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Global Business Today 11e by Charles W.L. Hill and G. Tomas M. Hult

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Part 2: National Differences

Chapter 4: Differences in Culture

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Learning Objectives

4-1 Explain what is meant by the culture of a society.

4-2 Identify the forces that lead to differences in social culture.

4-3 Identify the business and economic implications of differences in culture.

4-4 Recognize how differences in social culture influence values in business.

4-5 Demonstrate an appreciation for the economic and business implications of cultural change.

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Opening Case: China, Hong Kong, Macau, and Taiwan

The BRIC countries, especially China, are seen as the business engines of tomorrow, but cultural differences hinder business interactions

China wants the “one country, two systems” approach

Hong Kong, a former British colony, wants to maintain its identity and is at odds with mainland China

Macau, a former Portuguese colony, is a key player in China’s relationship with Portuguese-speaking countries

China claims sovereignty over Taiwan, a semi-independent state with Confucianist Han Chinese and Taiwanese aboriginal roots

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While the BRIC countries (Brazil, Russia, India, and China) are seen as the growth engines of tomorrow, cultural differences can hinder business interactions. China is still trying to implement the “one country, two systems” approach—a constitutional principle formulated by Deng Xiaoping—which involves how to merge mainland China with Hong Kong and Macau. In addition, Taiwan presents an even bigger ongoing structural, legal, and cultural challenge for China.

To this day, the cultural differences between mainland China and Hong Kong are often pronounced, and they are potentially becoming more contentious with mainland China asserting its influence. Under its One-China Policy, China even refuses to engage in diplomatic relations with any country that recognizes Taiwan. In contrast, Macau is being positioned as a key diplomatic player in China’s relations with Portuguese-speaking countries.

Together, China, Hong Kong, Taiwan, and Macau are often referred to as Greater China, yet given the clashes between mainland China, Hong Kong, and Taiwan a better phrase might be “sinophone world.”

Introduction

Cross-cultural literacy: an understanding of how cultural differences across and within nations can affect the way business is practiced

There can be relationships between culture and the costs of doing business in a country or region

Culture is not static—it evolves

Multinational enterprises can be engines of cultural change

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Cross cultural literacy is important to success in international business. The actions of MNEs can contribute to cultural change.

Did You Know?

Did you know arriving late is expected in some cultures?

Click to play video

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What Is Culture? 1

Scholars have not agreed on a simple definition

Culture: a system of values and norms shared among a group of people and, when taken together, constitute a design for living

Society: a group of people sharing a common set of values and norms

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LO 4-1 Explain what is meant by the culture of a society.

Values refer to 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.

What Is Culture? 2

Values and Norms

Values: provide the context within which a society’s norms are established and justified

Norms: the social rules that govern the actions of people toward one another

Folkways: routine conventions of everyday life

Mores: norms that are central to the functioning of a society and its social life

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A good example of folkways concerns attitudes toward time in different countries. People are keenly aware of the passage of time in the United States and northern European cultures such as Germany, Netherlands, and the Scandinavian countries. Businesspeople are very conscious about scheduling their time and are quickly irritated when their time is wasted because a business associate is late for a meeting or if they are kept waiting.

Mores include such factors as indictments against theft, adultery, incest, and cannibalism. In many societies, certain mores have been enacted into law.

Planning on Doing Business Internationally?

If a company is planning to export a product, two basic questions need to be asked. Is the product ready to be exported? And, is the company ready to export the product (i.e., does the company have the infrastructure, knowledge, and skills to export the product)? Culturally, the product is either ready for a global market or not (and, if not, the company can modify it if the market is important enough). Company readiness is much more culturally sensitive. Having the appropriate cultural knowledge and skills are important. If you have the basic information about a company, you can use globalEDGE’s diagnostic tool called CORE (Company Readiness to Export) to assess both product and company readiness to export. Which do you think is the most important: product readiness or company readiness?

Sources: globalEDGE’s CORE diagnostic tool, http://globalEDGE.msu.edu; Badenhausen, K., “America’s Best Small Companies,” Forbes, October 9, 2013.

