As firms from around the globe seek to expand their operations, they are increasingly turning to the services of accountants, lawyers, B2B market research companies, and other professional advisers. The importance of these service firms for international business has been recognized by a number of researchers (e.g., Cantwell et. al, 2010).
However, there is little systematic knowledge about how these service firms operate internationally and what role they play in the internationalization process of their clients. This article uses data from interviews with partners from eight professional service firms operating in China to provide insights into how these firms operate internationally and what role they play in the internationalization process of their clients. The article also highlights some key issues that arise when conducting research on this topic.
Hofstede’s Cultural Dimensions Model
The first real attempt to understand culture as a set of variables was by the Dutch social scientist Hofstede, who in the 1970s devised a study of business managers and their values. He found that different cultures had different values. An American manager was likely to value individualism, whereas a Japanese manager would be more likely to value group harmony.
In 1984 he published his findings in Cultures Consequences: International Differences in Work-Related Values , which has since become one of the most cited works on culture and management ever written (Hofstede & Hofstede, 1984).
Hofstede’s Cultural Dimensions Model
This model identifies six dimensions of culture that influence global business:
power distance index (PDI);
individualism index (IDV);
masculinity index (MAS);
uncertainty avoidance index (UAI);
long-term orientation index (LTO), also known as Confucian dynamism;
and short-term orientation index (STO).
These dimensions can be applied to any organization or group of people—not just nations—and they can be used to compare different organizations within a country. The model is based on data collected during five years by more than 200 researchers who surveyed over 80 countries around the world using questionnaires written by Geert Hofstede himself. The results were published in Culture’s Consequences: Comparing Values, Behaviors, Institutions and Organizations Across Nations in 1980.
Another pioneer is Charles Hampden-Turner, an international consultant based at Cambridge University who coined the term cultural intelligence (Hampden-Turner & Trompenaars, 2008). His work focuses on how people from different nationalities can deal with each other effectively when working together across borders or even within companies or organizations with multiple nationalities represented among employees or customers.
Hampden-Turner says we need cultural intelligence because there are two major kinds of intelligence – logical intelligence (IQ) and emotional intelligence (EQ). IQ is fairly constant across all human beings but EQ varies depending on where you are born – it’s your cultural intelligence.
Research has found that in highly Individualistic societies such as the US, UK and Germany, people are more likely to cohabitate before marriage than in collectivist societies such as China, India and Brazil. This is because Individualistic societies allow for greater freedom of choice, whereas collectivist cultures are ones of conformity and social harmony – thus the decision to cohabitate or not before marriage considers the family rather than the individuals.
The study also found that there was a higher rate of cohabitation in countries with high levels of gender equality. The researchers believe this is because gender equality allows women to make their own choices, whereas in less equal societies women may feel pressured into having children by their partners or society at large.
Power Distance Index
Power Distance is another dimension that has been closely examined by researchers and marketing experts. The Power Distance Index (PDI) is a scale that measures the extent to which the less powerful members of organizations and institutions (like families, schools, or governments) accept and expect that power is distributed unequally.
As the PDI score increases from 0 to 100, it indicates that a society’s level of inequality is increasing. A high score means there is a large gap between what lower-level people think they should get and what they actually get; in other words, it means there are big differences in power between individuals at different levels in an organization or institution.
According to Hofstede’s research on national cultures around the world, countries with high PDI scores are: Algeria (85), Angola (84), Egypt (83), Ethiopia (82), Iran (81), Iraq(80). Countries with low PDI scores are: Sweden(22), Denmark(23), Norway(24). In general terms, Latin American countries have higher PDI scores than European countries do.
In cultures with high PDI, people are likely to conform to hierarchical structures and accept their place in society. In cultures with low PDI, people are likely to be independent and self-reliant.
The Hofstede model is a widely used tool for understanding national cultural differences and their effect on international business. However, it has been criticized for being overly simplistic and not taking into account factors such as age, gender, or education level.
Other factors that affect international B2B relationships
- Lack of trust.
A lack of trust between parties in the relationship is fatal for long-term B2B relationships, but more especially when dealing with people from other cultures; if you don’t trust your partner, you will not be able to develop any sort of meaningful relationship with him or her.
The first step toward building trust in an international business setting is to hire someone who understands both you and your foreign partner(s). For example, one firm we know hired me as its “China guy”—someone who could help them deal with their Chinese partners on all levels throughout the partnership process—because they knew I had spent time working in China myself and had established strong relationships there over many years; this helped them build trust with their Chinese counterparts much more quickly than they would have otherwise been able to do so.
- Unclear expectations.
Each party must clearly communicate what they want out of the business relationship from the start (and throughout). Misunderstandings often occur because neither party has sufficient information about what his or her counterpart really wants out of the deal; thus each party makes assumptions about what his or her counterpart wants that turn out not to be correct later down the road when it becomes clear that those assumptions were wrong.
- Unwilling to compromise.
An unwillingness by either party to compromise on issues where there are differences between their two positions—or an inability by either party to understand why compromise might be necessary in some situations can lead a B2B relationship into a death spiral.
For example, if you are negotiating with a Chinese firm you should not expect them to accept your offer immediately without any discussion. In fact, they might even reject it outright! This does not mean that they are unwilling to do business with you but rather that you need to build up trust before an agreement can be reached.
- Business is personal.
In some cultures, business is all about personal connections, which means that personal relationships play an important role in doing business, both informal networks of friends and relatives as well as formalized relationships such as those found within government agencies or state-owned enterprises.
- Risk tolerance
The degree of risk taking behavior that is considered acceptable to a culture varies. High-risk cultures tend to be very entrepreneurial, whereas low-risk cultures are more conservative and rely on proven methods. This can impact relationships within a supply chain and the likelihood to establish new B2B relationships.</p
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Cantwell, J., Dunning, J. & Lundan, S. An evolutionary approach to understanding international business activity: The co-evolution of MNEs and the institutional environment. J Int Bus Stud 41, 567–586 (2010). https://doi.org/10.1057/jibs.2009.95
Hampden-Turner, C. M., & Trompenaars, F. (2008). Building cross-cultural competence: How to create wealth from conflicting values. Yale University Press.
Hofstede, G., & Hofstede, G. H. (1984). Culture’s consequences: International differences in work-related values (Vol. 5).
Boyer, R. (2016). How the specificity of Chinese capitalism explains its position in the world economy. Voces en el Fenix, http://robertboyer. org/download/How% 20the% 20specificity% 20of%20Chinese%20capitalism%20explains%20its%20position.pdf.