Role of Cultural Distance in International

Business

STUDENT NAME
STUDENT ID  
Table of Contents
EXECUTIVE SUMMARY............................................................................................................. 2
EMERGING MARKET MULTINATIONALS................................................................................3
IMPACT ON THE INTERNATIONAL BUSINESS.......................................................................4
CULTURAL BOUNDARY............................................................................................................8
THE UPPSALA MODEL..............................................................................................................8
KEY DECISIONS....................................................................................................................... 10
CHALLENGES.......................................................................................................................... 10
OBSTACLES............................................................................................................................ 11
CRITICAL ANALYSIS AS IKEA BEING AN EMERGING MARKET MULTINATIONAL...........11
ADVANTAGES...................................................................................................................... 12
DISADVANTAGES................................................................................................................ 12
IKEA SUPPLIERS................................................................................................................. 14
NIGERIA’S ECONOMIC HUB................................................................................................14
PESTLE ANALYSIS.................................................................................................................. 16
CONCLUSION........................................................................................................................... 19
Works Cited.............................................................................................................................. 20
EXECUTIVE SUMMARY
Firm internationalization and the argumentative role of national cultural distance is
explained as the cultural distance between the country hosting the business and the
client with another nationality with factors like.

 Language (family background and the tonal language and the clinician as in the
Indo-European Language or different language barriers),
 Family structure (monogamous/polygamous/inter-sex marriage structures or
family unit system/individualism),
 Religious barriers (Christianity, Jewdism, Hinduism, Sikhism, Islam, and
animist/atheism),
 Status-quo and lifestyle (westernization, urban, rural, liberal/conservative,
jetsetter wealthy lifestyle/hunters & gatherers),
 Values & customs (ethical customs & rituals, traditions & self-actualizations and
the values which are hedonistic)

Are the concepts tracing back from the elements shared by the Uppsala model [ CITATION
Jan02 \l 1033 ] to the theoretical work of [CITATION WBe56 \l 1033 ]?
EMERGING MARKET MULTINATIONALS

The internationalization strategies of the business organizations are considerably

dependable on the geographical expansion of their commercial boundaries in this
current world of globalization, global village, and one-boat theory systems. The cultural
and territorial spread of the international may or may not benefit the domino effect of the
world trade system with cultural experience or may exacerbate a new challenge for the
international organization beholding business. The lack of knowledge and
understanding of different cultures and their communication patterns can affect the
working habits foreignness or a concept psychic distance creating a dilemma amongst
the communicating factors and dealing to build relationships for the
organization[CITATION alS17 \l 1033 ].

Multinational and national organizations intend to expand their business across their
borders, and these have increased the global marketplace making it more exclusive and
accessible for small and large businesses in the corporate world and business sector
with exceptional labor for the international community. The business with expanding
globalization can create a domino effect in the multinational and cross-cultural business
forms with diverse knowledge and empowerment of healthy communication based on
new insight approach to the business problem solving [ CITATION Tha11 \l 1033 ].
Fig 1: Highest business market of Ikea – Germany [ CITATION Sta20 \l 2057 ]
IMPACT ON THE INTERNATIONAL BUSINESS

Culture could be defined in various definitions but the simplified version of these
defining patterns can be illustrated as the set of commonly practiced and widely
accepted norms which a society practice is called a culture. This bandwagon effect
portrays the wide impact on the international business context as a comparison to the
country professionals to the overseas employees/clients. It has a descriptive effect on
the international business possibilities in three major areas:

 Communication: Small or large any business system has a crucial efficient

network of communication for adoptive business ventures to the critical analysis
of the message coding, interpretation values, and risks of message meaning
being lost due to lack of effective translation. Where many business
organizations have maintained the supremo de facto language of English, but
there is a crucial defining value to the adoptive communication of the way you
communicate to convey the message [ CITATION Nee12 \l 1033 ].

For instance, if Finns are communicating with much brevity and directness in
response to the Indian professionals communicating with the nuanced and
indirect speech patterns it is receptive towards the behavior of the
communicators rather than the language itself. Professional boost may be
provoked through fluent English, but non-verbal communication is much more
essential to the understanding of the subtle cultural understanding with equal
participation in the international business domain [ CITATION Nee12 \l 1033 ].

