Culture and tradition how it affects the international trade and business all over the world

1. mRODUCTION
In Chapters 2 and 3, we saw how national differences in political, economic, and legal systems influence
the and risks associated with doing businessin differentcountries. In this chapter, we
explore how differences in culture across and within countries can affectinternational business. Se'€eral
themes run through this chapter he first is that business success in a variety of countries requires
cross-cultural literacy. By cross-cultural literacy, Wemean an understanding of how cultural
differences across and within nations cän affect tHeway business is practice n these days of global

2. International Business
c«rtrnunicalions. rapid transportation, u orldmde markets, and global brands, hen the era of theglobal
itlage seems just around the corner, it is easy to forgetjust how differentvariousculturesreallyare.
Underneath the veneer of modernism, deep cultural differences
The opening case deals with precisely this point. Walmart's
often remain.2
failurein German wasdue in largepan
to its inability to come to grips with the cultural the UnitedStates.
Walrnan displayed a remarkable lack of cross-cultural literacy when it
with no international experience, no German language capability, and
appointedanAmericanmanager
apparentlyno interestin learning
about cultural differences to run its German operation. It compounded its mistake by trying to impose
the Walmart way of managing on its German employees, without making adjustmentsto accountfor
nontrivial differences in national culture. As Walmart soon found, management practices that seemed
reasonable in the United States did not sit g
well with Germanemployees.Generalizin fromthis
example. in this chapter, we argue that it is important for foreignbusinessesto gain an understandingof
the culture that prevails in those countries where they do business and that successrequiresa foreign
enterprise to adapt to the culture of its hostcountry.)
•s that a relationshi ma exist between cultureand the cost
Another t eme dev
Of oing business in a country orre ton. Different cultures are more or less su rtiveof the •t list
may Increase or ower eco Forexample;some observers
e argu owered the costs of doing business in Japan and helped explainJapan's
rapid economic ascent during the 1960s, 1970s, and 1980s' Similarl . cultural factorscan sometimes
raise the costs of doing business. Historiéally, class divisions were an importantaspecto nus cy ture,
atidTööTIöFÜiiiiiélTifiiGGtating in Great Britain found it difficult to achieve cooperationbetween
management and labor. Class divisions led to a high level of industrial disputes in that country during
the 1960s and 1970s and raised the costs of doing business relative to the costs in countriessuch as
Switzerland. Norway. Germany, or Japan, where class conflict was historicallyless prevalent.
The British ex e. howe,er, brings us to another theme we explore in this chapter.Culture is not
)
sta IC, It can and does evolve, although the rate at which culture can change is the subject of some
dispute. Important aspects Of British culture have changed significantly over the past 31 years, anWthis
has been reflected in weaker class distinctions and-a lower levelof industrialdisputes.sFinally,it is
important to note that multinational enterprises can themsebes be engines of cultural change.In India,for
example, NIcDonald's and other Western fast-foodcompanies may help change the diningcultureof that
nation, (hem auay from traditionalrestaurantsand towardfast-foodoutlets.
WiiAT IS CULTURE?
law,
6
Scholars haC nescr been able to agree on a simple definition of culture. In the 1870s,theanthropologist
Edward Tylor defined culture as "that complex whole which includes knowledge, belief, art, morals.
custom, and other capabilities acquired by man as a memberof society." Sincethenhundredsof
other
l s
definitions have been offered. Geert Hofstede,an experton cross-culturadifference and
management. defined culture as "the collective programming of the mind whichdistinguishesthe
members of one human group from another.... Culture, in this sense,includessystemsof values;and
the building blocks ofculture."' Anotherdefinitionofculturecomesfromsociologists
ZVi Namenuirlh
salues are among of ideas and arguethat theseideas
and Robert Weber.who see culture as a system
for lÅång.
Here. follow
consutute a design Weberby viewin culture as
both Hofstedeand Namenwirthand
a systemofvalues
rms that are shared
designfor
and
In tnt By vatucs. rne+n abstract ideas about ghat a-group believesto be good,right,and
among a group of people and that when taken togetherconstKutea
desirable.

3. Differences in Culture i 105
put differently, values are shared assumptions about how things ought to be.9By norms, we mean the
social rules and guidelines that prescribe appropriate behavior in particular situations. We shall use the
termsociety to refer to a groüp of people sharing a common set of values and norms. While a society
may be equivalent to a country, some countries harbor several societies (i.e., they support multiple
cultures),and some societiegembrace more than one country.
Values and Norms
Valuesform the bedrock of a culture. They provide the context within which a society's norms are
established and justified. They may include a society's attitudes toward such concepts as indiOidual
freedom,democracy, truth, justice, honesty, loyalty, social obligations, collective responsibility, the role
of women,love, sex, marriage, and so on. Valuesare notjust abstractconcepts;they are investedwith
considerable emotional significance. People argue, fight, and even die over values such as freedom.
Valuesare also often reflected in the political and ecönomic systems of a society.As we saw in Chapter
2, democratic free market capitalism is a reflection of a philosophical value system that emphasizes
individual freedom.
Norms are the social rules that govern people's actions toward one another. Norms can be subdiVided
furtherinto two major categories: folkways and mores. Folkways are the routineconventionsof
everydaylife. Generally, folkways are actions of little moral significance.Rather,they are social
conventionsconcerning things such as the appropriate dress code in a particular situation, good éocial
mannefs,eating with the correct utensils, neighborly behavior, and the like. Although folkwaysdefine
the way people are expected to behave, violation of them is not normally a serious matter. People who
violate folkways may be thought of as eccentric or ill-mannered, but they are not usually considered to
beevil or bad. In many countries, foreigners may initially be excused for violating folkways.
A good example of folkways concerns attitudes toward time in different countries. People are k enly
awareof the passage of time in the United States and northern European cultures such as Germany and
Britain.Businesspeople are very conscious about scheduling their time and are quickly irritatedwhen
theirtime is wasted because a business associate is late for a meeting or if they are kept waiting. hey
talk about time as though it were money, as something that can be spent, saved, wasted, and I st.10
Alternatively, in many Arabic, Latin, and African cultures, time has a more elastic character. Keepi g to
a schedule is viewed as less important than finishing an interaction with people. For exampl , an
American businesswoman might feel slighted if she is kept waiting for 30 minutes outside the offi e of
a Latin American executive before a meeting, but the Latin American may simply be completi g an
interactionwith an associateand view the informationgatheredfrom this as moreimportantthan
sticking to a rigid schedule. The Latin American executive intends no disrespect, but due to am tual
misunderstandingabout the importance of time, theAmerican may see things differently.Similarly,
Saudi attitudes toward time have been shaped by their nomadic Bedouin heritage, in which precise time
played no real role and arriving somewhere tomorrow might mean next week. Like Latin Americans,
manySaudis are unlikely to understand theAmerican obsession with precise time and schedules,and
Folkways include rituals and symbolic behavior.
Americansneed to adjust their expectationsaccordingly.
Rituals and symbols are the most visible
manifestations of a culture and constitute the outward expression of deeper values. For example, upon
meeting a foreign business executive, a Japanese executive will hold his business card in both hands and
.
bowwhile presentingthe card to the foreignerll This ritual behavioris loadedwithdeepcultural
symbolism. The card specifies the rank of the Japanese executive, which is a very important piece or
information in a hierarchical society Suchas Japan. The bow is a sign of respect, and the deeper the
angleof the bow, the greater the reverence one person shows for the other.The person receivingthe card

4. (06 International Business
is to examine it carefully (Japanese often have business cards with Japanese printed on one
sideand Englishprinted on the other). which is a way of returning respect and acknowledgingthe card
gßer•s position in the hierarchy. The foreigner is also expected to bow when taking the card and to
return the greeting by presenting the Japanese executive with his or her own card, similarly bowing in
the process. To not do so, and to fail to read the card that he has been given, instead casually placing it
in ajacket, pæket, or purse, violates this important folkway and is considered rude.
Mores are norms that are seen as central to the functioning of a society and to its social life. They
have much greater significance than folkways.Accordingly, violating mores can bring serious
retribution.Mores include such factors as indictments against theft, adultery, incest, and cannibalism. In
mariysocieties, certain mores have been enacted into law. Thus, all advanced societies have laws against
theft, incest, and cannibalism. However, there are also many differences among cultures. In America, for
exagvle, drinking alcohol is Widelyaccepted, whereas in Saudi Arabia the consumptionof alcoholis
viewedas violating importantsocial moresand is punishableby imprisonment(as someWestern
citizens working in Saudi Arabia havediscovered).
Culture, Society, and the Nation-State
We have defined a society as a group of people that share a common set of values and norms, that is.
peoßle who are bound together by a common culture. There is not a strict one-to-one correspondence
between a society and a nation-state. Nation-states are political creations. They may contain a single
eultyre or several cultures. While the French nation can be thought of as the political embodiment of
French culture, the nation of Canada has at least three cultures—an Anglo culture, a French-speaking
"Quebecois" culture, and a Native American culture. Similarly, many African nations have important
cultural differences between tribal groups, as exhibited in the early 1990swhen Rwanda dissolvedinto
a bloody civil war between two tribes, the Tutsis and Hutus. Africa is not alone in this regard. India, for
example, is composedof many distinct cultural groups with their own rich historyand traditions.
At the other end of the scale are cultures that embrace several nations. Several scholars argue that we
can speak of an Islamic society or culture that is shared by the citizens of many different nations in the
Middle East, Asia. and Africa. As you will recall from the previous chapter, this view of expansive
cultures that embrace several nations underpins Samuel Huntington's view of a world that is fragmented
into differentcivilizations, includingWestern.Islamic, and Sinic (Chinese).12
To complicate things further, it is also possible to talk about culture at different levels. It is reasonable
to talk about "American society" and "American culture," but there are several societies within America,
each with its own culture. One can talk aboutAfricanAmericanculture, Cajunculture,Chinese
American culture, Hispanic culture, Indian culture, Irish American culture, and Southern culture. The
relationship between culture and country is often ambiguous. Even if a country can be characterizedas
havi a single homogeneousculture, often that national culture is a mosaic of subcultures.
c Determinants of Culture
e values and norms of a culture do not emerge fully formed.They evolveover time in responseto a
number of factors, including prevailingfolitical and economic philosophies, the s truct
soc an e onunantrel Ion a o e, and education see Igur e discussedpoliticaland
econ01nic philosophies in Chapter 2. Such philosophies clearly influence the value systems of a society.
For example, the values found in CommunistNorth Koreatowardfreedom,justice, and individual
achievement are clearly different from the values found in the United States, precisely becauseeach
society operates according to different political and economic philosophies. In the rest of thischapter,

