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Culture Variables in International Business

Introduction

As defined by Muhlbacher, Helmuth & Dahringer (2006:14) international business refers to all business transactions and trading relations that exist either between two countries or among multiple countries. It involves exchanges of good and services between or among countries within an established set up of both legal and international trading agreements (statutes). An international business person therefore is a person who is in business exchanges across the boarders of his country of origin (Doole & Lower, 2000: 33). Unlike local trade, international business is quite complex and requires not only a lot of planning but also a comprehensive analysis of the external environment; and with equal importance, its potential impact on business prior to one venturing into a foreign market (Daniels, Radebaugh & Sullivan, 2007: 67). Consequently, Louise evolution as a French based company must perform a thorough feasibility study based on the clear understanding of international business ideas principles and knowledge of external environment as far as the Indian market is concerned. This paper therefore looks at the effects of the macro environment and culture variables on international business and their influence on the latter’s operations as an approach in advising the management of louse Vuitton on the principles of international business and feasibility survey to be conducted prior to starting up a subsidiary in Indian.

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Background Information

Ideally, the impact of the external environment (macro environment) on international business is more intense, thus it requires an international marketer or a business person to take keen interest in it. Louis Vuitton is not an exception in this case. It is important for management to realize that the quality and accuracy of the feasibility study may contribute greatly to their failure (or poor performance) in the international business platform as indicated by Robert (2006: 2). To effectively carry out a successful feasibility study in the Indian market therefore, it is advisable that the macro environment be analyzed using the PESTEL model i.e. the political, economic, socio-cultural, technological and legal environments, the variables of which may either positively or negatively influence international business. However, keen interest must be paid to their effects on venturing in a new or foreign market since they all vary with destinations and it is the task ahead of this company-Louis Vuitton (Muhlbacher, Helmuth & Dahringer, 2006:16). For instance, cultures and social practices vary among different people in the world perhaps due to the differences that exist in the elements of culture. Similarly, the latter must be particularly different in both Indian and France; a factor that the company (Louis Vuitton) must give special interest in. Points of interests here would include but not limited to religion, education systems, dressing styles, feeding habits, architectural designs, artistic practices, beliefs and customs among others all of which are to a greater extent likely to influence the needs and consumption patterns of the markets and demand for the company’s products in India (Bruce, 2000: 21).

In the same way, the economic status of people as well as the states of economic development varies with different regions. It is important for an international marketer or rather business person to understand that the level of economic development or economic status of individuals who constitute his or her target market will influence their lifestyles and consumptions. Similarly, Louis Vuitton must undertake a thorough economic survey in India to ascertain its viability or whether the subsidiary is going to be sustainable in this foreign market (India) in the long run in terms of returns. A market that performs poorly economically for instance will presents a poor business environment and thus the subsidiary may not perform well, since the demand for the product is likely to be low. On the other hand, targeting a high profiled or economically well up market with low quality goods will not be strategic market target since they will associate them with low social class thus declining to buy (Phillip, 2006: 67). The final decision on how viable is the Indian market to support the Louis Vuitton subsidiary must be based on a thorough and accurate analysis of the Indian economic environment.

Since international business involves international marketing, there is need for the business person to adequately analyze the PESTEL environment, so as to ascertain the needs of the target market. The knowledge of PESTEL environmental factors will be very vital for successful entry into the Indian market. According to Daniels, Radebaugh & Sullivan (2007: 27), international marketing (which is the basis on which international business functions) is the application of marketing strategies across countries’ borders. Although terms such as international marketing, global marketing, international business and international trade are at times taken to be different, they actually mean the same. Application of such strategies therefore requires the particular marketer to be well conversant with the macro environment and its possible effects on the business operations, whether long-term or immediate, direct or indirect. For a French based company to successfully penetrate the Indian market with their fashion related products, it is imperative that the French based company understand the political, economic social, cultural and technological differences between the two countries thus come up with strategies to counter the negative effects as well as take advantage of the positive ones.

