KARPAGAM ACADEMY OF HIGHER EDUCATION, COIMBATORE

Class: III BCOM PA Course Name: INTERNATIONAL BUSINESS

Course Code: 22PAU504B Semester V Year: 2022Batch

UNIT – 1
Importance nature and scope of International business; modes of entry into International
Business internationalization process and managerial implications.

Meaning of Culture, Country Culture, and Culture in an International Business

Organization

Meaning of International Business

International business refers to the trade of Goods and service goods, services, technology,
capital and/or knowledge across national borders and at a global or transnational scale. It
involves cross-border transactions of goods and services between two or more countries.

Importance of International Business

1. Increase Revenue and Brand Awareness
Your company will be able to explore new markets and draw in new clients due to your
international expansion, which will increase your sales and revenue but also the visibility of
your brand internationally. Your business can grow sales by entering a new market and
extending the shelf life of your goods and service
Going to a new market where certain goods and services are not offered and customers cannot
purchase them gives you access to fresh and enthusiastic customers who are prepared to acquire
your goods and services.
2. Minimizing Reliance on the Current Market
The chance to lessen reliance on the present market where you are already established exists
when a store expands worldwide. Right now, many other businesses in the market are very
competitive. You are unable to profit from this market and raise sales.
International business covers trading goods, services, and technology across countries, offering
businesses access to bigger markets and new growth opportunities. It's about tapping into
global trends, which can lead to...read more
In the dynamic world of commerce, two distinct realms emerge: domestic business and
international business These divergent paths present unique challenges and opportunities,
shaping the strategies and success of businesses...read more
The internal and external environments refer to distinct aspects of an organization or system
that influence its operations, strategies, and overall performance. Let’s explore the difference
between internal environment and...read more

Prepared by Dr. M.P. PRATHIBA, Assistant Professor, Dept of Commerce, KAHE

 KARPAGAM ACADEMY OF HIGHER EDUCATION, COIMBATORE

Class: III BCOM PA Course Name: INTERNATIONAL BUSINESS

Course Code: 22PAU504B Semester V Year: 2022Batch

Moving your company abroad would now be one of the best solutions. You can split the
resources to create money without being overly dependent on one particular market instead of
concentrating on just one plan or putting all your eggs in one basket.

3. Collaborate with Skilled Individuals and Utilize the External Resource

The ability to utilise the other country’s resources, such as technology, skill, and understanding
in a certain industry, is another significant benefit of expanding your firm internationally. It
enables you to employ better technologies and discover better work practices, ultimately
enhancing your company’s operations and revenue.
Additionally, you will collaborate with skilled individuals who are experts in your field. You
can benefit from their knowledge and experience by working together to comprehend how a
new country you have recently expanded to operates.
4. Get a First-Mover Advantage
The desire to outperform rivals is one of the main drivers behind many businesses seeking to
go global. They will benefit greatly from being the pioneer. Customers will be familiar with
your brand before those of your rivals. Additionally, changing their habits and thinking maybe
challenging when buyers have certain brands in mind. They will visit yours rather than your
competitors.
Nature of International Business
The nature of international business is complex and ever-changing. Various factors, including
economic conditions, political stability, cultural differences, and technological advances,
influence it. Businesses that operate internationally must be aware of these factors and be able
to adapt their strategies accordingly. Here, we will understand each of these factors in detail.
Globalization and Interconnectedness
International business thrives on globalization, where national borders no longer confine
markets, consumers, and businesses. Globalization has paved the way for increased trade and
investment flows, creating opportunities for businesses to expand their reach and tap into new
markets. The interconnectedness of economies has given rise to complex networks of suppliers,
manufacturers, distributors, and customers, forming a global ecosystem of trade and commerce.
Cultural Diversity and Cross-Cultural Interactions
International business necessitates engaging with diverse cultures, languages, customs, and
business practices. Understanding and respecting cultural differences is crucial for effective
communication, negotiation, and relationship-building in international transactions.
International business users, be they consumers or businesses, encounter a rich tapestry of

