Introduction to Cultural Differences
It is obvious that differences in cultures are very important, though these differences are difficult to handle. The failure to understand and appreciate that differences in cultures bring variety to lifestyles leads to embarrassment, uneasy relationships, and failed businesses. Culture permeates both life and death. Take, for instance, the high rate of plane crashes in Korea from the year 1970 to 2000. The discovery made from the analysis of the black boxes from the crashed planes show that the flight engineers and the co-pilots in the cockpits carry out actions only in deference to the captains. Even at the wake of the possibility of a crash, the flight engineers and the co-pilots rarely made suggestions that would go against the good judgment of the captains.
In this presentation, culture is seen as a shared system of values, beliefs, assumptions and projections which are imbibed on account of membership to a group, and which influence the generality of the behaviors and attitudes of the members of the group. Looking at culture in this way, three major ingredients can be isolated. In the first place, culture is a phenomenon attached to a group by which members of that group can be identified and distinguished from other groups. Approaching cultural studies in this way reveals that culture exists at several different levels such as business establishments, organizational entities, industrial companies, occupational groups, geographical regions, and nations (Leung et al., 2005). Rather than study cultural groups in isolation, this paper focuses on national culture in particular, and also addresses the effects of the differences in cultures across countries.
Secondly, the definition given above implies that it is only through socialization that culture is obtained, not by birth. Through the interactions with family members, friends, teachers, and society itself, culture is learned and internalized. It is in this regard that Geert Hofstede sees culture as a mindset that has been programmed collectively (Hofstede, 1980). Furthermore, the collective programming determines what behavior is to be considered acceptable, and what is to be forbidden. In essence, cultural values provide basis for individuals’ choices of the kind of behavior to adopt.
Worthy of note is the fact that cultural differences in a Holland have become stable over a period of time. At the surface, similarity of cultural habits can be observed. For example, the increased appreciation of symbols and artifacts is brought about by the wide spread and acceptance of American perception of such items. However, a deeper analysis would show the persistence of cultural differences. In support of this, data collected from the study carried out in 65 countries shows that, even with the profound cultural changes caused by economic development and modernization, there is a remarkable persistence of core cultural values. The report of this study representing 75% of the world’s population is contained in the World Value Survey (Inglehart and Baker, 2000).
Take a look at this scenario. You are in a car with your friend who drives at an alarming speed and eventually hits a pedestrian. You are aware that the speed is too much for such a part of the city where speed limit says 20 miles should be covered in an hour. Nobody has witnessed the avoidable accident. Your friend’s lawyer tells you that if you could testify under oath that your friend was driving at the designated limit, you could save your friend from the consequences attached to his actions. Over 90% of people in the U.S., Canada, Australia, Norway, Switzerland, Western Germany, and Sweden say they would never testify falsely under an oath, not even to help a close friend. However, 47% in Indonesia, 34% in Venezuela, 26% in South Korea, 48% in China, 42% in Russia say they would not bear false witness in such a situation (Tompenaars and Hampden-Turner as cited in Adler and Allison, 2008). And so, some cultures emphasize adherence to universal virtues such as honesty, while others prefer to pay more attention to issues of relationships and loyalty to particular personalities or concepts. And that is why there is bound to be misunderstanding even between countries that share affiliations while spearheading modernism.
Multinational companies in Holland are even more subjected to infiltrations of different cultural values in their daily operations due to the convergence of multiple cultures. In other words, operating businesses across borders calls forth complexities since the managers are forced to streamline their activities to suit every representative culture. Nevertheless, this situation describes the position of multinational business outfits, though it would apply to all activities carried out across borders.
History in Cultural Differences
Individual behaviors provide the basis for the analysis of cultural differences at diverse locations in Holland. United States citizens have the attitude of owning guns for which reason other Europeans do not understand. Czechs are found to drink more beer than Saudi Arabians. The Irish people come in second in this culture of drinking beer. China and India happen to be geographically close to the extent that their territorial disputes are still unresolved. But there still exists distinct differences in their eating cultures, especially concerning the parts of an animal that should be eaten. Psychotherapists are patronized more in Argentina more than in other parts of the world. Brazilians pay so much attention to and spend a greater part of their income trying to look good. They literally invest on beauty products more than the citizens of other countries (Argentina Mental Health, 2009).
One other very prominent indicator of the differences in cultures is the diversity in religion throughout Holland. The World Christian Encyclopedia reports that people all over the world practice 19 major religions, and these are further divided into 270 large religious sects and many other smaller ones. For the year ending in 2000, Christianity comes first with 33% of the world population; Islam is said to be 21%, the non-religious were 16% in number; and Hindu religion takes 14% of the world’s population. In any case, the cultural diversity perceivable within these religions is quite huge. In Christianity alone, there are separate groups numbering up to 34,000! (Dow et al., 2006). Though a greater number of Czechs citizens are not religious, Christianity happens to be the religion with the greatest number of devotees. And here, wine and alcoholic drinks are taken as part of their ritual practice. But the official religion in Saudi Arabia is Islam which condemns the consumption of alcohols. This accounts for the divergent sales of alcoholic drinks in those parts. In the same way, the difference in diet between the Chinese people and the Indians are a result of the distinctions in their religions.