5. 'Social"bci
Strt)etuie'åt
;qLaoguage,
Differences in Culture 107
Olo!igipö
Culture
tjqrmsmd
Vålue
Systems
TH4iloéophy
Figure4.1 TheDeterminantsof Culture
e
we discuss the influence of social structure, religion, language, and education.
runs both ways. While factors such as socialstructureand reli ion clearlyinfluencethe valuesand
norms o a society, the values and norms of a society can influence social structureand religion.
OCIAL STRUCTURE
A society's social structure refers to its basic social organization.Although social structur consists
of many different aspects, two dimensions are particularly importantwhenaplaüling differences
among cultures. The flist is the'degree to which the basic unit of•social organization is thé individual as
opposed to the group. In general, Western societies-tend to emphasize the primacy of the individual,
whereas groups tend to .agure much larger in many other societies. The second dimension is the degree
to which a society is stratified into classes or castes. Some societiGGFG7cterized by a relatively
high degreerof social stratificationand relativelylow'mobilitybetweenstrata (e.g., Indian);other
societies are charaef&ölidffä-mvde-gree betweenstrata (e.g.,
America
Individuals and Groups
A group is an a;sociation of two or more individuals who have a sharedsenseof identity and who
interact wfll each other in structured ways on the basis of a common set of expectationsabout each
other's behavibr.lj Human social life isogrouplife. Individuals•aie involved in families, work groups,
social groups, recreational groups, and so on. However, while groups are found in all societies, societies
differ according to the degree to which the group is viewedas the primary means of social organization. 14
In some societies, individual attributes and achievements are viewed as being more important than
group membership; in others the reverse is true.

6. 108 International Business
The Individual
In Chapter 2, we discussed individualism as a political philosophy.
noz•n
However,individualism is more than
just an abstract politicat philosophy.In manyWestern individualis thebasic building
block of social organization. This is reflected not just in the
•politicaland economicorganizatiohof
society but also in the way people perceivethemselvessand relate•toeach other in social and business
settings. The values stems ofman Westernsocietieg,for example, emphasize individualachievemeL
The social standing of individuals is notso much å function of whom theywdrk foTöfifiäFFFdFiGäl
performance in whatever work setting they choose.
e
The emphasis on individual performance in many Westernsocieties has bothbeneficial and
aspects. In the United States, the emphasis on individual perform•anc finds expressionin an
harmful
admiration
of rugged individualism and entrepreneurship.One benefitof this is the hi h levelof entre reneurial
activity in the United S!ates and other Westernsocieiigs. EntrepreheurialIndividöals in the Unitéd tales
have creat many new r w wa s ess (e.g., Fersonal computers,
photocopiers, computer software, biotechnology, super arkets,and discount retail stores).One can
argue that the d namismof the hiloso h of individualism.
Individualism also finds expressiönin a high de ree of mana erial mobilit betweencom anie and
this is not always a godd thing. Although mo Ing from cqmpany to•comeanymay be good fori'ndividual
managers who are trying •tobuild impressive résumés, it ié not necessarilya good thing for Åmerican
companies. The lack of loyalty and commitment to'an individualcompany, and the tenden'cyto moveon
but lackthe khowledge,
for a better
experience, and network of inte ersönal t come fromyears of
company. n e ecuve manager draws on company-specificexperience, knowledge,and a nbtworkbf
contacts to find solutions to current problems, and American companies may suffer if their managers
lack these attributes. One positive aspect ofhigh managerial mobility is that executivesare exposedto
different ways o! doing business. The ability to compare business practiceshelps U.S. executives
identify how good practices and techniquesdevelopedin one firm might be profitablyappliedto other
firms.
f
i
.
The Group
In contrast to the Western emphasis on the individu,ql,the group is the primary goit of social organization
In many•other societjes. For example, in Japan, the social tatüs Qf an fndivMlial has traditipnå}ly'béérT
determined as much by the standing of•the gtoüp.to which he or sie belongs aé by his or her indi+idåal
performance. 15In traditional Japanese society, the group was the family or villaéétowhich an individual
belonged, Today, theuroup has frequentl ome to be asso€iatec With the•wokkteam or business
rganiaaliqp„-to-svhicfan individual-belon s In a now:classiqstudy of Japanese society, Nakane noted
how this expresses itself in everydåylif .
When a Japanese faces the outside (confronts another person) and affixes some position to himself socially
he is inclined to give precedence to institutionover kind of occupation.Rather than saying, "I am a
typesetter" of "I am a filing clerk." he is likely to say, "1am from B PublishingGroup"or "I belongto S
company.
Nakane goes on to observe that the primacy of the group to whichan individualbelongs
often evolves into a deeply emotionalattachmentin which identificationwith the group
becomes all-important in one's life. One central value of Japanese culture is the importanceattachedto
group membership. This may have beneficial implications for business firms. Strong identification witn
the group is argued to create pressuresfor mutualself-help.andcollectiéeaction'If the worthof an

7. Differencesin Culture 109
individualis closely linked to the achievements of the group (e.g., firm), as Nakane maintains is the case
inJapan,this creates a strong incentive for individual members of the group to work together for the
n
commo good.Someargue that the success
etween individuals withina co an
of some Japanese enterprises in the global economy has
beenbased partly on their abilit t achieve C
. This has foundexpression ip the widespreaddiffusion o self-managing work
teamswithinJåpanekeorganizations;the cloc cooperation among different functions within Japanese
s
companie (e.g.,among manufacturing,marketing, and R&D); and the cooperation between a company
andits supplierson issues such as design, quality control, and inventory .
reduCtion17In all these cases,
n
cooperatio is drivenby the need to improve the performance of the group (i.e., th&sinessfignj.
Theprimacyof the value of grou identifica •omalso discourages managers and workers from
movingfromcompanyto company. ifetime employmentän a particurar-companywas long the normin
f
of all
Japaneseemployees have formal or informal'lifetime employment guarantees), Over the
certainsectorsof the Japanese economy (estimates suggest that between 20'ind 40 percent
years,
manaers and workers build u knowledge, experience, and a network of interpersonal business
on •
.
contactsöll,these thingscan help managerSper ormt etrp s more effective Yan ac e
with others.
However,the primacy of the group is not always beneficial, Just as U.S. sogiety is characterizgd by ah
-
greatdealof dynamismand refleeting'the rimac of vau ass ciated •th
individualism," e argue t at apanesesociety is c enze by a .correspondinglagkö0fdynamism
mdüfitffiüursh• . Although th? long-rim-consequéncesrare unclear, the United States could continue
ocreatemore new ifdustries than Japan and continue to be lhore successful at pionpering radically new
productsandnéw ways of doing business.
SocialStratification
Allsocietiesare stratifiedon a hierarchicalbasis into social cate ories—that is, into social strata.
Thesestrata are typically defined on the basis of charactensucs suc as amily baékgroUnd,occupation,
and Ilfdividualsare born into l
particular stratum. They'become a mernber of the so•cia category
towhich th trparen e ong. n VI uas o as r of thesociålh•erarch ténd
to havebetter life chances-fran those born.into a stratum toward the bottom of.the hie@chy. They are
li ely to havebettereduc ion, hea t , stan ar o IVIng,an wo po um res. Il societies
arestratifiedto some differ in two related wa s Firs they differ from each othe?with
e
cdnd, eydiffer with regard td the Signifieanc@
regardio thedegfee of mobility between social strata;
attachedto social strata in bdsiness contexts.
Social Mobility
Thetermsocia) mobility refersto thé.extentto which individuals can move out of the strata into Which
theyare born. Social mobility varies signifiéafit[yfrom society to society. The most rigid Systemof
n
stratifica!ioISa m
caste system is a closed•éyste of stratification,inwhichSocial
•
positibnis determinedby the family into which a Bersdnis born, aid change in that position is usually
not possibléduring an individual's lifetime. Often a caste positioh•carries with if a'specifié occupation.
s e e
Member of o•n c,xst might b€•hGäkVrs, menibersof another might be butchers, and so on.These
occupationsare embedded in the caste ahd passed down pthroughthe family to succeeding genera!iöns.
Althoughthenumberof societieswith bastesystems diminished rapidly during the twentieth century,
onepartialexamplestill remains. India has fou san te . Even
thoughthecastesystemwasofficiallyabdlishedin 1949,two years after India became indepen nt, it

