Environment Facing International Business

Dr. Kavita Chauhan Centre for Management Studies, Jamia Millia Islamia University, New Delhi

Fundamental Issues in Strategy globally

q q q

Why do firms differ? How do firms behave? What determines the scope of the firm? What determines the international success or failure of firms?

The Essence of Strategy

3 Leading Perspectives on Strategy

What Determines the International Success or Failure of Firms?

q

Acquiring

and

leveraging

competitive advantage
q

The Key: Sustaining such an advantage across through over time and and countries (regions)

replication

Cultural Environment Facing Business

Do You Know?

In what ways do cultural differences, language and religion influence international investment and trade? How does corporate culture interact with local and national culture? Is corporate culture primarily homogeneous throughout an MNE? What are the major models for comparison of

What is Culture?

The

knowledge,

beliefs,

art

law,

morals, customs and other capabilities of one group distinguishing it from other groups. Culture is therefore shared, intangible and confirmed by others

Culture and International Business

Culture impacts the way strategic moves are presented.

Influences decisions. The lens through which motivation occurs. Management, decision making, and

negotiations are all influenced through culture.

Culture influences nearly all business functions from accounting to finance to production to

Culture and International Business

Culture is a key ingredient in the liability of foreign-ness

Culture is what makes international business practice difficult or easy, depending on how similar or different cultures are.

Culture is both divisive and unifying.

Culture Does Not Explain Everything

While

culture

is

very

important

to

our

understanding of international business, it does not explain everything that is different from one place to another. Corporate strategy, structure, rivalry, governmental policy, and economics
q

Culture is not a residual variable; it is useful to know that it is not a primary variable either. It

Correlates of Culture Culture is correlated with other variables nationally, religion.

q

that like to

vary language

crossand that

It

is

useful

remember cuts

culture

often

across

religious, linguistic, and national

Language

Language is the means by which we communicate verbally. It is used for socialization and communicating how values and norms are expressed and understood. There are approximately 20 different language families that cut across national borders. Not only are words different, but also

Language

The artifacts that surround language:

Linguistics or the meanings of words Proxemics or the distance that speakers stand from one another Pragmatics the cultural interpretations of words, gestures, and nonverbals Nonverbals The gestures and body language that accompanies spoken words

English has become the business worlds lingua franca, and the number one foreign language taught in other countries

Language

Language

Language

Religion

Religion contains key values and norms that are reflected in adherents way of life.

People

try

to

adopt

business

practices that will satisfy religious tenets without sacrificing modern

Religion

Religion

Religion
Adherents to major world religions, geographic region, 1996 (in millions) by

National Culture Classifications

Culture

and

Nation

are

not

synonymous.
q

National cultural nations.

and

cultural in

boundaries almost all

overlap partially, and there will be differences

To

make

things

simpler,

however,

Hofstede Study

Hofstedes Dimensions of Culture

Power Distance Uncertainty Avoidance Individualism/Collectivism Masculinity/Femininity Long-Term Orientation

Power Distance (PD)

Power Distance is the extent to which hierarchical differences are accepted in society and articulated in term of deference to higher and lower social and decision levels in organization. Artifacts of high PD:
Centralization # Org. Levels- Height # Supervisors Wage Differentials

Power Distance (PD)

Power Distance (PD)

Uncertainty Avoidance (UA)

Uncertainty Avoidance is the extent to which uncertainty and ambiguity are tolerated. Artifacts of high UA:
Standardization Structured activities Written rules Specialists No risk tolerance Ritualistic behavior

Uncertainty Avoidance (UA)

Individualism/Collectivism (I/C)

I/C is the extent to which the self or the group constitutes the center point of identification for the individual. Individual self interest is pursued individually, or as a part of a group. Artifacts of I/C
Firm as family Utilitarian decision making Group performance

Individualism/Collectivism (I/C)

Masculinity-Femininity (M/F)

Refers to the extent to which traditional masculine values, like aggressiveness and assertiveness, are valued. Artifacts of M/F
Sex Roles Minimized More Women In Jobs Interpersonal Skills Rewarded Intuitive Skills Rewarded Social Rewards Valued

Masculinity-Femininity (M/F)

Long-Term Orientation (LTO)

Originally called Confucian Dynamism because of anchoring in the Confucian value system. q Represents such values as thrift, persistence, and traditional respect of social obligations. q Organizations likely to adopt longer planning horizon, with individuals ready to delay
q

Long-Term Orientation (LTO)

Criticism of Hofstede
Hofstede has been subject to broad criticism. Among the criticisms: q Single companys data, with a large Multinational Enterprise having a strong corporate culture. q Time dependent results, which are an artifact of the time of data collection and analysis. q Business culture, not values culture, representing a reflection of business

Criticism of Hofstede

q q

Non-exhaustive, doesnt identify all the cultural dimensions possible, but just a few. Partial geographic coverages, cover only a portion of the worlds cultures and countries. Western bias, which values western business ideals. Attitudinal rather than behavioral measures, with no connection between employee attitudes and employee

