How Cultural Differences Affect International Business

This article is an excerpt from the Shortform book guide to "Reboot" by Jodie Fox. Shortform has the world's best summaries and analyses of books you should be reading.

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Wondering how cultural differences affect international business? What are some examples of cultural differences in international business?

Jodie Fox wrote Reboot in part to provide advice on dealing with many of the situations you’ll encounter should you build a global business. In the book, she explains how cultural differences affect international business by providing examples of running her own global business—Shoes of Prey.

Read on to learn about how cultural differences affect international business, based on Fox’s examples.

Cultural Differences in International Business

Jodie Fox combined her professional background in law, international business, and marketing with her interest in fashion to found Shoes of Prey in 2009. She built it into a profitable, award-winning company alongside co-founders Michael Fox and Mike Knapp. By the time the business collapsed in 2018 after failing to scale effectively, she’d taken on the role of creative director, COO, and CEO, staying with the company to the end. In this article, we’ll explore how cultural differences affect international business, based on the lessons Fox learned while running her global business.

Fox asserts the importance of understanding cultural difference—both everyday cultural differences and special considerations for working with certain cultures; hiring employees local to the country you’re working in; and meeting the expectations of customers in different parts of the world.

(Shortform note: Understanding cultural differences is a vital part of running an international business. Taking the time to learn about another culture communicates respect and helps to foster long-term, trusting relationships with global business partners. There are many ways you can educate yourself about other cultures—for example, take a college course on cultural awareness in business, or start learning another language using apps like Duolingo.)

Everyday Differences and Special Considerations

Fox claims that when you work with international business suppliers, you should be aware of how cultural differences will affect your interpersonal relationship. She mentions both everyday cultural differences and special cultural considerations, like culture-specific holidays. If you don’t understand the interpersonal dynamics and expectations of your international partners, it can lead to missed opportunities, misunderstandings, resentment, and disruption to your business relationships.

Let’s look at two examples of how cultural differences affect international business from Fox’s experience:

Example #1: Dressing for Success

Be aware of how your appearance affects the way your international partners perceive you. When Fox and her co-founders first began meeting with suppliers at their factories in China, she selected simple attire: black trousers, a black shirt, simple shoes, and no jewelry. She wanted to look professional and be taken seriously.

However, over time, she noticed that the suppliers were always dressed well, wearing their nicest jewelry and driving expensive cars. She realized that they communicated the success of their businesses through their appearance.

By dressing simply, she left the suppliers feeling unsure that she represented a serious business. She started wearing expensive clothes and jewelry to meetings instead, convincing suppliers that Shoes of Prey had money to pay them.

How to Dress for Success in International Business

As Fox notes, when deciding how you should dress for business interactions, think about how you want to be perceived, and dress for the role you want to fill. However, don’t dress solely based on what you think that role looks like. Consider what that role looks like to the people you’ll be working with, especially if they come from a different country.

Fox initially tried to convey that she was a serious professional with her minimal garb. However, she misjudged how her Chinese partners would perceive her. You can avoid making similar mistakes by researching what’s considered appropriate business attire in the country you’re visiting or by reviewing your outfit choice with someone you know and trust from that country.

Example #2: How Local Holidays Affect Business

Furthermore, understand the important holidays where you do business and how they’ll affect your work. Fox learned this lesson when she and her co-founders failed to account for the effect Chinese New Year would have on their manufacturing. They knew that Chinese suppliers closed for two weeks during Chinese New Year, but they assumed that a reduced crew of workers would be available during the holidays since that’s common practice in Australia, where they’re from.

When they asked about keeping some staff on during the two weeks, their suppliers were upset that they didn’t understand the importance of the holiday or what it would take to keep the factory going with a reduced staff. Fox and the team worked it out by paying the workers a much higher rate during the holidays. Still, Fox and her co-founders could have prevented the problem with better cultural understanding and communication.

(Shortform note: If you have international employees, as Fox did, consider integrating their national and religious holidays into your corporate structure from the start. When you only include time off for holidays in your home country, you may leave your employees feeling disrespected and disheartened. To create a respectful culture around holidays and avoid the conflict Fox experienced, ask your regional leaders to create a list of the most important holidays in their country and share it with corporate. Put those holidays on the corporate calendar. Establish the expectation that everyone at the company must respect all culturally significant holidays and those who observe them.)