Prepared by Dr. M.P. PRATHIBA, Assistant Professor, Dept of Commerce, KAHE

 KARPAGAM ACADEMY OF HIGHER EDUCATION, COIMBATORE

Class: III BCOM PA Course Name: INTERNATIONAL BUSINESS

Course Code: 22PAU504B Semester V Year: 2022Batch

cultural diversity, influencing product preferences, marketing strategies, and business

operations.
In the dynamic world of commerce, two distinct realms emerge: domestic business and
international business These divergent paths present unique challenges and opportunities,
shaping the strategies and success of businesses...read more
The main difference between export and import is about the movement of goods. In export,
goods and services are sold to other countries but Import involves buying of goods and...read
more

Legal and Regulatory Frameworks

Navigating legal and regulatory complexities is a fundamental aspect of international business.
Users must familiarize themselves with countries’ laws, regulations, and trade policies.
Compliance with import/export regulations, customs procedures, intellectual property laws,
labour standards, taxation, and environmental regulations presents challenges and
opportunities for businesses and individuals engaged in cross-border activities.
Risks and Uncertainties
International business entails inherent risks and uncertainties that users must navigate.
Economic volatility, political instability, exchange rate fluctuations, supply chain disruptions,
and geopolitical conflicts can significantly impact business operations. Users must employ risk
management strategies to mitigate these uncertainties and protect their investments.
Understanding market dynamics, conducting thorough market research, and staying abreast of
political and economic developments are crucial for managing risks effectively.
Market Entry Strategies
Choosing the right market entry strategy is vital for success in international business. When
determining the most suitable approach, users must consider market characteristics,
competition, resource requirements, and risk appetite. Users can employ export, licensing,
franchising, joint ventures, strategic alliances, foreign direct investment, and establishing
subsidiaries to enter international markets.
Technological Advancements
Technological advancements have revolutionized international business, transforming how
users engage in cross-border transactions. Digital platforms, e-commerce, blockchain, data
analytics, and supply chain management systems have streamlined operations, enhanced
efficiency, and expanded market reach. Users can leverage technology to overcome
geographical barriers, connect with customers globally, and gain a competitive edge in
international markets.
Prepared by Dr. M.P. PRATHIBA, Assistant Professor, Dept of Commerce, KAHE
 KARPAGAM ACADEMY OF HIGHER EDUCATION, COIMBATORE

Class: III BCOM PA Course Name: INTERNATIONAL BUSINESS

Course Code: 22PAU504B Semester V Year: 2022Batch

Corporate Social Responsibility

International businesses are increasingly expected to embrace corporate social responsibility
(CSR) principles. Users, including consumers, investors, and employees, seek ethical and
sustainable practices from businesses operating in international markets. Integrating CSR into
business operations, supply chains, and community engagement is crucial for building trust,
enhancing reputation, and meeting the evolving expectations of socially conscious
stakeholders.
Economies of scale may sound like a complex economic concept. But in reality, it’s a
fundamental principle with a big impact on how businesses operate. In this article, we’ll
explore...read more
The key difference between foreign trade and foreign investment is that foreign trade is
between two or more countries, while foreign investment is made by a particular organization
or individual...read more

Scope of International Business

The scope of international business is vast. It encompasses various activities, from exporting
and importing goods and services to licensing and franchising products and brands.
International business also includes moving capital, technology, and people across borders.
Globalization is making it easier for businesses to expand into new markets. This has led to a
growing demand for international business expertise. Here are some key aspects that define the
scope of international business:
International Trade
International trade forms the foundation of international business. It involves the exchange of
goods and services between countries, encompassing exports and imports. Businesses engage
in international trade to tap into new markets, access resources and raw materials, and take
advantage of comparative advantages offered by different countries.
Market Expansion
One of the primary scopes of international business is to expand market reach beyond domestic
boundaries. Businesses seek growth opportunities by entering new markets and targeting
international customers. This expansion may involve adapting products or services to fulfil the
needs and preferences of different cultures and developing marketing strategies tailored to
specific international markets.
Global Supply Chains

