The ongoing globalization increases the overall need for knowledge of cultural differences between not only countries but also corporate cultures. More and more employers start transferring their experts from country to country to help build new subsidiaries or to support existing ones in certain projects. Their success is closely linked to not only the obvious need for language skills but also the understanding of sub cultural influences, different communication styles and social behaviors of each society. But in many companies these challenges have not been addressed yet. In a lot of cases experts/employees are transferred to foreign subsidiaries with almost no cultural training based on the erroneous assumption that the subsidiary cannot be too different from the home countries and its headquarters culture.

Culture refers to learned norms based on values, attitude and beliefs of a group of people. It affects the way a member of a group typically perceives, thinks, interacts, behaves, and makes judgments. It even affects perceptions of time, which can impact day-to-day scheduling and deadlines. Culture is sometimes illusive due to the fact that people belong to different groups with different cultures based on nationality, ethnicity, religion, gender, work organisation, profession, age, political party membership and income level.

Culture is like an iceberg – above the surface, certain characteristics are visible; below the surface is a massive base of assumptions, attitudes and values that strongly influence decision-making, relationships, conflict, and other dimensions of business.  In cross-border business, we step into different cultural environments characterized by unfamiliar languages and unique value systems, beliefs, and behaviors. We encounter customers and business partners who display differing lifestyles, norms, and consumption behaviors. Unlike political, legal, and economic systems, culture has proven very difficult to identify and analyze.

Cross-cultural risk is defined as a situation or event where a cultural miscommunication puts some human value at stake. Cross-cultural risk arises routinely in international business because of the diverse cultural heritage of the participants. Arises when we enter environments characterized by unfamiliar languages and unique value systems, beliefs, attitudes, and behaviors. It is one of the four major risks of international business, the others being:

·         Commercial risk – weak partners, operational issues, entry timing, competitive intensity, poor strategy implementation, etc.

·         Currency (financial) risk – inflation, asset valuation, foreign taxation, etc.

·         Country risk – unstable political system, unfavourable laws/regulations, corruption, bureaucracy, mismanagement of national economy, government intervention, etc.

As soon as an organization begins to sell its products or services outside its own domestic market with the aspiration to set up operations in a local market, it will be exposed to a different cultural environment with its own distinct norms and behaviors. Cultural sensitivity can dictate between success and failure. For example General Motors promotional campaign in Belgium on a slogan ‘Body by Fischer’ was translated to read ‘Corpse by Fischer’ and the introduction of the car brand ‘Nova’ in Puerto Rico, which sounded to the local like ‘no va’ (it does not go); General Mills target adverts at children in the UK which was considered unethical; Goodyear making illegal claims of superiority in West Germany because it ignore local legal requirement. These types of mistakes stemming from cultural ignorance can prove costly and even lead to damaged reputation for firms.

Cultural competence is the ability to interact effectively with people from different cultures. This ability depends on awareness of one's own cultural worldview, knowledge of other cultural practices and worldviews, tolerant attitudes towards cultural differences, and cross cultural skills. Cultural competence requires that organizations have a defined set of values and principles, and demonstrate behaviors, attitudes, policies, and structures that enable them to work effectively cross-culturally. Developing cultural competence requires: