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The Effects of Cultural Differences in International Business Essay

Abstract

Culture can influence business in different ways, and culture is one of these obstacles that can affect the entire cooperation between two countries. Language problems and culture collisions are not uncommon, especially in the beginning. A negotiator must be able to handle these difficulties in a way that is satisfying also for the other part. Mistakes can be difficult to correct and can destroy the entire operation of negotiation. For this reason this paper aims to dig a little deeper into the subject, but in this case study Chilean culture and investigate about how Chilean do business, for that is necessary to learn about the profile of the country which is all the general details like official language, type of government, principal industry, population, etc., also in this essay are going to analyze the 12 negotiation variables of this country, the Hofstede´s dimensions, its context communication and its culture and traditions. The Essay points out some general advices that a negotiator always must have in mind before and during a negotiation on the international market; about the manners and customs in that new culture. If the first impression becomes negative, this can be hard to erase.

The Effects of cultural differences in International Business; trough the analysis manners and customs of country: Chile. The official name of this country is Republic of Chile and the official language of this country is Spanish the type of government is a Representative Democracy, Presidential Regime. In Chile, as in all third world countries, the industry has had a late development, and its economy has traditionally been based on exploiting its natural resources: agriculture, livestock and mining, mainly. And it was not until the early 90’s that Chile implemented a model to reform its economy, and now exports and international trade account for over a quarter of GDP. His current industry is based on copper, lithium, other minerals, foodstuffs, fish processing, iron and steel, wood and wood products, transport equipment, cement and textiles. Chile has a population of 17.3 mn. The per capita income US$13,338 dollars. Their exports range US$ mn 5921.2 Copper …US$4.1 billion (42.7% of Chilean to U.S. exports, up 144.7% from 2005).

Fruits & preparations (e.g. frozen juices) … $1.3 billion (14%, up 17.9%). Fish & shellfish … $957 million (10%, up 26.1%). Imports US$ mn 4748.2. Other petroleum products …US$659.6 million (9.7% of Chilean to U.S. exports, up 53.3% from 2005). Civilian aircraft … $577 million (8.5%, up 91.7%). Religion that is practiced Roman Catholic 70%, Evangelical 15.1%, Jehovah’s Witness 1.1%, other Christian 1%, other 4.6%, none 8.3%. Implemented the 12 basic trading variables is firstly the basic concept of negotiation in Chile’s culture is generally group-oriented and often prefers a straightforward and cooperative negotiation style, since if during the process there is going to be a mutual benefit. According with Lothar (2008) to Chileans, negotiating is usually a joint problem-solving process.

They expect long-term commitments from their business partners and will focus mostly on long-term benefits. Chileans use the social criteria’s to select the negotiators; the negotiator is selected based in his capacity to establish relations and his experience. Business relationships in this country exist between people, not necessarily between companies. Because for them it is important to get to know in depth the person that will establish future treatment. Establishing personal relationships with others in Chile can create powerful networks and may help you a lot to achieve your business objectives. (Chile Business Forecast Report, 2002) In most cases in the role of individual aspirations the Chilean negotiator its related with a high level of collectivism, because their culture is generally group-oriented, their aspirations in pro organization and the mutual benefit, because it would not rule out the fact that by getting the benefit to the organization may also receive some individual benefit already economic or some recognition. As Asrani (2010) mentioned business is a serious matter in Chile.

The initial meetings may appear very formal, but the atmosphere usually is a bit more relaxed in subsequent meetings, as they care to know in depth the negotiator, reason why a negotiation fails to materialize in one appointment. If possible, schedule meetings at least two weeks in advance; since Chileans want to know whom they will be meeting. While meetings may start late, Chileans generally expect foreign visitors to be punctual. Also found that in addition to the Chilean negotiator, the exchange of business cards is an essential step when meeting someone for the first time, it is strongly recommended to use cards with one side in English and the other in Spanish, but when presenting your card, ensure that the Spanish side is facing the recipient. McDowell (2010) classified at the Chilean culture as a high context, it becomes more complex to decipher what they mean both verbal and nonverbal.

