International business complexity and the internationalization of languages

While the impacts of culture on international trade and foreign direct investment (FDI) have been much discussed, the influence of languages has been underappreciated in international business. We address this paucity by integrating literature from international economics, international business, Chinese business history, and linguistics to examine the transaction costs of languages. While we recognize that languages represent both a tool in international economic transactions and a vehicle to transmit cultural values, our results point out that this tool is employed differently in international trade and in FDI. Communication costs for both FDI and international trade show a hierarchy, with English the most inexpensive among major trade languages; however, we find that communication costs are much more important in FDI than in international trade. Herein, we offer practical suggestions corporations may implement regarding the matter.