Prepared by Dr. M.P. PRATHIBA, Assistant Professor, Dept of Commerce, KAHE

 KARPAGAM ACADEMY OF HIGHER EDUCATION, COIMBATORE

Class: III BCOM PA Course Name: INTERNATIONAL BUSINESS

Course Code: 22PAU504B Semester V Year: 2022Batch

International business relies on global supply chains, where components, raw materials, and
finished products move across multiple countries. Managing and optimizing global supply
chains involves coordinating suppliers, manufacturers, distributors, and logistics providers
across borders to ensure efficient operations and timely delivery of goods and services.
International Financial Management
International business involves various financial aspects, including foreign exchange
management, international payment systems, and cross-border financing. Businesses must
navigate currency exchange rate fluctuations, manage risks associated with international
transactions, and make informed financial decisions to support their international operations.
Legal and Regulatory Considerations
The international business operates within the legal and regulatory frameworks of different
countries. This includes compliance with trade regulations, customs procedures, intellectual
property laws, tax regulations, labour standards, and environmental regulations in each market.
Businesses must understand these legal complexities to ensure compliance and mitigate risks.
Cultural and Ethical Considerations
International business requires an understanding and appreciation of different cultures,
customs, and business practices. Cultural sensitivity and adaptability are essential to establish
successful relationships with international partners, customers, and employees. Businesses also
face ethical considerations related to social responsibility, sustainability, and corporate
governance in different markets.

Global Economic and Political Environment

The international business operates within a global economic and political landscape that
shapes market conditions, trade policies, and business opportunities. Economic growth,
political stability, trade agreements, tariffs, sanctions, and geopolitical dynamics influence the
scope and dynamics of international business operations.
Conclusion
International business is a dynamic and ever-changing field. For businesses to remain
successful, they must be able to adapt to changing factors.Businesses that operate
internationally must be aware of the political, economic, and cultural risks they face. Despite
this, international business offers several opportunities for businesses. Success in international
business can be extremely rewarding for companies that navigate the challenges successfully.
Therefore, constant checks should be kept on these factors to leverage the benefits of
international business.
Different Modes of Entry into International Business

Prepared by Dr. M.P. PRATHIBA, Assistant Professor, Dept of Commerce, KAHE

 KARPAGAM ACADEMY OF HIGHER EDUCATION, COIMBATORE

Class: III BCOM PA Course Name: INTERNATIONAL BUSINESS

Course Code: 22PAU504B Semester V Year: 2022Batch

The various modes of entry into international business have been stated below.
Importance of Economic System in business Environment can be understood here.
Direct Exporting
 The explanation of direct exporting as a mode of entry into international business has
been stated below.
 Direct exporting means the firm sells its products directly to overseas clients without
using a mediator.
 The firm maintains full control over its products' distribution, pricing, and marketing.
 Direct exporting initially allows the firm to enter global markets with low aid
commitment.
 No large upfront investments are needed reached to other modes like setting up a
foreign subsidiary.
 The firm is not needed to have local staff, exhibit facilities, or service centers in the
foreign market.
 However, the firm has to handle logistics, documentation, customs clearance, and
payments, which can be challenging.
 The firm has to find reliable foreign clients and ensure timely delivery of orders.
 Direct exporting limits a firm's ability to provide after-sales service to foreign clients.
 Cultural and language differences can create communication barriers with foreign
clients.
 Direct exporting is best suited for firms with well-established products and brand
reputations seeking initial global exposure.
 Read about Economic Fiscal Policies.

Licensing
 Licensing as a mode of entry into international business has been stated below.
 Licensing means a firm grants rights to a foreign entity to use its intellectual property,
i.e., brand name, technology, patent, design, etc., in return for license fees or royalties.
 The licensor, i.e., the firm, retains ownership of its property and earns income from
license fees and royalties.
 The licensee, i.e., a foreign entity, gains the right to use the property to produce and sell
products or services in the licensed territory.

