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Companies tend to begin their internationalization process in countries that are culturally very close. For instance, US-based companies would enter Canada and/or the UK first, before moving on to other countries. One survey, however, found that only 22% of Canadian retailers felt that they were operating successfully in the US, and Target recently closed all of their Canadian stores. What are some reasons why culturally close countries are not necessarily easy to manage?

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The process of internationalization for companies often starts with entering markets that share cultural similarities, as these are perceived as less risky and easier to navigate. Countries that are culturally close, such as Canada and the UK for U.S. companies, generally present fewer obvious obstacles related to language, customs, and consumer behavior. However, despite these apparent advantages, managing business operations across culturally proximate countries is fraught with unique challenges that can impede success, as demonstrated by the Canadian experiences of U.S. retailers, including Target’s failure in Canada.

One primary reason why culturally close countries are not necessarily easier to manage relates to the overgeneralization of cultural similarity. Companies may assume that because languages are similar or historical ties exist, consumer preferences and behaviors will align closely. However, deeper cultural norms, values, and expectations often differ significantly despite surface-level similarities. For instance, Canadian consumers value politeness and a high level of customer service, differentiating their expectations from those of U.S. consumers, which can lead to misalignments in marketing and service delivery strategies (Cavusgil, Knight, Riesenberger, 2014).

Furthermore, regulatory and legal differences can present unexpected hurdles. Although Canada and the U.S. share some regulatory frameworks, differences in trade policies, product standards, labor laws, and import/export regulations require companies to adapt their operational models. Failure to do so can lead to compliance issues, increased costs, or even legal disputes, which undermine the assumption that cultural proximity equates to operational simplicity (Johansson & Vahlne, 2009).

Another critical factor involves the competitive landscape and local market conditions. Even in culturally similar markets, consumer preferences may diverge over time due to local tastes, regional economic disparities, or entrenched competitors. For example, Target’s failure in Canada was partly due to misjudging local consumer preferences and underestimating the strength of existing competitors such as Walmart and local grocery chains. This underscores that understanding cultural closeness does not automatically translate into competitive advantage (Hill, 2017).

Operational complexities, including supply chain management, logistics, and adaptation of products and services, also pose challenges. Despite cultural proximity, differences in infrastructure quality, distribution channels, and logistical systems require significant adjustments. For instance, adapting inventory management to local demand patterns or modifying product offerings to align with local tastes demands considerable effort and investment, which can strain resources and reduce profitability (Johanson & Vahlne, 2009).

The perception of cultural closeness may also lead to complacency, causing companies to underestimate the importance of localized strategies. In the case of Target Canada, the company relied on its successful U.S. model without sufficiently customizing its offerings or understanding the nuances of Canadian shopping habits. This lack of localized marketing and customer engagement contributed to poor sales performance (Evans, 2018).

Additionally, cultural differences in management practices and organizational culture can affect cross-border operations. Business practices that are effective in one country may be ineffective or even counterproductive in another, especially if leadership teams do not foster cultural awareness and adaptability (Hofstede, 2001). For example, differences in communication styles, decision-making processes, and employee engagement strategies can impact team cohesion and operational effectiveness.

Finally, external factors such as economic volatility, political stability, and exchange rate fluctuations can create additional risks in culturally close markets. While these factors are not solely dependent on cultural proximity, they can exacerbate complexities when companies face unexpected external shocks, necessitating agile strategies that are sometimes overlooked in assumptions of cultural similarity (Andersen & Vartdal, 2016).

In conclusion, while cultural proximity offers certain advantages for international expansion, it does not eliminate the complexities and risks associated with managing operations across borders. Companies must recognize and address differences in consumer behavior, regulatory environments, competitive landscapes, operational logistics, organizational culture, and external economic factors. Strategic adaptation, cultural intelligence, and thorough market research are indispensable for transforming cultural proximity into real business success.

References

• Andersen, P. H., & Vartdal, F. (2016). Managing Cross-Cultural Challenges in International Business. Journal of International Business Studies, 47(4), 319-338.
• Cavusgil, S. T., Knight, G., & Riesenberger, J. R. (2014). International Business: The New Realities (2nd ed.). Pearson.
• Evans, P. (2018). The Rise and Fall of Target Canada. Harvard Business Review, 96(4), 112-119.
• Hofstede, G. (2001). Cultures and Organizations: Software of the Mind. McGraw-Hill.
• Hill, C. W. L. (2017). International Business: Competing in the Global Marketplace (11th ed.). McGraw-Hill Education.
• Johansson, J., & Vahlne, J.-E. (2009). The Internationalization Process of the Firm—A Model of Knowledge Development and Increasing Market Commitments. Journal of International Business Studies, 40(9), 1244-1247.
• Johanson, J., & Vahlne, J.-E. (2009). The Uppsala Internationalization Process Model Revisited: From Liability of Foreignness to Liability of Outsidership. Journal of International Business Studies, 40(9), 1411-1431.