MGT 400 Cross-Cultural Management Study guide for the final exam
Leadership (Chapter 8 and related case)
Wolfgang Keller case: What are the differences between Keller’s and Brodsky’s leadership styles? What work and
life experiences have led them to develop such styles? What could Keller have done differently to coach Brodsky
(provide concrete examples)? How does this case relate to contingency leadership theories?
Decision-making and ethics (Chapter 9 and related cases)
Rational (normative model):
Historical model of decision making and is still used by many today
Decision makers determine the appropriate decision criteria (like price or quality) and then assign relative
weights of importance which may differ based on each person
Manager will try to rank each decision based on its importance and determine the optimal choice based on the
weights assigned
Decisions are seen as logically sound, uninfluenced by emotion or other non-rational factors
1. Define the problem (first step)
Problem: discrepancy between present situation and optimal outcome, can be a symptom of
fundamental difficulties within an organization so this process is directed at changing the root causes
of difficulties so symptoms are reduced or eliminated, should lead to the development of decision
criteria
2. Identify key decision criteria (based on values)
3. Allocate relative weights to the criteria.
4. Determine the decision style (second step)
o Programmed: follows standard operating procedures, no need to explore alternative solutions because the
optimal one has been identified and documented (like when you call GE)
o Non-programmed: new, complex, or abstract problems that require decision makers to search for
alternatives and possibly call for a unique solution
o As problems reappear, programmed decision routines are formed and knowledge becomes more codified
and explicit.
o Programmed drive out non-programmed
o Programmed are faster, more predictable, and usually do not require an expert
5. List solutions and develop any alternatives (third step).
Usually begins by searching for ready-made already proven solutions
6. Evaluate the alternatives (fourth step).
Purely rational process this would involve identifying all the main selection criteria that can help to
rate all alternatives which must be ranked by importance and given a weight
7. Select the choice that maximizes utility based on the weighted criteria of all feasible alternatives.
8. Mobilize resources (fifth step).
Rally employees and prepare sufficient resources to make and implement the decision
Firms must consider the motivation, ability, and role perceptions of employees – must determine
whether the gap between “what is” and “what ought to be” has narrowed which should be based on
systematic benchmarks and feedback so results and reactions are objective and easily observed
Assumptions of the rational model:
Major impact on many aspects of business management such as OM tools
o Logical consistency across decisions regardless of the manner in which available choices are presented
(this assumption is at the heart of many models in finance and economics – game theory which evaluates
how competitors may act and which firms will survive or thrive; in finance this is used as the foundation of
planning due to the amount of data regarding risk and return of assets)
o Rational model is not only useful when reliable data is available, but to compare against other decision
models too
But people’s decisions are strongly affected by the nature of the data informing the decision and the setting
which the decision is made, so this model is insufficient in accurately describing people’s behavior in many
conditions so much so that it is more of an exception than the rule. This is heightened by cultural differences.
Rational model = normative model (how things ought to be)
Assumes that people make decisions on the optimization of individual self-interest (rather than heuristics and
logical inconsistencies which tends to be the rule not the exception)
Lecture: problems are clear, objective are clear, people agree on criteria and weights, all alternatives are known,
all consequences can be anticipated, decision makers are rational
Does not take into account emotions or biases but in every day decisions we have limited info processing, use of
judgmental heuristics, and satisficing (which positive model addresses)
Positive model:
1. Problem identification
Problems are not announced, they are identified and defined by the decision maker. But since people are
not perfectly efficient or objective, problems are often misdiagnosed and opportunities overlooked.
Bounded rationality: managers make choices based on simplified and subjective sets of choices; they
cannot process all info and analyze all possible solutions so they employ a means of dealing with
information overload to narrow problems and choices to something they can handle
o In most cases, managers will make a decision based on limited info and a reduced choice set and
thus, for decisions that particularly involve risk and strategizing about the future, suboptimal
decisions can be made
o Bounded rationality affects the identification of the problem as well as the solutions
o This approach is useful in some cases (like picking a toothpaste)
2. Appropriate decision style
Impact of bounded rationality greatest when trying to make non-programmed decisions and can be viewed
along a continuum of rationality
o Programmed: rational model is strong and the impact of BR is limited
o Non-programmed: managers must tailor decisions so the potential impact increases the decision-
making procedure is based on the values, beliefs, attitudes, and behavioral patterns of the decision
makers rather than on a strictly rational model (especially problematic for international firms)
o Most firms will use a combo of programmed and non-programmed
3. List of solutions
Key to generating solutions is relevant info
Carl Jung said there are 2 primary modes of gathering info: sensing and intuition
o Sensing: use their 5 senses; “sensors” rely on facts and empirical evidence and are often more
inductive
o Intuition: decisions will depend heavily on their own judgment and less on specific empirical evidence
or experience; rely on images, emotion, and logic and are often more deductive, drawing heavily on
certain basic principles they hold true
Satisficing (rather than maximizing): choosing the first “good enough” choice that comes along early in the
process; occurs because info about available alternatives is imperfect or ambiguous and because decision
makers tend to evaluate alternatives sequentially; a “good enough” solution will depend on the availability of
acceptable alternatives
Cultures process info differently
o High-context (Middle East, North Africa): rely on who is providing the info, their position, and how
they present it
o Low-context (US, Canada): rely more on facts and empirical evidence though almost anyone can be
moved by an expert to a certain extent
4. Choose best alternative
Style of information search is important in determining what kind of evidence is actually sought out and applied
to a decision about the problem
Key difference is how much reliance is based on preconceived notions to search for info and frame alternatives
Evidence-based: does not start out with a presumed decision and seeks to evaluate a range of evidence and
challenge the emerging solution as it is gradually shaped
o Look, a $20 bill. Let’s pick it up.
o Open to evidence in a jury and not afraid to consider evidence that they disagree with
Verdict-based: starts with the presumed answer to the decision and proceeds to only seek out info that confirms
the initial verdict or decision
o It can’t be a $20 bill because it wouldn’t still be here.
o Go into it with the notion they are guilty and emphasize evidence that proves it; moves quicker and do
not get hung up on technicalities but important info can be overlooked and are more prone to errors in
judgment
Verdict based leads to a confirming-evidence bias: leads people to seek out info that supports their existing
instincts or points of view while avoiding info that fails to support their beliefs
o Affects where we go to collect evidence and how we interpret it
o Good idea for people to write down some ideas before coming into a meeting to avoid being
prematurely influenced
Those with a vested interest can influence a decision maker’s perceptions and bias toward a premature decision.
Managers with the same training and background will often search in one area for a solution and ignore other
areas
Once a verdict based decision maker makes up their mind, they will not examine any evidence that could
challenge a conclusion or improve the decision
Verdict-based comes up too often in organizations – they screen out a number of items from consideration to
save time which is especially problem internationally
Evidence-based leads to better decision making but verdict-based is still common and if everyone is like this
and is bias in the same direction, it could lead to groupthink
Heuristics and Biases:
Heuristics: cognitive shortcuts people use to cope with the complexity inherent in making decisions, is applied
in the world of business and finance; simplify the decision making process by providing certain mental
shortcuts that allow to make decisions more quickly (shortcuts are usually useful)
o Previously, if someone wasn’t using the rational approach they were considered to be “emotional”
o But studies showed that people make decision errors that have nothing to do with emotions and are instead
based on consistent mistakes and miscalculations (prospect theory): examines risk assessment, loss
aversion, and dependence on a reference (starting/comparison) point which explains why people behave
differently from what traditional economic and decision theory would predict
o Heuristics can also lead people to make systematic biases that leads to highly predictable decision errors
(even one step decisions)
o Loss aversion: people will forego a superior choice (potential benefit) to avoid a loss
o Many people use heuristics automatically without realizing it. It can create unperceived biases (traps that
increase possibility of suboptimal decision making), but if the person can recognize it they can then create a
process to avoid it.
Anchoring: when a person is unduly influenced by an initial impression or relies on 1 piece of info as the key to
decision making
o Percentage of African nations that are members of the US: lower when asked if it was more or less than
45% rather than if it was more or less than 65%, right answer was 100
o Usually when an anchor is set, it biases people toward that value and anchors discussion on that attribute of
the product or service. When considering a decision, the mind gives disproportionate weight to the first info
received. Like the verdict-based info search, this anchors subsequent discussion, info search, and judgments
o Anchoring affects other kinds of estimates like perceptions of fair price and good deals. In business, one of
the most common types is a past event. Do not anchor yourself in an unfavorable starting place.
Availability: leads to a bias whereby people base their decisions heavily on a sample that can easily be brought
to mind; vividness and emotional impact becomes more credible than the actual statistical probability
o Operates on the notion that if you can think of something, it must be important and will become part of
your decision – occurs when people place excessive importance on relatively rare, though vivid events or
circumstances
Ex) People may think Chinese firms make everything and have taken over world manufacturing and trade
because these products are more “available” based on the Made in China label, but they actually have a
much smaller share of world trade than the US. Additionally, the Chinese-owned firms are often not the
ones doing the manufacturing and exporting, the factory just happens to be in China.
o Media coverage can fuel the availability bias with widespread and extensive coverage of certain unusual
events rather than more routine (but equally or more important) events.
