CHAPTER 3 The Cultural Environment of International Business

3.1 Understand culture and cross-cultural risk.

3.2 Learn the dimensions of culture.
3.3 Describe the role of language and religion in culture.
3.4 Describe culture’s effect in international business.
3.5 Learn models and explanations of culture.
3.6 Understand managerial implications of culture.

3.1 Understand culture and cross-cultural risk.

Culture. The values, beliefs, customs, arts, and other products of human thought and work that characterize the people
of a given society. Culture shapes our behavior.
• Not right or wrong, it is relative. There is no cultural absolute. Different nationalities simply perceive the world
differently.
• Not about individual behavior, it is about groups. It is a collective phenomenon of shared values and meanings.
• Not inherited, it derives from the social environment. We are not born with a shared set of values and beliefs;
we acquire them as we grow up.
•
Framework on the Essential Elements of Culture

EXP

Cross-cultural risk. A situation or event in which a cultural misunderstanding puts some human value at stake.
Misunderstanding and miscommunication arise because people have differing values and expectations. They do not
always communicate (verbally or nonverbally) what the other party is anticipating or may have different ways of
communicating.
Highlights: Cultural differences, Negotiation patterns, Decision-making styles, Ethical practices

Socialization. The process of learning the rules and behavioral patterns appropriate for living in one’s own society.

Acculturation. The process of adjusting and adapting to a culture other than one’s own.

3.2 Learn the dimensions of culture.

Values represent a person’s judgments about what is good or bad, acceptable or unacceptable, important or
unimportant, and normal or abnormal.

Attitudes and preferences are developed based on values, and are similar to opinions, except that attitudes are often
unconsciously held and may not have a rational basis.

Examples

• Values common to Japan, North America, and Northern Europe include hard work, punctuality, and wealth
acquisition.

Manners and Customs

Manners and customs refer to ways of behaving and conducting oneself in public and business situations. They are
present in eating habits, mealtimes, work hours and holidays, drinking and toasting, appropriate behavior at social
gatherings (kissing, handshaking, bowing), gift-giving (complex), the role of women, and much more.

Examples

• In Japan, it is usually a mistake not to offer a gift in initial meetings.

• In some parts of the world, people greet by kissing each other on both cheeks. In Southeast Asia, greeting
involves placing the palms together in front of the chest, as in praying. In Japan, bowing is the norm.

Perceptions of space reflects each culture’s orientation about personal space and conversational distance.

Perceptions of Time. Time dictates expectations about planning, scheduling, profit streams, and what constitutes
tardiness in arriving for work and meetings.

• Monochronic - A rigid orientation to time in which the individual is focused on schedules, punctuality, time as
a resource, time is linear, “time is money.” For example, people in the U.S. are hurried and impatient.

• Polychronic - A flexible, non-linear orientation to time in which the individual takes a long-term perspective;
time is elastic, long delays are tolerated before taking action. Punctuality is relatively unimportant.
Relationships are valued. Examples: Africa, Latin America, Asia.

Examples

Chinese and Japanese firms typically are future-oriented. They focus not on how the firm will perform next quarter
but on how it will perform a decade from now. Many large Japanese firms offer lifetime employment and invest heavily
in employee training. They expect workers to remain with the firm for decades.

Latin Americans have a flexible perception of time and may not arrive exactly at the predetermined time for
appointments

Symbolic and Material Productions

• A symbol can be letters, figures, colors, or other characters that communicate a meaning. Examples include
flags, anthems, seals, monuments, and even historical myths.

• Material productions are artifacts, objects, and technological systems that people construct to function in
their environments.
 Blank Europe and North America China Japan Middle East

Red Danger, stop, anger, love, Good luck, joy, celebration, Celebration, Danger,
passion long life danger, anger anger, evil

White Purity, peace, brides Mourning, death, humility Mourning, death, Mourning,
purity death, purity

Black Death, evil, mourning Evil, color for young boys Evil Evil

Green Money, safety, luck, prosperity Youth, growth, adultery Life, energy, Strength,
freshness, youth luck, fertility

Blue Sadness, calm, trust, masculinity Strength, power, Purity, cleanliness Protective
immortality

Education Cultural values, ideas, beliefs, traditions, and attitudes are passed from one generation to the next through
education. Education takes place in various ways, especially through lessons and behavior acquired from parents,
family, and peers; participation in groups (social, business, and religious); and formal schooling.

