chap 3 International Business


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Chapter 3 Interbational Business

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  • Country Focus: Breaking India’s Caste System
    This feature explores India’s caste system and the implications of the system. While many urban middle class citizens are not affected in a significant way by the caste system, for India’s rural population, the influence of the system is readily apparent. The government is strongly encouraging private companies to hire more lower caste individuals.
    Suggested Discussion Questions
    1. India’s castes system has been around for many years. Explain why its influence has diminished among educated urban middle class Indians.
    Discussion Points: The caste system in India was officially abolished in 1949. However, it seems that urban citizens have benefited the most from its abolishment. For many rural Indians, the system is still very much in effect. Educated, urban middle class Indians make up the majority of employees in India’s high tech economy. They may work for large multinationals like Infosys and Wipro. Many students will probably attribute the relative freedom of these individuals to the presence of these large companies, and their need to hire the best people regardless of caste. In rural areas though, the caste system still has significant influence in daily life. One female engineer working for Infosys notes for example that as a member of a lower caste, she was not able to enter the homes of higher caste individuals. Yet the same engineer, a beneficiary of an Infosys training programs, now works for Infosys in a “higher caste” position.
    2. Why are many private companies in India resisting the hiring quotas suggested by the government? Why might it be necessary to hire lower caste individuals?
    Discussion Points: The Indian government has suggested that private companies make an effort to employ lower caste individuals. However, many companies are resisting the request using the argument that they want to hire qualified people who want to work hard, and not people who are available simply because of a quota system. Some companies however, recognize that there may be a place for lower caste individuals, especially has business grows. Infosys for example, offers special training to low caste members.
    Lecture Note: For more on India’s caste system, go to {}.
  • Country Focus: Islamic Capitalism in Turkey
    This feature examines the debate surrounding Turkey’s membership in the European Community. Turkey has indicated that it would like to be a part of the regional bloc, but many are concerned that because the country’s dominant religion is Islam, it would not be a good fit. Others however, argue that these fears are unfounded. Supporters of Turkey’s membership in the European Union note that the country’s central region is home to many thriving entrepreneurial ventures.
    Suggested Discussion Questions
    1. Are the concerns of those opposing Turkey’s admittance to the European Union well-founded? Can Islam, capitalism, and globalization co-exist?
    Discussion Points: Many students will probably suggest that if the country’s religious preferences are the only issue preventing Turkey’s membership in the European Union, then indeed these fears are unfounded. Students taking this perspective are likely to point out that Central Turkey, a region where Islamic values are particularly strong, is also referred to as the Anatolian Tiger because it is home to so many thriving Muslim companies, many of which are large exporters. Other students however, may note that traditionally Islam is critical of those who earn a profit through the exploitation of others. Depending on just how this view is defined could influence how Turkey views the economic activities of other European Union countries.
    2. Explain the concept of Islamic Calvinism? How has Islamic Calvinism helped the Kayseri region of Turkey?
    Discussion Points: Islamic Calvinism is a fusion of traditional Islamic values and the Protestant work ethic. In the Kayseri region of Turkey, Islamic Calvinism is evident. The region is home to many thriving businesses in a wide variety of industries that have successfully meshed traditional Islamic values with the entrepreneurial values associated with the Protestant work ethic. Many companies set aside time for daily prayers and trips to Mecca, most restaurants in the region do not serve alcohol and require women to cover their heads. At the same time, businesses in the region have made it priority to make money.
    Lecture Note: To get an update of Turkey’s current situation go to {}.
  • Management Focus: DMG-Shanghai
    This feature explores guanxi, or the relationships and connections that are so important in the Chinese business world. The notion of guanxi comes from the Confucian philosophy of valuing social hierarchy and reciprocal obligations. Dan Mintz, founder of DMG, one of China’s fastest growing advertising agencies, credits guanxi for his success. Mintz established connections with two Chinese individuals with access to high ranking government officials. Through these guanxiwang, or connections, Mintz has been able to get permission to shoot advertisements in locations that are usually closed to foreigners.