A tradition that holds a commonplace in your culture may not advance in other
cultures such as hugging, kissing on the cheek, direct eye contact or even
shaking hands firmly may respond as an offense or unusual behavior perception
for a foreign client or an employee. Early research would be recommended on
 cultural boundaries before interaction with any client or even at a workplace for
advanced professional interactive communication. Body language observant
perception development is very essential to the efficacy of business dealings and
for doubted conditions questions are recommended to be asked due to the
cultural sensitivity, broadness of human values and customs, the openness of
mindsets, and curiosity of behaviors which may benefit the cultural interactions in
the favorable ambiance for healthy deals[ CITATION Tea21 \l 1033 ].

 Workplace Etiquette: The formality in the workplace is yet a professional and

behavior that can impact the working of an organization in a distinctive manner.
The dealing of people within a circle of different cultures and nationalities and the
meet and greet methods affect the first impressions which can contribute to
further business ethical considerations [ CITATION Kas19 \l 1033 ] . The way of formal
calling in Asian countries is preferable as formal titles of (Mr. /Ms), while in
American & Canadian professionalism it is preferred to call by the first name,
which is allegedly safest formality business venture. The addressing formality is a
very big consideration and punctuality rules also lie within the professionalism
domain but may collide with the cultural values and customs of individuals. For
instance, an American employee or client may arrive at the meeting, but an
Italian/Mexican employee may arrive after the scheduled time after a few minutes
and would consider themselves as punctual[ CITATION Rey17 \l 1033 ].

There may be a visible attitude difference between different cultural boundaries

of diverse individual backgrounds. The attitudes may vary towards the workplace
confrontational attitudes, rules & regulations for self-articulation, and may differ
when assuming expected work hours and additional bonus culture. Some
cultures may adopt a norm of working late as the achievement and commitment
to career growth just as in American Dream culture, but some may deprioritize
the extra hours’ demonstration the quality time with their peers and family as a
work disparity or inefficiency of the person to complete work at the time and
 maybe declared as greedy for money and neglecting their health and
family[ CITATION Phi20 \l 1033 ].

 Organization’s Leadership Hierarchy: Cultures widely enhance the

probabilities of attitudes amongst the hierarchical management which may
involve their habitual attitudes towards the management and the leadership
hierarchy. For instance, the middle management positions and the junior staff in
some scenarios may adopt a comfortable level of questioning, speaking up in
meetings and giving their own opinions, and interaction of checks and balances
with the upper hierarchy. In some cases, it is culturally inbound to respect the
leadership like mostly in the Japanese culture and Muslim culture where Leaders
hold a respectable position in the sight of its cultural people. In Japan the social
hierarchy is commonly practiced in their culture which habitats their attitude
towards the leaders and senior people with relative status and respect and hence
this perspective is carried by successful Japanese people of culture in the
workplace. The hierarchy is maintained to define the role and existence of
decision-making authorities and their capable qualities to affirm the
responsibilities within the premises of any organization. It is obvious that the
hierarchy needs to maintain professional decorum from the junior associates with
the tint of deterrence, respect, and a certain level of formality [ CITATION Rey17 \l
1033 ].

When an organization adopts the internationalization policy towards their critical

decisions are served with many challenges like investment plans, organization, and
management plus the international venture governance for maximum foreign cost-
benefit analysis with abated threats and loss risks [ CITATION Joh08 \l 1033 ] [ CITATION
Val16 \l 1033 ]. The core theories which are self-explanatory are the fine hem of the
international business processes and strategies[ CITATION Jan02 \l 1033 ].
CULTURAL BOUNDARY

A better understanding of the cultural boundary expansion and business

internationalization has been academically researched under the applied difference
of distance concept which relates to the cultural differences between different
countries and nations, which has a wide range of applications. Multinational
corporations, organizations with international borders have been facilitative distance
processing companies with rules of regulations regarding the location choices, mode
of entries, standardization of practices, performance levels, means of knowledge
transfer, and other [ CITATION Jan02 \l 1033 ]. It is basically a derivable concept of the
international management is categorically form of management of distance [CITATION
Dis12 \l 1033 ].