Because it is not in an explicit manner, it requires explanations that are more detailed to decode the message. Another important fact that Lothar (2008) mentioned is the method of persuasion used by Chileans in the negotiation process, and basically the emotional method they based on emotions, customs and values, and sometimes in beliefs. In addition when making decisions, Chilean businesspeople may not rely much on rules or laws. They usually consider the specific situation rather than applying universal principles. Personal feelings and experiences weigh more strongly than empirical evidence and other objective facts do. According with Asrani (2010) the value time of Chile’s culture is generally focused on relationship building; information gathering, bargaining, and decision making may take considerable time. And they appreciate that the negotiator will take the appropriate time to close the deal; they know in detail the other part is vital in this culture.

Throughout the negotiation, you have to be patient, control your emotions, and accept the inevitable delays. The Chileans believe that written contracts tend to be lengthy and often spell out detailed terms and conditions for the core agreements as well as for many eventualities. Nevertheless, writing up and signing the contract is a formality. Chileans believe that the primary strength of an agreement lies in the partner’s commitment rather than in its written documentation. Still a deal does not close until you sign a contract by the legal way. The negotiation variable of risk taking propensity, Chilean negotiators can be classified as prudent (Mc Dowell, 2010). Chileans are often uneasy with change and reluctant to take risks. The internal decision making it is traditional in Latin cultures a great relationship with family ties, and will not be strange to see familiars no only father-son, but brothers or wife to occupy a position of responsibility.

And this leads to decisions that are taken into consensus of course always take into account the final decision of the powerful person in the company. (Chile Business Forecast Report, 2002) And the last one variable of negotiation analyzed in this document is the form of satisfactory agreement; in Chile’s dealings implicit and oral promises are very important, especially if they are to maintain a long term relationship with the negotiator. Based on Hofstede (2005) in order to support a more concise held hypothesis about not knowing the cultural differences from one country, can hinder a business operation will analyze the Hofstede’s Dimensions of the country, to identify cultural patterns at regional and affects national behavior Chilean society the world business models.

The first one is the Power Distance Index (PDI) which measure the equality or inequality that exist in the country’s society. If we talk about a high level of Power Distance it means that the inequality in the society has been growing in the past and the wealth of the country is not distributed equitably. In the case of Chile has -as we can see in the table- a half level (63%) in this dimension because it is not so high but is over the 50% so it is a considerable percentage. The second Hostede’s dimension is the Individualism (IDV) which its opposite is the collectivism, this dimension talks about how often the “individuals” (a person) integrates a group. For example in the case of the family, in individualism countries the person only care about himself/herself and his/her immediate family, and compare with the collectivism the people are always care about all their family (including uncle, aunts, cousins, grandparents, etc), so, analyzing the results of the table, we conclude that Chile has a low level of Individualism or a High level of Collectivism with only 23%.

The third Hostede’s dimension is Masculinity (MAS) which is focused on the traditional masculine role, his power and control. In a high Masculinity level exists a “gender differentiation” which means that men and women are not the same (discrimination), in this case men control most of the structure society and they have the power to “control” females, a low Masculinity level is the opposite. Referring to Chile we consider that has Low Masculinity level, this means that women and man are treated in the same way in all the positions. The fourth dimension is the Uncertainty Avoidance Index (UAI) which means the resistance that puts the society before some event or some stranger situations or some times to the change.

For example in a high Uncertainty Avoidance ranking the country creates rules, laws regulations and different ways to control in order to reduce the uncertainty in the cases that can be presented. But in the other hand the countries with a Low Uncertainty Avoidance ranking are more open mind and can accept different opinions. For this dimension Chile has a high uncertainty avoidance level, with 86%, so this means that the society still need those rules, laws and different regulations in order to control the same one. In order to understand better the concepts developed above its respective chart attached.

As mentioned before Chile has a high context communication countries are so explicit in their message, sometimes they tend to talk about their relationships, status, history, events, information that is not related with was being spoken and in few cases they involve the religion in their conversations, we talk about high context communication because Chile is a country with this type of context. In order to reinforce the previous thing McDowell (2010) says that “High-context cultures are characterized by extensive information networks among family, friends, associates, and even clients. Their relationships are close and personal. They keep well informed about the people who are important in their lives…” which is the case of Chile as above saw in the individualism dimension, they maintain the networks among their family.

