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Intl biz lesson3


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International business course at ESEC BCN. Bachelor 3.
Lesson 3: Cultural differences

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Intl biz lesson3

  1. 1. International BusinessCultural differences & negotiationsProfessor: Marc Arza
  2. 2. 1. Cultural differences and international businessCultural differences clearly play a role in international business as differentmanagement areas are impacted by them. From human resources to marketingand negotiations with foreign partners cultural differences should be kept in mind.However, it is difficult to measure and consider those differences rationally. Asystem of cultural difference evaluation developped by Geert Hofstede (HostedesCultural Dimensions) is one of the most widely used and can be very useful forbusiness managers.In any case, although cultural differences are important they should not beoverstated. When two people sit down for a business meeting they usuallyhave a common interest and know they may have different views on someissues but most of those can be worked out with common sense and asmile.
  3. 3. 2. Hofstedes Cultural DimensionsBetween 1967 and 1973, Geert Hofstede executed a large survey study regardingnational values differences across the worldwide subsidiaries of this multinationalcorporation: he compared the answers of 117,000 IBM matched employees samples onthe same attitude survey in different countries.This initial analysis identified systematic differences in national cultures on four primarydimensions: power distance (PDI), individualims (IDV), uncertainty avoidance (UAI) andmasculinity (MAS). These dimensions regard “four anthropological problem areas thatdifferent national societies handle differently: ways of coping with inequality, ways ofcoping with uncertainty, the relationships of the individual with her or his primary group,and the emotional implications of having been born as a girl or as a boy ”.In order to confirm the early results from the IBM study and to extend them to a variety ofpopulations, six subsequen cross-national studiest have successfully been conductedbetween 1990 and 2002. Covering between 14 to 28 countries, the samples includedcommercial airline pilots, students, civil service managers, up-market consumers andelites. The combined research established value scores on the four dimensions for atotal of 76 countries and regions.
  4. 4. 3. Power distance index (PDI)Power distance index (PDI): “Power distance is the extent to which the less powerfulmembers of organizations and institutions (like the familiy) accept and expect that poweris distributed unequally.” Cultures that endorse low power distance expect and acceptpower relations that are more consultative or democratic. People relate to one anothermore as equals regardless of formal positions. Subordinates are more comfortable withand demand the right to contribute to and critique the decision making of those in power.In high powerdistance countries, the less powerful accept power relations that are moreautocratic and paternalistic. Subordinates acknowledge the power of others simply basedon where they are situated in certain formal, hierarchical positions.As such, the power distance index Hofstede defines does not reflect an objectivedifference in power distribution, but rather the way people perceive power differences.
  5. 5. 3. Power distance index (PDI)Power distance index shows very high scores for Latin and Asian countries, African areasand the Arab world. On the other hand Anglo and Germanic countries have a lower powerdistance (only 11 for Austria and 18 for Denmark).For example, the United States has a 40 on the cultural scale of Hofstede’s analysis.Compared to Guatemala where the power distance is very high (95) and Israel where it isvery low (13), the United States is in the middle. For example, the United States does nothave a large gap between the wealthy and the poor and has a strong belief in equality foreach citizen. American people have the opportunity to rise in society.In Europe, power distance tends to be lower in northern countries and higher in southernand eastern parts: for example, 90 for Romania, 57 for Spain vs. 31 for Sweden and 35for the United Kingdom.
  6. 6. 4. Individualism index (IDV)Individualism (IDV) vs. collectivism: “The degree to which individuals are integrated intogroups”. In individualistic societies, the stress is put on personal achievements andindividual rights. People are expected to stand up for themselves and their immediatefamily and to choose their own affiliations. In contrast, in collectivist societies, individualsact predominantly as members of a life-long and cohesive group or organization (note:“The word collectivism in this sense has no political meaning: it refers to the group, not tothe state”). People have large extended families, which are used as a protection inexchange for unquestioning loyalty.Regarding the individualism index, there is a clear gap between developed and Westerncountries on one hand, and less developed and eastern countries on the other. NorthAmerica and Europe can be considered as individualistic with relatively high scores: forexample, 80 for Canada and Hungary. In contrast, Asia, Africa and Latin America havestrong collectivistic values: Colombia scores only 13 points on the IDV scale, andIndonesia 14. The greatest contrast can be drawn comparing two extreme countries onthis dimension: 6 points for Guatemala vs. 91 points score for the United States. Japanand the Arab world have middle values on this dimension.
