Discussion Questions; Culture and International Trade
Culture and politics are important parts of the external environment and vary greatly, not only between, but also within each country… Research the impact of culture and politics on business using your textbook, Argosy University online library resources, and the Internet. Respond to the following:
Why is understanding culture critical for successful international business? Give examples of how understanding culture has been important for an international business.
Classify and describe at least four different types of political systems that an international business might encounter. What type of political system might have the greatest potential for imposing adverse political risk on an international business? Compare at least one other system to the one you selected and explain why it has less potential for imposing political risk.
Understanding culture helps in avoiding unnecessary mistakes (Mitchell, 2009). These mistakes could either be as a result of different meaning in language or organizational culture. By understanding the culture of others, an individual is in a position to acquire personal knowledge of others. This deepens their understanding and promotes acceptance that facilitates peace and prosperity on the level of international relations.
Give examples of how understanding culture has been important for an international business.
Organizational hierarchy and attitude towards management have been identified to vary between cultures. For instance, a country like Japan brings to workplace traditional values, relative status, and respect for seniority. This calls for junior team members to show respect and express a level of formality towards the senior managers (Mitchell, 2009). However, Scandinavian countries, like Norway, stresses on societal equality and tend to have a relatively flat organizational structure.
Classify and describe at least four different types of political risk on an international business?
Nationalization: this is a move by the government to takeover privately owned industries, companies, and natural resources without compensating the owners. Nationalization discourages international business to invest in a country where they are exposed to such risks.
Confiscation: this kind of risk refers to where the host government seizes the assets of a foreign company without compensation.
Termination of fuel supply agreements: When a foreign company whose activities are highly dependent on fuel supply under an agreement with the host government, then such agreement are terminated, the company is expected to suffer a major blow in continuing its operations.
Terrorism and kidnapping: terrorism and kidnapping are used by organized groups that are against the ruling regime to make political statements. Such groups may kidnap or take hostage executives of large foreign companies with the aim of funding their terrorist activities.
Compare at least one other system to the one you selected and explain why it has less potential for imposing political risk.
Comparing transfer risks to terrorism and kidnapping, it is clear that transfer risks have less potential for imposing political risk. This is because transfers may be a move by the host government to correct its balance of payment disequilibrium, a move that would be beneficial to the international company in the long run.
Mitchell, C. (2009). A short course in international business culture: building international business through cultural awareness. Petaluma, CA: World Trade Press.