Social structure refers to the pattern of social arrangements and organized relationships that characterize a society.
All cultures have a social structure that influences our status or class in society. Understanding the social structure of
international employees, clients, and suppliers is vital for avoiding cultural misunderstandings and optimizing business
transactions.

• Individuals. Because Western cultures emphasize individualism and individual success, social status often is
determined by individual performance. This helps explain the high degree of worker mobility and
entrepreneurial activity typical in Western societies. Excessive individualism, however, can reduce the
effectiveness of teams, particularly in collectivist cultures typical of Asia.
• Family. In many cultures, immediate and extended family holds particular importance in the nation’s social
structure. In such cultures, the family often plays a substantial role in the formation and structure of business
activities. In China, for example, family-owned and family-run businesses are relatively common, and
ownership often passes on to successive generations.
• Reference groups. In some societies, people’s social status is defined by group or employer affiliation rather
than by individual performance. When meeting business people in Tokyo, for instance, they typically will
identify themselves in terms of the companies where they work rather than by their function or job title at
that firm. In Japanese firms, objectives and strategies are typically decided by groups, rather than by individual
managers.
• Social stratification. In most cultures, individuals are classified within classes or social layers depending on
their occupation, income level, or family history. However, societies differ in the importance they place on
social strata and on the ease with which people can advance to higher strata. In most countries, senior business
and government leaders typically occupy the highest social strata. The middle strata usually consist of business
managers and medical or scientific professionals. Those in the lowest strata typically work in manual labor,
basic services such as retailing, or lower-level administrative positions.
• Social mobility. Social mobility refers to the ease with which a person can move up within social strata. The
most rigid type of social mobility operates in a caste system, countries such as India. In a caste system, a
person’s social status is determined by birth, and he or she has little opportunity for social mobility. Individuals
are often restricted to working in a specific occupation, such as a farmer or factory worker, depending on the
caste they were born into. Understanding social norms in caste system countries is necessary to successfully
manage employees who work at different levels of the social strata. Advanced economies are characterized
by the class system, a more flexible form of social stratification within which people usually have greater
mobility to move to a higher strata and change their social status. Social mobility in caste and class systems
alike influences people’s attitude toward work, entrepreneurship, and labor relations
3.3 Describe the role of language and religion in culture.

LANGUAGE

• The “mirror” or expression of culture; essential for communications; provides insights into culture.

• Linguistic proficiency is a great asset in international business.

• Language has both verbal and nonverbal (unspoken, facial expressions and gestures).

• There are nearly 7,000 active languages, including over 2,000 in each of Africa and Asia.

Most Common Primary Languages in the World

World Language Approximate Number Of Countries with Substantial Number of Native

Rank Native Speakers (Millions) Speakers

1 Mandarin Chinese 900 China, Singapore

2 Spanish 435 Argentina, Mexico, Spain

3 English 370 Australia, Canada, United Kingdom, United States

4 Hindi 260 India

5 Arabic 290 Egypt, Saudi Arabia, United Arab Emirates

6 Portuguese 220 Brazil, Portugal

7 Bengali 200 Bangladesh, India

8 Russian 150 Russia, Kazakhstan. Ukraine

9 Japanese 125 Japan

10 Punjabi 100 India, Pakistan

11 German 90 Germany, Austria

12 Javanese 80 Indonesia

13 Korean 75 South Korea

14 French 74 France, Canada, Belgium, Algeria

15 Tamil 70 India, Sri Lanka

Idioms

• An expression whose symbolic meaning differs from its literal meaning; you can’t understand it simply by
knowing what the individual words mean. Examples:

– Australia: “The tall poppy gets cut down” (importance of not being showy or pretentious)

– Thailand: “If you follow older people, dogs won’t bite you” (wisdom)

– Japan: “The nail that sticks out gets hammered down” (group conformity)

– Korea “A tiger dies leaving its leather, a man dies leaving his name.” Honor

– Turkey “Steel that works, does not rust.” Hard work

Nonverbal Communications
Religion

• A system of common beliefs or attitudes regarding a being or system of thought that people consider sacred,
divine, or the highest truth; also, the associated moral values, traditions, and rituals.

