Session 1iv BUSE608

8/13/2019 Session 1iv BUSE608

1/39

1/30

DR SAJJAD HAIDER

Introduction to BUSE608Introduction to International Business

BUSE 608International BusinessKAAU, 2011-12


2/39

2/30

DR SAJJAD HAIDER

Topic 3:Cultural and Ethical Risk

BUSE 608International BusinessKAAU, 2011-12


3/39

3/30

DR SAJJAD HAIDER

Learning Outcomes

Understand the key factors which determine national andsupra-national cultures

Evaluate the research by Geert Hofstede on how and whypeople from different countries behave in different ways Analyse the impact of cultural differences on international

management Identify and critically assess the main ethical issues which

arise in international business


4/39

4/30

DR SAJJAD HAIDER

What is Culture?

Culture is a system of values and norms that are sharedamongst a group of people and that when taken togetherconstitute a design for living Hill, p89

Differences in business behaviours across cultures cancreate barriers to international trade and investment

Cultural differences can, therefore, increase the complexity

of doing business in another country


5/39

5/30

DR SAJJAD HAIDER

Values

Values are abstract ideas about which a group believes to begood, right and desirable

Values cover ideals such as individual freedoms and rights,and the rule of law

Values are, therefore, reflected in the political and economicsystems of a society e.g. democratic, free-market capitalismis a reflection of a philosophical value system whichemphasises individual freedom


6/39

6/30

DR SAJJAD HAIDER

Norms

Norms may be defined as social rules and guidelines whichprescribe appropriate behaviour in particular situations

Norms can be subdivided into: Folkways such as dress, social etiquette and manners.

Deviations from folkways by foreigners may be regarded aseccentric or ill-mannered, but may not cause serious offence Mores are taken more seriously and are frequently

embodied in the law of the land, such as rules about the role

of women, attitudes to race and/or religion, and thetreatment of children: mores, therefore, have to be obeyedby everyone, including foreigners


7/397/30 DR SAJJAD HAIDER

Culture Culture is, therefore, the whole set of values and norms

which conditions the behaviour of a group of people. Itmakes one social environment different from another

Culture may be sub-national, national or supra-national Sub-national as in the USA with Afro-American, Hispanic

and WASP cultures National as in the differences between, for example, British

and Japanese cultures Supra-national as in Islamic culture which transcends

individual countries



Determinants of Culture

Culture, as values (what we believe in) and norms (the waywe behave) is a function of (see Hill p91):

Political Philosophy Economic Philosophy Social Structure Religion Education Language




Political Philosophy will reflect a society s decision onthe key issue of totalitarianism vs democracy. This willdetermine the extent of individual freedoms and rights

Economic Philosophy will be a reflection of the PoliticalPhilosophy of a particular society, and will bemanifested in the decision to practice either a free-

market or centrally planned economy




Social Structure has two main determinants: individualismvs groupism; stratification vs mobility

Individualism vs groupism reflects decisions as to whethersocieties operate on the basis of catering for individualaspirations or meeting group goals

Stratification vs mobility reflects decisions as to whethersocieties permit individuals to move upwards within asocial hierarchy, or are forced to remain in a particularsocial grouping




Religion may have a significant impact on a society sattitude to business, and to foreigners

It might be argued that religion may have influenced the

pace of economic development in certain regions e.g. theprotestant work ethic in Northern Europe, and theConfucian ethic in South East Asia

See the Islamic Banking in Pakistan Case, Hill 6 th . Edn.

p104-5 and Islamic Capitalism in Turkey , 7 th Edn.p.101, forthe influence of religious beliefs on business practices




Education will be linked to social structure, in that societieswill differ in their attitudes to educational qualifications, andin the extent to which they offer universal education

Educational systems will also differ, reflecting whethersocieties operate on a group or individual basis Language: certain societies have more than one language

and this creates cultural differences e.g. Canada and Spain

Linguistic differences may produce international misunderstandings the Mist-Stick and Nova examples



Cultural Contrasts 1. Deal Oriented vs Relationship Oriented Deal Oriented: North America, Northern Europe, Australia/NZ Relatively open to doing business with strangers

Relationship Oriented: Middle East, Asia, Latin America, most of Africa

Prefer to do business with people they know and trust Thus, problem of making contact



Cultural Contrasts

2. Formal vs Informal Formal: Asia, most of Europe, Middle East Need to reflect differences in status Thus, problems of age differences

