International Business Chapter 4: National Differences PDF

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Complete lecture notes from Linda Orr from Spring 2019 semester. This includes all in-class discussion notes and extra information- beyond the slides. Easy to understand format and EXTREMELY useful for studying or exams....

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Chapter 4: National Differences  Introduction  Cross-cultural literacy: an understanding of how cultural differences across and within nations can affect the way in which business is practiced  There may be a relationship between culture and the costs of doing business in a country or region  Culture is not static – it can and does evolve  Multinational enterprises can be engines of cultural change  Parts of culture:  Attitudes  Beliefs  Language  Customs  Rituals  Behavior  Faith/religion  Food  Art/drama/music  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  Society: a group of people sharing a common set of values and norms  While society may be equivalent to a country, some countries harbor several societies or subcultures (they support multiple cultures) and some societies embrace more than one county  Ex) the Scandinavian countries are often viewed as culturally being a part of one society in terms of the business marketplace  Values: provide the context within which a society’s norms are established and justified  Norms: the social rules that govern the actions of people toward one another  Folkways: the routine conventions of everyday life  Social conventions concerning things such as the appropriate dress code in a particular situation, good social manners, eating with the correct utensils, neighborly behavior, and the like  Business people in foreign countries should adhere to folkways  Like respect for times and schedules or respect for business cards in Japan  Mores: norms that are seen as central to the functioning of a society and to its social life  Can be imprisoned for violating  Ex) theft, incest, cannibalism, drinking alcohol in Saudi Arabia  Society reflects people who are bound together by a common culture  Nation-states are political creations that can contain a single culture or several  Many countries have multiple cultures within the country  Canada has at least three cultures  Anglo culture

 French-speaking “Québécois” culture  Native American culture  Many of the 55 African nations have important cultural differences among tribal groups  India is composed of many distinct cultural groups with their rich history and traditions  On the other end of the spectrum, Islamic society or culture that is shared by the citizens of many different nations in the Middle East, Asia, and Africa  Determinants of culture  Religion  Political philosophy  Economic philosophy  Education  Language  Social structure  Social structure  A society’s social structure is its basic social organization  Two dimensions to consider:  The degree to which the basic unit of social organization is the individual, as opposed to the group  Individualism vs collectivism  The degree to which a society is stratified into classes or castes  Individuals and groups  Group: an association of two or more individuals who have a shared sense of identify and who interact with each other in structured ways on the basis of a common set of expectations about each other’s behaviors  Group influence on social media can count  The individual  Emphasized in western countries  Individual achievement and entrepreneurship are promoted  Individualistic countries have very high levels of innovation  Fosters managerial mobility  Encourages job switching, competition between individuals rather than team building, and a lack of loyalty to the firm  U.S. highest in innovation  The group  Emphasized in non-westernized countries  Cooperation and team work are encouraged, and life time employment is common  Group teams very efficient/effective  Individual initiative and creativity may be suppressed  Japan best for quality and process improvement  Social stratification  All societies are stratified on a hierarchical basis into social categories, or social strata

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Usually defined by characteristics such as family background, occupation, and income  Societies differ in terms of:  The degree of mobility between social strata  The significant attached to social strata in a business context  Social mobility: the extent to which individuals can move out of the strata into which they are born  Caste system: social position is determined by the family into which a person is born, and change in that position is unlikely  Class system: the position a person has by birth can be change through achievement or luck  Social mobility in class system varies from society to society  Class system in U.S. less pronounced than in Britain  Significance  In cultures where class consciousness (where people tend to perceive themselves in terms of their class background) is high, the way individuals from different classes work together may be prescribed  Evident in British society, but seems to be disappearing  Class consciousness may be reemerging in urban China, and it may ultimately prove to be significant there  Antagonism between labor and management can raise the costs of doing business  Religious and ethical systems  Religion: a system of shared beliefs and rituals that are 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 of the world’s ethical systems are from religions  Religions with the greatest following:  Christianity - 2.2 billion  Islam – 1.6 billion  Hinduism – 1.1 million  Buddhism – 545 million  Confucianism shapes culture in many parts of Asia  Other large religions: Shintoism in Japan, with roughly 40 million followers, and Judaism, which has 18 million adherents and accounts for 75% of the population of Israel  Christianity  Most widely practiced religion  Founded around 32 AD from Judaism  Shrinking significantly in America  Growing rapidly in Africa  In 1904, Max Weber suggested that it was the Protestant work ethic (focus on hard work, wealth creation, and frugality) that was the driving force of capitalism