The researches that have been conducted with religion as the indicator of cultural differences focuses on two issues: to know whether the communities in the nation share a common religion or not. A sample drawn from 163 countries shows that 51% of those countries pair up in having not less that 30% of their populations practicing similar religion. However, this data does not analyze the differences that exist between denominations that are within one religion. Measures used to study religious differences consider similarities at denominational level as closest (Baptist, for example); the next level is the study of the aggregation within one religion (for example, Protestant); it then goes on to the level of religion (Christianity, for instance); from there it moves to the most broad combination of a group of religions that have common origin and similar beliefs (an example is Monotheistic religions that originate from the Middle East, and this category encompasses Christianity, Islam and Judaism) (Dow et al., 2006). It should be noted that differences also exist in the level of diversity within religions (West and Graham, 2004).
Another major factor to consider in cultural discourse in Holland is language. According to a couple of researchers, language gives access to the thought processes and the deeper beliefs of a people (West and Graham, 2004). Early researches of the potential implications that could come about in the thought processes across different cultures as a result of linguistic differences date back to the writings of Edward Sapir in 1921, and that of Benjamin Whorf in 1940. The great impact of language on culture is brought to the fore by Michael Agar when he says that language brings with itself patterns of perceiving, inquiry into the unknown, discourse, and acting. And these patterns reveal thought and create basis for judging ideologies and actions (Agar, 1994). Scholars in later epochs, in the 1960s particularly, focused on patterns that are common across languages thereby moving away from the view discussed above. However, recent researches in Linguistics have shown that the appreciation of how the differences in the use of language could be interpreted in relation to cultural structures is gradually growing (Gumperz and Levinson, 1996)
One of the simple ways to draw conclusions on the effects of linguistic differences on culture is to take note of the finding that, in the sample study of 163 countries mentioned above, 10% of country pairs have not less than 20% of their populations speaking the same language (West and Graham, 2004). Moreover, linguistic distance as a concept allows for the measuring of cultural differences on the basis of classification of languages; that is, detecting a shared group of linguistic ancestors.
The particularly interesting thing that makes the use of language differences an objective instrument of indication of cultural distance is its ability to show the relationships that exist within cultures as contained above. Two illustrations will suffice which will focus on English and Spanish since these will be more familiar to readers. First, look critically at Hofstede’s perception individualism and collectivism. Cultures whose language is English are seen to be more individualistic (with a rate of 84) than their Spanish counterparts whose cultures are considered to be more collectivistic (having 22). In terms of linguistics, Spanish requires the specification of a person’s gender when providing a description of his/her occupation. This is considered to be a reflection of the collectivist mindset which roots description in their social contexts.
On the other hand, English casts aside this requirement to provide contextual information in communication such that it tends to place individuals high and above their groups (West and Graham, 2004). Hofstede’s explanation of power distance also has connections to the linguistic differences between the English and Spanish languages. Countries that speak Spanish are rated higher (69) against those that speak English with 32 as their score. And we note, in the Spanish language, that there is a distinction between the formal and informal usages of the English word ‘you’ as shown in the words usted and tu. This emphasis in hierarchy is seen also in speech patterns in other languages. Examples are the tendency to introduce an engineer in Mexico as ingeniero and licenciado is attached to the lawyer whereas the two would have just passed for mister in the English language (West and Graham, 2004). Statistical tests that are more sophisticated in approach have also shown that linguistic distance is indeed an indicator of cultural differences.
Other than their use in determining the differences in culture at levels deeper than behavior, language and religion in Holland are useful also for the grouping of cities. It would be quite a daunting task to analyze the countries of the world in terms of how business cards are printed and distributed, or in terms of the ingredients that go into local dishes. Considering countries in terms of the main languages spoken there or the most populated denomination may be useful, but care needs to be taken to avoid over-simplification. Effective and valid classifications of countries into clusters of cultural groups have often made use of language, religion, and geographical location as major factors. Some people (for example, Hofstede) have relied on cultural frameworks while others make use of economic development levels as a yardstick (Ronen and Shenkar, 1985).
Cultural Differences at National Levels
One other broad factor which marks the effects of differences in cultures is measured by the levels of trust that exist within and between countries. The most valid data available on this aspect is derived from Eurobarometer Surveys where trust is measured among the citizens of different European countries (Maurseth et al., 2002). Records show that the survey carried out in 16 countries in West Europe demanded people to say whether they had a lot of trust for their fellow countrymen, for the citizens of the 15 other countries, and for the people of some of the countries in East Europe (Maurseth et al., 2002). For instance in Sweden, records show 64% level of differences in the trust in fellow countrymen, 63% in citizens of other nomadic countries, 40% in the other European countries, and 29% trust in every other remaining country represented in the study. Scholars seeking to unravel the patterns of trust at international levels have come to the conclusion that trust diminishes with the increase in the differences in the religions, languages, and geographic distance that exist between the populations of any given two countries, especially if they have a long history of wars (Maurseth et al., 2002).
