Chapter 4

Chapter 4

To appreciate the differing facets of culture as they impact on business interactions.

To identify and apply culture theories in differing business contexts.

To highlight the differences in organizational cultures, and how they affect business activities across national borders.

To understand the processes of culture change taking place across the globe, along with their implications for business.

The springs of The springs of culturecultureNations and peoples

National culture – sense of identity and belonging which unites a people, usually within a defined territory.National culture is embodied in the nation-state, but most states contain numerous subcultures, which can be a source of social tension.

Social and ethnic groupings

Language, religion and kinship distinguish social groupings.The feeling of belonging can transcend national cultures.

GregoryRodriguez:Australia's identity crisis keeps resurfacing

Culture

Symbols

Art, m

usic

Places

, build

ings

Outward

expres

sions Values

and beliefs

Norms ofbehavior Commu-

nication

Langu

age

Nonve

rbal

communic

ation

Moral codes

Religion

Values and assumptions

Social interactions

Roles within families

Dress codes

Each culture is uniquely defined in terms of

(1) values and beliefs,

(2) communication,

(3) behavior and

(4) outward expression.

Why Culture Matters U.S. expert Gary Weaver discusses the reasons Americans do what they do.

India's Unique Multiculturalism – Shashi Tharoor

Cross cultural considerations for business with the Arabs

Cultural diversity: percentage of population from cultural minorities within countries

Most countries are culturally diverse, with significant proportions (25% or more) of minorities.

Source: UNDP (2004) Human Development Report 2004 (New York: UNDP)

Christianity33%

Islam21%

Nonre

ligio

us

16%

Hinduism14%

Chinese traditional6%

Buddhism

6%

Indigenous6%

Other3%

Religion can be a powerful cultural force in societies of all levels of economic development.

The major religions are: Christianity, Islam, Hinduism and Buddhism.

Many religions, including Christianity and Islam, have splitinto different sectsthat are tend to be divided along thetraditional vs. reformist lines.

World religions, as percentages of 2005 world

population.

Source: World religions data, http://www.adherents.com

Most states are secular, but many have strong religious ties.

Individuals’ freedom of religion is recognized

in UN conventions, but is not always

respected in practice.

Language and communicationBlend of language and nonverbal communication.

In high-context cultures (e.g. Asian cultures), much

information is conveyed nonverbally, often

through shared understanding.

In low-context cultures (e.g. the US), information is mainly

conveyed by explicit expression.

In business dealings, personal relations are important in high-

context cultures; an example is guanxi in China.

Written contracts and formal terms are more

important for those from low-context cultures.

The world’s most widely spoken languages

Value orientation theory – basic values of a group include normative, aesthetic and relational elements, reflecting the common problems which all human groups face.

Hofstede’s theory of cultural dimensions is based on research on national cultures.

Trompenaars’ theory of relational dimen-sions covers:̶1 Relationships

with people̶1 Attitudes to time̶1 Attitudes to the

environment.

Understanding cultural patterns aids managers in diverse cultural environments.

Culturaldimensions

Indivi-dualism

IndividualistUSA, UK, AustraliaCollectivistVenezuela, Indoneia

Timeorientation

Long term: Eastern culturesShort term: Western cultures

Powerdistance

LargeMalaysia, Mexico

SmallNew Zealand, Denmark

Mascu-linity

MasculineJapan, Germany

FeminineNetherlands, Norway

Uncer-tainty

avoidance

HighGreece,

Japan

LowBritain, Sweden

Hofstede’s cultural Dimensions

Collectivism versus Individualism; Femininity versus Masculinity; Uncertainty Avoidance;Low versus High Context Cultures; Polychronic versus Monochronic Time Orientation

Geert Hofs-tede™ Cultural Dimensions

France

BelgiumItaly

South Africa

USAUK

Australia

New Zealand

IsraelAustria

Norway

IrelandDen-mark

Finland Spain

CanadaNether-lands

Sweden

Switzer-land

Germany

India

MexicoPhilippines

Brazil

Japan

Turkey

YugoslaviaHongkong

Singapore

Venezuela

Argentina Iran

GreecePortugal

Thailand

Pakistan

TaiwanChilePeru

Columbia

Individualism

CollectivismLarge

Power-Distance

Small

Power-Distance

* Geert Hofstede, Culture’s Consequences: International Differences in Work Related Values(Sage, 1980)

Hofstede’s* cross-national data show a marked correlation between small power distance and individualism.

