De La Salle University

COBIBAC – INTERNATIONAL BUSINESS AND OPERATIONS

INTERNATIONAL
BUSINESS
1.2. Factors Impacting International Business

• Political, economic, and legal systems

• Culture
• Ethics and corporate social responsibility
1.2. Learning Objectives
Chapter 4: Differences in Culture

• Explain what is meant by the culture of a society

• Identify the forces that lead to differences in social culture
• Identify the business and economic implications of
differences in culture
• Recognize how differences in social culture influence
values in business
• Demonstrate an appreciation for the economic and
business implications of cultural change
Introduction
 Business success in the national arena requires cross-
cultural literacy
 Cross-cultural literacy is the understanding of the cultural
differences across and within countries and the fact that it
can have an effect of the way business is practiced.
What is Culture?

“A system of values and

norms shared among a
group of people and that
when taken together constitute
a design for living.” –
Hofstede and Namenwirth
and Weber
What is Culture?

Values – Ideas about what a group believes to be

good, right, and desirable.
Norms – Social rules and guidelines that prescribe
appropriate behavior in particular situations.
Values and Norms

Values
 the bedrock of a culture
 provide the context within which a society’s norms
are established and justified
 invested with emotional significance
 reflected in the economic systems of a society
Values and Norms
Norms
 Social rules that govern people’s actions toward one another. It is
subdivided in two major categories: folkways and mores.
 Folkways are routine or social conventions of everyday life.
 Examples: appropriate dress code, neighborly behavior, good social
manners, people’s attitude toward time and so on.
 Folkways define the way people are expected to behave but
violations of them are not normally a serious matter.
Values and Norms
Norms
Social rules that govern people’s actions toward one another. It is
subdivided in two major categories: folkways and mores.
 Mores are norms that are more widely observed, have greater moral significance
than folkways, and are central to the functioning of a society and to its social life.
 They are so important that they have been enacted into law (laws against
theft)
 Violating this can bring serious retribution, ill will, and the collapse of any
business deal.
Determinants of Culture
Values and norms evolve
over time.
A culture forms when
people’s behaviors—as a
result of these various
influences—become
ingrained in people’s daily
activities, patterns, and ways
of doing things.
Determinant: Social Structure
Refers to the basic social organization of a society. It indicates how a
society is organized in terms of the values, norms, and relationships that
are part of its fabric.
Two dimensions help explain differences among across social
structures:
 The degree to which the basic unit of social organization is the individual,
as opposed to the group, or even a company for which a person works
 The degree to which a society is stratified into classes or castes.
Individuals and Groups
The Individual
 In many Western societies, the individual is the basic building
block of social organization.
 Highly individualistic societies are often synonymous with those
capable of constantly innovating by having a flowing stream of
creative ideas for new products and services
Individuals and Groups
The Group
 Is an association of two or more individuals who have a
shared sense of identity and interact in structured ways based
on common expectations.
 The primary unit of social organization in many non-Western
societies.
 Importance of group membership/identification.
Individuals and Groups
In some societies, individual attributes and achievements are viewed as
being more important than group membership; in others, the reverse is true.

 THE INDIVIDUAL: In United States, the emphasis on individual

performance finds expression in an admiration of rugged individualism,
entrepreneurship, and innovation
 THE GROUP: In Japan, their culture’s central value is the importance
attached to group membership. Strong identification with the group is
argued to create pressures for mutual self-help and collective action.
Social Stratification
Social strata are hierarchical social categories often based on family
background, occupation, and income.
 Social stratification is a trait of society, not a refection of individual
differences.
 Social stratification carries over a generation to the next generation.
 Social stratification is generally universal but variable.

 Social stratification involves not just inequality but also beliefs.