Globalization and International Business

Although critics around the world have devised all sorts of arguments against globalization or what scholars refers to as internationalization, all evidences indicates that the effects of globalization on international trade has been vehemently positive. In fact, globalization has virtually reduced the world or rather turned the previously very extensive globe into one small village. In the same way, movement of people, goods and services as well as information has become incredibly easier. Also, international contacts and sharing among people across the globe has been made more efficient than ever before the latter which has resulted in robust growth in international trading relations among nations in the world (Robert, 2006: 44). For instance, a manufacturer in the United States is able to obtain information concerning the state of demand of his products and services in a country such as United Arabs Emirate, create business contacts, obtain orders and consequently transacts in less than 48 hours, especially with the massive developments in ICT and globalization. As a result of massive globalization, people of different destinations around the world have become more and easily connected with each other. In addition, the flow of information and money has been made easier, faster and more efficient than ever before. As a result of globalization also, movement of goods, services, ideas as well as tourists has been made easier. Consequently, goods, services and ideas produced in a certain part of the world are increasingly becoming available virtually in all parts of the globe. In addition, international communication has been made easier and common thus making international business easier and attractive to many (Keith, 2007:113). As a company, Louis Vuitton, must realize that although globalization presents a threat in terms of completion due to the increased liberalization in the market place, it is not only an opportunity to improve the quality of their products but also an ample opportunity for business expansion through extending its operation into foreign markets. Extending our operations to India and which forms the basis of this paper greatly rests on the marvels of globalization. Perhaps the greatest advantage that globalization presents to us as a company is the ease of obtaining vital information about the potential market (India). In addition, feasibility study efficiency in this particular case rests on the extents of globalization as it is the case of ease in setting up a subsidiary in India.

The Theoretical Foundations of International Trade

International trade is the set of business activities that involves exchanges of goods and services, ideas, capital as well as people’s movements (tourism) across the countries borders. Its importance to the economy of many countries across the world cannot be underestimated as it usually contributes a great percentage of the countries’ gross domestic products or rather the overall countries’ economic well being. The developments in industrialization, massive globalization, and technological advancements as well as development in hi-tech transport systems and networks are responsible to the recent robust growth in international business (Daniels, Radebaugh & Sullivan, 2007: 27). Although international trade is typically not different from local trade in terms of principles, motivation and behavior of the trader, it is a bit more costly and involves more complex logistics compared to local trade. In addition, there are likely to be barrier and tariffs in international trade which culminates to increase in cost and times of transactions. Additionally, the effects of the macro environment in international trade is likely to be higher with the trade being influenced by such factors as cultural variables, language, legal and effects of varying economic situations in different countries. International business is generally characterized by many trade regulations. For an international trader to acquire full trading rights and clearances therefore, he or she will have to undergo a number of documentation and authentication processes, both in the country of origin (home country) as well as the destination (where he intends to venture). In the past, international trade was being regulated by bilateral treaties or trade agreements between any two nations.

Over the years, many countries had imposed tough such tariffs and restrictions on international trade (Johansson, 2000:67, Cateora & Ghauri, 1999:114), however, with massive globalization, and protest by the affected nations over the high international trade protectionism together with the ever improving international relations, the barriers to international trade have been significantly reduced. In fact, some regions have gone to extents of creating free trade areas or restrictions amongst themselves. Such development as the world trading organizations general agreements on tariffs and trades (GATT) among others have helped reduce international trade barriers to a greater extent a factor that too promotes international trade (Cateora & Ghauri, 1999:115). Unlike previously where Louis Vuitton as a company has been operating locally, the idea of going international must be based on clear understanding of the international business principles and theories.

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The Macro Environment and International Business (PESTEL): Issues the Company must address in the feasibility study

According to Kottler (2000:34) macro-environment refers to the factors that affects a company’s decisions products and thus affects its performance and strategies which are beyond the company’s control. Such includes the political, legal, economic social-cultural and natural factors. They are also defined as the external environmental variables that affect the organizations products’ development and marketing strategies; and which could includes competition, economic variations chances in cultural variables such as tastes and preferences, technological conditions as well as changes in the political factors (Keegan, 2002:76). In order to effectively analyze the effects of the macro environment and how it will influence the company in its endeavor to venture into the Indian market, the PESTEL model has been adopted. PESTEL is an acronym that denotes the constituents of the external environment variables namely the political factors, the economic factors, the social factors, the technological factors, environmental factors and legal environments that affect business decisions products and strategies (Daniels, Radebaugh & Sullivan, 2007: 32). In order for the French based company to successfully venture into the Indian fashion industry therefore, it is imperative that the entry is preceded by a thorough analyses of the macro environment and its effects on the subsidiary’s operations there.

The Political Factors

Political variables in the context of the external environment refer to all the government policies and decisions that are likely to affect the operations of a business or organization. Example of such decisions includes the extent to which the government can interfere with the variables of the economy and how such interventions are likely to affect the business operations, the government policies regarding nationalization and privatization, government ownership of business enterprises, the goods and services that the government wants to supply, the extents to which a certain government can offer subsidies to business organizations and its priorities in terms of supporting business as well as the impact of the policies and decisions on other areas which forms the background of the business operating environment such as health, education, infrastructural developments such as airports, railway lines and roads networks, labour and industrial relations among others (Daniels, Radebaugh & Sullivan, 2007:29).