Prepared by Dr. M.P. PRATHIBA, Assistant Professor, Dept of Commerce, KAHE

 KARPAGAM ACADEMY OF HIGHER EDUCATION, COIMBATORE

Class: III BCOM PA Course Name: INTERNATIONAL BUSINESS

Course Code: 22PAU504B Semester V Year: 2022Batch

 Licensing is a lower-risk mode of entry since the licensor does not incur high upfront
costs or handle overseas operations.
 The licensor can quickly expand into international markets without making large aid
commitments.
 However, the licensor has limited control over how the licensee uses its property and
operates in the foreign market.
 Licensing fees and royalties heavily depend on the licensee's performance, which may
be out of the licensor's control.
 Licensing works best for firms with well-established brands, technologies, or products
but lacks aids for direct foreign expansion.
 Licensing suits firms seeking regular income flows from their intellectual property
assets.
Franchising
 Franchising as a mode of entry into international business has been stated below.
 Franchising means a firm (franchisor) licenses its firm model, brand name, operating
systems, and processes to independent entities (franchisees) for a fee and ongoing
royalty payments.
 Franchisees are allowed to use the franchisor's brand name and trade systems to operate
their firms under certain terms and conditions.
 Franchising allows the franchisor to expand globally with low upfront investment and
minimal risk.
 The franchisee bears most of the investment and operational costs for running the
franchised firm locally.
 The franchisor earns income from franchise fees, royalties, and supply contracts with
franchisees.
 Franchising helps the franchisor leverage the local knowledge, relationships, and aids
of franchisees for foreign market expansion.
 However, the franchisor has limited control over how franchisees operate and maintain
brand standards in foreign markets.
 Franchising works best for firms with proven firm models, well-recognized brands, and
standardized processes.
 Franchising is suited for firms seeking fast global growth while reducing risks via
independent franchisees.

Contract Manufacturing

Prepared by Dr. M.P. PRATHIBA, Assistant Professor, Dept of Commerce, KAHE

 KARPAGAM ACADEMY OF HIGHER EDUCATION, COIMBATORE

Class: III BCOM PA Course Name: INTERNATIONAL BUSINESS

Course Code: 22PAU504B Semester V Year: 2022Batch

 Contract Manufacturing as a mode of entry into international business has been stated
below.
 Contract manufacturing means a firm outsources part or all of its exhibit process to
foreign contractors while retaining control over marketing, sales, and branding.
 The firm (original brand manufacturer) focuses on product design, R&D, marketing,
and distribution while moving manufacturing to contract manufacturers.
 Contract manufacturing allows the firm to quickly scale up exhibit capacity without
large capital investments in plants and equipment.
 The contract manufacturer bears most of the costs and risks associated with an exhibit
in return for fees paid by the firm.
 Firms utilize lower costs of exhibit and skilled labor available in foreign countries via
contract manufacturing.
 However, the firm has limited control over the exhibit process that contract
manufacturers handle.
 The firm is dependent on contract manufacturers for timely delivery, quality control,
and fulfillment of orders.
 Contract manufacturing works best for firms focused on product development,
branding, and distribution rather than exhibit expertise.
 Contract manufacturing is suitable for firms seeking to optimize costs and focus on
their core competencies.
Joint Venture
 Joint Venture as a mode of entry into international business has been stated below.
 A joint venture involves two or more firms coming jointly to form a new firm entity in
which all parties have equity stakes.
 The joint venture partners pool their aid, expertise, technology, and capital to leverage
each other's strengths for mutual use.
 Joint ventures allow firms to share the risks and costs of foreign market entry and
operations.
 Each partner can benefit from the local knowledge, affinities, reputation, and webs of
the other in the foreign market.
 Joint ventures help firms gain access to new technologies, expertise, markets, and
clients that they needed help to achieve.
 Yet, joint ventures need complex negotiations and deal on strategic direction, control,
funding, and profit and loss sharing.
 Cultural and corporate contrasts between partners can create conflicts and problems in
working the joint venture.
 Partners may have splitting priorities and goals that affect the long-term success of the
joint venture.
 Joint ventures work best when partner firms have complementary - rather than
competing - capabilities and aids.

Prepared by Dr. M.P. PRATHIBA, Assistant Professor, Dept of Commerce, KAHE

 KARPAGAM ACADEMY OF HIGHER EDUCATION, COIMBATORE

Class: III BCOM PA Course Name: INTERNATIONAL BUSINESS

Course Code: 22PAU504B Semester V Year: 2022Batch

 Joint ventures are suitable when a wholly owned subsidiary is not feasible due to
regulatory restrictions, aid constraints, or high risks.