Ex) Children’s death is much more common via a swimming pool than a gun. Car crashes are more
common than plane crashes.
o People can push organizations to invest a great deal of money to prevent remote events while neglecting
other safety measures
Ex) USPS spent $5 billion to prevent anthrax scare that killed 5; media coverage of Russia is negative but
they are rapidly growing, the rule of law is improving, and there are opportunities for American and other
firms
Representativeness: occurs when seeming patterns are assumed to represent something that the data does not
warrant
o Sometimes useful in every-day life but can also result from misunderstanding probabilities, seeing
patterns where they don’t exist, and neglecting relevant base rates (underlying relevant population
from the small pattern sample is being drawn; the relative frequency/probability that an event
typically occurs)
o Humans need to classify things and if it does not fit exactly, we will approximate or guess to the
nearest thing. This can lead to biases such as assuming people with certain characteristics
have/don’t have certain skills and knowledge.
o Usually there is no statistical link between things and are naturally occurring random patterns.
Escalation of commitment:
Tendency to allocate more resources to a failing course of action (poker = “throwing good money after bad”)
Often called the “Concorde fallacy” when the British and French government continued funding the Concorde
supersonic jet long after its lack-of-commercial reliability was apparent
In organizations, this is often found where significant investment has been made in a project but decision
makers don’t want to go back on that decision to cancel it (sunk-cost trap)
Sunk-cost trap: deep-seated bias to make present decisions in order to justify past choices
o Firms often put a lot of effort in improving the performance of an employee who most individuals
believe should never have been hired
o A corporate culture can reinforce this if the penalties for making a decision leads to an unfavorable
outcome that is severe; can also lead managers to not want to take risks for fear of failing
o Executives should realize that some good decisions lead to bad outcomes
Causes of escalation of commitment
o People may want to present themselves in a positive light (self-justification) for their actions so those
who are identified with a decision will persist to demonstrate confidence in their decision-making
ability and to save face to avoid the embarrassment of admitting past errors (so escalation of
commitment may be more common where leaders rarely admit mistakes like in hierarchal societies like
East Asia and Latin America)
o Gambler’s fallacy: underestimate the risk and overestimate the probability of success; become victims
by having inflated expectations of their ability to control any problems that may arise; falsely believe
luck is on their side
o Perceptual blinders: do not see problems soon enough; decision makers unconsciously screen out or
explain away negative information; serious problems initially look like minor ones; info necessary to
pinpoint and define major problems is downplayed so problems are ignored and remain unsolved
o Even when a project’s success is in doubt, decision makers will persist because closing costs of ending
it are high or unknown (financial penalties, bad public image, personal political costs).
Overcoming it
o Separate decision choosers from decision evaluators to avoid having the decision maker having to
“prove” he/she was right (Ex. banks handle bad loans more effectively when the executive responsible
has left)
o Publicly establish a preset threshold. If the test fails in the alert region, the decision should be
abandoned or reevaluated. (Ex. like the stop-loss order in the stock market where stock will be sold if
below a certain price)
o Avoid creating a failure-fearing culture that leads employees to perpetuate their mistakes. (Ex. East
Asian firms this is a problem because firms are organized around principles of filial piety – loyalty to
the father or father figure like a boss so to go against the boss is considered improper and would show
poor upbringing and disloyalty. Thus, it is difficult to organize innovation because employees fear they
will be criticized as disloyal or punished for pointing out errors such as failing projects. A decision or
judgment gets evaluated for its loyalty to top management, not its accuracy.
o Recognize the source of escalation of commitment has deep psychological roots in our desire to protect
our egos or prove to others that we were correct – breaking the status quo.
o In rewarding people, look at the quality of their decision making and decision process, taking into
account what was known at the time their decisions were made, not just the quality of the outcomes.
o Lecture: always view a problem from different perspectives; think about the problem on your own
before consulting others; seek info from people to widen frame of reference; in group discussions do
not reveal much about your own ideas, estimates, and tentative decisions
Lecture examples: investments for ‘winner take all’ markets (pharmaceutical industries, software); marketing
races (like airmiles); arms races and wars; strikes; employee performance evaluation (subjective performance
appraisal rating, promotion decisions, NBA draft choice and playing time); loans for commercial investment
Loss Framing (loss aversion):
Most people feel worse about a loss of a given amount than they would feel good about a gain of a similar
amount so people tend to focus more on losses (or loss avoidance) than on benefits in making decisions
Items and opportunities are seen to be more valuable as they become less available (scarcity principle)
One study showed that potential losses played a far bigger part in managers’ decision making than potential
gains
Extreme case is the “worst-case analysis” where the idea is to avoid the worst case scenario, but this can bring
higher costs than benefits
Penalty vs. discount (more value on penalty than discount)
Limiting the adverse effects of framing by
o Do not automatically accept the initial frame no matter if it was formulated by you or someone else.
Always try to reframe the problem in various ways. Look for distortions caused by the frames.
o Be aware of being overly sensitive to losses which can also lead to risk aversion. Firms that are afraid
to risk anything also miss out on more opportunities.
Groupthink:
Came after researchers examined catastrophic decision failures like Pearl Harbor
Originator is Irving Janis
Groupthink: downside of group decisions (despite groups generally making better decisions) is a mode of
thinking people engage in when the members’ striving for agreement override their motivation to realistically
appraise alternative courses of action; more generally is a problematic manner of decision making that can rise
during the group decision process whereby individuals intentionally conform to what they perceive to be the
consensus of the group and preference of the leader
Ex) Pearl Harbor, Bay of Pigs, escalation of the Vietnam War, failure of O-rings on the space shuttle, US
invasion of Iraq
Emphasis of group harmony and agreement overrides the ability to consider relevant evidence and the merits of
a decision
Causes (lecture): more likely to be cohesive, concerned with achieving consensus that is with exploring
alternative courses of action, and analyzing the situation, pressure to conform (Asch’s study – asked university
students in groups of 8 to match lengths of 2 lines with a comparison line; all got it right with no group
pressure; in the situation where 5 were asked to give wrong answers even though the students saw the right
answer 75% conformed to the group)
Leads the group to make decisions that they each would disagree with individually in private
8 symptoms (first 2 stem from overconfidence in group’s prowess; second 2 reflect the tunnel vision members
use to view a problem; final 4 are signs of strong conformity pressure within the group)
1. Illusion of invulnerability
o Classic example is Pearl Harbor: American naval and army commands never thought the Japanese
naval and armed forces could travel that far so they never tested this assumption; led them to not
prepare for this possible attack despite warnings
2. Belief in the inherent morality of the group
o Group members automatically assume the rightness of their cause and dissenters are judged as
unethical or even immoral
o Challenger accident in 1986, one engineer noted that NASA managers shifted decision rules,
remarking that the engineers felt they were in the position of having to prove the space shuttle was
unsafe instead of proving it might not be safe and dangers could not be ruled out
3. Collective rationalization
o Despite launch pad fire that killed 3 astronauts in 1967 and the close call of Apollo 13, the
American space program never experienced an in-flight fatality. When engineers raised the
possibility of catastrophic O-ring blow-by, it was argued that the shuttle had flown successfully
about 20 times and was little reason to think that this would not continue.
4. Out-group stereotypes
o Getting critical outside testimony and evidence is important for groups seeking effective decisions.
In 1940, the French and Allied (British, Dutch, Belgian) forces were defeated in 6 weeks by the
German Wehrmacht with a little help from Italian allies. The French high command at the start of
WWII in Europe failed to learn lessons from the German attacks on Poland. The French generals
argued the Poles were not up to the standard of the French armed forces and Poland was not like
France. Thus information about German tank battalions and their coordination with armed troop
carriers and Stuka dive bombers was ignored.
5. Self-censorship
o In the Challenger accident, the main contractor wanted to postpone the flight but instead of the
engineers stating they shouldn’t launch below 53 degrees F, they offered equivocating opinions.
Managers instructed them to make a management decision, not an engineering one.
6. Illusion of unanimity
o NASA managers perpetuated the fiction that everyone was fully in accord on the launch
recommendation and admitted they didn’t report the main contractor’s hesitancy. The flight
readiness team interpreted silence as agreement.
7. Direct pressure on dissenters
o In the 1930s leading up to WWII, Charles de Gaulle, a major in the French army, wrote an article
and later a book that described the importance of armored vehicles, separate tank battalions, and
close ground-air cooperation, but was ignored by the French high command which temporarily
removed him from the position list for disagreeing with commanders. They said they would not
tolerate dissent (“disloyalty”).
8. Self-appointed mindguards
o “Mindguards” protect a leader from assault by troublesome ideas
o During China’s long war with the Japanese during WWII and subsequent fights against
Communist forces, China’s Generalissimo Chiang Kai Shek was well known for not wanting to
hear bad news. When asked who his best generals were, he usually responded by saying those who
are the most loyal and didn’t question his orders. He was eventually driven out of the Chinese
mainland by the victorious Communist armies. He had a weak grasp of the concepts of total war
and grand strategy along with weak group decision processes. Attempting to prove loyalty or
avoid disrupting harmony by keeping bad news is more likely to lead to groupthink.
Groups engaged in groupthink tend to lock out outside points of views, employ verdict-based info search,
suppress internal discussion, fail to challenge key assumptions (and make unwarranted assumptions), fail to
consider alternatives, take excessive risk, and do not use the info they have which creates a poor decision
process that can lead to suboptimal and even catastrophic results
Avoiding groupthink
o Take the time to recognize and understand the vastly different ways people’s minds work. Gardner’s
book explores different intelligences (linguistic, musical, logical-mathematical, spatial, bodily-
kinesthetic, inter- and intra-personal) and if able to interact can bring a surprising and exciting array of
new data to any decision making process. Ensure a mixture of different mindsets are present in the
group to bring different perspectives on problems – diversity of thought and background).
o Create space for a variety of different cognitive approaches to ensure decision processes are creative
and effective at problem solving and responding to the unexpected. Each person contains a mix of
orientations from task centered, learning centered, to people centered. We also organize data differently
such as chronologically which is more common in Northern European cultures.
o Avoid overly valuing consensus and harmony, especially as a team leader. Remember that harmony
isn’t the ultimate goal, the best decision is. People don’t need to agree, just enough to get the job done.
