Chapter 4 To appreciate the differing facets of

Chapter 4 To appreciate the differing facets of culture as they impact on business interactions. To identify and apply culture theories in differing business contexts. To highlight the differences in organizational cultures, and how they affect business activities across national borders. To understand the processes of culture change taking place across the globe, along with their implications for business.

The springs of culture Nations and peoples Gregory Rodriguez: Australia's identity crisis keeps resurfacing National culture – sense of identity and belonging which unites a people, usually within a defined territory. National culture is embodied in the nation-state, but most states contain numerous subcultures, which can be a source of social tension. Social and ethnic groupings Language, religion and kinship distinguish social groupings. The feeling of belonging can transcend national cultures.

Va l M or a an Rel l co d igi de as on s su an Va m d lue pt be s io lie ns fs ue s Culture um n m io Co icat n L co N an m on gu m ve ag un rb e ic al at io n No be rm ha s o vio f r ns s io lie ct i ra am s te f e in hin od al it c ci w ss So les Dre o R Why Culture Matters U. S. expert Gary Weaver discusses the reasons Americans do what they do. India's Unique Multiculturalism – Shashi Tharoor Pl (1) values and beliefs, (2) communication, (3) behavior and (4) outward expression. Cross cultural considerations for business with the Arabs S ac Ar ym es t, m bo , b u ls ui sic ex Ou ld pr tw in es a gs si rd on s Each culture is uniquely defined in terms of

Cultural diversity: percentage of population from cultural minorities within countries Most countries are culturally diverse, with significant proportions (25% or more) of minorities. Source: UNDP (2004) Human Development Report 2004 (New York: UNDP)

Religion can be a powerful cultural force in societies of all levels of economic development. World religions, as percentages of 2005 world population. Indigenous Other 6% 3% dh ud B % 6 The major religions are: Christianity, Islam, Hinduism and Buddhism. m is Chi trad nese 6% ition al us Christianity 33% No 16 nr % eli gi o Many religions, including Christianity Hinduism and Islam, have split 14% into different sects that are tend to be divided along the traditional vs. reformist lines. Islam 21% Source: World religions data, http: //www. adherents. com

Most states are secular, but many have strong religious ties. Individuals’ freedom of religion is recognized in UN conventions, but is not always respected in practice.

Language and communication Blend of language and nonverbal communication. In high-context cultures (e. g. Asian cultures), much information is conveyed nonverbally, often through shared understanding. In low-context cultures (e. g. the US), information is mainly conveyed by explicit expression. In business dealings, personal relations are important in highcontext cultures; an example The world’s is guanxi in China. most widely Written spoken contracts and formal terms are more languages important for those from low-context cultures.

Value orientation theory – basic values of a group include normative, aesthetic and relational elements, reflecting the common problems which Collectivism all human groups face. versus Individualism; Femininity versus Masculinity; Uncertainty Avoidance; Low versus High Context Cultures; Polychronic versus Monochronic Time Orientation Hofstede’s theory of cultural dimensions is based on research on national cultures. Trompenaars’ theory High of relational dimen- Greece, Japan Low sions covers: Britain, Relationships with people Attitudes to time Attitudes to the environment. Sweden Individualist USA, UK, Australia Collectivist Large Small Malaysia, New Zealand, Mexico Denmark Uncertainty avoidance Power distance Cultural dimensions Individualism Masculinity Time orientation Masculine Japan, Germany Feminine Netherlands, Understanding Venezuela, Norway Indoneia cultural patterns Long term: Eastern cultures Short term: Western cultures aids managers in Hofstede’s cultural Dimensions diverse cultural environments.

Turkey Brazil Argentina Iran India Japan Israel Austria Finland Spain Norway Germany South Switzer- Africa Ireland Denland mark Swed Canada New Italy en. Nether. Zeala lands nd USA UK Australia Individualism France Belgium Philippines Large Power-Distance Small Power-Distance Collectivism Hofstede’s* Pakistan Columbia cross-national data Venezuela Peru show a marked Taiwan Chile Singapore Thailand correlation between Portugal Hongkong Yugoslavia small power distance Greece and individualism. Mexico Geert Hofstede™ Cultural Dimensions * Geert Hofstede, Culture’s Consequences: International Differences in Work Related Values

VALSTM Framework Innovators High Resources High Innovation Primary Motivation Ideals Achievement Thinkers Achievers Believers Strivers Survivors Self-expression Experiencers Seinfeld Cross Cultural Differences Makers Russell Peters Indian vs Chinese Low Resources Low Innovation Russell Peters - Chinese, Indians, Jamaicans, Italians The VALSTM Types: VALS (values, achievements, lifestyle) is a classification of consumer behavior that transcends the traditional cultural norms and barriers.