According to the latter, such government policies and political decisions vary among different governments in different parts of the globe. Since they have either direct or indirect influence on business and trading, it would be suicidal for an international organization or business person to venture in a foreign market ignorant of the political environment in that country. The company must therefore try to understand all aspects of the Indian political climate so as to understand which aspects of the Indian politics favor their business. Managers must understand that this knowledge is essential in making prior and appropriate decisions to mitigate their effects on the potential subsidiary.

Economic Factors

The economic factors refer to all factors that are related to a market’s or country’s economy. The economic status of a market shapes both the demand and the type of the products that can be targeted to it. Economic factors in this case include the interest rates, changes in taxation systems, the economic growth rates, rates of inflation and exchange rates (Phillip, 2006:12). Different countries have different economic policies as well as economic environment. For instance, the economic environment in France differs greatly with the Indian. In the same way, the economic policies vary greatly between the two countries. It is important for Louis Vuitton therefore to acquaint itself with the economic environment of India prior to moving in with their fashion subsidiary. For instance, if the interest rates are higher in India than in France, it would mean that the operation costs in the Indian market will be higher especially if the company will have to borrow. On the other hand, high rates of inflation would increase the cost of human resources as employees are likely to demand for higher wages. Higher national income or rather high per capital income will mean higher demand for the company’s products. A thorough review of all the economic factors surrounding the Indian market as well as their likely effect on the new venture must be made prior to entering the Indian market.

The Social Factors

Variations in the destinations’ social styles will undoubtedly affect the demand for the organization’s products. Differences in social aspects can also influence the availability of certain individuals to work (Daniels, Radebaugh & Sullivan, 2007:26). For instance, the effects of the Indian social class systems on the working styles might affect the organizations labour market. For example, if majority of the Indian population are advanced in age, there are greater likelihood of the company incurring a lot of costs in settling pensions. In such a market, also the fashion business like the one in question here may not be as lucrative since in the normal conditions older people are less sensitive and responsive to fashions. The company must well in advance embark on seeking knowledge on the Indian social-cultural factors and how they are likely to influence their fashion business in that market.

The Technological Factors

Changes and advancements in technology create new products, advanced and efficient business processes among others. Examples of online shopping, barcodes and computer assisted designs have brought unmatched improvements in carrying out business procedures (Daniels, Radebaugh & Sullivan, 2007: 27). Compared with other macro-environment variables, the technological environment is the most dynamic off all. A market or country that is technologically advanced is likely to have lower costs of doing business, better quality of products and a humble environment of more innovations (Kottler, 2006: 68). This will have benefits both on the part of the consumer as well as the organization. It is important for the organization therefore to be well acquainted with the Indian technological environment and how it could either be an edge or a shortcoming to the subsidiary’s success. The level of technological advancement in India as well as the ease of its access (in case it does not match the subsidiaries) must be of great relevance in the feasibility study.

The Environmental Factors

These constitute the natural factors such as the weather and climate change. Weather related natural catastrophes such as flooding, droughts and earthquakes may have devastating effect on the country’s or region’s business environment (Kottler, 2006: 68). The temperatures of a place may influence the demands of certain products, especially the dressing and fashions related products. The government environmental policies and industrialization will certainly affect business activities in an area, more so in the manufacturing sector. The company must therefore understand all the environmental factors in the Indian market and their possible effects on the new venture/ subsidiary.

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Legal Factors

These are the factors that relates to the legal environment in which a business operates. Different countries have distinct legal climate. The clauses governing business operations ranging from registrations, customers’ protection, labor laws health & safety regulations, law governing standards and quality among others have a direct impact on a business that is operating within its jurisdiction (Kottler, 2006: 68). As such, the France based company must acquaint itself with all the legal aspects of the Indian business environment prior to venturing in it. This is because such laws can hinder its operations or worse still land the company into a crisis of paying legal penalties. Louis Vuitton must therefore seek to clearly understand the Indian laws in totality, particularly the Indian business laws.

