VIETNAMESE UNIVERSITY

OF ECONOMICS AND BUSINESS

(Faculty of International Business and Economics)

INTERNATIONAL BUSINESS
MID-TERM CRITICAL ESSAY

Topic: How do national differences in political economy

and culture collectively influence the selection of overall
international business strategies by multinational
corporations? Specific examples of how these factors
impact their business operations in diverse global contexts.

Name of student : Nguyễn Việt Hà

Class : INE2028E1
Date of birth : 26/02/2003
 TABLE OF CONTENT
INTRODUCTION....................................................................................................................3

1.1. Background of the topic.................................................................................................3

1.2. Structure of the research................................................................................................3

PART 1: NATIONAL DIFFERENCES IN POLITICAL ECONOMY...................................4

PART 2: NATIONAL DIFFERENCES IN POLITICAL CULTURES..................................6

CONCLUSION.........................................................................................................................8

REFERENCES.........................................................................................................................9
 INTRODUCTION
1.1. Background of the topic
In the era of comprehensive globalization, as it is today, the expansion of investment
by multinational corporations (MNCs) into other countries is increasingly common.
However, international business is much more complicated than domestic business. It’s
because countries have different factors. The choice of business strategy for these enterprises
depends as a crucial determinant is the differences in the political economy and cultural
aspects of the countries involved.
In terms of political economy, MNCs navigate their international strategies depending
on government policies and economic landscapes.
In terms of culture, MNCs must tailor their products and marketing strategies to align
with local culture of each country to ensure an approach to diverse audiences. Because,
cultural distinctions are crucial as they impact consumer behavior, communication styles,
and workplace norms.
Therefore, in this paper, I will analyze in detail the impact of each factor on international
business strategies by MNCs. I will also provide and analyze some examples for each effect.
1.2. Structure of the research
This research is divided into four sections as follows:
Introduction
PART 1: National Differences in Political Economy
PART 2: National Differences in Culture
Conclusion

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 PART 1: NATIONAL DIFFERENCES IN POLITICAL ECONOMY

In the book titled: “Global Business Today”, author Charles W. L. Hill defines
political economy as follows: “The political economy of a nation refers to how the political,
economic, and legal systems of a country are interdependent; they interact
and influence each other, and in doing so they affect the level of economic well-being.”
Political economy is the backbone of every nation. The political system shapes the economic
and legal systems of that country.
In political system, it refers a system of government in a nation. It can include two
dimensions. The first are two emphasized concepts that are in contrast to each other:
collectivism and individualism. In contrast to collectivism, individualism emphasizes that
the interests of the individual should be prioritized over the interests of the state. The second
dimension is democratic or totalitarian. These dimensions are interconnected; systems that
emphasize collectivism tend to lean towards totalitarianism, while those that prioritize
individualism tend to be democratic.
In economic systems, there are three types of economic systems. First is the market
economy. It is a system in which the interaction of supply and demand determines the
quantity in which goods and services are produced. The second is the command economy,
which is an economic system in which the government plans the goods and services that a
country produces, the quantity in which they are produced, and the prices at which they are
sold. The third is mixed economy which can be found between market economies and
command economies. In each nation, its political system and economic system are
connected. In countries where individual goals take precedence over collective goals, free
market economic systems are more likely to be found. On the contrary, in countries where
collective goals are prioritized, the state may have taken control of many enterprises, and
markets in such countries are likely to be restricted rather than free.
The legal system of a country refers to the rules, or laws, that regulate behavior along
with the processes. The legal system is determined by the political system of each country.
Three main types used are common law, civil law, and theocratic law. The legal system
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plays an important role in international business. Legal environments vary significantly
between countries, and disparities in legal systems can impact the appeal of a country as an
investment destination or market.
Determining the political economy of each country helps MNCs evaluate the
benefits, costs, and risks that the company decides to invest. Generally, economically
advanced, politically stable democracies offer lower risks, while less developed, politically
unstable nations pose greater challenges. The trade-off is most favorable in stable, developed
nations with free markets and steady economic growth, and least favorable in politically
unstable developing nations with mixed economies or speculative financial bubbles.
Walmart's entry into the Indian market illustrates the vital need for multinational
corporations to adapt to diverse political-economic systems. Faced with a regulated retail
sector and restrictions on foreign direct investment, Walmart adjusted its strategy, often
partnering with local firms. India's prevalence of small, family-owned shops demanded a
departure from Walmart's typical large-scale, low-cost retailing approach to align with local
preferences. Infrastructural challenges led to significant investment in supply chain
management, differing from strategies in developed markets. To connect with Indian
consumers, Walmart culturally adapted its product assortment, store layout, and marketing.
Amidst competition from domestic players, Walmart embraced a more localized approach,
recognizing distinct consumer behaviors in India. Dynamic political dynamics, marked by
fluctuating government policies, required continuous adaptation to changing rules on FDI,
retail, and trade. The economic landscape, with a growing middle class and increasing
urbanization, presented opportunities and challenges, urging Walmart to strategize for a
diverse and price-sensitive market. This adaptation underscores the vital need for MNCs like
Walmart to be flexible and responsive, local regulations and consumer preferences with their
core business models.

