EFFECT OF EXTERNAL ENVIRONMENT ON INTERNATIONAL BUSINESS

The Cultural Environments Facing Business

MBA International Business 2014-162-1

MBA International Business 2014-16

Learning ObjectivesTo understand methods for learning about cultural environmentsTo analyze the major causes of cultural difference and changeTo discuss behavioral factors influencing countries business practicesTo understand guidelines for cultural adjustment

MBA International Business 2014-162-*


IntroductionObjectiveTo understand methods for learning about cultural environments



IntroductionCulture refers to the learned norms based on values, attitudes, and beliefs of a group of peopleCulture is an integral part of a nations operating environmentevery business function is subject to potential cultural differences MBA International Business 2014-162-*


IntroductionCultural Factors Affecting International Business OperationsMBA International Business 2014-162-*


IntroductionCompanies need to decide when to make cultural adjustments Fostering cultural diversity can allow a company to gain a global competitive advantage by bringing together people of diverse backgrounds and experience



IntroductionBut, cultural collision can occur when a company implements practices that are less effective or when employees encounter distress because of difficulty in accepting or adjusting to foreign behaviors



Cultural AwarenessProblem areas that can hinder managers cultural awarenessSubconscious reactions to circumstancesThe assumption that all societal subgroups are similarManagers that educate themselves about other cultures have a greater chance of succeeding abroadMBA International Business 2014-162-*


Culture and the Nation-StateThe nation is a useful definition of society because similarity among people is a cause and an effect of national boundarieslaws apply primarily along national lineslanguage and values are shared within bordersrites and symbols are shared along national linesMBA International Business 2014-162-*


Culture and the Nation-StateCountry-by-country analysis can be difficult because subcultures exist within nationssimilarities link groups from different countriesNeed to focus on relevant groupsMBA International Business 2014-162-*


How Cultures Form and ChangeObjective To analyze the major causes of cultural difference and changeMBA International Business 2014-162-*


How Cultures Form and ChangeCultural value systems are established early in life but may change throughchoice or impositioncultural imperialism contact with other culturescultural diffusioncreolizationMBA International Business 2014-162-*


Language: Cultural Diffuser and StabilizerA common language within a country is a unifying forceA shared language between nations facilitates international businessNative English speaking countries account for a third of the worlds productionEnglish is the international language of businessMBA International Business 2014-162-*


Language: Cultural Diffuser and StabilizerDistribution Of The Worlds Major LanguagesMBA International Business 2014-162-*


Language: Cultural Diffuser and StabilizerMajor Language Groups: Population and Output



Religion: Cultural StabilizerReligion impacts almost every business functionCenturies of profound religious influence continue to play a major role in shaping cultural values and behaviormany strong values are the result of a dominant religionMBA International Business 2014-162-*


Religion: Cultural StabilizerDistribution Of The Worlds Major ReligionsMBA International Business 2014-162-*


Behavioral Practices Affecting BusinessObjectiveTo discuss behavioral factors influencing countries business practices MBA International Business 2014-162-*


Social StratificationSocial ranking is determined byan individuals achievements and qualificationsan individuals affiliation with, or membership in, certain groups



Social StratificationGroup affiliations can be Ascribed group membershipsbased on gender, family, age, caste, and ethnic, racial, or national origin Acquired group membershipsbased on religion, political affiliation, professional associationTwo other factors that are importanteducation and social connectionsMBA International Business 2014-162-*


Work MotivationThe motivation to work differs across culturesStudies showthe desire for material wealth is a prime motivation to work promotes economic developmentpeople are more eager to work when the rewards for success are high masculinity-femininity index high masculinity score prefers to live to work than to work to live MBA International Business 2014-162-*


Work MotivationHierarchy of needs theoryfill lower-level needs before moving to higher level needsThe ranking of needs differs among cultures MBA International Business 2014-162-*


Work MotivationThe Hierarchy of Needs and Need-Hierarchy ComparisonsMBA International Business 2014-162-*


Relationship PreferencesRelationship preferences differ by culturePower distance high power distance implies little superior-subordinate interaction autocratic or paternalistic management stylelow power distance implies consultative styleIndividualism versus collectivismhigh individualism welcome challengeshigh collectivism prefer safe work environment MBA International Business 2014-162-*


Risk Taking BehaviorRisk taking behavior differs across cultures Uncertainty avoidancehandling uncertainty Trustdegree of trust among peopleFuture orientationdelaying gratificationFatalismattitudes of self-determinationMBA International Business 2014-162-*