Decisions need to be based on its merits not because the boss would feel good about it. Make sure
differences of opinion is encouraged and appreciated. Allow every member to express themselves and
work to avoid putting pressure on dissenters to conform.
o Create partnerships of people from diverse disciplines, departments, or backgrounds when acing new
projects or creative challenges (like under the leadership of Jerry Hirshberg of the Nissan Design
Center where people were hired in complementary pairs)
o Ensure effective processes for aggregating the group’s input. It is important this temptation is resisted
until it is the right time.
o Voting is a method that should be used only sparingly, perhaps at the end if no agreement has been
reached. In some cases, multiple alternatives might need to be tried.
o In many groups that have taken the time to explore collective wisdom, ongoing debate and dialogue
can result in surprising new thinking shared by the entire group, opening the doors to the best decision.
While consensus is not a goal of the group, it is often the result of effective processes.
o If a group is involved in the decision-making process, actually let them do this. If a group is treated in
an advisory structure or if its findings are dismissed or minimized, they will check out and the group
will experience “death by committee”
o Lecture: encourage group members to voice their opinions, doubts, objectives; assign several group
members to teams that will investigate the advisability of alternative course of action followed by a
debate; appoint someone to serve as the devil’s advocate at each meeting; hold last chance meetings
where members are encouraged to raise any nagging doubt or hesitations; as a manager set an example
by being open to criticism yourself
Group Decision Making:
Team: organized group; crowd/market: larger less organized group
Commonly believed that with a group you get an average intelligence (and thus average decision) so you should
always have an expert to make important, difficult decisions even unstructured ones where the solution may
have a complex series of pathways to the answer
Group decisions in less structured decision areas like strategizing, making estimates about future price
movements, and guessing about capital markets will usually be better than any one individual’s decisions.
In the Challenger accident, the market came to a decision to drop the price of the shares of the 4 contractors
they thought were responsible despite that it would be months before they could determine this
People often believe that any group is not as smart as the smartest person in the group and that 1 or 2 experts
would be better. They also believe that when using a group (or the market) to make a decision, a simple
agreement or consensus will be reached. None of this is true. Wisdom comes from disagreement and even
conflict. You are not likely to find collective wisdom by simple compromise or harmony-maintaining
approaches. Some dissent and giving of opinions are needed. Experts have limited amounts of info and have
biases like anyone.
Group decisions are better than individual decisions with these general circumstances
o Decision involves a long-range forecast or prediction or the situation is strategic (development of a
strategic plan)
o Situation is complex, requiring multiple skills
o Situation is such that no one person is an expert on that topic – could be a movement out of the org’s
traditional area of expertise.
o Situation is strategic.
Lecture: Advantages and Disadvantages
o Greater pool of knowledge; but social pressure
o Different perspectives; but minority domination
o Greater comprehension; but logrolling
o Increased acceptance; but goal displacement
o Training ground; but groupthink
Lecture: Techniques for group decision making
o Brainstorming: silently (optional); ideas/opinions solicited and written on a board, disallowing
criticism, allowing piggy-backing, clarification
o Nominal group technique: narrow down options through voting
o Delphi technique: uses experts to make predictions and forecasts about future events without meeting
face-to-face
Evaluating Decision Making in International Business:
After making a choice, decision makers tend to inflate the quality of the chosen decision and deflate the quality
of the discarded alternatives (post-hoc justification) to maintain positive self-identity
Post-hoc is also encountered with the problem of escalation of commitment
Generally gives decision-makers an excessively optimistic evaluation of their decisions until they receive clear
and undeniable info to the contrary; also inflates the decision maker’s initial evaluation of the decision so reality
comes as a shock
The communications, group dynamics, and decision-making processes involved are complex in international
business. In small groups, diversity of opinion is the single best guarantee that the group will reap benefits from
face-to-face communication. This means that diversity is important in collective intelligence. Gender, race, age,
and cultural diversity is involved with this but the primary element is cognitive diversity: ability of members to
think differently and to express opinions and findings openly
Dealing with Culture and Decision Making:
Orientation to activity to “getting things done”: some culture emphasize solving problems while others focus on
accepting situations as they are E) In the US, managers perceive most situations as problems to be solved and
opportunities to improve through change. In Indonesian, Malay, and Thai cultures tend to see no need for
change in most situations and prefer individuals to accept life as it is and be patient with the situation
Situation-accepting managers generally believe that fate or God will intervene in the production process
(external attribution) whereas problem-solving managers will see themselves as the prime or only influence
(internal attribution)
An American might identify a problem long before their counterpart from Georgia. Managers’ perceptions of
situations and their definitions of problems vary across cultures.
Key aspect of culture that affects a firm is who makes the decisions. Based on the relationships among people,
either individuals or groups will hold primary decision-making.
In more hierarchal societies, only senior management makes decisions and lower-level personnel implement the
decisions.
Indian employees would wonder about the competence of a superior who consulted them on routine decisions;
managers would prefer a directive style and 85% of subordinates said they work better under supervision
Swedish employees expect to make most of their own decisions (among the first to experiment with
autonomous work groups and platform manufacturing) – at Volvo’s plant employees were given total
responsibility of producing cars
Depending on the culture, decisions will be made quicker or slower
Quick-paced cultures doing business with slow-paced cultures causes problems (quick believe the slow lack the
commitment to get the job done while the slow believe the quick reflects the lack the importance on the
business relationship and the work)
Selective perception: individuals perceive only what they want to and set aside or ignore other
Values in tension: Define ethical relativism and ethical absolutism, and be able to give examples. What
are the three principles for balancing the two extreme views? Problems caused by bribery.
IKEA’s Indian rugs and child labor: Explain the nature of two organizations: Rugmark and Save the Children.
Bonded versus unbounded child labor in India. How does the Indian government
approach this issue? Unintended consequences of complete withdrawal.
Influence and negotiation (Chapter 10 and negotiation exercises)
Influence: seeking to actually change people’s behaviors
Companies are interested in ethically influencing employees to work effectively
Social influence: process of influence; encouraging a change in behavior that was caused by real or imagined
external pressure
3 behavior outcomes from a successful attempt (compliance and obedience are more overt forms)
o Conformity: changing one’s behavior to match the perceived requirements of others (to fit in) which is
done by showing that everyone else is doing things in a particular way
o Compliance: act of changing one’s behavior in response to a direct request, may not be someone who
has direct authority over you but may be in a position of command power like a physician expert
o Obedience: special type of compliance that involves changing one’s behavior in response to an
authority’s command (like a police officer or supervisor)
o Firms think using less overt forms is helpful in that influence is good if the targets believe the ideas are
their own and do not feel coerced, as with conformity
6 universal principles of influence
1. Social proof (consensus or social validation principle): people are more likely to be influenced if they see
evidence that many others (especially those they see are similar to them) are doing a particular activity or
buying a product – Ex. “Do not miss the excitement your friends are having.” or the ALS Ice Bucket Challenge
o People like to follow the crowd, so helpful to appeal to what the larger group is doing – Ex. Lincoln
Electric influenced workers in Mexico to accept PPP piece rate system by selecting a couple volunteers
first
o Firms should have 1-2 opinion leaders be early adopters of the system (such as PPP) and publicly
accept the system
o People faced with strong group consensus may go along even if they think the others may be incorrect
and even if evidence shows they are incorrect because social pressure creates major errors in judgment.
o Cultures with high group cohesiveness (like East Asia), social validation is extra important, so
companies can focus on highlighting companies that have been successful with implementing it. They
would then put the prospect in touch with similar clients who could explain how the product works.
Showcase clients in a foreign location can serve as reference points for other prospective customers.
Also explains why a firm may be willing to sell a new system at breakeven price to just “get in the
door”
o If you want to discourage behavior, don’t say, “Many people are doing this, but you don’t” as this can
actually increase the undesired behavior.
o It is wrong to say “We have a consensus so that should convince the particular individual.” It is the
people that do the influencing.
2. Authority (expert principle): like with social proof people are seeking external validation before making a
decision and are willing to follow the directions or recommendations of a trusted authority – Ex. Using health
care professionals though they are actors
o Like social proof, it gives them a shortcut
o Helpful because we do not have time to evaluate every decision, is a powerful influencer
o Must use authority judiciously and ethically
o Reliance on expert authority can lead us to respond to the trappings (symbols) of authority, like the
style (manner of speaking or clothing) rather than the substance of genuine authority or expertise
o People are more influenced by those who display their credentials and awards as a signal of their
authority – Ex. In a doctors office posting credentials, citing studies showing success
o Even in countries like Japan and China that emphasize personal humility, credentialed people are seen
as highly credible and influential – Ex. When a high ranking official in China visits a plant or factory,
pictures are taken and placed at the entrance even though it may be hostile to private businesses as it
shows official support. Firms in China are also basing some operations near or on military bases
o You can be an authority and wield influence or refer to another authority to do so
o Milgram’s experiment to obey authorities even if it goes against their moral responsibilities: teacher-
only participant (2/3 administered all quiz questions even injured or silent); authority- researcher;
learner- confederate
65% of all teachers administered maximum voltage but did not enjoy doing so
Similar results were found in Canada, England, Jordan, and former West Germany
When people take on roles that prescribe obedience (student, soldier, employee) the sense of
responsibility for the outcomes of their conduct is diminished
3. Liking: people are more likely to be influenced by those whom they like or with whom they have similarities –
Ex. More likely to buy insurance from agents similar in age and political/social preferences
o 2 factors that really increase liking: similarity and praise
o Similarity (and dissimilarity) can increase or decrease liking and thus, influence (similarity-attraction-
retention)
To build liking and influence, you should listen more than you talk
You can use this to build relations with customers external to the firm and internally. Informal
conversations create ideal opportunities to discover common areas of enjoyment. Build these
connections early.
o Even disingenuous praise increases liking by those hearing it and increases the subsequent willingness
to comply with requests made by the person
Criticism can have the opposite effect. Managers must given frank assessments but should do
so carefully by starting out with praise and an understanding of the employee’s situation. If
they did a bad job, find out why. A person will usually be more open to criticism if they think
you care and are empathetic towards their situation. Only use criticism when necessary.
