copyright © 2013 pearson education, inc. publishing as prentice hall 4-1 a framework for...

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

4-1

A Framework for International Business

by Cavusgil, Knight, & Riesenberger

Chapter 4: Culture and Ethics in International Business


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In this chapter, you’ll learn about:

1. Culture and cross-cultural risk

2. Interpretations of culture

3. Overcoming cross-cultural risk: Managerial guidelines

4. Ethics in international business

5. Corporate social responsibility

6. A framework for making ethical decisions

Learning Objectives


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Key Concepts

• Culture: Enduring patterns of learned behavior that are generally shared in a society. Tough to observe, but demonstrated through values, ideas, attitudes, behaviors, & symbols

• Cross-cultural risk: A situation cultural mistake that puts some human value at risk. It arises in environments with unfamiliar languages & unique value systems, beliefs, & behaviors


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Managerial Orientations

• Ethnocentric orientation: Using one’s own culture as the standard for judging other cultures

• Polycentric orientation: A mindset in which the manager develops a greater affinity for the country in which he or she works

• Geocentric orientation: A global mind-set in which the manager is able to understand a business or market without regard to national boundaries

• Managers should strive for a geocentric orientation


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Culture Is…

• Not right or wrong: It is relative. There is no cultural absolute. People of different nationalities sometimes just see the world differently

• Not about individual behavior: It is about groups. It is a collective phenomenon of shared values and meanings

• Not inherited: It derives from the social environment. We are not born with a shared set of values and beliefs; we learn them as we grow up


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Culture is Learned

• Socialization: The process of learning the rules and behavioral patterns appropriate to one's society

• Acculturation: The process of adjusting and adapting to a culture other than one's own; commonly experienced by expatriate workers

• Culture is like an iceberg - what is visible above the surface is only a small part of culture; below the surface is a massive base of assumptions, attitudes, & values that strongly influence decision making, relationships, and other actions at work


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• Cultural Metaphors refer to distinctive traditions or institutions strongly associated with a society; a guide to deciphering attitudes, values, and behaviors

• American football represents systematic planning, strategy, leadership, and struggling against rivals

• The Swedish stuga (summercottage) represents the loveof nature and desire for individualism in Sweden

• The Spanish bullfight reflectsthe importance of ritual, style, courage, and pride in Spain

Interpretations of Culture


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Interpretations of Culture (cont.)

• Idiom: An expression whose symbolic meaning differs from its literal meaning; you can’t understand it simply by knowing what the individual words mean

Examples– Thailand: “If you follow older

people, dogs won’t bite you” (wisdom)

– Japan: “The nail that sticks out gets hammered down” (not being “showy”; group conformity)

– U.S.: “The squeaky wheel gets the grease” (it’s important to speak up;

distinguish yourself)


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Examples of Where Culture can Impact the Conduct of Business

• Developing products and services

• In ads and promotional materials

• Preparing for trade fairs overseas

• Screening & selecting foreign distributors

• In communicating with foreign partners

• When negotiating various business ventures

• In interactions with current & potential customers in different countries


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Hall’s High- and Low-Context Cultures

• Low-context cultures rely on explicit explanations, with emphasis on spoken words. Such cultures emphasize clear, efficient, logical delivery of verbal messages. Communication is direct. Agreements are concluded with specific, legal contracts

• High-context cultures emphasize nonverbal or indirect language. Communication aims to promote smooth, harmonious relationships. Such cultures prefer a polite, “face-saving” style that emphasizes a mutual sense of care and respect for others. Care is taken not to embarrass or offend others


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High- & Low-Context Cultures (Hall)


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Hofstede’s Typology of National Culture

• Individualism vs. collectivism refers to whether a culture focuses primarily on individuals or whether it values group membership

– In individualistic societies, there is great emphasis on self-interest; competition for resources is the norm; and individuals who compete best are rewarded. Examples: Australia, Britain, Canada, and the U.S

– In collectivist societies, ties among individuals are important; business is conducted in a group context; it’s important to keep conflict at a minimum; conformity and compromise help maintain harmony. Examples: China, Panama, Japan, and South Korea


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Hofstede’s Typology (cont.)

• Power distance describes how a society deals with inequalities in power that exist among people

– High power distance societies exhibit big gaps between the weak &

powerful. In firms, top management tends to be autocratic, giving little autonomy to lower-level employees. Examples: Guatemala, Malaysia, Philippines, and several Middle Eastern countries

– Low-power distance societies have small gaps between the weak and the powerful. Firms tend toward flat organizational structures, with relatively equal relations between managers & workers. For example, Scandinavian countries have instituted various systems to ensure socioeconomic equality


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• Uncertainty avoidance refers to the extent to which people can tolerate risk and uncertainty in their lives

– High uncertainty avoidance societies create institutions to minimize risk and ensure security. Firms emphasize stable careers and regulate worker actions. Decisions are made slowly. Examples are Belgium, France, and Japan

– In low uncertainty avoidance societies, managers are relatively entrepreneurial and comfortable with risk. Firms make decisions quickly. People are comfortable changing jobs. Examples are Ireland, Jamaica, and the U.S


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• Masculinity versus femininity refers to a society’s orientation based on traditional male and female values.