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What Is Culture? 3

Culture, Society, and the Nation-State

Society reflects people who are bound together by a common culture

Nation-states are political creations that can contain a single culture or several cultures

Some cultures embrace several nations

Also possible to talk about culture at different levels within societies

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There is not a strict one-to-one correspondence between a society and a nation-state. Nation-states are political creations that may contain a single culture or several subcultures. Cultures can embrace several nations.

To complicate things further, it is also possible to talk about culture at different levels. It is reasonable to talk about “American society” and “American culture,” but there are several societies within America, each with its own culture. For example, in the United States of America, which is one country, one can talk about African American culture, Cajun culture, Chinese American culture, Hispanic culture, Indian culture, Irish American culture, and Southern culture.

What Is Culture? 4

Determinants of Culture

Values and norms of a culture evolve based on:

Prevailing political and economic philosophies

Society’s social structure

Dominant religion, language, and education

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LO 4-2 Identify the forces that lead to differences in social culture.

Figure 4.1 Determinants of Culture

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Social Structure 1

A society's social structure is its basic social organization

Two dimensions to consider:

Degree to which the basic unit of social organization is the individual, as opposed to the group

Degree to which a society is stratified into classes or castes

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Social Structure 2

Individuals and Groups

Group: association of two or more individuals who have a shared sense of identity and who interact with each other in structured ways on the basis of a common set of expectations about each other’s behavior

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Social Structure 3

Individuals and Groups continued

The Individual

Emphasized in Western societies

Encourages individual achievement and entrepreneurship

Fosters managerial mobility

Encourages job switching and lack of loyalty to the firm

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LO 4-3 Identify the business and economic implications of differences in culture.

In many western societies, the individual is the basic building block of social organization. This is reflected not just in the political and economic organization of society but also in the way people perceive themselves and relate to each other in social and business settings.

Social Structure 4

Individuals and Groups continued

The Group

Emphasized in non-Westernized societies, such as Japan

Cooperation and team work are encouraged and lifetime employment is common

Individual initiative and creativity may be suppressed

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In traditional Japanese society, the group was the family or village to which the individual belonged. Today, the group has frequently come to be associated with the work team or business organization.

In a now-classic study of Japanese society, Nakane noted how this expresses itself in everyday life. Nakane goes on to observe that the primacy of the group to which an individual belongs often evolves into a deeply emotional attachment in which identification with the group becomes all-important in one’s life. One central value of Japanese culture is the importance attached to group membership.

Social Structure 5

Social Stratification

All societies are stratified on a hierarchical basis into social categories, or social strata

Often defined by family background, occupation, and income

Societies differ in terms of:

Degree of mobility between social strata

Significance attached to social strata in a business context

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LO 4-2 Identify the forces that lead to differences in social culture.

Social Structure 6

Social Stratification continued

Four basic principles of social stratification

It is a trait of society, not a reflection of individual differences

It carries over from one generation to the next

It is generally universal but variable

It involves not just inequality but also beliefs

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Social Structure 7

Social Stratification continued

Social mobility: the extent to which individuals can move out of the strata they are born into

Caste system: social position is determined by the family into which a person is born, and change in that position is unlikely

Class system: position a person has by birth, but can be changed through achievement or luck

Social mobility in class system varies from society to society

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The most rigid system is the caste system. The class system is less rigid.

Historically, British society was divided into three main classes: the upper class, which was made up of individuals whose families for generations had wealth, prestige, and occasionally power; the middle class, whose members were involved in professional, managerial, and clerical occupations; and the working class, whose members earned their living from manual occupations. The middle class was further subdivided into the upper-middle class, whose members were involved in important managerial occupations and the prestigious professions (e.g., lawyers, accountants, doctors), and the lower-middle class, whose members were involved in clerical work (e.g., bank tellers) and the less prestigious professions (e.g., schoolteachers).

In China, there have been long-standing differences between the life chances of the rural peasantry and urban dwellers. At the high point of communist rule, mobility was virtually impossible. Today, reforms have allowed greater movement between classes.

