This paper examines five critical questions in international business management: the approaches managers use to institute organizational change across borders, the nature and impact of culture shock on business relationships, the key drivers of economic transition from command to market economies, the reasons high-GDP nations attract foreign direct investment, and the stakeholder groups companies must satisfy. The analysis emphasizes how cultural frameworks like Hofstede's dimensions and change management models help international managers navigate complexity, while addressing the compounded challenges of operating in multiple regulatory and cultural environments.
Change in the international arena may be more complex than in home nations due to the wider variety of influences and variables that may be present. When examining the different approaches that international managers should understand to institute change, managers will benefit from understanding different models and frameworks that provide a way of examining existing differences and assessing how they may impact the way change is determined and implemented at organizational and local levels.
One useful model is Hofstede's Cultural Dimensions, which provides a framework for understanding cultural differences between people of different regions and nations (Dellner, 2014). The original model assessed nations across four dimensions, with a fifth dimension added later and a sixth dimension incorporated more recently (Dellner, 2014; The Hofstede Centre, 2014). The first dimension, power distance, indicates how power is distributed across society, either equally or unequally. The second, individualism versus collectivism, refers to whether individuals within society look after each other or take an individualistic approach. The third dimension, masculinity versus femininity, is not a gender measurement but represents a preference toward either an assertive and competitive masculine approach or a more cooperative, modest, and caring feminine approach (Dellner, 2014). The fourth dimension, uncertainty avoidance, refers to the degree to which people in a nation are willing to take risks. The fifth dimension, long-term orientation versus short-term normative orientation, examines how plans and time are perceived and whether long-term or short-term approaches are preferred (Dellner, 2014). The most recent dimension, indulgence versus restraint, indicates the degree to which gratification or restraint is managed by social norms (The Hofstede Centre, 2014). All of these dimensions will impact employment relationships, the way employees are managed, and how change may be permitted within organizations.
Additional benefits may be gained from understanding approaches such as Porter's diamond model, which helps explain how factor conditions within different nation states may impact change decisions in terms of available resources. Other approaches should also be considered, including change management models such as Lewin's three-stage model or Kotter's eight-stage change model, which provide frameworks through which change may be introduced. These stages may then be adapted, with individual strategies introduced to account for cultural differences in the international environment.
Culture shock refers to a condition where an individual feels disoriented as a result of being in an unfamiliar culture with significant differences that cause feelings of discomfort, confusion, or fear. Culture shock is often accompanied by anxiety resulting from the loss of familiarity with an environment that is known, understood, and part of everyday life, where cultural cues are recognized often at an instinctual level. A change in cultural environment can result in psychological shock, not only in terms of visible environmental features such as climate, but in the way culture is practiced through different values and norms. For example, body language may differ, cultural values regarding acceptable behavior can be confusing, and those experiencing culture shock have difficulty processing cultural cues to fully understand the environment. Some aspects of culture have been identified within Hofstede's cultural dimensions—for example, gender differences, or the way managers are revered—which may be very different when comparing China to the United States (Selmer, 1999).
For businesses, understanding culture shock and its impact on operations is essential. For business to be successful, there must be understanding between trading partners, whether these are individuals negotiating, different departments within an organization, or different organizations undertaking international trade. Cultural influences will impact communication, and where culture shock exists, there is likely to be a significant barrier to communication and full understanding, which may result in a breakdown of the trading relationship or even create conflict, including contractual disputes. For this reason, internationalization is an important element for international managers—not only understanding other cultures but also developing the skills needed to adapt, learn about new cultures, and accommodate different cultural practices within one's own cognitive processes. This approach is necessary for international business if the constraints presented by culture shock are to be overcome and good business relationships are to be established and maintained.
A command economy, which may also be referred to as a planned economy, is one where the majority of economic aspects, including production, are controlled by the government. For an economy to transition from a command economy to a market-based economy where marketplace conditions and individual players, including firms, drive decisions, it is necessary to establish suitable marketplace structures (Howells & Bain, 2007). The key drivers for this transition will include economic liberalization, deregulation, privatization of state-owned enterprises, and the establishment of institutions to support a free market structure, including regulations and oversight (Howells & Bain, 2007).
Economic liberalization involves allowing prices and demand for goods to be set by market forces rather than by government dictation of what should be produced and at what price. This will facilitate the development of supply and demand characteristics in the marketplace. To be effective, barriers to trade must be removed so market forces are not skewed; this may mean the removal of trade tariffs, subsidies, or favorable treatment to specific businesses (Howells & Bain, 2007). Deregulation of state-controlled prices will be necessary. For the government to remain as a regulator of the economy without controlling economic forces, privatization of enterprises and resources that are state-owned and collectively operated should also be pursued. A market economy will also require supporting institutions and factors that encourage and uphold free market forces; this will include a legislative environment supporting property ownership and laws, the ability to enforce regulations, consumer protections, and oversight to ensure free competition is maintained (Shinkle & Kriauciunas, 2012).
It is often assumed that countries with low GDP or GNI will be more attractive for foreign direct investment compared to countries with high GDP or GNI; this assumption is usually based on the premise that lower economic performance will result in lower prices for the investing firm, referred to as a comparative advantage. However, there are many reasons why a firm may make foreign direct investment decisions that result in FDI flowing to high GDP or GNI nations.
A market-oriented approach to FDI may see firms decide on their FDI targets where investment is made with the aim of gaining access to a market (Farkašov, 2002). This approach may often be undertaken where a firm wishes to reduce the transaction costs of doing business with that market, including the avoidance of transport costs, trade tariffs, import taxes, and exchange rate uncertainties (Farkašov, 2002). For example, many international firms have established a presence within the EU to avoid trade tariffs on external imports into the region. Goods that are costly to transport or have challenges such as short shelf life can also benefit from production in or near their destination markets. This may be particularly attractive if the market has premium prices for the goods of the investing firm. Preferential tax treatment and low tax rates may also be a pull factor, as seen with investment in Bermuda.
Access to resources may also motivate FDI. This can include physical resources, but where FDI occurs in high-performing economies, there is also potential desire to gain the benefits of human resources and knowledge transfer—skills and knowledge that may not be accessible in the host economy. This strategy has been observed with a number of Chinese companies investing in western firms.
To survive, companies need to satisfy a number of stakeholders. There are three groups of stakeholders that take priority, all of which are important: owners, regulators, and customers.
"Balancing owner, regulator, and customer needs across multiple national contexts"
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