Edward T Hall Study

Context Cultural Factors

Factor Overtness of messages Locus of control and attribution for failure Use of nonverbal communication Expression of reaction Cohesion and separation of groups High-context culture Many covert and implicit messages, with use of metaphor and reading between the lines. Inner locus of control and personal acceptance for failure Much nonverbal communication Low-context culture Many overt and explicit messages that are simple and clear. Outer locus of control and blame of others for failure More focus on verbal communication than body language Visible, external, outward reaction Flexible and open grouping patterns, changing as needed

Reserved, inward reactions

Strong diistinction between ingroup and outgroup. Strong sense of family.

Context Cultural Factors

People bonds Level of commitment to relationships Flexibility of time

Strong people bonds with affiliation to family and community High commitment to longterm relationships. Relationship more important than task. Time is open and flexible. Process is more important than product

Fragile bonds between people with little sense of loyalty. Low commitment to relationship. Task more important than relationships. Time is highly organized. Product is more important than process

Time based context

Factor Actions Focus Attention to time Priority Respect for property Timeliness

Monochronic action do one thing at a time Concentrate on the job at hand Think about when things must be achieved Put the job first Seldom borrow or lend things Emphasize promptness

Polychronic action do many things at once Are easily distracted Think about what will be achieved Put relationships first Borrow and lend things often and easily base promptness relationship factors

Need for Space

High territoriality Low territoriality Contrasting

Schwartzs Classification

Three polar dimensions of culture:

Embeddedness versus Autonomy
Embeddedness emphasis on social relationships and tradition Autonomy finding meaning in ones own uniqueness

Hierarchy versus Egalitarianism

Hierarchy legitimacy of hierarchical role and resource allocation Egalitarianism transcendence of self-interests and promoting others welfare

Mastery versus Harmony

Mastery mastering the social environment via self-assertion

Schwartzs Classification

Exhibit 6-13: Sample country rankings on Schwartzs dimensions

Trompenaars and Hampden-Turners Classification

q

Consists of seven dimensions:

1. Universalism versus particularism rules versus relationships 2. Communitarianism versus individualism the group versus the individual 3. Neutral versus emotional 4. Diffuse versus specific 5. Achievement versus ascription 6. Attitudes to time 7. Attitudes toward the environment

National Cultural Clustering

The grouping of cultures based on their relative similarity.

Ronen and Shenkar
A synthesis of eight earlier studies Eight clusters: Near Eastern, Nordic, Germanic, Anglo, Latin European, Latin American, Far Eastern, and Arab, as well as Independent

Huntington
Based on historical and political observations Distinguishes seven civilizations: Sinic, Japanese, Hindu, Islamic, Western, Latin American, and African

National Cultural Clustering

National Cultural Clustering

Corporate Culture
Corporate Culture is the culture

adopted, developed and disseminated in an organization.

q

Corporate

culture

can

deviate

from

national norms, but that depends upon the strength of culture and the values

Classifications of Corporate Culture

q

Hofstede et al:
Value dimensions (factors)
Need for security Work centrality Need for authority

Practices
Process-oriented vs. results-oriented Employee-oriented vs. job-oriented Parochial vs. professional Open system vs. closed system Loose control vs. tight control Normative vs. pragmatic

Classifications of Corporate Culture

Trompenaars Turner

and

Hampden-

The Family personal, hierarchical, power-oriented The Eiffel Tower specific relations, ascribed status, rational authority The Guided Missile egalitarian, impersonal, and task oriented The Incubator individual selffulfillment, personal and egalitarian relations

Other Layers of Culture

Ethnicity significant ethnic communities exist in many countries; likely to affect a myriad of issues q Industry important layer of culture q Demographics education, age, seniority and hierarchical level affect difference in values q Ideology not always consistent
q

Key Cultural Issues

Cultural Etiquette the manners and behavior that are expected in a given situation Cultural Stereotypes our beliefs about others, their attitudes and behavior Ethnocentric looking at the world from a perspective shaped by our own culture Auto-stereotypes how we see ourselves as a group distinguished from others Hetero-stereotypes how we are seen by others.

Key Cultural Issues

Key Cultural Issues

q

Cultural Distance
The extent to which cultures differ from each other Hofstede stated that uncertainty avoidance was the most important dimension of FDI

Convergence and Divergence

Convergence hypothesis assumes that the combination of technology and economics is making countries more alike Divergence hypothesis assumes that counties will continue to maintain their distinctive characteristics

The International Environment

Political:
Governments Ideology Stability Civil Strife

Economic:
Trade Agreements Trading Blocs GNP/Wages Inflation

Cultural:

MNC
Legal:

Customs Values Language Religion

Infrastructure/Tech
Communications Internet Transportation Technology

International Law Host Country Laws Home Laws International Piracy

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