Social Mobility
 Social mobility is the extent to which individuals can move out of the
strata into which they are born.
 Varies among societies.
 Caste system is a closed system where social position is determined by family
and change is usually not possible. This is the most rigid system of stratification.
 Class system is less rigid, and position can be changed through achievement
and luck. Individuals born into a class at the bottom of the hierarchy can work
their way up, the reverse can also happen.
Significance of Social Stratification
Can affect business operations
Class consciousness is a tendency for individuals to perceive themselves in
terms of their class background, and this shapes their relationships with
members of other classes.
The antagonistic relationship between management and labor classes, and
the resulting lack of cooperation and high level of industrial disruption, tends
to raise the costs of production in countries characterized by significant class
divisions.
 This makes it difficult to establish a competitive advantage in a global economy.
Determinant: Religious and Ethical Systems

 Religion – a system of shared beliefs and rituals concerned with

the realm of the sacred.
 Ethical System – a set of moral principles, or values, that are
used to guide and shape behavior.
 Most ethical systems are the product of religions.
Religious and Ethical Systems
Four dominant religions
today:
1. Christianity
2. Islam
3. Hinduism
4. Buddhism
Economic Implications of Religion
 Sociologists argue that among the main branches of Christianity
(Catholic, Orthodox, and Protestant) Protestant branch has the
most important economic implications. Protestant ethics
emphasizes the importance of hard work and wealth creation (for
the glory of God) and frugality (abstinence from worldly pleasures).
This facilitate the development of capitalism.
Economic Implications of Religion
 Islam speaks approvingly of pro-free enterprise principles,
protection of private property, and is concern with social justice. It is
fine to earn a profit, so long as that profit is justly earned and not
based on the exploitation of others. Islam prohibit the payment or
receipt of interest.
 Hindus are valued by their spiritual rather than material achievements.
Thus, Hinduism do not encourage the kind of entrepreneurial activity
in pursuit of wealth creation that is found in Protestantism.
Economic Implications of Religion
 Buddhism does not emphasize wealth creation. Thus, in Buddhist
societies, no cultural stress on entrepreneurial behavior.
 Influence of Confucian ethics on the culture of China, Japan, South
Korea, and Taiwan, by lowering the costs of doing business in those
countries, may help explain their economic success. Three values of
Confucianism - loyalty, reciprocal obligations, and honesty - may
all lead to lowering the cost of doing business in Confucian societies.
Determinant: Language

Spoken Language
Language structures the way we see the world.
Countries with more than one language often have more than one culture.
 Mandarin (Chinese) is mother tongue of the largest number of people.
 The most widely spoken language in the world is English.
 English is becoming the language of international business.
 International businesses that do not understand the local language often make
blunders through improper translation, take longer to negotiate business deals,
or may lose a potential deal altogether.
Language

Unspoken Language
 Nonverbal communication refers to the use of nonverbal cues to communicate
meaning.
 A failure to understand nonverbal cues of another culture can lead to a
communication failure.
 Often culturally bound
 Personal space is the comfortable distance between a speaker and the listener.
 Varies among cultures, which makes it important to know in business.
Determinant: Education
Formal Education is a medium through which individuals
learn languages, knowledge, and other skills that are
indispensable in a modern society.
Socializes the young into the values and norms of a society.
 The “hidden curriculum” in schools teaches respect for
others, obedience to authority, honesty, neatness, timeliness.
Education

Provides a national competitive advantage.

