Chapter 4
To appreciate the differing facets of culture as they impact on
business interactions.
To identify and apply culture theories in differing business
contexts.
To highlight the differences in organizational cultures, and how
they affect business activities across national borders.
To understand the processes of
culture change taking place across the
globe, along with their implications for
business.
The springs of culture
Nations and peoples
Gregory
Rodriguez:
Australia's identity crisis
keeps resurfacing
National culture – sense of identity
and belonging which unites a people,
usually within a defined territory.
National culture is embodied in the nation-state,
but most states contain numerous subcultures,
which can be a source of social tension.
Social and ethnic groupings
Language, religion and kinship distinguish social
groupings.
The feeling of belonging can transcend national
cultures.
Each culture is uniquely defined
in terms of
(1) values and beliefs,
Cross cultural
considerations
for business with the Arabs
(2) communication,
(3) behavior and
(4) outward expression.
Why Culture Matters
U.S. expert Gary Weaver
discusses the reasons
Americans do what they do.
India's Unique
Multiculturalism
– Shashi Tharoor
Culture
Cultural diversity: percentage of
population from cultural minorities
within countries
Most countries are culturally diverse, with
significant proportions (25% or more) of
minorities.
Source: UNDP (2004) Human Development Report 2004 (New York: UNDP)
Religion can be a powerful cultural force in
societies of all levels of economic
development.
World religions,
The major religions are:
Christianity, Islam,
Hinduism and
Buddhism.
as percentages of
2005 world
population.
Indigenous Other
6% 3%
Many religions,
including Christianity
Hinduism
and Islam, have split
14%
into different sects
that are tend to be
divided along the
traditional vs. reformist lines.
Christianity
33%
Islam
21%
Source: World religions data, http://www.adherents.com
Most states are secular, but many
have strong religious ties.
Individuals’ freedom of
religion is recognized
in UN conventions,
but is not always
respected in
practice.
Language and communication
Blend of language and nonverbal communication.
In high-context cultures (e.g. Asian cultures),
much
information is
conveyed nonverbally, often
through shared understanding.
In low-context cultures (e.g.
the US), information is mainly
conveyed by explicit expression.
In business dealings, personal
relations are important in highcontext cultures; an example
The world’s
is guanxi in China.
most
widely
Written
spoken
contracts and formal terms are more
languages
important for those from low-context cultures.
Value orientation theory – basic values of a group
include normative, aesthetic and relational
elements, reflecting the common problems which
all human groups face.
Collectivism versus Individualism;
Femininity versus Masculinity;
Uncertainty Avoidance;
Low versus High Context Cultures;
Polychronic versus Monochronic Time
Orientation
Hofstede’s theory of cultural
dimensions is based on
research on national cultures.
Trompenaars’ theory
of relational dimensions covers:
̶
̶
̶
Relationships
with people
Attitudes to time
Attitudes to the
environment.
Large
Malaysia, New
Zealand,
Mexico
Denmark
High
Greece,
Japan
Low
Britain,
Sweden
Individualist
USA, UK,
Australia
Collectivist
Small
Uncertainty
avoidance
Power
distance
Cultural
dimensions
Individualism
Masculinity
Time
orientation
Masculine
Japan,
Germany
Feminine
Netherlands,
Understanding Venezuela,
Norway
Indoneia
cultural patterns
Long term: Eastern cultures
Short term: Western cultures
aids managers in
Hofstede’s
diverse cultural environments.
cultural Dimensions
Argentina
Israel
Austria
Finland
Norway Germany
SwitzerDen- Ireland
land
mark
Swede
Canada
New
n NetherZealan
lands
d
USA
UK
Turkey
Brazil
Iran
India
Japan
Spain
South
Africa
Italy
Australia
Individualism
France
Belgium
Philippines
Large
Power-Distance
Small
Power-Distance
Collectivism
Hofstede’s*
Pakistan
Columbia
cross-national data
Venezuela
Peru
show a marked
Taiwan
Singapore
Chile
correlation between
Thailand
Portugal Hongkong Yugoslavia
small power distance
Greece
and individualism.
Mexico
Geert
Hofstede™
Cultural Dimensions
* Geert Hofstede, Culture’s Consequences:
International Differences in Work Related Values
(Sage, 1980)
VALSTM Framework
Innovators
High Resources
High Innovation
Primary Motivation
Ideals
Thinkers
Believers
Achievement
Achievers
Strivers
Survivors
Self-expression
Experiencers
Seinfeld
Cross
Cultural
Differences
Makers
Russell
Peters
Indian vs
Chinese
Low Resources
Low Innovation
Russell Peters Chinese, Indians,
Jamaicans,
Italians
The VALSTM Types:
VALS (values, achievements, lifestyle) is a
classification of consumer behavior that transcends
the traditional cultural norms and barriers.