In the United States, upper, middle, and working classes are present. Mobility between the classes is based on individual economic achievements.

Social Structure 8

Social Stratification continued

Significance

Class consciousness: people perceive themselves in terms of class background

Shapes relationships with members of other classes

Evident in the United Kingdom and India

Antagonism between labor and management can raise the costs of doing business

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LO 4-3 Identify the business and economic implications of differences in culture.

Religious and Ethical Systems 1

Religion: system of shared beliefs and rituals that are concerned with the realm of the sacred

Ethical system: set of moral principles, or values, that are used to guide and shape behavior

Religions with the greatest following are:

Christianity (2.20 billion adherents)

Islam (1.60 billion adherents)

Hinduism (1.10 million adherents)

Buddhism (535 million adherents)

Confucianism shapes culture in many parts of Asia

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LO 4-2 Identify the forces that lead to differences in social culture.

Map 4.1 World Religions

Source: “Map 14,” in Allen, John L., and Sutton, Christopher J., Student Atlas of World Politics, 10th ed. New York, NY: McGraw-Hill Companies, Inc., 2013.

Jump to long description in appendix

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Religious and Ethical Systems 2

Christianity

Most widely practiced religion

In 1904, Max Weber suggested that the Protestant work ethic was the driving force of capitalism

Focus on hard work, wealth creation, and frugality

Protestantism gave individuals more freedom to develop own relationship with God, which may have paved way to economic freedom

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LO 4-3 Identify the business and economic implications of differences in culture.

Max Weber argued that Protestant ethics emphasizes the importance of hard work and wealth creation (for the glory of God) and frugality (abstinence from worldly pleasures). According to Weber, this kind of value system was needed to facilitate the development of capitalism. Protestants worked hard and systematically to accumulate wealth.

Religious and Ethical Systems 3

Islam

Adherents of Islam are referred to as Muslims

One true omnipotent God, Allah

Those who forgo worldly ambitions to seek the favor of Allah may gain the greater treasure—entry into paradise

In Western media, Islamic fundamentalism is associated with militants, terrorists, and violent upheavals

Fundamentalists have gained political power in many Muslim countries and tried to make Islamic law the law of the land

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LO 4-2 Identify the forces that lead to differences in social culture.

Major principles of Islam include (1) honoring and respecting parents, (2) respecting the rights of others, (3) being generous but not a squanderer, (4) avoiding killing except for justifiable causes, (5) not committing adultery, (6) dealing justly and equitably with others, (7) being of pure heart and mind, (8) safeguarding the possessions of orphans, and (9) being humble and unpretentious. Obvious parallels exist with many of the central principles of both Judaism and Christianity.

Religious and Ethical Systems 4

Islam continued

Economic Implications of Islam

Koran establishes explicit economic principles many of which are pro-free enterprise

Under Islam, people do not own property but only act as trustees for God and thus must take care of what they are entrusted with

Stresses living up to contractual obligations, keeping one’s word, and abstaining from deception

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LO 4-3 Identify the business and economic implications of differences in culture.

Given the Islamic proclivity to favor market-based systems, Muslim countries are likely to be receptive to international businesses as long as those businesses behave in a manner that is consistent with Islamic ethics, customs, and business practices. Businesses that are perceived as making an unjust profit through the exploitation of others, by deception, or by breaking contractual obligations are unlikely to be welcomed in an Islamic country. In Islamic countries where fundamentalism is on the rise, general hostility toward Western-owned businesses is likely to increase.

Religious and Ethical Systems 5

Economic Implications of Islam continued

Prohibits payment or receipt of interest

Mudarabah is similar to profit sharing

Murabaha includes a markup price for the bank

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Under mudarabah, when an Islamic bank lends money to a business, rather than charging that business interest on the loan, it takes a share in the profits that are derived from the investment. Many believe that a mudarabah system is less efficient than a conventional Western banking system.