Informal : North America, Australia/NZ More familiarity between different levels



Cultural Contrasts 3. Rigid Time vs Fluid Time Punctuality differences Nordic and Germanic Europe vs Middle East, Latin

America Thus problems of meetings (arrival time, interruptions,

agendas)



Cultural Contrasts 4. Expressive vs Reserved A) Verbal communication: Vocabulary chosen to ensure clarity of meaning, and to

avoid giving offence Volume of voice variations Implications of silence B) Non-verbal/Body Language Use of space Physical contact Eye contact Expressions/gestures


17/39

17/30 DR SAJJAD HAIDER

Summary of Cultural Differences

Culture is that complex whole that includes knowledge,beliefs, art, morals, law, customs and other capabilitiesacquired by people as members of a society or group

Culture may be national, regional or based on ethnicgroupings , but may also be supra-national

Values and norms are the central components of a culture

Values are abstract ideals about what a society believes tobe good, right and desirable


18/39


Summary of Cultural Differences

Norms are social rules and guidelines that prescribeappropriate behaviour in particular situations

Values and norms are influenced by political and economicphilosophy, social structure, religion, language andeducation

International businesses must learn cross-culturalawareness, and develop strategies for managing cultural

differences


19/39


Impact of Cultural Differences on Management

When businesses cross national boundaries, sensitivityto foreign cultures becomes important

The success of a multinational company will bedependent on its ability to create working relationshipsin which individuals from different nationalities and withdifferent cultural backgrounds can operate together

successfully


20/39


Impact of Cultural Differences on

Management Cultural sensitivity may, therefore, be crucial to the

success of a number of common activities within amultinational company. For instance:

An expatriate manager s ability to work effectively in aforeign subsidiary

Export salesmen s ability to deal with foreign customers,

agents and distributors


21/39


Impact of Cultural Differences on

Management The ability of a multicultural project team to work

successfully together The integration of a newly acquired foreign company

into the organisation The co-ordination and integration of activities between

subsidiaries in different countries The ability of top management to negotiate and

establish satisfactory relations with governments andlocal authorities in foreign countries


22/39


Hofstede s Research

See Hill p 108 -110 Geert Hofstede, a psychologist working for IBM, produced 4

dimensions of national/regional culture which help toexplain how and why people from different countriesbehave in different ways: Power Distance; UncertaintyAvoidance; Individualism; Masculinity

He conducted 116,000 questionnaires in 40 countries, and

concluded that the following national culturalcharacteristics could be identified:


23/39


Hofstede s Research


24/39


1. Power Distance

Degree to which society accepts that power and privilegeare not distributed equally

High Power Distance: Authority to be obeyed; Respect forage and position; Inequalities accepted by all parties;Management, hierarchical, paternalistic/autocratic

Low Power Distance: Authority can be questioned;Opportunities for ability and youth; Equality of opportunityand rights; Management, flat structures, devolved

responsibility, consultative Relative Scores: UK 37, Japan - 56


25/39


2. Uncertainty Avoidance Extent to which people feel threatened by ambiguous

situations and set up procedures and systems to minimise risks

High Uncertainty Avoidance: Emphasis on rules andregulations; procedures/committees; standards certain,and acceptable behaviour clearly set out

Low Uncertainty Avoidance: Emphasis onentrepreneurship and risk taking; encouragement ofinitiative; tolerance of deviance in ideas, behaviour and

dress Relative scores: UK 35, Japan - 93


26/39


3. Individualism

Personal Freedoms vs Group Loyalty: extent to which tiesbetween individuals in a society are strong or loose

High (Individualism): individual achievement is respected;there is minimal mutual obligation; leadership is clearlydefined and authoritative

Low (Groupism): success is collective; group goals take

priority; leaders are facilitators Relative Scores: UK 89, Japan 46


27/39


4. Masculinity/Femininity

The degree to which the dominant values of society are success, money, possessions masculine, or caring forothers, quality of life feminine

Masculinity: achievement motivation through pay andpromotion; delineation between gender roles in society andthe workplace

Femininity: relationship motivation with accord andharmony the prevalent values; gender equality in societyand the workplace

Relative Scores: UK 67, Japan - 95


28/39


Limitations to Hofstede s Research Hofstede assumes that there is a one-to-one

relationship between a nation state and a singularculture

His research was conducted by Westerners, whosequestions may have been culturally biased