8. is still a force in rural Indiansociety where s are stillpartlyrelated
to caste (for more details, see the accompanying Country Focus on the caste system in India today).19
—-—Å-crasssystem is a less rigid form of social stratification in which social mobility is possible.It is
a form of.bpen stratification in which the positioh a person has by birth tan be changed through his or
way up;
her own achievements or luck. Indiviäuals born into å class at the bottom of the hierarch} can work their
born into•aclass at the-top of the hierarchy can slip down.
While many societies have class systems, social mobility within a class system varies fromsociety to
society. For examplei some sociolggists have argued that Britairfias a m6re rigidclass structurethao
wasdividedinto
certain other Western societies such as the United States.20Historically,
•viduals whose families for
generations
three main classes: the upperclas whichwasmade
whose memberstiere involvedin
e middleclas
had wealth, prestige, and occasionalrypower;

9. Differences in Culture 11
professional,managerial, and clerical occupations;and e working class hose membersearned their
living from manual occupations.The middle class was fu er su d
IVIde into the upper-middle class,
The British class system exhi •tedsignifican ivergencebetweenthe life chancesof
whose members were involved in important managerial occupations and the prestigious professions
(e.g., lawyers, accountants, doctors), and the lower-middle class, whose memberswere involved in
clerical work (e.g., bank tellers) and theless prestigious professions (e.g., schoolteachers).
members of
different classes. Th upper er-middl classes pically sent their children to a select group of
privateschools, where t ey wouldn't mix with lower-classchildren and where they picked up many of
the speech accents and social norms that markedthem as being from the higher strata of society.These
same private schools also had close ties with the most prestigiousuniversities,such as Oxford and
Cambridge. Until fairly recently, Oxford and Cambridge guaranteed a certain number of places for the
graduatesof these private schools. Having been to a prestigious university,the offspringof the upper
and upper-middle classes then had an excellent chance of being offered a prestigiousjob in .companies,
banks, brokerage firms, and law firms run by members of the upper and upper-middleclasses.
In contrast, the members of the British working and lower-middleclasses typically went to state
schools. The majority left at age 16, and those who went on to higher education found it more difficult
to get accepted at the best universities. When they did, they found that their lower-classaccent and lack
of social skills marked them as being from a lower social stratum, which made it more difficult for them
toget access to the most prestigious jobs.
Because of this. the class system in Britain perpetuated itself from generationto generation,and
mobility was limited. Although upward mobility was possible, it could not normally be achievedin one
generation. While an individual from a working-classbackground may have establishedan incomelevel
that was consistent with membership in the upper-middle class, he or she may not have been accepted
and
as such by others of (hat class due to accentand background. However,by sending his or heroffspring
to the "right kind of school," the individual could ensure that his or her children were accepted.
According to some commentators, modem British society is now rapidly leaving this class structure
behind and moving toward a classless society. However, sociologists continue to dispute this finding
present evidence that this is not the case. For example, one study reported that state schools in the
London suburb of Islington, which has a populationof 175,000,had only 79 candidatesforuniversity,
while one prestigious private school alone, Eton, sent more than that number to Oxford andCambridge.21
This, according to the study's authors, implies that "money still begets money."They arguethat a good
school means a good university, a good university means a goodjob, and merit has only a limited
chance of elbowing its way into this tight little circle. In another recent surveyof the empiricalliterature,
a sociologist noted that class differentials in educational achievement have changedsurprisinglylittle
es
over the last few decades in many societies, despite assumptions
ounced t
to the contrary.
and mobility is greater. Like
The class system in the United State
Britain, the United.States has its ow upper middle and classe However,class membership
orking
evements,as opposedtobackground
is determined to a much greater degree y undivi ual econo
schooling. Thus, an individual can, by his or herown ecottomic achievement,movesmoothly from
and individuals from
class to the upper class invalifetime. Successful humble origins are highly
the working
which class divisions havehistorically been of some importancehas been China,
Another society for
where there has been a long-standing difference between the life chanceé of the rural peasantry and
urban dwellers. Ironifally, this historic division was strengthened during themigh point of Communist
rule because of a rigid system of household registration that restricted most Chinese to the place of

10. 112 International Business
their birth for their lifetime. Bound to collective farming, peasants were cut off from many urban
privileges—compulsory education, quality schools, health care, public housing, varieties of foodstuffs,
to name only a few—and they largely lived in poverty. Social mobili!y was thus very limited. This
system crumbled following reformsof the late 1970sand early 1980s,and as a consequence,migrant
peasant laborers have flooded into China's cities'looking for work. Sociologists now hypothesize that
n
a new class system is emerging in China based less on the rural—urba divide and more on urban
occupation.23
nificance
From a business perspective, the stratificationof a society is significant if it affects the operationof
business organizations. American society, the high degree of social mobilit and the e treme em ha- 1
t
sis on individualism limit the-impaqof class ac ground op businéss-o erations.The sameis truein
Japan, where most of the popula!ion perceives Itse o enu ec ass. In a country such as Great*Brit-
ain, however, the relative lack of class mobiliéyand the differences between classes have resulted in the
Class consciouSness re erstoa con Ition y w peope tend
to perceiva themselves in terms of their class background, and this shapeötheir relåtiorfshipswith mem-•
bers of other classes.
This has been played out in British society in the traditional hostility betweenupper-middle-class
managers and their working-class employees. Mutual antagonism and lack of respect historically made
it difficultto achievecooperationbetweenmana ement and laborin manyBritishcompaniesand
resu ted in a re auve y
dramatic reduction•tn1
lgh level of industrial dis utes. However,the past•twodecades have'seen a-
Isputes,Which bolsiers the arguménts of those who claim that the
country is moving towarda classles society. Alternatively, as notedearlier, class consciousness may be
reemerging in urban China, and it may ul!imately prove tö be significänt there.
An antagonistic relatiönship betweenmanagementand labor classes, and the rewlting lack of
cooperation and hi h I vel industrial disru ti , tends to raise the costs of production in countries
charactefizedb si nificant class div' In turn,
in suc countries toestablish a competitive advantage in theglobal economy.
RELIGIOUS ANDETHICAL SYSTEMS
Religion may be defined as a system of shared beJi
e sacred.24Ethical systems
e
refer to a set o? moral principl
ri u that are concerned with the realm of
r values, that are used to guide and
shape behavior. Most of the wdr(d's ethieal systems arethe ptoduct'of retigiæ$hus, we can talk about
0
0
Christian ethics and Islamic ethics. However,there is-amajor exception to the principle that ethical
systems are grounded in religion. Confucianism and Confucian' ethics influence behavior and shape
culture in parts ofAsia, yet it is incorrectto characterizeConfucianismas a religion.
The relationship between religion, ethics, and society is subtle and complex. Among the thousands of
religiöns in the world today, föur dominate in terms of numbers•ofadherents:Christianity with rovghly
2-2.2 billion adherents, Islam with around 1.6 billion adherents,Hinduism with 800—95 million
adherents (primarily in India),¯and Buddhism with 400—50 (see Map 4.1). Although many other
religions have an important influence in certain parts of the modern world (e.g., Shintoism in Japan,
with roughly 40 million followers, and Judaism, which has 18 million adherents and accounts for 75
percent of the population of Israel), their numbers pale in comparison with these dominant religions

11. (althoughaSthe precursor of both Christianity and Islam, Judaism has an indirect influence that goes
beyondits numbers). We review these four religions, alone with Confucianism, focusing on their
B)tentialeconomic and business implications.
Some scholars have theorizgd thatce most importaot business implications of religion center on the
extent which different religions shape attitudes toward uork and entrepreneurshiW)nd'the
the religious ethics åtfects the.costs Ofdoing business in a Country.However, it is hazardoys to
makesu eeping genewli&uons about the nature of the relationship between religion and ethical systems
and business practice. While some scholars argue that there is a relationship between religious and
ethical systems and business practice in a socigty, in a world where nations with Catholic. Protestant,
Musltm,Hindu, and Buddhist majorities all show evidenge of entrepreneurial activity and sustain ble
economicgroutli, it is importantto view such proposed relationship; yith a degree of skepticism. e
policy.On the other hand. research by economists kobert Barro and Rachel McCleary does suggest that
strongreligious beliefs. particularly beliefs in hell. and an afterlife, have a positive Impactort

