Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
PART TWO
COMPARATIVE ENVIRONMENTAL FRAMEWORKS
CHAPTER 2
THE CULTURAL ENVIRONMENTS FACING BUSINESS
OBJECTIVES
2-1 Explain why culture, especially national culture, is important in IB, but tricky to assess
2-2 Grasp the major causes of national cultural formation and change
2-3 Discuss major behavioral factors influencing countries’ business practices
2-4 Recognize the complexities of cross-cultural communications
2-5 Analyze guidelines for cultural adjustment
CHAPTER OVERVIEW
When companies source, manufacture, and/or market products in foreign countries, they
encounter fascinating and often challenging cultural environments. Chapter Two examines the
dynamics of culture and its effect upon international business operations and strategy. Culture
and business practices are ever changing and these shifting trends are incorporated in the cases
and examples. While exploring the causes of cultural differences, rigidities, and changes, it
focuses upon the impact of cultural traditions on business activities, as well as the mutually
satisfactory reconciliation of cultural differences. The chapter concludes with a discussion of the
ways in which firms can potentially maximize their effectiveness while operating in a world of
complex and dynamic cultural diversities.
CHAPTER OUTLINE
OPENING CASE: SAUDI ARABIA’S DYNAMIC CULTURE: THE JAVA LOUNGE—
ADJUSTING TO SAUDI ARABIAN CULTURE [see Map 2.1.]
This case provides a striking example of the challenges presented to foreign firms by a pervasive,
theocratic, national culture. It shows why companies have had mixed success in Saudi Arabia, a
modern yet ancient society grounded in Islamic law, religious convictions, and behavioral
traditions. In particular, the case highlights the example of the Java Lounge, a new, up-scale
Jeddah restaurant that serves an affluent niche of Saudi consumers. Further, it describes ways in
which a variety of foreign firms have adjusted their products, facilities, and operating strategies
in order to meet government requirements and yet satisfy the Saudi consumer. It points out
numerous paradoxes one may encounter regarding Saudi legal sanctions, purchasing patterns,
and attitudes toward work. A key point to make when discussing the case is that even in this
very rigid culture, things are changing. For example, a 2008 royal decree allows men and
women to mix in the workplace. Although this has not had a dramatic impact in practices, it is
the beginning of a potentially more open environment. The case concludes by noting some of the
opportunities that exist in Saudi Arabia—either because of or in spite of the contrasts and
contradictions found there.
I. CULTURE’S IMPORTANCE IN IB AND TRICKINESS TO ASSESS
Culture refers to the shared values, attitudes, and beliefs of a group of individuals. Often,
people simultaneously belong to different groups representing different cultures and/or
subcultures. Further, every business function is subject to cultural influences. Cultural
Copyright © 2018 Pearson Education, Inc.
1
diversity means bringing together people of different backgrounds, perspectives, and
experience. Thus, major problems of cultural collision are likely to occur if a firm
implements practices that are less effective than intended and/or employees are unable to
accept or adjust to foreign customs. Thus, it is vital that firms determine which business
practices vary in a foreign country and what adjustments, if any, are necessary. At the same
time, cultural diversity can be a source of competitive advantage for global firms. [see Fig.
2.1.]
Culture is an elusive topic to study, partly because people belong to multiple cultures based
on their nationality, ethnicity, religion, gender, work organization, profession, age, and
income level. Companies’ need to understand and be sensitive to the culture where they
operate.
A. National Cultures as a Point of Reference
The idea of a “nation” provides a workable definition of a “culture” because (1)
similarity among people is a cause and an effect of national boundaries and (2) it is a
reference people make to “we” versus “they”. National identity is perpetuated through
rites, symbols, and respect for national heroes, while the preservation of national sites,
documents, monuments, and museums promotes a common perception of “we.” Despite
using the nation as a cultural reference point, not everyone therein shares the same
values and attitudes. In addition, nations include various subcultures, and a nation must
be flexible enough to accommodate and mediate its diversity. At the same time, some
people have internalized more than one culture because of having dual or multiple
citizenships, parents or spouses from another country, or lived abroad at an
impressionable age.
B. The People Factor
As nationalities come together through projects and teams, their diverse perspectives
and experiences often enable businesses to gain a deeper knowledge of how to create
and deliver products and services. Cultural diversity can be a competitive advantage,
but successful cultivation of diversity is difficult because individuals may interact as
they do within their own cultures.
When contact among divergent cultures creates problems, the situation is known as a
cultural collision. Such collision may result in a company’s implementation of
practices that are less effective than intended and to its employees’ distress because of
difficulty in adjusting to behaviors abroad.