• Influences culture, and therefore business and consumer behavior.

• Example: The “protestant work ethic” emphasizes hard work, individual achievement, and a sense that
people can control their environment – the underpinnings for the development of capitalism.

Role of Religion in Islamic Societies

• Islam is the basis for government, legal and social systems. As Muslims view God’s will as the source of all
outcomes, they are relatively fatalistic and reactive.

• Islam’s holy book, the Qur’an, prohibits drinking alcohol, gambling, usury, and “immodest” exposure. These
prohibitions affect firms dealing in various goods.

Examples

• Nokia launched a mobile phone that shows Muslims the direction towards Mecca, Islam’s holiest site.

• Heineken rolled out the non-alcoholic malt drink Fayrouz.

3.4 Describe culture’s effect in international business.

In Business, Culture Affects:

• Managing employees.
• Communicating and dealing with distributors and other business partners.
• Negotiating and structuring business ventures.
• Developing products and services.
• Preparing advertising and promotional materials.
• Preparing for international trade fairs.
• Interacting with current and potential customers.
Examples of how cross-cultural differences may complicate company activities.

• Developing products and services. Cultural differences necessitate adapting marketing activities to suit the
specific needs of target markets. Johnson & Johnson developed different varieties of its mouthwash, Listerine,
for foreign markets. For instance, it created alcohol-free Listerine Zero for Muslim countries where spirits are
forbidden. For Asian markets, it launched Green Tea Listerine. In Europe, consumers want their mouthwash
to solve more complex problems than just bad breath, so the firm developed an advanced gum treatment
rinse.
• Providing services. Firms that engage in services such as lodging and retailing substantially interact with
customers, implying greater cultural interaction and the potential for cognitive and communication gaps.
Imagine a Western lawyer who tries to establish a law office in China or a Western restaurant chain operating
in Russia. Both firms will encounter substantial cultural challenges. Differences in language and national
character have the same effect as trade barriers.
• Organizational structure. Some companies prefer to delegate authority to country managers, which results in
a decentralized organizational structure. Other firms have centralized structures, in which power is
concentrated at regional or corporate headquarters. Firms may be bureaucratic or entrepreneurial. How do
you deal with a bureaucratic partner or manage distantly located, decentralized subsidiaries?
• Teamwork. Cooperating with partners and host-country nationals to achieve common organizational goals is
critical to business success. But what should managers do if foreign and domestic nationals don’t get along?
The Chinese home appliance manufacturer Haier (www.haier.com) delayed acquiring overseas firms because
management felt it lacked the ability to manage foreign nationals and integrate differing cultural systems.
• Pay-for-performance system. In some countries, merit is not the main basis for promoting employees. In
China and Japan, a person’s age is the most important determinant, but how do such workers perform when
Western firms evaluate them using performance-based measures?
• Lifetime employment. In some Asian countries, firms are very protective of their employees, who may work
for the same company all their lives. The expectations that arise from such devoted relationships can
complicate dealings with outside firms. Western managers may struggle to motivate employees who expect
they will always have the same job.
 • Union–management relationships. In Germany, union bosses hold the same status as top-level managers and
are allowed to sit on corporate boards. Many European firms have a business culture in which workers are
relatively equal to managers. This approach can reduce the flexibility of company operations because it makes
it harder to lay off workers.
• Attitudes toward ambiguity. In some countries, people have a hard time tolerating ambiguity, which refers to
situations in which information can be understood in more than one way. For example, some bosses give exact
and detailed instructions, whereas others give vague and incomplete instructions. If you’re not comfortable
working with minimum guidance or taking independent action, you may not fit well into some cultures.
• Negotiations. Negotiations arise in virtually all aspects of business, as when the firm takes on a partner or a
supplier–buyer relationship. Goals, interests, ethics, and cultural assumptions vary cross-culturally, which can
complicate forming and maintaining business relationships. In most of Northern Europe, negotiations are
relatively efficient, impersonal, and unsociable; negotiators get down to business quickly.
• Technology. In the past, distinctive cultures developed because regions had limited contact with each other.
Today, various information, communications, and transportation technologies bring people into close contact.
The Internet and other communications technologies imply greater likelihood of cross-cultural
miscommunications and blunder. To help reduce problems, managers use software that instantly converts
messages into any of dozens of languages.