12. S
114 International Business
ecoaqmic growth rates, irrespective of the particularreligion in question.2 Barroand McClearylooked
l
congecturewas that higher religious beliefs
aspectsof individuabe avtort at eadto
duriiig the 1980s and 1990s. Their
stimulate economic growth becauqethey help to «ustajn
erproductivity,
Christianity
Christianity is the most widelyTraeticc•ueligion in the world. The vast majority of Christians live i')
urbpean&theAmericas, although their numbers are growing rapidly inAf6ca. Chrisnani.tfgrew out
of Juååism. Like Judaism, it is a monotheis!ic religioö (monotheism is the belief in one
divisio•nin the elevénth cetitury led to the establi'hmept of niajor Christian-organi4üæjs-—the
Rqman Chtholic Church and the Orthodox Church. today, theRoman Cath61icChurch accbuntsfor
mote thån half of alf Christians, =-aæFFfound in so,uthernEuröee and Lati6•America.The
k
Orthodox Church, while less irifluential, is still of major importance in.severål countries (e.g., Greece
and Russia). In thé six!eenth century, tKeReformation led to a furtheösplit with Rome;'the result was
Protestantism. The honco.nformi$ pature of Protestantism as aci Itate the emergeffceo numerous
TüGfi8$under the Protestmt u'mbrellh(e.g., Baptisi, MethÖdist,Calvinist).
Economic Implications ofdhristianity: The Protestant LVor.E!hic
sociologists,have argued that of the main branchestof Christianity—Catholic,Orthodox.ard
rote é latter ha's the most importånt econonhiéimplicatiöhs. In 1504,a Germap sociologist.
6
Max Weber;made .acdnnectiop bétweén "the spjlit of cawtalism" thathas since
become famous.2 Weber noted that capitalism emerged in western
business leaders and owners of capital. as well as the higher grades of skilled labor.and even morethe higher
technicallyand commerciallytrained personnelof modernenterprises,are overwhelminglyProtestant?
Weber theorized that there was a r tionshi
He argued that Protestant ethics em
between Protestantismand
imöortän& of hard workand wealthcreation
(f67Fe 10 of Göd) and fril alit '
(abstinencefrom world y pleasures).Accordin*toWeber.•ihisivnd
€i
pf2?Åe3ysLem-wasyed ed-to åcilitate deVelopmeriof capitalism: ProtestantswoÄed hard and
systematically td accumulate wealth. However, their ascetic beliefs suggested that rather than consuming
this wealth by¯ln ulging in worldly p)easures, they should invest it in thé expansionof capitalist
enterprises. Thus, thé combination of hard work and the accumulationof capital,uhich could be used
to finance investment and expansion; averthé n
Wa for the developmentof•capitalési in western
tates:ln contr stv e ergnrgue e
a t e Catholicpromis of
uropean
salvation In
su sequenty
e next wor , rather than this
Protéstantisrrratso-miY have encouraged capitafism's developmeåtin another way. By break'inga_way
from the hierarchical domination of religious and'social life that characterizedthe Catholic hurch {or
s
much of its history, Protestantisrfigave indiQ1dual sigilficantlY more freedomto eve op théir own
relationship with God. 'Scentral to the nonconformist nature
e
of early Protestahtism. This •emphåsison individuål reli ious freedom may h%v paved the way for the
subsequent emphasis on individual•economic and politica t
reedotns and' thes-deveropmefiof
individualism as an ecorfomiend po Itica pfilosqphy.As we saw in Chapter 2, such a philosoVhy
on which entrepreneurial free mark-ucapitalism is based..Buildingon this, some
sc Olars claim there is a connection between individualism, as inspired by Protestantism,and theextent

13. Differenc
S
ofentrepreneurialactivityin a nation.2Again,one must be careful
tant tradition such as Britain, Germany,
not to generalize too much from this
andthe United States were earl leaders in the industrial revoldtion, nations withCatholic or Orthodox
majoritiesshowsignificantand sustaine entrepreneurlål activilfanceconomic growth in the
world.
Islam
Withabout 1.6billion adherents, Islam is the second largest of the world's major religions. Islam dates
n
backtoA.D. 610 whenthe ProphetMuhammad-bega spicading the word. although the Muslim
calendarbegins inA.D. 622 when, to.escape growing opposition, Muhammad left Mecca for the oasis
settlementofYathrib,later known as Médina.Adherents of Islanhare referred to as Muslims. MuS11%s
constitutea majorityin mote than 40 countries and inhabit a nearly contiguous stretch of land from the
northwestcoastofAfrica, through the MiddleEast, to China and Malaysia in the Far East.
Islamhasrootsin bothJudaismand hristianit (Islam views Jesus Christ as one of God's prophets).
LikeChristiangyand Judaism, tslam is a monbtheistic religion. Tehecentral principle ofJsla}n is Ihat
thereis but the'one true omni •oent o a s am requires uncohditional acceptance of tfie
,
uniqueness rower: and authority o od and the understanding that the objective ot life is to-fulfill the'
dictates0This will.in the hopeof admission to paradise.According to Islam, worldly gain and temporal
.
)
"
.
n
powerare an illusion. Those who pursue riches on earth may gairi them, but those whO forgo worldly
ambitiohsto seekthe favorofAllah may gain the greater treasure—entry into paradise. Other major
principlesof Islam include (t) honoring and respecting parents, (2) respecting the rights of others, (3)
beinggenerous but not a squanderer, (4) avoiding killing except for justifiable causes, (5) not committing
adultery,(6)dealingjustly and equitably with others, (7) being of pure heart and mind, (8) safeguarding
thepossessionsof orphans,and (9) being humbleand unpretentious29Obvious parallels exist with
manyof the centralprinciples of both Judaism and Christianity.
Islamis an all-embracing way of life governing the totality of a Muslim's being.3( As God's surrogate
in this world, a Muslim is not a totally free agent but is circumscribed by religious principles—-by a
codeo! conduct for interpersonal relations—in social and economic activities. Religion is paramount in
all areqsbf life./The Muslimlives in a social structure that is shaped by Islamic values and norms of
moralconduct.The ritual natureof everydaylife in a Muslim country is striking to a Western visitor.
Amongother things, orthodox Muslim ritual requires prayer five times a day (business meetings may be
puton hold while the Muslimparticipantsengage in their daily prayer ritual), demands that women
shouldbe dressed in a certain manner,and (orbids the consumption of pork and alcohol.
IslamicFundamentalism
Thepast three decadeshave witnessedthe growthof a social movement often referred to as Islamic
fundamentalism. In the West. Islamic fundamentalismis associated in the media With militants,
terrorists,and violent upheavals, such as the bloody conflict occurrinvgin Algeria, the killing of foreign
touristsin Egypt, and the September I l, 2001 attacks on the World Trade Center and Pentagon in the
UnitedStates.Thischaracterizatio is misleading.Just as Christianfundamentalistsare motivated by
sincereand deeply held religious values firmlyrooted in their faith, so are Islamic fundamentalists.
e
violenc that theWesternmediaassociateswith Islamicfundamentalismis perpetrated by
The
a small
y "
minorit of radical"fundamentalists whohavehijackedthe religion to further their own political and
"
violentends.(SomeChristian"fundamentalists havedone exactlythe same, including
DavidKoresh.)The vastmajorityof Muslims point out that Islam teaches peace, justice,
Jim Jones and
and tolerance,

14. a
l
I IG InternationBusiness
not Oolence and intolerance, and that Islam explicitly repudiates the violence that a radical minority
practices.
The rise of Islamic fundamentalism has no one cause. In part, it is a response to the social pressures
created in traditional Islamic societies by the move towardmodernizationand by the influenceof
Western ideas, such as liberal democracy, materialism, equal rights for women, and attitudes toward
sex, marriage, and alcohol. In many Muslim countries, modernizationhas been accompaniedby a
growing gap between a rich urban minorityand an impoverishedurban and rural majority.For the
impoverished majority, modernization has offered little in thé way of tangible economic progress. while
threatening the traditional value system. Thus, for a Muslim who cherishes his or her traditions and feels
that his or her identity is jeopardized by the encroachmentof alien Western values, Islamic
fundamentalism has become a cultural anchor.
Fundamentalists demand commitment to traditional religious beliefs and rituals. The result has been
a marked increase in the use of symbolic gestures that confirm Islamic values. In areas where
fundamentalism is strong, women have resumed wearing floor-length, long-sleeved dresses and
covering their hair; religious studies have increased in universities; the publication of religious tracts has
increased;and public religiousorations have risen.32Also, the sentimentsof some fundamentalist
groups are often anti-Western, Rightly or wrongly, Western influence is blamed for a range of social ills.
and many fundamentalists'actions are directed against Westerngovernments,cultural symbols,
businesses, and even individuals.
In several Muslim countries, fundamentalists have gained political power and have used this to try to
make Islamic law (as set down in the Koran, the bible of Islam) the law of the land. There are grounds
for this in Islam doctrine. Islam makes no distinction between church and state. It is not just a religion;
Islam is also the source of law, a guide to statecraft, and an arbiter of social behavior. Muslims believe
that every humanendeavoris withinthe purviewof the faith—andthis includespoliticalactivity—
because the only purpose of any activity is to do God's will." (Some Christian fundamentalists also
share this view.) Muslim fundamentalists have been most successful in Iran, where a fundamentalist
party has held power since 1979,but they also have had an influence in many other countries, such as
Afghanistan (where the Taliban established an extreme fundamentalist state until removed by the U.S.-
led coalition in 2002),Algeria, Egypt, Pakistan, SaudiArabia, and the Sudan.
e—ß06mic Implications of Islam
e
The Koran establishes some explicit economic principles, many of which are pro—fre entcrprise.u The
Koran speaks approvinglyöf free enterpriée and of earning legitimate profit through trade and commerce
(the Prbphét Muhammay himself wa; on9e a trader). The protection of the•right to priVatgproperty is
also embedded within Islam, although Islam asserts that all property is a favor frirn Allah
created and so owns everything. Those who hold préperty are regardeß as trustees rather than owner$in
the Western sense of the word.As are entitled to-receiveprofits froni the property but are
s,
n
admonishedto 'use it in a Fighteou socialiy beneficial, and prudent manner.This reflects Islam's
concern witli social justice. Islam is criticpl of those who e%lr profit through tie exploitation of others.
In the Islamic view of the world.'humans are part of a collective in which the wealthy grid Successful
have obligations to help the disadvantaged. Put simply, in Muslim countries, it is fine to eqrn a profit..so
Ion as t t based on the exploitation of others for one's own advanta e.
s
It also helps if those inaking•profit undectakecharitabe acts to ep e poor.Furthermore,Islam
s
stresses the imßortallcé of living tip to pontractual obligations, of keeping one s wold, and of abstaining
from deöep(iönZFora closer100kat how Islam, capitåfism,and globalizationcan coexist, see the
accompanymg"Country Focus about the region around Kayseri in central Turkey.