    Suggested Discussion Questions
    1. Explain the concept of guanxi. How did Mintz’s guanxiwang help his company becomes so successful?
    Discussion Points: Guanxi literally means relationships, although in business settings in can better be understood as “connections.” The concept of guanxi is deeply rooted in Chinese culture and Confucianism. The Chinese will often cultivate a guanxiwang, or “relationship network,” for help. In China, there is a tacit acknowledgement that if you have the right guanxi, legal rules can be broken or bent. Mintz made connections with two Chinese men who had access to high ranking government officials. Through these men, Mintz was able to secure permission to film commercials in locations that are normally closed to outsiders.
    2. Compare the difference between doing business in the West and doing business in China.
    Discussion Points: A basic difference between doing business in the West and doing business in China involves how legal agreements are handled. In the advanced economies of the West, business transactions are conducted and regulated by the centuries-old framework of contract law, which specifies the rights and obligations of parties to a business contract and provides mechanisms for seeking to redress grievances should one party in the exchange fail to live up to the legal agreement. China does not have the same infrastructure. Personal power and relationships or connections (guanxi), rather than the rule of law, have always been the key to getting things done in China.
  • Internet Extra: To learn more about international business etiquette, go to {}.
    Choose a country, then find three fun facts about your country. Compare these to those in other countries. What are some areas where cultural misunderstandings could occur?
    How does Hofstede assess your country? Based on what you’ve read, do you agree?
  • chap 3 International Business

    1. 1. Introduction Cross-cultural literacy (an understanding of how cultural differences across and within nations can affect the way in which business is practiced) is important to success in international business There may be a relationship between culture and the costs of doing business in a country or region Culture is not static, and the actions of MNEs can contribute to cultural change
    2. 2. What is Culture? Question: What is culture?  Culture is a system of values (abstract ideas about what a group believes to be good, right, and desirable) and norms (the social rules and guidelines that prescribe appropriate behavior in particular situations) that are shared among a group of people and that when taken together constitute a design for living  A society is a group of people who share a common set of values and norms
    3. 3. Values and Norms  Values provide the context within which a society’s norms are established and justified  Norms are the social rules that govern the actions of people toward one another and can be further subdivided into ◦ 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)
    4. 4. Culture, Society, and the Nation-State A society can be defined as a group of people that share a common set of values and norms  There is not a strict one-to-one correspondence between a society and a nation-state ◦ Nation- states are political creations that can contain a single culture or several cultures ◦ Some cultures embrace several nations
    5. 5. Cultural Dimensions in China  Greetings are done in order of age–always greet the eldest member of a group first  As status is recognized by age, university degree and profession, use of a person’s title is important. Address someone as Dr. or Professor whenever possible. Do not call someone by their first name until they ask you to.
    6. 6. Cultural Dimensions in China  Deploy senior staff members to communicate and make announcements to general staff  Be prepared for answers like “we will see,” or “let us think about it” which in the non-confrontational Chinese society actually mean “no”  Expect frequent rescheduling of meetings. It is a good idea to set up appointments a few weeks in advance and  reconfirm 1-2 days before the scheduled meeting
    7. 7. Cultural Dimensions in America  Time and Its Control: For Americans, time is a critical factor that is battled on a daily basis. We’re in an adversarial relationship to time. We talk about saving or wasting time, managing time and beating the clock. Americans added the term multi-tasking to the English language.  Comfort with Change Americans are fundamentally optimistic and place faith in the future. As a young culture with few traditions tying us to ways of the past, our identity and inspiration are projected forward in time. Americans link change to progress,
    8. 8. development, and growth. We like things that are “New and Improved!”  Self-Sufficiency Closely related to the American emphasis on individual control over destiny is the value of being self-sufficient. To succeed without depending on others shows supreme self-determination, selfreliance, and self-confidence.  Status In American culture we value the idea of equality. The quotation “All men are created equal…” is arguably the best-known phrase in any of America’s political documents.
