Cultural Distance & Learning [Md. Abdur Rakib]
Md. Abdur Rakib ID No: 375
Topic of DiscussionCultural Distance & Learning
Cultural Distance Companies expanding business outside of their home country have to deal with several differences between their home country and the countries where they have subsidiaries. For example, North-American multinationals working in Asia found a very different work environment, with several differences in language, culture, politics system, educational level and industrial developmental level. These differences are called psychic distance (coined by Beckerman (1956). Psychic distance refers to the possibility of determining the extent of the differences when expanding a company’s operations abroad. The psychic distance is represented by a sum of the geographic, administrative, cultural and economic distances among countries.
Continued Administrati ve Distances Dimension of Psychic Distance Economic Cultural Distances DistancesCultural distance is one of the most complex dimensions. It includes not only culturaldifferences, but also structural elements, such as those arising fromadmi-nistrative, economic, and legal system-related differences, as well as languagedifferences.
Dimension of Cultural Distance Language • Considers the distance between the home language and the language of the other country, as well as the percentage of the population that is able to speak the latter. Religion • Considers the distance between mostly followed religion in home country and the dominant religion of the other country, as well as the percentage of the population that follows the latter. Culture • Composed of four discrete indicators: power distance, individuality, masculinity, and aversion to uncertainty.
The Cultural Distance Effect The theoretical reason why the cultural distance to the target country should affect expanding abroad is that firms located in culturally distant countries have radically different organizational and managerial practices as well as communication styles, and are hence difficult to integrate into an MNE’s corporate network after they have been acquired. However, cultural distance effect creates very natural biases. Companies usually look for countries abroad where their experiences in the home market would be most useful, where the cultural synergy would be maximized. And they can utilize their experiences in dissimilar cultural countries. For Example, Japan’s exporting companies generally started trade with the Southeast Asian countries before moving on to Latin America & Australia.
The International Learning Curve Learning curve means learning through the timeline of doing business to culturally similar countries & extending its business to a culturally different & competitive country market when experienced from learning and adapting to the foreign country cultures. It gradually increases the productivity of the managers involved. It also helps to create a common rationale for choosing countries to enter, analyze foreign environments, gain capabilities, appropriate strategies & tactics. Even a great potential in a psychically distant market may not be exploited because of the additional transactional costs. Only an experienced international marketer eyes for the new and important country markets. Example: Japanese firms tend to enter Southeast Asian markets following the minimum cultural distance. Then, looking for diversification enter Latin American markets. As skills and confidence grow, they eye for the US or European market. But before entering, they will enter Australian market to test the ability to sustain penetration in a country with similar characteristics. Finally, with sufficient success & learning they will enter the US market.