Organizational culture is defined by the values and practices of an organization. Adapted from Hofstede, G. (1999) ‘The business of business is culture’, in Buckley, P. and Ghauri, P. (eds) The Internationalization of the Firm (2 nd edn) (London: Thomson) pp. 381– 93

The ethnocentric organization is rooted in its home culture. The polycentric organization is open to other cultures: firms from smaller economies have tended to be more outwardly focused than those from large ones. Percentage of foreign directors on the boards of the largest MNEs in selected countries Source: UN (2004) World Investment Report 2004 (Geneva: UN)

The United Nations’ Transnationality index is computed as the average of foreign to total ratios of assets, sales and employment. Source: UN (2007) World Investment Report 2007 (Geneva: UN) Transnationality Ranking 1 2 3 4 5 6 7 8 9 10 Trans-nationality Index (%) = Foreign Assets Foreign Sales. Foreign Employment Total Assets + Total Sales +Total Employment { } Home Economy Company Thomson Corp. Canada Liberty Global USA Roche Group Switz. WPP Group UK Phillips Electr. Nether. Nestlé Cadbury Schweppes Vodafone Lafarge SABMiller Switz. UK UK France UK Selected others: 64 Toyota 70 General Electric Japan USA 79 85 96 USA USA Ford General Motors Wal-Mart Industry Media Telecomm. Pharma. Bus Ser Electricals/ Electronics Food & Bev. Telecomm. Mineral Prod. Consumer Goods/Brew. 97. 2 96. 5 90. 5 87. 8 87. 4 Motor veh. Electricals/ Electronics Motor veh. Retailing 51. 6 50. 1 86. 8 86. 7 82. 4 81. 9 81. 1 47. 6 42. 9 25. 0

Changing culture and society Industrialization and economic development lead to changing lifestyles, moving away from traditional values towards more consumerist and individualist ones. Urbanization is now taking place rapidly in the developing world, but is accompanied by poverty, strains on infrastructure and poor environmental conditions. Changing roles of women – Increasing participation in economic life, but… – Global gender gap – in economic, political, educational and health indicators

Urban population is projected to grow rapidly in the less developed countries while rural population is projected to decline in the more developed countries. Urban population Less Developed Countries Rural population More Developed Countries

Growing urbanization in the developing world Source: UN (2005) World Urbanization Prospects, The 2005 Revision, www. un. org/esa/popu lation/unpop

Comparison between percentages of men and women in the adult labour force (selected countries) Note: The percentages are proportions of the total population aged 15 and over who are able to work or are actually working. Hence, people classified officially as unemployed within the country are included Source: UN Department of Economic and Social Affairs (2005) UN Statistics Division, http: //unstats. un. org

The global gender gap (ranking in brackets) Source: World Economic Forum (2006) The Global Gender Gap 2006 Report, www. weforum. org

People on the move Immigrant and indigenous peoples Russell – add to diversity in modern societies. Peters Accent and Ethnic Despite globalization, movement of Stereotypes people across national boundaries is administratively restricted by governments. Migration may be within a country or to another country. Most migration is driven by: ― Better economic opportunities, either temporarily or permanently. (Poor countries benefit from remittances, as do rural regions in industrializing countries. ) ― The need to escape conflict or natural disaster (refugees)

Foreign-born people as the percentage of total population Source: Financial Times, 18 May 2006

Multicultural societies Assimilation – process by which minorities gradually acquire the dominant culture of a country. Cultural melting pot – Mixture of cultures to form a distinctive new culture. Cultural pluralism – Recognition of separate cultures within a society. Balance between recognition of diversity and a sense of cultural community is needed to maintain social cohesion.

Changing societies: business implications In operations Firms encounter minority groups (sometimes ethnic conflict) in outsourcing and FDI in low-cost developing countries, often with weak protection of human rights. CSR and ethical principles apply in situations where legal safeguards are limited. In markets National markets are culturally distinctive, but subcultures may also constitute market segments. The growing urban population in emerging markets presents opportunities for MNEs, but cultural differences remain.

Conclusions Facets of culture – including language, values and attitudes – are rooted in social groupings, such as nations and peoples. Culture theories highlight dimensions of culture which facilitate comparisons between them, and aid international managers in strategy and operations. Organizational culture helps to shape a firm’s approach to international business, in both positive and negative ways. Understanding the changes taking place in societies is vital for firms seeking to internationalize, in either production or markets.