AchievementIdeals

Thinkers Achievers Expe-riencers

Believers Strivers Makers

Inno-vators

Survivors

Self-expression

VALSTM Framework

Low ResourcesLow Innovation

High ResourcesHigh Innovation

Primary Motivation

Seinfeld Cross Cultural Differences

Russell Peters Indian vs Chinese

Russell Peters - Chinese, Indians, Jamaicans, Italians

The VALSTM Types: VALS (values, achievements, lifestyle) is a

classification of consumer behavior that transcends the traditional cultural norms and barriers.

Organizational culture

Adapted from Hofstede, G. (1999) ‘The business of business is culture’, in Buckley, P. and Ghauri, P. (eds) The Inter-nationalization ofthe Firm (2nd edn) (London: Thomson) pp. 381–93

Organizational culture is defined by the values and practices of anorganization.

Source: UN (2004) World Investment Report 2004 (Geneva: UN)

Percentage of foreign directors on the boards of the largest MNEs in selected countries

The ethnocentric organization is rooted in its home culture.

The polycentric organization is open to other cultures: firms from smaller economies have tended to be more outwardly focused than those from large ones.

97.296.590.587.887.4

86.886.782.481.981.1

51.650.1

47.642.925.0

MediaTelecomm.Pharma.Bus SerElectricals/ElectronicsFood & Bev.Food & Bev.Telecomm.Mineral Prod.ConsumerGoods/Brew.

Motor veh.Electricals/ElectronicsMotor veh.Motor veh.Retailing

CanadaUSASwitz.UKNether.

Switz.UKUKFranceUK

JapanUSA

USAUSAUSA

Thomson Corp.Liberty GlobalRoche GroupWPP GroupPhillips Electr.

NestléCadbury SchweppesVodafoneLafargeSABMiller

ToyotaGeneral Electric

FordGeneral MotorsWal-Mart

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10

6470

798596

Trans-nationality Index (%) =

Foreign AssetsTotal Assets

Foreign SalesTotal Sales

Foreign EmploymentTotal Employment+ +{ }

IndustryHome EconomyCompany

Trans-nationality Ranking

Selected others:

The United Nations’ Trans-nationality index is computed as the average of foreign to total ratios of assets, sales and employment.

Source: UN (2007) World Investment Report 2007 (Geneva: UN)

Changing culture and society

Industrialization and economic development lead to changing lifestyles, moving away from traditional values towards more consumerist and individualist ones.

Urbanization is now taking place rapidly in the developing world, but is accompanied by poverty, strains on infrastructure and poor environmental conditions.

Changing roles of women

– Increasing participation in economic life, but…

– Global gender gap – in economic, political, educational and health indicators

Rural population

Urban population

Less Developed Countries

More Developed Countries

Urban popu-lation is pro-jected to growrapidly in theless deve-loped countries while ruralpopulation is projected to decline in the more developed countries.

Growing urbanizatio

n in the developing

worldSource: UN (2005) World Urbanization Prospects, The 2005 Revision, www.un.org/esa/population/unpop

Comparison between percentages of men and women in the adult labour force (selected countries)Note: The percentages are proportions of the total population aged 15 and over who are able to work or are actually working. Hence, people classified officially as unemployed within the country are included

Source: UN Department of Economic and Social Affairs (2005) UN Statistics Division, http://unstats.un.org

The global gender

gap (ranking in

brackets)Source: World Economic Forum (2006) The Global

Gender Gap 2006 Report, www.weforum.org

People on the moveImmigrant and indigenous peoples add to diversity in modern societies.

Despite globalization, movement of people across national boundaries is adminis-tratively restricted by governments.

Migration may be within a country or to another country. Most migration is driven by:

― Better economic opportunities, either temporarily or permanently. (Poor countries benefit from remittances, as do rural regions in industrializing countries.)

― The need to escape conflict or natural disaster (refugees)

Russell Peters – Accent and Ethnic Stereotypes

Foreign-born people as the percentage of total population

Source: Financial Times, 18 May 2006

Multicultural societiesAssimilation – process by which minorities gradually acquire the dominant culture of a country.

Cultural melting pot – Mixture of cultures to form a distinctive new culture.

Cultural pluralism – Recognition of separate cultures within a society.

Balance between recognition of diversity and a sense of cultural community is needed to maintain social cohesion.

Changing societies: Changing societies: business implicationsbusiness implications

In operationsFirms encounter minority groups (sometimes ethnic conflict) in outsourcing and FDI in low-cost developing countries, often with weak protection of human rights.

CSR and ethical principles apply in situations where legal safeguards are limited.

In marketsNational markets are culturally distinctive, but subcultures may also constitute market segments.

The growing urban population in emerging markets presents opportunities for MNEs, but cultural differences remain.

ConclusionsConclusions

Understanding the changes taking place in societies is vital for firms seeking to internationalize, in either production or markets.