Among the manners, customs and traditions can be found in Chile are inside of International Business: * Business organizations in Chile tend to be hierarchical and decisions and ideas are generated at the top. Status and respect is important in Chilean society. * Chilean culture is very group-oriented and building deep and lasting relationships is important. Personal contacts and networks are prerequisites for successful deals where the establishment of trust, loyalty and strong bonds facilitates business operations in Chile.

* Business hours are normally from 8:30am – 6:00pm Monday to Friday. Banks are open to the public only from 9:00am – 2:00pm. Business lunch hours vary but are normally between 1:00 – 3:00pm and can be more extensive. They create good opportunities for business discussions, while business dinner events usually begin late evening around 10:00pm * Negotiations can be quite lengthy although the pace of negotiations tends to be slightly faster than in other South American countries. This is often due to the lower degree of bureaucracy.

In conclusion Culture is a crucial and central issue, when it comes to international business and must always be handled carefully. In the field of International Business a negotiator cannot avoid culture when going abroad; the first thing is to study their traditions, their tactics and negotiation techniques. Today, every person that like to do business internationally must understand beliefs, manners and values that underlie their own country’s business and management practices, avoid cultural mistakes and understand the organizational and national culture of others. People with different cultural backgrounds often do not share the same basic assumptions and this has an influence on international business negotiations on several levels.

For example, the trust between parties, attitudes toward each other during negotiations and tactics and flexibility while negotiating can be damage. When a negotiator is preparing for negotiation, it must think in the other side of culture, such as on the elements of another country’s culture. From the elements of culture, language is one of the most important issues that can affect international business, for this reason is vital to send a negotiator to talk or have a basic understanding of the language spoken in the country in order to facilitate the operation.

At the same time know the variables of negotiation, gives us a panoramic view of how they behave when Chileans negotiating; in the case of Hostfede´s dimensions shows a similar pattern in the Latin-American people. Chile as Mexico has high rates in Uncertainty Avoidance, also in Power Distance, and in Individualism, the only point in which these countries differ is that the Mexican society is still chauvinistic and the women cannot develop their abilities completely. In other aspects Chile as the most of Latin-American countries conserves many of its values and traditions that make the society… unique. Know a little of the culture of the country with which you wish to trade ultimately will reduce the risk of losing a good deal, or just a good market trading.

References
Asrani, R. (2010, April). Cultural diversity & negotiations: A global perspective. Lay Network. Retrieved from http://www.laynetworks.com/Cultural-Diversity- Negotiations6.htm

Certified Negotition Expert. (n.d.) Negotiation basis. Retrieved from http://www.realtyuonline.com/cnecourse/2-1.htm

Chile. (2012) Index mundi. Retrieved http://www.indexmundi.com/chile.html

Doing business in Chile: Chilean social and business culture, (n.d.) Retrieved from http://www.communicaid.com/access/pdf/library/culture/doing-business-in/Doing%20Business%20in%20Chile.pdf

Lothar, K. (2008) Negotiating international business: the negotiator’s reference guide to 50 countries around the world. Retrieved from http://www.globalnegotiationresources.com/cou/Chile.pdf Matthew, K., Walters, B., Olson, B. (2002). Top management team risk taking propensities and firm performance: direct and moderating effects. Entrepreneur. Retrieved from http://www.entrepreneur.com/tradejournals/article/96125624.html

Stephen, T. (n.d.) Chile. Cyborlink. Retrieved from
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Hofstede, G. (2005) Cultural dimensions. ITIM International. Retrieved from http://www.geert-hofstede.com/hofstede_chile.shtml

McDowell. (2010) High context & low context. Native american literatures. Retrieved from http://faculty.pcc.edu/~mmcdowel/eng240fall03/eng240highlowcontext.pdf

Chile business forecast report. (2002) Business Monitor International. EBSCOhost. Retrieved from http://0- search.ebscohost.com.millenium.itesm.mx/login.aspx

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Chile Macroeconomic. (2012) Principales indicadores.ISI. Emerging markets information service. Retrieved from: http://0-site.securities.com.millenium.itesm.mx/

Ball, et. al. (2008) International business: the challenge of global competition. Boston: Mc Graw Hill. 120-135.
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