Part Two

Comparative Environmental Frameworks


Chapter 2

The Cultural Environments Facing Business





!          Discuss the problems and methods of learning about cultural environments.

!          Explain the major causes of cultural difference and change.

!          Examine behavioral factors influencing countries’ business practices.

!          Examine cultural guidelines for companies that operate internationally.



Chapter Overview


When companies source, produce, and/or market products in foreign countries, they encounter fascinating and often challenging cultural environments. Chapter 2 explores the basic concept of culture and its effect on international business operations and strategy. It explores cultural awareness as well as the causes of cultural differences, rigidities and changes. In so doing it focuses on the impact of cultural traditions on business activities, as well as the mutually satisfactory reconciliation of cultural differences. The chapter concludes with a discussion of the ways in which firms can maximize their effectiveness while operating in a world of complex, dynamic, cultural diversities.



Chapter Outline


OPENING CASE: Adjusting to Saudi Arabian Culture [See Map 2.1]

This case provides a striking example of the challenges presented to foreign firms by a pervasive national culture. It shows why companies have had mixed success in Saudi Arabia, a modern yet ancient society grounded in Islamic law, religious convictions and behavioral traditions. The case describes various ways in which firms have adjusted their products, facilities and operating strategies in order to meet government requirements and yet satisfy the Saudi consumer. It also discusses numerous paradoxes encountered regarding legal sanctions, purchasing patterns and attitudes toward work. It concludes by noting some of the opportunities that exist in Saudi Arabia, either because of or in spite of the contrasts and paradoxes found there.


Teaching Tip: Carefully review the PowerPoint slides for Chapter 2. For additional visual summaries of key chapter points, also review text Figures:

·         2.1—Cultural Influences on International Business

·         2.4—The Hierarchy of Needs and Need-Hierarchy Comparisons.


I.                   INTRODUCTION

Culture represents the specific learned norms of a society, based on attitudes, values and beliefs. Major problems of cultural collision may occur because a firm implements practices that do not reflect local customs and values and/or its employees are unable to accept or adjust to foreign behaviors.



Although people agree that cross-cultural differences do exist, they often disagree on their impact. Are they widespread or exceptional? Are they deep-seated or superficial? Are they easily discerned or difficult to perceive? Nonetheless, firms must develop awareness about those cultures in which they operate. However, the amount of effort needed to do this depends on the similarities between or among countries and the types of business operations undertaken.



Cultures consist of people who share attitudes, values and beliefs. Cultures are dynamic; they evolve over time.

A.                The Nation as a Point of Reference

Similarity among people is both a cause and an effect of national boundaries; in addition, laws apply primarily along national lines. National identity is perpetuated through the rites and symbols of a country and a common perception of history. At the same time, various subcultures and ethnic groups may transcend national boundaries. In some instances, similarities may link groups across different nations more closely than certain groups within a nation.

B.        Cultural Formation and Dynamics

Culture is transmitted in a variety of ways, but by age 10 most children have their basic value systems firmly in place. Nonetheless, individual and societal values and customs often evolve in response to changing economic and social realities. Change brought about by imposition is known as cultural imperialism. The introduction of certain elements of an outside culture may be referred to as creolization, indigenization, or cultural diffusion.

C.                Language as a Cultural Stabilizer

While a common language within a country serves as a unifying force, language diversity may undermine a firm’s ability to conduct business on a national level. Isolation from other groups, especially because of language, tends to stabilize cultures. Some countries see language as such an integral part of their cultures that they attempt to regulate the use or inclusion of foreign words.

D.                Religion as a Cultural Stabilizer

Religion can be a strong shaper of values and beliefs and is a major source of both cultural imperatives and taboos. Still in all, not all nations that practice the same basic religion place identical constraints on business. Historically, violence among religious groups has disrupted local and international business activities in both home and host country firms.



Attitudes and values affect all dimensions of business activities, from what products to sell to how to organize, finance, manage and control operations.

A.                Social Stratification Systems

People fall into social stratification systems according to group memberships that in turn determine a person’s degree of access to economic resources, prestige, social relations and power. Ascribed group memberships are defined at birth and are based on characteristics such as gender, family, age, caste and ethnic, racial, or national origin. Acquired group memberships are based on one’s choice of affiliations, such as political party, religion and professional organizations. Social stratification affects both business strategy and operational practices.

1.                  Role of Competence. Some nations base a person’s eligibility for jobs and promotions primarily on competence, but in others, competence is of secondary importance. In more egalitarian societies, group membership is less important, but in more closed societies, group membership may dictate one’s access to education, employment, etc.

2.                  Gender-based Groups. There are strong country-specific differences in attitudes toward males and females, as well as vast differences in the types of jobs regarded as male or female. Nonetheless, barriers to employment based on gender are easing in many parts of the world.