  7. 7. 5. Uncertainty avoidance index (UAI)Uncertainty avoidance index (UAI): “a societys tolerance for uncertainty andambiguity”. It reflects the extent to which members of a society attempt to cope withanxiety by minimizing uncertainty. People in cultures with high uncertainty avoidance tendto be more emotional. They try to minimize the occurrence of unknown and unusualcircumstances and to proceed with careful changes step by step by planning and byimplementing rules, laws and regulations. In contrast, low uncertainty avoidance culturesaccept and feel comfortable in unstructured situations or changeable environments andtry to have as few rules as possible. People in these cultures tend to be more pragmatic,they are more tolerant of change.Uncertainty avoidance scores are extremely high in Greece (100) but lower in Germany(70).. They are lower for Anglo, Nordic, and Chinese culture countries. However fewcountries have very low UAI., China is a good example of very low index (40).
  8. 8. 6. Masculinity index (MAS)Masculinity (MAS), vs. femininity: “The distribution of emotional roles between thegenders”. Masculine cultures’ values are competitivenes, assertivenes and materialism.ambition and power, whereas feminine cultures place more value on relationships andquality of life. In masculine cultures, the differences between gender roles are moredramaticvand less fluid than in feminine cultures where men and women have the samevaluesvemphasizing modesty and caring. As a result of the taboo on sexuality in manycultures, particularly masculine ones, and because of the obvious gender generalizationsimplied by Hofstedes terminology, this dimension is often renamed by users of Hofstedeswork, e.g. To Quantity of Life vs. Quality of Life.Masculinity is extremely low in Nordic countries: Norway scores 8 and Sweden only 5. Incontrast, Masculinity is very high in Japan (95), and in European countries like Hungary,Austria and Switzerland influenced by German culture. In the Anglo world, masculinityscores are relatively high with 66 for the United Kingdom for example. Latin countriespresent contrasting scores: for example Venezuela has a 73 point score whereas Chile’sis only 28.
  9. 9. 7. Long term orientation (LTO) & Indulgence vs. restraintOther cathegories where added to the four basic indexes to complement Hofstedes work.Long term orientation (LTO), vs. short term orientation: First called “Confuciandynamism”, it describes societies’ time horizon. Long term oriented societies attach moreimportance to the future. They foster pragmatic values oriented towards rewards,including persistence, saving and capacity for adaptation. In short term oriented societies,values promoted are related to the past and the present, including steadiness, respect fortradition, preservation of one’s face, reciprocation and fulfilling social obligationsHigh long term orientation scores are typically found in East Asia, with China having 118,Hong Kong 96 and Japan 88. They are moderate in Eastern and Western Europe, andlow in the Anglo countries, the Muslim world, Africa and in Latin America. However thereis less data about this dimension.Indulgence, vs. restraint: Societies with a high rate of indulgence allow hedonisticbehaviors: people can freely satisfy their basic needs and desires. On the opposite,Restraint define societies with strict social norms, where gratification of drives aresuppressed and regulated. There is even less data about the sixth dimension. Indulgencescores are highest in Latin America, parts of Africa, the Anglo world and Nordic Europe;restraint is mostly found in East Asia, Eastern Europe and the Muslim world.