15. Given the Islamic proqlivity p favor market-based_systems, Muslim co.untriesare likely to be
receptive to-international businesses aslong as those businessesbehüffüiäüiivr-tfiät-ts-eo--¯' nsl$ént
with Islamic ethics. Businesses that are Perceivedas•makirigan unjust profit through the exploitationof
Others,by deception, or by breaking contractual obliiations aré unlikely•tobe welcorpedin an Islpmic
country. In addition, in Islamic countries where fundamentalismis on the rise, hostility towardWestern-
own?d businesses is likely
Ong economic principle of Islam prohibits the payment or receipt of interest+vhich is considered
1120'sThis is not just a matter of theology; in seve7åVslamic states, it is also a matter of law.The Koran

16. 18 International Business
clearly condemns interest, which is called riba in Arabic, as exploitative and unjust. For many years,
banks operating in Islamic countries conveniently ignored this condemnation, but starting about 40
yeaa ago with the establishment of an Islamic bank in Egypt, Islamic banks started to open in
predominantlyMuslim countries. By 2009, more than 400 Islamic banks in more than 50 countries had
assetsof around $400 billion, while another $800 billion was managed by mutual funds that adhered to
Islamic principles.36Even conventionalbanks are entering the market—both Citigroup and HSBC, two
of the world's largest financial institutions, now offer Islamic financial services. While only Iran and the
number of countries customers can choose
Sudan enforce Islamic banking conventions, in aAincreasing
betweenponventional banks and Islamic banks,--l
Conventionalbanks make a profit on the spread betwe the interest rate they have to pay to
depositorsand the higher interest rate they charge borrower Because Islamic bankscannot pay or
charge interest, they must find a different way of making m ney. Islamic banks have experimented with
two different banking methods—the mudarabah and the murabaha. 37
A mudarabah contract is similar to a profit-sharing scheme. Under mudarabah, when an Islamic bank
lends money to a business, rather than charging that business interest on the loan, it takes a share in the
profits that are derived from the investment. Similarly, when a business (or individual) deposits money at
an Islamic bank in a savings account, the deposit is treated as an equity investment in whatever activity the
bank uses the capital for. Thus, the depositor receives a share in the profit from the bank's investment (as
opposed to interestpayments) according to an agreed-on ratio. Some Muslims claim this is a more efficient
system than the Western banking system, because it encourages both long-term savings and long-term
inveStment.However, there is no hard evidence of this, and many believe that a mudarabah system is less
efficient than a conventional Westem banking system.
The second Islamic banking method, the murabaha contract, is the most widely used among the
world's Islamic banks, primarily because it is the easiest to implement. In a murabaha contract, when a
firm wishes to purchase something using a loan—let's say a piece of equipment that costs $1
firm,tells the bank after having negotiated the price with the equipment manufacturer. The bank then
buys theequipment for $1,000, and the borrower buys it back from the bank at some later date for, sav,
$1,100, a price that includes a $100 markup for the bank. A cynic might point out that such a markup is
functionallyequivalent to an interest payment, and it is the similarity between this method and
conventional banking that makes it so much easier to adopt.
H duism
Hin uism has opproximately750 million adherents, most of them on the Indian subcontinent. Hinduism
in the Indus Valley in India more than 4,000 years ago, making it the world's oldest major religion.
beg
Unl e Christianity and Islam, its founding is not linked to a particular person. Nor does it have an omcially
sanctionedsacred booksuch as the Bible or the Koran. Hindus believe thata moral force in society
requiresthe acce tance of certain res •e ,
called dharmtb Hindus believe in reincacnati0Qor
reb Into a different body, after death. Hindus alsobelieve in kgma--the s iritüal rogression of each
person's soul.A person's karma is affectedby the way he or she lives.The moral state of an In VI ua s
karma determines the challenges he or she will face in the next life. By perfecting the souljn each new life,
Hindus believe that an individual can eventually achieve nirvana, a state of complete spiritual perfection
that renders reincamatibli no' longer necessary. Many Hindus believe that the way to achieve nirvana is to
lead a severe ascetic lifestyle of material and physical self-denial, devoting life to a spiritual rather than
mat&rialquest.

17. l.'?fl
Differences in Culture 189
EconomicImplications or Hinduism
MaxWeber,famous for expounding on the Protestant work ethic, also argued that the ascetic principles
embeddedin Hinduismdd not encouragethe kind of entre reneuria •ty in pursuit•ofwealth
creationt at we IQdin Protestantism. ccor Ing o e er, traditionalHindu value' emphasizethat
individuals should be judged hot by their material achieVemencsbut b •their s tritua ac levementS7
Hin us percei et e pursui ena we - eungas ma Ingt e attainmentorrftrvanamoredifficult.
Giventhe emphasis on Asceticlifestylé.Weber thought that devout Hindus would be less likely to
engage'in entrepreneurial activity than devout Protestants.
Mahatma Gandhi, the famous Indian nationalistand spiritual leader,was certainly the embodiment
of Hindu asceticism. It has been argued that the vylues of Hindu asceticism and self-reliance thaÜGandhi
advocatedhad ä negative impact on the economic develdpment of posi independenée India." But one
must bé careful not to'read too much into Weber's argumenis. Modern dynamic
enßEpgneuriaLsocietY+and millions 0ThardwoFking entrepreneÜrsform theeconomic hackbone-ofthe
Historically, Hinduism also supportedIndia's caste system. The concept of mobility betweencastes
within an individual's lifetime makes no sense to traditional Hindus. Hindussee mobilitybetwéen
castesds something that is achieved through spiritualproÅression arid reincarnaiion. An individual can
be reboi-ninto a higher caste in his or her next life if he or she achievesspiritual developmentin this life.
Although the caste system has been abolished in India, as discussed earlier in the chapter,it still casts a
long shadow over Indian life.
uddhism
Buddhism was founded in the sixth century B.C. by Siddhartha Gautama, in what is now Nepal.Sid-
l
dhartha renounced his wealth to pursue an ascetic lifestyle aild¯yptntuaperfection. His adherents
claimed he achieved nirvana but decided to teach his followershowthey too could
stageof spiritual enlightenment. Siddhartha became known as the Buddha(which means
"the awakened one"). Today, most Buddhists are found in Central and Southeast Asia, China, Korea,and
.
Japan. According to Buddhism* sufferihg originåtes in peoplé's desires for pleasure. Cessation of suffer-
ing can be achieved by fdllowing a path for transforniation. Siddhartha offered the Noble Eightfold Path
as a routefor transformhtion. This emphasizes right seeing: thinking, speech, action, living,effort, mind-
fulnesS,and meditation. Unlike Hinduism, Buddhism does not su •ortthe caste system. Nor does Bud-
d ism advocate ehavrort atISencoura edb Hi everthelessIli-e
Hindus, Buddhists stress the_afterlifeand spiritual achievement rather than involve sworld.
EconomicImplications of Buddhism
The emphasis on wealth creation that is embedded.in Protestantiyn is not found in Buddhism.Thus, in
Buddhist 'ocieties, we do'not see the'same kind of historicalcultural stress on entrepreneurialbehavior
that Weber claimed eobld be found in the Protestant West. But unlike Hinduism. the lack of support_f_or
the•castesystem and éxtremz åscetic behavior,suggests that a Buddhist soüYmay-tepreSent a more
reruleground fot_entrepreneunalactivity than a Hindu cülturg.
Confucianism
Confucianismwas founded in the fifth century B.C..by K•ung-Fu-tzu, more generally known as
Confucius.For more than 2,000 years until'the 1949Communist revolution,'Confucianismwas the