Information and Task ProcessingCultures handle information in different waysPerception of cuesObtaining informationlow context versus high context culturesInformation processingMonochronic versus polychronic culturesIdealism versus pragmatism



CommunicationsCross border communications do not always translate as intended Spoken and written languageSilent languageColorDistanceTime and punctualityBody languagePrestige MBA International Business 2014-162-*


CommunicationsBody Language Is Not A Universal LanguageMBA International Business 2014-162-*


Dealing with Cultural DifferencesObjectiveTo understand guidelines for cultural adjustment



Dealing with Cultural DifferencesDo managers have to alter their customary practices to succeed in countries with different cultures?Must considerHost society acceptanceDegree of cultural differencescultural distanceAbility to adjustculture shock and reverse culture shockCompany and management orientation MBA International Business 2014-162-*


Dealing with Cultural DifferencesThree company and management orientationsPolycentrismbusiness units abroad should act like local companiesEthnocentismhome culture is superior to local cultureoverlook national differencesGeocentrismintegrate home and host practices MBA International Business 2014-162-*


Strategies for Instituting ChangeValue SystemsCost-Benefit Analysis of changeResistance to too much changeParticipationReward SharingOpinion LeadershipTimingLearning AbroadMBA International Business 2014-162-*


The Future of National CulturesNew hybrid cultures will develop and personal horizons will broadenOutward expressions of national culture will continue to become homogeneous while distinct values will remain stable Nationalism will continue to reinforce cultural identityExisting national borders will shift to accommodate ethnic differences



*Chapter 2: The Cultural Environment Facing Business*The Learning Objectives for Chapter 2 areTo understand methods for learning about cultural environmentsTo analyze the major causes of cultural difference and changeTo discuss behavioral factors influencing countries business practicesTo understand guidelines for cultural adjustment

*Learning Objective 1: To understand methods for learning about cultural environments.

*What is culture? Culture refers to the learned norms based on values, attitudes, and beliefs of a group of people. Culture can be based on nationality, ethnicity, gender, religion, work organization, profession, age, political party membership, income level, and so on. International business activities incorporate people from all different groups and backgrounds, thus, every business function is subject to cultural differences. *This Figure shows the cultural factors affecting international business operations.

*Most people recognize that cross-country differences exist, but they dont always agree on exactly what they are. It can be beneficial to foster cultural diversity in some cases. Bringing together people of diverse backgrounds and experience can give companies a deeper knowledge about products and services and ways in which to produce and deliver them.

*But keep in mind that cultural collision can create problems. Companies doing business in another country must determine which of that nations business practices differ from their own and then decide what adjustments, if any, are necessary in order to operate efficiently.

*In order to increase their chance for success, managers need to develop their awareness of and sensitivity to other cultures. They can do this by educating themselves. Gathering some basic research on another culture can be instructive. In addition, managers should consider the information they gather to determine if it perpetuates unwarranted stereotypes, covers only limited facets of a country and its culture, or relies on outdated data. Managers should also observe the behavior of those people who have garnered the kind of respect and confidence they themselves will need.

*We often use the idea of a nation when we talk about culture. In general, within national borders, people largely share such essential attributes as values, language, and race. There is a feeling of we that casts foreigners as they. Rites and symbolsflags, parades, ralliesand the preservation of national sites, documents, monuments, and museums promote a common perception of history and perpetuates national identity.

*Note though that subcultures do exist within nations and groups from different nations can actually be quite similar. International managers need to focus on relevant groupsdifferentiating, for example, between the typical attitudes of rural dwellers and those of urban dwellers, or those of young people versus old people.

*Learning Objective 2: To analyze the major causes of cultural difference and change.*Culture is learned from parent to child, teacher to student, peer to peer, and so on. So, while cultural value systems tend to be established early in life, they can change. Change can be by choice or it can be imposed this type of change is called cultural imperialism. Cultural value systems can also change as a result of contact with other cultures. This is known as cultural diffusion. When this change results in mixing cultural elements, the process is known as creolization.

*Language acts both as a diffuser of culture and as a stabilizer. On one hand, a common language unifies a culture. However, when people from different areas speak the same language, culture spreads more easily. So, theres greater cultural homogeneity among all English-speaking countries and among all Spanish-speaking countries than there is between English-speaking countries and Spanish-speaking countries. When nations share a language, business is easier because theres no need for time consuming and expensive translations. Often, people studying languages choose the ones that are most useful in interacting with other countries.