His research was conducted on a single company with a

distinctive corporate culture


29/39


Implications for International Businesses

Despite these reservations, as Hill (p 110) expresses it (Hofstede s research) represents a starting point formanagers trying to figure out how cultures differ and whatthat might mean for management practices

To view individual country s scores, and to examine thebusiness etiquette of different countries go to:http://www.geert-hofstede.com/
http://www.geert-hofstede.com/http://www.geert-hofstede.com/http://www.geert-hofstede.com/http://www.geert-hofstede.com/


30/39


Implications for International Businesses One of the biggest dangers facing a company which

internationalises its operations is that of being ill-informed about the culture of the host country

International businesses which are ill-informedabout the beliefs practices of another culture arelikely to fail


31/39


Implications for International Businesses Cross cultural awareness may be critical to the success orfailure of international businesses because culturaldifferences will embrace all aspects of an internationalfirm s operations in a foreign country affecting such issuesas:

The way in which deals are negotiated; the structure of theorganisation; the appropriate pay systems; the relationsbetween management and labour; the manner in which the

product/service is promoted; even the name of theproduct and there are also ethical issues involved


32/39


Ethical Issues in International Business See Hill ch.4 Business Ethics is the accepted principles of right or

wrong governing the conduct of business managers, and

significant ethical issues arise in the operation ofinternational businesses Areas of contention include : Operation in countries with oppressive regimes

Compliance with unethical governments


33/39


Ethical Issues in International Business Employment Practices: Wage levels Number of working hours Child labour Health and Safety conditions Non-discrimination/Equal Opportunity


34/39


Ethical Issues in International Business

Facilitation of Business: Commission payments Political donations

Product Marketing and Pricing Practices: Selling products banned in the home market Aggressive promotion Exploitation of market strengths Dumping products


35/39


Ethical Issues in International Business How should international managers deal with ethical issues? The extreme positions are:

When in Rome ethical relativism OR Moral Absolutes ethnocentricism These polarities can also be expressed in the choice between

host and home country value systems


36/39


Ethical Issues in International Business

Other theoretical approaches include : Utilitarianism, in which decisions are made on the basis of

an assessment of the potential consequences of an action

Rights and Duties Theories (including Rawls and Kant), inwhich human rights must always be respected, and whereactions must be universally right

See Hill ps.136-41


37/39


Ethical Issues in International Business To ensure that ethical issues are considered properly in

international business decisions, Hill, ( http://highered.mcgraw-hill.com/sites/dl/free/0072873957/121268/ethics_in_international_business.pdf ) offers the following advice: managers shoulda) favour hiring and promoting people with a well-groundedsense of personal ethics; b) build on an organisational culturethat places a high value on ethical behaviour; c) make sure thatleaders within the business not only articulate the rhetoric ofethical behaviour, but also act in a manner that is consistentwith that rhetoric; d) put decision-making processes in place

that require people to consider the ethical dimension ofbusiness decisions; and e) be morally courageous andencourage others to do the same
http://highered.mcgraw-hill.com/sites/dl/free/0072873957/121268/ethics_in_international_business.pdfhttp://highered.mcgraw-hill.com/sites/dl/free/0072873957/121268/ethics_in_international_business.pdfhttp://highered.mcgraw-hill.com/sites/dl/free/0072873957/121268/ethics_in_international_business.pdfhttp://highered.mcgraw-hill.com/sites/dl/free/0072873957/121268/ethics_in_international_business.pdfhttp://highered.mcgraw-hill.com/sites/dl/free/0072873957/121268/ethics_in_international_business.pdfhttp://highered.mcgraw-hill.com/sites/dl/free/0072873957/121268/ethics_in_international_business.pdfhttp://highered.mcgraw-hill.com/sites/dl/free/0072873957/121268/ethics_in_international_business.pdf


38/39


Summary In this section of the course we have covered: The key features of cultures, and how these differ

regionally, nationally and supra-nationally The key ethical issues which face business managers in an

international context The key principles governing the development of cross-

cultural literacy are, as adapted from Hill (p 143) that business leaders (must use) every relevant opportunityto stress the importance of business ethics and (make) surethat key business decisions not only make economic sensebut also are ethical


39/39

Summary

Hill, again on p143, goes on to say that the aim should beon building an organizational culture that places a highvalue on ethical behavior

which benefits people who engage in ethicalbehaviour, and sanctions those who do not. Creating and maintaining an (international) ethical

organisation, thus requires leadership (in action as well aswords) and reward systems which benefit the good

Documents

Session 1iv BUSE608