In this section, a more systematic review of the impact of four types of international flows on cultural differences will be presented. These flows are in the cases of information, products, capital, and people. We shall consider information flow first because economists see information cost as the major factor in that it reduces the other types of flow. The next to be treated is people flow due to the prominence of relationships that facilitate capital followed by products flows, with the last being capital flow (Maurseth et al., 2002).
It has already been made clear that linguistic differences affect differences in cultures. To determine how language barriers affect information flows, there is a need to look at the rate of international calls using population-based scheme. It is found that minutes of phone calls that are made between countries where not less than 20% of the populations share a common linguistic system is ten times higher than it occurs between other countries (Maurseth et al., 2002). The effect of language barriers on the flow of information can also be manifested in citation analysis. According to a European study, it is found that possessing a common language augments the knowledge flows between two different regions by 28% (Maurseth et al., 2002). Apart from language barriers which are readily identifiable, there are other less identifiable factors impeding information flows, such as misunderstanding, lack of willingness to exchange information across cultural borders.
The effect of the differences in cultural backgrounds on people flows can be analyzed by studying patterns of migration. 60% of migrants stay in a country which shares their religion; and 40% move to a country that speaks a language common to theirs (UNDP, 2009). According to a research on diasporas and some international networks of business, migration is said to have a very important impact on information flows, without leaving out trade patterns and investment. A study has noted that coupled with its use as information transmitter in terms of opportunistic conducts of business, diaspora networks could also be used to circulate information about current opportunities that are profitable for international trade and investment (Rauch, 2001).
In seeking evidence that links cultural factors directly to product flows (which entails trade), language has been frequently studied in relation to the situation. Having access to a common language is said to increase trade relationships between paired countries by 42% (Ghemawat et al., 2003). Though there are not many researches on the aspect of services trade, a study has shown that a common language encourages services trade by 50% (Kimura et al., 2004). It could be argued that barriers in language would be stricter in services trade than in products. Digging deeper into the effects of linguistic differences on trade would be useful. Even though communicating through a translator could facilitate trade, one record has shown that direct communication is by three fold more effective when compared to indirect communication in terms of promoting trade relationships. And in the same record, we find that linguistic differences within a country, together with great level of literacy, increase the promotion of foreign trade over the domestic (Melitz, 2006).
Studies on language barriers have also shown that receiving information proves to be more problematic than providing it. And this is made evident by the discovery that people usually move out with accents which they do not understand.
One study has shown that countries in which one religion is practiced command more trade than those who don’t, indicating that a common religion increases trade by 22% (Lineders et al., 2005). Furthermore, it has also been recorded that some religions, more than others, provide a more conducive atmosphere that encourages the development of networks of international trade (Joshua, 2007). Trade flows have been linked to the cultural framework created by Hofstede.
An intuitive deduction that could be made from this kind of research is that countries that have put great risk management models in place are likely to export less to distant regions with which they are not very familiar (Huang, 2007). The results produced by another research which has tried to explain Hofstede’s analysis of the four dimensions (and their encapsulation into one unit measure of distance in cultures) does not fit quite well in relation to theory and intuition. There is a study that has discovered that cultural differences actually promote trade relationships between different cultures. And this is what is responsible for some companies’ preference to export to other markets with different cultures rather than invest in local production (Linders et al., 2005). And so, this appears to be in contrast with the wider view that cultural differences’ impede trade.
Summary, Conclusions, and Recommendations
A great number of researches have been carried out which creates a link from Hofstede’s cultural framework to the flows of foreign investment, focusing particularly on foreign market entry patterns. An article containing a summarized report indicates that business establishments from countries that have great power distance usually prefer equity Joint Venture (JV) modes of entry; meanwhile countries that are highly conscious of risk-taking would take to export and contract agreement modes (Aggarwal et al., 2009). In the same article, citations of several studies that have tried to analyze the impact of cultural difference on modes of entry are presented. The discoveries made show that the increase in cultural distance between countries necessitates the choice of JV. In other words, with an increase in cultural distance, Japanese establishments tend to go for green-fields or whole ownership of subsidiaries instead of shared ownership. That is to say that in this situation, there is the tendency of choosing licensing rather than go for JVs thereby increasing the choice for whole ownership of subsidiaries. However, whole ownership of subsidiaries receives less preference than the shared equity firms or technology licensing. There is an increase also in the choice of contracts on management service than franchising (Aggarwal et al., 2009)
Going beyond the modes of entry, cultural difference has also been shown to significantly deter Foreign Portfolio Investment (FPI) with a statistic of 1/3 of the size of the geographic distance. In addition to that, Hofstede’s analysis of power distance in relation to the originating country has a negative link to equity holdings and debts owed across borders. The avoidance of uncertainty is, however, related positively to debts owed across borders. Individuality and masculinity have positive relationships with equity FPI and debts across the borders (Aggarwal et al., 2009). It is also shown that differences in language significantly affect Foreign Direct Investment (FDI) in a negative way (Benassy-Quere et al., 2005). Similar discoveries have been made also for M&A flows. But a comparative study which was carried out shows that though linguistic, geographic, and colonial elements are responsible for 39% variations identifiable in trade and communication traffic, they account for only 24% of variations in M&A flows (Wong, 2007).
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