The domains of different contexts are categorized by the reflection of the scholars’
studies on different types of distances which involves geography [ CITATION Lor04 \l
1033 ], economic, administrative[ CITATION Pan01 \l 1033 ], institutional[ CITATION Rot17 \l
1033 ], Linguistic[ CITATION Dou06 \l 1033 ] or even in some aspect’s combinations of
it[ CITATION Sjo17 \l 1033 ]. In international business, the widely used apparatus for the
 calculation of distance is the cultural distance which serves as the values of the
nations[ CITATION Ode08 \l 1033 ].

THE UPPSALA MODEL

The Uppsala model of Johanson & Vahlne, 1977 traces back to Beckerman, 1956
for the theoretical review of the national cultural distance in international firmness as
a core element of cultural distance. It predicts the effects on all internationalization
aspects of business as the culture derives the human value system and human
vectors the accelerated form of international business models. Pre-in the pre-
investment affects the funding and the sponsorship challenges for an organization to
predict the cost and benefit analysis with fewer risk threats while investing in a
particular market and how to enter with which mode of entry, how far the investment
should be considered viable, with addition to the post-investment which may get
adoptive with the decision making of the revolutionary integration of the client host
and the foreign locational habitat with response to their common customs and the
performance levels outcomes expected profit generated results from the
international investment planning. The rationality of the decision-making by the post
and pre-investment critiques has been argumentative that the cultural distance is far
more a higher risk evaluator with a complex form of interaction and cost of such
business decision may cause much more challenges than advances.
 Kogut & Singh in 1988 wrote an article to illuminate the empirical existence of the
cultural distance and functioning of the operationalized construct of the mode of
entry and its choices. This elaborated the use of Hofstede’s multidimensional culture
framework which exclusively marked the introduction towards the Euclidean distance
measures capturing the cross-country cultural framework sliding the differences in
one single index. This index incorporates taking the difference in the national score
on specific Hofstede’s cultural dimensions of Hofstede, 1980 model which highlights
the aggregated differences brought up in the overall index. The measuring cultural
distance tools advertise the approach of the operationalization of the cultural
distance management index[ CITATION Bra16 \l 1033 ].

KEY DECISIONS

Several key decisions conceptualize the internationalization with reference to the

location which evolves the host country to analyze the decision with the entry mode,
investment type and amount, management, and controlling of the foreign planning
commission for the business internationalization. Strategic decision-making evolves
the credibility of the foreign business, the performance of the determinants, potential
failures expected, and the foreign operations overall. The operational expansion of
the company is the most critical challenge towards the internationalization evolving
 the domestic setting abroad firming the difficulties with operational additional cost
evaluation and the judgment of the political and economic risk factor involved in the
host country[ CITATION Eli14 \l 1033 ] [ CITATION Jay05 \l 1033 ] and resorting to the liability
of the foreignness of distant culture expectations [ CITATION Lor041 \l 1033 ] with
hunching legitimacy challenges[ CITATION Tat99 \l 1033 ].

CHALLENGES

The challenges may arise due to the lack of any familiarity with the cultural
boundaries, customs, and traditions of a host country and how an organization
conducts the international business venture. The information credibility, opportunity
access, and the limitations to the knowledge of one’s culture may respond towards
the risk in a foreign country during the management of the international business.
Organizational capabilities lack may be corporate as the risk towards the risks that
may arise during the dealing of the business projects, and it may resort to a
challenge in a foreign country with the common discrimination which may be
provoked by the local correspondents against any foreign individual or organization.
This international venture could only be held to success if the stages and aspects
are affirmed with the expanding and operating principles which do not hesitate to
contribute the extent, appropriation, and internationalized strategic cooperation by
the host country[ CITATION alS17 \l 1033 ].