Wholly Owned Subsidiary

 A wholly owned subsidiary as a mode of entry into international business has been
stated below.
 A wholly owned subsidiary is a separate legal entity that is fully owned and controlled
by the parent firm.
 The parent firm sets and funds the subsidiary in the foreign nation to manage local
operations and strategies.
 A wholly-owned subsidiary gives the parent firm full control over strategic decisions,
operations, and management in the foreign market.
 The parent firm can leverage the subsidiary to quickly gain market share and client base
in the new nation.
 Selecting a wholly-owned subsidiary needs large upfront investments and ongoing
funding from the parent firm.
 The parent firm takes on higher risks by investing fully in the foreign market via the
subsidiary.
 Wholly owned associates provide the best means for the parent firm to execute
standardized plans and maintain operational consistency globally.
 However, associates need the product of local human aid goods to manage foreign
operations alone.
 Wholly owned aids work best for firms seeking long-term commitment and control in
high-potential foreign markets.
 Subsidiaries are suitable when rules need local incorporation or when proprietary
technologies need to be protected.
Acquisition
 Acquisition as a mode of entry into international business has been stated below.
 An acquisition occurs when a firm purchases an existing foreign firm to gain access to
its aids, market share, and clients.
 Acquisitions allow firms to quickly show a sight, exhibit facilities, distribution network,
and client base in a foreign market.
 Acquisitions give the acquiring firm control over the target firm's existing management,
technologies, brands, and aids.
 Buys help firms expand into new global markets and product lines with minimal risk
compared to building operations from scratch.
 However, acquisitions involve huge upfront costs for purchasing the target firm and
integrating its operations.

Prepared by Dr. M.P. PRATHIBA, Assistant Professor, Dept of Commerce, KAHE

 KARPAGAM ACADEMY OF HIGHER EDUCATION, COIMBATORE

Class: III BCOM PA Course Name: INTERNATIONAL BUSINESS

Course Code: 22PAU504B Semester V Year: 2022Batch

 The acquiring firm inherits the target firm's existing issues like poor client relations,
ancient technologies, internal conflicts, etc.
 Acquisitions need tough negotiations and, later, heavy assets in integrating
organizational cultures, systems, and methods.
 Differences in management styles and work rituals between the acquiring and target
firms can create integration challenges.
 Acquisitions work best for firms seeking accelerated market entry and growth via
access to an established foreign firm.
 Acquisitions are suitable when organic expansion via other modes is too slow or risky
for firms.
 Understand about economic environment of business.
Agent or Distributor Relationships
The firm appoints agents or distributors in foreign markets to define and sell its products
locally. This allows the firm to enter new markets with low investment while agents handle
marketing, sales, and client service. However, the firm has little control over how agents
promote and service its products.
Export Management Companies
The firm outsources its export function to an export management firm that handles all logistics,
documentation, payments, and foreign client relationships on the firm's behalf. This reduces
the aid needs for the firm, but it loses direct control over its export operations.
Export Trading Companies
The firm sells its products to an export trading firm that then markets and spreads the products
in foreign markets. This allows the firm to expand globally with minimal costs and risks.
However, the firm has limited control over the pricing and marketing of its products overseas.
Global Tenders
The firm bids for contracts to supply foreign government agencies or multinational firms. If
successful, the firm may need to establish a local presence to fulfill the contract. This allows a
"trial run" in the foreign market before making larger investments.
Trading Houses
The firm sells its products to trading houses that import, stock, and resell the products across
multiple foreign markets. This needs little investment from the firm, but the trading house sets
product prices and markets alone.
Advantages
The advantages of modes of entry in international business have been stated below.