C. Building Cultural Awareness
Although people agree that cross-cultural differences do exist, they often disagree on their
impact. Are they widespread or exceptional? Are they deep-seated or superficial? Are they
easily discerned or difficult to perceive? It is vital that managers develop an acute
awareness of all those cultures in which they operate. Cultural variables include daily
routines and rules, codes of social relations, language, emotive expression, and concepts of
luck. In addition, not only are there differences that distinguish various cultures, there is
also a good deal of variation found within cultures. No foolproof method exists for building
cultural awareness. Although research on another culture can be instructive, one must
Copyright © 2018 Pearson Education, Inc.
2
assess information carefully to determine if it perpetuates unwarranted stereotypes, covers
only limited segments of a country’s culture, or is obsolete. One should also observe the
behavior of those people who have garnered the kind of respect and confidence they
themselves will need.
Another caution should be sounded when relying on cultural studies. First, comparing
countries based upon what people say may be risky. Second, a focus on differences in terms
of averages may overlook specific variations within countries. Third, current cultural
attitudes may change in the future.
II. INFLUENCES ON CULTURAL FORMATION AND CHANGE
A. Sources of Change
Culture is transmitted in a variety of ways, but psychologists believe that children have their
basic value systems firmly in place. Nonetheless, individual and societal values and
customs constantly evolve in response to changing economic and social realities.
Cultural change can be brought about by choice or imposition; change that is brought
about by imposition is known as cultural imperialism. The introduction of certain
elements of an outside culture may be referred to as creolization, or cultural diffusion.
B. Language as Both a Diffuser and Stabilizer of Culture
While a common language within a country serves as a unifying force, language
diversity may undermine a firm’s ability to conduct business, to integrate workforces,
and to market products on a national level. Isolation from other groups, especially
because of language, tends to stabilize cultures. Because some countries see language
as such an integral part of their cultures, they may regulate the inclusion of foreign
words and/or mandate the use of the country’s official language for business purposes.
[see Map 2.2]
C. Religion as a Cultural Stabilizer
Religion can be a strong shaper of values and beliefs and is a major source of both
cultural imperatives and taboos. Buddhism, Christianity, Hinduism, Islam, and Judaism
represent just some of the religions whose specific beliefs may affect business practices.
Still in all, not all nations that practice the same basic religion place identical constraints
on business. In addition, violence among religious groups can damage property and
disrupt business activities for both home and host country firms. [see Map 2.3.]
III. MAJOR BEHAVIORAL PRACTICES AFFECTING BUSINESS
Cultural attitudes and values affect business practices – everything from decisions about
what products to sell to decisions about organizing, financing, managing, and controlling
operations. Some of the more important aspects of culture are mentioned below.
A. Issues in Social Stratification
Every culture ranks people. Such social stratification creates hierarchies and influences
a person’s class, status, and financial rewards within that culture. Because societies value
group affiliations differently, business practices differ among countries. There are many
ways to classify people’s group memberships:
1. Ascribed and Acquired Membership
Those usually determined by birth are ascribed group memberships, including
gender, family, age, caste, and ethnic, racial, or national origin. Acquired group
Copyright © 2018 Pearson Education, Inc.
3
memberships include those based on religion, political affiliation, educational
place and achievement, and profession.
2. Ethnic and Racial Groups
Country-by-country attitudes vary also toward race and ethnicity. Malaysia, for
example, defines political parties and employment quotas explicitly by three ethnic
groups–Malays, Chinese, and Indians. The employment quotas are primarily to
upgrade the economic position of Malays because the Chinese and Indian
minorities long dominated business ownership and the professions, respectively.
3. Gender-Based Groups. Strong country-specific differences exist in attitudes
toward the roles of males and females in society and the workplace, as well as the
types of jobs regarded as “male” or “female.” However, in some parts of the
world, barriers to employment based on gender are easing. In addition, as the
composition of jobs becomes less physical and more creative and/or technical, the
relative demand for female employees is also increasing.
4. Age-Based Groups. Many cultures assume that age and wisdom are correlated;
thus, they often have a seniority-based system of advancement. In others, there is
an emphasis on youth, particularly in the realm of marketing. Often there is a
mandatory retirement age in business, but not in politics. Clearly, firms must
consider reference groups when deciding whom to hire and how best to promote
their products.
5. Family-Based Groups. In some societies, family membership is more important
than individual achievement. Where there is low trust outside the family, such as
in China and southern Italy, small family-run companies are generally quite
successful, but they often have difficulty expanding beyond the family. In
addition, such allegiances may impede the economic development of a nation if
large-scale operations are necessary to compete globally.