Creates a pool of skilled and knowledgeable
workers.
Represents a good index of what products might
sell in a country.
Hofstede’s Six Dimensions
Hofstede’s Six Dimensions
Culture and Business
Hofstede’s dimensions of culture:
 Power distance refers to how a society deals with the fact that people are
unequal in physical and intellectual capabilities.
 There is high power distance in countries that let inequalities grow over time
 There is low power distance in societies that tried to play down inequalities
as much as possible.
Culture and Business
Hofstede’s dimensions of culture:
 Individualism versus collectivism focuses on the relationship between individuals and their fellows.
 Individualistic societies individual achievement and freedom were highly values
 Collectivism everyone was supposed to look after the interest of his or her collective
 Uncertainty avoidance measures the extent to which different cultures socialize their members into
accepting ambiguous situations and tolerating uncertainty.
 High uncertainty avoidance cultures placed a premium on job security, career patterns,
retirement benefits, and so on.
 Lower uncertainty cultures are characterized by both a readiness to take risks and less emotional
resistance to change.
Culture and Business
Hofstede’s dimensions of culture:
 Masculinity versus femininity looks at the relationship between gender and work roles.
 Masculine cultures gender roles were differentiated, and traditional “masculine values”
such as achievement and effective exercise of power, determined cultural ideals.
 Feminine cultures gender roles were less distinguished, and little differentiation was
made between men and women in the same job.
 Long-term versus short-term orientation refers to the extent to which a culture
programs its citizens to accept delayed gratification of their material, social, and
emotional needs.
Culture and Business
Hofstede’s dimensions of culture:
 Indulgence versus restraint added in 2010.
 Indulgence refers to a society that allows relatively free
gratification of basic and natural human drives related to enjoying
life and having fun.
 Restraint refers to a society that suppresses gratification of
needs and regulates it by means of strict social norms.
Global Leadership and Organizational
Behavior Effectiveness (GLOBE)
Address the notion that the leader’s effectiveness is
contextual.
 Embedded in the societal and organizational norms, values, and
beliefs of the people being led.
Established nine cultural dimensions:
 Power distance, uncertainty avoidance, humane orientation,
institutional collectivism, in-group collectivism, assertiveness, gender
egalitarianism, future orientation, and performance orientation.
World Values Survey (WVS)
 Explores people’s values and norms, how they change over
time, and what impact they have in society and business.
 Dimensions:
 Support for democracy; tolerance of foreigners and ethnic minorities;
support for gender equality; the role of religion and changing levels of
religiosity; the impact of globalization; attitudes toward the
environment, work, family, politics, national identity, culture, diversity,
and insecurity; and subjective well-being.
Cultural Change
Changing Culture
Culture is not a constant; it evolves over time.
 In the 1960s, women in management was not accepted, while today it is a welcomed
reality.
 There is also an argument that a cultural shift has been occurring in Japan, with a move
toward greater individualism.
 A salary person is an employee giving up every rest day to serve the organization.
 A gaijin, an individual from the new generation and acts more like a Westerner does not live for
the company and will move on if the person gets an offer of a better job or has to work too much
overtime.
Cultural Change
Economic advancement and globalization may be important factors in
societal change.
Culture may change as a society becomes wealthier.
The merging or convergence of cultures can also be traced to the
world today being more globalized than ever
Also, take note of the important countertrends:
 Shift toward Islamic fundamentalism in some countries.
 Separatist movements in Canada, Russia, United Kingdom.
360° View: Managerial Implications
Cultural Literacy and Competitive Advantage
There are three important implications for international business flow
from the differences of countries, societies, as well as their cultures.
 The need to develop cross-cultural literacy
 The connection between culture and national competitive advantage
 The connection between culture and ethics in decision making
360° View: Managerial Implications
Cross-Cultural Literacy
 Companies must be informed about the culture of another nation when conducting
international business.
 The way in which deals are negotiated, appropriate incentive pay systems for
salespeople, structure of the organization, and so on, are all sensitive to cultural
differences. What works in once culture might not work in another.
 To combat being ill-informed, international businesses should consider employing
local citizens to help them do business in a particular culture.
 Ethnocentrism is the belief in the superiority of one’s own ethnic group or culture.
360° View: Managerial Implications
Culture and Competitive Advantage
 Values and norms influence costs of doing business and the costs of doing
business influence ability to establish competitive advantage.
 Class-based conflict between workers and management in class-conscious
societies raises the costs of doing business.
 Hinduism may not be as supportive of capitalism as Protestantism and
Confucianism.
 Islamic laws banning interest payments may raise the costs of doing business
by constraining a country’s banking system.
360° View: Managerial Implications
Culture and Competitive Advantage
 Connection between culture and competitive advantage is important
because it:
 Suggests which countries are likely to produce the most viable competitors.
 Has important business implications for the choice of countries in which to
locate production facilities and do business.
 Culturaldifferences are significant, but we should not
overemphasize their importance in the economic sphere.
Reference

Hill, C. (2023). International Business:

Competing in the Global Marketplace
14th edition. New York: McGraw Hill LLC