Cultural Issues to be Addressed by the Company

Thorough understanding of the cultural environment of the country in which the company or an organization is carrying out its business activities is a critical aspect. In fact, it is a major determinant of either success or failure in international business. Failure to understand fully the culture of the country in which one is operating in, or rather lack of cultural knowledge of this foreign market is likely to jeopardize the success of the business venture/ subsidiary. According to Pongpranod (2009: 69), culture is the general way of life of a certain group of people or individual greatly depicted by the manner in which they carry out their activities. According to the latter, globalization has virtually abolished the business barrier, leaving the global populations to trade freely, a fact that makes seeking knowledge about other people’s cultures imperative. According to the author, international growth in international business has necessitated movement of people across countries and culture. As a result, there is dire need for international marketers or business persons to invest in gathering cross cultural knowledge in order for them to achieve favorable results in the foreign culture markets.

Culture influences a business in a number of ways. First, it will dictate the way an international marketer will present himself or herself in the foreign market with different culture, shape the way the latter will express his or her opinion, dictate his assumptions based on the environment and the context as per that time as well as determining the voice perceptions and physical traits as seen by the market (Bruce, 2000:47). Getting acquainted to the other countries culture is a sure way of avoiding intercultural communication breakdown, occurrence of which might mean sure failure of the business venture. As observed by Bruce (2000:48), culture is a term that is used by sociologist to refer to specific people’s general way of life. It includes the generally accepted way of doing things and comprises ideas, objects and means of life created by a particular group of people, arts, beliefs customs, languages, religion, education systems and traditions. According to Kip (2000: 37), culture is the general way of life. A group’s way of life could either be simple or complex depending on what they mainly do. As a result, the way of life or rather culture varies from one group of people in one part of the world to another. For instance, most individuals in India are Hindu, and thus their dressing code differs greatly with what people wear in France (Christians). Targeting the market with similar fashions therefore will be a leeway to failing of the planned subsidiary. To avoid this scenario therefore, Louis Vuittons’ feasibility study must incorporate a thorough analysis on all aspects of the Indian culture and how the varying aspects are likely to affect the fashion subsidiary.

Although eating is a basic need common to all human beings in the world, the feeding habits differ from one group of people to another. The same case applies in the way of dressing, architectural designs, religious believes, customs and artistic practices (Kip, 2000:39). For instance, in societies where individuals subscribe to the Islam religion, they dress quite different from their Christian counterparts. As a result, a marketer targeting the Islamic market with fashions must clearly understand their preferences in terms of dressing and fashion to avoid selling the wrong products to them as this would lead to rejection of the product and an obvious failure of the business. While pork forms a universally accepted meal in the Christian arena, it is considered an abomination in the Islamic religion. In the same way it is an abomination to eat beef among the Hindu. Consequently, the French way of life or rather French culture is totally different with the Indian culture. Similarly, the French tastes of fashions are likely to be totally different with the Indians fashions tastes and preferences. Understanding of such variations therefore will help the French based company be in a position to target the Indian market with the right products i.e. fashions that are consistent with such culture. In addition, the company must understand that the business culture in India will differ with that in France thus they must learn and incorporate it in the business. Such variations include, marketing and advertising styles, the way meetings are organized and carried out, human resources management as well as the overall management culture which might be quite different with the way it is done back at home (France). Culture is learnt through continued behavior, acculturation or orientation. With the massive globalization however, it is now easier to obtain information regarding other peoples’ way of life.

Reference List

Bruce, Klickstein. (2000) Business : Culture and International Business Development Harvard Business School Press.

Cateora, P.R. and Ghauri, P.N. (1999) International Marketing, McGraw-Hill Publishing Company, European Edition.

Daniels, J., Radebaugh, L. and Sullivan, D. (2007). International Business: environment and operations, 11th edition. Prentice Hall. ISBN-10: 0131869426

Doole, I. and Lowe, R. (2001), International Marketing Strategy – Analysis, Development and Implementation, Thomson Learning, 3rd Ed.

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Johansson, J.K. (2000), Global Marketing – Foreign Entry, Local Marketing, and Global Management, Johansson, International Edition.

Keegan, W.J., (2002), Global Marketing Management, Prentice Hall, 7th Ed.

Keith Porter (2009) Globalization and International Business. Web.

Kip Becker (2000) Culture and International Business Prentice Hall, 7th Ed.

Muhlbacher, H., Helmuth, L. and Dahringer, L. (2006), International Marketing – A Global Perspective, Thomson, 3rd Ed.

Phillip Kottler (2006) Principles of marketing: Pearson Education Canada-ISBN 0134410157

Robert Pearce (2006) Globalization and Development: An International Business Strategy Approach Vol. 15 No 1.

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