18. 120 International Business
offi If stem of China. While observanceof Confucianethics_hasbeen weakened in China
since 1949,many people still ollow the teachings of Confucius, principally in China, Korea,and Japan.
Confucianism teaches the im ortance of attain ersona . Although not
a religion, Confucianideologyhas becomedeeply embeddedin the culture of these countries over the
centuries and. through that, has an impact on the lives of many milli6ns more. Confucianism is huilt
around a comprehensive ethical code that sets down guidelines for relationships with othérs. Uig--.-.—.r.al.-
and ethit•al onductand 10 toothersarec ntral t' nis . Unlike religions: Confucianism is
not concerned with the supernatural and has little to say about the concept of a supreme being or an
afterlife.
Economic Implications of Confucianism
Some scholars maintain that Confucianism may have economic implications as profoundas those
Weber were to be foundin Prötestantism,alihough they are of a different nature" Their basic—
thesis is thattheinfluence of Confucian ethics on thecultureof China d
pan, South Korea._an Taiwan, ,
y lowering thecosts of doing business in thQsecountries, may help explain their economic success. In
to the Confuciansystem of ethics is of articular interest: loyalty',
reciprocar obligatms, and honesty In ea mgs wgt t ers.
In Confucian thought, loyalty to one's superiors is regarded as a sacreé duty—an absolute obligation.
In modern organizationsbased in Confuciancultures, the loyalty'that bings-employeesto the heads of_
their organizationcan reducethe conflictbetweenmanagemenCandlabor that we find in moreclass-
conscious societies.Cooperationbetween managementand labor cap be achieved at a lowercost in a
culture where the virtue of loyalty is emphasized in the value systems.
However, in a Cdnfucian culture, loyalty toOng's
is not blind loyalty. The s
as a worker's Ipyalty to management,
m o tant. Confucian•ethics.stressethal
,
superiors are obbigedto reward the loyalty of their subordinates by bestowing bl$siogs on th9rn. If
these "ble.ssings"are riot forthcdming. then neither will be the' loyalty. This Confucian ethic is central to
the Chinese concept•of uanxi,_which refers to relationshi networks supported by reciprocal
obligåtions.4! Guanxi means relationships, although in business settings It can e etterunderstoodas
cömecfiöfiS7TodayChinese will often cultivate a guanxiwang, or "relationship network," for help.
Reciprocal obligations are the glue that holds such networks together. If thöse obligations are not mea—- if
favors done are not paid kack or reciprocated—the reputation of the transgressor is taroished and the
person will be less able todraw on his or herguanxiwang for help in the future.Thus, the implicit threat
of social sanctions is often sufficient to ensure that favors are recaid, obligations are met, and
relationshipsarehonored,In a societythatlacks a rule-baSedlegal tradition,and thiß legal ways of
redressing wrongs such as violations of business agreements,guanxi is an importantmechanismfor
building long-term business relationships and getting business done in China. For an example of the
importance of guanxi, read the Management Focus on DMG-Shanghai.
A third concept found in Confucian ethics is the impprtance attached tn hnnesty. Confucian thinkers
emphasize that although dishonest behavior may yield short'te.rmbenefits for the transgressor,
dishonesty does•notpay in-the long-run. Thé importance attached to honesty has major economic
imphcations. Whén companies can trusteash other not to break the costs of
doing business are lowered3E.xpensivelawyers are not neededto resolvé contract disputes. In a
Confucian society, people may.be less heshant t? commit substantial resources to cooperative ventÜres
than in a society where honesty is less pervasiye. When companies adhere to Confucian ethics„théy can
trust each other' not to v.iolatéthe terms of cooperatiée agreements'.Thus, thö costs'of achieving
such as Japan relative tosocieties wheretrust
cooperation between companies maybe lowerin
ISless Pervasive.

19. For example, it has been argued that the close ties between the automobilecompaniesand'their
component pans suppliers in Japan are facilitated by a combination of trust and reciprocal obligations.
These close ties allow the auto companies and their suppliers to work together on a range of issues,
including imentory reduction. quality control, and design. The competitive advantageof Japanese auto

20. companies such as Toyota may in part be explained by such factors.4)Similarly, the combinationof trust
and reciprocal obligations is central to the workings and persistence of guanxi networks in China,
ANGUAGE
ne obvious way in which countries differ is language. By language. we mean boththe sppkenandthe
unspoken means of communication. Language is one of the defining characteristicsof a culture.
Spoken Language
s
Language does far more than just enable people to communicatewith each other.The natureof a
language alSo structuere the way we perceive the yorld. The languageof a societycan direct t e
attention of its members to certain fe tuies of the world rather than others. The classit illustration of this
p enomenon ISthat whefeås the English language has ut one word for snow, [he languagé of the Indit
g
(Eskimos) lacks a 'general térm for it: Instea4, becaåse •distinguishindifferentformsof snowis so
important in themves of the Inuit, they have 24 words that describe different types of snow (e.g., powder
snop, falling snow, wet snow, drifting snow).44
eople perceiye the world, it als hel s efine ture.Countrie
u . Canada has an English-speakin*
Because Ian ua e sha es the wa
with more than one Ian•da
cu ure an a Ffench-s ea Tensipns between the two can run quit? high, with a
s 1 proportion of the French-speaking minority demandingindependencefrom a Canada
"d9nated by English speakers." The same phenomenoncan be observed in manyother countries.
indi
Bel ium is divided into Flemish and French'speakers, and tensions between the two groupsexist;in
Sp in, a Basque-speaking minority with its own distinctive culture has been agitating•for
independence from the Spanish-speaking majority for decades; on the Mediterranean island of Cyprus,
the/culturally diverse Greek- and Turkish-speakingpopulations of the island engagedin open
conflict in the 1970s,and the island is now partitioned into two parts.Whileit does not necessarily
follow that language differences create differences in culture and, therefore, separatist pressures
witness the harmony in Switzerland, where four languagesare spoken),therecertainlyseems
to be a tendencyin this direction.45
Chinese is the mother tongue of the•largestnumber of people, followedby EgglisLand
H oyhich is spoken in India. However. the most widely spoken language in the world is
EngliSh, followed by French, Spanish, and Chinese (i.e., many people speak Englishas a second
language). English is increasingly becomingthe languageof internationalbusiness.Whena Japanese
and a German businessperson get together to do business, it is almost certain that they will communicate
in English. However, although English is widely used. learning the local languageyields considerable
advantages. Most people prefer to converse in their own language,and being able to speak the local
Ian uage can build rapport, which may be very important for a businessdeal. Internationalbusinesses
tha do not understand the local language can make major blunders through impropertranslation.For
example, the Sunbeam Corporation used the English words for its "Mist-Stick" mist-producinghair-
curling iron when it entered the German market, only to discoverafter an expensiveadvertising
campaign that mist means excrement in German. General Motors was troubled by the lack of enthusiasm
among Puerto Rican dealers for its newChevroletNova.When literallytranslatedintoSpanish,nova
means Star. However, when spoken it sounds like "no va," which in Spanishmeans"it doesn't go."
General Motors changed the name of thecar to Caribe.46

21. Differences in Culture
UnspokenLanguage
Unspokenlanguage.refersto nowerbal communication.We all communicate with each other by a host
ofnonverbalcues.The raisingof eyebrows,forexample,is a sign of recognition in most cultures, while
•smile is a of •o . Man no es however areculturall bound. A failure to understand the
l . d
nonverbacues o anothercultureeat)lea- to a communicationfailure. For example; making a circle
with the and theTorefingen.isa friendly g-estuiein the United States, but itis a vulgar sexual
e
•
invitation in Greece and Turkey. Similarly, while most Americans and Europeans use -thethumbs-up
gestur to indicate that"it's all+nght," in Greece the kestureis obscene•.,
Anotheraspectof nonverbalcommunicationis is the comfortable amount of
distancebetweenyou and someoneyou are talking With.In the United States, the customary distance
apart•adoptedby parties in a business discÜssionis five to eight feet. In Latin America, it is three to five
feet. many North Americans unconsc=jytüfifiat Latin Americans are invading their
personal space and can be seen backing away Trom them during a conversation: Indeed, the American s
may feel that the Latin is being aggressive,and.pushy. In turn, th&LatinAmerican may—interÉreu.such
backing away as-aloofne's. The result can be a regrettable lack of rapport between two businesspeople
from'differentcultures.
DUCATION
Formaleducationplays a key role in a society.Formaleducationis the mediumthrough which
individualslearn many Oftfielanguage, and-matherpaticalskills that å@indispensable ih a
rnodern'ociety. Foimal educationalsÖsupplementsthe family's role in socialiiing the young into the
valuesand normsof a society.Valuesand normsare tau ht bot Schools
t e.8
generally teach basic facts about the social and political nature of a society. They a so focus on the
fundamentalobligations of citizenship. Cultural norms are also taught indirectly at school. Respect for
others,obedienceto authority,honesty,neatness,being on time, and so on, are all part of the "hidden
curriculum"of schools.The use of a gradingsystemalso teacheschildrenthe valueof personal
achievement and competition.47
From aminternationalbusiness perspective,one importantaspect of education is its role as a
determinan of nationalc m etitive advantag 4 The availabilityof a pool of skilledand educated
workersseems to be a major determinant o t e 1 ely economic succeSsof a country. In analyzing the
competiiivesuccess of Japan-since 1945, for éxample; Michael Porter notes that after the war, Japan had
almost nothing except for a pool of skilled and educated human resources.
With a long tradition of respect for education that borders on reverence, Japan possessed a large pool of
literate, educated, and increasingly skilled human resources Japgn has benefited from a large pool of
trained engineers. Japanese universities graduate many more engineers per capita than in the United
States.... A first-rate primary and secondary education system in Japan operates based on high
standards and•emphasizes math ind science. Primary and secondary education is highly competitive..
Japanese education provides most students all over Japan with a sound education for later education and
training. A Japanese high school graduate knows as much about math as most American college
graduates."
Porter's point is that an important fac@rexplaining the
country's postwareconomi u ot only is a good educationsystem a determinant of national
compeuuve a vantage,but it is also an important factor guiding the location choices of international