How to Map Cultural Differences

As Fox suggests, understanding how cultural differences affect international business is vital. However, navigating nuances of communication and interaction with global partners alongside the other everyday stresses of running a business can feel overwhelming. To make this process easier, systematize your understanding of cultural differences using Erin Meyer’s method for measuring them, as explored in The Culture Map.

Meyer outlines eight categories for measuring cultural differences—communication, feedback, thinking, leadership, decision-making, trust, disagreement, and time perception—each of which includes a range of possible behavior between two extremes. Every country’s norms in each category fall somewhere between the two extremes. You can judge how different your country’s cultural expectations are from another country’s within any category based on how far you are from them on the behavioral range. You can then modify your behavior toward people from that other culture accordingly.

Local Employees

Fox and her co-founders’ early struggles to communicate effectively with international partners highlighted the importance of hiring employees local to other countries. These employees could help them navigate the cultural differences that affect international business, such as the language barrier, and the practical aspects of the business when Fox and her co-founders couldn’t be there.

If you’re working with suppliers in another country, consider hiring local employees to fill the following roles:

Someone with professional networks in the country who can connect you with employment agencies. This will make it easier to hire more employees later on.

People to set up your local office and manage the packing and shipping of your product

People to manage everyday communication with suppliers, ensuring that daily operations are smooth and quality standards are met

(Shortform note: When hiring employees to run your international offices and manage relationships with suppliers, make sure you can trust and build rapport with them. You’ll depend on them to get an accurate picture of your international operations, which will require frequent and open communication. To find strong, trustworthy candidates for these roles, hire someone to help you with recruitment first.)

How to Hire Employees in Another Country

Fox and her co-founders temporarily hired a local employee to help them recruit employees in China. This is a great way to find potential international employees, but she doesn’t explain how to navigate the tricky legal and logistical process of hiring international employees. There are three main options you can use depending on your business needs:

Option 1: Establish a branch or subsidiary of your company in the country. This will allow you to legally hire employees there. Incorporating and registering a business in another country can be a lengthy and complicated process, so this option is best if you plan to establish a physical location for your business abroad and hire the employees indefinitely.

Option 2: Hire international workers as independent contractors. This means you don’t have to offer benefits or put workers on the payroll. However, every country has a different definition of what constitutes an independent contractor, so make sure you understand the country’s unique parameters. Otherwise, you may find yourself owing back pay, taxes, and benefits later on.

Option 3: Partner with an Employee of Record (EOR). An EOR acts as the official employer of your employees. They’re responsible for legal compliance and HR tasks. This option makes hiring international employees quick and easy because the EOR is already an established entity in the country.

International Customers

As Shoes of Prey grew, it began expanding into new markets, including Japan, Russia, and the Netherlands. During this expansion, Fox discovered that it wasn’t enough to understand how cultural differences affect international business—cultural differences matter when communicating with customers as well. Customers in different countries have varying customer service expectations, and you may have to make adjustments to your processes to keep these customers satisfied.

For example, Fox and her team worked with a partner in Japan who informed them that Japanese customers expect their parcels to arrive in perfect condition with elaborate packaging that enhances their experience of receiving the product. To avoid any issues with customer satisfaction in Japan, they shipped shoe orders first to their Japanese partner, rather than directly to customers. He acted as an intermediary, finishing the packing process and hiring special couriers to ensure the packages were still pristine by the time Japanese customers received them.

(Shortform note: The Japanese market is well-known for its emphasis on quirky products, and their standards for packaging are uniquely high. Japanese customers expect the packaging of products to have an appealing design, practical usability, and top-quality materials. Given these specific expectations, it was wise for Fox and her team to partner with someone who fully understood the culture.)

Cultural Distinctions in Customer Satisfaction Research

A recent study shows that traditional customer satisfaction research, which focuses on customer ratings of products and services, fails to account for important cultural distinctions. The most valuable information doesn’t come from customer ratings, but from the underlying assumptions that contribute to them. In Fox’s experience, for example, Japanese customers generally hold the assumption that a product is higher quality if it has nice packaging.

Paying attention to these assumptions can help you determine how best to connect with customers in different countries. For example, one product in the study had consistently high quality ratings across all countries, which suggested similarities across markets. However, the reasoning behind the quality ratings differed depending on the region. Most importantly, customers factored in cost as a primary measure of quality in all regions except Latin America.

With this research in mind, it would likely benefit your company to price your products higher than competitors in regions other than Latin America—the higher price will suggest to customers that it’s a higher quality product, making them more likely to buy it. However, in Latin America, you’ll have to find a different way to indicate the quality of your product.

How Cultural Differences Affect International Business