Abstract
This paper offers qualitative analysis of the impact of culture on international business. In particular, we discuss the potential impact of each of the nine cultural dimensions that were established by the Global Leadership and Organizational Behavior Effectiveness Research Program, which is led by Robert J. House, on the decision to trade with or invest in another country. The analysis finds characterizations of source- and destination-country are important for each dimension when deciding between trade and FDI. Given the potentially conflicting recommendations, the dimensions are placed in a hierarchy to distinguish those most in need of consideration from those of secondary import.
Highlights
International business requires managers to evaluate the attractiveness and market potential of a country followed by the determination of the type and mode of entry.1 To determine the viability of the endeavor, managers will pore over data on demographics, economics, legal matters and more
We reviewed each of the nine dimensions of culture and offered insights into the expected relationship between each dimension and both trade and foreign direct investment
Gender Egalitarianism Humane Orientation In-group Collectivism makers may benefit from this additional insight into culture
Summary
International business requires managers to evaluate the attractiveness and market potential of a country followed by the determination of the type and mode of entry. To determine the viability of the endeavor, managers will pore over data on demographics, economics, legal matters and more. An understanding of culture and its ties to trade and investment would be valuable information for policy makers as they determine potential partner countries for international business. Several studies investigate the link between cultural distance and international business using an aggregate measure of Hofstede’s four/six dimensions These studies investigate trade [6]-[8] and foreign direct investment [9]-[11]. It utilizes the nine dimensions of culture determined in the GLOBE study rather than Hofstede’s four dimensions.2 As such, it should serve as a broad reference for managers and policy-makers involved in international business. When culture or some aspects of it is projected to be complementary to both trade and FDI, the decision to trade in goods with or invest in the foreign country is straightforward. Given economic opportunities, if there is no culturally compelling reason to choose either of trade or foreign direct investment, we assume that the firm will default to trade
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