22. 124 international Business
businesses. The recent trend to outsourceinformationtechnologyjobs to India, for example, is partly
due to the presence of significant numbers oftryined engineere irr India, which in turn is a result of the
Indian education sy<tem. By the same token, it would make little sense to base production facilities that
require•highly skilled labor in a country where the•educatiorisystem was so poorthat a skilled labor
pool availåble, no matter how attractive the country might seem on other dimensions. It might
make sense to båse production operations that require only unskilled labor in such a country.
The generaleducatiqh level of a country is also a good index of the kind of products that might sell
in a country and of the type Of promotional material that should be used. For example, a country where
more than 70 percent of ttpepopulation is illiterate is unlikely to be a good' market for popular books.
Promotional material containing written destriptionS of mass-market&dproducts is unlikely to have an
effect in-•acountry where almost three-quartersof the population cannot read. It is far better to use
pictorial promotions in such circumstances.
ULTUREAND THE WORKPLACE
Of considerable importance for a.ninternational business with operations in di(ferent countries is hew a
society's culture affects the values found in the workplace. Manauement process and practices inaj need
ra y ermme wor re tedvalues. For example,iftfi? culturespfthe United
States and France resultin different work-related values, an'international business with operations in
both countries should vary its mana• ement rocess and piactices to a'count for these differences.
Probåbly the mnq famous s,tudxof how culture re ates to vatuesrin the workplace was-undertaken by
As part of his job as a Psycholögist-workingfor IBM, Hofstedecollected data on
employee attitudes and values for more than 100,000individuals from 196' to 1973.These data enabled
him toZompare dimensions of culture across 40 isolated four dimensions thathe
claimed summarized different cultures—powerdistance, uncertainty avoida'nce,individualismversus
cäiüfiGlGGäGüIfiiF8FÄemiQipity. .
o
Hofstéde's powez_diståoce dimen%io focused on how a spciety deals with the fact that people are
unequal in ihysical l
and int•elleéiuacapabilities. According tÖHofstedé, high powerdistanée cultüres Wére
found iri countries that let inequalities gtow over time into ihequalities of power and wealth. Low pöwer
distance cultures Werefoünd in söcieuesthat tned to play down suchinequalities as muchas possible.
The•individualism versus collétivism dimensipn focused on the relationship.betweenthe
individual and his hér (ellows. In indi+idualistic societies,theties betweenindividuals were loose,
and individual achievement and re ere I o w ere co ectivis w s
em Mislze , e tes L
etween•individua n such societies, people (eere born into collectives.
such as extended families, and everyone was supposed to look after the interest of his or her collective.
Hofstede's ulncertainty avoidance-dimension measuredtheexent to which differentculturesSd-
cialized their members into accepting ambiguous situations and toleratihg uncenainty. Members of high
uncertainty aVoidaricecultures plåced a premilfm on joy security, career patterns, retirement benefits,
and so on. They•a'lso håd a str6ng need f01'rules aid regulatione•,the manager was expected to issue
clear instructions, and subordinates' initiatives yere tightly cofitrolled. Lower uncertainty avoidance
cultures were characterized by a greater readiness to.take and less emotional resistance to change.
Hofstede•smasculinity versus femininity dimension looked at the relationshipbetweengender
and work roles. In masculine cultures, sex roles were sharpry differentiated, and traditional "masculine
values," such as achievement and the effective exercise Ofpower, determined cultural ideals. In feminine
cultures, sex roles were less Sharply distinguished, and little differentiation was made between men and
women in the same job.

23. Differences in Culture J25
Hofstede created an index score for each of these four dimensions that ranged from 0 to 100and
scored high for high individualism, high power distange, high dncertainty avoidance. and high
masculinity.He averaged the score for all employees froma givencountry.Table 4.1 summarizes
data for 20 selected countries. Western nations such as the United States, Canada, and Britainscore igh
on the individualism scale and low on the power distance scale. At the other extremeare a grou of
Latin American and Asian countries that emphasize collectivism over individualismand score high on
the power distance scale. Table 4.1 also reveals that Japan's culture has strong uncertainty avoid ce
and high masculinity. This characterization fits the standard stereotype of Japan as a country that is
dominant and where uncertqinty avoidance exhibits itself in the institutionof lifetimeemployment.
Sweden and Denmark stand out as countries that have both low uncertainty avoidanceand
masculinity(high emphasis on "feminine" values).
TABLE 4.1 iVork-RelatedValues for20 Selected Countries
Argentina
Australia
Brazil
Canada
France
Germany (F.R.)
Great Bntain
India
Indonesia
Israel
Japan
Mexico
Netherlands
Turkey
UrytedStates
Power
Distance
49
36
69
39
18
68
35
35
77
78
13
38
95
57
31
66
40
Uncertainty
Avoidance
86
76
48
23
86
35
48
81
92
82
53
86
86
29
46
Individualism
46
90
38
80
74
71
67
89
48
14
54
46
30
80
11
51
71
20
37
91
Masculinity
56
61
49
52
16
66
66
56
46
47
95.
69
14
44
42
34
45
Source Cited in G. Hofstede, "The Cultural Relativity of Organizational Practices and Theories."Journal of Internanonal
.
Studies 14(Fall 1983),pp. 75—89Reprinted by permission of Dr. Hofstede.

24. „ternational business
126
results are interesting for what they tell us in a very general way about differences between
cvnures.
1
Many of Hofstede's findings are consistent with standard Western stereotypes about cultural
differences. For example, many people believe Americans are more individualistic and egalitarian than
the Japanese (they have a lower power distance), who in turn are more individualisticand egalitarian
than Mexicans. Similarly, many might agree that Latin countries such as Mexicoplace a higher emphasis
Onmasculine value—they are machismo cultures—than the Nordic countries of Denmark and Sweden.
However,one should be careful about,readingtoo much into Hofstede's.research.It has been
criticized on a number of points.S First, Hofstedeassumesthere is a one-to-onecorrespondence
between culture and the nation-state, but as we saw earlier, many countries have more than one culture.
tede•s results do not capture this distinction. Second, the research may have been culturally bound.
Ho
Th reseafch team was composed of Europeans and Americans. The questions they asked of IBM
.
employees and their analysis of the answers may have been shaped by their own cultural biases and
concerns. So it is not surprising that Hofstede's results confirm Western stereotypes, because it was
Westerners who undertook the research.
Third, Hofstede's informants worked not only within a single industry, the computer industryvbut
also within one company. IBM. At the time, IBM was renowned for its own strong corporate culture and
employee selection procedures, making it possible that the employees' values were different in
important respects from the values of the cultures from which those employees came. Also, certain
social classes (such as unskilledmanual workers) were excludedfrom Hofstede's sample.A final
caution is that Hofstede's work is now beginning to look dated. Cultures do not stand still; they evolve,
albeit slowly.What was a reasonablecharacterization in the 1960sand 1970smay not be so today.
Still, just as it should not be accepted without question, Hofstede's work should not be dismissed
either. It represents a starting point for managers trying to figure out how cultures differ and what that
might mean for management practices. Also, several other scholars have found strong evidence that
differences in culture affect values and practices in the workplace,and Hofstede's basic results have
been replicated using more diverse samples of individuals in different settings.52Nevertheless, managers
should use the results with caution, for they are not necessarily accurate.
Hofstedesubse uentl ex andedhis ori inal researchto includea fifthdimensionthat he argued
ca tured ad Itionalculturaldifferencesnot brou ht out in his earlierworkS3He referre to IS
imension as "Confucian.dynamism" (sometimes called Accordingto Hofstede,
4
Cohfucian dynamism captures ättitudes toward time, persistence, ordering by status, proteétion of
face, respect for tradition, and reciprocation of gifts and favors. The label refers to these "values" being
derived from Confucian teachings. As might be expected, East Asian countries such as Japan, Hong
Kong, and Thailand scored high on Confucian dynamism, while nations such as the United States and
Canada scored low. Hofstedeand his associateswent on.to argue that their evidencesuggestedthat
nations with higher economic growth rates scored high on Confucian dynamism and low on
individualism—the implication 6eing Confucianism is good focgrowth. However,subsequent
have shown that this finding does not hold up under more sophisticated statisticalanalysis.5 Duringthe
pas decade. countries with high individualism and low Confucian dynamics such as the United States
d %l
have—attainehigh growth rates, while some Confuciancultures such as Japa havehad stagnant
economic growth. In reality, while culture might influence the economic successof a nation, it isjust
one of many factors, and while its importance should not be ignored, it should not be overstatedeither.
The factors discussed in Chapters 2 and 3—-economic,political, and legal systems—are probably more
imB)rtant than culture in explaining differentialeconomic growthrates over time.

