2Culture and Multinational ManagementChapter© 2013 C.docx

2
Culture and
Multinational Management
Chapter
© 2013 Cengage Learning. All Rights Reserved. May not be
scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.
Learning Objectives (1 of 2)
Define culture and understand the basic components of culture.
Identify instances of cultural stereotyping and ethnocentrism.
Understand how various levels of culture influence
multinational operations.
Learning Objectives (2 of 2)
Apply the Hofstede, GLOBE, and 7d models to diagnose and
understand the impact of cultural differences on management
processes.

Appreciate the complex differences among cultures and use
these differences to build better organizations.
Recognize the complexity of understanding new cultures and the
dangers of stereotyping and cultural paradoxes.
What is Culture? (1 of 2)
Pervasive and shared beliefs, norms, values, and symbols that
guide the everyday life of a group.
Cultural norms: both prescribe and proscribe behaviors
What we can and cannot do.
Cultural values: what is good, what is beautiful, what is holy,
and what are legitimate goals for life.
What is Culture? (2 of 2)
Cultural beliefs: represent our understandings about what is
true.
Cultural symbols, stories, and rituals: communicate the norms,
values, and beliefs of a society or a group to its members.
Culture is pervasive in society: affects all aspects of life.
Culture is shared: similarity in values, beliefs, norms.

Three Levels of Culture (1 of 2)
National culture: the dominant culture within the political
boundaries of the nation-state.
But there may be subcultures within the national culture.
Business culture: norms, values, and beliefs that pertain to all
aspects of doing business in a culture.
Tells people the correct, acceptable ways to conduct business in
a society.
Three Levels of Culture (2 of 2)
3. Occupational and organizational culture
Occupational culture: the norms, values, beliefs, and expected
ways of behaving for people in the same occupational group,
regardless of employer.
Organizational culture: the set of important understandings
(often unstated) that members of an organization share.
Exhibit 2.1:
Three Levels of Culture

Cultural Differences and
Basic Values
Three diagnostic models to aid the multinational manager:
Hofstede model of national culture
Global Leadership and Organizational Behavior Effectiveness
(GLOBE) project
7d culture model
Hofstede’s Model of
National Culture
Five dimensions of basic cultural values:
Power distance
Uncertainty avoidance
Individualism
Masculinity
Long-term orientation

Hofstede’s Model Applied to Organizations and Management
(1 of 2)
Five management practices considered in the discussion of
Hofstede’s model include:
1. Human resources management
Management selection
Training
Evaluation and promotion
Remuneration
Hofstede’s Model Applied to Organizations and Management
(2 of 2)
2. Leadership styles
how leaders behave
3. Motivational assumptions
beliefs re how people respond to work
4. Decision making and organizational design
how managers make decisions and organize
5. Strategy
effects of culture on selecting strategies
Power Distance (1 of 2)
Power distance concerns how cultures deal with inequality and

focuses on:
Norms that tell superiors (e.g., bosses) how much they can
determine the behavior of their subordinates
The belief that superiors and subordinates are fundamentally
different kinds of people
Power Distance (2 of 2)
High power distance countries have norms, values, and beliefs
such as:
Inequality is fundamentally good.
Everyone has a place: some are high, some are low.
Most people should be dependent on a leader.
The powerful are entitled to privileges.
The powerful should not hide their power.
Exhibit 2.2:
Managerial Implications:
Power Distance

Uncertainty Avoidance
Uncertainty Avoidance: Norms, values, and beliefs regarding
tolerance for ambiguity:
Conflict should be avoided.
Deviant people and ideas should not be tolerated.
Laws are very important and should be followed.
Experts and authorities are usually correct.
Consensus is important.
Exhibit 2.3:
Uncertainty Avoidance
Individualism
Individualism: Focus is on the relationship between the
individual and the group.
Countries high on individualism have norms, values, and beliefs
such as:
People are responsible for themselves.
Individual achievement is ideal.