– Masculine cultures value competitiveness, ambition, assertiveness, & the accumulation of wealth. Both men and women are assertive, focused on career and earning money. Examples are Australia and Japan

– Feminine cultures emphasize nurturing roles, interdependence among people, and caring for less fortunate people—for both men and women. Examples are Scandinavian countries, where welfare systems are highly developed and education is subsidized


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• Long-term versus short-term orientation describes the degree to which people and organizations defer gratification to achieve long-term success

– Long-term orientation emphasizes a longer view of planning & living (years/decades vs. months). Examples are traditional Asian cultures (China, Japan, Singapore) where teachings of Confucius about discipline, hard work, & education are key values

– Short-term orientation is typical in the U.S. and most other Western countries


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Subjective Dimensions of Culture

• Values represent a person’s judgments about what is good or bad, acceptable or unacceptable, important or unimportant, and normal or abnormal

• Attitudes and preferences are developed based on values. They are similar to opinions, except that attitudes are often unconsciously held and may not have a rational basis

Examples Values common to Japan, North America, and Northern Europe

include hard work, punctuality, and wealth acquisition.


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Manners and Customs

• Manners and customs are present in eating habits, mealtimes, work hours & holidays, drinking & toasting, appropriate behavior at social gatherings (kissing, handshaking, bowing), gift-giving (complex), the role of women, & more.

• It is a mistake to minimize the importance of knowing customs of another culture, not simply b/c it could offend, but also because it can signal that you are not prepared & thus could be taken advantage of

Ways of behaving and conducting oneself in public and business situations


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Deal vs. Relationship Orientation

• In deal-oriented cultures, managers focus on the task at hand, are impersonal, typically use contracts, and want to just “get down to business.” – Examples are Australia, Northern Europe, and North America

• In relationship-oriented cultures, managers value affiliations with people, rapport, and getting to know the other party in business interactions. Relationships are more important than individual deals, and trust is valued highly in business agreements. – Examples are China, Japan, and Latin American countries. It took nine years

for Volkswagen to negotiate a car factory in China


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• Refers to social connections and relationships based on mutual benefits

• Emphasizes reciprocal exchange of favors as well as mutual obligations

• Rooted in ancient Confucian philosophy, which values social hierarchy & reciprocity

• Engenders trust, thereby serving as a form ofinsurance in a potentially risky business environment

Guanxi: Important in Business in China

China


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Perceptions of Time

• Time dictates expectations about planning, scheduling, profit streams, and what constitutes tardiness in arriving for work and meetings– Monochronic: A rigid orientation to time in which the individual is focused

on schedules, punctuality, and time as a resource. Time is linear, and “time is money.” For example, people in the U.S. are hurried and impatient

– Polychronic: A flexible, non-linear orientation to time in which the individual takes a long-term perspective. Time is elastic, and long delays are tolerated before taking action. Punctuality is relatively unimportant. Relationships are valued. Examples are Africa, Latin America, and Asia


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Religion

• A system of common beliefs or attitudes regarding a being or system of thought that people consider sacred, divine, or the highest truth - & the associated moral values, traditions, & rituals

• Influences culture, and therefore business and consumer behavior– Example: The “Protestant work ethic” emphasizes hard work, individual

achievement, and a sense that people can control their environment—the underpinnings for the development of capitalism


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Role of Religion in Islamic Societies

• Islam is the basis for governmental, legal, and social systems. As Muslims view God’s will as the source of all outcomes, they tend to be more fatalistic and reactive

• Islam’s holy book, the Qur’an, prohibits drinking alcohol, gambling, usury, and “immodest” exposure. The prohibitions affect firms dealing in various goods & services

Examples • Nokia launched a mobile phone app

that shows Muslims the direction toward Mecca, Islam’s holiest site

• Heineken created the non-alcoholic malt drink Fayrouz

• Many Islamic mutual funds & financing firms have emerged in the U.S.


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Language as a Key Dimension of Culture

• Language is the “mirror” or expression of culture; it is essential for communications and provides insights into culture

• Linguistic proficiency is a great asset in international business

• Language has both verbal and nonverbal components (i.e., facial expressions and gestures)

• There are nearly 7,000 active

languages, including over 2,000 in

both Africa and Asia


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Managerial Guidelines for Cross-Cultural Success

• Acquire factual and interpretive knowledge about the other culture; try to speak its language

• Avoid cultural bias

• Develop cross-cultural skills, such as perceptiveness, interpersonal skills, and adaptability


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Personality Traits for Cross-Cultural Proficiency

• Tolerance for ambiguity: Ability to tolerate uncertainty and lack of clarity in the thinking and actions of others

• Perceptiveness: Ability to closely observe and comprehend subtle information in the speech and behavior of others

• Valuing personal relationships: Ability to appreciate personal relationships, often more important than achieving one-time goals or “winning” arguments

• Flexibility and adaptability: Ability to be creative in devising innovative solutions, be open-minded about outcomes, and show “grace under pressure”


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Ethics in International Business

• Moral principles and values that affect behavior of individuals, companies, and governments

• Ethics tell us what’s right or wrong

• Sometimes easier to understand than it is to actually put it in practice

• And, sometimes easier to know what’s wrong than what’s right to do


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Inappropriate Conduct

• Corruption is the abuse of power to achieve illegitimate personal gain

• More than 30 percent of MNEs believe corruption is a major or severe concern in their global activities

• Bribery is common and can take the form of grease payments, small inducements intended to expedite decisions and transactions or gain favors


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Note: Countries with the highest scores have the lowest levels of corruption. Source: Adapted from Corruption Perceptions Index. Copyright (c) 2010 Transparency International: The Global Coalition Against Corruption, www.transparency.org.