25. IMPLICATIONS FOR MANAGERS
Internationalbusiness is differentfromnationalbusiness because countries and societies are
different.In this chapter,we have seen just how differentsocieties can be. Societies differ
because theirculturesvary.Their culturesvary because of profounddifferencesin social
structure, religion, language, education, economic philosophy, and political philosophy.
Three important implications for internationalbusiness flow from these differences. The
firstis the need to develop cross-cultural literacy.There is a need not only to appreciate
that cultural differencesexist but also to appreciate what such differencesmean for
internationalbusiness. A second implicationcenters on theconnection betweencultureand

26. Differences in Culture 129
nationalcompetitiveadvantage. A thirdmphcattonboks at thoconnectüi betweencultureard ethcs
in depth. corrEc.tvm between
decision making. In this section. wo oxploro tho first two of these
cultureand ethics is explored in tho noxt chapter.
CROSS-CULTURALLITERACY
One of the biggest dangers confronting a company that goes abroad for the firsttiff*'is the darryß of
at-informed.International businesses that aro ill-informod about tho prEtjces of zwotrer cutwe are We}/ to
fall.Doing business in different cultures requires adaptaton to conform with tho value ard rams
0
of thatculture.Adaptation can embrace all aspects of an intornatmal firm'soperatM1 ina tore.' canto
way in deals arenegotiated,theappropnatoincentivepa/ systems forsafecpoopL. ttz stnnre
of the organization, the name of a product, the tenor of relationsbetween managementard tarn. tre
mannerin which theproduct is promoted. and so on. are all sensitive to culturaldffererces. What n
ne culturemight not wcyk in another (see the opening case on Walrnartin Germany for entree).
To combat the danger of being Ill-informed.internationalbusinesses should consider ernp'c;rrg
citizensto help them do business in a particularculture.They must also ensure that horre%Äß'rj
executrvesare cosmopolitan enough to understand how differencesin cultureaffectthe practce cl
business. Transfernng executives overseas at regular intervals to expose them to differentcujturz w'
budda cadre of cosmopolitan executives. An internationalbusiness must also be constantlyon d
against the dangers of ethnocentric behavior. Ethnocentrism is a beliefin the supenontyof one's
ethnicgroup or culture. Hand in hand with ethnocentrismgoes a disregard or contempt forthe cottre of
othercountries. Unfortunately,ethnocentrism is all too prevalent;many Americans are gulty of it. are
manyFrench people, Japanese people, British people, and so on. Ugly as it is, ethnocentrisms a tæt c'
Lfe,one that internationalbusinesses must be on guard against.
Simple examples illustratehow importantcross-cultural literacycan be. Anthropologist Edward Haa
4
has described how Americans, who tend to be informal in nature, react strongly to being corrected or
reprimandedn pubfic.Ö This can cause problems in Germany, where a culturaltendency towardcorrætrg
strangers can shock and offend most Americans. For theirpart, Germans can be a bit taken abæk by t e
tendencyof Americans to call people by theirfirstname. This is uncomfortableenough among executrves
of thesame rank, but Itcan be seen as insultingwhen a young and juniorAmerican executivead&eses an
olderand more senior German manager by his first name withouthaving been nvited to do so. Han
concludes Itcan take a long timeto get on a first-namebasis witha German; ifyou rush tre process.
be perceived as overfriendlyand rude, and that may not be good for business.
Hanalso notes thatcultural differences in attitudeto time can cause a myriadproblems. He notes trat n
e
theUnitedStates, giving a person a deadlineis a way of increasingthe urgemy or relati'. irportarce of a
taskEHowever, in the Middle East, giving a deadline can have exactly the opposite effect.The AT,encan
whoinsists an Arab business associate make his mind up in a hurryis likelyto be perceivedas overty
demanding and exerting undue pressure. The result may be exactly the opposite of what the Am•can
intended,with the Arab gotng slow as a reaction to the Americans arrogance rudeness. For haspat.
tneArnerican may believe thatan Arab associate is bejng rude ifhe shows up lateto a meetAJ tease
rneta friendin the streetand stopped to tak The Amencan, of course, is veryconcerred
scheduling. But focthe Arab. who lives in a society where soctal retworks are a maioc source of nfo•matcn.
and maintainingrelationship; is important, finishing the discussion with a friendts more than
adhenng to a strict schedule. Indeed, the Arab may be puzzled as to why the Amercan attacres so rn-rh
inponance to Orneand schedule.

27. p
CULTURE AND COMPETITIVE ADVANTAGE
One theme that surfaces in this chapterIS the relationshi betweencultureand nationalcompetitive
advantage. Put simply, the value systems and norms of a countryinfluencethecosts of doing business
that country. The costs of doing business in a country influence the abilityof firms to estabfish a cornpetitrve
advantage in the global marketplace. We have seen how attitudes toward cooperationbetween
management and labor, toward work, and toward the payment of interestare influenced by social structure
and religion. It can be argued that the class-based conflict betweenworkers and management in class-
cohscious societies, when it leads to industrial disruption, raises the costs of doing business in that society
"
,
l
Similarly, we have seen how some sociologists have argued that the ascetic "other-worldly ethics of
Hinduism may not be as supportive of capitalism as the ethics embedded in Protestantismand
Confucianism. Also, Islamic laws banninginterestpaymentsmay raise the costs of doing busiæss by
constraining a country's banking system.
Japan presents an interestingcase study of how culture can influencecompetitiveadvantage. Some
scholars have argued that the culture of modern Japan lowers the costs of doing business relativeto the
costs in most Western nations. Japan's emphasis on group affiliation loyalty,reciprocalobligations,
honesty, and education attboost the competitiveness of Japanese companies. The emphasis on group
affiliationand loyalty encourages individuals to identify strongly with the companies in which they work.
Thi? tends to foster an ethic of hard work and cooperation between management and labor Sfor the good
of company." Similarly, reciprocal obligations and honesty help foster an atmosphere of trust between
companies and their suppliers. This encourages them to enter into long-term relationships with each other
to work on inventoryreduction, quality control, and design—all of which have been shown to improvean
orgpnization's competitiveness. This level of cooperation has often been lacking in the West, where the
relationshipbetween a company and.its suppliers tends to be a short-termone structuredaround
competitive bidding rather than one based on long-term mutual commitments. In addition, the awabtTlW
of a pool of highly skilled labor, particularly engineers, has helped Japanese enterprises develop cost-
reducing process innovations that have boosted their productivity.65Thus, cultural factors may help explain
thesuccess enjoyed by many Japanese businesses in the global marketplace. Most notably,it has been
argued that the rise of Japan as an economic power during the second half of the twentiethcentury may
be in part attributedto the economic consequences of its culture.66
It also has been argued that the Japanese culture is tess supportive of entrepreneurialactivity than, say,
American society. In many ways, entrepreneurialactivity is a product of an individualisticmindset, not a
classic characteristic of the Japanese. This may explain why American enterprises, ratherthan Japanese
corporations, dominate industries where entrepreneurship and innovation are highly valued, such as
computer software and biotechnology. Of course, obvious and significant exceptions to this generafization
exist. Masayoshi Son recognized the potentialof software far faster than any of Japan's corporategiants;
set 'up his company, Softbank, in 1981; and over the past 30 years has built it into Japan's top software
distributor.Similarly, dynamic entrepreneuriaindividuals established major Japanese companies such as
Sony and Matsushita. But these examples may be the exceptions that prove the rule, for as yet therehas
been no surge in entrepreneurialhigh-technology enterprises in Japan equivalentto what has occurred in
theUnited States.
For the internationalbusiness, the connection betweencultureand competitiveadvantage is
for two reasons. first, the connection suggests which countries are likelyto produce the most viable
competitors. For example, one might argue that U.S. enterprisesare liketyto see continuedgrowthn
agqressive, cost-efficient competitors fromthose Pacific Rim nationswhere a combinationof freemarket
ecmomics, Confucian ideology,group-orientedsocial structures,and advanced educationsystems can an
be found (e.g., South Korea, Taiwan, Japan, and, increasingly,China).

28. Differences in Culture 131
Second, the connection cultureand competitive advantage has importantimplications for the
cræe of countnesin which to bcate productionfacilitiesand do business. Consider a hypothetical case
wtEn a company has to choose between two countries, A and B. for locating a production facility.Both
countriesare characterized by low labor costs and good access to world markets. Both countnes are of
n
roughlythesame size (tnterms of population),and both are at a similar stage of economic developrnent. In
countryA, the educationsystem is undeveloped, the society is characterized by a marked stratification
betweenthe upper and lower classes, and there are six major linguistic groups. In country B, the education
system is well developed, social stratificationis lacking, group identificationis valued by the culture, and
thereis only one finguisticgroup. Which country makes the best investmentsite?
Country B probably does. In countryA, conflict between management and labor,and between different
language groups, can be expected to lead to social and industrial disruption, thereby raising the costs of
doing business. 67The lack of a good education system also can be expected to work against the attainment
ofbusiness goals.
The same kind of comparison could be made foran internationalbusiness tryingto decide where to push
;tsproducts, country A or B. Again, country B would be the logical choice because culturalfactors suggest
thatin the long run, country B is the nation most likely to achieve the greatest level of economic growth.
But as importantas cultureis, itis probably less important than economic, political,and legal systems in
explaining differentialeconomic growdhbetween nations. Cultural differences are significant, but we should
notoveremphasize theirimportance in the economic sphere. For example, earlierwe noted that Max Weber
argued that the ascetic principles embedded in Hinduism do not encourage entrepreneurialactivity.While
this is an interesting academic thesis, recent years have seen an increase in entrepreneurialactivity in India,
particularlyin the informationtechnology sector, where India is rapidly becoming an important global player.
The ascetic principlesof Hinduism and caste-based social stratificatio have apparentlynot held back
entrepreneurialactivity in this sector.