*This Map shows the distribution of the worlds major languages. Notice the large number of English speaking, French speaking, and Spanish speaking countries.

*This Figure shows the relationship between major language groups and world output. Notice the importance of English as a language of international business.

*Religion also acts as a cultural stabilizer. Dominant religions can have a profound influence in shaping cultural values and behavior. Many religions even impact specific beliefs that may affect business, such as inhibiting the sale of certain products or the performance of work at certain times. McDonalds, for example, recognizes the Hindu and Muslim influences in India and chooses not to sell beef or pork in the country. Similarly, El Al, the Israeli national airline, does not fly on Saturday, the Jewish Sabbath.When rival religions or factions fight for political control in a country, business is often negatively affected. You might think of property damage, broken supply chains, or breaches in connections with customers as examples.

*This Map shows the distribution of major religions around the world.

*Learning Objective 3: To discuss behavioral factors influencing countries business practices.

*Social stratification determines an individuals class, status, and financial rewards within a culture. Its determined by individual achievements and qualifications, and by affiliation and membership in groups. *An individual may belong to a group because of age, gender, family, racial, or ethnic variables. This is known as ascribed group membership. When membership is based on religion, political affiliation, or professional association its an acquired group membership. In general, equalitarian societies tend to put more emphasis on acquired group membership. Keep in mind that education and social connections also impact an individuals rank in a society.

*The desire to work differs across cultures. In countries where material wealth is valued, there is generally a greater motivation to work. This of course, also helps to promote economic development. In fact, the higher level of development that exists in some countries can be explained by the work of Max Weber who suggested that self-discipline, hard work, honesty, and a belief in a just world foster work motivation and, thus, economic growth.Typically, people are also more eager to work when the potential rewards are high.We can also measure attitudes toward work and achievement using the masculinity-femininity index. The degree to which individuals are assertive, confrontational, and aggressive in their relationships with others varies across borders. These attitudinal differences help explain why an international company may encounter managers abroad who behave differently from what it expects or prefers.

*The hierarchy-of-needs theory suggests that people fill lower-level needs before filling higher level needs. An understanding of this theory is helpful to managers as they make decisions regarding reward preferences of employees in different countries. In very poor countries, for example, workers might be motivated with enough compensation to simply satisfy their needs for food and shelter. Workers in other countries may be motivated by other needs.

*This Figure shows the hierarchy of needs and need-hierarchy combinations. Note that needs are broken down into physiological needs, security needs, affiliation needs, esteem needs, and self-actualization needs. The way in which these needs are ranked differs among countries.

*Relationships preferences and more specifically the interactions between bosses, subordinates, and peers also differ from country to country.Power distance refers to the general relationship between superiors and subordinates. Where it is high, people prefer little consultation between superiors and subordinates. Employees usually prefer one of two management styles: autocratic -ruling with unlimited authority - or paternalistic - regulating conduct by supplying needs. Where power distance is low, they prefer consultative styles.Individualism is characterized by a preference for fulfilling leisure time and improving skills outside the organization. It also implies a low preference for receiving compensation in the form of benefits and a high preference for personal decision making and on-the-job challenges.In contrast, collectivism encourages dependence on the organization and a preference for thorough training, satisfactory workplace conditions, and good benefits.

*How people approach risk also varies from country to country. Four types of risks are important: uncertainty avoidance, trust, future orientation, and fatalism. In cultures where there is high uncertainty avoidance employees prefer following set rules even if breaking them may be in the companys best interest. Similarly, many consumers are not prepared to risk being early adopters of products.In cultures where trust is high, the cost of doing business tends to be lower because managers dont spend much time fussing over every possible contingency and monitoring every action for compliance with certain business principles.Business decisions can also be influenced by a cultures attitude toward the future and whether its worthwhile to delay gratification in order to invest for the future.Finally, if people believe strongly in self-determination, they may be willing to work hard to achieve goals and take responsibility for performance. But if theyre fatalistic and believe every event in life is inevitable, theyre less likely to accept the basic cause-and-effect relationship between work and reward.

