BUSE 608

International Business
KAAU, 2011-12

Introduction to BUSE608 Introduction to International Business

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BUSE 608

International Business
KAAU, 2011-12

Topic 3: Cultural and Ethical Risk

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Learning Outcomes
Understand the key factors which determine national and supra-national cultures Evaluate the research by Geert Hofstede on how and why people 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 shared amongst a group of people and that when taken together constitute a design for living Hill, p89 Differences in business behaviours across cultures can create 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 be good, 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 economic systems of a society e.g. democratic, free-market capitalism is a reflection of a philosophical value system which emphasises individual freedom

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Norms
Norms may be defined as social rules and guidelines which prescribe 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 as eccentric 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 the treatment of children: mores, therefore, have to be obeyed by 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. It makes 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 way we 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 societys decision on the key issue of totalitarianism vs democracy. This will determine the extent of individual freedoms and rights Economic Philosophy will be a reflection of the Political Philosophy of a particular society, and will be manifested in the decision to practice either a freemarket or centrally planned economy

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Determinants of Culture
Social Structure has two main determinants: individualism vs groupism; stratification vs mobility Individualism vs groupism reflects decisions as to whether societies operate on the basis of catering for individual aspirations or meeting group goals Stratification vs mobility reflects decisions as to whether societies permit individuals to move upwards within a social hierarchy, or are forced to remain in a particular social grouping

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Determinants of Culture
Religion may have a significant impact on a societys attitude to business, and to foreigners It might be argued that religion may have influenced the pace of economic development in certain regions e.g. the protestant work ethic in Northern Europe, and the Confucian ethic in South East Asia See the Islamic Banking in Pakistan Case, Hill 6th. Edn. p104-5 and Islamic Capitalism in Turkey, 7th Edn.p.101, for the influence of religious beliefs on business practices

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Determinants of Culture
Education will be linked to social structure, in that societies will differ in their attitudes to educational qualifications, and in the extent to which they offer universal education Educational systems will also differ, reflecting whether societies 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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 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

Cultural Contrasts

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Summary of Cultural Differences

Culture is that complex whole that includes knowledge, beliefs, art, morals, law, customs and other capabilities acquired by people as members of a society or group Culture may be national, regional or based on ethnic groupings , 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 to be good, right and desirable

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Summary of Cultural Differences

Norms are social rules and guidelines that prescribe appropriate behaviour in particular situations Values and norms are influenced by political and economic philosophy, social structure, religion, language and education International businesses must learn cross-cultural awareness, and develop strategies for managing cultural differences

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Impact of Cultural Differences on Management

When businesses cross national boundaries, sensitivity to foreign cultures becomes important The success of a multinational company will be dependent on its ability to create working relationships in which individuals from different nationalities and with different 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 a multinational company. For instance: An expatriate managers ability to work effectively in a foreign subsidiary Export salesmens 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 and local authorities in foreign countries

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Hofstedes Research
See Hill p 108 -110 Geert Hofstede, a psychologist working for IBM, produced 4 dimensions of national/regional culture which help to explain how and why people from different countries behave in different ways: Power Distance; Uncertainty Avoidance; Individualism; Masculinity He conducted 116,000 questionnaires in 40 countries, and concluded that the following national cultural characteristics could be identified:

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Hofstedes Research

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1. Power Distance
Degree to which society accepts that power and privilege are not distributed equally High Power Distance: Authority to be obeyed; Respect for age 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 opportunity and 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 and regulations; procedures/committees; standards certain, and acceptable behaviour clearly set out Low Uncertainty Avoidance: Emphasis on entrepreneurship and risk taking; encouragement of initiative; 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 ties between individuals in a society are strong or loose High (Individualism): individual achievement is respected; there is minimal mutual obligation; leadership is clearly defined 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 for others, quality of life feminine Masculinity: achievement motivation through pay and promotion; delineation between gender roles in society and the workplace Femininity: relationship motivation with accord and harmony the prevalent values; gender equality in society and the workplace Relative Scores: UK 67, Japan - 95

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Limitations to Hofstedes Research

Hofstede assumes that there is a one-to-one relationship between a nation state and a singular culture His research was conducted by Westerners, whose questions 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 (Hofstedes research)represents a starting point for managers trying to figure out how cultures differ and what that might mean for management practices To view individual countrys scores, and to examine the business etiquette of different countries go to: http://www.geert-hofstede.com/

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Implications for International Businesses

One of the biggest dangers facing a company which internationalises its operations is that of being illinformed about the culture of the host country International businesses which are ill-informed about the beliefs practices of another culture are likely to fail

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Implications for International Businesses

Cross cultural awareness may be critical to the success or failure of international businesses because cultural differences will embrace all aspects of an international firms operations in a foreign country affecting such issues as: The way in which deals are negotiated; the structure of the organisation; the appropriate pay systems; the relations between management and labour; the manner in which the product/service is promoted; even the name of the productand 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 of international 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), in which human rights must always be respected, and where actions 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.mcgrawhill.com/sites/dl/free/0072873957/121268/ethics_in_internatio nal_business.pdf) offers the following advice: managers should a) favour hiring and promoting people with a well-grounded sense of personal ethics; b) build on an organisational culture that places a high value on ethical behaviour; c) make sure that leaders within the business not only articulate the rhetoric of ethical behaviour, but also act in a manner that is consistent with that rhetoric; d) put decision-making processes in place that require people to consider the ethical dimension of business decisions; and e) be morally courageous and encourage others to do the same

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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 crosscultural literacy are, as adapted from Hill (p 143) that business leaders (must use) every relevant opportunity to stress the importance of business ethics and (make) sure that key business decisions not only make economic sense but also are ethical

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Summary
Hill, again on p143, goes on to say that the aim should be onbuilding an organizational culture that places a high value on ethical behavior which benefits people who engage in ethical behaviour, and sanctions those who do not. Creating and maintaining an (international) ethical organisation, thus requires leadership (in action as well as words) and reward systems which benefit the good

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