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Journal of Management History

Understanding Cultural Differences and Similarities: Key to


Global Business Success?

Journal:

Journal of Management History

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Manuscript ID:
Manuscript Type:
Keywords:

JMH-12-2014-0457
Research Paper
Business ethics, Diversity management, Organizational Culture

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Understanding Cultural Differences and Similarities: Key to Global Business Success?

ABSTRACT
Purpose
This paper serves the purpose of examining the differences as well as similarities among
cultures in the different countries across the globe. The degree of cultural differences and
similarities between various countries has a huge impact on how global business is conducted in

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those regions. Using, the six entirely different dimensions found in the Hofstede et al. (2010)
research into organization cultures, we will explain how cultural differences impact global
business drawing examples from different nations around the globe. By comparing several

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country cultures, we can conclude that a better understanding of diverse cultures will aid the

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conduct of global business. This, in turn, will serve as a means of breaking cultural barriers and
advancing global business.
Method

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The study uses the six entirely different dimensions found in the Hofstede et al. (2010)

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research into organization cultures to explain how cultural differences impact global business in
around the world. This study analyses the Hofstede model of six dimensions of national cultures:
Power Distance, Uncertainty Avoidance, Masculinity/Femininity, Individualism, Long/Short
Term Orientation and Restraint/Indulgence, utilizing the model to explain the correlation
between good understanding of cultural differences and global business success when
conducting business in foreign countries. The main sources used in this research were the Journal
of Technology Management, the Hofstedes Cultural Dimensions and EBSCO database.

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Findings
Through the research, we find that culture awareness has a huge impact on global
business success or failure. In the U.S, firms tends to be more individualistic and US firms try to
differentiate themselves, whereas Japanese culture is more collective and Japanese firms tend to
follow each other. We hope to show that sensitivity to cultural differences is not a certain

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guarantee of success but can help to avoid costly blunders. Overall, there is strong evidence for
the importance of culture.
Contribution

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We make use of multiple dimensions to analyze the relationship between culture and

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global business, allowing for a comparison between the U.S and Japan. Through this research,
we want to demonstrate the importance of culture in global business across different countries.

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We contribute to the literature review by showing evidence that different cultures conduct global

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business in different ways. We provide factual evidence that its important to understand these
differences in order to carry out global business successfully.

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Understanding Cultural Differences and Similarities: Key to Global Business Success?

INTRODUCTION
According to the article The Top Ten Ways That Culture Can Affect International
Negotiations, in Ivey Business Journal international business deals not only cross borders, they
also cross cultures (Salacuse, J. 2005). That being said, a proper understanding of cross-cultural
differences and similarities is very important in conducting global business. Knowing the

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appropriate way to conduct oneself can lead to diverse benefits and increase business
productivity. By comparing cultures across countries, we can conclude what cultural norms are
in diverse countries and understand the differences and similarities between a ranges of cultures.

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Using various peer reviewed article and scholarly papers, we hope to come to a

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conclusion on what the differences and similarities are in the culture of the U.S and Japan and
how those differences impact global business.
Culture

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Culture is a multifaceted concept that is crucial to conducting global business. Geert

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Hofstede, a Dutch Professor defines culture as the collective programing of the mind
distinguishing the members of one group or category of people form others (Hofstede, G.
2003).
An issue of considerable significance has been concerned with cultural changes taking
place in various parts of the world, researchers are continuing to seek for similarities and
differences in culture beliefs and practices in several aspects of global business. If cultures of the
various countries of the world are indeed coming together (Heuer et all., 1999) then global
business practices would become more similar. Business practices independent from culture
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would develop and inadequacies and difficulties associated with diverging culture in the past
would disappear.
Globalization
Globalization refers to a growing economic interdependence among countries, as
reflected in the increased cross-border flow of three types of entities: goods and services, capital
and know-how (Govindarajan and Gupta, 2001, 4). Today, international trade has resulted in the

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emergence of a global economy comprising of different economies of individual countries, with


each economy related to one another in diverse ways and more trade can be done because of
reduced restrictions in movement. Global business is conducted and aided via organizations such

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as North American Free Trade Agreement (NAFTA) and the European Community. The
emergence of Multinational Companies (MNCS) and International Organization for

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Standardization (ISO) have enhanced global business relationships and have contributed to

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economic growth.

Global business however has developed numerous oppositions from developing countries

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that have been hurt by the effects of globalization, on the other hand, we have also seen many

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arguments from western economies such as the U.S that domestic jobs are been lost as a result of
offshoring to low-wage countries.