Facets of culture – including language, values and attitudes – are rooted in social groupings, such as nations and peoples.

Culture theories highlight dimensions of culture which facilitate comparisons between them, and aid international managers in strategy and operations.

Organizational culture helps to shape a firm’s approach to international business, in both positive and negative ways.

Case study 4.1:

Testing times for Citigroup in South Korea

1. What difficulties has Citigroup faced in building market share in South Korea?

2. What issues within the two organizations have held up the integration process?

3. In your view, what mistakes has Citigroup made in integrating the two organizations?

4. What recommendations would you give to Citigroup for any future acquisition in Asia?

1. What difficulties has Citigroup faced in building market share in South Korea?

Acquiring a South Korean bank was the route chosen by Citigroup, in order to gain market share quickly. The target bank, Koram Bank, had 238 branches, and with the might of the Citigroup behind it, had potential to gain market share in this large market. The new Citibank Korea became Korea’s sixth largest lender.

However, there were difficulties in integrating the two banks, which could delay its expansion plans.

2. What issues within the two organizations have held up the integration process?

― Integrating the IT systems.

― Deciding on the policies and practices to follow. The reward system was changed, and the bank managers’ roles were changed, indicating that local practices were giving way to the parent company’s way of doing things.

― Cultural hurdles. These two companies are culturally very different, and South Korean employees were uncertain of their jobs and wages in the aftermath of the takeover. Poor labor relations are common in South Korea - a well-known factor which should have been taken into account.

3. In your view, what mistakes has Citigroup made in integrating the two organizations?

― Citigroup did not adapt sufficiently to the cultural sensitivities of the new environment.

― Policies and practices should have been adapted more to the South Korean bank’s existing ways of doing things.

― HR roles and responsibilities should have been handled more by consensus.

― When workers showed dissatisfaction and came out on strike, the rather confrontational approach adopted by the American owners was unhelpful.

4. What recommendations would you give to Citigroup for any future acquisition in Asia?

Some possible recommendations:

― Study both the market and the target company carefully, to assess how well they fit in with the parent company’s policies and ways of doing things.

― When the acquisition takes place, re-assure the new staff that the new owners will not make radical changes quickly, but any changes will come about by consensus. This is true in any country with high uncertainty avoidance.

― Adopt more flexible labor relations policies, emphasizing dialogue rather than confrontation.

Country Focus 4.2

Mexico struggles to heal divided societyMexico struggles to heal divided society

1. Summarize the grievances of Mexico’s indigenous peoples against the Mexican authorities.

2. Why has Mexico made so little progress in creating jobs and prosperity, despite benefiting from globalization?

3. Is Mexico on the way to achieving social stability through recognition of cultural diversity, or creating potentially divisive forces, as in the past?

4. Assess the advantages and drawbacks of Mexico as a location for an FDI investor.

1. Summarize the grievances of Mexico’s indigenous peoples against the Mexican authorities.― They have criticized the policy of assimilation with the dominant

Spanish culture, as it stifles their identities and cultures.― They have lagged behind in development, income, education and

living conditions.― They also suffer from discrimination, further widening the gap between

indigenous and non-indigenous groups.

2. Why has Mexico made so little progress in creating jobs and prosperity, despite benefiting from globalization?

The jobs which have been created have been concentrated in the free-trade zones in the north of the country, where manufacturing for export to the US is clustered, especially following the Nafta agreement. These largely low-skilled and low-paid jobs have not brought the prosperity hoped for, and they are vulnerable to competition from China. The higher-tech industries are also vulnerable, as they are dependent on the US market and feel the impact of US economic downturn.

Development in the rest of Mexico is uneven, and rural unemployment is high. Mexico’s farmers have not been able to compete with imported maize from the US (part of the Nafta agreement).

3. Is Mexico on the way to achieving social stability through recognition of cultural diversity, or creating potentially divisive forces, as in the past?

4. Assess the advantages and drawbacks of Mexico as a location for an FDI investor.

As the results of the presidential election show, divisive forces are still powerful. Fox and Calderón emphasized social welfare policies. Fox introduced policies of multiculturalism, but the indigenous community still lags behind, with a large proportion living in absolute poverty. A concern is that, as many Mexicans leave to work in the US, remittances have become important to local Mexican communities. Falling remittances due to the downturn in the US adversely impacts on the Mexican communities which are dependent on them.

Mexico’s greatest attraction is proximity to the US market. The free-trade zones, in particular, have attracted investors. Costs, including wages, are low in Mexico. FDI investors from Spain might find Mexico an

advantageous location because of the language and cultural affinity between the two countries.Disadvantages of Mexico are the social and political instability; poor infrastructure; low levels of education and skills in the workforce.