Prepared by Dr. M.P. PRATHIBA, Assistant Professor, Dept of Commerce, KAHE

 KARPAGAM ACADEMY OF HIGHER EDUCATION, COIMBATORE

Class: III BCOM PA Course Name: INTERNATIONAL BUSINESS

Course Code: 22PAU504B Semester V Year: 2022Batch

Low resource commitment - Direct exporting, licensing, and agent/distributor affinities need
little initial investment from the firm. This allows global expansion with minimal capital outlay.
Reduced risks - Modes like licensing, contract manufacturing, and joint ventures transfer some
risks to foreign partners, lowering the firm's exposure.
Leverage local expertise - Options like joint ventures and acquisitions give firms access to the
local knowledge, affinities, and experience of foreign partners.
Quick market entry - Modes like assets and subsidiaries enable firms to quickly establish
operations and gain customers in international markets.
Disadvantages
The drawbacks of modes of entry in international business have been stated below.
Limited control - With modes like exporting, licensing, and franchising, firms have limited
control over foreign operations managed by partners.
Dependency on partners - The firm is reliant on the performance and cooperation of foreign
agents, licensees, contractors, and joint venture partners.
High costs - Setting up foreign subsidiaries, joint ventures, and acquisitions typically involve
huge expenditures for the firm.
Intricacy of operations - Managing international partners, integrating acquisitions, and
running foreign subsidiaries can add intricacy to the firm's operations.
Cultural and regulatory challenges - Operating across multiple nations exposes the firm to
cultural contrasts, tough regulations, and trade barriers.
Conclusion
There are many options for firms to enter international markets, each with pros and cons
depending on the firm's goals, aids, and risk appetite. Choosing the right mode of entry needs
careful review of factors like loyalty level, control, costs, speed, and risks. Firms often start
with less aid-intensive modes like exporting and later move to options that give them more
control and benefits like mergers, acquisitions, and foreign subsidiaries.

Internationalization process and managerial implications.

The process of internationalization typically involves the following steps:
1-Market Research: Conducting thorough market research to identify potential target markets
and assess the demand for the company's products or services.

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 KARPAGAM ACADEMY OF HIGHER EDUCATION, COIMBATORE

Class: III BCOM PA Course Name: INTERNATIONAL BUSINESS

Course Code: 22PAU504B Semester V Year: 2022Batch

Adaptation: Adapting the company's products or services to suit the needs and preferences of
customers in the target market. This may involve making changes to the product design,
packaging, marketing messages, and pricing.
Legal and Regulatory Compliance: Ensuring that the company complies with all the legal and
regulatory requirements of the target market. This may include obtaining licenses, permits, and
certifications, and adhering to local laws and regulations.
Distribution: Developing an efficient distribution system to ensure that the products or services
reach the target market in a timely and cost-effective manner. This may involve partnering with
local distributors or establishing a local presence in the target market.
Marketing and Promotion: Developing a marketing and promotion strategy to create brand
awareness and attract customers in the target market. This may involve leveraging digital
marketing channels, local media, and partnerships with local influencers.
Local Partnership: Establishing partnerships with local businesses or organizations to better
understand the target market and gain insights into local business practices, culture, and
customer preferences.
Monitoring and Evaluation: Regularly monitoring and evaluating the company's performance
in the target market to identify areas for improvement and adjust strategies as needed.
The process of internationalization can be complex and requires careful planning and
execution. However, by successfully expanding into new markets, companies can increase their
customer base, diversify their revenue streams, and achieve greater long-term growth and
success.
Meaning of Culture
Culture in international business refers to the beliefs, values, practices, and attitudes of
organizations that impact business functions and the strategic direction enterprises take.
Business culture influences management and employees' professional interaction within and
outside the organization.
Country Culture
National culture is the norms, behaviours, beliefs, customs, and values shared by the population
of a sovereign nation (e.g., a Chinese or Canadian national culture). It refers to specific
characteristics such as language, religion, ethnic and racial identity, cultural history and
traditions.
Importance and Role of Culture in International Business
Culture has various definitions, but in the simplest terms, culture refers to the norms, beliefs,
ideas, attitudes, and social behavior of an individual or society. In a way, culture is the coming
together of different experiences, values, beliefs, and ideas that influence the behavior and

Prepared by Dr. M.P. PRATHIBA, Assistant Professor, Dept of Commerce, KAHE

 KARPAGAM ACADEMY OF HIGHER EDUCATION, COIMBATORE

Class: III BCOM PA Course Name: INTERNATIONAL BUSINESS

Course Code: 22PAU504B Semester V Year: 2022Batch

attitude of a community, a particular person, or a group. Some essential cultural elements are
religion, language, gender roles, social structure and dynamics, traditions, laws, and customs.
Cultural adaptation in international business encompasses organizational culture as well as
national cultures and traditions. It helps the organizations to have a better understanding of how
local businesses and the workforce function.
Entry into new markets
Conducting international business involves entering new markets. Companies must display
sensitivity towards different cultures when dealing with foreign clients or planning a marketing
campaign for their foreign subsidiaries. Business executives should start by studying the local
market’s beliefs, values, and customs.
Business negotiations
Different cultures have distinct perspectives on business negotiations. While some consider
negotiations a signed contract between two parties, others view it as the beginning of a strong
business relationship. Therefore, you must understand how your counterpart views a
negotiation’s purpose, whether they want to build a long-term rewarding relationship or are
looking at it as a one-time deal.
Personal styles
Culture in international business strongly influences personal style, from an individual’s
dressing sense to interacting with others. Each culture has its customs and formalities for
business negotiations and meetings. Hence, knowing the subtleties of foreign cultures and
respecting appropriate formalities go a long way in making the right impression and bagging
crucial business deals.

