1. International Business Chapters 3 & 4 McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. 1

2. Chapter 3 Differences in Culture 2

3. Questions What would you expect in the way of cultural differences if you were to go to Saudi Arabia, Japan or Brazil? What would people from Saudi Arabia, Japan or Brazil expect from American culture? Why do these elements of culture exist and why do they differ by country? What are the implications for international business managers? 3

4. Introduction Successful international managers need cross- cultural literacy –An understanding of how cultural differences across and within nations can affect the way in which business is practiced A relationship may exist between culture and the costs of doing business in a country or region 4

5. What Is Culture? Culture is a system of shared values and norms - Values are abstract ideas about what a group believes to be good, right, and desirable - Norms are the social rules and guidelines that prescribe appropriate behavior in particular situations Society refers to a group of people who share a common set of values and norms 5

6. Culture, Society, And The Nation-state There is not a strict one-to-one relationship between a society and a nation state Nation-states are political creations that can contain one or more cultures 6

7. The Determinants Of Culture The values and norms of a culture are the evolutionary product of a number of factors at work in a society including; –Religion –Political Philosophy –Economic Philosophy –Education –Language –Social structure 7

8. Social Structure Social structure refers to a society’s basic social organization Two dimensions to consider: –The degree to which the basic unit of social organization is the individual, as opposed to the group –The degree to which a society is stratified into classes or castes 8

9. Individuals And Groups A group is an association of two or more people –who have a shared sense of identity –who interact with each other in structured ways –on the basis of a common set of expectations about each other’s behavior Societies differ in terms of the degree to which the group is viewed as the primary means of social organization 9

10. Individuals And Groups In many Western societies, there is a focus on the individual –This contributes to the high level of entrepreneurship and dynamism in the US –But, leads to Lack of company loyalty Failure to gain company specific knowledge Competition between individuals in a company vs. team building 10

11. Individuals And Groups In many Asian societies, the group is the primary unit of social organization –Discourages job switching between firms –Encourages lifetime employment systems –Leads to cooperation in solving business problems –Can suppress individual creativity and initiative 11

12. Question The group is the primary unit of social organization in a) Japan b) The United States c) Switzerland d) Mexico 12

13. Social Stratification All societies are stratified into social categories, or social strata While stratified to some extent, they differ by: –The degree of mobility between social strata –The significance attached to social strata in business contacts 13

14. Social Stratification Social mobility is the extent to which individuals can move out of the strata into which they are born –A caste system is a closed system of stratification in which social position is determined by the family into which a person is born, and change in that position is usually not possible during an individual's lifetime –A class system is a form of open social stratification in which the position a person has by birth can be changed through his or her achievement or luck 14

15. Religious And Ethical Systems Religion is a system of shared beliefs and rituals that are concerned with the realm of the sacred Ethical systems are a set of moral principles, or values, that are used to guide and shape behavior –Religion and ethics are often closely intertwined –Four religions dominate society -Christianity, Islam, Hinduism, and Buddhism –Confucianism is also important in influencing behavior and culture in many parts of Asia 15

16. Christianity Christianity is the world’s largest religion Perhaps the most important economic implication of Christianity is the Protestant work ethic 16

17. Islam Islam, is the world’s second largest religion, to an all-embracing way of life that governs one's being –In the West, Islamic fundamentalism is associated in the media with militants, terrorists, and violent upheavals - But in fact Islam teaches peace, justice, and tolerance –Fundamentalists, who demand rigid commitment to religious beliefs and rituals, have gained political power in many Muslim countries, and blame the West for many social problems The key economic implication of Islam is that under Islam, people do not own property, but only act as stewards for God –Therefore, they must take care of that which they have been entrusted with, so while Islam is supportive of business, the way business is practiced is prescribed 17

18. Hinduism Hinduism, focuses on the importance of achieving spiritual growth and development, which may require material and physical self-denial –Since Hindus are valued by their spiritual rather than material achievements, there is not the same work ethic or focus on entrepreneurship found in some other religions 18

19. Buddhism Buddhism, which has about 350 millions followers, stresses spiritual growth and the afterlife, rather than achievement while in this world –Buddhism does emphasize wealth creation, and so entrepreneurial behavior is not stressed 19

20. Confucianism Confucianism, an ideology practiced mainly in China, teaches the importance of attaining personal salvation through right action –Three key teachings of Confucianism - loyalty, reciprocal obligations, and honesty - may all lead to a lowering of the cost of doing business in Confucian societies 20

21. Video McDonald’sMcDonald’s 21

22. McDonald’s Questions How does McDonald’s adjust for differences in –Religions –Politics –Economics –Legal –Local Tastes 22

23. Language Language refers to the spoken and unspoken means of communication Language is one of the defining characteristics of culture 23

24. Spoken Language Countries with more than one language often have more than one culture –Chinese is the mother tongue of the largest number of people –English is also becoming the language of international business, but knowledge of the local language is beneficial, and in some cases, critical for business success 24

25. Unspoken Language Unspoken language refers to nonverbal communication such as facial expressions, personal space, and hand gestures Failing to understand the nonverbal cues of another culture can lead to communication failure 25

26. Education Formal education is the medium through which individuals learn many of the language, conceptual, and mathematical skills –Education is important in determining a nation’s competitive advantage –General education levels can also be a good index for the kinds of products that might sell in a country 26