*How information is perceived, obtained, and processed differs from country to country. In low context cultures people generally regard only firsthand information that bears directly on the subject at hand as being relevant. Managers typically spend little time on small talk and tend to get to the point. In contrast, in high-context cultures people see seemingly peripheral information as pertinent and infer meanings from things said either indirectly or casually.In monochronic cultures people prefer to work sequentially. So, for example, a transaction with one customer is completed before dealing with another. But in a polychronic culture, people often feel more comfortable working simultaneously on a variety of tasks, such as dealing immediately with multiple customers who need service.Cultures that prefer to establish overall principles before tackling smaller details take an approach called idealism, while those that focus more on details than on abstract principles take a pragmatic approach.Keep in mind that an individuals approach to information processing can affect business in a number of ways. In a culture of pragmatists like the United States, for example, labor negotiations tend to focus on well-defined issuessay, hourly pay increases for a specific bargaining unit. However, in an idealist culture like that of Argentina, labor disputes tend to blur the focus on specific demands as workers tend to rely first on mass actionsuch as general strikes or political activitiesto publicize basic principles.

*Communication across cultures can be problematic when communications are not translated with the same meaning as intended. This problem can occur with not only with spoken and written language and but also with silent language. Even a slight misuse of words or phrases can have a significant impact on the meaning of a message. Moreover, its important to recognize that even when two countries share a language problems can exist. For example, some 4,000 words have different meanings in British and American English.Silent language refers to a host of nonverbal cues. How these physical cues or body language are perceived and interpreted varies between cultures. Many Western countries, for instance, associate black with death ,while white has the same connotation in some parts of Asia. Similar differences exist with perceptions of time and punctuality. In the United States, people usually arrive early for business appointments, a few minutes late for dinner at someones home, and a bit later still for large social gatherings. In other countries though, the concept of punctuality in any or all of these situations may be different.The appropriate distance people maintain during conversations and prestige also differs between countries. For Americans, the customary distance for a business discussion is 5 to 8 feet; for personal business, its 18 inches to 3 feet. The much smaller distances common in Latin America can make many Americans quite uncomfortable. Likewise, a U.S. manager who places great faith in objects as cues to prestige may underestimate the status of foreign counterparts who dont value large, plush offices on high floors. A foreigner may underestimate U.S. counterparts who perform their own services, such as opening their own doors, fetching their own coffee, and answering unscreened phone calls.

*These images show how a simple gesture is interpreted quite differently around the world.

*Learning Objective 4: To understand the guidelines for cultural adjustment.*So, are managers required to change their customary practices to match those of the host culture? The answer is not always clear. In general, host cultures dont expect that foreign managers will totally conform with their norms and values, but it is important that they understand and respect the local culture. Managers need to consider how they will be received by the host country, and make adjustments accordingly. In many cases, host countries are willing to view foreigners differently. Managers should also be aware that closely clustered countries may not be as alike as they seem, and so adjustments may be necessary in some cases. Womens roles and behavior, for example, differ substantially from one Arab country to another even though Arab countries overall are similar culturally.Sometimes, managers going abroad experience culture shockthe frustration that results from having to absorb a vast array of new cultural cues and expectations, and then reverse culture shock when they return home.

*Companies and managers doing business abroad will typically take one of three basic approaches when dealing with foreigners. Those that take a polycentric approach believe that business units abroad should act like local companies. In contrast, those that take an ethnocentric orientation believe that the home culture is superior to the local culture, and therefore national differences can be overlooked. Finally, those that integrate both home and host practices have a geocentric orientation. Managers should recognize that excessive polycentrism or ethnocentrism can be dangerous. A geocentric approach is often the safest. *Companies that choose a geocentric approach to their operations will often combine both home and host practices requiring that people in both countries adapt to some degree. Companies may face some resistance to these changes, and so must manage the process carefully. There are various ways to implement changes. Companies may need to promote changes in value systems. A cost-benefit analysis of change can reveal whether a change makes sense. Moving too quickly can create additional resistance to change. Many companies find that encouraging stakeholders to become involved in change and sharing the rewards of making changes can be beneficial. Similarly, using the right channels of influence and the right timing can make a big difference in whether change is accepted. Finally, companies should recognize that they can gain important knowledge from other companies in the market. Emulating their methods can often be successful.*What will happen to national cultures in the future? Only time will tell. One scenario is that new hybrid cultures will develop and personal horizons will broaden. Another scenario suggests that outward expressions of national culture will continue to become homogeneous while distinct values will remain stable. A third scenario is that nationalism will continue to reinforce cultural identity. Finally, a fourth scenario suggests that existing national borders will shift to accommodate ethnic differences.

EFFECT OF EXTERNAL ENVIRONMENT ON INTERNATIONAL BUSINESS

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