B. Work Motivation
Employees who are motivated to work long and hard are generally more productive
than those who are not. On an aggregate basis, this will have a positive effect on
economic development and national competitiveness.
1. Materialism and Motivation. Countries differ in their degree of materialism. In
some societies, such as Japan and the United States, people desire less leisure time
than others, such as much of Europe. Sociologist Max Weber claimed that
predominantly Protestant Western economies were the most economically
developed because of their emphasis on hard work and investment. This view of
work as a path to salvation (an outgrowth of the Reformation) is known as the
“Protestant ethic.” In rural India, however, where minimal material achievement is
a desirable end in itself, any added productivity will likely be taken in the form of
leisure, rather than income. In still other countries, leaders stress the need for a
culture that combines material comforts with spirituality. An interesting OECD
study of the trade-off between productivity and leisure points out the disparity even
among high-income countries. Even with this disparity, most people in most
countries see economic advancement as an important life goal.
2. Productivity/Leisure Trade-Off. Some cultures place less value on leisure time.
This can impact many social and employment aspects, such as vacations, holidays,
and the amount of money spent on leisure activities.
Copyright © 2018 Pearson Education, Inc.
4
3. Expectation of Success and Reward. Although the same tasks performed in
different countries will have different probabilities of success, different rewards for
success, and different consequences for failure, people will usually work harder at
any task when the reward for success is greater than the consequence of failure.
The greatest enthusiasm for work exists when high uncertainty of success is
combined with the likelihood of a very positive reward for success and little or
none for failure.
4. Performance and Achievement: The Masculinity-Femininity Index. The
masculinity–femininity index measures attitudes toward achievement. A
high-masculinity score indicates a preference for “live to work,” whereas a
high-femininity score indicates a preference for “work to live.” This index may
help explain national differences in behaviors.
5. Hierarchies of Needs. Maslow’s hierarchy of needs states that people will try to
fulfill lower-order physiological needs before satisfying (in order) their security,
affiliation, esteem, and self-actualization needs. This theory can be especially
helpful for differentiating the reward preferences of employees in different
countries, who may likely rank some of their higher-order needs differently. An
example of these differences can be discussed using the ethnographic study
comparing the U.S, the Dominican Republic, and Barbados.
C. Relationship Preferences
Within social stratification systems, not every member of a reference group is
necessarily equal. In addition, there may be strong or weak pressures for group
conformity. Such national differences in norms influence both effective management
styles and marketing behavior.
1. Power Distance. Power distance is a measurement of employee preferences of
interaction between superiors and subordinates. With high power distance, people prefer
little consultation between bosses and subordinates. They also prefer management
styles that are either autocratic (ruling with unlimited authority) or paternalistic
(regulating subordinate conduct by supplying their needs). With
low power distance, they prefer “consultative” styles.
2. Individualism versus Collectivism. High individualism describes a preference to
fulfill leisure time, build friendships, and improve skills independently of the organization. People
with high individualism also prefer to receive direct monetary compensation as opposed to
fringe benefits, and they prefer to engage in personal decision-making and on-the-job
challenges. High collectivism, in contrast, typifies an employee’s penchant for dependence
on the organization through training, satisfactory workplace conditions, and good benefits.
For example, the United States is a highly individualist country, and employees socialize
less with close work colleagues outside of work than employees do in more collectivist
societies. In countries with high individualism, a self-actualization opportunity is a prime
motivator because employees want challenges. In those with high collectivism, fulfilling
security needs is a prime motivator.
D. Risk-Taking Behavior
Nationalities differ in their attitudes toward risk-taking, i.e., how willingly people
accept things the way they are and how great their need for control of their destinies.
1. Uncertainty Avoidance. Uncertainty avoidance describes a trait of being
uncomfortable with ambiguity. Where this trait is strong, most employees prefer to
follow set rules even if they believe that breaking them may be in the company’s
Copyright © 2018 Pearson Education, Inc.
5
best interests. They also tend to stay with current employers for a long time,
preferring the certainty of present positions over the uncertainty of their future
elsewhere.
2. Trust. Trust represents one’s belief in the reliability and honesty of another.
Where trust is high, there tends to be a lower cost of doing business because
managers devote less time to investigation and oversight and more to innovation
and investment. (While Norwegians tend to exhibit a high degree of trust,
Brazilians tend to be skeptical.)
3. Future Orientation. Individuals who tend to live for the present as opposed to for
the future see risks in delaying gratification and investing for the future. Where
future orientation is higher, workers will more likely be motivated by types of
delayed compensation, such as retirement programs. (While a future orientation
tends to be higher in Canada, the Netherlands, and Switzerland, it tends to be lower
in Italy, Poland, and Russia.)
