Impact of Culture on International Business - Egypt

Impact of Culture on International Business – Egypt

Introduction

The impact of culture in international business is contentious however the key factors and major elements are language, customs, religion, attitudes, cultural norms, beliefs and values. Language is certainly the most important factor in understanding culture, beliefs, opinions, values and opinions. Most countries and international corporations have adopted the English language as the official language.

Religions also affect business decisions and culture through shared core values and beliefs. Corporate culture is a term that characterizes the way manages and employees’ relate among themselves and the outside world. It explains the shared values, customs, philosophies, traditions and the general policies of a company and also the business and professional atmosphere that develop from these activities, beliefs and its ultimate effect on behaviors and the performance of the company. Companies tend to have different types of organizational, decision making practices and management styles depending on the nature of culture and sub culture that they encompass. (Gray, 1988) Culture influences the general behavior and the natural preferences of clients and the potential customers. For a firm to succeed and sell successfully in overseas markets, the sales manager has to adapt and shape his products or service in a way that they meet the requirements and needs of specific clients. Most alterations in advertising, product differentiation, after sales services, marketing and technical backups are partly related or guided by cultural differences. For instance, in a bid to increase its sales in Spain, Ford Motor group adopted a new advertising strategy to utilize the local dialect in one of its advertisement. Fords truck was initially designed as a low cost truck in the Spanish market and it was nick named Feira which means an ugly old woman in the Spanish language. These model did very badly in the market as no one wanted to be associated with these vehicle. The importance of culture, its impact and significance on business cannot be underrated. (Bal and McCulloch, 1999)

Cultures vary and some of these variations eventually lead to real and major differences in the management of companies, how they operate and how the people or the employees work. Globalization has its own share of challenges and complexities as companies have to contend with doing business with people from different cultures and religious backgrounds.

The Egypt’s accounting system reflects the Egyptian culture on the non disclosure of certain information which is shrouded under secrecy as they relate to the Egyptian culture. The influence that culture has on the Egyptian accounting standard is retrogressive as it completely dilutes the importance and the relevance of the International Accounting Standards. (Irwin, Bruns, 1987). The disclosure of financial information under the IAS and the IFRS dictates that all material items in financial matters must be disclosed. Most Egyptian managers and corporate directors’ work in very secretive environment and a new regulation about full disclosure in their daily schedules may be a little difficult for them to implement. The propensity of the Egyptians secrecy affects the ultimate adoption of the International Accounting Standard disclosure concepts and requirements. (Hassan, 2008b)

The Uniform Accounting System regulation issued in the year 1966 was the first step in the development of the accounting standards in Egypt. It was implemented in the year 1967/1968 annual reports. Companies in Egypt voluntarily used the IAS (International Accounting Standards) before the development of the Egyptian Accounting Standards and the eventual adoption in the year 1997. The move to a market economy by the Egyptian Economy required significant changes in the accounting system. The move was to assist the investors and other stakeholders in their financial analysis and it also provided the required financial information that’s based on reliable and accurate financial reporting standards. The ESAA (Egyptian Society of Accountants and Auditors) made several proposals that created the initial Nineteen Egyptian Accounting standards in the year 1997. (Ragab and Omran, 2006) They were all based on the IAS. There were twenty-two Egyptians Accounting standards by the end of the year 2002. The entire Egyptian Accounting system was replaced in the year 2006 which included thirty-five standards whose foundation is based in the IAS (currently the International Financial Reporting Standards) The Egyptian Accounting Standards (EAS) differs with the IAS or the IFRS in four different ways. The different areas were: Egyptian Accounting standards 1, 10, 19 and finally 20. The differences were in financial presentations of statements, disclosures in banks financial statements, depreciation of fixed assets and other concepts, policies, general accounting rules and the standards concerning the finance leases. Egypt faced a major challenge when setting and adopting its own standards of accounting system as the incompatibilities and the differences between the secretive culture of the Egyptians and the essential requirements of the disclosures under the IAS generates conflicts that can only be resolved by selective application and implementation of the International Accounting Standards. (Garrison, Noreen, Brewer, 2009) In terms of finance leasing is that the standards of leasing as set out by the IAS directly contradict the Egyptian law. The affected sections all have to do with the disclosure requirements. (Frechner and Kilgore, 1994)

Investors in the capital markets authority are encouraged to invest in Egypt where there is a transparent and secure market. However, the opinion of the investors on the rate of economic development, the type and nature of the economy, the equity market, the stock ownership and the variations in disclosure requirements. There is a lot of secrecy surrounding full disclosure of financial information in Egypt and the investors have a very negative opinion about the non disclosure or the partial disclosure of information. (Ragab and Omran, 2006)

IAS has impacted positively on the development of accounting standards in Egypt. However some laws and rules mostly based on the Muslim faith have had a significant impact on the application of accounting standards. Some of the cultural values in Egypt have affected the application and implementation of the Egyptian Accounting standards. Work culture, attitude, values and the relevant management of these activities at the work place have a significant impact and influence on the performance, productivity and innovativeness of a firm. The adoption of social core values by a firm motivates managers and employees to work hard and strive continuous to improve the firm’s products and its profitability in a bid to increase its competitive advantage as they become cultural attached to the product and associate it with their values and beliefs. Most of the attitudes and beliefs associated with Egypt are connected or related to the Islamic faith which plays a very big role in daily lives of the Egyptian people and their business. The Islamic religion is supreme in most Arabic nations worldwide and their business activities and critical decisions are greatly influenced by its teachings.

References

Gray, S.L. (1988) Towards a Theory of Cultural Influence on the development of Accounting: systems international. ABACUS 24.

Frechner, H.E and Kilgore, A. (1994) The influence of cultural factors in accounting on practice. International Journal of accounting. 29: 265-277

Garrison, H., Noreen, E., Brewer, P. (2009) Managerial Accounting. McGraw-Hill

Irwin, S., Bruns, W. (1987). Accounting and Management: A Field Study Perspective Harvard Business School Press,

Bal, D.A and McCulloch, W.H (1999) International Business: The Challenge of Global

Competition, 7th ed. Boston: Irwin McGraw-Hill.

Hassan, H. (2008b) The development of accounting regulations in Egypt- Legitimating the

international Accounting standards. Managerial Auditing Journal, 23 (5)

Ragab, A.A., and Omran, M.M., (2006) Accounting Information, value relevance and investors behaviour in behavior in the Egyptian equity market. Review of Accounting and finance, 5 (3)