People need not be emotionally dependent on organizations or
groups.
Collectivism
Collectivism: Collectivist countries have norms, values, and
beliefs such as:
One’s identity is based on group membership.
Group decision making is best.
Groups protect individuals in exchange for their loyalty to the
group.
Exhibit 2.4:
Individualism/Collectivism
Masculinity
Masculinity: Tendency of a culture to support traditional

masculine orientation.
High masculinity countries have beliefs such as:
Gender roles should be clearly distinguished.
Men are assertive and dominant.
Machismo or exaggerated maleness in men is good.
People – especially men - should be decisive.
Work takes priority over other duties, such as family.
Advancement, success, and money are important.
Exhibit 2.5:
Masculinity
Long-Term
(Confucian) Orientation (1 of 2)
Long-Term Orientation: Orientation towards time that values
patience.
Managers are selected based on the fit of their personal and
educational characteristics.
A prospective employee’s particular skills have less importance
in the hiring decision.
Training and socialization for a long-term commitment to the
organization compensate for any initial weaknesses in work-

related skills.
Long-Term
(Confucian) Orientation (2 of 2)
Eastern cultures rank highest on long-term orientation.
Value synthesis in organizational decisions rather than search
for correct answer.
Designed to manage internal social relationships.
Investment in long-term employment skills.
Focus on long-term individual and company goals.
Short-term Orientation
Short-Term Orientation: focus is on immediately usable skills
Western cultures, which tend to have short-term orientations,
value logical analysis in their approach to organizational
decisions.
Designed and managed purposefully to respond to immediate
pressures from the environment.
Want immediate financial returns.

Exhibit 2.6:
Managerial Implications
Long-term Orientation
Exhibit 2.7:
Percentile Ranks for
Hofstede’s Cultural Dimensions
GLOBE National Culture Framework
GLOBE (Global Leadership and Organizational Behavior
Studies) involves 170 researchers who collected data from
17,000 managers in 62 countries
7 of 9 dimensions of GLOBE are similar to Hofstede
GLOBE’s 2 Unique dimensions:
Performance orientation
Humane orientation

Performance Orientation
Performance Orientation refers to the degree to which the
society encourages societal members to innovate, to improve
their performance, and to strive for excellence.
E.g., the United States and Singapore have high scores while
Russia and Greece have low scores on the dimension.
Humane Orientation
Humane Orientation is an indication of the extent to which
individuals are expected to be fair, altruistic, caring, and
generous.
Need for belongingness and affiliation is emphasized more than
material possessions, self-fulfillment, and pleasure.
Less humane-oriented societies are more likely to value self-
interest and self-gratification.
Malaysia and Egypt have high humane orientation scores, while
France and Germany have low scores.
Exhibit 2.8:

Performance Orientation
Exhibit 2.9:
Humane Orientation
Exhibit 2.10:
GLOBE Model of Culture
7d Cultural Dimensions Model
(1 of 3)
Builds on traditional anthropological approaches to
understanding culture.
Culture exists because people need to solve basic problems of

survival.
Challenges include:
How people relate to others
How people relate to time
How people relate to their environment
(2 of 3)
5 of the 7 dimensions of this model deal with relationships
among people:
Universalism vs. Particularism
Collectivism vs. Individualism
Neutral vs. Affective
Diffuse vs. Specific
Achievement vs. Ascription
(3 of 3)
The 2 remaining dimensions deal with how a culture manages
time and how it deals with nature:

Time: Past, Present, Future, or Mixture
Nature: Control of vs. Accommodation with Nature
Exhibit 2.11:
The 7d Model of Culture
Universalism vs. Particularism
These concepts pertain to how people treat each other:
Universalism:
Based on abstract principles such as rules of law, religion, or
cultural principles.
Particularism:
Rules are only a rough guide. Each judgment represents a
unique situation, which must take into account who the person
is, and his relationship to the one making the judgment.
Exhibit 2.12:

Managerial Implications: Universalism/Particularism
Individualism vs. Collectivism
Similar distinctions to Hofstede’s view
Collectivist societies:
Focus on relationships.
“Deals” are flexible, based on situation and person.
Contracts are easy to modify.
Individualist societies:
Focus on rules.
“Deals” are obligations.
Contracts are difficult to break.
Exhibit 2.13:
Individualism/Collectivism