Praise can also help repair a damaged relationship.
Some cultures negative comments may be even more damaging such as Thailand where is it
very rare to raise your voice or give negative feedback especially in front of others and care
about saving face. In such cultures, give praise first, do not criticize the employee in front of
others, and focus on the person’s performance, emphasizing what you would do instead.
o It can also be helpful to focus on others’ needs rather than what you want.
4. Consistency: indicates how people are influenced by showing how their previous statements or stated values fit
with a recommendation or request; more influenced if they see it as consistent with an existing or recently made
commitment of their own (precedent) – Ex. More likely to follow through on a statement if made publicly to
reduce cognitive dissonance, which is why managers should ask staff to write down goals. Salespeople will also
ask customers’ previous preferences and values. Email of boss so that employee can correct it.
o In fundraising, it may be good to first get people to comply with a smaller related request – Ex. In
Israel, they went door to door and asked some people to sign a petition. Almost all these people agreed
to donate money later when asked.
o Consistency is also related with the escalation of commitment.
o It is not your commitment that will influence people, it is theirs, and reminding them can help. People
live up to what they write down.
5. Reciprocation: more willing to comply with requests from those who have given them something first, even if
the initial gift or favor is much smaller
o Obrigado in Portuguese is used for “thank you” but literally means “I am obligated”
o In the US, purchasing managers are more likely to purchase products and services if they receive a gift.
A Walmart employee may be fired for accepting a gift from a potential vendor, but in China this is
legal and accepted. Chinese managers are known to tell people what they will give in return at the time
they ask for something.
o Balanced reciprocity (“quid pro quo” scheme): securing a promise of a near-immediate return for a
favor done or a gift given; seen as inappropriate and too materialistic for Westerners but important in
China and in ethnic Chinese communities
6. Scarcity: more likely to buy a product if they see it as scarce, unusual, or limited in number – Ex. only can buy
6 of this, only 1 day left to purchase, or highlighting different attributes and values
o Reactance: when we are told we cannot have or do something we want it more
o Nightclubs and restaurants may limit the number of people not because they don’t have room but
because they want to increase desirability
o The 2 main supermarket chains in Hong Kong said that if they didn’t act quickly, they would miss the
opportunity to try several new healthy cereal products from the US. Now, these brands are hard to find
and when available, are expensive.
o Can work within firms as potential losses figure more heavily on decisions than gains
All cultures have these 6 influencers but the importance may differ. In a study with bank branches from the US,
China, Spain, and Germany, they asked if they would help a colleague.
o Germany: influenced by authority so said yes if granted to
o US: reciprocity approach
o Spain: friendship and loyalty regardless of position or status
o Chinese: primarily to authority in the form of loyalties to those with highest status
Persuasion: seeking to change people’s beliefs or attitudes (Ex. President Lincoln had to convince his subordinates
to execute his orders); more difficult to accomplish
Strong attitudes resist change and when faced with challenges to these attitudes, most will seek out sources that
support their initial beliefs and ignore any competing views and even lock them out of meetings and
discussions. They may also attack the messenger rather than the content.
Persuasion is a change in the private
attitude or belief resulting from a
message whereas influence is an
action that leads to a change in
behavior. These 2 can work together.
Persuasion is a deeper form of
change. A good starting place is
understanding what they value or
what problems they may need to
solve as people will rarely go against
their own values.
Early efforts to understand persuasion
were based on the message itself (like clarity, logic, ease of recall) as it was believed the person’s
comprehension and learning was crucial.
Cognitive response model: used today; focuses on communication and the understanding of individuals’ wants,
beliefs, and problems they need solved; views the direct cause of persuasion as the self-talk of the target
audience (key wants and beliefs) instead of just the persuasion method or the deliverer; must ask questions (or
do research) and then listen and summarize
Why people yield to a persuasive message
o To build a more accurate view of the world and how it works (like if the person has a sensing
personality, provide data and evidence)
o People want to be consistent with their own values and previous commitments ( ) consistency principle
to avoid negative feeling caused by holding 2 contradictory ideas cognitive dissonance:
simultaneously
o Build social approval and demonstrate the logic and consistency of their new views and behavior
o Often times, companies don’t focus on how new products solve problems. Venture capitalists remind
entrepreneurs to not ask customers to change their lifestyle; instead, persuade them to change their
attitudes by showing how it solves their problems or is consistent with their current lifestyle and point
of view; don’t spend a lot of time educating them.
With self-talk and understanding people’s problems, it suggests a manager’s criticism of an employee or
position is not likely to help persuasion attempt; they need to connect to employee’s needs.
Ex) Pay for performance plan in Latin America where it will be hard to sell since workers usually experience a
guaranteed wage with pay standards typically the same level throughout the country by negotiations between a
union and employers’ association
Union does not prohibit this PPP scheme so may think it would be easy to implement which would allow
them to take on a pay structure consistent with other factories around the world, but may face more
opposition if the manager does not use a more democratic form of leadership and consult the employees.
Manager will want to stimulate positive responses when informing them about it that includes not only the
intended message (strength and logic) but what would enhance positive cognitive response
May want to give a memo with examples of news success of various pay systems and the one they are
implementing as well as talk to opinion leaders among the employees to encourage them to give the plan a
try and see if more $ can be made with this plan rather than unilaterally implementing it and hoping for the
best
Negotiations:
Negotiating: process in which at least 2 partners with different needs and viewpoints try to reach agreement on
matters of mutual interest; effective way of conflict resolution
Shortcuts (availability, anchoring, loss framing, etc.) can apply in negotiations as well
Not necessary to conduct extensive analysis for most decisions nor is it necessary to conduct negotiations to
influence people. Most firms today do not competitively bid all products and instead choose to pay a little more
and rely on suppliers they can trust.
A set of decisions may be integrated together to make 1 big decision – Ex. Chinese negotiator for a state-own
enterprise often needs to show superiors that a concession was made to prove they handled it aggressively. So a
MNE can make a number of small concessions.
Starting by asking for a high price in China or the Middle East may be expected and used to test the other
party’s commitment to the deal but not so much in northern Europe. This is probably due to the egalitarian
nature
Types of negotiations (in both the parties seek to divide up available resources)
o Distributive (fixed-pie): opposing negotiators only concerned with how the (apparent) fixed pie will be
divided; one party’s gain is at the other’s loss; purely distributive will awarded more to the stronger
side
o Integrative (expanding-pie): have the potential to expand the size of resources available for negotiators
to divide by expanding the range of items of interest in a negotiation to make the deal bigger and trying
to identify and incorporate issues that the 2 sides value differently to create additional room for trade-
offs and needed concessions; when parties value items differently they can give some concessions on
some items they value less to gain on those they value more; must involve more than 1 item; produces
greater winnings for everyone
The Negotiations Process – in which human error can lead to one party being dissatisfied
o Heuristics and biases can occur in negotiations and some of the most common appear at the start of a
negotiation (like unrealistic expectations, improper frames, and anchors). Subsequent problems can occur if
previous commitments are overvalued, leading to the escalation of commitment.
o Unrealistic expectations (that are too high or too low): under confident negotiators will undervalue their
position and make unnecessary concessions or choose a low starting point (anchor) which will affect the
other members of the bargaining team and lead to everyone devaluing the team; overconfident negotiators
think they know how a negotiation will end but not take time to find out what the other side values and this
lack of empathy can lead to a confirming-evidence bias
o Anchoring : cognitive bias that describes the common human tendency to rely too heavily, or anchor, on
one piece of info when making decisions – Ex. anchoring on a specific topic like price; people want
signposts and guides to help with judgments so the natural tendency is to focus on an anchor even if it has
little applicability or is pushing in an unwarranted direction
o Escalation of commitment: may do this by accepting a deal they should have walked away from – Ex.
Chinese negotiators like to delay negotiations until the last minute to pressure their counterparts to accept;
never be afraid to walk away
o BATNA (best alternative to a negotiated agreement): decisions should not be evaluated in isolation but
assessed in the context of what other reasonable alternatives exist; avoidance of escalation of commitment
says it is better to quit a lengthy negotiation than accept a bad deal just to show something for the effort
Importance of information
o Having well-organized and relevant info is crucial to effective negotiations. It is important to collect as
much info as possible since most negotiators will not offer it upfront. Identify underlying interests and then
assess relative values. Understand your counterpart’s BATNA.
o Reservation price: the absolute bottom price that is acceptable, should never be revealed, just above the
BATNA, most easily defined in single-issue distributive negotiations and more difficult to establish in more
complex integrative negotiations, but you should always establish a set of conditions that describes the
reservation price to serve as a benchmark for other offers and suggest your position without giving away
too much
o To assess your own strength and set your own BATNA and reservation price, you need to know your own
main or proximate alternatives and those of the counterpart. Strategic positioning relies on their underlying
goals/interests and their stated position.
o Biases that influence how info is acquired and processed
Most people make decisions based on vivid experiences and events: memory is often selective and
subject to the availability heuristic (people make decisions on the things they can remember
instead of the facts)
People are often impressed by the theatricality of a presentation as its substance. Negotiators
should provide hard figures or tell customers where to find it. Do not settle for unsubstantiated
generalizations
o Target price: value you would like to have (“blue sky”), shifts focus from getting just enough to
negotiating what you and the other side wants; focusing on this during negotiations gives you a
clear vision of what you want to achieve; negotiator must create doubt in the opponent’s mind
about the point they would prefer to walk away rather than reaching an undesirable deal so that
they can focus on the target price; if the other side demands concessions follow the reciprocation
principle and ask for concessions right away
o Framing: instead of framing in comparison to other similar options frame to its benefits; in
negotiations focus on opportunities (such as focusing on contributions rather than the salary itself)
because the type of info “sets the table” for the interpretation and understanding
o Cast negotiations in terms of helping the other side not miss out on some benefit. Negotiators will
want to understand both frames and may need to test different analyses and perspective to reach a
win-win agreement.