3.                  Age-based Groups. Many cultures assume age and wisdom are correlated; thus, they usually have a seniority-based system of advancement. In others, there is an emphasis on youth, particularly in the realm of marketing. All in all, age represents a complex, dynamic issue.

4.                  Family-based Groups. In societies where there is low trust outside the family (e.g., China and southern Italy), small family-run companies are generally more successful than large firms. However, this may impede the economic development of the country if large-scale operations are necessary to compete globally.

5.                  Occupation. In every society certain occupations are perceived as having greater economic and social prestige than others. Although some perceptions are universal, there are significant national and cultural attitudes about the desirability of specific occupations as well as the desire to work as an entrepreneur rather than as an organizational employee.

B.                                         Motivation

Employees who are motivated to work long and hard are generally more productive than those who are not. On an aggregate basis, this will have a positive effect on economic development and national competitiveness.

1.                  Materialism and Leisure. People are motivated to work for various reasons, including the desire for achievement. In some societies, people desire less leisure time than others. In 1904 sociologist Max Weber claimed that predominantly Protestant Western economies were the most economically developed because of the emphasis on hard work and investment. Weber identified this view of work as a path to salvation as the Protestant ethic. In rural India, however, where minimal material achievement is a desirable end, added productivity will likely be taken in the form of leisure, rather than income.

2.                  Expectation of Success and Reward. Although the same tasks performed in different countries will have different probabilities of success as well as different rewards for success and different consequences for failure, people will usually work harder at any task when the reward for success is greater than the consequence of failure. The greatest enthusiasm for work exists when high uncertainty of success is combined with the likelihood of a very positive reward for success and little or none for failure.

3.                  Masculinity Index. Hofstede’s study of employees from 50 countries defined a high masculinity index as describing someone who holds the belief that it is better to live to work than to work to live. However, such attitudes, as well as a preference for promotion and profitability over quality of life and environment, are not shared by all. Those differences of opinion present major challenges for international managers.

4.                  Need Hierarchy. Maslow’s hierarchy of needs states that people will try to fulfill lower-order physiological needs before satisfying (in order) their security, social, esteem and self-actualization needs. People from different countries attach different degrees of importance to needs and may even rank some of the higher-order needs differently.

C.                Relationship Preferences

In social stratification systems, not everyone within a given reference group is necessarily an equal. In addition, there may be strong or weak pressures for conformity within one’s group. Both of these differences influence management style and marketing behavior.

1.                  Power Distance. Power distance describes the relationship between superiors and subordinates. When power distance is high, the management style is generally distant, i.e., autocratic or paternalistic; when it is low, managers tend to interact with and consult subordinates as part of the decision-making process. [For example, Malaysians typically exhibit high power distance, while Austrians typically exhibit low power distance.]

2.                  Individualism vs. Collectivism. Nationalities differ as to whether they prefer an autocratic or a consultative working relationship, whether they want set rules and how much they compete or cooperate with fellow workers. Individualism is the trait that indicates a person’s desire for personal freedom, time and challenge and one’s low dependence on the organization; self-actualization is a prime motivator. On the other hand, collectivism indicates a person’s desire for training, collaboration and shared rewards, i.e., one’s high dependence on and allegiance to the organization. [For example, Americans tend to be individualistic, while the Japanese tend to be collectivist.]

D.                Risk-taking Behavior

Nationalities differ in their attitudes toward risk-taking. Uncertainty avoidance, trust and fatalism are examined here.

1.                  Uncertainty Avoidance. Uncertainty avoidance describes one’s acceptance of risk. When the score is high, people need precise directions and long-term assurances; when the score is low, people are willing to accept the risk of trying new products or moving to new jobs. [For example, Greeks tend to exhibit high uncertainty avoidance, while Swedes tend to be low on the scale.]

2.         Trust. Trust represents one’s belief in the reliability and honesty of another. Where trust is high, there tends to be a lower cost of doing business. [For example, Norwegians tend to exhibit a high degree of trust, whereas Brazilians tend to be skeptical.]

3.         Fatalism. Fatalism represents the belief that events are predestined. Such a belief may discourage people from working hard to achieve an outcome or accepting responsibility. [Muslim societies, for example, tend to be fatalistic.]

            E.        Information and Task Processing

People from different cultures obtain, perceive, and process information in different ways; thus, they may also reach different conclusions.

1.                  Perception of Cues. People identify things by means of their senses in various ways with each sense. The particular cues used vary both for physiological and cultural reasons. [For example, the richer and more precise a language, the better one’s ability to express subtleties.]