Concerns the acceptability of expressing emotions.
Neutral:
Interactions should be objective and detached.
Focus is more on tasks rather than emotional nature of
interaction.
Affective:
Emotions are appropriate in almost all situations.
Preferred to find immediate outlet for emotions.
Exhibit 2.14:
Specific vs. Diffuse
Addresses the extent to which an individual’s life is involved in
work relationships
Specific:
Business is segregated from other parts of life
Contracts often prescribe and delineate relationships
Diffuse:
Business relationships encompassing and inclusive

Prefer to involve multiple life areas simultaneously.
Exhibit 2.15:
Specific vs. Diffuse
Addresses the manner in which society accords status
Achievement:
People earn status based on performance and accomplishments
Ascription:
Characteristics or associations define status
E.g., status based on schools or universities
Exhibit 2.16:

Time Orientation
Time Horizon: How cultures deal with the past, present and
future
Future-oriented societies, such as the U.S., consider
organizational change as necessary and beneficial.
Believe a static organization is a dying organization.
Past-oriented societies assume that life is predetermined based
on traditions or will of God.
Revere stability and are suspicious of change.
Exhibit 2.17:
Time Horizon

Internal vs. External Control
Concerned with beliefs regarding control of one’s fate
Best reflected with how people interact with the environment
Does nature dominate us or do we dominate nature?
In societies where people dominate nature, managers are more
proactive and believe situations can be changed.
Exhibit 2.18:
Internal vs. External Control
Caveats and Cautions
Stereotyping: assumes that all people within one culture behave,
believe, feel, and act the same.
Ethnocentrism: occurs when people from one culture believe
that theirs are the only correct norms, values, and beliefs.
Cultural relativism: all cultures, no matter how different, are
correct and moral for the people of those cultures.
Cultural Intelligence: ability to interact effectively in multiple
cultures

Exhibit 2.19:
Percentile Ranks for 7d Model (1 of 2)
Exhibit 2.19:
Percentile Ranks for 7d Model (2 of 2)
Exhibit 2.20:
Proverbs:
Windows into National Cultures

Summary
There are an immense variety of cultures in the world.
This chapter provides one approach to understanding national
cultures.
Goal is to make one aware of complex and subtle influences of
culture on multinational management.
Astute managers realize that understanding cultures is a never-
ending learning process.
1
In a Changing World
Chapter
Learning Objectives
Define multinational management.
Understand the characteristics of a multinational company.
Understand the nature of the global economy and the key forces

that drive globalization.
Know the basic classification of the world’s economies.
Identify the characteristics of the next generation of
multinational managers.
The Definition of
The formulation of strategies and management systems to take
advantage of international opportunities and respond to
international threats
The Nature of The Multinational Company
A multinational company is any company that engages in
business functions beyond its domestic borders.
Such companies may be large or small.
Most multinational companies (MNCs) are multinational
corporations.
The largest MNCs are all public corporations.

Exhibit 1.1:
Largest Companies in the World
Exhibit 1.2:
Locations of
Global 500 Companies
The Globalizing Economy
Globalization: the world’s economies are becoming borderless
and interlinked.
Companies are no longer limited by their domestic boundaries,
and may conduct any kind of business activity anywhere in the
world.
Globalization creates a changing, but not uniform, and not
always stable, environment for business.

Negatives of Globalization
Not all economies of the world are benefiting equally or
participating equally in the process.
Terrorism, wars, and a worldwide economic stagnation have
limited or reversed some aspects of globalization.
Globalization produces a scarcity of natural resources,
environmental pollution, negative social impacts, and increased
interdependence of the world’s economies.
Globalization may be widening the gap between rich and poor
countries.
The Benefits of Globalization
Globalization results in lower prices in many countries, as
multinationals become more efficient.
Globalization benefits many emerging markets such as India and
China, as these countries enjoy greater availability of jobs and
better access to technology.
Globalization is the major reason why many new companies
from Mexico, Brazil, China, India, and South Korea are the new
dominant global competitors.