Fairness and trust
o Loss aversion may be overridden by a sense of equity and desire to punish unfairness (ultimatum game)
o Likewise, negotiators will likely walk away from an economically rational agreement if they believe they
were unfairly treated or deceived even if it is above the reservation price.
o Fairness for an egalitarian society like Sweden may mean sharing benefits equally whereas in Latin
America it may be based on relative resources and work each person contributed. In China or India it may
be based on need.
Impasses: when a manager and their negotiating partner cannot reach an agreement; perhaps no agreement is
improving either side’s BATNA (where they either need to be more creative or be willing to walk away) or there
is a “sweet deal” but each party is holding out for a bigger piece of pie and don’t want to feel unfairly treated
o How to help restart stalled negotiations
Focus on interests rather than positions (for you and the partner)
As recommended by the reciprocation principle, make an initial small concession and suggest one
in return.
Think about bringing in a third party.
o If an agreement can’t be reached, say you are sorry one couldn’t be reached but hope new opportunities
will arise in the future
o Ultimatum: attempt to break an impasse and force a deal whereby one party says the other must agree
to X otherwise negotiations are terminated – this should only be done if they can carry through with it;
additionally if you are offered one it could be a bluff and should probably ignore it
Positive emotions can be good. Negative emotions can be bad. It’s important to account for emotions and to
ignore them. Do not hesitate to replace a negotiator based on this.
Culture in Negotiations
o Russians more likely to base arguments on asserted principles or ideals (like the verdict-based info search)
o China and Middle East: more likely to start a negotiation that is favorable to them and perhaps overly
favorable which can stir resentment in North European partners
o Russians and Chinese known to make fewer concessions and protest about disrespectful treatment so other
side should have many small concessions they are willing to make so their counterpart can show they are
tough and are making progress
o Middle Eastern and South Asian negotiators known to use more emotional appeals based on subjective
feeling
o North Americans more likely to use factual approach rather than emotional one
o South Americans and Arabs may feel unconstrained by time limits, and approach deadlines very casually as
opposed to North Americans who take deadlines seriously and usually have broad authority to reach an
agreement in the time allocated.
o Becomes cross-cultural when parties belong to different cultures and do not share the same values and
behaviors so some could be domestically but with different ethnic groups
o Chinese negotiators are not only well known for driving a hard bargain (particularly connected to
government or state firms) but are also known to use flattery, identify the opponent’s problems, deception,
shaming, and pitting competing foreign companies against one another
International managers can be successful if they focus on what they can and cannot offer.
They should seek to build credibility by dealing with them fairly, which can be built in
formal negotiating settings and between them.
Do not confront people, especially more senior people, in meetings about a mistake or
misjudgment he or she made have made when dealing with traditional and high power
distance societies like China, Japan, or Middle East because doing so will lead the person
to lose face. Take them aside and try to show concern by acknowledging they are there to
help.
o Cross-cultural differences: amount and type of preparation for a negotiation; relative emphasis on tasks vs.
interpersonal relationships; reliance on general principles rather than specific issues; number of people
present and the extent of their influence
5 stages of negotiation
o Preparation: plan how to approach the actual negotiation and try to learn as much as possible about
negotiating partners
o Relationship building: parties get to know one another
o Information exchange: each party states initial position followed by questions, answers, and discussion
o Persuasion: parties try to convince counterparts to accept their proposal
o Agreement: parties come to a mutually acceptable solution
Negotiation styles
o Factual appeals (North Americans): negotiations are businesslike and factual appeals based on what they
believe to be objective info presented with the assumption it is understood by the other side on a logical
basis
o Affective appeals (Arabs): emotions and subjective feelings; almost always reciprocate opponent’s
concessions
o Axiomatic appeals (Russians): appeals based on ideals generally accepted in their society; opponent’s
concessions viewed as weakness and rarely reciprocated
Language difficulty: UN secretary flew to Iran to deal with hostage crisis. He said, “I have come as a mediator to
work out a compromise.” In Persian language, compromise means surrendering one’s own principles and a mediator
refers to an unwanted intruder.
Situational Factors in CC Negotiations: geographical location (advantageous to conduct them in your home office);
room arrangements (shape of table and where the negotiators sit); selection of negotiators (number of people and
which ones represent a team often reflect culture); time limits (real or presumed deadline)
International HRM, expatriates, and global managers (Chapter 12 and related cases)
HRM is one of the most important for firms operating internationally: right people w/ right skills, turnover is
minimized for locals and expatriates
Importance of International HRM:
Expatriate: person from one country who is working and residing in another country; cost of hiring and placing
in a foreign location can be 50-200% of the expatriate’s salary so costs include not only finding the right person
but relocation costs for the person and their family along with training and other preparation costs
Maintaining an expatriate employee in the foreign location is also expensive for plane flights back home for
holidays, paying for private school for children, and trying to make their compensation trying to tax neutral:
ensure an expatriate does not pay so much taxes that they earn less money than back home; the US is one of the
only countries that charges taxes on income earned overseas
With many knowledge-based jobs like quality assurance, running a research center, or managing engineers, the
loss of an expatriate may even cause the facility to shut down until a replacement is found
Cost estimate of expatriate failure ranges from a half year’s salary to 2 years from the person who left
“Personnel” is often summarized by its basic functions of selection, training and development, appraisal and
compensation, and socialization
Choosing location: prevailing wage rates, benefits required by law (like in France where there is a 35 hour work
week and up to 9 hours overtime), availability of qualified employees, ease of dismissing employees (like in
Netherlands where pay unemployment benefits (70% of salary) for up to 2.5 years)
Recruitment:
Ethnocentric staffing approach: used at beginning of internationalization stage of strategic expansion; popular
with companies that have a centralized structure; staff generally come from company headquarters, otherwise
known as ; usually sent to set up a new plant or train new employees parent-country nationals (PCNs)
Polycentric staffing approach: often used with multinational strategy that emphasizes local responsiveness;
tends to hire locals, or host-country nationals (HCNs)
Global staffing approach: regardless of where they are located they will hire the best employees (Ex. may be
expanding into Africa, be headquartered in France, and choose best employee from Singapore) so are not
always employed by the host-country or parent-country so sometimes called ; third country nationals (TCNs)
others may call them transpatriates
Regiocentric staffing approach: hire for a specific region so can produce a mix of PCns, HCNs, and TCNs
Selection: interviews, observation, written tests
Interviews: candidates and their spouses by senior executives because family determines whether the employee
can do the job or will need to go home to make the family happy (unhappy family means the expatriate will
leave); however multiple individual interviews are often more useful because it can provide diversity of opinion
about the candidate and consensus about whether he/she should be hired and are commonly used for higher-
level and professional jobs including expat positions
o In China, many multinationals have found individual interviews are useful but need to employ
expatriate and local interviewers (expatriate ensures key selection criteria is paid attention to and has
the abilities/skills/training; local person ensures culture and customs are known)
Group interviews: typically there are multiple candidates and multiple interviewers at the same time; fairly
effective for certain jobs like customer service or factory/facility management; often used for filling midlevel
and lower-level positions
o Expatriate interacts with potential clients (real and role playing) and potential colleagues and emphasis
is on real situations and how they cooperate
o Also facilitates the observation method because interactions indicate how they might fit in and perform
Observation method: observing prospective employee interacting with colleagues, giving a presentation, or
actually performing a job; more common for research, engineering, professional organizations, governments,
and universities – Ex) Southwest Airlines: pilot w/ pilot applicants
o May be asked to present to a group that does not speak that same first language to see if they can
modify speaking style, if they speak slower, is patient, etc.