27. Culture And The Workplace Companies must understand how a society’s culture affects workplace values Management processes and practices must be adapted to culturally-determined work-related values Geert Hofstede identified four dimensions of culture: power distance, uncertainty avoidance, individualism versus collectivism, and masculinity versus femininity 27

28. Culture And The Workplace Power distance focuses on how a society deals with the fact that people are unequal in physical and intellectual capabilities Individualism versus collectivism focuses on the relationship between the individual and his or her fellows Uncertainty avoidance measures the extent to which different cultures socialize their members into accepting ambiguous situations and tolerating ambiguity Masculinity versus femininity looks at the relationship between gender and work roles 28

29. Culture And The Workplace Table 3.1: Work-Related Values for 20 Selected Countries 29

30. Importance of Cross-Cultural Literacy Cross-cultural literacy is critical to the success of international businesses Companies that are ill informed about the practices of another culture are unlikely to succeed in that culture Managers must also beware of ethnocentric behavior, or a belief in the superiority of one's own culture 30

31. Chapter 4 Ethics in International Business 31

32. Introduction Ethics refers to accepted principles of right or wrong that govern –Conduct of a person –Members of a profession –Actions of an organization Business ethics are the accepted principles of right or wrong governing the conduct of business people Ethical strategy is a strategy, or course of action, that does not violate these accepted principles 32

33. Ethical Issues In International Business The most common ethical issues in business involve: Employment practices Human rights Environmental regulations Corruption The moral obligation of multinational companies 33

34. Video Hanes Brands 34

35. Hanes Brands Questions Is there a ethical commitment that foreign companies make when global production investments are made in a country? –Yes –No –Yes and No 35

36. Employment Practices If work conditions in a host nation are clearly inferior to those in a multinational’s home nation, should companies apply: Home country standards Host country standards Something in between 36

37. Human Rights In developed countries, basic human rights such as freedom of association, freedom of speech, freedom of assembly, and freedom of movement, are taken for granted In other countries, these rights may not exist 37

38. Environmental Pollution Ethical issues arise when environmental regulations in host nations are far inferior to those in the home nation Environmental questions take on added importance because some parts of the environment are a public good that no one owns, but anyone can despoil 38

39. Corruption The U.S. Foreign Corrupt Practices Act outlawed the practice of paying bribes to foreign government officials in order to gain business The Convention on Combating Bribery of Foreign Public Officials in International Business Transactions adopted by the Organization for Economic Cooperation and Development (OECD), obliges member states to make the bribery of foreign public officials a criminal offense 39

40. Moral Obligations Social responsibility refers to the idea that business people should take the social consequences of economic actions into account when making business decisions –There should be a presumption in favor of decisions that have both good economic and good social consequences 40

41. Ethical Dilemmas Ethical dilemmas are situations in which none of the available alternatives seems ethically acceptable The ethical obligations of a multinational corporation are not always clear cut –Employment conditions –Human rights –Corruption –Environmental pollution 41

42. The Roots Of Unethical Behavior There is no clear cut reason why managers behave unethically Expatriates are constantly dealing with the differences between countries – when do they become decisions of ethics? 42

43. The Roots Of Unethical Behavior Figure 4.1: Determinants of Ethical Behavior 43

44. Personal Ethics Personal ethics (the generally accepted principles of right and wrong governing the conduct of individuals) influence business ethics Expatriates may face pressure to violate their personal ethics because they are away from their ordinary social context and supporting culture, and they are psychologically and geographically distant from the parent company 44

45. Decision Making Processes People may behave unethically because they rely on economic analysis when making decisions and fail to ask the relevant question: Is this decision or action ethical? 45

46. Organizational Culture Organization culture refers to the values and norms that are shared among employees of an organization In firms with an organization culture that does not emphasize business culture, unethical behavior may exist 46

47. Unrealistic Performance Expectations When the parent company sets unrealistic performance goals, managers may cut corners or act in an unethical manner Organizational culture can legitimize unethical behavior or reinforce the need for ethical behavior 47

48. Leadership Leaders help to establish the culture of an organization, and set the example that others follow When leaders act unethically, subordinates may act unethically, too 48

49. Organization Culture And Leadership To foster ethical behavior, businesses need to build an organization culture where: The business explicitly articulates values that place a strong emphasis on ethical behavior, using a code of ethics Leaders in the business give life and meaning to the code of ethics by repeatedly emphasizing their importance, and then acting on them The business puts in place a system of incentives and rewards that recognize people who engage in ethical behavior and sanction those who do not 49

50. Decision-Making Process To determine if a decision is ethical, managers can ask: Does my decision fall within the accepted values of standards that typically apply in the organizational environment? Am I willing to see the decision communicated to all stakeholders affected by it? Would the people with whom I have significant personal relationships approve of the decision? Am I personally comfortable with the decision? 50

51. Ethics Officers To ensure ethical behavior in a business, firms now have ethics officers Ethics officers ensure: All employees are trained in ethics Ethics is considered in the decision-making process The company’s code of conduct is followed 51

52. Moral Courage Moral courage: Enables managers to walk away from a decision that is profitable, but unethical Gives an employee the strength to say no to a superior who instructs her to pursue actions that are unethical Gives employees the integrity to go public to the media and blow the whistle on persistent unethical behavior in a company Does not come easily and employees have lost their jobs when acting on this courage 52