Organizational culture
Organizational culture is defined by the values
and practices of an
organization.
Adapted from
Hofstede, G. (1999) ‘The
business of business is
culture’, in Buckley,
P. and Ghauri, P.
(eds) The Internationalization of
the Firm (2nd edn)
(London: Thomson)
pp. 381–93
The ethnocentric organization is rooted in its home culture.
The polycentric organization is open to other cultures:
firms from smaller economies have tended to be more
outwardly focused than those from large ones.
Percentage of foreign directors
on the boards of the largest MNEs
in selected countries
Source: UN (2004) World Investment Report 2004 (Geneva: UN)
The United
Nations’ Transnationality index
is computed as
the average of
foreign to total
ratios of assets,
sales and
employment.
Source: UN
(2007) World
Investment
Report 2007
(Geneva: UN)
Transnationality
Ranking
1
2
3
4
5
6
7
8
9
10
Trans-nationality Index (%) =
Foreign Assets Foreign Sales Foreign Employment
Total Assets + Total Sales + Total Employment
{
Home Economy
Company
Thomson Corp.
Canada
Liberty Global
USA
Roche Group
Switz.
WPP Group
UK
Phillips Electr.
Nether.
Nestlé
Cadbury Schweppes
Vodafone
Lafarge
SABMiller
Switz.
UK
UK
France
UK
Selected others:
64 Toyota
70 General Electric
Japan
USA
79
85
96
USA
USA
USA
Ford
General Motors
Wal-Mart
}
Industry
Media
Telecomm.
Pharma.
Bus Ser
Electricals/
Electronics
Food & Bev.
Food & Bev.
Telecomm.
Mineral Prod.
Consumer
Goods/Brew.
97.2
96.5
90.5
87.8
87.4
Motor veh.
Electricals/
Electronics
Motor veh.
Motor veh.
Retailing
51.6
50.1
86.8
86.7
82.4
81.9
81.1
47.6
42.9
25.0
Changing culture and society
Industrialization and economic development lead to
changing lifestyles, moving away from traditional
values towards more consumerist and individualist
ones.
Urbanization is now taking place rapidly in the
developing world, but is accompanied by poverty,
strains on infrastructure and poor environmental
conditions.
Changing roles of women
– Increasing participation in economic life,
but…
– Global gender gap – in economic, political,
educational and health indicators
Urban population is projected to grow
rapidly in the
less developed countries
while rural
population
is projected
to decline in
the more
developed
countries.
Urban
population
Less Developed
Countries
Rural
population
More Developed
Countries
Growing
urbanization
in the
developing
world
Source: UN (2005)
World Urbanization
Prospects, The 2005
Revision,
www.un.org/esa/popu
lation/unpop
Comparison
between
percentages
of men and
women in the
adult labour
force
(selected
countries)
Note: The
percentages are
proportions of
the total
population aged
15 and over who
are able to work
or are actually
working. Hence,
people classified
officially as
unemployed
within the
country are
included
Source: UN
Department of
Economic and Social
Affairs (2005) UN
Statistics Division,
http://unstats.un.org
The global
gender gap
(ranking in
brackets)
Source: World Economic
Forum (2006) The Global
Gender Gap 2006 Report,
www.weforum.org
People on the move
Immigrant and indigenous peoples
Russell
–
add to diversity in modern societies. Peters
Accent
and Ethnic Stereotypes
Despite globalization, movement of
people across national boundaries is administratively restricted by governments.
Migration may be within a country or to another
country. Most migration is driven by:
― Better economic opportunities, either
temporarily or permanently. (Poor countries
benefit from remittances, as do rural regions
in industrializing countries.)
― The need to escape conflict or natural
disaster (refugees)
Foreign-born people as the percentage of total population
Source: Financial Times, 18 May 2006
Multicultural societies
Assimilation – process by which minorities
gradually acquire the dominant culture of a
country.
Cultural melting pot – Mixture of cultures to form
a distinctive new culture.
Cultural pluralism – Recognition of separate
cultures within a society.
Balance between recognition of
diversity and a sense of cultural
community is needed to maintain
social cohesion.
Changing societies:
business implications
In operations
Firms encounter minority groups (sometimes ethnic
conflict) in outsourcing and FDI in low-cost developing
countries, often with weak protection of human rights.
CSR and ethical principles apply in situations where legal
safeguards are limited.
In markets
National markets are culturally distinctive, but subcultures
may also constitute market segments.
The growing urban population in emerging
markets presents opportunities for MNEs,
but cultural differences remain.
Conclusions
Facets of culture – including language, values and
attitudes – are rooted in social groupings, such as
nations and peoples.
Culture theories highlight dimensions of culture which
facilitate comparisons between them, and aid
international managers in strategy and operations.