2.                  Obtaining Information. Language represents a culture’s means of communication. In a low-context culture, people rely on first-hand information that bears directly on a decision or situation; people say what they mean and mean what they say. In a high-context culture, people also rely on peripheral information and infer meaning from things communicated indirectly; relationships are very important. [For example, while Germany is considered to be a low-context culture, Saudi Arabia is considered to be a high-context culture.]

3.         Information Processing. All cultures categorize, plan and quantify, but the ordering and classification systems they use often vary. In monochronic cultures (e.g., northern Europeans) people prefer to work sequentially, but in polychronic cultures (e.g., southern European) people are more comfortable working on multiple tasks at one time. Likewise, in some cultures people focus first on the whole and then on the parts; similarly, in idealistic cultures people will determine principles before they attempt to resolve issues, but in pragmatic cultures they will focus more on details than principles.



Once a company identifies cultural differences in the foreign countries in which it operates, must it alter its customary practices?

A.                Making Little or No Adjustment

Some countries are relatively similar to one another because they share the same language, religion, geographical location, ethnicity and/or level of economic development. If products and operations do not run counter to deep-seated attitudes, or if the host country is willing to accept foreign customs as a trade-off for other advantages, significant adjustments may not be required. Generally, a company should expect to have to consider fewer adjustments when moving within a culturally similar cluster than when it moves from one distinct cultural cluster to another.

B.                 Communications

Problems in communications may arise when moving from one country to another, even though both countries share the same official language, as well as when moving from one language to another.

1.                  Spoken and Written Language. Translating one language into another can be very difficult because (a) some words do translate directly, (b) the common meaning of words is constantly evolving, (c) words may mean different things in different contexts and (d) a slight misuse of vocabulary or word placement may change meanings substantially. Poor translations may have tragic consequences.

2.                  Silent Language. Silent language incorporates the wide variety of nonverbal cues through which messages are sent—intentionally or unintentionally. Color associations, the distance between people during conversations, the perception of time and punctuality, a person’s perceived status and kinesics (body language) are all significant. Misunderstandings in any of these areas can have a very negative impact.

C.                Culture Shock

Culture shock represents the trauma one experiences in a new and different culture because of having to learn to cope with a vast array of new cues and expectations. Reverse culture shock occurs when people return home, having accepted the culture encountered abroad and discovering that things at home have changed during their absence.

D.                Company and Management Orientations

Whether and to what extent a firm and its managers adapt to foreign cultures depends not only on the conditions within those cultures but also on the policies of the company and the attitudes of its managers.

1.                  Polycentrism. Polycentrism represents a managerial approach in which foreign operations are granted a significant degree of autonomy in order to be responsive to the uniqueness of local cultures and other conditions.

2.                  Ethnocentrism. Ethnocentrism represents a belief that one’s own culture is superior to others, and that what works at home should work abroad. Excessive ethnocentrism may lead to costly business failures.

3.                  Geocentrism. Geocentrism represents a managerial approach in which foreign operations are based on an informed knowledge of both home and host country needs, capabilities and constraints.

E.                 Strategies for Instituting Change

Companies may need to transfer new products and/or operating methods from one country to another in order to gain or maintain a competitive advantage. To maximize the potential benefits of their foreign presence, firms need to treat learning as a two-way process and transfer knowledge from host countries back home as well as from home to host countries.

1.                  Value System. The more change upsets important values, the more resistance it will encounter. Accommodation is much more likely when changes do not interfere with deep-seated customs.

2.                  Cost Benefit of Change. Some adjustments to foreign cultures are costly to undertake, but their benefits are only marginal. The expected cost-benefit of any change must be carefully considered.

3.                  Resistance to Too Much Change. Resistance to change may be reduced if only a few demands are made at one time; additional changes may be phased in incrementally.

4.                  Participation. A proposed change should be discussed with stakeholders in advance in order to ease their fears of adverse consequences—and hopefully gain their support.

5.                  Reward Sharing. A company may choose to provide benefits for all the stakeholders affected by a proposed change in order to gain support for it.

6.                  Opinion Leaders. Characteristics of opinion leaders often vary by country. By discovering the local channels of influence, an international firm may seek the support of opinion leaders to help speed the acceptance of change.

7.                  Timing. Many good business changes fail because they are ill-timed. Attitudes and needs change slowly, but a crisis may stimulate the acceptance of change.

8.                  Learning Abroad. The essence for undertaking transnational practices is to capitalize on diverse capabilities by transferring learning among all the countries in which a firm operates.