Written tests
o Structured Questionnaire Method: used by Arco (large oil and energy company) to test for management
and marketing savvy and temperament (happiness, anger, patience)
o IQ and integrity tests (often used together)
o Cultural toughness: assesses whether a candidate appears able to work in a specific country
o Cultural intelligence test (CQ): evaluates a person’s ability in a cross-cultural setting
o Written tests have their limitations, like that these tests are helpful in screening for candidates in North
America and Europe but not China; Western style tests do not have a good reputation in China (do not
use hypothetical situations that involve building an argument and supplying evidence nor lateral
thinking beyond the literal answer); difficult to draw conclusions based on problem-solving exercises
alone
Overview of Selection methods:
Best is when local culture is taken into account for
o Anglo-Saxon: how much the person can contribute to the tasks of the organization; assessment center
exercises, intelligence tests, and measurements of competencies
o Germanic: quality of education geared toward a particular job function
o Far Eastern cultures: how well a person fits in with the larger group, judged in part by the name of the
schools attended
o Latin cultures: emphasize personality, communication, and social skills more than intelligence or job
function
o Hong Kong and Taiwan: averse to questionnaires
o French are reluctant to give written references
o Situational and scenario tests used more in UK, Holland, and Germany than France and Belgium
o Multiple choice tests more common in France and Belgium than Northern European and Anglo countries
Firms should focus on learning specific things of the potential candidate
o Adaptability to different cultural settings (culture shock means they are being involved and not isolating
themselves, often a downturn in contentment the job and the location but much more satisfied after 2 years)
Determined by experience with other cultures, previous travel, other languages, recent
immigration background/heritage; ability to integrate with different people, culture, and business
organizations; sense developments in the host country and be able to assess them; solve problems
within different frameworks and perspectives; sensitivity to differences and nuances in culture,
politics, religion, and ethics; flexibility in managing operations despite lack and gap in info
Coping strategies like experience with adjusting to new situations, learning to interact with host-
country nationals outside of work, and feeling reasonably happy and enjoying day-to-day activities
Openness to experience and sociability are associated with adjustment
o Independence and self reliance: more responsibility and less resources
Indicators include prior experience working with customers in the field, special project or task force
experience, a hobby that requires a high degree of self-reliance, and a record of extracurricular
activities or athletics in school; physical and emotional health along with psychological health so they
can withstand culture shock
o Education, age, and experience
Education: almost all firms will build on formal education through their own training and development
– Ex. Germany’s Siemens corp trains based on types of problems they will experience on the job
Balance between age and experience – younger managers are more eager and more openness to new
experiences and cultures but also least developed in management experience and technical skills. Many
send young and seasoned professionals along with those with an academic degree as well as
international exposure.
o Foreign language training
o Motivation for a foreign posting
Must be engaged at work and believe in the significance of the job, will usually exhibit openness and a
pioneering spirit, desire to increase chances for promotion and desire to establish the firm in a foreign
location, often motivated by extrinsic motivators
Using Expatriates:
Advantages
o Familiar with company’s resources, processes and values along with policies, procedures, and company
culture and how to transfer them to new local hires
o Enables companies to maintain a “foreign image” in the host country which may enhance legitimacy which
can improve marketing and open doors – Ex. In China, the expatriate may be seen as having extra expertise
and a different background and experience, especially helpful in consulting; placement also demonstrates
firm’s commitment to international aspects
o Allegiance to the firm to provide credibility at headquarters when the expatriate conveys info, especially
that of adapting to the foreign market
Disadvantages
o Expensive: full compensation package may be from $300,000-$1 million a year; chance that they will quit
early; chance that if they do stay the whole time they do not perform up to expectations; may quit to join a
competitor; training is more expensive for small to medium sized (SMEs) companies; 20% expatriate
failure rate
o Expatriate and/or family may not be motivated to learn about the new culture and may not adapt well so
they may quit early; even when they are able to adapt there is a big learning curve; informal, tacit
knowledge cannot be taught
o Communication problems may lead to miscommunication
High on performance orientation: objective, direct, explicit info important and expected whereas
lower context cultures like China and Russia it may be misunderstood at least initially
Russia, low on performance orientation, prefers indirect approach
Low on production orientation like China prefer diplomatic approach and value relationships
Firms should help ease family’s transition
Utilizing Host Country Employees:
Advantages
o Can enhance a company’s image in the host country and give it additional bargaining power with the local
government; they also know the language and customs and have extensive tacit knowledge about how
things are done
o Already familiar with local language, culture, and customs so do not need expensive training in language
proficiency or acculturation; they know their way around; know the government, financial people, where to
buy things, who to call, and how to get things done; may be productive right away; do not need the time to
adapt; may need direct training – Ex. Walmart in China had them work with US managers who knew the
system (“selection stressing experience and professional upbringing) where the professional upbringing
suggests where the manager should be placed in the organization and what type of job he/she can best cover
o Tacit knowledge about idiosyncratic local commercial practices; understand the subtleties of the local
business situation, info that can help establish and maintain a good relationship with customers, clients,
government agencies, employees, and the general public
o Often less expensive than one from a home country or third-country national (like a Malaysian posted to
China from an American firm) especially in lower wage countries
o Having them in high management positions may enhance company’s reputation that has strong nationalistic
or populist movements because employees appreciate working for a boss with the same nationality and
appreciate opportunity for advancement with an organization that employs many local managers and
supervisors; international firms often recruit students from universities in their region as the intent is to hire
directly into the firm’s system – Ex. When Walmart moved into China they found they had a different view
of what retail sales and service meant so they started hiring out of China’s universities. They had some
unexpected difficulty early with employee behavior in that there was high employee pilferage and they took
naps (which was not uncommon). It now has a good reputation with the local governments and many
employees returned to their hometowns with their excellent training to start specialty retail chains
Disadvantages
o Difficult to find qualified people at the local level with the right skills, especially in less-developed
countries; there is especially a shortage of middle managers; also may be difficult to assess local people’s
ability because a degree or training program may not be equivalent in the local country and in an
internationally recognized institution
o Loyalty to their country or community may interfere with company policies (so in settings like Bolivia or
Venezuela where political leaders seek to limit profits of international firms it may be difficult to manage
locals and families often pressure them to cooperate with the political leaders) – Ex. A snack food company
hired a senior local sales manager who built up sales force with people who were loyal to him and not the
company; he was making side deals with distributors he knew to get kickbacks
o May not understand the international company’s culture and ways of doing things like the company’s
policies and culture, particularly informal decision-making networks. Attitudes towards minorities, women,
ethics, environment may be different. Attitudes toward bribery and taxes may be different. A local
manager’s talk may be consistent with the international firm but their actions may often reflect their local
cultural orientation or training.
Training:
Must be prepared to assimilate into many cultures and move globally
Language training is important, but the ability to live and work in another country (and culture) requires a
cultural flexibility that comes from studying other cultures
Corporation-run training program for the expatriate manager pool is important to prepare them to be in a
specific region and help build cultural flexibility – language, history, culture, technical shortcomings
For top managers, foreign-educated lawyers can help explain laws of the specific region
60% of international Japanese firms sponsored formal training programs for their expatriates – language
training, general training, field training, graduate programs in a foreign country, in-house training programs, and
external agents to help
o The American firms did not invest as much since employment tends to be short-term
Many expatriates (including many Americans) were successful in their international postings and returning back
home with their career path intact because of a more cosmopolitan outlook of the expatriate class in America
and other Western countries. Many learned 1-2 languages on their own study, worked/studied overseas,
sometimes multiple or long periods of time
Cultural briefings: major aspects of the host country culture including customs, traditions, every day behaviors
Area briefings: history, geography, economy, politics, and other general info about host country and region
Cases: real-life situation in business or personal life to illustrate some aspect of living or working
Role playing: allows trainee to act out a situation he/she might face living or working there
Culture assimilator: provides written set of situations trainee might encounter living or working there; trainee
selects one from a set of responses to the situation and is given feedback as to whether it is appropriate or not
Field experience: opportunity for trainee to go to the host country or another unfamiliar country to experience
living and working for a short time
Frustrations: China (eating duck or pigeon head); Brazil (home phones don’t work); India (pervasive poverty);
Indonesia (rent paid 2-3 years in advance); Japan (doctors reveal little)
View of “the third world”: Hans Rosling (gapminder.org)
Appraisal:
Performance appraisal: systematic and periodic review of employee performance, normally on an annual basis;
purpose is to build better-performing organizations and aid in the professional development of employees;
proper appraisal is important to motivating and compensating an employee while maintaining pay equity
Written essay where manager writes an essay about employee’s overall performance but does not have to justify
anything in it; another variation is using terms such as “above average,” “fair,” or “poor” on key performance
criteria which is useful because they can choose criteria they think would describe their performance fairly
which can highlight one key aspect that would have been missed by most other criteria but may not be reliable
so explanations can help employees eliminate mistakes and improve performance
Trait rating: list of personality traits and job attitudes are created (cooperation, motivation, flexibility, attitudes)
and the manager assigns a numerical or descriptive rating; assumes that one can define and rate traits
objectively and is often used with written feedback or if available, direct productivity measures – Ex. ABC
rating at Lincoln Electric and many banks in East Asia and more collective or less production oriented countries
like Mexico
o Critics argue that traits are too broadly defined (and the criteria for evaluating it), or the boss is too
open to favoritism (and has favorite traits in mind)
o 360 degree feedback: to combat this above; evaluations of an employee conducted by the supervisor,
subordinates, peers, and sometimes customers; adds a reliability check to see if the manager is pushing
them too hard
Critical incidence approach: focuses evaluator’s attention on tasks and behaviors key in making the difference
between executing a job effectively and ineffectively; first popularized in US and German militaries around
WWII – Ex. marketers can learn about past promotions in an emerging economy like China and therefore what
might work in India or Russia
o Now government organizations and those in the private sector use it by documenting on-the-job
behaviors, designating it as satisfactory or unsatisfactory, and comparing the frequency of both; degree
of objectivity varies depending on the appraiser and what they view as critical incidents; need to ensure
they have sufficient quantity and quality of observational opportunities
o Can be helpful in jobs that are hard to quantify, when the appraiser has worked in the job before and
understands what it takes to do well, and when critical incidents are well codified and employee
actions are debriefed and analyzed
Behaviorally anchored rating scales (BARS): uses the constituents of critical incidents along with graphic rating
scales; uses careful job analysis to determine behaviors required for a job; measures behavioral performance
rather than personality or attitudinal factors on a scale; for any job it requires identifying the complete range of
relevant job behaviors and designing appropriate performance dimensions; based on best and worst performers
o Can work well when a job’s tasks are well understood and performance can be measured in
quantitative terms
Management by objective (MBO): involves management and employees agreeing to key goals and ways they
can be reached; performance planning and performance appraisal; consistent with goal setting theory where
they are set at the beginning and appraised at the end; can be for a whole department, the whole company, or
individuals; can also incorporate other rating systems
o Can trigger employees’ unethical behavior by encouraging to meet goals in any manner; also thought
to encourage short-term overly narrow bottom-line mindsets, neglecting innovation and longer-term
thinking
Employee Differentiation (Forced Ranking):
By former CEO of GE where it forces rankings for employees in 3 categories based on what is generically
called a vitality curve (top 20%, middle/vital 70%, and bottom 10%) and supervisor provides a ranking
with a written evaluation
Proponents say that it is better than most qualitative systems where they do not receive honest feedback and
most employees get a good rating and even low performers get an okay one. They say that it can even
reduce lawsuits by getting rid of the bad ones after multiple performance ratings. Too often, poor
employees receive acceptable ratings until something major happens and they are fired without an
accompanying trail of poor evaluations.
