The Local and International Business Environment of the Firm

Cultural intelligence is an individual’s ability to favorably receive and adjust to an unfamiliar way of doing things.

Understanding the local and international business environment of the firm requires managers of organizations to sharpen their cultural intelligence. This will enable them to develop their ability to accept and adapt to different cultures, both local and international, that may affect the organization to which they belong. Anthropologist Edward T. Hall, as cited by Schermerhorn (2008), noted that the way people approach and deal with time varies across cultures. Monochronic cultures refer to cultures wherein people tend to do one thing at a time; also, these cultures emphasize punctuality and sticking to set rules. Polychronic cultures, on the other hand, are more flexible as regards time; accomplishing many different things at once is also common for these cultures. It may be very frustrating for one who is influenced by a monochronic culture to be dealing with one who is influenced by a polychronic culture if he or she does not possess cultural intelligence.

Geert Hofstede, also cited by Schermerhorn (2008), showed how selected countries ranked on the five cultural dimensions he studied:

Power Distance — the degree to which a society accepts or rejects the unequal distribution of power among people in organizations and the institutions of society.

For example: India and the Philippines have high power distance, while the US and Australia have low power distance. The use of the terms “sir” and “madam” to refer to the boss/superior by subordinate employees in the Philippines shows respect for authority figures, or high power distance. In the US, subordinates just use the name or nickname of the boss when addressing him or her, indicating low power distance.

Uncertainty Avoidance – the degree to which society is uncomfortable with risk, change, and situational uncertainty.

Managers in the US are risk-takers. Introducing new products in the market is easier for them to do as compared with those from Japan and France.

Individualism-Collectivism – the degree to which a society emphasizes individual accomplishments versus collective accomplishments.

Individualistic cultures like those of the US and Australia are characterized as “I” and “me” cultures where employees prefer to work alone without help from others. Mexico, Thailand, and the Philippines exhibit collectivism or preference for group or teamwork.

Masculinity-Femininity – the degree to which a society values assertiveness and feelings of material success versus concern for relationships.

The Japanese and Mexicans do not hesitate to push or express what they want, unmindful of hurting others’ feelings, thus showing masculinity. Filipinos, Thais, and Swedes would rather keep quiet and accept defeat if what they want is not acceptable to others; they, therefore, exhibit femininity.

Time Orientation – the degree to which a society emphasizes short-term thinking versus greater concern for the future or long-term thinking.

The Americans, who are risk-takers, prefer short-term thinking. On the other hand, Filipinos and the Japanese, who are not risk-takers, are long-term thinkers.

The local culture of a particular country also influences the management practices of firms. An example is the mañana habit which is part of local Filipino culture and practiced by some Filipino workers. It is counterproductive since it encourages the postponement of performing tasks that can be done immediately to another day. Managing and disciplining workers who practice this habit would be easier for managers if they are able to identify the workers who adhere to such negative work habit and prevent them from doing it. This, however, is easier said than done because it is difficult to explain a country’s unique cultural characteristics.

Managing in a Worldwide Environment: Cultural, Politicolegal, and Economic Environments

The call for businesses to go global is hard to resist as this is the trend prevailing in the 21″ century. The economic and social benefits that come with globalization are said to be among the positive outcomes. Globalization advocates, however, fail to realize the very serious challenges faced by managers in adjusting to the cultural differences among different countries where they intend to do business. The culture of different countries are rooted in their history, religion, traditions, beliefs, and deep-seated values, and because of these, managing globally can be very complicated. Besides the cultural environment, the politico-legal and economic environments must also be considered. The politico-legal environment refers to the laws and political climate of different countries. Some countries have stable laws and good political climate while others have the oppo-site—unstable laws and risky political climate. Awareness of the economic issues of countries where organizations intend to establish business is also very important. For instance, do they have a free market or a planned economy? Answering this question is the first step because the country’s economic system has the potential to influence the organization’s decision-making. Other economic matters that must be considered are the inflation rates, the gross national product/gross domestic product, the currency exchange rates, taxation system, and others.