INTERNATIONAL BUSINESS Professor H. Michael Boyd, Ph.D.

1. INTERNATIONAL BUSINESS Professor H. Michael Boyd, Ph.D.

2. How Do Cultural Differences Affect International Business? • Understanding and adapting to the local cultural is important 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 • MNEs can be agents of cultural change • McDonald’s

3. 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

4. What Are Values And Norms? • Values provide the context within which a society’s 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

5. How Are Culture, Society, And The Nation-State Related? • The relationship between a society and a nation state is not strictly one-to-one • Nation-states are political creations • can contain one or more cultures • A culture can embrace several nations

6. What Determines Culture? • The values and norms of a culture evolve over time • Determinants include • religion • political and economic philosophies • education • language • social structure

7. What Determines Culture? Determinants of Culture

8. What Is A Social Structure? • Social structure - a society’s 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

9. 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 other’s behavior • individuals are involved in families, work groups, social groups, recreational groups, etc. • Societies place different values on groups

10. 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

11. 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 creativity and initiative

12. 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 • mobility between strata • the significance placed on social strata in business contexts

13. What Is Social Stratification? • 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

14. What Is Social Stratification? • 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

15. How Do Religious AndEthical Systems Differ? • Religion - a system of shared beliefs and rituals that are concerned with the realm of the sacred • Four religions dominate society • Christianity • Islam • Hinduism • Buddhism • Confucianism is also important in influencing behavior and culture in many parts of Asia

16. How Do Religious AndEthical Systems Differ? World Religions

17. How Do Religious AndEthical 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 • ex. Christian or Islamic ethics

18. What Is Christianity? • Christianity • the world’s largest religion • found throughout Europe, the Americas, and other countries settled by Europeans • theProtestant work ethic (Max Weber, 1804) • hard work, wealth creation, and frugality is the driving force of capitalism

19. What Is Islam? • Islam • the world’s 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

20. What Is Hinduism? • Hinduism • practiced primarily on the Indian sub-continent • focuses on the importance of achieving spiritual growth and development, which may require material and physical self-denial • 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 caste

21. 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 classes

22. 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

23. 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

24. Spoken Mother Language H. Michael Boyd, Ph.D.

25. 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

26. 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 nation’s competitive advantage • Japan’s 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 • ex. impact of literacy rates

27. 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

28. How Does Culture Impact The Workplace? • Hofstede’s dimensions of culture: • Power distance- how a society deals with the fact that people are unequal in physical and intellectual capabilities • Uncertainty avoidance- the relationship between the individual and his fellows • Individualism versus collectivism- the extent to which different cultures socialize their members into accepting ambiguous situations and tolerating ambiguity • Masculinity versus femininity -the relationship between gender and work roles

29. How Does Culture Impact The Workplace? Work-Related Values for 20 Countries

30. 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

31. Was Hofstede Right? • Hofstede’s work has been criticized for several reasons • made the assumption there is a one-to-one relationship between culture and the nation-state • study may have been culturally bound • used IBM as sole source of information • culture is not static – it evolves • But, it is a starting point for understanding how cultures differ, and the implications of those differences for managers

32. 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

33. What Do Cultural Differences Mean For Managers? • 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

34. What Do Cultural Differences Mean For Managers? • 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