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Introduction to BUSE608Introduction to International Business
BUSE 608International BusinessKAAU, 2011-12
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Topic 3:Cultural and Ethical Risk
BUSE 608International BusinessKAAU, 2011-12
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Learning Outcomes
Understand the key factors which determine national andsupra-national cultures
Evaluate the research by Geert Hofstede on how and whypeople from different countries behave in different ways Analyse the impact of cultural differences on international
management Identify and critically assess the main ethical issues which
arise in international business
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What is Culture?
Culture is a system of values and norms that are sharedamongst a group of people and that when taken togetherconstitute a design for living Hill, p89
Differences in business behaviours across cultures cancreate barriers to international trade and investment
Cultural differences can, therefore, increase the complexity
of doing business in another country
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Values
Values are abstract ideas about which a group believes to begood, right and desirable
Values cover ideals such as individual freedoms and rights,and the rule of law
Values are, therefore, reflected in the political and economicsystems of a society e.g. democratic, free-market capitalismis a reflection of a philosophical value system whichemphasises individual freedom
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Norms
Norms may be defined as social rules and guidelines whichprescribe appropriate behaviour in particular situations
Norms can be subdivided into: Folkways such as dress, social etiquette and manners.
Deviations from folkways by foreigners may be regarded aseccentric or ill-mannered, but may not cause serious offence Mores are taken more seriously and are frequently
embodied in the law of the land, such as rules about the role
of women, attitudes to race and/or religion, and thetreatment of children: mores, therefore, have to be obeyedby everyone, including foreigners
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Culture Culture is, therefore, the whole set of values and norms
which conditions the behaviour of a group of people. Itmakes one social environment different from another
Culture may be sub-national, national or supra-national Sub-national as in the USA with Afro-American, Hispanic
and WASP cultures National as in the differences between, for example, British
and Japanese cultures Supra-national as in Islamic culture which transcends
individual countries
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Determinants of Culture
Culture, as values (what we believe in) and norms (the waywe behave) is a function of (see Hill p91):
Political Philosophy Economic Philosophy Social Structure Religion Education Language
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Determinants of Culture
Political Philosophy will reflect a society s decision onthe key issue of totalitarianism vs democracy. This willdetermine the extent of individual freedoms and rights
Economic Philosophy will be a reflection of the PoliticalPhilosophy of a particular society, and will bemanifested in the decision to practice either a free-
market or centrally planned economy
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Determinants of Culture
Social Structure has two main determinants: individualismvs groupism; stratification vs mobility
Individualism vs groupism reflects decisions as to whethersocieties operate on the basis of catering for individualaspirations or meeting group goals
Stratification vs mobility reflects decisions as to whethersocieties permit individuals to move upwards within asocial hierarchy, or are forced to remain in a particularsocial grouping
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Determinants of Culture
Religion may have a significant impact on a society sattitude to business, and to foreigners
It might be argued that religion may have influenced the
pace of economic development in certain regions e.g. theprotestant work ethic in Northern Europe, and theConfucian ethic in South East Asia
See the Islamic Banking in Pakistan Case, Hill 6 th . Edn.