Team organization
Culture is a decisive factor that affects how organizations negotiate a deal. While some believe
in consensus decision-making, others believe in the supremacy of a single leader who takes all
decisions. Whether the culture promotes hierarchical roles or societal equality, these values
affect all parties in a business deal. Hence, business executives should understand how teams
in different cultures organize and participate in decision-making.
Inclusion and diversity
An organization that welcomes cross-cultural people, ideas, and customs create a benchmark
as an inclusive and diverse workspace. Sensitivity and acceptance of diverse cultures help
create a dynamic and talented workforce. Plus, these values leave a lasting impression on
clients, customers, investors, and stakeholders.

Prepared by Dr. M.P. PRATHIBA, Assistant Professor, Dept of Commerce, KAHE

 KARPAGAM ACADEMY OF HIGHER EDUCATION, COIMBATORE

Class: III BCOM PA Course Name: INTERNATIONAL BUSINESS

Course Code: 22PAU504B Semester V Year: 2022Batch

Understanding the Role of Culture in International Business

Introduction
Global expansion is demanding. If you're expanding into a market whose local culture is
different from your home market, you may experience cultural differences that present yet
another challenge: a cultural challenge.

In recent decades, cultural and international business have been inextricably linked. Thanks to
globalized goods, people, and money flows, companies growing internationally must deal with
cultural differences in new, local markets.

There are many ways — and reasons — international businesses need to keep culture in mind
when doing business abroad, such as:

Marketing and promoting products and services whose prices and use differ from one market
to another
Relocating senior managers who would need to perform several business activities abroad
Engaging local customers in one market to expand into a neighboring market whose access is
hard to achieve directly
Establishing solid business partnerships with local suppliers, vendors, collaborators, etc.
Outperforming the competition by creating a more insightful, favorable, and enduring presence
in a market instead of a distant approach where you're less involved with local customers or
businesses
Whichever reason you wish to do business abroad, culture is a staple.

Knowing how to do business in a different culture means that you need to understand which
cultural factors affect international business activities. This article shares what cultural barriers
you need to overcome and how to do so by centering culture in your global business operations.

The importance and role of culture in international business

When you start or expand your business abroad, you come into several cultural touch points.
For example, when discussing a contract with a local employee, using local language,

Prepared by Dr. M.P. PRATHIBA, Assistant Professor, Dept of Commerce, KAHE

 KARPAGAM ACADEMY OF HIGHER EDUCATION, COIMBATORE

Class: III BCOM PA Course Name: INTERNATIONAL BUSINESS

Course Code: 22PAU504B Semester V Year: 2022Batch

negotiation methods, and more are critical when establishing a respectful working relationship.
This is cultural sensitivity.

The importance and role of culture in international business is a long-established area of

interest in business and academic research. For example, in a broad study on the role of culture
in international business, cultural context is shown to substantially influence how global
companies perform everyday duties in diverse cultural contexts. Specifically, going abroad
makes companies adapt business procedures to local customs.

This finding has broad implications for developing business strategies that are culturally
competent on a wide scale. Notably, while each company may (or should) have a clear and
actionable business strategy at home, applying this method without adopting it to local customs
may fail and result in scandalous or undesirable outcomes.

Moreover, the complexities involved in doing business abroad are informed by what makes a
culture, such as local languages, business practices, local dress codes, food habits, and much
more. In short, doing business abroad is, in many ways, more about understanding who your
customers — and, by extension, your business partners, suppliers, vendors, etc. — are in your
chosen international markets of operation.

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International business and cross-cultural challenges
International business involves a range of cross-cultural challenges, which present barriers
across cultural lines. Understanding cross-cultural challenges, or differences, is critical for your
success as an international business.

