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The Cultural Environment of International Business

International Business

Facultad Economía

on 15 October 2015

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Transcript of The Cultural Environment of International Business

How important cultural differences can be?
Analysis of conversations recorded in the back boxes of downed planes showed that even when crash was likely, Korean Air co-pilots and flight engineers rarely suggested actions that would contradict the judgments of their captains.
Korean Air
Plane crashes

Challenging one's superior in Korea was considered culturally inadequate behavior.
Korean example tells us that:

1. If National culture can have significant consequences among people of the same cultural origin,
we need to be very cautious in dealing with national cultural differences in cross-border interactions.

2. The cultural predisposition of Korean Air co-pilots persisted in a very highly regulated environment, suggesting that national culture's influence on behavior goes beyond governmental policies, laws and institutions.
What is culture?
Culture is a set of shared values, assumptions, beliefs, morals, customs and other habits that are learnt through membership in a group, and that influence the attitudes and behaviors of group members.
Culture is defined as a group-level phenomenon
1st implication: Culture is a group-level phenomenon
From this perspective, cultures exist at many different levels, including organizational functions or business units, organizations, industries, regions, and nations. The most relevant level for global business is
national culture.
Culture is acquired through a process of socialization rather than innate
2nd Implication: Culture is a process of socialization
Shared values, assumptions and beliefs are learned through interactions with family, teachers, officials, experiences, and soceity-at-large. Hofstede an eminent Dutch psychologist and culture expert speaks of culture as a process of
"collective programming of the mind"
3rd Implication
This collective programming determines what is considered acceptable or attractive behavior. In other words,
cultural values provide preferences or priorities for one behavior over another
World Values Survey

(65 countries, 75% of the world's population)
Suggest that national cultural traits
have remained fairly stable over time
despite superficial evidence of some convergence in cultural habits, artifacts and symbols.

You are riding in a car with a close friend, who hits a pedestrian. You know that he was going at least 35 mph in an area of the city where the maximum allowed speed is 20 mph but there are no other witnesses.
His lawyer says that if you testify under oath that he was only driving 20mph it may save him from serious consequences.
More than 90% of managers in Canada, United States, Australia, Sweden, Norway and Germany reported that they would not testify to help their close friend, while fewer than half of managers in South Korea, Venezuela, Russia, Indonesia and China said they would refuse to testify falsely in this hypothetical situation.
This exemplified the point that some cultures put more emphasis on universal commitments (like honesty) while others put more weight on loyalty o particular people and relationships.
Frameworks of National Cultural Value Differences
Cultural differences at the level of behavior form the basis for much of the casual comparison that takes place in diverse settings.

# Citizens in the United States maintain a culture around guns that most Europeans can't understand.
# The Czechs drink far more beer than people in Saudi Arabia
# China and India are so close geographically that they still haven't resolved their territorial disputes, but couldn't display mor distinct food cultures.
# Brazilians spend a higher proportion share of their income on beauty products than the citizens of any other major economy.
# Japanese exchange business cards very intensively, and in a highly ritualized way ...
Unless one is focused on a particular country or, at most, a handful, it quickly becomes overwhelming to try to look at the world in terms of countries where business cards are received in particular ways or the local cuisine has particular ingredients.
As a result, most frameworks for understanding culture have sought to identify a limited number of cultural value dimensions that underlie behavior and that provide a basis for classifying countries.
The Japanese consider it rude not to study a business card carefully because it reflects a person's professional identity, title and social status. So the ritual of exchanging business cards can only be fully understood by taking into account the underling importance of respect for seniority and status in that culture.
Dealing with national cultural differences therefore requires not only knowledge about adequate behaviors, but also understanding deeper values and assumptions that explain why certain behaviors are more appropriate than others.
Based on surveys of more than 100,000 IBM employees in more than 50 countries between 1967 and 1973, Hofstede argue that national cultures differed systematically across four dimensions:
1. Power distance
2. Individualism/collectivism
3. Uncertainty avoidance
4. Masculinity/Femininity

1. Power Distance:
It concerns the degree to which a culture accepts and reinforces the fact that power is distributed unevenly in society.
Members of high power distance accept status differences and are expected to show proper respect to their superiors.

