International Business

Unit: II

How Do Cultural Differences

Affect International
Business?

Understanding and adapting to the local

cultural is important for international
companies.
cross-cultural literacy - an understanding of

how cultural differences across and within

nations can affect the way in which business is
practiced
cross-cultural literacy is important for
business success

A relationship may exist between culture

and the costs of doing business in a
country or region

What Is Culture?

Culture - a system of values and norms

that are shared among a group of people
and that when taken together constitute a
design for living
where
values are abstract ideas about what a group

believes to be good, right, and desirable

norms are the social rules and guidelines that
prescribe appropriate behavior in particular
situations

Society - a group of people who share a

common set of values and norms

What Are Values And Norms?

Values

provide the context within

which a societys norms are
established and justified and form
the bedrock of a culture
Norms include
folkways - the routine conventions of

everyday life
mores - norms that are seen as central
to the functioning of a society and to its
social life

And The Nation-State

Related?
The

relationship between a society

and a nation state is not strictly oneto-one

Nation-states

are political creations

can contain one or more cultures

culture can embrace several

nations

What Determines
Culture?
The

values and norms of a culture

evolve over time

Determinants

include

religion
political and economic philosophies
education
language
social structure

What Determines
Culture?
Determinants of Culture

What Is A Social
Structure?
Social

structure - a societys basic

social organization
Consider
the degree to which the basic unit of

social organization is the individual, as

opposed to the group
the degree to which a society is
stratified into classes or castes

How Are Individuals

And Groups Different?
A

group is an association of two or

more people who have a shared
sense of identity and who interact
with each other in structured ways
on the basis of a common set of
expectations about each others
behavior

individuals are involved in families, work

groups, social groups, recreational

groups, etc.

How Are Individuals

And Groups Different?

In Western societies, there is a focus on the

individual
individual achievement is common
dynamism of the U.S. economy
high level of entrepreneurship

But, creates a lack of company loyalty and

failure to gain company specific knowledge
competition between individuals in a company

instead of than team building

less ability to develop a strong network of contacts
within a firm

How Are Individuals

And Groups Different?
In

many Asian societies, the group is

the primary unit of social
organization

discourages job switching between firms

encourages lifetime employment

systems
leads to cooperation in solving business
problems
But,

might also suppress individual

What Is Social
Stratification?

All societies are stratified on a

hierarchical basis into social
categories, or social strata
individuals are born into a particular

stratum

Must consider
1. mobility between strata
2. the significance placed on social strata

in business contexts

What Is Social
Stratification?
1.

Social mobility - the extent to which

individuals can move out of the strata into
which they are born
caste system - closed system of stratification
in which social position is determined by the
family into which a person is born
change is usually not possible during an
individual's lifetime
class system - form of open social stratification
position a person has by birth can be
changed through achievement or luck

What Is Social
Stratification?
2.

The significance attached to social

strata in business contacts
class consciousness - a condition where
people tend to perceive themselves in terms
of their class background, and this shapes
their relationships with others
an antagonistic relationship between
management and labor raises the cost of
production in countries with significant class
differences

How Do Religious And

Ethical Systems Differ?

Religion - a system of shared beliefs and

rituals that are concerned with the realm
of the sacred
Four religions dominate society
1. Christianity
2. Islam
3. Hinduism
4. Buddhism
5. Confucianism is also important in influencing

behavior and culture in many parts of Asia

How Do Religious And

Ethical Systems Differ?

Ethical systems - a
set of moral
principles, or
values, that are
used to guide and
shape behavior
Religion and ethics

are often closely

intertwined
Example: Christian or
Islamic ethics

What Is Christianity?
Christianity
the worlds largest religion
found throughout Europe, the

Americas, and other countries

settled by Europeans
the Protestant work ethic (Max
Weber, 1804)
hard work, wealth creation, and
frugality is the driving force of

What Is Islam?
Islam
the worlds second largest religion dating to AD 610
there is only one true omnipotent God
an all-embracing way of life that governs one's being
associated in the Western media with militants, terrorists,

and violent upheavals

but, in fact teaches peace, justice, and tolerance
fundamentalists have gained political power and blame

the West for many social problems

people do not own property, but only act as stewards for

God
supportive of business, but the way business is practiced

is prescribed

What Is Hinduism?
Hinduism
practiced primarily on the Indian

subcontinent
focuses on the importance of achieving
spiritual growth and development, which
may require material and physical selfdenial
Hindus are valued by their spiritual
rather than material achievements
promotion and adding new
responsibilities may not be important, or
may be infeasible due to the employee's