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Protestantism gave individuals more freedom to develop their own relationship with God which may have paved way to economic freedom  Generalizations about any religions influence on sociology and economy must be taken with great caution  Islam  Founded around 612 AD  Adherents of Islam are referred to as Muslims  Fastest growing religion  One true omnipotent God  Major principles:  Honoring and respecting parents  Respecting the rights of others  Being generous but not a squanderer  Avoiding killing except for justifiable causes  Not committing adultery  Dealing justly and equitably with others  Being of pure heart and mind  Safeguarding the possession of orphans  Being humble and unpretentious  Obvious parallels exist with many of the central principles of both Judaism and Christianity  In the Western media, Islamic fundamentalism is incorrectly associated with militants, terrorists, and violent upheavals  Some Christian fundamentalists have done exactly the same, including Jim Jones, David Koresh, abortion clinic bombers, etc.  Moral: insanity exists equally in every religion  Fundamentalists have gained political power in many Muslim countries, and have tried to make Islamic law the law of the land  Economic implications of Islam:  Koran established economic principles many of which are pro-free enterprise  Under Islam, people do not own property, but only act as stewards for God and this must take care of that which they have been entrusted with  Islam is supportive of business, but the way business is practiced is prescribed  Businesses that are perceived to be making a profit through the exploitation of others, by deception, or by breaking contractual obligations are unwelcome  Islam favors capitalism  Prophet Muhammad, who was himself a trader, preached merchant honor and commanded that 90% of a Muslim’s life be devoted to work in order to put food on the table  Islamic banks  Islamic banks function differently than conventional banks in the world, as the Islamic banks cannot pay or charge interest  Instead, they have other models  Mudarabah

 Similar to profit-sharing  Murabaha  Most widely used  Includes a price markup  Hinduism  World’s oldest religion  Founded around 2,000 BC  Moral force in society requires the acceptance of certain responsibilities called dharma  Believe in reincarnation and karma  Individuals should be judged by their spiritual achievements  Promotion and adding new responsibilities may not be the goal of an employee, or may be infeasible due to the employee’s caste  More philosophies of Hinduism would limit entrepreneurial expansion, but India has a booming economy suggesting the weak connection between religion and economy  Buddhism  Founded in 6th century BC  Today, most Buddhists are found in Central and Southeast Asia, China, Korea, and Japan  Suffering originated in people’s desire for pleasure  Stress spiritual growth and the afterlife, rather than achievement while in this world  Buddhism does not support the caste system, so individuals do have some mobility and can work with individuals from different classes  Entrepreneurial activity is acceptable  Recent rends actually bring the “Zen” orientation from Buddhism into business in the western world  By 2013, there were 657 live trademarks containing the word Zen in them in the United States alone  Confucianism  Founded in the 5th century BC  Until 1949, official ethical system of china  Not a religion  High moral and ethical conduct and loyalty to others  Attain personal salvation through right action  Three key teachings of Confucianism:  Loyalty  Reciprocal obligations  Honesty  May all lead to a lowering of the costs of doing business in Confucian societies  Some scholars think that these principles have causes as much business expansion as Protestantism  Great cooperation between management and labor  Cooperation and trust more than high priced corporate lawyers  Language

 Countries differ in terms of language or means of communication  Two forms of language:  Spoken  Countries with more than one spoken language often have more than one culture  Chinese is the mother tongue of the largest number of people in the world  English is the most widely spoken language in the world, and is becoming the language of international business  Unspoken  Nonverbal cues  Examples include facial expressions and hand gestures  Can be important for communication  Personal space  Many nonverbal cues are culturally bound and because they may be interpreted differently, can result in misunderstandings  Language is one of the defining characteristics of culture  The three languages that are important for business after English is Mandarin Chinese, French, Arabic, and Spanish  Education  Formal education is the medium through which individuals learn many of the language, conceptual, and technical skills that are indispensable in a modern society  The knowledgeable base, training, and educational opportunities available to a country’s citizens can also give it a competitive advantage in the market and make it a more or less attractive place for expanding business  Porter points to an excellent education system as an important factor in explaining the country’s postwar economic success  The general education level of a country is a good indicator of the types of products that might sell in that location or the type of promotional materials that might be successful  Countries that have high illiteracy rates need pictorial packaging  Culture and business  Geert Hofstede isolated five dimensions that summarized different cultures  Power distance  Individualism vs collectivism  Uncertainty avoidance  Masculinity vs femininity  Long-term vs short-term orientation  A move to add a sixth dimension: indulgence vs restraint  Criticism  Assumes a one-to-one relationship between culture and nation-state  One culture for one country  Research may be culturally bound  European researchers biased by European ideals  Informants only worked within a single industry  IBM- all male in the 60s

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Certain social classes excluded from research  Only managers  Many studies have developed new classification schemes since, just a way to look at cultures but should not be generalized  Cultural change  Culture evolves over time, although changes in value systems can be slow and painful for a society (think about the role of women in America from 1700-now)  Social turmoil is an inevitable outcome of cultural change  Cultural change is particular common as countries become economically stronger  As countries get richer, there is a shift from collectivism towards individualism  Scholars has tried to rationalize reasons, but it is likely, just that as technology expands, we are all converging into one, big, more similar culture  However, we must not ignore important countertrends, such as the shift toward Islamic fundamentalism in several countries; the continual separatist movement in Quebec; or ethnic strains and separatist movements in Russia. Such countertrends in many ways are a reaction to the pressures for cultural convergence  Focus on managerial implications  Cross-cultural literacy and competitive advantage  There is a need for managers to develop cross-cultural literacy  Firms that are ill-informed about the practices of another culture are unlikely to succeed in that culture  Individuals must also beware of ethnocentric behavior  Belief in the superiority of one’s own culture...