OBSTACLES

The deterrence of the investment for the investors may accumulate due to the
expected increase in the transaction costs. This may allow the management to face
challenges due to the lack of information from the distant culture evaluation and may
respond differently to the difficulty in the sense of social environment predictions.
Sometimes the management lacks the knowledge towards the current prevailing
believes and rules and yet they may think that the conditions which are unnecessary
and avoidable to their inappropriateness may linger as hurdles to the organizing
 committee of the international business venture. The obstacle which may hinder the
informational flow could be the firm value system or its policies, hiring and recruiting
rules, compensation and flexibility requirements, training, and educating with
reference to other management tactics. A serious risk that may contribute to the
efficacy of the international business management can be hindered by the adverse
cultural distant uncertainties amongst the organizational leaders which may result in
trust deficit for investment in each other’s organizations [CITATION Las05 \l 1033 ].

CRITICAL ANALYSIS AS IKEA BEING AN EMERGING MARKET MULTINATIONAL

IKEA is a multinational group that has its branched expansions in 25 countries

around the globe with 300 online wide web stores in Hungary, Norway, Italy, Japan,
Netherlands, Australia, Belgium, Finland, Germany, Poland, Denmark, Russia,
Slovakia, Portugal, France, Czech Republic, Canada, Spain, China, Sweden,
Switzerland, United States, and the United Kingdom. The major key work areas are
Bathroom, Bedroom, cooking appliances, Dining Room, etc. departments in which
they sell and design the ready to install by just assembling furniture including the
luxury and simplicity of chairs and tables, appliances, small motor vehicles, and any
other home accessories all are available on this multinational international group. It
has been the biggest furniture dealing company across the world which was founded
in Sweden by an individual named Ingvar Kampard who was just a 17-year-old boy
back in1943. Its emerging competitors from January 2008 have been Wal-Mart,
ASDA, TESCO, Barn Furniture, etc.[ CITATION Rei \l 1033 ].

ADVANTAGES

To IKEA’s completive advantage the customer-oriented and market intelligence has

paved its way towards the two things which invested in advantage, and they were to
understand the decision making of customer buying and process in which they can
 offer better possibilities to the range of products with reasonable price charts. A
hawk’s eye is kept by the innovator and designer for customer refining for
continuous production with trending and styling high-demanding product generation
by the customers[CITATION Reb06 \l 1033 ].

The cost down derivations have been implied to the constant innovation through the
lower price offering due to the contribution of the committed supplier with German
supply chain and it also enables the IKEA cost analysis to find innovative ways for
the differential placing of the competitors in the market which makes them be
demanding in the efficient and cost reliable effective methods. The key point to any
form of guarantee for greater quality achievement, a collaboration of the suppliers is
required for assurance of sustainable relationship formation.

DISADVANTAGES

The cultural role of foreign investing business ventures like IKEA would face cultural
hurdles like social, economic, political, and even terrorism factors. The cultural and
language barriers may collide with the corporative companies and groups such as
IKEA. The risk factors which may allow hindrances for the business expansion of
IKEA in Nigeria would be their cultural mixed values. The business clients from
Nigeria can be Muslim or Christian by religion. The client may be a supporter of
corruption and can be corrupt or against corruption with no political interests or very
few. The client may be fluent in English or may lack communication skills which may
create hurdles in healthy dealing. The clients or if contributed towards the open
market economy the businessmen from Nigeria may require adopting exposure
towards the international corporate world first before dealing with the international
clients or sellers. The direct investments of the USA already have raised the
Nigerian revenue values, but it is expected to be more flourishing if the Nigerian
domestic market corporate with international groups and companies like
IKEA[ CITATION Rei \l 1033 ].
 Advantages and Disadvantages
Source: Self-Created

IKEA SUPPLIERS

IKEA has its suppliers close so that there is no inconvenience experienced in

transportation and even the cost of transportation is reduced. IKEA has its business
expanded to restraints, houses, and flats, and what not just for the diversification of
the business which evolves its cultural exposure simultaneously. The negative
image for IKEA has been portrayed due to their company policies for the lobbying
governments and authoritative personals with the ill-treatment to their employees
and cheap marketing and advertisement tricks which has abated their negative
publicity and has raised a question to their brand loyalty. IKEA is to be feared with
no strategic way being generated so far for the maintenance of the cost reduction
 with the policy of the limitation of the product quality. The two elements of cost
efficiency and product quality both are compromised [ CITATION Reb06 \l 1033 ].

