This paper describes some of the ways in which social, cultural, economic, legal and political differences among nations affect international business. Specific real world examples of the described differences are also provided.
Doing business in the international marketplace mandates taking into account some very hard to overlook social differences between countries. For instance, if trying to market and sell a product in a country other than where the company is based, the company must take into account the language differences for such things as packaging (Ebert, R. J., 2003), use instructions, marketing materials, web site presence, and customer care and support. A marvelous real world example of overcoming social differences in order to do business in the international marketplace is provided by the company Ikea (Ikea, 2003). Ikea does business in over thirty-four countries.
Much of Ikea’s furniture requires the purchaser to assemble them. This means that all the instructions that are included with the same merchandise must be written for each of the countries that it does business in. Another example of Ikea’s adeptness at handling social differences is their website (www.ikea.com). The company has links from their global website to translated websites for each company they do business in.
There are some other, not so obvious, cultural differences as well. Such things as general consumer preferences may be very different in the target country. An example of these consumer preferences would be what is considered standard staples in the country. Another example would be shopping habits, such as time, frequency and consumer outlet type that is generally preferred (Ebert, R. J., 2003). Yet another example would be if the standard work day isn’t the same as a standard workday in the country where the company is based, this could affect such things as the hours of operation of a store-front or office. A terrific example of general consumer preferences is brought to light by McDonald’s (McDonald’s Inc, 2003).
McDonald’s does business in over fifty-eight countries. In order to gain consumer credibility they generally provide to a charity in the countries they do business in. In the United States the charity that they prefer is the Ronald McDonald House, which concentrates on providing for the needs of children. In Europe the charity of choice for McDonald’s is a community football (United States soccer) due to the heavy influence that the sport has in the European countries it does business in. There are also some other cultural differences in European McDonald’s, such as the menu: beer is served as a beverage.
Economic differences are probably the first hurdles that a company will recognize while planning to support their trade in a foreign country. These differences will be extremely obvious if, for instance, the company of interest is based in a country with a Market or Mixed Economy and wishes to do business in a country with a Planned Economy. Economic differences can include things such as monetary trade rates, the country’s banking policies and government involvement in an industry (Ebert, R. J., 2003). China is a great example of doing business with a Planned Economy country (Premier Star Company, 2003). In China foreign companies can not own land, rather it must be leased or rented from People’s Republic of China.
Legal and Political differences are the biggest players in doing business internationally. A government in a foreign country can determine how an outside country’s business is run in their country by controlling such things as the cost of the outside country’s company’s goods in their country by using quotas, tariffs and subsidies (Ebert, R. J., 2003). The government can also control the payroll and employee education costs as well as initial capital expenditures of an outside country’s company, by requiring that a portion of what the company sells in their country must also be produced there.
This may require employing local people and possibly educating them, as well as setting up a presence, whether it is a manufacturing plant or another type of facility that is required for the company to produce it’s goods. There is also the matter of complying with the target country’s business laws and regulations. This requires that the company expand it’s legal team to include knowledge of the remote government in order to protect itself. Many things that may be legal in one country, may be illegal in another. Cuba and the United States is a good example of legal and political differences (Haar, J., 2002). A United States company can not do business with Cuba, as it is illegal in the United States to do so.
Ebert, R. J. (2003). Business Essentials. Upper Saddle River, NJ: Prentice Hall.
Ikea (2003). http://www.ikea.com. Sweden: Inter IKEA Systems B.V.
McDonald’s Inc. (2003). http://www.mcdonalds.com/corporate/social. United States: McDonald’s Inc.
Premier Star Company (2003). http://chinaunique.com/business/law_main.html#land. Rochester, NY: Premier Star Company
Haar, J. (2002). http://www.miami.edu/nsc/pages/newsupdates/Update53.html. Miami, FL: University of Miami