Cultural Distance & Learning [Md. Abdur Rakib]
Cultural Distance & Learning:Cultural Distance:Globalization has impacted the individual’s life and work intensely in the past years. Companiesthat have units outside of their home country have to deal with several differences between theirhome country and the countries where they have subsidiaries. For example, North-Americanmultinationals working in Asia found a very different work environment, with several differencesin language, culture, politics system, educational level and industrial developmental level. Ininternational business, those differences are called psychic distance (coined by Beckerman(1956) on the basis of his analysis of studies on intra-European trade flows). Psychic distance istherefore related to the possibility of determining the extent of the differences when expanding acompany’s operations abroad. Although the dimensions of psychic distance are represented by asum of the geographic, administrative, cultural and economic distances among countries, culturaladministrative & economic distances are the key psychic distances. Administrati ve Distances Psychic Distance Economic Cultural Distances Distances Figure: Dimension of Psychic Distance
Cultural distance is one of the most complex dimensions, as the analysis of a culture is subjectiveand mostly intangible. It includes not only cultural differences, but also structural elements, suchas those arising from administrative, economic, and legal system-related differences, as well aslanguage differences. Therefore, we can imagine that a company’s international strategy, in termsof market choice and entry mode implies certain cultural distance.Dimension of Cultural Distance:Considering the cultural distance, there are 3 dimensions which are given emphasis by the firms. 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. Figure: Dimensions of Cultural DistanceThe Cultural Distance Effect:National cultural distance can be defined as the extent to which the shared norms and values inone country differ from those in another (Chen & Hu, 2002; Hofstede, 2001; Kogut & Singh,1988). The theoretical reason why the cultural distance to the target country should affectexpanding abroad is that firms located in culturally distant countries have radically differentorganizational and managerial practices as well as communication styles, and are hence difficultto integrate into an MNE’s corporate network after they have been acquired. MNEs are thereforemore likely to enter culturally distant countries through investments; as such investments allow
MNEs to introduce their practices from the outset to a carefully selected workforce that fits theirculture. However, cultural distance effect creates very natural biases. Companies usually look forcountries abroad where their experiences in the home market would be most useful, where thecultural synergy would be maximized. And they can utilize their experiences in dissimilarcultural countries. It also helps to analyze the possibility of differences in action & predictabilityof disadvantages from a competitive standpoint. Japan’s exporting companies generally startedtrade with the Southeast Asian countries before moving on to Latin America & Australia.The International Learning Curve:The cultural distance path allows gradual accumulation of know-how about how to do businessabroad. And a learning curve means learning through the timeline of doing business to culturallysimilar countries & extending its business to a culturally different & competitive country marketwhen experienced from learning and adapting to the foreign country cultures. Labour efficiency,standardization, specialization, methods improvements, technology-driven strategies, resourcemix, product redesign, network-building and cost reduction are examples of learning. Itgradually increases the productivity of the managers involved. It also helps to create a commonrationale for choosing countries to enter, analyze foreign environments, gain capabilities,appropriate strategies & tactics.In the beginning, even a great potential in a psychically distant market may not be exploitedbecause of the additional transactional costs like geographic, cultural or economic & so no. Onlyan experienced international marketer eyes for the new and important country markets like theUS market. Japanese firms tend to enter Southeast Asian markets following the minimumcultural distance path first and then, looking for diversification, enter Latin American markets.As skills and confidence grow, they eye for the US market with its great potential. But beforeentering US or European market, they will enter Australian market to make sure they will be ableto sustain penetration in a country with similar characteristics. Finally, only with sufficientsuccess & learning they will enter the US market.