Case study 4. 1: Testing times for Citigroup in South Korea 1. What difficulties has Citigroup faced in building market share in South Korea? 2. What issues within the two organizations have held up the integration process? 3. In your view, what mistakes has Citigroup made in integrating the two organizations? 4. What recommendations would you give to Citigroup for any future acquisition in Asia?

1. What difficulties has Citigroup faced in building market share in South Korea? Acquiring a South Korean bank was the route chosen by Citigroup, in order to gain market share quickly. The target bank, Koram Bank, had 238 branches, and with the might of the Citigroup behind it, had potential to gain market share in this large market. The new Citibank Korea became Korea’s sixth largest lender. However, there were difficulties in integrating the two banks, which could delay its expansion plans.

2. What issues within the two organizations have held up the integration process? ― Integrating the IT systems. ― Deciding on the policies and practices to follow. The reward system was changed, and the bank managers’ roles were changed, indicating that local practices were giving way to the parent company’s way of doing things. ― Cultural hurdles. These two companies are culturally very different, and South Korean employees were uncertain of their jobs and wages in the aftermath of the takeover. Poor labor relations are common in South Korea a well-known factor which should have been taken into account.

3. In your view, what mistakes has Citigroup made in integrating the two organizations? ― Citigroup did not adapt sufficiently to the cultural sensitivities of the new environment. ― Policies and practices should have been adapted more to the South Korean bank’s existing ways of doing things. ― HR roles and responsibilities should have been handled more by consensus. ― When workers showed dissatisfaction and came out on strike, the rather confrontational approach adopted by the American owners was unhelpful.

4. What recommendations would you give to Citigroup for any future acquisition in Asia? Some possible recommendations: ― Study both the market and the target company carefully, to assess how well they fit in with the parent company’s policies and ways of doing things. ― When the acquisition takes place, re-assure the new staff that the new owners will not make radical changes quickly, but any changes will come about by consensus. This is true in any country with high uncertainty avoidance. ― Adopt more flexible labor relations policies, emphasizing dialogue rather than confrontation.

Country Focus 4. 2 Mexico struggles to heal divided society 1. Summarize the grievances of Mexico’s indigenous peoples against the Mexican authorities. 2. Why has Mexico made so little progress in creating jobs and prosperity, despite benefiting from globalization? 3. Is Mexico on the way to achieving social stability through recognition of cultural diversity, or creating potentially divisive forces, as in the past? 4. Assess the advantages and drawbacks of Mexico as a location for an FDI investor.

1. Summarize the grievances of Mexico’s indigenous peoples against the Mexican authorities. ― They have criticized the policy of assimilation with the dominant Spanish culture, as it stifles their identities and cultures. ― They have lagged behind in development, income, education and living conditions. ― They also suffer from discrimination, further widening the gap between indigenous and non-indigenous groups. 2. Why has Mexico made so little progress in creating jobs and prosperity, despite benefiting from globalization? The jobs which have been created have been concentrated in the free-trade zones in the north of the country, where manufacturing for export to the US is clustered, especially following the Nafta agreement. These largely lowskilled and low-paid jobs have not brought the prosperity hoped for, and they are vulnerable to competition from China. The higher-tech industries are also vulnerable, as they are dependent on the US market and feel the impact of US economic downturn. Development in the rest of Mexico is uneven, and rural unemployment is high. Mexico’s farmers have not been able to compete with imported maize from the US (part of the Nafta agreement).

3. Is Mexico on the way to achieving social stability through recognition of cultural diversity, or creating potentially divisive forces, as in the past? As the results of the presidential election show, divisive forces are still powerful. Fox and Calderón emphasized social welfare policies. Fox introduced policies of multiculturalism, but the indigenous community still lags behind, with a large proportion living in absolute poverty. A concern is that, as many Mexicans leave to work in the US, remittances have become important to local Mexican communities. Falling remittances due to the downturn in the US adversely impacts on the Mexican communities which are dependent on them. 4. Assess the advantages and drawbacks of Mexico as a location for an FDI investor. Mexico’s greatest attraction is proximity to the US market. The free-trade zones, in particular, have attracted investors. Costs, including wages, are low in Mexico. FDI investors from Spain might find Mexico an advantageous location because of the language and cultural affinity between the two countries. Disadvantages of Mexico are the social and political instability; poor infrastructure; low levels of education and skills in the workforce.