The Globalizing Economy:
7 Key Trends
Falling, disintegrating borders
Growing cross-border trade and investment
The rise of global products and global customers
The internet and information technology (IT)
Privatizations of formerly government-owned firms
New competitors in the world market
The rise of global standards for quality and production
Countries of the World:
The Arrived, The Coming,
and The Struggling (1 of 4)
Developed Countries (the Arrived) have mature economies with
substantial per capita Gross Domestic Product (GDP),
international trade and investments.
E.g., the United States of America, Britain, Japan, Germany,
and many others

Developing Countries (the Coming) have economies that have
grown extensively over past two decades.
E.g., Hong Kong, Singapore, Taiwan, Malaysia, Indonesia,
Thailand.
Transition economies (the Coming) are countries that have
changed from mostly communist systems to market/capitalistic
systems.
E.g., the Czech Republic, Hungary, Poland, Russia

Emerging Markets (the Coming) are those countries whose
economies are growing rapidly.
E.g., Brazil, Russia, India, & China (BRIC)
Exhibit 1.3:
Selected World Economies
Exhibit 1.4:
The Globalizing Economy
Borders are Disintegrating: The World Trade Organization
(WTO)
In 1947, nations met to reduce tariffs from 45% to less than 7%;
these negotiations resulted in the General Agreement on Tariffs
and Trade (GATT).
In 1986, negotiations began in Uruguay to continue reducing

tariffs. The World Trade Organization (WTO) succeeded
GATT.
WTO provides structure for continued negotiations and settling
trade disputes among nations.
World Trade Organization
In 1997, WTO countries agreed to end tariffs on software,
computers and related products; hi-tech exports to Europe from
Asia and the US doubled.
Since GATT, world trade has grown at more than four times the
output of the world’s GDP.
Some say WTO favors developed nations, encourages
environmental damage, and moves jobs from higher-save
countries to lower-wage countries.
Regional Trade Agreements
(1 of 2)
Regional Trade Agreements are agreements among nations to
reduce tariffs and develop similar technical and economic
standards.
The three largest account for half the world’s trade:

the European Union (EU)
the North American Free Trade Association (NAFTA), and
the Asia-Pacific Economic Cooperation (APEC)
Regional Trade Agreements
(2 of 2)
The European Union (27 European nations, and growing) allows
free movement of goods and services and a common currency
(EMU).
The North American Free Trade Agreement (NAFTA) linking
the US, Canada, and Mexico, allows the freer exchange of
goods and services.
The Asia-Pacific-Economic Cooperation (12 Asian nations) with
goals for free trade by 2020.
Exhibit 1.5:
Major Regional Trade Agreements

Exhibit 1.5:
Major Regional Trade Agreements
Sell Anywhere, Locate Anywhere: Trade Growing, but Setbacks
World trade grew an average of 6.5% per year between 1990
and 2000, slowed to 4% in 2004, grew again to 6% in 2005 and
to 8.5% in 2006.
WTO reports the global economy is suffering from a very severe
slowdown.
EU countries are suffering the worst debt crisis they have ever
faced.
Change in imports & exports higher for developing and
emerging economies than for developed economies.
Exhibit 1.6:
Change in Exports & Imports

Sell Anywhere, Locate Anywhere: Foreign Direct Investment
(FDI)
Foreign Direct Investment (FDI) occurs when a multinational
company from one country has an ownership position in an
organizational unit located in another country.
FDI increased by more than 36% from 1996 - 2000.
Since 2001, there has been a decline in FDI, but will probably
resume its steady growth.
Emerging markets will continue to attract FDI.
Foreign Direct Investment
Developing countries provide opportunities and risks.
MNCs should consider two types of risk:
Economic risk: includes all factors of a nation’s economic
climate that may affect a foreign investor.
Political risk: anything a government might do or not do that
might adversely affect a company.

The Internet and Information Technology (1 of 2)
Email and the internet allow multinationals to communicate
with company sites throughout the world.
Text and graphic information can flow to any part of the world
almost instantaneously.
Headquarters, R&D, manufacturing can be located anywhere in
the world.
Information technology is spurring a borderless financial
market.
The Internet and Information Technology (2 of 2)
Information technologies make available many new tools that
facilitate business operations:
Worldwide communication using Voice-Over-Internet Protocol
(VOIP) systems such as Skype, MSN Messenger and AOL is
cost-effective.
Collaborative networks can be provided by WIKI firms at very
low cost.
Information can be obtained by increasingly sophisticated
search engines like Google.

