Culture Shock Term, Types of Political Risk in International Business - Assignment Example

Running Head: Exam Exam Name Course Lecturer Date Question 1: What do you understand by the term “culture shock”? In an international business environment, how can culture shock be reduced? Culture shock refers to a sense of confusion, anxiety or uncertainty that people undergo during visits to, staying, working or conducting business in a community that is dissimilar from theirs. It may arise from the unfamiliarity of an individual with local language, customs and acceptable conduct, since norms may vary considerably across cultures. Culture shock may dissipate in due course. For example, after visiting a country, a person will not be accustomed to the local culture’s nuances, but will know ways of adapting through continued interactions with the local people. Culture shock may be demoralizing for people doing business overseas because of the additional pressure of developing or maintaining a beneficial business relationship. Culture shock in the context of an international business may be reduced through a number of ways. To start with, companies can give its employees cultural training. Such training should be aimed at familiarizing the employees with the local culture of the concerned country. It may include teachings on food, greetings, dressing, gifts, religion, language and punctuality during business meetings. For instance, in India, visitors are expected to turn down first offers of tea or snacks from hosts. Cultural training is important for international companies since it helps lessen cultural gaffes among employees during their interaction with customers, suppliers or community members, which may have negative effects on the business. In addition, culture shock can be reduced through the formation of proper professional relationships. Most people face difficulties when working overseas and interrelating with foreign colleagues, associates or businesses. Proper professional relationships can solely be formed through appreciation and awareness of cultural differences between the new country’s culture and one’s own culture. There are several different ways and attitudes of doing things, not simply one proper way. In stead of criticizing or judging the cultural differences, one should value and learn from such differences in relation to what the new culture expects of him or her. This will enable one to easily assimilate into the new culture. Culture shock can also be reduced by establishing the attributes that are valued in the new cultural environment and matching one’s conduct with the attributes. Presenting oneself in the preeminent manner possible right from the start will positively influence the manner in which the company or customers see a person. This may have a large impact in one’s success in the new business environment by helping him or her gain the most from his or her foreign work placement or business venture. Moreover, the inability to speak or understand the language of the host country is a main barrier faced by many people in a global business setting. Some customers or colleagues in the business setting may not understand English. Thus, even if a person does not have enough time to learn and be able to fluently use the new language, learning some key phrases especially greetings may make a big difference in getting used to the new culture. The ability to use such phrases when dealing with customers or colleagues in the host country shows one’s interest in the new culture. This can help one to quickly establish friendships and thus over come culture shock fast. Furthermore, making contacts before moving to a new country for work or business can make one’s transition to the foreign environment easier. Future employers may be of help in making such contacts. However, if they are not in a position to help, a person might use different social media such as Twitter, Facebook and LinkedIn to bond with individuals in the new workplace. Being aware that, there is a person to converse with on the first day can help one feel relaxed. Culture shock can also be lessened by understanding the way deadlines and time are considered in the new cultural setting and the communication style and formality levels that are appreciated. This will help lessen misunderstanding or offensive words when communicating with others or when addressing superiors. For instance, using the first name to address a superior is the custom in some countries like in the USA, but it is not acceptable in other countries. Question 2: What are the main types of political risk in international business? As a business person, how could each of these risks affect international business activity? Political risk refers to the possibility that political events, conditions or decision in a given country will impact the business setting in a way that makes investors to lose all or part of their investment value or be pressured to accept a lesser return rate. The main types of political risks include conflict and violence, terrorism and kidnapping, property seizure, policy changes and local content requirements. Conflict and violence Conflict and violence may arise from opposition against the government, territorial disputes amid nations, racial, religious and ethnic disputes. This can be particularly risky for local activities of foreign firms. Local conflict in a given country puts off international investors from investing their money in that country for fear of losses. Violent disturbances can also affect international business through hindering manufacturing and distribution of products, inability to obtain equipment and raw materials or to carry out recruitment of talented personnel. Such disturbances can also reduce the capacity of an international firm to protect its assets as well as the lives of its employees. For example, ExxonMobil had to stop production of natural gas in Aceh region, Indonesia, since the region was constantly a target of a separatist insurgent group. Terrorism and kidnapping It is used in making political statements. Terrorism and kidnapping is usually carried out by groups of individuals who are dissatisfied with present social or political situations, in efforts to force change by frightening people and destruction. Taking hostage of people and kidnapping can encourage terroristic activities. Terroristic activities in either the entire country or a certain part of the country may lead to closure of businesses since the environment becomes very unstable for business operations. Moreover, such turmoil entails destruction of property and killings. This may affect international businesses through loss of property or even lives of some employees. For instance, in Columbia a multinational company can spend between $125,000 and $1 million in guarding their top managers working at Bogota. Property seizure This takes three forms including confiscation, expropriation and nationalization. Confiscation refers to a situation where the government forces a firm to transfer its assets to it without compensation. Under this situation, the firm has no support for legal appeal. Expropriation refers to a case where the government forces a firm to transfer its property