To Intervene or Not to Intervene

Neither international firms nor their employees are always expected to adhere to a host government’s behavioral norms. Some firms choose not to operate in locales where objectionable social and political practices are the norm; others may operate in such places while pressuring the host country to change; still others may rationalize or simply tolerate the status quo. A difficult question concerns international business practices that may undermine a host country’s long-term cultural identity. The Society for Applied Anthropology advises governments and agencies on instituting change in different cultures; its code of ethics considers whether a project or planned change will actually benefit the target population. However, the trade-off between economic gains and the loss of cultural identity and traditions is often very difficult to measure.



The Globalization of Culture

Although some tangibles have become more universal, the ways in which people cooperate, solve problems and are motivated tend to remain much the same. Language differences continue to bolster ethnic identities, and religious differences are as strong as ever. Such disparities fragment the globe into regions and countries into clusters of subcultures that may in fact transcend national boundaries.




Teaching Tip: Visit for additional information and links relating to the topics presented in Chapter 2. Refer your students to the on-line study guide, as well as the Internet exercises for Chapter 2.



CLOSING CASE: John Higgins [See Map 2.5]


1.         How would you describe Higgins’ and Prescott’s attitudes toward implementing U.S. personnel policies in the Japanese operations?

While Higgins’ attitude appears to be polycentric, Prescott’s attitude seems to be more geocentric. By invariably raising objections to changes that were contrary to the Japanese norm, and even going so far as to intercede on behalf of a fired employee in order to assure his continued employment, Higgins placed himself in an adversarial position with Prescott. In fact, Japanese subordinates were more willing than Higgins to try out new ideas. Believing in the fundamentals of the home point of view and as well as the importance of understanding foreign attitudes, Prescott felt that the company’s real contribution to Japanese society was in introducing innovation; he was opposed to blindly copying local customs.


2.                  What are the major reasons for the differences in attitude?

Whereas Higgins’ interest (and business experience) lay almost solely in Japan, Prescott’s experience was much broader, as indicated by his previous overseas assignments in India, the Philippines and Mexico, as well as his several years in the home office. Higgins became enchanted with Japan while stationed there with the U.S. Army. Upon his return as an employee of Weaver, Higgins attempted to disassociate himself with the “ugly American” image. He became completely immersed in Japanese culture and society. He married a Japanese woman, spent his home-leave time in Japan and requested and received the company’s permission to extend his stay in Japan indefinitely. Prescott, on the other hand, sensed that changes were occurring in traditional Japanese customs and culture. Having been given the responsibility of the expansion of the Japanese operation, Prescott placed greater importance on productivity and competence than on tradition and relationships.


3.                  If you were the Weaver corporate manager responsible for the Japanese operations and the conflict between Higgins and Prescott came to your attention, what would you do? Be sure to identify some alternatives first and then make your recommendations.

Clearly the successful joint venture between Weaver and Yamazaki represents a relationship and operation that is highly valued by both partners. Further, Higgins’ affinity with his subordinates and relationship with both general managers serves to complicate a naturally delicate situation. Initially a solution must be found to prevent the further deterioration of the relationship between Higgins and Prescott. Prescott might be encouraged to increase his understanding of the nuances of Japanese culture by participating in expatriate managerial training programs with others executives from his peer group either in Japan or at home. At the same time, Higgins’s position must be clarified. Does he work for Prescott, the joint venture, or Weaver Pharmaceutical (the U.S. parent)? In addition, to improve Higgins’ understanding of the role of Weaver’s various international operations within the context of the whole corporation, he might be temporarily or permanently reassigned to the home office (the latter alternative, however, would surely lead to his resignation, given his standing offers from other firms in Japan). In the long run, Weaver may wish to reconsider its decision to have two top-level expatriate managers in Japan. The firm may also wish to reconsider its pre-departure and on-going training policies for all its expatriate employees.



Additional Exercises: Cultural Challenges


Exercise 2.1. Refer students to the end-of-chapter case: John Higgins. Ask them to compare the apparent relationship preferences of Higgins and Prescott from the perspectives of (a) power distance and (b) individualism vs. collectivism.


Exercise 2.2. Pop culture can influence the development of global preferences in a number of ways. Lead students in a discussion of the ways in which movies can affect the cultural dimensions of a society (select particular movies, examine various values embedded in them and discuss the nature of their impact upon the lifestyles of people around the world).


Exercise 2.3. In some countries, religion has a dramatic effect on people’s attitudes, customs and behavior. Lead students in a discussion of the relationship between particular religious beliefs and peoples’ attitudes towards work. Then ask them to discuss the influence of religion in the workplace in a number of selected countries.


Exercise 2.4. The distinction between cultural relativism and cultural normativism is very important because it embraces the policies of multinational firms and the behavior of their employees with respect to their home and host cultures. Ask students to debate the extent to which firms should impose their own corporate (cultural) values upon (a) their foreign operations and (b) the communities and countries in which they operate.