3.5 Learn models and explanations of culture.

• Cultural metaphors refer to a distinctive tradition or institution strongly associated with a society; a guide to
deciphering attitudes, values, and behaviors.

• American football represents systematic planning, strategy, leadership, and struggling against rivals.

• The Swedish stuga (a summer cottage) represents the love of nature and desire for individualism, in Sweden.

• The Spanish bullfight reflects the importance of ritual, style, courage, and pride in Spain.

Anthropologist Edward T. Hall: High- and Low-Context Cultures

• Low-context cultures rely on explicit explanations, with emphasis on spoken words. Such cultures emphasize
clear, efficient, logical delivery of verbal messages. Communication is direct. Agreements are concluded with
specific, legal contracts. Example Americans typically come to the point quickly. Low-context cultures tend to
value expertise and performance. Managers conduct negotiations as efficiently as possible.

• High-context cultures emphasize nonverbal or indirect language. Communication aims to promote smooth,
harmonious relationships. Such cultures prefer a polite, “face-saving” style that emphasizes a mutual sense of
care and respect for others. Care is taken not to embarrass or offend others. Example China and Japan,
emphasize nonverbal messages and view communication as a means to promote smooth, harmonious
relationships. In Japan, superiors are given such favored seating to show respect. Negotiations tend to be slow
and ritualistic, and agreement is founded on trust. Japanese people hesitate to say no even when they disagree
with what someone is saying. They are more likely to say “it is different,” a softer response.
. Hall’s High- and Low-Context Typology of Culture

Hofstede’s Typology of National Culture

• Individualism versus collectivism refers to whether a person primarily functions as an individual or within a
group.

• In individualistic societies, each person emphasizes his or her own self-interest; competition for resources is
the norm; individuals who compete best are rewarded. Examples: Australia, Britain, Canada, and the United
States.
• In collectivist societies, ties among individuals are important; business is conducted in a group context; life is
a fundamentally cooperative experience; conformity and compromise help maintain harmony. Examples:
China, Panama, Japan, South Korea and Malaysia.

• Power distance describes how a society deals with inequalities in power that exist among people.

• High power distance societies exhibit big gaps between the weak and powerful; in firms, top management
tends to be autocratic, giving little autonomy to lower-level employees.
• Examples: Guatemala, Malaysia, Philippines, and several Middle East countries.
• Low-power distance societies have small gaps between the weak and powerful. Firms tend toward flat
organizational structures, with relatively equal relations between managers and workers. For example,
Scandinavian countries instituted various systems to ensure socioeconomic equality.

• Uncertainty avoidance refers to the extent to which people can tolerate risk and uncertainty in their lives.

• High uncertainty avoidance societies create institutions to minimize risk and ensure security. Firms emphasize
stable careers and regulate worker actions. Decisions are made slowly. Examples: Belgium, France, Japan
• In low uncertainty avoidance societies, managers are relatively entrepreneurial and comfortable with risk.
Firms make decisions quickly. People are comfortable changing jobs. Examples: Ireland, Jamaica, U.S.

• Masculinity versus femininity refers to a society’s orientation based on traditional male and female values.