NIGERIA’S ECONOMIC HUB

Nigeria is the economic hub of Africa yet it faces the same issues as a developing
country face. It has been facing birth and mortality rate which are higher than the
world health rates average with an expected challenge to national and human
security due to terrorism by Boko Haram. The ratio of youth is three fourth of the
population with 30 percent of unemployed youth. The internet retailing boom in
Nigeria began soon in 2014 through the concept introduction of a new retailing
challenge[CITATION 18 \l 1033 ].

The policies of Nigeria for import and export have been changed. The import policy
was in between agreement of WTO and federal government with replacing the policy
of current pre-shipment policy of inspection scheme by the destination scheme
resulting in value addition on taxation of 5 percent on domestic and imported goods.
The other charges and duties which are accompanied in the policy reforms are port
development and supervision.

The foreign investments in Nigeria are USA foreign direct investment by FDI of 8.2
billion which was carried out in 2012 and extended up to 53.6 percent from the year
2011. The other investments by the USA are the direct mining sector and have
raised Nigeria’s stock by 22 million dollars in 2012 by the ratio of 15.8 percent rise
from the year 2011. IKEA is an international group that may operate in Nigeria but
has a value of low pricing or even no-frills pricing sometimes and tend to be
skimmers or prices with no premium quality.

Nigerian global economy is very much dependent on the opportunities by the foreign
investors and most inviters are afraid of the political and economic conditions of
Nigeria. Nigeria stands as the only country with 50 percent Muslim and 50 percent
Christian populated country in the world. The improvements are required in the
economic and political sectors of the country to evolve the exploration of the
 economic elements. There is a severe corrupt leadership in Nigeria and the rising
threat of terrorism of Boko Haram against the western education and discrimination
of the women has concluded a discrete image to the foreign investors from
Scandinavian, European, Western countries. The national wealth has been a
reservoir of the elites and only they benefit from the benefit of the economic
prosperity where very little is given to the public sector. If Nigeria is freed from the
corruption disease and the democracy is vested in their form of government then it
may become an open market for the global village and trade may become
globalized. The export would be created through the open market and the one boat
theory with revenue generation for the country. The trade deficit may never
contribute to the self-sufficiency of the country and will cause a balance out system
and there is a need for better living standards in Nigeria. The furniture importation
from foreign in Nigeria has a prohibition list on which IKEA lies with importance.
These prohibitions are a huge obstacle to the local furniture manufacturers of
Nigeria and require more effort than just opening an outlet. IKEA can be used as a
prosperous platform by Nigerian local furniture manufacturers.

PESTLE ANALYSIS

IKEA has products with a variety in the sectors of home appliances, kitchen,
accessories, furniture for house/office and restraints, etc. and the list may go on, but
the basic elements involved in their product is wood. The furniture types are divided
into subcategories in the IKEA furniture modeling. The wood components used in
IKEA are cost and environment friendly with efficiency towards the self-sufficient
forestry sawmill. Products which shall be used by the customer satisfaction are
reliable and durable. They also customize the customer demand products and
designs as per the needs and requirements of the customers with a commitment of
low pricing.

IKEA is a business with many recyclable products options which use furniture
products mostly and furniture involves wood in general. IKEA proves itself standing
as a corporate social citizen using environmental advocacy in their products which
focus on green energy solutions and are highly sustainable for the preservation and
protection of the environment. The strategy for preemptive eco-system preservation
adopts the working on energy obtaining solar system which promotes the
sustainable energy measures for the future generation.
 Source: [ CITATION Har13 \l 2057 ]

CONCLUSION

We hope that by presenting the most relevant external variables, we can help you
make an informed decision about whether or not to go all the way into India. IKEA
may have been tempted to make this move because of the company's rapid
expansion and its attendant increase in consumer capability and purchasing power.
Brands that are able to comprehend the local market and its clients are more likely
to succeed in India. As the report's benefits and drawbacks illustrate, Ikea has to
increase its R&D and FDI investments while also reducing errors like corruption,
child labor, and ethical concerns. Ikea's future growth will be aided by the
suggestions made in this research, which are sure to bring in more income and
profits while posing fewer problems and obstacles.
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