What Is Buddhism?
Buddhism
has about 350 millions followers
stresses spiritual growth and the

afterlife, rather than achievement while

in this world
does not emphasize wealth creation
entrepreneurial behavior is not stressed
does not support the caste system,
individuals do have some mobility and
can work with individuals from different

What Is Confucianism?
Confucianism
ideology practiced mainly in China
teaches the importance of attaining

personal salvation through right action

high morals, ethical conduct, and loyalty
to others are stressed
three key teachings of Confucianism loyalty, reciprocal obligations, and
honesty - may all lead to a lowering of
the cost of doing business in Confucian
societies

What Is The Role

Of Language In Culture?
Language

- the spoken and

unspoken (nonverbal
communication such as facial
expressions, personal space, and
hand gestures) means of
communication

countries with more than one

language often have more than one

culture
Canada, Belgium, Spain

What Is The Role

Of Language In Culture?

Language is one of the defining characteristics

of culture
Chinese is the mother tongue of the largest number

of people
English is the most widely spoken language in the
world
English is also becoming the language of international
business
but, knowledge of the local language is still
beneficial, and in some cases, critical for business
success
failing to understand the nonverbal cues of another
culture can lead to communication failure

What Is The Role

Of Education In Culture?

Formal education is the medium through

which individuals learn many of the
language, conceptual, and mathematical
skills that are indispensable in a modern
society
important in determining a nations competitive

advantage
Japans postwar success can be linked to its
excellent education system
general education levels can be a good index
for the kinds of products that might sell in a
country
Example: impact of literacy rates

How Does Culture

Impact The Workplace?
Management processes and
practices must be adapted to
culturally determined work-related
values
Geert Hofstede studied culture
using data collected from 1967 to
1973 for 100,000 employees of IBM

Hofstede identified four dimensions

that summarized different cultures

How Does Culture

Impact The Workplace?

Hofstedes dimensions of culture:

1. Power distance - how a society deals with the
fact that people are unequal in physical and
intellectual capabilities
2. Uncertainty avoidance - the relationship
between the individual and his fellows
3. Individualism versus collectivism - the extent to
which different cultures socialize their members
into accepting ambiguous situations and
tolerating ambiguity
4. Masculinity versus femininity -the relationship
between gender and work roles

How Does Culture

Impact The Workplace?
Hofstede

later expanded added a

fifth dimension called Confucian
dynamism or long-term orientation

captures attitudes toward time,

persistence, ordering by status,

protection of face, respect for tradition,
and reciprocation of gifts and favors

Japan, Hong Kong, and Thailand scored high

on this dimension
the U.S. and Canada scored low

Does Culture Change?

Culture

evolves over time

changes in value systems can be slow and

painful for a society

Social

turmoil - an inevitable outcome

of cultural change

as countries become economically stronger,

cultural change is particularly common

economic progress encourages a shift from

collectivism to individualism

globalization also brings cultural change

What Do Cultural
Differences Mean For
Managers?
1.

It is important to develop cross-cultural

literacy
companies that are ill informed about the

practices of another culture are unlikely to

succeed in that culture
.

To avoid being ill-informed

consider hiring local citizens
transfer executives to foreign locations on a

regular basis
.

Managers must also guard against

ethnocentrism
a belief in the superiority of one's own culture

What Do Cultural
Differences Mean For
Managers?
2.

There is a connection between

culture and national competitive
advantage
suggests which countries are likely to

produce the most viable competitors

has implications for the choice of
countries in which to locate production
facilities and do business

What are Ethics?

Ethics - accepted principles of right or

wrong that govern
the conduct of a person
the members of a profession
the actions of an organization

Business ethics - accepted principles of

right or wrong governing the conduct of
business people
Ethical strategy - a strategy, or course of
action, that does not violate these
accepted principles

Which Ethical Issues Are

Most Relevant To
International Firms?

The most common ethical issues in

business involve
1. employment practices
2. human rights
3. environmental pollution
4. corruption
5. moral obligations of multinational

companies

How Are Ethics Relevant

To Employment Practices?
Suppose

work conditions in a host

nation are clearly inferior to those in
the multinationals home nation

Which

standards should apply?

home country standards

host country standards
something in between

How Are Ethics Relevant

To Employment Practices?
Firms

should

establish minimal acceptable standards

that safeguard the basic rights and

dignity of employees
audit foreign subsidiaries and
subcontractors regularly to ensure they
are meeting the standards
take corrective action as necessary

How Are Ethics Relevant

To Environmental
Regulations?
Some parts of the environment are a public good
that no one owns, but anyone can despoil
What happens when environmental regulations in
host nations are far inferior to those in the home
nation?
Is it permissible for multinationals to pollute in
developing countries simply because there are
no regulations against it?
legal versus ethical behavior
The tragedy of the commons occurs when a
resource held in common by all, but owned by no
one, is overused by individuals, resulting in its
degradation