  10. 10. Hofstedes dimensions: national samples
  11. 11. 8. International negotiations and Hofstedes dimensionsOne of the areas where cultural differences may impact more directly on internationalbusinesses is on negotiations. Knowing about the other people culture may be key tomanage a negotiation successfully and Hofstedes dimensions can help a great deal.Negotiation approaches and culture: > Distributive vs. Integrative (basic negotiation concept) > Task vs. Relationship based (most significant issues) > Independent vs. consensus (internal decision making process) > Monochronic vs. polychronic (orientation towards time) > Risk averse vs. risk tolerant (risk taking propensity) > Explicit contract vs. implicit agreement (form of agreement) > Formal vs. informal (protocol)
  12. 12. 9. Basic negotiation concept: Distributive vs. integrativeDistributive perspective. Negotiators from countries that fit this profile believe there will bea winner and a loser. Negotiators take a hard-line approach seeking to meet only theirown goals or interests. Negotiators assume their interests directly conflict with those ofthe other party". Negotiators demonstrate a strong concern for themselves and littleconcern for others. Which makes them resistant to making concessions.Integrative perspective. Negotiators from countries that fit this profile believe that mutuallybeneficial solutions can be generated. Consequently, integrative negotiators take aproblemsolving approach, where the focus is on exchanging information in order toidentify the underlying issues and interests of both sides and to generate outcomes thatbenefit both parties.Negotiating behaviors and national culture. The negotiating behaviors described abovecorrespond to behaviors observed along Hofstedes Masculinity/Femininity dimension. Amasculine orientation is usually characterized by ego enhancement strategies andmasculine cultures emphasize assertiveness, competition, and toughness. A feminineorientation is characterized by relationship enhancement strategies
  13. 13. 10. Most significant issue: Task vs. relationship-basedTask. Negotiators from countries where task issues are more important spend most oftheir time discussing specific operational details of the project, as opposed to broadobjectives. They tend to negotiate a contract in an item-by-item way. Negotiators feel thatit is important to come away with a clear understanding regarding the control, use, anddivision of resources (e.g., profits, management, ownership).Relationship. Negotiators from countries where relationship issues are more importantspend most of their time engaging in activities that build trust and friendship between themembers of each team and in discussing broad objectives. They believe a goodrelationship must be established before task issues can be discussed and that as thesocial relationship develops, task issues will be resolved.Negotiating behaviors and national culture. In collectivist cultures, where relationshipsprevail over tasks, it is impossible to separate the people from the issues at hand.Hofstede (2001) also states that, in collectivist cultures, "the personal relationship prevailsover the task...and should be established first," whereas in individualist cultures, "thetask...[is] supposed to prevail over any personal relationships." Furthermore, collectivismimplies a need for stable relationships, so that negotiations can be carried out amongpersons who have become quite familiar with each other. Replacing even one member ona team may seriously disturb the relationship and often means that a new relationship willhave to be built.
  14. 14. 11. Decision-making process: Independent vs consensusIndependent: Leaders or other influential individuals on the negotiating team may makedecisions independently without concern for the viewpoints of others on the team.Negotiators are expected to use their own best judgment in speaking and acting on behalfof the organization.Consensus: Decision-making power is delegated to the entire team. The team leadermust obtain support from team menmbers and listen to their advice.Negotiating behaviors and national culture. Hofstede (2001) found that cultures with highUncertainty Avoidance scores demonstrate a preference for consultative decisionprocesses and group decision-making. Cultures with low Uncertainty Avoidance scorestend to demonstrate a preference for independent decision processes and individualdecision-making. Obviously the Power Distance (PDI) issue must influece this area aswell.
  15. 15. 12. Orientation toward time: Monochronic vs. polychronicMonochronic. Negotiators with a monochronic orientation believe that time is money. Theyset agendas for meetings and adhere to preset schedules. They schedule negotiations inways that create psychological pressure in having to arrive at a decision by a certain date.They believe that outstanding or contentious issues in a negotiation should be resolvedeffectively within an allotted time frame. Negotiators from monochronic cultures also tendnot to mix business with pleasure.Polychronic. Negotiators from polychronic cultures believe that time is never wasted. Theyfeel that getting to know their counterparts and building a relationship is more importantthan adhering to a preset schedule. Time spent actually discussing and resolving issuesis of minor importance.Negotiating behaviors and national culture. According to Hall (1983), whereas people inmonochronic cultures adhere religiously to plans, "matters in polychromic culture seem ina constant state of flux. Nothing is solid or firm...even important plans may be changedright up to the minute of execution. These monochronic and polychronic behaviors seemto correspond to behaviors observed along Hofstedes Uncertainty Avoidance valuedimension. Cultures high in Uncertainty Avoidance seek clarity and structure, whereas lowUncertainty Avoidance cultures are comfortable with ambiguity and chaos.