• Masculine cultures value competitiveness, ambition, assertiveness, and the accumulation of wealth. Both men
and women are assertive, focused on career and earning money. Examples: Australia, Japan
• Feminine cultures emphasize nurturing roles, interdependence among people, and caring for less fortunate
people for both men and women. Examples: Scandinavian countries, where welfare systems are highly
developed, and education is subsidized.
 • Long-term vs. short-term orientation describes the degree to which people and organizations defer
gratification to achieve long-term success.

• Long-term orientation emphasizes the long view in planning and living, focusing on years and decades.
Examples: Traditional Asian cultures, such as China, Japan, and Singapore, which base these values on the
teachings of the Chinese philosopher Confucius (500 B.C.), who espoused long-term orientation, discipline,
hard work, education, and emotional maturity.
• Short-term orientation is typical in the United States and most other Western countries.

• Indulgence versus restraint describes the degree to which people in a society attempt to control their impulses
and desires.

• Members of indulgent societies allow relatively free gratification of their basic and natural human desires
related to having fun and generally enjoying life.
• Restrained societies believe that such gratification should be curbed and regulated by strict norms.
• For example, Denmark, Mexico, and the U.S. score high on indulgence. China, Iraq, and South Korea score
high on restraint.

Deal vs. Relationship Orientation

• In deal-oriented cultures, managers focus on the task at hand, are impersonal, typically use contracts, and
want to just “get down to business.” Examples: Australia, Northern Europe, and North America

• In relationship-oriented cultures, managers value affiliations with people, rapport, and getting to know the
other party in business interactions. Relationships are more important than individual deals; Trust is highly
valued in business agreements. Examples: China, Japan, and Latin American countries. It took nine years for
Volkswagen to negotiate a car factory in China.

Guanxi: Important in Business in China

• Refers to social connections and relationships based on mutual benefits.

• Emphasizes reciprocal exchange of favors as well as mutual obligations.
• Rooted in ancient Confucian philosophy, which values social hierarchy and reciprocity.
• Engenders trust, thereby serving as a form of insurance in a potentially risky business environment.

3.6 Understand managerial implications of culture.

• Ethnocentric orientation: Using our own culture as the standard for judging other cultures.

• Polycentric orientation: A mindset in which the manager develops a greater affinity for the country in which
he or she works than for the home country.

• Geocentric orientation: A global mindset in which the manager is able to understand a business or market
without regard to national boundaries. Managers should strive for a geocentric orientation.
Culture is Linked With Particular Groups Based on Various Factors, Including:

• Geography. Different levels - the world, the nation, the region, cities - elicit unique cultural perspectives.

• Ethnicity. For example, people of African, Indian, and Latino heritage tend to perceive reality differently.

• Gender. Men and women often experience the world differently.

• Age. Seniors, baby boomers, teenagers, and children perceive their worlds differently.

• Language. Language both reflects, and is reflected by, cultural differences.

• Occupation. Perspectives differ among blue collar workers, professionals, or artists

Managerial Guidelines for Cross-Cultural Success

1. Acquire factual and interpretive knowledge about the other culture; try to speak their language.
2. Avoid cultural bias.
2.1. Self-reference criterion: The tendency to view other cultures through the lens of one's own culture-
understanding this is the first step.
2.2. Critical incident analysis: A method for analyzing awkward situations in cross cultural interactions by
developing empathy for other points of view.
• Identify situations where you need to be culturally aware to interact effectively with people from
another culture.
• When confronted with “strange” or awkward behavior, discipline yourself to not make judgments.
• Develop your best interpretation of the foreigner’s behavior, and formulate your response.
• Learn from this process and continuously improve.

3. Develop cross-cultural skills, such as perceptiveness, interpersonal skills, adaptability.

3.1. Tolerance for ambiguity: Ability to tolerate uncertainty and lack of clarity in the thinking and actions of others.
3.2. Perceptiveness: Ability to closely observe and comprehend subtle information in the speech and behavior of
others.
3.3. Valuing personal relationships: Ability to appreciate personal relationships; which are often more important
than achieving one-time goals or “winning” arguments.
3.4. Flexibility and adaptability: Ability to be creative in devising innovative solutions, be open-minded about
outcomes, and show “grace under pressure.”