Opponents say it hurts teamwork and innovation, adding that it is based too much on individual
performance and it is possible to build in teamwork and innovation ratings into the performance
evaluations. They say it wouldn’t work in egalitarian countries like Sweden or collectivist countries like
Japan. Welch responds by saying it helps mediocre employees perform better or move to areas that they can
do better and may prefer
Research shows it produces a short-term improvement in overall division and group performance that
quickly levels off (perhaps because worst performers are removed in a timely fashion). Welch says it has
helped GE with overall performance and management development but others complain about the
competition it creates among employees. Some say it injects fear into the workplace.
Southwest Airlines found it emphasized blame for mistakes for the bottom 10% and produced more
nonproductive competition. After the 10% are removed the average quality of employees will increase so it
will force good employees out.
Motorola, Microsoft, and many consulting, accounting, and law firms use a variation. Many say that it
won’t work in a society that is low on individuality (China), high on relational (Latin America), or
egalitarian (Sweden). Welch suggests trying it in a small part of the firm.
Firm must ask what the objective of the review is so managers know.
Deming suggests that reviews should be done regularly, not just once a year. For short-term reviews, verbal
feedback is sufficient while long-term reviews written feedback and grading schemes are helpful. They can
be graded on production, quality control, checks and balances like teamwork, attention to quality, coaching.
Regular pay can be based on productivity, individual work, or team work, but bonuses and other rewards
are often based on grading schemes.
Compensation:
Working hand in hand with appraisal system is the key HR function of compensation
Central part of compensation decision an international firm must make is whether to establish an overall policy
for all employees or to distinguish among third-country nationals – common to distinguish between expatriates
and locals so an expatriate may do a similar function but expatriate would be paid much more
Also common to distinguish between types of expatriates (like different policies on the basis of length of
assignment or type of function to be carried out); regardless, it is important for them not to suffer a loss nor
should demoralize foreign subsidiary’s staff (significant pay inequity can create bad feelings and undermine
morale)
Does not mean everyone should be paid the same. Even egalitarian countries expect some inequity. Optimal
amount is when top earner earns about 50x the lowest (regular) employee pay.
Sometimes argued that an aggressive pay-for-performance scheme will be rejected by highly collectivist
cultures like China and a number of books and articles warned years ago not to introduce “American systems”
into foreign cultures.
o However, it has been found that PPP with a heavy variable component were well received if
implemented carefully even if they were for individual-based incentive schemes.
o Piecework system like Lincoln Electric, variations have been accepted in China etc. Remember
that they initially used a traditional salary structure but allowed employees to start opting in to it.
As they saw them earn more money, more were joining. After only about 2 years they fully used
this new system. Social proof had a lot of bearing than did any cultural propensity toward an
egalitarian and relational workplace.
o Despite some cultural writers and anthropologists warning that they should only give group
incentives in China, individual piecework schemes have been widely and successfully
implemented.
o Theorizing has given way to solid empirical evidence and firms are introducing individual
incentives in jobs like light manufacturing, sales, and marketing.
o Group incentives may be better for airline crews (nature of job more important than local culture
and that people respond to incentives and positive feedback much in the same way around the
world even though the implementation may be different and more deliberate in countries less
accustomed to PPP and individual rewards).
For expatriates, compensation policy should be consistent and fair in its treatment of all categories for
employees. Policy must work to attract and retain employees in the areas where it has the greatest need. It
should be consistent with the overall strategy and structure of the org and serve to motivate employees and
provide incentives when needed.
Expatriates cost about 2-5 times as the home-country employees, even more in some lower-wage countries
Must know laws, customs, environment, employment practices, and fluctuations and inflation on compensation
to prevent failure of assignments. Within changing political, economic, and social conditions, establishing
policy also requires an understanding of why allowances are necessary.
Ex) Europe’s exec pay is lower than in the US so if they go there theirs will be higher. To avoid equity concerns,
sometimes a portion of their pay can be in the form of benefits like schooling, housing, home travel, etc. which
is acceptable by the local staff. Can be justified or framed better when saying they have to face higher expenses
and inequities on benefits might be more well received.
An assignment in a difficult environment (like Africa) would require greater compensation (25% hardship
allowance is common which the company would pay when they come back afterwards and would forfeit it if
they leave early)
Key aspects to developing compensation of an expatriate in a foreign environment
o Base salary: amount of money an expatriate normally receives in the home country (around $175,000
for upper-middle managers similar to managers in Japan and Germany)
Salaries are usually paid in home currency, local currency, or a combo of both
Base pay serves as benchmark which bonuses and benefits are calculated
Expats posted to countries with volatile currencies should ask company to be paid at least
partially in home currency and firms should respond
Conditions that force compensation policies to differ are inflation and cost of living, housing,
security, school costs, and taxation; often require a salary premium as an inducement to accept
the foreign assignment or endure hardships of a foreign transfer – Ex. In US when hardship
has been determined, refer to US State Department’s Hardship Post Differentials Guidelines
to determine appropriate level of premium compensation
If expats are paid more, locals might feel discouraged. Most companies will pay based on
what the local market will bear and what managers and professionals expect to be paid.
o Allowances and benefits: cost of living (differences in expenses between home and foreign country);
housing (maintain home country living standards); education (for children); relocation (moving,
shipping, storage, temporary living); benefits (1/3 of compensation for regular employees in the US
which could be similar or higher for expats but generally also includes extra vacation and special
leaves) so should provide similar level of medical and pension benefits
o Taxation: firm should pay income tax; could be double-taxed by home and foreign country (mitigated
by income exclusion of $80,000 in US and by the US having an agreement with some countries that
they only have to pay US taxes – Ex. Current maximum marginal tax rate for working in Hong Kong is
16% vs. 35% in the US so would pay 16% on $80,000 of income and then at the higher US rate above
that
5 most expensive cities: Tokyo, Japan; Oslo, Norway; Osaka, Japan; Paris, France; Zurich, Switzerland
Labor Relations:
Affects labor relations and cost of skilled labor
Union membership is in decline globally
Include industrial, craft, conglomerate, and general unions
Labor unions must be understood within their given contextual environment
China (iron rice bowl) – adopting new law to empower unions and protect workers’ rights and foreign
companies operating in China are protesting this move
Socialization (2 types):
Socialize local hires into the company culture (through careful selection and training)
Acculturation of the expat to the local environment – Ex. Vast majority (86%) of Japanese multinational firms
recalled 5% or less of their expats but only a quarter of US international firms recalled expats at that same low
rate while another quarter of firms had to recall expats a much higher rate; Japanese home country headquarters
provide more comprehensive training and employee support than many US firms as well as better guidance for
exptats who are already established in the region; US nationals traditionally have been less successful than the
nationals of Japanese in expat assignments but this is changing
Additional Challenges:
Physical environment: geographical distance (separation anxiety); food and weather; lack of basic services in
China
Social environment: language (like China and Japan that uses a pictograph language); many more speak English
but so not necessarily have to be fluent but should learn some of the local language and have interpreters loyal
to the company
Transition curve (time differs based on person and some never get through everything)
1. Unreality: feeling the relocation is a dream
2. Fantasia: feeling of enchantment in the new environment
3. Interest: deeper exploration of the environment and realization that it is fundamentally different from home
4. Acceptance of reality: “letting go” of past comfortable attitudes and realizing you are a stranger in a strange
land
5. Experimentation and testing of new approaches: practice phase – trying to do things differently; feedback
of results – success and failure
6. Search for meaning: understanding reasons for success and failure; new models/personal theories created
7. Integration of new skills and behavior: acceptance of new environment
Lack of Adequate Training:
Most firms that sponsor training programs use environmental briefing programs only (background on country,
climate culture, and other basic info) but should be accompanied by contact with individuals familiar with the
local environment, preferably with other expats
Adoption of more rigorous training programs could increase performance
Changing the behavior of experienced managers could be a problem for their training system
o Without a background in business or psychology such as more technical staff, they may not believe in
this training (training must be through specific cases and scenarios so not only tell but show)
o Many expats believe the way things are done in their home country is the way to do it and that HR
people and overseas staff do not know how to handle things properly. If an expat has been successful in
the past they may not want to be told advice and may be defensive. – China: do not like physical
contact and gestures like finger pointing or singling out can be seen as overly aggressive or even rude
o Workload in the midst of prepping the transfer may not give the expat sufficient time for this training
Communication challenges
o Communication and speaking style can be coached
o Removing slang is important when interviewing, especially if you will be speaking, presenting, or
training
o Getting your points across clearly and appropriately is a key part of the skill you develop as an expat
o Formal training exercise entails a trainer identifying slang and potentially unclear expressions
o Practice critical listening skills
Technical sophistication
Parent objectives and policies
o Expat must conduct the foreign operations within the constraints mandates by the central government
or local officials
o Key problem can occur when a firm centralizes decision making and gives little decision power to the
foreign subsidiary (especially in high power distance countries like India) because if the expat lacks
authority and does not take charge, their standing could suffer.