p104-5 and Islamic Capitalism in Turkey , 7 th Edn.p.101, forthe influence of religious beliefs on business practices
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Determinants of Culture
Education will be linked to social structure, in that societieswill differ in their attitudes to educational qualifications, andin the extent to which they offer universal education
Educational systems will also differ, reflecting whethersocieties operate on a group or individual basis Language: certain societies have more than one language
and this creates cultural differences e.g. Canada and Spain
Linguistic differences may produce international misunderstandings the Mist-Stick and Nova examples
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Cultural Contrasts 1. Deal Oriented vs Relationship Oriented Deal Oriented: North America, Northern Europe, Australia/NZ Relatively open to doing business with strangers
Relationship Oriented: Middle East, Asia, Latin America, most of Africa
Prefer to do business with people they know and trust Thus, problem of making contact
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Cultural Contrasts
2. Formal vs Informal Formal: Asia, most of Europe, Middle East Need to reflect differences in status Thus, problems of age differences
Informal : North America, Australia/NZ More familiarity between different levels
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Cultural Contrasts 3. Rigid Time vs Fluid Time Punctuality differences Nordic and Germanic Europe vs Middle East, Latin
America Thus problems of meetings (arrival time, interruptions,
agendas)
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Cultural Contrasts 4. Expressive vs Reserved A) Verbal communication: Vocabulary chosen to ensure clarity of meaning, and to
avoid giving offence Volume of voice variations Implications of silence B) Non-verbal/Body Language Use of space Physical contact Eye contact Expressions/gestures
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Summary of Cultural Differences
Culture is that complex whole that includes knowledge,beliefs, art, morals, law, customs and other capabilitiesacquired by people as members of a society or group
Culture may be national, regional or based on ethnicgroupings , but may also be supra-national
Values and norms are the central components of a culture
Values are abstract ideals about what a society believes tobe good, right and desirable
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Summary of Cultural Differences
Norms are social rules and guidelines that prescribeappropriate behaviour in particular situations
Values and norms are influenced by political and economicphilosophy, social structure, religion, language andeducation
International businesses must learn cross-culturalawareness, and develop strategies for managing cultural
differences
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Impact of Cultural Differences on Management
When businesses cross national boundaries, sensitivityto foreign cultures becomes important
The success of a multinational company will bedependent on its ability to create working relationshipsin which individuals from different nationalities and withdifferent cultural backgrounds can operate together
successfully
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Impact of Cultural Differences on
Management Cultural sensitivity may, therefore, be crucial to the
success of a number of common activities within amultinational company. For instance:
An expatriate manager s ability to work effectively in aforeign subsidiary
Export salesmen s ability to deal with foreign customers,
agents and distributors
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Impact of Cultural Differences on
Management The ability of a multicultural project team to work
successfully together The integration of a newly acquired foreign company
into the organisation The co-ordination and integration of activities between
subsidiaries in different countries The ability of top management to negotiate and
establish satisfactory relations with governments andlocal authorities in foreign countries
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Hofstede s Research
See Hill p 108 -110 Geert Hofstede, a psychologist working for IBM, produced 4
dimensions of national/regional culture which help toexplain how and why people from different countriesbehave in different ways: Power Distance; UncertaintyAvoidance; Individualism; Masculinity
He conducted 116,000 questionnaires in 40 countries, and
concluded that the following national culturalcharacteristics could be identified:
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Hofstede s Research
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1. Power Distance
Degree to which society accepts that power and privilegeare not distributed equally
High Power Distance: Authority to be obeyed; Respect forage and position; Inequalities accepted by all parties;Management, hierarchical, paternalistic/autocratic
Low Power Distance: Authority can be questioned;Opportunities for ability and youth; Equality of opportunityand rights; Management, flat structures, devolved
responsibility, consultative Relative Scores: UK 37, Japan - 56
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2. Uncertainty Avoidance Extent to which people feel threatened by ambiguous
situations and set up procedures and systems to minimise risks
High Uncertainty Avoidance: Emphasis on rules andregulations; procedures/committees; standards certain,and acceptable behaviour clearly set out
Low Uncertainty Avoidance: Emphasis onentrepreneurship and risk taking; encouragement ofinitiative; tolerance of deviance in ideas, behaviour and
dress Relative scores: UK 35, Japan - 93
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3. Individualism
Personal Freedoms vs Group Loyalty: extent to which tiesbetween individuals in a society are strong or loose
High (Individualism): individual achievement is respected;there is minimal mutual obligation; leadership is clearlydefined and authoritative
Low (Groupism): success is collective; group goals take
priority; leaders are facilitators Relative Scores: UK 89, Japan 46
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4. Masculinity/Femininity
The degree to which the dominant values of society are success, money, possessions masculine, or caring forothers, quality of life feminine