Status differences may reflect organizational hierarchy but they may also be based on age, social class, or family role.
Low power
distance cultures such as Denmark are less comfortable with differences in organizational rank or social class, and are characterized by more participation in decision making.

2. Individualism/collectivism
Individualist cultures tend to emphasize the individual over the group.

Members of individualist cultures such as the UK, maintain loose social structures marked by independence, personal initiative and achievement.
Collectivist cultures such Venezuela, place more emphasis on the overall good of and loyalty to the group.
3. Uncertainty avoidance
Concerns the degree to which cultural members are willing to accept and deal with ambiguous situations.
Cultures with high levels of uncertainty avoidance such as Greece, prefer structure and predictability, which results in explicit rules of behavior and strict laws. Members of such cultures tend to be relatively adverse to changing employers, embracing new approaches, or engaging in entrepreneurship.
In societies with low uncertainty avoidance such as Singapore there is more acceptance of unstructured situations and ambiguity, favoring risk taking, innovation and the acceptance of different views.
4. masculinity/femininity
. Masculine cultures such as Japan
are thought to reflect a dominance of “tough” values such as achievement, assertiveness, competition and material success, which are stereotypically associated with male roles. In contrast, feminine cultures focus on “tender” values such as personal relationships, care for others, and quality of life. In addition, feminine cultures such as Sweden are also characterized by less distinct gender roles. Firms in feminine cultures place stronger emphasis on overall employee well-being than on bottom-line performance
The most obvious application of Hofstede’s framework is based on the idea that improving the
alignment between management practices and cultural contexts
yields tangible business benefits. Consider some examples:

 Participative management can improve profitability in low power distance cultures but worsen it in high power distance cultures

 Quick fixes can improve profitability in more short-term oriented cultures but worsen it in more long-term
oriented cultures
Merit-based pay and promotion policies can improve profitability in more masculine cultures and reduce it in more feminine cultures
Emphasizing individual contributions can improve profitability in more individualistic cultures and worsen it in more collectivistic cultures
In addition to these country-level characterizations of the effects of cultural dimensions, Hofstede’s
framework has also been used to study cross-border phenomena such as the
choice of entry mode
, and
international diversification.
(Bradley, et. al., 2009)
“Firms from countries with large power distance prefer subsidiary and equity JV entry modes whereas firms from countries high in uncertainty avoidance prefer contract agreements and export entry modes.”

“As the cultural distance between countries increased, the tendency to choose a joint venture (JV) over an acquisition increased"
Lao Tzu
"Water is the last thing a fish notices"

We do not see things as they are; we see things as we are.

Talmud Bavli1
Ancient book of wisdom,Babylonia

We will focus in this part of the chapter on developing an understanding of three interrelated environments in which managers find themselves:
cultural, organizational, and situational
What this means, in essence, is that when working across cultures there are at least three dynamics occurring simultaneously . In other words,
people's attitudes and behaviors are influenced by the cultures in which they live, the organizations for which they work, and, finally, their own unique situations in which they find themselves
Cultural, organizational, and situational environments of global management: a model
Core business beliefs and values
Social Systems
Company A

Cultural difference (e.g., individualistic)

Organizational differences (e.g., centralized decision making)

Situational differences (e.g., negotiating a manufacturing partnership - our technology, their people - but worry that smaller company B is not capable)

Company B

Cultural difference (e.g., collectivistic)

Organizational dlfferences (e.g.,participative decision making)

Situational differences (e.g., negotiating a manufacturing partnership -their technology, our people - but worry that targer company A may want to control us)

What happens when these two managers meet in their unique "situation"?
Company A is a larger and more established firm. lt has developed some proprietary technology that it protects diligently. When it looks at company B, it worries that its prospective partner may not be up to the challenge. At the same time, company B may be apprehensive about the power of company A, and worry that it might be taken over
Managers working across borders face several culture-specific questions that can have a direct bearing on their success or failure in the field.These questions include the following.

How can we understand cultural differences
(e.g., beliefs, values, norms) and their impact on social systems in ways that can help managers succeed?
Is there a shorthand way to understanding these cultural differences
, and, if so, what are the potential limitations of this approach?
How can we understand the complexities and contradictions that permeate national and regional cultures?
What is the relationship between cultural differences and national institutions
(e.g., legal systems, government policies) that can constrain or shape global and local business?