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 PART 2: NATIONAL DIFFERENCES IN POLITICAL CULTURES
The term "culture" is a multidimensional concept with various definitions depending
on the context and perspective of each individual. Several scholars have proposed different
notions of culture. In the 1870s, anthropologist Edward Tylor formulated a definition of
culture as "That complex whole which includes knowledge, belief, art, morals, law, custom,
and other capabilities acquired by man as a member of society." Over the years, numerous
alternative definitions have been proposed. In this paper, I follow the definition of culture
provided by Hofstede Namenwirth and Weber. They defined culture as: “A system of values
and norms that are shared among a group of people and that when taken together constitute a
design for living.”
There are six factors shaping the culture of each country. The differences in these
factors contribute to the cultural diversity among nations worldwide. To begin with, this is
the difference in social stratification. Society is inherently structured into social categories,
known as social strata, based on factors like family background, occupation, and income.
Individuals inherit their social status from their parents, with those at the top enjoying better
life prospects, including education, health, standard of living, and job opportunities.
Societies vary in the extent of mobility between these strata and the importance assigned to
them in business. Secondly, these are religious and ethical systems. Religion can be defined
as a system of shared beliefs and rituals centered around the sacred. Ethical systems, on the
other hand, encompass a set of moral principles guiding behavior. While many ethical
systems worldwide originate from religions, there is a notable exception to this trend. Four
religions dominate society: Christianity; Islam; Hinduism; and Buddhism. The third is the
variance language. Language encompasses both verbal and non-verbal forms of
communication, serving as a defining feature of a culture. The last one is the education of
each nation. Formal education serves as the primary channel through which individuals
acquire essential language, conceptual, and mathematical skills crucial for navigating
modern society.

6
 Culture is not a constant; it evolves over time. The culture of societies may also
change as they become richer because economic progress affects several other factors, which
in turn influence culture. For international business, Understanding the cultural differences
of each country is extremely important, especially understanding the link of culture to a
business's comparative advantage. Firstly, it indicates which countries are poised to generate
the most formidable competitors. Secondly, this connection has crucial implications for
selecting countries for establishing production facilities and conducting business.
In reality, many Multinational Corporations have encountered mistakes in their
business strategies in different countries due to a lack of understanding or misunderstanding
of the local culture. An exemplary example of this mistake is the case of Starbucks in
Australia. Before entering the Australian market, Starbucks had been highly successful in
other countries. In the year 2000, the company opened its first store in Sydney. However,
early on in their Australian endeavors, Starbucks reported $105 million in losses. The
biggest mistake was that Starbucks didn’t truly understand the culture of Australia.
Australia's robust coffee culture centers around local cafes known for intricate coffee drinks,
a departure from Starbucks' simpler offerings. Starbucks failed to align with Australian
preferences, offering sugary drinks that Australians don't favor. Moreover, Starbucks
neglected to adapt store aesthetics to match Australia's coffee shop ideals. Australian cafes
are hubs for business discussions and socializing, where coffee is a bonus to the experience.
In contrast, Starbucks prioritizes coffee as the main offering, emphasizing quick service for
on-the-go customers. The mismatch between Starbucks' approach and Australian
expectations highlights the cultural disconnect, contributing to Starbucks' challenges in
gaining popularity in the Australian coffee scene.

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 CONCLUSION
In summary, the complex interaction between political economy and culture among
nations profoundly influences the international business strategies embraced by
multinational corporations. Given the ever-changing dynamics of global markets, a
sophisticated comprehension of varied political and cultural environments becomes
imperative, prompting MNCs to customize their approaches for enduring success. The
repercussions of these factors are readily observable across a multitude of facets within
business operations in diverse global settings.
Here are some recommendations for multinational corporations in light of these
national differences. Firstly, comprehensive market research transcending mere economic
metrics is imperative, encompassing cultural intricacies and political landscapes. This
foundation empowers informed decision-making. Secondly, prioritizing local talent
engagement is pivotal, as individuals versed in the nuances of both the political and cultural
environments enhance operational efficacy and community relations. Thirdly, adaptive
marketing strategies, customized to align with local cultural preferences and values, ensure
resonance with diverse consumer bases.

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 REFERENCES

[1] Charles W. L. Hill (2011). National Differences in Political Economy, Differences

in Culture. Global Business Today (42- 158). McGraw-Hill Higher Education ISBN: 978-1-
259-84718-9.
[2] Cavusgil, Knight, & Riesenberger. (2019). International Business: The New
Realities. (5th e.d.). Boston, MA: Pearson Prentice Hall. ISBN 10: 1-292-30324-7.
[3] How Starbucks missed the mark in Australia: Insights. CASTUS. (n.d.).
https://www.castusglobal.com/insights/how-starbucks-missed-the-mark-in-australia
[4] Ashley_MTurner. (2018, July 25). Why there are almost no Starbucks in
Australia? CNBC. https://www.cnbc.com/2018/07/20/starbucks-australia-coffee-failure.html
[5] Lauren. (2018a, December 15). Problems faced by Walmart in India. RSS.
https://bohatala.com/problems-faced-by-walmart-in-india/
[6] Halepete, J., Seshadri Iyer, K.V. and Chul Park, S. (2008), "Wal‐Mart in India: a
success or failure?", International Journal of Retail & Distribution Management, Vol. 36
No. 9, pp. 701-713.