HOFSTEDES DIMENSIONS OF NATIONAL CULTURE


Geert Hofstede collected paper-and pencil responses on 32 work-related value items from
large samples of employees of subsidiaries of the same multinational business corporation (IBM)
in more than 70 different countries between 1967 and 1973 to study the relationship between
nationalities and mean value scores. Hofstede used the first 40 countries with the largest group of
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respondents and afterwards extended the analysis to 50 countries and 3 regions. According to
Hofstede, the dimensions that distinguished cultures varied from each other and could be
categorized into four groups. These four groups became the Hofstede dimensions of national
culture. Hofstede (1980) labelled these four dimensions as:

Power Distance (PDI)

Individualism versus Collectivism (IDV)

Masculinity versus Femininity (MAS)

Uncertainty Avoidance (UAI)

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A fifth dimension however was added in 1991 as a result of research conducted by Michael

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Harris Bond (Hofstede, 2010). Bond conducted research among students with a survey
instrument and concluded that based on Confucian think, a fifth dimension called Long-Term

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Orientation (LTO) should be added to the previous Hofstedes four dimensions. In the 2010

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edition of Cultures and Organizations, a sixth dimension was added based on Michael Minkovs
analysis of the Worlds Values Survey data for 93 countries. The sixth dimension is called

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Indulgence versus Restraint (IND). For the purpose of this study, we will be focusing only on the

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earlier and original four dimensions of national culture by Hofstede.


Power Distance (PDI)

Hofstedes power distance index measures the extent to which less powerful members
within a country expect and accept that power is distributed equally (Hofstede, 2001). High
power distance cultures are often traditionally driven and in terms of work culture, employees
from high power distance cultures often experience and accept inequality in distribution of
power (Hofstede, 2001). Organizational culture in such societies is hierarchical and there exists

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lots of supervision and control. Employees are not free to express their opinions and people
dread speaking openly.
The high level of inequality between individuals in such cultures affects negatively the
process of sharing knowledge and this in turn leads to a reduced and harder flow of knowledge
sharing than in cultures with lower power distance. Some of the high power distance cultures
include Russia, Singapore, China, India, Malaysia, Mexico as well as the Arab countries, while
those on low power distance index includes countries like U.S, Austria, Denmark and Germany

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and New Zealand, etc.

Implications for Business: In low power distance countries, it is expected that decision making

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process will take longer because of the less hierarchical organizational structure. In contrast,
decisions are made more rapidly in hierarchical and high power distance countries because less
consensus is required from all levels.

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Individualism/Collectivism

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Collectivism is a social pattern of closely linked individuals who define themselves as

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interdependent members of a collective (e.g., family, coworkers), whereas individualism as a

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cultural pattern that stresses individual autonomy and independence of the self (Markus &
Kitayama, 1991; Triandis, 1995). According to Hofstede (2001), in highly individualistic
cultures, it is believed that employees perform best as individuals and the decisions made by
individuals are of higher quality than those made by groups. Examples of cultures with low
ranking on individualism include Australia, Great Britain and the USA while those with low
ranking on individualism included countries such as Pakistan, China, Singapore and Panama.
The United States is clearly an individualistic society, scoring a 91 on the index
measurement. Individualist and collectivism has an impact on business activities. Individualistic
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societies appear to nurture a moderately higher degree of entrepreneurship. Individualist firms


often try to differentiate themselves, withhold information and avoid alliances that will lead to
greater success. On the other end, collectivist firms have the tendency to follow and emulate
each others practices, they attribute business success to information sharing and global business
commitment.
Implications for Business: When conducting business in individualistic societies like the U.S,
expect that rules and procedures are to be applied in a formal, particularistic way rather than

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informally and universal like in some collectivistic societies.


Masculinity/Femininity

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Masculinity versus femininity culture dimensions refers to differences in sex roles. In


most traditional societies, men tend to take on job positions such as politicians, executives or

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military, which are mostly assertive jobs. Women on the other hand, mostly work in careers such
as teaching, nursing and maintain the home. In high masculinity countries, there exist a sharp

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role imbalance along gender lines, dominant values in society are material success and progress,

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men behave assertively and tough while women are expected to nurture and care.

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Countries such as Japan, Mexico, and China, etc., have high masculinity index values
while, Norway, Sweden and Denmark, etc., are low on this index (Hofstede, 2001). Highly
masculine cultures stress on competition and performance and businesses in these cultures strive
to outdo each other while low masculine cultures emphasize and value relationships more than
performance.
Implications for Business: There is need for firms operating in high masculinity index countries
to be willing to be negotiable and seek win-win situations rather than been constantly

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competitive. In low masculinity index countries, it helps to be sensitive to gender issues and
expect greater gender equality.
Long-term Orientation
In cultures with long-term orientation, individuals have a keen sight on future rewards
and value perseverance, In contrast, short-term orientation cultures are concerned about
traditions, rules and prefer quick results and instant gratification. Some countries with high long-

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term orientation include China, Brazil, Japan and India while those with short-term orientation
include U.S, Canada, Pakistan (with a whooping zero on the index scale) and Great Britain. In
terms of global business, cultures with high long-term orientation are likely to nurture firms with

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long horizons. In comparison, short-term orientation culture firms often focus on relatively shortterm profits.