In a murabaha contract, when a firm wishes to purchase something using a loan—let’s say a piece of equipment that costs $1,000—the firm tells the bank after having negotiated the price with the equipment manufacturer. The bank then buys the equipment for $1,000, and the borrower buys it back from the bank at some later date for, say, $1,100, a price that includes a $100 markup for the bank.

Religious and Ethical Systems 6

Hinduism

World’s oldest religion

Moral force in society requires acceptance of certain responsibilities called dharma

Believe in reincarnation and karma

Individuals can eventually achieve nirvana

Economic Implications of Hindisusm

Max Weber: Hinduism does not foster entrepreneurism

Modern India is a dynamic entrepreneurial society

Mahatma Gandhi embodied Hindu asceticism

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LO 4-2 Identify the forces that lead to differences in social culture.

Given the emphasis on an ascetic lifestyle, Weber thought that devout Hindus would be less likely to engage in entrepreneurial activity than devout Protestants.

It has been argued that the values of Hindu asceticism and self-reliance that Gandhi advocated had a negative impact on the economic development of post-independence India.

Religious and Ethical Systems 7

Buddhism

Suffering originates in people’s desire for pleasure

Stresses spiritual growth and afterlife, rather than achievement while in this world

The Noble Eightfold Path

Does not support caste system

Recent trend of “Zen” orientation into Western businesses

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Siddhartha offered the Noble Eightfold Path as a route for transformation. This emphasizes right seeing, thinking, speech, action, living, effort, mindfulness, and meditation. Unlike Hinduism, Buddhism does not support the caste system.

Buddhism does not support the caste system, so individuals do have some mobility and can work with individuals from different classes

“In business, ‘Zen’ is often a synonym for ordinary nothingness,” blogged Nancy Friedman, a corporate copywriter who consults with businesses on naming and branding. She said that “Zen can be combined with mail to describe ‘an incoming e-mail message with no message or attachments.’ Zen spin is a verb meaning ‘to tell a story without saying anything at all.’ And to zen a computing problem means to figure it out in an intuitive flash—perhaps while you’re plugged into the earphones of your ZEN MP3 player, available from Creative.”

Religious and Ethical Systems 8

Confucianism

Until 1949, official ethical system of China

Not a religion

High moral and ethical conduct and loyalty to others

Attain personal salvation through right action

Three key teachings of Confucianism: loyalty, reciprocal obligations, and honesty

May lead to a lowering of the cost of doing business in Confucian societies

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In Confucian thought, loyalty to one’s superiors is regarded as a sacred duty—an absolute obligation.

However, in a Confucian culture, loyalty to one’s superiors, such as a worker’s loyalty to management, is not blind loyalty. The concept of reciprocal obligations is important.

Confucian thinkers emphasize that although dishonest behavior may yield short-term benefits for the transgressor, dishonesty does not pay in the long run. The importance attached to honesty has major economic implications.

When companies can trust each other not to break contractual obligations, the costs of doing business are lowered. Expensive lawyers are not needed to resolve contract disputes. In a Confucian society, people may be less hesitant to commit substantial resources to cooperative ventures than in a society where honesty is less pervasive. When companies adhere to Confucian ethics, they can trust each other not to violate the terms of cooperative agreements. Thus, the costs of achieving cooperation between companies may be lower in societies such as Japan relative to societies where trust is less pervasive.

Language 1

Spoken Language

Countries with more than one spoken language often have more than one culture

Chinese is the mother tongue of the largest number of people in the world

English is the most widely spoken language in the world and is becoming the language of international business

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Knowledge of the local language is beneficial, and in some cases, critical for business success.

Can You Speak the Most Important Languages?

Mastering your own native language is important to doing business in your home country. Mastering the language of a foreign country is also an added value in any cross-cultural relationship. English leads the way in terms of business languages, but which languages are important after English? Spanish? No, not necessarily. The three languages that are important for business after English are Mandarin Chinese, French, and Arabic. Spanish is fifth, so it is clearly important, but not as useful as English, Mandarin, French, and Arabic because of the number of people who speak these languages. Do you agree with the rank order of these languages? Why or why not?