4. Fatalism. Fatalism represents the belief that life is predestined, that every event is
inevitable, that occurrences represent “the will of God.” Unlike those who believe
strongly in self-determination and basic cause-and-effect relationships, fatalists
are not likely to plan for contingencies or take responsibility for performance. Thus
they are less swayed by persuasive logic than by personal relationships.
E. Information and Task Processing
People from different cultures obtain, perceive, and process information in different
ways; thus, they may also reach different conclusions.
3. Perception of Cues. People perceive cues selectively. They identify things by
means of their senses (sight, smell, touch, taste, and sound) and in various ways
within each sense. The particular cues used will vary both for physiological and
cultural reasons (e.g., differences in eye pigmentation enable some to distinguish
colors better than others; the richer and more precise a language, the better one’s
ability to express subtleties).
2. Obtaining Information: Low-Context versus High-Context Cultures.
Language represents a culture’s primary means of communication. In a
low-context culture, people rely on explicit, first-hand information that bears
directly on a decision or situation; people say what they mean and mean what they
say. In a high-context culture, people rely on implicit, peripheral information and
infer meaning from things communicated indirectly; relationships are very
important; (e.g., while the United States and most of northern Europe are
considered to be low-context cultures, most countries in southern Europe are
considered to be high-context cultures).
4. Information Processing. All cultures categorize, plan, and quantify, but the
ordering and classification systems used often vary. To perform efficiently and
work amicably in a foreign environment, you need to understand such differences
in processing systems. Further, different processing systems create challenges in
sharing global data.
5. Monochronic Versus Polychronic Cultures. In monochronic cultures (e.g.,
northern Europeans) people prefer to work sequentially, but in polychronic
cultures (e.g., southern Europeans) people are more comfortable working on
multiple tasks at one time.
Copyright © 2018 Pearson Education, Inc.
6
6. Idealism Versus Pragmatism. In some cultures people focus first on the whole
and then on the parts; similarly, some cultures will determine principles before they
try to resolve small issues (idealism), whereas other cultures will focus more on
details rather than principles (pragmatism).
IV. PROBLEMS IN COMMUNICATING ACROSS CULTURES
Communication problems may arise when moving from one country to another, even
though both countries share the same official language. Of course, problems also arise
when moving from one language to another.
A. Translation of Spoken and Written Language. Translating one language into
another can be very difficult because (a) some words do not have a precise
translation, (b) the common meaning of words is constantly evolving, (c) words
may mean different things in different contexts, and (d) a slight misuse of
vocabulary or word placement may change meanings substantially. Further, while
jokes and laughter have universal appeal, much humor does not. Therefore, words
must be chosen very carefully, because poor translations may have tragic
consequences. [see Table 2.1.]
B. Silent Language. Silent language incorporates the wide variety of nonverbal cues
through which messages are sent—intentionally or unintentionally. Color
associations, the distance between people during conversations, the perception of
time and punctuality, a person’s perceived prestige, and kinesics or body
language are all very significant. Misunderstandings in any of these areas can be
serious.
V. GUIDELINES FOR CULTURAL ADJUSTMENT
Once a company identifies cultural differences in the foreign countries in which it operates,
must it alter its customary practices? Can individuals overcome adjustment problems when
working abroad?
A. Host Society Acceptance
If products and operations do not run counter to deep-seated attitudes, or if the host country is
willing to accept foreign customs as a trade-off for other advantages, significant
adjustments may not be required.
B. Degree of Cultural Differences
Cultural distance represents the degree of similarity between two societies. Countries
may be relatively similar to one another because they share the same language, religion,
geographical location, ethnicity, and/or level of economic development. Generally, a
firm should have to make fewer adjustments when moving within a culturally similar
cluster than when it moves from one distinct cultural cluster to another. Nonetheless, a
manager must not assume that seemingly similar countries are more alike than they
really are and be lulled into a complacency that overlooks critical subtleties. [see Map
2.4.] This caution against assumptions can be seen in specific business interactions.
Cultural friction can be explained using the Disney example.
C. Ability to Adjust: Culture Shock
Culture shock represents the trauma one experiences in a new and different culture
because of having to learn to cope with a vast array of new cues and expectations.
Reverse culture shock occurs when people return home, having accepted the culture
Copyright © 2018 Pearson Education, Inc.
7
encountered abroad and discovering that things at home have changed during their
absence.
D. Company and Management Orientations
Whether and to what extent a firm and its managers adapt to foreign cultures depends
not only on the conditions within those cultures but also on the policies of the company
and the attitudes of its managers.