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Implications for Business: It is important for organizations to understand and respect local

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traditions and short or long-term commitments in societies they are conducting business in.

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Literature Review

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With the definitions compiled above of culture, globalization and the Hofstedes national
dimensions of culture, this literature review will compare articles to lead to a better
understanding of how differences and similarities in culture can help foster or mar global
business. This review will lead to various assertions about the way an effective knowledge of
diverse cultures can lead to global business success.

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Understanding Cultural Differences and Similarities: Key to Global Business Success?

Globalization of the Business World


Globalization of business is the change in a business from one-company and/or singlecountry structure to one that operates in multiple countries and cultures. National borders are
becoming less important and global markets are stretched across borders. MNCs are essentially
placed to benefit from this and with such benefits come different challenges such as language
and culture barriers.

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In the article Globalization of Business and the Third World: Challenge of Expanding
the Mindsets (Kalburgi M. Srinivas 1995), Kalburgi notes that globalization of business is
bringing in seasoned competitors from the developed countries into the growing markets of the

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Third World. Transnational commerce is on the increase and global business and competition is
the order of the day. The new world order is also reflected in the trend of ever increasing

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investments across national boundaries (Kalburgi 1995).

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One way to succeed in the global business environment is to have a global mindset. A
global mindset is an approach or tendency of scanning the world from a broad perspective. A

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global mindset will serve as a foundation for managing competitiveness and business

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uncertainty, it will also serve as an eye-opener to the world and culture.

With an increase in globalization, people from all around the world are interacting with
others from diverse cultural backgrounds more frequently than before. The role of national
culture in global business has long been debated and along with culture comes trust which was
found to be a necessary precedent condition for long-term relationship (Soule, 1998). Because
globalization is primarily concerned with redefining relationships among businesses throughout
the globe, the role of trust has never been more significant.

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Mohammad N. E., Susan L. K. and Ercan N. in the article National Culture, Trust, and
Perceptions about Ethical Behavior in Intra- and Cross-Cultural negotiations: An Analysis of
NAFTA Countries, examined the role of national culture in the formation of trust that people
might extend to partners in business relations and negotiations. They theorized that trust is
culturally embedded and has a positive relationship with the likelihood of using questionable
tactics in intra- and cross-cultural negotiations. Cultural differences are often the culprits that
create disputes in international relations and impede the extension of trust to another business

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opponent (Brett, 2001). The negotiating ability of both parties is regulated by their cultural
values.

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As discussed in this article, national culture is a determinant of trust in a global


relationship. It is therefore important to understand how culture and trust interrelate to achieve

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global business success.


Cross-cultural Barriers in Business

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Cross cultural understanding plays a big role in successfully carrying out business across

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the globe. The global market place creates many opportunities for business development, but

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ineffective cross-cultural understanding can be harmful to customers, employees, and


stakeholders of businesses.

In the article, Overcoming cross-cultural barriers to knowledge management using


social media, Deepa Ray notes that organizations have employees from different cultures and
understanding the context of knowledge held by individuals or processes needs to be understood
as well (Ray, 2014). Research on cross cultural influences on knowledge sharing is important
and needed (Weir and Hutchings, 2005) as this will influence the success of global business

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Understanding Cultural Differences and Similarities: Key to Global Business Success?

practices within the globe. One of the ways to bridge the gap between cross-cultural barriers as
offered in this article is employing the help of social media.
There has been considerable research on the roles of Blogs, Twitter, Wikis, etc., as a tool
for knowledge collaboration and sharing (Jung, 2009: Hsu and Lin, 2008: Cayzer, 2004). It is
important to note the role social media plays in our societies and that the emerging field of social
media using its rich interface and technology an help global organizations overcome some crosscultural barriers they face.

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In recent practices, multinational firms are locating their operations in different countries
with distinct and diverse cultures and languages for many reasons, including lower taxes, better

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access to resources, tariff avoidance and lower input costs (Chung and Alcacer 2002, Davidson
1980, Rugman and Verbeke 2001). The management of international operations is however

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faced with different challenges such as language difference and barriers. Research has shown

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that a difference in national language as well as differences along at least one cultural dimension
relate to decreased global business performance (Gray and Massimino 2014).

