Bachelor of Science in Business Administration (Major in Accounting) Academic Year 2022-2023 2nd Semester INTERNATIONAL BUSINESS AND TRADE (BA FIN 102) Chapter 4: The Cultural and Political Environment Learning Objectives: At the end of the lesson, the students should be able to: 1. Describe what is meant by "culture" and the numerous ways which have been devised to study it. 2. Understand how culture affects and effects globalization. 3. Give an understanding of the major factors which must be considered in the legal/political environment when planning to market globally. Topic Outline: Definition of Culture Features of Culture National Culture Classification Corporate Culture Key Cultural Issues The Political Environment Types of Political Risk Chapter 4: The Cultural and Political Environment What is Culture? - - The art and other manifestations of human intellectual achievement regarded collectively The man-made part of the environment The collective programming of the human mind The way in which people solve problems and recognize dilemmas The knowledge, beliefs, art, law, customs, and other capabilities of one group distinguishing it from other groups Why is culture so important in borderless world? Shouldn’t it matter less or more? The emphatic answer is no. In fact, hardly will it be lesser. We need cultural awareness to enable stronger connection and better collaboration. It cannot be natives versus immigrants, or black versus whites, nor Mac versus PC. There are six rules for finding out what is really going on in a culture. Rule 1: Don’t assume Rule 2: Be quiet Rule 3: Look Rule 4: Listen Rule 5: Feel Rule 6: Ask questions Features of Culture Main features of culture are as follows: Culture is shared Culture is intangible Culture is confirmed/learned from others in a society Culture is adaptive Correlates of Culture Language Religion National Culture Classification Hofstede’s Dimensions of Culture Hofstede’s Cultural Dimensions Theory, developed by Geert Hofstede, is a framework used to understand the differences in culture across countries and to discern the ways that business is done across different cultures. In other words, the framework is used to distinguish between different national cultures, the dimensions of culture, and assess their impact on business setting. Hofstede’s classification of corporate culture is identified in six categories: 1. 2. 3. 4. 5. 6. Power Distance Index Collectivism vs Individualism Uncertainty Avoidance Index Femininity vs Masculinity Short-term vs Long-Term Orientation Restraint vs Indulgence Schwartz’s Classification Schwartz Theory of Basic Human Values identifies ten broad personal values, which are differentiated by the underlying goal or motivation. These values are likely to be universal because they help humans cope with one or more of the following three universal requirements of existence: needs of individuals as biological organisms; requisites of coordinated social interaction and survival and welfare needs of groups. The ten broad personal values are: 1. Self-Direction 2. Stimulation 3. Hedonism 4. Achievement 5. Power 6. Security 7. Conformity 8. Tradition 9. Benevolence 10. Universalism Trompenaars & Hampden-Turner’s Classification Trompenaars and Hampden-Turner concluded that what distinguishes people from one culture compared with another is where these preferences fall in one of the following seven dimensions: 1. Universalism vs Particularism 2. Individualism vs communitarianism 3. Specific vs Diffuse 4. Neutral vs Emotional 5. Achievement versus ascription 6. Sequential time versus synchronous time 7. Internal direction versus outer direction Corporate Culture is the culture adopted, developed, and disseminated by a company which is of vital importance, especially for an MNE that adopts a global strategy and uses corporate culture as an integrator of its various units can be distinct and deviate from national culture Layers of Culture National Culture. This gives the overall framework of cultural concepts and legislation for business activities. Business Culture. Every business is conducted within a certain competitive framework and within a specific industry. This level has its own cultural root and history, and the players within this level knows the rules of the game. Company Culture. The total organization often contains subcultures of various functions. Functional culture is expressed through the shared values, beliefs, meanings and behaviors of the members of a function within an organization. Individual Behavior. The individual is affected by the other cultural levels. In the interaction environment, the individual becomes the core person who “interacts” with the other actors in industrial marketing settings. Key Cultural Issues Cultural issues can be said to be the disagreement in the society along with the government that can be based upon the origin and cultural differences. The cultural issues can rise from the socioeconomical, communication and technological differences. Cultural Etiquette Cultural Stereotypes Cultural Distance Convergence and Divergence The Political Environment Political behavior is defined as “the acquisition, development, securing, and use of power in relation to other entities, whose power is viewed as the capacity of social factors to overcome the resistance of other factors.” MNE-Government Relationship The Institutional Context MNE Relationship with the host Government MNE and its Home Government Coalition-building and Influence Tactics Political Risk Measuring Political Risk Types of Political Risk Political risk is the threat of loss of assets, earnings potential or managerial control as a result of political actions by the host country. In general, the more stable a country’s government, the less political risk involved. There are three main types of political risk impacting global businesses: - Ownership Political Risk – inherent risk in maintaining corporate property and the lives of host country employees. - Operational Political Risk – threat of interference in day-to-day operational tasks. - Transfer Political Risk – addresses the danger of a corporation losing the ability to transfer profits and money from the host country back to the home country.