Source: S. Kim, “Top 3 Useful Foreign Languages for Business Excludes Spanish,” ABC News, September 1, 2011, http://abcnews.go.com/business/t/blogEntry?id=14427844.

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Language 2

Unspoken Language

Nonverbal cues

Examples include facial expressions and hand gestures

Personal space is the customary distance between two people

Many nonverbal cues are culturally bound and may be interpreted differently, resulting in misunderstandings

LO 4-2 Identify the forces that lead to differences in social culture.

Education

Formal education teaches the language, conceptual, and technical skills that are indispensable in modern society

Educational opportunities can provide a competitive advantage and make a country more or less attractive for expanding businesses

Porter points to Japan’s excellent education system in explaining its postwar economic success

The general education level of a country is a good indicator of the types of products that might sell or the types of promotional materials that might be successful

LO 4-2 Identify the forces that lead to differences in social culture.

Culture and Business 1

Geert Hofstede isolated five dimensions that summarized different cultures

Power distance

Individualism versus collectivism

Uncertainty avoidance

Masculinity versus femininity

Long-term versus short-term orientation

A move to add a sixth dimension: indulgence versus restraint

LO 4-4 Recognize how differences in social culture influence values in business.

Hofstede’s power distance dimension focused on how a society deals with the fact that people are unequal in physical and intellectual capabilities.

The individualism versus collectivism dimension focused on the relationship between the individual and his or her fellows.

Hofstede’s uncertainty avoidance dimension measured the extent to which different cultures socialized their members into accepting ambiguous situations and tolerating uncertainty.

Hofstede’s masculinity versus femininity dimension looked at the relationship between gender and work roles.

The long-term versus short-term orientation dimension refers to the extent to which a culture programs its citizens to accept delayed gratification of their material, social, and emotional needs.

Indulgence refers to a society that allows relatively free gratification of basic and natural human drives related to enjoying life and having fun. Restraint refers to a society that suppresses gratification of needs and regulates it by means of strict social norms.

Culture and Business 2

Hofstede’s work has been criticized

Assumes a one-to-one relationship between culture and nation-state

Research may be culturally bound

Informants only worked within a single industry and within one company

Example: computers within IBM

Certain social classes excluded from research

Despite these concerns, Hofstede’s work remains a good starting point for managers trying to figure out how cultures differ and what that might mean for management practices.

Table 4.1 Work-Related Values for 15 Selected Countries 1

Country	Power Distance	Uncertainty Avoidance	Individualism	Masculinity	Long-Term Orientation
Australia	36	51	90	61	31
Brazil	69	76	38	49	65
Canada	39	48	80	52	23
Germany (F.R.)	35	65	67	66	31
United Kingdom	35	35	89	66	25
India	77	40	48	56	61
Japan	54	92	46	95	80
Netherlands	38	53	80	14	44
New Zealand	22	49	79	58	30

Source: Geert Hofstede, “The Cultural Relativity of Organizational Practices and Theories,” Journal of International Business Studies 14 (Fall 1983), pp. 75–89.

Table 4.1 Work-Related Values for 15 Selected Countries 2

Country	Power Distance	Uncertainty Avoidance	Individualism	Masculinity	Long-Term Orientation
Pakistan	55	70	14	50	00
Philippines	94	44	32	64	19
Singapore	74	8	20	48	48
Sweden	31	29	71	5	33
Thailand	64	64	20	34	56
United States	40	46	91	62	29

Source: Geert Hofstede, “The Cultural Relativity of Organizational Practices and Theories,” Journal of International Business Studies 14 (Fall 1983), pp. 75–89.

Culture and Business 3

Two other cultural frameworks:

Global Leadership and Organizational Behavior Effectiveness (GLOBE) identifies nine cultural dimensions

Power distance, uncertainty avoidance, humane orientation, institutional collectivism, in-group collectivism, assertiveness, gender egalitarianism, future orientation, and performance orientation

World Values Survey (WVS) explores values and norms, how they change, and their impact on society and business

The Global Leadership and Organizational Behavior Effectiveness (GLOBE) instrument is designed to address the notion that a leader’s effectiveness is contextual.