The Rise of Global Products and Global Customers
The needs of customers for many products and services are
growing more similar
E.g., McDonald’s, Boeing, Toyota.
Global customers search the world for their supplies without
regard for national boundaries.
These factors link economies because companies can produce
one product for everyone, and anyone can buy anything from
anywhere.
New Competitors (1 of 2)
Free market reforms are creating a potential group of new
competitors.
These companies have survived brutal competition in local
markets, and are able to deal with competition from western
MNCs.
They have developed strategies to generate profits at very low
prices.
New Competitors (2 of 2)
Global trade has two important effects in developing new
competitors:

When developing countries are used as low-wage platforms for
high-tech assembly, multinationals facilitate the transfer of
technology. Assemblers may become builders and creators of
technology.
Aggressive multinationals from emerging markets are also
expanding beyond their own borders.
The Rise of Global Standards (1 of 2)
When a product standard is accepted globally or regionally,
companies can make one or only a few versions of a product for
the world market rather than hundreds.
Products are developed to accommodate different regional
standards, such as electrical currents & plugs.
The company that can establish its standard as dominant has a
tremendous strategic advantage.
The Rise of Global Standards (2 of 2)
The drive for consistency in quality led to the International
organization for standardization (ISO) in Geneva, Switzerland.
ISO developed technical standards known as ISO 9001:2000,
adopted by law in Europe.
Many large European MNCs now require ISO certification.

Corporate Social Responsibility and Business Ethics (1 of 2)
Despite their size and clout, MNCs face increased pressure to be
socially responsible from both the media and the public.
Mindful of rankings on ethics, proactive MNCs pay close
attention to these issues, and take appropriate action.
Corporate Social Responsibility and Business Ethics (2 of 2)
Some MNCs are becoming more proactive in responding to
social and ethical issues that arise from their overseas
operations.
Some issues are:
Climate change
Environmental degradation and pollution
Sweatshop conditions for labor
Bribery

Exhibit 1.7:
Ranking the World’s
Most Ethical Companies
The Next Generation of Multinational Managers (1 of 2)
The successful Multinational Manager needs these
characteristics:
A global mindset
Emotional intelligence
A long-range perspective
The talent to motivate all employees to achieve excellence
The Next Generation of Multinational Managers (2 of 2)
Characteristics of the successful Multinational Manager
(continued):
Accomplished negotiation skills
A willingness to seek overseas assignments
An understanding of national cultures

Multinational Management:
A Strategic Approach
You may well find yourself a multinational manager; foreign
competition and doing business in foreign markets are daily
facts of life for today’s managers.
Competing successfully requires a strategic approach; formulate
and implement your strategy.
Multinational strategies must include maneuvers that deal with
operating in more than one country and culture.
Position yourself for an evolving global economy.
Trends Shaping The
Future Business Environment
In formulating your strategy, consider the trends that will shape
the future business environment:
Blurring of industry boundaries
The need for flexibility more than size
The need to find your niche
Hypercompetition
Emphasis on innovation and the learning organization

Summary
Chapter 1 provides key background information to support study
of multinational management.
World economies are increasingly linked, creating both threats
and opportunities.
New competitors are coming from developing nations in Asia,
the Americas, and Eastern Europe.
Multinational managers need a global mindset, and strategies
for succeeding in different nations and cultures.
41
Global Management # 11
A).The operations of multinational managers are made complex
given the diverse cultural environments in which they operate.
Discuss the three diagnostic models available to help the
multinational manager. What impacts would these have on your
management operations?
B.) How can Regional Trade Agreements (RTAs) help in
reducing trade barriers and in improving global economy? What
roles can multinationals play to further the objectives of RTAs?
C.) How could a multinational company’s poor adaptation to the

cultural environment of a nation lead to the company’s failure
in management? Provide suggestions for ways to prevent the
failure.
D.) Identify the recent developments in technology affecting
business and propelling globalization. What
problems/challenges have arisen regarding use of the Internet
for the global business environment and what probable solutions
can you suggest?

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