to it with compensation. Nationalization entails government capture of a whole industry. It is more widespread than expropriation and confiscation. The government uses nationalization to guard an industry on ideological grounds, control its profits, save local employment in a deteriorating industry and invest in those industries which private firms cannot afford. Confiscation and nationalization can make an international firm to discontinue its business activities as well as total loss of its assets, while expropriation may disrupt the business activities and force the firm to accept a lesser value for its assets. Policy changes Policy changes stem from newly elected political parties, social or civil unrest and pressure from particular interests. Policy changes limit foreign ownership, business activities and investment levels. Restrictions on business activities may hinder a foreign firm from freely conducting its business operations resulting in low profits. Moreover, policy changes restricting investment levels may deter a global business from expanding its business activities in the host nation. Limitation in expansion hinders business growth, which in turn limits a firm’s profitability level. Local content requirements These requirements specify the amount of products that should be locally supplied as a way of fostering local business operations and creating jobs. Under these requirements, firms are also forced to utilize local materials, hire local employees or purchase parts from domestic suppliers. Local content requirements may negatively affect the business activities of international firms forcing them to hire excess or poorly trained employees, which in turn results in high operations costs as well as poor quality work. Moreover, the local materials or parts may be of poor quality, which may lead to production of low quality products or even machine breakdown. Low quality products will make a firm to loose customers, while machine breakdown disrupts production. Question 3: Discuss key dimensions of the Hofstede framework. Can or should the international business managers use this framework to enhance their chances of success in international business? Hofstede framework of cultural dimensions consists of five dimensions including power distance, individualism vs. collectivism, masculinity vs. femininity, uncertainty avoidance and long-term orientation. Power Distance relates to the level of inequality or equality amid people in a given society. High Power Distance implies inequalities between subordinates and superiors. Firms are hierarchical with power being gotten from force, prestige and inheritance. In Low Power Distance societies, opportunity for everybody and equality is stressed, with rewards and prestige being shared equally between subordinates and superiors. Asian, Latin, Arab and African countries are mostly High Power distance societies while Germanic and Anglo countries like Denmark and Australia are Low Power Distance societies. Individualism vs. collectivism concerns the level to which a society reinforces collective or individual success and interpersonal relations. In individualist societies, individual rights and individuality are paramount and value is given to hard work and entrepreneurial risk-taking. People in such societies tend to establish a higher number of looser relations. In collectivist societies individuals tend to have close ties. These societies reinforce collectives and extended families where people assume responsibility for fellow group members, to maintain harmony and facilitate achievement of collective goals. European and North American countries such as Hungary and United States are examples of individualistic societies, while Asia, Latin America and Africa are highly collective societies. Masculinity vs. femininity refers to the extent to which a society emphasizes or despises the conventional masculine work responsibility. The values of Masculinity societies include materialism, assertiveness, power, ambition and competitiveness, and differences amid gender roles are dramatic. Femininity cultures value quality of life and relationships and women and men are treated equally. Masculinity cultures include Hungary, Switzerland and Austria, while femininity cultures include Sweden and Norway. Uncertainty Avoidance refers to the tolerance of a society for ambiguity and uncertainty. It shows the level to which society members try to manage anxiety by lessening uncertainty. Individuals in high uncertainty avoidance societies are more emotional and minimize uncertainty by implementing plans, regulations and laws. In contrast, people in low uncertainty societies are more pragmatic and feel contented in changeable environments and unstructured situations. High uncertainty avoidance is present in countries like Germany and Belgium, while low uncertainty avoidance societies include Denmark and Sweden. Long-term Orientation relates to a society’s time horizon. In long-term oriented cultures, more importance is attached to the future and promotes pragmatic values geared towards rewards such as saving, adaptation capacity and saving. In contrast, short-term oriented cultures promote values relating to the present and past, such as steadiness, reciprocation and meeting social obligations. Long-term oriented cultures include China, Japan and Hong Kong, while short-term oriented cultures are found in Latin America, Arab world and Africa. Global business managers can use Hofstede’s cultural dimensions to enhance the success chances in international business. In international business negotiations, expectation, communication style, goals and issue ranking change depending on the home countries of the negotiators. If applied correctly, comprehension of the cultural dimensions can help managers enhance their success in business negotiations by appropriately dealing with negotiations from different countries and can also lessen conflicts and frustration. For instance, in a business negotiation between Canadian and Chinese, Canadian negotiators might desire to reach a consensus and sign the contract, while Chinese negotiators might wish to spend additional time on non-business undertakings, hospitality and small talks to first establish a relationship. Considerations of cultural dimensions are also usual in cross-cultural leadership and international management. The decisions that managers take should be founded on the values and customs of the host country. When working for global companies, managers can give training to employees so as to make them responsive to cultural disparities and create nuanced corporate practices with procedures across countries. In this case, the cultural dimensions of Hofstede provide guidelines for establishing culturally appropriate approach to organizations, which may facilitate organizational success. Moreover, the five cultural dimensions are vital in global marketing since they define natural values in both business and general context. Marketing managers can use the dimensions to understand their market’s specificity. This can help them to best adapt their services and products to local preferences and habits, which in turn can lead to high customer satisfaction levels. Read More