7. Polycentrism. Polycentrism represents a managerial approach in which foreign
operations are granted a significant degree of autonomy, in order to be responsive
to the uniqueness of local cultures and other conditions.
8. Ethnocentrism. Ethnocentrism represents a belief that one’s own culture is
superior to others, and that what works at home should work abroad. Excessive
ethnocentrism may lead to costly business failures.
9. Geocentrism. Geocentrism represents a managerial approach in which foreign
operations are based on an informed knowledge of both home and host country
needs, capabilities, and constraints.
POINT—COUNTERPOINT:
Does International Business Lead to Cultural Imperialism?
POINT: Modern cultural imperialism has come about because of the technical, political,
military, and economic supremacy of the developed countries in relation to the less developed
countries of the world. Exposure to news and entertainment media, extensive advertising, mass
distribution, and Western tourists leads periphery peoples to believe that Western lifestyles are
glamorous, exciting, and desirable. As international firms take advantage of this newly created
demand, they uncaringly employ practices and attitudes that further upset the local culture and
self-identity that helps stabilize a nation. While rich countries may be able to prohibit
investment in culturally sensitive industries, restrict the use of foreign languages, limit the
screening of foreign films, etc., periphery countries lack the resources to do so.
COUNTERPOINT: Although people in many countries have adopted everything from jeans to
Coca-Cola, they pick and choose products based on personal interpretations of their needs in
relation to the realities of the cultures in which they live. While trade-offs are often involved,
globalization provides options that otherwise would not exist. Further, evidence does not
indicate that the adoption of foreign products necessarily causes a change in a country’s culture.
With contact, cultural diffusion spreads in two directions. Cultures have always evolved, and
what is occurring is the development of hybrid cultures, not cultural imperialism. Finally,
foreign firms must adhere sufficiently to local culture lest they fail—and local competition may
not be local at all.
E. Strategies for Instituting Change
Companies may need to transfer new products and/or operating methods from one
country to another in order to gain a competitive advantage. To maximize the potential
benefits of their foreign presence, they need to treat learning as a two-way process and
transfer knowledge from home countries abroad and from host countries back home.
10. Value systems. The more that change upsets important values, the more resistance
it will encounter. Accommodation is much more likely when changes do not
interfere with deep-seated customs.
Copyright © 2018 Pearson Education, Inc.
8
11. Resistance to Too Much Change. Resistance to change may be reduced if only a
few demands are made at one time; others may be phased in incrementally.
12. Participation. A proposed change should be discussed with stakeholders in
advance in order to ease their fears of adverse consequences—and perhaps gain
their support.
13. Reward Sharing. A company may choose to provide benefits for all the
stakeholders affected by a proposed change in order to gain support for it.
14. Opinion Leadership. Characteristics of opinion leaders often vary by country. By
discovering the local channels of influence, an international firm may seek the
support of opinion leaders to help speed the acceptance of change.
15. Biculturals as Mediators. Companies may rely on bicultural or multicultural
individuals, especially those within their own ranks, to present and explain changes
to stakeholders.
16. Timing. Many good business changes fail because they are ill-timed. Attitudes
and needs change slowly, but a crisis may stimulate the acceptance of change.
17. Learning Abroad. The essence for undertaking transnational practices is to
capitalize on diverse capabilities by transferring learning among all the countries in
which a firm operates.
LOOKING TO THE FUTURE: Scenarios on the Evolvement of National Cultures
Although some tangibles have become more universal, the ways in which people cooperate,
solve problems, and are motivated continue to differ. Many expect that as contact across cultures
becomes more widespread and as people become more flexible citizens, hybrid cultures will
develop. Others believe that national cultures will be more homogenized with respect to visible
expressions of culture, but that basic values will not change. A third view is that national
cultures will become stronger because of feelings of nationalism. Finally, some people feel that
national borders as we know them today will change to accommodate ethnic groups and other
subcultures.
CLOSING CASE: TESCO PLC: Leveraging Global Knowledge
Tesco PLC, the United Kingdom-based retailing giant had been in Asia for a little over a decade
and sales and profits were already comfortably outstripping those in the UK and other Tesco
areas. Yet it was clear that every Asian market was unique. Thailand, Malaysia, and South Korea
had been great successes, yet Tesco had failed completely in Taiwan and operations in Japan
were not going well at all.
Tesco’s international expansion strategy has responded to the need to be sensitive to local
expectations in other countries by entering into joint ventures with local partners, such as
Samsung group in South Korea, also making sure to appoint significant portion of local
personnel to management positions as part of their internationalization strategy, referred to as the
TESCO Project.
Copyright © 2018 Pearson Education, Inc.
9