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The article, Language, Culture and Compliance(Gray and Massimino 2014) examines

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the theory that a language difference between the location of the business operation and that of
headquarters and the national culture of the location of the operation and that of headquarters
has potential implications in any global operation. It is common knowledge that a language
difference between two distinct parties will interrupt communications and effective knowledge
sharing. There has to be methods available to breach those cultural barriers. One method is to
translate all communication to the language of the recipient (Nida and Tabr 2003) which can be
less than effective due to basic translation errors and translated meanings may take on different
meanings in terms of what they reference. It has been argued that a perfect translation is
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impossible (Bassnett 2002), and translators live with the constant guilt of knowing that they can
never render the text faithfully in another language (Joseph 1995, p.14).
Not only do businesses face challenging problems when translating form one language to
another, but there are possibilities for confusion to occur even between groups that supposedly
speak the same language. This is true for British and American English where there are a number
of significant differences in words and meanings which can lead to confusion and
misunderstandings. There needs to be additional cost to mitigate this problem of language barrier

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in any total cost analysis when considering establishing a company at a location with differences
in language. Numerous organizations most times look past this factor/cost when making location

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decisions and this can contribute to the success or failure of global business.
Cultural and Ethical Conduct in Business

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Using Hofstedes cultural indicators as a guide, the values, the laws, ideas and the ethical

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conduct of individuals and organizations can be attributed to cultural differences. According to


Berkert (1995), corporations differ from individual agents with respect to their susceptibility for

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moral responsibility and the ethical conduct of individuals and organizations is part of and very

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much intertwined with culture and society. In recognition of the important role that culture plays
in determining global business behavior, several scholars have called for future research to
address the impact of culture on corporate activity. Setri and Sama (1998) argue that in order to
investigate ethical business conduct, both corporate and industry structure have to be considered.
Cultural differences exhibit themselves in numerous ways. The greatest exhibition of
culture is the set of values and values are qualities that define people, organizations and
products/services. Values establish a foundation on which corporate culture and reputation is

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built. Values are at the core of economic behavior and could help explain differences in the
conduct of firms (Bordley, 2005). Zaheer and Zaheer (2006) use cultural values to examine
international collaboration of business cultures, especially value, ethics and trust. Most cultures
have different definitions of acceptable and unacceptable conduct and have method for dealing
with violations of social norms (Svensson and Wood, 2003).
Using the Hofstede dimension to examine cultural differences in business ethics, it is
expected that power distance and masculinity are negatively related to firms ethical policies

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(Scholtens B. and Dam L. 2007). Because power distance measures inequality, countries that are
characterized by high power distance index will pay little attention to ethics. As regards

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masculinity, it is expected that firms in more assertive countries will pay little regard to ethical
policies. Individualism and uncertainty avoidance are however positively related to ethical

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conduct. Firms in countries with relatively high score on the individualism indicator will pay
more attention to their ethical policies, same as with uncertainty avoidance, firms that believe in

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the threat of unknown and uncertain positions will provide a system in place to deal with such

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situations which will lead to more emphasis placed on conduct and ethical policies.
Suggestions for Further Research

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The findings of this study make an important contribution in establishing that global
business will be impacted by cultural differences, mostly when business is conducted in a foreign
country from the MNCs headquarters. However, like most studies in international business, there
lacks any empirical research to lay our final findings on as hardly any study has gone beyond
using samples like the case of Hofstede who samples IBM employees to reach conclusions on his
national dimensions of culture.

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Future scholars should examine how other factors like situational, economies of scale,
alliances and strategic decisions can contribute to global business success. The location and
environment in which a company operates may impact its values or the implementation of its
ideas. Commerce being a concept that is as old as human civilization comes with historical
values that are rooted in the beliefs and norms of host communities. It is important to explore
how these may affect the process of business, the market and the people hired or tasked with
carrying out these activities. Technological advancement has allowed companies to expand their

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operation and bridge the distance between one area of location and another, as a result of this,
ideas sourced using the knowledge and practices of the home environment may not translate
perfectly into another and this may create issues that will impact profitability or project success.

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More scholarly work is necessary in this area to help companies better plan and navigate the

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increasing global environment they operate in.

Future scholars can also examine how ethnocentrism, stereotypes and socio-economic

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variables act as negative barriers to conducting global business effectively. This study has shown

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that cross-cultural differences is interrelated with ethics, values and societal norms and that these

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contextual variables can contribute to international business success. It thus follow that for
business to better guard against the pitfalls that may arise from poor understanding or
interpretation of the rationale, the beliefs and practices of their host communities or local staff,
they must make efforts to ensure that the conclusion or biases inherent in their processes are
tested for fit and examined with thoroughness so they do not impact business or prevent success.
With the need for globalization comes various impediment to its success because crosscultural barriers are not phasing out any time soon but will instead increase in the future. The
more that can be learnt about other cultures, the more effective we can carry out global business
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Understanding Cultural Differences and Similarities: Key to Global Business Success?

successfully. Broadening our understanding of diverse cultures and cultural norms can result in
enormous potential for increasing global business success. This study is a gradual step towards
achieving that outcome and acts as an encouragement for future research into building a more
integrated framework for managing cultural differences in global business.

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