Masculinity: achievement motivation through pay andpromotion; delineation between gender roles in society andthe workplace
Femininity: relationship motivation with accord andharmony the prevalent values; gender equality in societyand the workplace
Relative Scores: UK 67, Japan - 95
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Limitations to Hofstede s Research Hofstede assumes that there is a one-to-one
relationship between a nation state and a singularculture
His research was conducted by Westerners, whosequestions may have been culturally biased
His research was conducted on a single company with a
distinctive corporate culture
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Implications for International Businesses
Despite these reservations, as Hill (p 110) expresses it (Hofstede s research) represents a starting point formanagers trying to figure out how cultures differ and whatthat might mean for management practices
To view individual country s scores, and to examine thebusiness etiquette of different countries go to:http://www.geert-hofstede.com/
http://www.geert-hofstede.com/http://www.geert-hofstede.com/http://www.geert-hofstede.com/http://www.geert-hofstede.com/8/13/2019 Session 1iv BUSE608
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Implications for International Businesses One of the biggest dangers facing a company which
internationalises its operations is that of being ill-informed about the culture of the host country
International businesses which are ill-informedabout the beliefs practices of another culture arelikely to fail
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Implications for International Businesses Cross cultural awareness may be critical to the success orfailure of international businesses because culturaldifferences will embrace all aspects of an internationalfirm s operations in a foreign country affecting such issuesas:
The way in which deals are negotiated; the structure of theorganisation; the appropriate pay systems; the relationsbetween management and labour; the manner in which the
product/service is promoted; even the name of theproduct and there are also ethical issues involved
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Ethical Issues in International Business See Hill ch.4 Business Ethics is the accepted principles of right or
wrong governing the conduct of business managers, and
significant ethical issues arise in the operation ofinternational businesses Areas of contention include : Operation in countries with oppressive regimes
Compliance with unethical governments
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Ethical Issues in International Business Employment Practices: Wage levels Number of working hours Child labour Health and Safety conditions Non-discrimination/Equal Opportunity
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Ethical Issues in International Business
Facilitation of Business: Commission payments Political donations
Product Marketing and Pricing Practices: Selling products banned in the home market Aggressive promotion Exploitation of market strengths Dumping products
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Ethical Issues in International Business How should international managers deal with ethical issues? The extreme positions are:
When in Rome ethical relativism OR Moral Absolutes ethnocentricism These polarities can also be expressed in the choice between
host and home country value systems
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Ethical Issues in International Business
Other theoretical approaches include : Utilitarianism, in which decisions are made on the basis of
an assessment of the potential consequences of an action
Rights and Duties Theories (including Rawls and Kant), inwhich human rights must always be respected, and whereactions must be universally right
See Hill ps.136-41
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Ethical Issues in International Business To ensure that ethical issues are considered properly in
international business decisions, Hill, ( http://highered.mcgraw-hill.com/sites/dl/free/0072873957/121268/ethics_in_international_business.pdf ) offers the following advice: managers shoulda) favour hiring and promoting people with a well-groundedsense of personal ethics; b) build on an organisational culturethat places a high value on ethical behaviour; c) make sure thatleaders within the business not only articulate the rhetoric ofethical behaviour, but also act in a manner that is consistentwith that rhetoric; d) put decision-making processes in place
that require people to consider the ethical dimension ofbusiness decisions; and e) be morally courageous andencourage others to do the same
http://highered.mcgraw-hill.com/sites/dl/free/0072873957/121268/ethics_in_international_business.pdfhttp://highered.mcgraw-hill.com/sites/dl/free/0072873957/121268/ethics_in_international_business.pdfhttp://highered.mcgraw-hill.com/sites/dl/free/0072873957/121268/ethics_in_international_business.pdfhttp://highered.mcgraw-hill.com/sites/dl/free/0072873957/121268/ethics_in_international_business.pdfhttp://highered.mcgraw-hill.com/sites/dl/free/0072873957/121268/ethics_in_international_business.pdfhttp://highered.mcgraw-hill.com/sites/dl/free/0072873957/121268/ethics_in_international_business.pdfhttp://highered.mcgraw-hill.com/sites/dl/free/0072873957/121268/ethics_in_international_business.pdf8/13/2019 Session 1iv BUSE608
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Summary In this section of the course we have covered: The key features of cultures, and how these differ
regionally, nationally and supra-nationally The key ethical issues which face business managers in an
international context The key principles governing the development of cross-
cultural literacy are, as adapted from Hill (p 143) that business leaders (must use) every relevant opportunityto stress the importance of business ethics and (make) surethat key business decisions not only make economic sensebut also are ethical
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Summary
Hill, again on p143, goes on to say that the aim should beon building an organizational culture that places a highvalue on ethical behavior
which benefits people who engage in ethicalbehaviour, and sanctions those who do not. Creating and maintaining an (international) ethical
organisation, thus requires leadership (in action as well aswords) and reward systems which benefit the good