    9. 9.  Language Americans are low context communicators, so the words we speak are expected to deliver everything that’s important during verbal interaction. We pay far less attention to factors such as body language and the context of what is being said. Americans appreciate communication that gets straight to the point and tend to interrupt when conversation isn’t moving along.  Individualism: . Individualism is the belief that each individual’s interests should take precedence over those of the social group. Collectivist cultures, by comparison, assign value based on the role a person plays within a group.
    10. 10. CULTURAL DIMENSIONS IN INDIA Respect is based on seniority and not necessarily on proficiency, skills or knowledge  Lay out clear instructions and procedures to employees Expect low job turnover Expect frequent rescheduling of meetings It is a good idea to confirm a day before the scheduled meeting
    11. 11. Cultural Dimensions in India Do not expect decisions to be made at meetings, as meetings are merely forums for exchange of information Aim to build lasting relationships. Put your university degree or any accreditations on your business card
    12. 12. Cultural Dimensions in Germany Power distance This dimension deals with the fact that all individuals in societies are not equal – it expresses the attitude of the culture towards these inequalities amongst us.  Individualism The fundamental issue addressed by this dimension is the degree of interdependence a society maintains among its members. It has to do with whether people´s self-image is defined in terms of “I” or “We”. In Individualist societies people are supposed to look after themselves and their direct family only.
    13. 13. Cultural Dimensions in Germany Masculinity / Femininity Germany is considered a masculine society. Performance is highly valued and early required as the school system separates children into different types of schools at the age of ten. People rather “live in order to work” and draw a lot of self-esteem from their tasks. Managers are expected to be decisive and assertive. Status is often shown, especially by cars, watches and technical devices.
    14. 14. Cultural Dimensions in England  ‘Please’ and ‘thank you’ are words that should be used a lot. In the UK we consider it rude if you do not use them. If you ask for something, say “please”. If somebody gives you something or helps you, say “thank you”  Smoking is prohibited by law in many public places… restaurants, cafes, bars, cinemas etc. If you smoke in these places you will have to pay a fine  Many people in Britain do not smoke or are trying to give up smoking. Even if they smoke, it is unusual for people to smoke inside their own house.
    15. 15. Cultural Dimensions in England    Most of our families do not smoke but they are happy for students to smoke outside - in their garden, for example. British people love pets! If you go to a park it is likely that you will see many people walking their dogs. Dogs are generally domesticated and well behaved so there is no need to be afraid. Queuing…..The British are well know for their love of queues! It is considered very rude to jump a queue. If there is a queue for something, please wait your turn.
    16. 16. Hofstede’s Cultural Dimensions in Dubai
    17. 17. The Determinants of Culture The Determinants of Culture
    18. 18. Social Structure 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
    19. 19. Individuals and Groups A group is an association of two or more individuals who have a shared sense of identity and who interact with each other in structured ways on the basis of a common set of expectations about each other’s behavior Groups are common in many Asian societies Many Western countries emphasize the individual
    20. 20. Individuals and Groups  In societies where the individual is emphasized ◦ individual achievement and entrepreneurship are promoted ◦ but, this can encourage job switching, competition between individuals in a company rather than team building, and a lack of loyalty to the firm  In societies with a strong identification with the group ◦ cooperation and team work are encouraged and life time employment is common ◦ but, individual initiative and creativity may be suppressed
    21. 21. 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
    22. 22. Social Stratification  Social mobility refers to the extent to which individuals can move out of the strata into which they are born  The most rigid system is the caste system (a closed system of stratification in which social position is determined by the family into which a person is born, and change in that position are unlikely)  A less rigid system is the class system (a form of open social stratification in which the position a person has by birth can be changed through achievement or luck)
    23. 23. Religious and Ethical Systems  Religion is a system of shared beliefs and rituals that are concerned with the realm of the sacred  Religions with the greatest following are ◦ Christianity (1.7 billion adherents) ◦ Islam (1 billion adherents) ◦ Hinduism (750 million adherents) ◦ Buddhism (350 million adherents) ◦ Confucianism also influences behavior and shapes culture in many parts of Asia
    24. 24. Religious and Ethical Systems Dominant Religions
    25. 25. Religious and Ethical Systems  Ethical systems are a set of moral principles, or values, that are used to guide and shape behavior  The ethical practices of individuals within a culture are often closely intertwined with their religion