Grasshoppers are considered pests in North America, pets in China, and appetizers in Thailand. What does this suggest about the influence of cultural differences on perceptions of even the lowly insect? Indeed, what does this suggest about how and why tastes in general can differ so starkly across nations and regions?
If cultures can have such differing views about grasshoppers, imagine what they can do with people.
Not long ago, a middle-aged woman in a village not far frorn Rio de Janeiro became very ill. She was convinced that she would die if
did not get proper treatmen
t. So she to
ok three actions: she w
ent to the local med
ical clinic; she lit
a candle in the local
church; an
d she sacrificed a chicken following the local voodoo custom. She soon made a full recovery
Which of her three actions caused her recovery, or was it a combination of these actions, or was it simply good luck?
It is such cause and effect connections in people's minds that are at the heart of understanding culture and cultural differences. Although we may disagree with how others see things, it is their perceptions, not ours, that help determine behavior.
Culture often sets the limits on what is considered acceptable and unacceptable behavior; it pressures individuals and groups into accepting and following
norma­tive behavior
. In other words, culture determines the rules of the road that guide what people can do
The analysis of culture could be likened to the task of identifying mushrooms. Because of the nature of the Mushrooms, no two experts describe them in precisely the same way, which creates a problem for the rest of us when we are trying to decide whether the specimen in our hands is edible"
Edward Hall
Models for national culture attempt to accomplish two things. First, each model offers a well-reasoned set of dimensions along which various cultures can be compared . It offers us a form of shorthand for cultural analysis. We can break down assessments of various cultures into power distance, uncertainty avoidance, and so forth, allowing us to organize our thoughts and focus our attention on what otherwise would be a mon­umental task. Second, some of the models offer numeric scores for rating various cultures.
it is often unwise to
stereotype an entire culture
. Instead, we need to look for nuances and counter-trends, not just the principal trends themselves. We also need to look for differences - in context - the events and environ­ments surrounding people as they form their attitudes and behavioral patterns.
Failure to recognize this often leads to failed personal and business opportunities.
Anna Hakansson
arrived in Bahrain for her negotiations. Her first surprise is meeting
counterpart, Nahed Taher. Indeed, women executives in the MENA (Middle East and north Africa) region have increased significantly in recent years.
Nahed Taher is the first woman CEO of the Gulf One Investment Bank, based in Bahrain. As a former senior economist at the National Commercial Bank, Taher has been inmersed in plans for financing public sector projects, including expansion of the terminal that handles Mecca pilgrims at Jeddah's King Abdulaziz International Airport
How can we reconcile stereotypes about Arab and Muslim women with examples of successful businesswomen working in the MENA region such as those mentioned here?
What other examples of cultural stereotypes from other parts of the world can you identify that are either overly simplistic or simply incorrect? Why do we have such stereotypes?
The examples of Taher and these other women managers raise an old dilemma. Even though cultural differences have been acknowledged across nation states and regions for centuries,
there is no consensus regarding the role of cultural differences in global business

Do cultural constraints really matter if people operating in a global arena are able to overcome them?
Our two examples - Sweden's Hakansson and Bahrain's Tahler - highlight some
important limitations of applying simplistic models to complex phenomena
. On the one hand, such models provide a good starting point for understanding the influence of culture and the challenges posed by cultural differences. On the other hand,
they focus our attention onto a limited set of parameters and may mislead our interpretation of reality.
Instead, understanding culture influences on behavior requires us to seek out underlying complexities and contradictions, which, ultimately, aid us in our ability to act successfully in or across very different environments. We suggest f
ive cultural complexities and contradictions that can be found in varying degrees in most cultures
(1) Cultures are stable, but change over time. One of the dangers in any attempt to categorize cultures into a set of fixed dimensions is that this implies that cultures are stable and remain unchanged

Differ mainly in values
learned before age 10
cannot be changed
belong to anthropology
Differ mainly in practice
learned when joining
can sometimes be managed
belong to sociology
All levels are correlated to some extent
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