How Are Ethics Relevant

To Corruption?
The U.S. Foreign Corrupt Practices Act outlawed
the practice of paying bribes to foreign
government officials in order to gain business
amended to allow for facilitating payments
The Convention on Combating Bribery of
Foreign Public Officials in International Business
Transactions was adopted by the Organization
for Economic Cooperation and Development
(OECD)
obliges member states to make the bribery of
foreign public officials a criminal offense

How Are Ethics Relevant

To Moral Obligations?
Social

responsibility refers to the

idea that managers should consider
the social consequences of economic
actions when making business
decisions

there should be a presumption in favor

of decisions that have both good

economic and good social consequences

it is the right way for a business to behave

Why Do Managers
Behave Unethically?

Several factors contribute to unethical

behavior including
1. Personal ethics - the generally accepted
principles of right and wrong governing
the conduct of individuals
expatriates may face pressure to violate their

personal ethics because they are away from

their ordinary social context and supporting
culture
managers fail to question whether a decision
or action is ethical, and instead rely on
economic analysis when making decisions

Why Do Managers
Behave Unethically?
2.

Decision-making processes - the values and

norms that are shared among employees of an
organization
organization culture that does not emphasize

3.

4.

business culture encourages unethical

behavior
Organization culture - organization culture can
legitimize unethical behavior or reinforce the
need for ethical behavior
Unrealistic performance expectations encourage managers to cut corners or act in an
unethical manner

Why Do Managers
Behave Unethically?
5.

Leadership - helps establish the culture

of an organization, and set the examples
that others follow
when leaders act unethically, subordinates

may act unethically, too

6.

Societal culture firms headquartered in

cultures where individualism and
uncertainty avoidance are strong & more
likely to stress ethical behavior than firms
headquartered in cultures where
masculinity and power distance rank high

Why Do Managers
Behave Unethically?
Determinants of Ethical Behavior

How Can Managers

Make Ethical Decisions?
Build an organizational culture that places a
high value on ethical behavior
articulate values that place a strong
emphasis on ethical behavior
emphasize the importance of a code of
ethics - formal statement of the ethical
priorities a business adheres to
implement a system of incentives and
rewards that recognize people who
engage in ethical behavior and sanction
those who do not

How Can Managers

Make Ethical Decisions?
Make sure that leaders within the
business articulate the rhetoric of
ethical behavior and act in a manner
that is consistent with that rhetoric
give life and meaning to words
make sure that leaders emphasize the

importance of ethics verbally and

through their actions

How Can Managers

Make Ethical Decisions?
Put decision-making processes in place that
require people to consider the ethical
dimensions of business decisions
Ask whether
decisions fall within the accepted values
of standards that typically apply in the
organizational environment
decisions can be communicated to all
stakeholders affected by it
if colleagues would approve of decisions

How Can Managers

Make Ethical Decisions?

Managers can also use a five-step process to

think through ethical problems:
Step1: Identify which stakeholders (the
individuals or groups who have an interest,
stake, or claim in the actions and overall
performance of a company) a decision would
affect and in what ways
internal stakeholders are people who work for
or who own the business such as employees,
the board of directors, and stockholders
external stakeholders are the individuals or
groups who have some claim on a firm such
as customers, suppliers, and unions

How Can Managers

Make Ethical Decisions?
Step 2: Determine whether a proposed
decision would violate the
fundamental rights of any
stakeholders
Step 3: Establish moral intent - place
moral concerns ahead of other
concerns in cases where either
the fundamental rights of
stakeholders or key moral

How Can Managers

Make Ethical Decisions?
Step 4: Engage in ethical behavior
Step 5: Audit decisions and review
them to make sure that they are
consistent with ethical
principles
this step is often overlooked even

though it is critical to finding out

whether a decision process is
working

What Is An Ethics Officer?

Many

firms now have ethics officers

to ensure

all employees are trained in ethics

ethics is considered in the decision-

making process
the companys code of conduct is
followed

How Can Managers

Make Ethical Decisions?
5.

Develop moral courage

enables managers to walk away from a

decision that is profitable, but unethical

gives an employee the strength to say no to a
superior who instructs her to pursue actions
that are unethical
gives employees the integrity to go public to
the media and blow the whistle on persistent
unethical behavior in a company

How Can Managers

Make Ethical Decisions?
In

the end, there are things that an

international business should do, and
there are things that an international
business should not do
But, it is important to remember that
not all ethical dilemmas have a clean
and obvious solution
in these situations, firms must rely on the

decision-making ability of its managers