The World Values Survey (WVS) is a research project spanning more than 100 countries that explores people’s values and norms, how they change over time, and what impact they have in society and business.

The WVS includes dimensions for support for democracy; tolerance of foreigners and ethnic minorities; support for gender equality; the role of religion and changing levels of religiosity; the impact of globalization; attitudes toward the environment, work, family, politics, national identity, culture, diversity, and insecurity; and subjective well-being.

Cultural Change

Culture evolves over time, although changes in value systems can be slow and painful

Social turmoil is an inevitable outcome of cultural change

Cultural change is particularly common as countries become economically stronger

As countries get richer, there is a shift from “traditional values” to “secular rational”

Globalization creating a convergence of cultures: the convergence hypothesis

Countertrend of some cultures: reemphasizing uniqueness

LO 4-5 Demonstrate an appreciation for the economic and business implications of cultural change.

For another illustration of cultural change, consider Japan. Some academics argue that a major cultural shift has been occurring in Japan, with a move toward greater individualism.74 The model Japanese office worker, or “salaryman,” is characterized as being loyal to his boss and the organization to the point of giving up evenings, weekends, and vacations to serve the organization, which is the collective the employee is a member of. However, a new generation of office workers may not fit this model.

Focus on Managerial Implications 1

Cultural Literacy and Competitive Advantage

Need for managers to develop cross-cultural literacy

Connection between culture and national competitive advantage

Connection between culture and ethics in decision making

Focus on Managerial Implications 2

Cultural Literacy and Competitive Advantage continued

Cross-Cultural Literacy

Firms that are ill-informed about practices of another culture are unlikely to succeed in that culture

Beware of ethnocentric behavior

Belief in the superiority of one's own culture

To combat the danger of being ill-informed, international businesses should consider employing local citizens to help them do business in a particular culture. They must also ensure that home-country executives are well-versed enough to understand how differences in culture affect the practice of business. Transferring executives globally at regular intervals to expose them to different cultures will help build a cadre of knowledgeable executives.

Focus on Managerial Implications 3

Cultural Literacy and Competitive Advantage continued

Culture and Competitive Advantage

Connection between culture and competitive advantage

The value systems and norms of a country influence the costs of doing business in that country

The costs of doing business in a country influence the ability of firms to establish a competitive advantage

Key points

The connection suggests which countries are likely to produce the most viable competitors

The connection has implications for the choice of countries in which to locate production facilities and do business

Keep in mind that as important as culture is to people, companies, and society, it is probably less important than economic, political, and legal systems in explaining differential economic growth between nations.

Summary

In this chapter, we have

Explained what is meant by the culture of a society.

Identified the forces that lead to differences in social culture.

Identified the business and economic implications of differences in culture.

Recognized how differences in social culture influence values in business.

Demonstrated an appreciation for the economic and business implications of cultural change.

Accessibility Content: Text Alternatives for Images

Map 4.1 World Religions, Text Alternative

Predominant religions include Christianity, Islam, Buddhism, Hinduism, Judaism, Sikhism, Animism, Chinese complex, Korean complex, Korean complex, Japanese complex, and Vietnamese complex.

Part of Christianity is 1. Roman Catholic, which is in most of Western Europe, Eastern Canada, Alaska, Mexico, and South America. 2. Protestant, which is in most of the U.S., Northern Europe, Southern Africa, Australia, and New Zealand. 3. Mormon (L D S), which is only around Utah of the U.S. 4. Eastern churches, which is in most of Eastern Europe and Eastern and Southern Russia. 5. Mixed sects. which are in most of Canada and eastern coast of Africa.

Part of Islam is 1. Sunni, which is in most of northern and Eastern coastal regions of Africa, the Middle East, and Indonesia. 2. Shi’a. which is only in Iran and parts of Iraq.

Part of Buddhism is 1. Hinayanistic, which is in Southern Asia. 2 Lamaistic, which is in Mongolia and Eastern China.

Hinduism is in most of India.

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