    26. 26. Christianity  Christianity is the most widely practiced religion and is common throughout Europe, the Americas, and other countries settled by Europeans Question: What are the economic implications of Christianity?  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
    27. 27. Islam      Adherents of Islam, called Muslims, believe that there is one true omnipotent God Islam is an all-embracing way of life that governs one's being Question: What is Islamic fundamentalism? In the West, Islamic fundamentalism is associated in the media with militants, terrorists, and violent upheavals, however, the vast majority of Muslims point out that Islam teaches peace, justice, and tolerance Perhaps in response to the influence of Western ideas, some Muslims feel threatened, and are promoting a commitment to traditional beliefs and practices Fundamentalists have gained political power in many Muslim countries, and have tried to make Islamic law the law of the land
    28. 28. Islam Question: What are the economic implications of Islam?  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  While Islam is supportive of business, 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
    29. 29. Hinduism  Hinduism, practiced primarily on the Indian subcontinent, focuses on the importance of achieving spiritual growth and development, which may require material and physical self-denial Question: What are the economic implications of Hinduism?  Hindus are valued by their spiritual rather than material achievements  Promotion and adding new responsibilities may not be the goal of an employee, or may be infeasible due to the employee's caste
    30. 30. Buddhism  Buddhists, found mainly in Central and Southeast Asia, China, Korea, and Japan, stress spiritual growth and the afterlife, rather than achievement while in this world Question: What are the economic implications of Buddhism?  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 in Buddhist societies
    31. 31. Confucianism  Confucianism, practiced mainly in China, teaches the importance of attaining personal salvation through right action  The need for high moral and ethical conduct and loyalty to others is central in Confucianism Question: What are the economic implications of Confucianism?  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
    32. 32. Language 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
    33. 33. 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 However, knowledge of the local language is beneficial, and in some cases, critical for business success
    34. 34. Unspoken Language Unspoken language refers to nonverbal cues Unspoken language such as facial expressions and hand gestures can be important for communication Many nonverbal cues are culturally bound and because they may be interpreted differently, can result in misunderstandings
    35. 35. Education  Formal education is the medium through which individuals learn many of the language, conceptual, and mathematical 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  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
    36. 36. Culture and the Workplace Question: How does a society's culture impact on the values found in the workplace?  1. 2. 3. 4. The most famous study undertaken to answer this question was done by Geert Hofstede who isolated four dimensions that he believed summarized different cultures Power distance Individualism versus collectivism Uncertainty avoidance Masculinity versus femininity
    37. 37. Culture and the Workplace 1. 2. 3. 4.  Power distance is focused on how a society deals with the fact that people are unequal in physical and intellectual capabilities Individualism versus collectivism is focused on the relationship between the individual and his or her fellows Uncertainty avoidance measures the extent to which different cultures socialize their members into accepting ambiguous situations and tolerating ambiguity Masculinity versus femininity looks at the relationship between gender and work roles Hofstede later added a fifth dimension, Confucian dynamism, to capture attitudes towards time, persistence, ordering by status, protection of face, respect for tradition, and reciprocation of gifts and favors
    38. 38. Culture and the Workplace Hofstede’s Four Dimensions
    39. 39. 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 As countries become economically stronger, cultural change is particularly common
    40. 40. Implications for Managers Differences in culture imply that 1. there is a need for managers to develop crosscultural literacy 2. there is a connection between culture and national competitive advantage 3. there is a connection between culture and ethics in decision making (discussed in the next chapter)
    41. 41. Cross-Cultural Literacy Individuals and firms must develop crosscultural literacy International businesses that are ill informed about the practices of another culture are unlikely to succeed in that culture Individuals must also beware of ethnocentric behavior (a belief in the superiority of one's own culture)
    42. 42. Culture and Competitive Advantage For international companies, the connection between culture and competitive advantage is important because ◦ the connection suggests which countries are likely to produce the most viable competitors ◦ the connection has implications for the choice of countries in which to locate production facilities and do business