Think of these challenges as another barrier to market entry when doing business abroad. There
is, however, a primary difference between (usual) business and (and less so) cultural barriers:

Prepared by Dr. M.P. PRATHIBA, Assistant Professor, Dept of Commerce, KAHE

 KARPAGAM ACADEMY OF HIGHER EDUCATION, COIMBATORE

Class: III BCOM PA Course Name: INTERNATIONAL BUSINESS

Course Code: 22PAU504B Semester V Year: 2022Batch

Where business barriers can be overcome using business learning methods and models (e.g.,
marketing strategies, business negotiation, etc.), cultural barriers need to be addressed using
more innovative techniques (e.g., role plays, immersive workshops, and cross-cultural
programs). Such approaches can be informed by how your staff interacts with local customers,
suppliers, and partners.

So what are some common cross-cultural barriers you are likely to encounter? They come in
almost every shape, scope, and depth, including:

Cultural conflicts, primarily arising from cultural differences among your international staff
members
Parochialism, meaning your staff might (mistakenly) believe at-home rules and ways of doing
business apply equally (and literally) abroad
Individualism, meaning your staff members who are used to working independently might find
working in teams hard to do in your foreign markets
Cultural distance, meaning your staff — whose culture is vastly different from your foreign
market's — might be unable to adapt to new ways of doing business according to local cultural
customs.
Culture shock is an extreme case of culture difference where your staff assigned abroad cannot
adapt to local culture and habits so much that your final output as a business declines instead
of grows.
Underlying each factor affecting international business activities abroad are factors informed
more by culture and less by business processes. That is why you should address the cultural
barriers you face or are likely to face overseas.

For example, the Wing Zone franchise overcame local barriers to certain tastes of chicken
offered as standard in home markets. Tweaking Wing Zone's flavors to adapt to local
preferences — by adding tandoor in Saudi Arabia, for instance — has made Wing Zone an
instant success.

In a second example, Wich Superior Sandwiches has worked on supply chain management (not
taste) to streamline operations outside the US home market. In doing so, this company has not
only cut supply chain costs but has also managed to localize supply chain practices to adapt to
local ways of managing supplies and vendors in different markets.

Prepared by Dr. M.P. PRATHIBA, Assistant Professor, Dept of Commerce, KAHE

 KARPAGAM ACADEMY OF HIGHER EDUCATION, COIMBATORE

Class: III BCOM PA Course Name: INTERNATIONAL BUSINESS

Course Code: 22PAU504B Semester V Year: 2022Batch

How creative companies can or not overcome cross-cultural barriers is not a fixed recipe
everyone can cook and enjoy everywhere. Instead, a wide range of factors, defined by culture
as an overarching factor, are at play in determining whether a product or a service could succeed
at a given time and in a given market. Understanding who your local customers and partners
are defines your cultural competency abroad as an employer and brand.
Addressing the cultural barriers in international business
To overcome cultural barriers, companies should:
For international projects, carefully select employees who are cultural sensitivity, have an
expansive worldview and cultural knowledge, and a desire to learn about new cultures and
habits
Assign employees compatible assignments, meaning you should send your employees to
markets where local cultures are close to their home culture to avoid significant adaptation
challenges, particularly on first assignments
Provide pre-departure training by educating selected employees about local cultural habits,
geography, dress codes, etc.
Provide after-arrival orientation to help your assigned employees settle in and adapt to your
chosen foreign market by offering assistance in housing, commuting, shopping, etc.
Provide financial and non-financial incentives (e.g., promotions upon returning home) for your
international assignees to ensure job insecurity, soothe feelings of separation from family and
friends, and fill gaps in employee engagement that may have occurred due to remote work.
Prepare employees for reentry cultural shocks, helping them to reorient upon returning home.
Cultural differences in international business
As your business grows internationally, cultural differences across markets you operate in grow
accordingly. However, cultural differences can be considered assets to invest in instead of
liabilities.

In expanding abroad, you should introduce changes to your business strategy to adapt to local
ways. You may lose your company's organizational culture, but this presents an opportunity to
introduce changes that strike a balance between your national corporate culture and
international cultures of interest. This may help expand your business.

As such, managing cultural differences in the international market may be less challenging,
bridging the gaps between your corporate culture and your chosen foreign market's culture.
This can create a business process that is effective and productive with ideally less cultural

Prepared by Dr. M.P. PRATHIBA, Assistant Professor, Dept of Commerce, KAHE