Organizational culture helps to shape a firm’s approach
to international business, in both positive and negative
ways.
Understanding the changes taking place
in societies is vital for firms seeking to
internationalize, in either production or
markets.
Case study 4.1:
Testing times for Citigroup in South Korea
1. What difficulties has Citigroup faced in
building market share in South Korea?
2. What issues within the two organizations
have held up the integration process?
3. In your view, what mistakes has Citigroup
made in integrating the two organizations?
4. What recommendations would
you give to Citigroup for any
future acquisition in Asia?
1. What difficulties has Citigroup faced in
building market share in South Korea?
Acquiring a South Korean bank was the route
chosen by Citigroup, in order to gain market share
quickly. The target bank, Koram Bank, had 238
branches, and with the might of the Citigroup behind
it, had potential to gain market share in this large
market. The new Citibank Korea became Korea’s
sixth largest lender.
However, there were difficulties in
integrating the two banks, which
could delay its expansion plans.
2. What issues within the two organizations
have held up the integration process?
― Integrating the IT systems.
― Deciding on the policies and practices to follow. The
reward system was changed, and the bank
managers’ roles were changed, indicating that local
practices were giving way to the parent company’s
way of doing things.
― Cultural hurdles. These two companies are
culturally very different, and South Korean
employees were uncertain of their jobs and
wages in the aftermath of the takeover. Poor
labor relations are common in South Korea a well-known factor which should have been
taken into account.
3. In your view, what mistakes has Citigroup
made in integrating the two organizations?
― Citigroup did not adapt sufficiently to the
cultural sensitivities of the new environment.
― Policies and practices should have been
adapted more to the South Korean bank’s
existing ways of doing things.
― HR roles and responsibilities should have
been handled more by consensus.
― When workers showed dissatisfaction
and came out on strike, the rather
confrontational approach adopted by
the American owners was unhelpful.
4. What recommendations would you give to
Citigroup for any future acquisition in Asia?
Some possible recommendations:
― Study both the market and the target company
carefully, to assess how well they fit in with the
parent company’s policies and ways of doing
things.
― When the acquisition takes place, re-assure the
new staff that the new owners will not make
radical changes quickly, but any changes will
come about by consensus. This is true in any
country with high uncertainty avoidance.
― Adopt more flexible labor relations
policies, emphasizing dialogue rather
than confrontation.
Country Focus 4.2
Mexico struggles to heal divided society
1. Summarize the grievances of Mexico’s indigenous
peoples against the Mexican authorities.
2. Why has Mexico made so little progress in creating
jobs and prosperity, despite benefiting from
globalization?
3. Is Mexico on the way to achieving social stability
through recognition of cultural diversity, or creating
potentially divisive forces, as in the past?
4. Assess the advantages and drawbacks
of Mexico as a location for an FDI
investor.
1. Summarize the grievances of Mexico’s indigenous peoples
against the Mexican authorities.
― They have criticized the policy of assimilation with the dominant
Spanish culture, as it stifles their identities and cultures.
― They have lagged behind in development, income, education and
living conditions.
― They also suffer from discrimination, further widening the gap between
indigenous and non-indigenous groups.
2. Why has Mexico made so little progress in creating jobs and
prosperity, despite benefiting from globalization?
The jobs which have been created have been concentrated in the free-trade
zones in the north of the country, where manufacturing for export to the US
is clustered, especially following the Nafta agreement. These largely lowskilled and low-paid jobs have not brought the prosperity hoped for, and they
are vulnerable to competition from China. The higher-tech industries are
also vulnerable, as they are dependent on the US market and feel the
impact of US economic downturn.
Development in the rest of Mexico is uneven, and rural
unemployment is high. Mexico’s farmers have not been
able to compete with imported maize from the US (part of
the Nafta agreement).
3. Is Mexico on the way to achieving social stability through
recognition of cultural diversity, or creating potentially divisive
forces, as in the past?
As the results of the presidential election show, divisive forces are still
powerful. Fox and Calderón emphasized social welfare policies. Fox
introduced policies of multiculturalism, but the indigenous community still
lags behind, with a large proportion living in absolute poverty. A concern
is that, as many Mexicans leave to work in the US, remittances have
become important to local Mexican communities. Falling remittances due
to the downturn in the US adversely impacts on the Mexican communities
which are dependent on them.
4. Assess the advantages and drawbacks of Mexico as a location
for an FDI investor.
Mexico’s greatest attraction is proximity to the US market. The free-trade
zones, in particular, have attracted investors. Costs, including wages, are
low in Mexico. FDI investors from Spain might find Mexico an
advantageous location because of the language and
cultural affinity between the two countries.
Disadvantages of Mexico are the social and political
instability; poor infrastructure; low levels of education
and skills in the workforce.