Cultural Distance, Dimensions of Cultural Distance, Cultural Distance Effect & International Learning Curve...

1. Md. Abdur Rakib
ID No: 375

2. Topic of Discussion
Cultural Distance & Learning

3. 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.

4. Continued
Administrati
ve Distances
Dimension
of Psychic
Distance
Economic Cultural
Distances Distances
Cultural distance is one of the most complex dimensions. It includes not only cultural
differences, but also structural elements, such as those arising from
admi-nistrative, economic, and legal system-related differences, as well as language
differences.

5. 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.

6. 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.

7. 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.