiations can vary, with some cultures preferring quick decisions while others value lengthy relationship-building periods before closing a deal.
Leadership styles
Cultural norms can heavily influence leadership styles. In hierarchical cultures like Japan or India, there's often a transparent chain of command and respect for authority.
Other parts of the world, such as Scandinavian countries, typically have flatter organizational structures with more participative leadership styles. Some cultures value charismatic, visionary leaders, while others prefer consensus-building approaches.
Workplace etiquette
Workplace etiquette can vary significantly across cultures. For example, Germans value punctuality, and being late is considered disrespectful. In contrast, countries like Brazil or Spain tend to take a more relaxed attitude towards punctuality. Dress codes, greetings, and the use of personal space in the workplace can also differ greatly between cultures.
Work ethic
Attitudes towards work and work-life balance can vary widely. For instance, Japanese culture is known for its strong work ethic and long working hours, while many European countries highly value work-life balance and leisure time.
In some cultures, like the U.S., taking work home or working on weekends is common, while others, like France, have strict regulations for work hours and overtime.
Conflict resolution
Approaches to conflict resolution can be deeply rooted in cultural values. In some cultures, like those in the Middle East, conflicts may be addressed indirectly through intermediaries to save face.
A more direct approach to addressing conflicts is often preferred in countries like the Netherlands or Germany. Some cultures view conflict as a natural part of business relationships, while others see it as something to be avoided at all costs.
Local values and customs
Respecting local values and customs is crucial in international business. This can include religious practices, holiday observances, dietary restrictions, and social norms. For example, in Muslim countries, teams should be aware of prayer times and fasting during Ramadan.
8 tips for overcoming cultural challenges in international business
Navigating the intricacies of international business demands a true understanding of cultural differences and a keen ability to adapt. These tips can help teams identify and overcome common cultural challenges and cultivate fruitful cross-border relationships.
Provide cultural awareness training
Implement cultural awareness training that goes beyond surface-level stereotypes. This training should explore various cultural nuances, including communication styles, business etiquette, and societal norms.
Why? Research from the Society for Human Resource Management (SHRM) found that 65% of organizations with diversity training programs reported increased employee engagement and productivity.
In turn, companies can equip their employees to interact more effectively with international partners, co-workers, and clients by cultivating a mutual understanding and respect for cultural norms and traditions.
Develop cross-cultural communication skills
Frictionless communication is the cornerstone of successful international business. Invest in developing cross-cultural communication skills, including language proficiency and non-verbal communication awareness.
According to the Harvard Business Review, cultural differences can significantly impact the performance of global teams. However, when managed effectively, team diversity can positively affect task performance.
Encourage employees to listen actively and adapt their communication styles to different cultural contexts. It's not just about speaking the language but understanding the cultural subtext behind the words.
Invest in local relationships
Take the time to nurture connections with local partners, clients, and stakeholders. Show genuine interest in their culture by participating in local customs and traditions.
For instance, a Yale study emphasizes the importance of relationships in global trade, highlighting how building strong local connections can significantly impact business success. These efforts will help professionals learn more about foreign markets and demonstrate their commitment to the market, fostering trust and loyalty.
Assemble diverse, cross-cultural teams
Data from McKinsey reveals that companies that rank in the top quartile for both gender and ethnic diversity among their executive teams are 9% more likely to outperform their peers.
So, it’s important to harness the power of diversity and assemble teams representing a variety of cultural backgrounds. Fostering an inclusive environment where professionals feel comfortable sharing their unique viewpoints leads to more innovative and culturally sensitive solutions.
Conduct thorough cultural due diligence
Before venturing into a new market, teams need to arm themselves with knowledge. Invest in cultural due diligence that goes beyond basic market research. Dive deep into cultural norms, business practices, legal and regulatory requirements, and socio-economic factors that could impact operations.
To conduct effective cultural due diligence, consider the following tips:
- Engage local cultural experts or consultants who can provide in-depth insights into the target market's business etiquette, communication styles, and social norms.
- Analyze industry-specific publications and reports to understand how cultural factors influence business practices in the target market.
- Attend or participate in local business events, trade shows, and networking opportunities to observe and learn about the business culture directly.
- Conduct focus groups or surveys with local consumers to gain firsthand knowledge of their preferences, values, and expectations.
- Use a cultural framework, such as the Denison Model, to systematically assess and compare cultures.
This immersion can help companies gain a comprehensive understanding of the cultural landscape, enabling them to make informed decisions and develop culturally appropriate strategies for entering and operating in new markets
Adapt HR policies to local markets
One-size-fits-all HR policies don’t work in a global context. In fact, McKinsey research indicates that diverse and inclusive organizations are 35% more likely to outperform their competitors.
In turn, it’s imperative to tailor HR strategies to align with local cultural expectations and global compliance requirements. This might involve adjusting recruitment practices, modifying performance evaluation methods, or adapting benefits packages to meet local norms. By demonstrating cultural sensitivity in a company’s HR policies, it will be better positioned to attract and retain top talent in each market.
Seek local expertise
Don't underestimate the value of locally sourced knowledge. Engage local experts, consultants, and advisors who deeply understand a target market’s cultural and business landscape.
These individuals can provide crucial insights into local customs, business practices, and potential pitfalls that might be absent to outsiders. Their guidance can be instrumental in helping navigate complex cultural nuances and avoid costly missteps.
Remain adaptable
Diverse companies are 70% more likely to capture new markets. As such, adaptability in the workplace is essential to thrive in an ever-changing international business landscape. Your team must be prepared to adjust its strategies, processes, and communications to accommodate cultural sensitivities and preferences.
Such flexibility might mean adapting marketing messages, modifying internal systems, or adopting remote work strategies to effectively manage global teams. By embodying a willingness to adapt, organizations can garner respect in local cultures and be well-equipped to win long-term in international markets.
Confidently enter new markets with Velocity Global
Velocity Global has assisted hundreds of companies—each with unique challenges and goals—to expand into over 185 countries. Our Employer of Record (EOR) solution helps organizations establish a presence in new international markets quickly and seamlessly virtually anywhere without setting up entities or risking noncompliance with international employment laws.
As a trusted EOR partner, we hire and pay global teams on our client’s behalf so they can remain focused on their day-to-day operations. Is it time for your organization to go global? Contact us to learn more.
