International Business_Differences in Culture.pptx

Chapter Difference in Culture for International Business

1. INTERNATIONAL BUSINESS Differences in Culture

2. Learning Objectives LO 4-1 Explain what is meant by the culture of a society . LO 4-2 Identify the forces that lead to differences in social culture . LO 4-3 Identify the business and economic implications of differences in culture . LO 4-4 Recognize how differences in social culture influence values in business . LO 4-5 Demonstrate an appreciation for the economic and business implications of cultural change .

3. Introduction Cross-cultural literacy - an understanding of how cultural differences across and within nations can affect the way in which business is practiced There may be a relationship between culture and the costs of doing business in a country or region Culture is not static – it can and does evolve Multinational enterprises can be engines of cultural change

4. What is Culture? 1 of 4 Scholars have not been able to agree on a simple definition Culture is a system of values and norms that are shared among a group of people and that when taken together constitute a design for living Society is a group of people sharing a common set of values and norms

5. What is Culture? 2 of 4 Values and Norms Values - provide the context within which a society’s norms are established and justified Norms - the social rules that govern the actions of people toward one another Folkways - the routine conventions of everyday life Mores - norms that are seen as central to the functioning of a society and to its social life

6. What is Culture? 3 of 4 Culture, Society, and the Nation-State Society reflects people who are bound together by a common culture Nation-states are political creations that can contain a single culture or several cultures Some cultures embrace several nations Also possible to talk about culture at different levels within societies

7. What is Culture? 4 of 4 The Determinants of Culture The values and norms of a culture evolve based on: Prevailing political and economic philosophies A society’s social structure The dominant religion, language, and education

8. Figure 4.1 The Determinants of Culture /Mythology Resources/Geography

9. Social Structure 1 of 7 A society's social structure is its basic social organization Two dimensions to consider The degree to which the basic unit of social organization is the individual, as opposed to the group The degree to which a society is stratified into classes or castes

10. Social Structure 3 of 7 The Individual Emphasized in Western countries Individual achievement and entrepreneurship are promoted Fosters managerial mobility Encourages job switching, competition between individuals rather than team building, and a lack of loyalty to the firm The Group Emphasized in non-Westernized countries (Japan) Cooperation and team work are encouraged and life time employment is common Individual initiative and creativity may be suppressed

11. Social Structure 4 of 7 Social Stratification All societies are stratified on a hierarchical basis into social categories, or social strata Usually defined by characteristics such as family background, occupation, and income Societies differ in terms of The degree of mobility between social strata The significance attached to social strata in a business context

12. Social Structure 5 of 7 Social Stratification continued Four basic principles of social stratification It is a trait of society, not a reflection of individual differences It carries over a generation to the next generation It is generally universal, but variable It involves not just inequality but also beliefs

13. Social Structure 6 of 7 Social Stratification continued Social mobility - the extent to which individuals can move out of the strata into which they are born Caste system - social position is determined by the family into which a person is born, and change in that position is unlikely Class system - the position a person has by birth can be changed through achievement or luck Social mobility in class system varies from society to society Class system in U.S. less pronounced than in Britain Gardner - However, recent research suggests that economic/social mobility has declined in the U.S. in recent years, and the U.S. has higher levels of inequality and lower levels of economic mobility than many other countries (latter measured by intergenerational income elasticity).

14. Social Structure 7 of 7 Source: Miles Corak – see his web site The “Great Gatsby Curve”

15. Social Structure 7 of 7 Social Stratification continued Significance In cultures where class consciousness (where people tend to perceive themselves in terms of their class background) is high, the way individuals from different classes work together may be prescribed Evident in British society Antagonism between labor and management can raise the costs of doing business

16. Religious and Ethical Systems 1 of 8 Religion - a system of shared beliefs and rituals that are concerned with the realm of the sacred Ethical system – a set of moral principles, or values, that are used to guide and shape behavior Religions with the greatest following Christianity (2.20 billion adherents) Islam (1.60 billion adherents) Hinduism (1.10 million adherents) Buddhism (535 million adherents) Confucianism shapes culture in many parts of Asia

17. Map 4.1 World Religions Source: “Map 14,” Allen, John L., Student Atlas of World Politics, 10th ed. McGraw-Hill Education.

18. Religious and Ethical Systems 2 of 8 Christianity Most widely practiced religion In 1904, Max Weber suggested that it was the Protestant work ethic (focus on hard work, wealth creation, and frugality) that was the driving force of capitalism Protestantism gave individuals more freedom to develop their own relationship with God which may have paved way to economic freedom

19. Religious and Ethical Systems 3 of 8 Islam Adherents of Islam are referred to as Muslims One true omnipotent God In the Western media, Islamic fundamentalism is associated with militants, terrorists, and violent upheavals Fundamentalists have gained political power in many Muslim countries, and have tried to make Islamic law the law of the land

20. Religious and Ethical Systems 4 of 8 Islam continued Economic Implications of Islam Koran establishes explicit economic principles many of which are pro-free enterprise Under Islam, people do not own property, but only act as stewards for God and thus must take care of that which they have been entrusted with ( Gardner: Also true in Judeo-Christian scripture) Islam is supportive of business, but the way business is practiced is prescribed Businesses that are perceived to be making a profit through the exploitation of others, by deception, or by breaking contractual obligations are unwelcome

21. Islamic Banks Islamic banks function differently than conventional banks in the world, as the Islamic banks cannot pay or charge interest.