  16. 16. 13. Risk-taking propensity: Risk averse vs. risk tolerantRisk averse: Risk-averse negotiators take steps to avoid the failing to come to anagreement. They may be more likely to make concessions in order to avoid failing toreach an agreement, or they may accept lower rewards for a higher probability ofsuccess.Risk Tolerant: Risk-tolerant negotiators believe there is a level of acceptable risk anynegotiation. They are interested in reducing risk, not avoiding it altogether. Risk-tolerantnegotiators show greater willingness to fail to come to an agreement by making fewerconcessions or demanding more (Bazern1an & Neale, 1992). They may be less likely tomake concessions in order to avoid failing to come to an agreement (Ghosh, 1996) orthey may choose a strategy offering higher rewards but with a lower probability ofsuccess.Negotiating behaviors and national culture. Kahn and Sarin (1988) propose thatpsychological factors leading to risk aversion also lead to uncertainty avoidance. Theysuggest that ambiguity accentuates the effects of risk aversion. Hofstede (2001) alsosuggests a relationship between risk aversion and uncertainty avoidance. Cultures withlower Uncertainty Avoidance accept both familiar and unfamiliar risks, whereas cultureswith high Uncertainty Avoidance scores tend to limit themselves to known risks.
  17. 17. 14. Form of agreement: Explicit contract vs. implicit agr.Explicit contract. Negotiators favor and expect written, legally binding contracts (Weiss &Stripp, 1985). A written contract records the agreement and definitively specifies whateach party has agreed to do (Trompenaars, 1994). Consequently, negotiators believe thatwritten agreements provide stability and allow organizations to make investments andminimize business risk (Frankel, Whipple & Frayer, 1996).Implicit agreement. Negotiators favor broad language in a contract because they feel thatdefinitive contract terms are too rigid to allow a good working relationship to evolve.Particularly with new relationships, negotiators may feel that it is impossible to anticipateand document every conceivable contingency. They also believe that contracts inhibitparties from exploring unexpected opportunities for improvement and success.Negotiators view the contract as a rough guideline because the relationship, not thecontract, is primary (Trompenaars, 1994). In some cases, an oral contract may suffice.Negotiating behaviors and national culture. Uncertainty-avoiding cultures tend to shunambiguous situations and prefer structures that enable them to clearly predict andinterpret events (Hofstede, 2001). Written agreements provide a clearly specifiedframework for the relationship; hence, they serve as an uncertainty reduction mechanism.
  18. 18. 15. Concern with protocol: Formal vs. informalFormal. Negotiators with a high concern for protocol will adhere to strict and detailed rulesthat govern personal and professional conduct, negotiating procedures, as well as thehospitality extended to negotiators from the other side. Rules governing acceptablebehavior might include dress codes, use of titles, and seating arrangements (Weiss &Stripp, 1985). Negotiators on the team believe that there are few appropriate ways torespond to a particular situation and there is strong agreement on the team about whatconstitutes correct action. Team members must behave exactly according to the norms ofthe culture and suffer severe criticism for even slight deviations from norms.Informal. Negotiators with low concern for protocol adhere to a much smaller, moreloosely defined set of rules. Compulsive attention to observing the rules is not necessaryand those who deviate from norms are not necessarily criticized. Team members not onlybelieve that there are multiple ways to respond appropriately to a particular situation butmay even disagree about what is appropriate.Negotiating behaviors and national culture. Hofstede and Usunier (1996) propose thatnegotiators from uncertainty-avoiding cultures prefer highly structured, ritualisticprocedures during negotiations. People in high uncertainty avoiding cultures seekstructure and formalization, in an attempt to make interactions and events transpire in aclearly interpretable and predictable manner. People in low uncertainty avoiding culturesare tolerant of ambiguity in structures and procedures.
  19. 19. 16. Negotiation step-by-stepNegotiations should not be viewed as a zero sum game. Good negotiations are those thatare planned and executed from a win-win perspective. This require to basic steps:a) Plan the negotiation. What can you offer? - Delivery & transport - Quality - Broad catalogue - Payment terms - Innovative products - Currency - Business location - Everything but price...b) Try to adapt to the other side/s requirements: - Who are they? (person/s & company) - Where are they? (time, currency, culture, ...) - What are they looking for? - What are others offering? BE INNOVATIVE!
  20. 20. Negotiation case: Norwegian business in China- How will the two negotiating teams manage the different cultural approaches to the negotiation?