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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

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

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

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.

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

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.

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

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.

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.