Role of Cultural Distance in International Business

International
Business: Contexts
and Challenges

TABLE OF CONTENTS
TABLE OF CONTENTS..............................................................................................................2
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Part 1..........................................................................................................................................3
Role of cultural distance in international business......................................................................3
Part 2..........................................................................................................................................8
Impact of cultural distance on McDonald's internationalisation.................................................8
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................12

INTRODUCTION
The businesses becoming global with the increase in organisations which are expanding
its businesses across different countries. With the globalisation and liberalisation around the
globe, businesses all around started to expand its reach. This expansion brings structural and
strategic changes in the business environment (Buckley and et.al, 2018). The report represents an
insight of the cultural distance and its role in the international business and an analysis of the
McDonalds which was impacted by the cultural distance. For the purpose of which analysis of
the literatures of past 10 years have been made and the whole scenario is being highlighted in
this report.
MAIN BODY
Part 1.
Role of cultural distance in international business
Globalisation and international trade creates commercial, financial, cultural, social, political and
technological interactions across the globe. As the trade increases nations and the businesses that
took part in the exchange will become more interdependent and integrated with one another.
Internationalisation have advantages for the businesses that are new markets, more suppliers’
choices low prices, cheaper investments and low cost labour. Cultural distance is one of the
prominent factor that the international organisations has to develop its strategies around. It is the
distance in the culture of the host country and the home country of the international
organisations. With globalisation the businesses has to adhere to variety of cultures, beliefs and
ethical values. It is being seen that international businesses are less favour to expand their
business to the new areas as the business has to cope-up with different challenges that might
affect the existence of the whole business. White, R., (2015), reveal that the difference in the
culture and traditions creates obstacles in productive cross-border collaborations. Cultural
differences might limit or hinder international trades and makes foreign investments less with
international migration more costly affair. The cultural attributes of societies make it unique but
also the difference in the culture between different societies create an impact on the ability to
perform economic interactions effectively and get benefitted from it. International businesses are
occurring in the areas that are recognised as the difference between the countries and with these
difference is imposed with great force which in turn increase the transaction costs. The culture is

being defined as the learning and sharing behaviour of the communities in the society that
consists of human beings interaction with each other. Culture is human being’s main system that
help them to adapt towards the beliefs of the communities within the societies of the countries.
While globalisation is the growing integrated economies that help in freedom of trade, flow of
funds and acquiring low cost labours across the countries. The cultural distance is created by the
difference between the communities, societies and the countries that results in for the
international businesses a higher transactional costs which in turn reduce the productivity and
revenue. According to Beugelsdijk and et.al, (2018), international businesses establish its
subsidiary companies in different countries that perform business activities on behalf of the
parent firm. These subsidiaries appoint human resources that relates to varieties of the culture.
Also, the firms business practices are different that from what is adopted in the country the
subsidiary is established. International businesses conducts varieties of the analysis to find out
whether the business practices are right or wrong. Cultural distance is sensitive to the cultural
environment of the home country of the company. The distance in culture help in development of
the employees and the organisations behaviours. Global competition is increasingly growing and
to acquire market share around the globe mostly western countries are expanding its business to
new countries. Similarly, the emerging markets are diversified across the various countries.
Although it has been evident that the cultural distance is an important source of gathering and
exchange of the ideas, thoughts, beliefs and culture between the individuals that are working
with the international businesses. To adopt the international organisations to cope with the
challenges of the distance in culture they will have to expand to the areas that are close to the
cultural and geographical boundaries. After the successful implementation of international
expansion these organisations have to gradually expand to the areas that are more distinct in
culture and geography. Cultural distance develops challenges for the international businesses due
to inadequate knowledge of the countries that have distinct culture. These challenges hinder the
path of collaboration and coordination within the host country and the international businesses.
Integration of the business practices and productivity of the business is affected by cultural
distances. While, effective communication within the organisation is an issue that has to address
by the management of the international organisation. To deal with the issue awareness among the
individual about the different cultures and practices are to be spread by the management of the
international organisations that will help in increasing interaction among the employees. Efforts