Sociocultural Theories in International Business and Risk Analysis in Foreign Investments

  • Cultural cluster approach

This based on where people are located in the world. Such as, Nordic, Germanic, Anglo, Latin American, Far Eastern and Arab countries.

  • Edward Hall’s low – context, high – context approach

This categorizes in terms of how the individuals or the societies communicate and what is required in order to successfully communicate. In low-context, the words used by the speaker explicitly convey the speaker’s message to the listener. In high-context, a conversation occurred is just as important as the words that are actually spoken.

  • Geet Hofstede’s five dimensions of culture

It has theorized as, social, power, uncertainty, goal and time orientation

Finally, it’s a must that that international organizations must understand the cultural differences when try to initiate change in a foreign location. It should be well planned and MNC must clearly identify the costs and benefits of the change before processing.

Investment in international business requires a cost benefit analysis which means analyze benefits gained versus the risks encountered by investing firm. Basically the benefits would be opportunities to expand business in larger markets, competition, achieve economic scale etc on the other hand must consider about the risk such as; political risks, changing of monetary and fiscal policies etc. Obviously there are ways to manage the risk and basically rejecting investment, long-term agreements and lobbying are the famous options to turn down the risk that could occur due to a foreign investment.

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