Corruption Perceptions Index


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The Value of Ethical Behavior

• Ethical behavior is simply the right thing to do. It is often prescribed within laws and regulations

• Often required by laws and regulations

• Ethical behavior is demanded by customers, governments, and the news media. Unethical firms risk attracting unwanted attention

• Ethical behavior is good business, leading to enhanced corporate image and selling prospects. Firms with strong reputations have an advantage when hiring and motivating employees, partnering, and dealing with foreign governments


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Variation in Ethical Standards

• Ethical standards vary from country to country

• Relativism is the belief that ethical truths are not absolute but, rather, differ from group to group. This perspective is summarized by the phrase, “When in Rome, do as the Romans do.”

• Normativism is the belief that ethical behavioral standards are universal and that firms and individuals should seek to uphold them consistently around the world


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An Ethical Dilemma

• Imagine you are a manager visiting a factory owned by an affiliate in Colombia. During this you discover the use of child labor in the plant

• You are told that without the income they receive from their children’s work, their families might go hungry. If the children are dismissed from the plant, they will likely turn to other income sources, including prostitution and street crime

• What should you do? Raise the issue of the immorality of child labor or look the other way?


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Corporate Social Responsibility

• Corporate social responsibility: Manner of operating a business that meets or exceeds the ethical, legal, commercial, and public expectations of customers, shareholders, employees, and communities

• A strong CSR can:- Help recruit and retain good employees

- Help differentiate the firm and enhance its brands

- Help cut costs, such as minimizing packaging, recycling, economizing on energy usage, and reducing waste in operations

- Help the firm avoid increased taxation, regulation, or other legal actions by local government authorities


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Examples of Accomplishments by MNEs


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Sustainability

• Sustainability: Meeting humanity’s needs without harming future generations

• The sustainable firm pursues a triple bottom line:

1. Economic interests refer to the firm’s economic impact on the localities where it does business (jobs, wages, public works) 2. Social interests refer to how the firm performs relative to social justice, such as avoiding the use of child labor,

sweatshops, and providing employee benefits.3. Environmental interests refer to the extent of the firm’s impact on and

harm to the natural environment.


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Corporate Governance

• Corporate Governance: The system of procedures and processes by which corporations are managed, directed, and controlled

• It provides the means through which firms undertake ethical behaviors, CSR, and sustainability

• Implementing appropriate conduct is challenging for MNEs, especially when operating in many countries

• A complicating factor is the use of third-party suppliers and contractors, some of which may behave badly

• Most firms incorporate ethics and CSR into their mission, planning, strategy, and everyday operations


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Ethical Standards for Corporate Governance

This approach argues the best ethical action is the one that provides the most good or the least harm. It produces the greatest balance of good over harm to customers, employees, shareholders, the community,and the natural environment.

This approach instructs the decision maker to choose the action that best protects and respects the moral rights of everyone involved. It is based on the belief that, regardless of how you deal with an ethical dilemma, human dignity must be preserved.

This approach advises that everyone should be treated equally and fairly. Workers should be paid a fair wage that provides a decent standard of living, and colleagues and customers should be treated as we would like to be treated.

This approach suggests that actions should be based on the welfare of the entire community or nation. It asks which action contributes most to the quality of life of all affected people. Respect and compassion for all, especially the vulnerable, should be the basis for decision making.

This approach advocates that ethical actions should be consistent with certain ideal virtues that provide for the full development of our humanity. The most important virtues are truth, courage, compassion, generosity, tolerance, love, integrity, and prudence.

Virtue Approach

Common GoodApproach

Fairness Approach

Rights Approach

Utilitarian Approach

Ethical Standards for Corporate Governance


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A Framework for Making Ethical Decisions

1. Recognize an ethical problem- ask questions and rely on instincts

2. Get the facts- who’s involved; have they been consulted?

3. Evaluate alternative courses of action- is it legal?; follow company codes; consistent with societal standards?

4. Implement & evaluate decision- take action; check if it worked; note what to improve next time


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Embracing CSR and Sustainability

• Develop closer relationships - with foreign stakeholders to understand their needs & jointly develop solutions

• Build capabilities - to enhance the firm’s contribution to the local community and global environment

• Ensure diverse voices by creating organizations that employ managers and workers from around the world

• Develop global CSR standards and objectives that are communicated and implemented across the firm worldwide

• Train managers in global CSR principles and integrate these into managerial responsibilities


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