22. Religious and Ethical Systems 5 of 8 Islam continued Economic Implications of Islam continued Prohibits payment or receipt of interest – Islamic banks Mudarabah Similar to profit sharing – instead of receiving predetermined rate of interest on bank deposits, the depositer receives a share of the profits earned from bank investments. Murabaha Most widely used – If I need machinery, the bank buys it for me now at the current market price, and turns it over to me. I repay the bank later by buying the equipment from the bank at a higher “price,” rather than paying “interest.”

23. Religious and Ethical Systems 6 of 8 Hinduism World’s oldest religion Moral force in society requires the acceptance of certain responsibilities called dharma Believe in reincarnation and karma Individuals should be judged by their spiritual achievements Promotion and adding new responsibilities may not be the goal of an employee, or may be infeasible due to the employee's caste

24. Religious and Ethical Systems 7 of 8 Buddhism Suffering originates in people’s desire for pleasure Stresses spiritual growth and the afterlife, rather than achievement while in this world Buddhism does not support the caste system, so individuals do have some mobility and can work with individuals from different classes Entrepreneurial activity is acceptable

25. Religious and Ethical Systems 8 of 8 Confucianism Until 1949, official ethical system of China Not a religion High moral and ethical conduct and loyalty to others Attain personal salvation through right action Three key teachings of Confucianism - loyalty, reciprocal obligations, and honesty - may all lead to a lowering of the cost of doing business in Confucian societies

26. Language 1 of 3 Countries differ in terms of language or means of communication There are two forms language: Spoken Unspoken Language is one of the defining characteristics of culture

27. Can You Speak the Most Important Languages? Mastering your own native language is critically important to doing business in your own home country. Mastering the language of a foreign country (or subcultures) with which you want to do business is also an added value in any cross-cultural relationship. English leads the way in terms of business languages, but which languages are important after English? Spanish? No, not necessarily. The three languages that are important for business after English are Mandarin Chinese, French, and Arabic. Spanish is fifth, so it is clearly important, but not as useful as English, Mandarin, French, and Arabic because of the number of people who speak these languages. Do you agree with the rank order of these languages? Why or why not? Source: S. Kim, “Top 3 Useful Foreign Languages for Business Excludes Spanish,” ABC News, September 1, 2011. http://abcnews.go.com/blogs.

28. Language 2 of 3 Spoken Language Countries with more than one spoken language often have more than one culture Chinese is the mother tongue of the largest number of people in the world English is the most widely spoken language in the world, and is becoming the language of international business

29. Language 3 of 3 Unspoken Language Unspoken language - nonverbal cues Examples include facial expressions and hand gestures Can be important for communication Personal space Many nonverbal cues are culturally bound and because they may be interpreted differently, can result in misunderstandings

30. Education Formal education is the medium through which individuals learn many of the language, conceptual, and technical skills that are indispensable in a modern society The knowledge base, training, and educational opportunities available to a country's citizens can also give it a competitive advantage in the market and make it a more or less attractive place for expanding business Porter points to an excellent education system as an important factor in explaining the country’s postwar economic success The general education level of a country is a good indicator of the types of products that might sell in that location or the type of promotional materials that might be successful

31. Culture and Business 1 of 3 Geert Hofstede isolated five dimensions that summarized different cultures Power distance Individualism versus collectivism Uncertainty avoidance Masculinity versus femininity Long-term versus short-term orientation A move to add a sixth dimension: indulgence versus restraint

32. Culture and Business 2 of 3 Hofstede’s work has been criticized Assumes a one-to-one relationship between culture and nation-state Research may be culturally bound Informants only worked within a single industry – computers – and within one company – IBM. Certain social classes excluded from research

33. Culture and Business 3 of 3 Hofstede’s work represents a starting point for managers trying to understand cultural differences Global Leadership and Organizational Behavior Effectiveness instrument World Values Survey

34. Cultural Change Culture evolves over time, although changes in value systems can be slow and painful for a society Social turmoil is an inevitable outcome of cultural change Cultural change is particularly common as countries become economically stronger As countries get richer, there is a shift from “traditional values” to “secular rational” values and from “survival values” to “well-being values”

35. Focus on Managerial Implications 1 of 3 CROSS-CULTURAL LITERACY AND COMPETITIVE ADVANTAGE There is a need for managers to develop cross-cultural literacy There is a connection between culture and national competitive advantage There is a connection between culture and ethics in decision making

36. Focus on Managerial Implications 2 of 3 Cross-Cultural Literacy Firms that are ill-informed about the practices of another culture are unlikely to succeed in that culture Individuals must also beware of ethnocentric behavior Belief in the superiority of one's own culture

37. Focus on Managerial Implications 3 of 3 Culture and Competitive Advantage Connection between culture and competitive advantage It suggests which countries are likely to produce the most viable competitors It has implications for the choice of countries in which to locate production facilities and do business

38. Summary In this chapter we have Explained what is meant by the culture of a society. Identified the forces that lead to differences in social culture. Identified the business and economic implications of differences in culture. Recognized how differences in social culture influence values in business. Demonstrated an appreciation for the economic and business implications of cultural change.