Family: many personnel administrators recognized the importance of family in successful performance but few
US MNCs actually took this into consideration and this problem has persisted; those that interviewed candidate
and spouses had significant lower incidents of failure; spouse who doesn’t like the country and demands to
leave is a common reason of failure
o 60% of expat spouses are employed before the assignment but only 21% during
o Spouse adjustment more likely when firm seeks spouse’s opinion and initiates pre-departure training
Reasons for poor expat retention: highly marketable; overseas compensation packages more generous than
those at home; expats feel unappreciated at home and on assignment
Other Sociocultural Issues in HRM:
Power distance, position of women, general climate.
Power distance can be a problem for Western expats working in high power distance countries like East
Asia, India, and the Middle East (people addressed more formally, titles important, organizational
hierarchy). To communicate with a colleague high in an org an expat may need to use an intermediary
which might make North Americans or Australians uncomfortable
Resistance to expat female managers especially in high masculinity countries like Korea, Japan, Latin
America, and much of the Middle East. Some locals worry they will have less influence on decisions at
headquarter. Important that the female expat has authority to make decisions and firm makes this clear. But
there is evidence that in masculine countries, foreign women are accepted into authority positions possibly
because they aren’t threatened since the local women aren’t leaving their homes. Rights of women are more
restricted in the Middle East and parts of Latin America or Africa may pose a real safety issue.
Strict Islamic countries may be a problem because TV, sports, and even entertainment magazines are less
likely to be available
Repatriation:
Often overlooked by the company and expat
May end up returning home to the same job with no promotion and feel the time on the assignment meant little
to his/her career
Return home to find that a former colleague got a good promotion or may even be their boss now
No longer in a central position at work, after getting used to giving orders and having quite a bit of help getting
things done at work or even at home – Ex) India the family may have been able to employ domestic help and
the employee provided with a driver. In China many international firms do not let them drive themselves
because of security issues on the road.
Family may feel out of place back at home especially if children spent several formal years in the foreign
country. Spouse may miss some of conveniences that were given to the expat employee.
Job change may be imminent because the experience acquired often makes them more marketable outside the
home corporation.
After a lengthy assignment, a home-country national needs up to 18 months to settle back into a job which is
why US firms are usually shortening assignments.
Headquarters should have a staff ready to assist any expat in reestablishing a living situation and residency back
in the home country. Counseling may be required.
To prepare expats to handle assignments and generally manage their HR more effectively in foreign locations,
they must think strategically about HR and implement tactics that can reduce expat failure and other HR
problems
Wolfgang Keller case: What are the differences between Keller’s and Brodsky’s leadership styles? What work and
life experiences have led them to develop such styles? What could Keller have done differently to coach Brodsky
(provide concrete examples)? How does this case relate to contingency leadership theories?
Keller:
34 years old
Helped turn a small subsidiary in an economic decline and began to have a reputation as a hands on
manager; he then left that company to become the managing director of the Konigsbrau subsidiary in
Ukraine
Friends joked that he was more of a Ukranian than German both in temperament and business style
Commercial strategy: high-margin, quality-service, heavy advertising and promotional strategy with deep
IT support; focus on identifying and cultivating ties with distributors and worrying less about trade
discounts
Attracted largely young managers
Impatient and action oriented and wanted to use hands-on approach
Brodsky:
44 years old
Was the commercial director of the Ukranian subsidiary of a large U.S. based toiletries firm. Before that he
worked in the U.S., Ukraine, and France.
Was hired because his experience and maturity would balance the young managers Keller attracted
Thorough in his work but seen as inable to react to problems quickly by Keller
Formal and distant management style
Keller thought that Brodsky’s use of administrative systems was in order to limit face-to-face contact
Wanted to keep personal life separate from professional life
Thought the head office should not interfere with the sales function
Reluctant to develop personal ties with customers
Analytical and deliberate and preferred to delegate (Brodsky felt Keller was intruding on the commercial
department’s activities)
Contingency theory: best leadership style – leader-member relationship (degree of confidence followers have in
leader, loyalty to leader, and leader’s appeal); task structure (degree to which task is routine in contrast to varied
tasks); power inherent in the leadership position (rewards and sanctions, leader’s formal authority on the managerial
hierarchy, and the support the leader receives from supervisors and the organization)
Seems that Keller uses coercive leadership style (highly structured and stressful and works poorly for an
experienced or professional workforce that knows their job well)
Continue to give challenging goals but help him along the way by showing how he would have done it (shadowing).
Move toward a high-LPC leader (relationship-oriented) since it is not too ambiguous, he knows what he’s doing, but
that there should be some flexibility for leader/follower. In coaching, should establish long-term development goals
for Brodsky for him as an individual and plan how to accomplish them.
Values in tension: Define ethical relativism and ethical absolutism, and be able to give examples. What
are the three principles for balancing the two extreme views? Problems caused by bribery.
Ethical relativism: no culture’s ethics are better than any other’s; therefore, there are no international rights and
wrongs
Ex) Late 1980’s some European tanneries and pharmaceutical companies wanted cheap waste-dumping sites. They
approached almost every company on Africa’s west coast. Nigeria agreed to take highly toxic polychlorinated
biphenyls. Unprotected local workers unloaded barrels of this and placed them in a residential area. The workers nor
the residents knew they contained toxic waste.
Ex) Group of investors wanted to restore the SS United States (once a luxurious ocean liner). Before the restoration
could begin, they had to strip the ship from asbestos. A bid from a U.S. company, based on U.S. standards, priced it
at more than $100 million. A company in Ukraine’s city of Sevastopol offered to do it for less than $2 million which
is the option they went with. A cultural relativist would have no problem with this outcome.
Ethical imperialism: directs people to do everywhere exactly as they do at home
Ex) A U.S. based computer company in 1993 introduced a course on sexual harassment to a Saudi Arabian facility.
They used the same instructors and the same approach for them as the U.S. that involved having participants discuss
a case where a manager makes sexually explicit remarks to a new female employee over drinks at a bar. But the
Saudis have strict conventions regarding relationships between men and women so they baffled and offended the
employees and the message was lost.
Balancing them:
Respect for core human values, which determine the absolute moral threshold for all business activities
Respect for local traditions
Belief that context matters when deciding what is right and wrong
IKEA’s Indian rugs and child labor: Explain the nature of two organizations: Rugmark and Save the Children.
Bonded versus unbounded child labor in India. How does the Indian government
approach this issue? Unintended consequences of complete withdrawal.
IKEA was dealing with whether to cut off one of the company’s major suppliers of Indian rugs. Despite
signing an addendum forbidding child labor, a German TV station broadcasted an investigative report
naming the supplier as using child labor in rug production.
Rugmark: A recently formed partnership of manufacturers, importers, retailers, and Indian NGOs was
proposing to issue and monitor the use of this lael to be put on carpets certifying they were made without
child labor
Swedish Save the Children organization who urged IKEA to ensure its response to the situation was “in the
best interest of the child” – whatever that may imply
Bonded child labor: children could be bonded (essentially placed in servitude) in order to pay off debts
incurred by their parents; the Indian government stated it was committed to abolishing this which had been
illegal since the Children (Pledging of Labour) act passed under British rule in 1933 but it still remained
widespread after this; passed the Bonded Labour System (Abolition) Act in 1976
Unbonded child labor: Indian government took less absolute stand on this and said it was “a socioeconomic
phenomenon arising out of poverty and the lack of development”; Child Labour (Prohibition and
Regulation) Act of 1986 prohibited the use of child labor (under 14) in “hazardous industries” and
regulated hours and working conditions but the government felt the majority of child labor involved those
working alongside and under supervision of parents; the law allowed specifically permitted children to
work in craft industries
About 10 years ago, I took on the task to teach global development to Swedish undergraduate students. That was
after having spent about 20 years together with African institutions studying hunger in Africa, so I was sort of
expected to know a little about the world. And I started in our medical university, Karolinska Institute, an
undergraduate course called Global Health. But when you get that opportunity, you get a little nervous. I thought,
these students coming to us actually have the highest grade you can get in Swedish college systems -- so I thought,
maybe they know everything I'm going to teach them about. So I did a pre-test when they came. And one of the
questions from which I learned a lot was this one: "Which country has the highest child mortality of these five
pairs?"
I put them together, so that in each pair of country, one has twice the child mortality of the other. And this means that
it's much bigger a difference than the uncertainty of the data. I won't put you at a test here, but it's Turkey, which is
highest there, Poland, Russia, Pakistan and South Africa. And these were the results of the Swedish students. I did it
so I got the confidence interval, which is pretty narrow, and I got happy, of course: a 1.8 right answer out of five
possible. That means that there was a place for a professor of international health and for my course.
But one late night, when I was compiling the report, I really realized my discovery. I have shown that Swedish top
students know statistically significantly less about the world than the chimpanzees. Because the chimpanzee would
score half right if I gave them two bananas with Sri Lanka and Turkey. They would be right half of the cases. But the
students are not there. The problem for me was not ignorance; it was preconceived ideas.
I did also an unethical study of the professors of the Karolinska Institute, that hands out the Nobel Prize in Medicine,
and they are on par with the chimpanzee there. This is where I realized that there was really a need to communicate,
because the data of what's happening in the world and the child health of every country is very well aware.
We did this software which displays it like this: every bubble here is a country. This country over here is China. This
is India. The size of the bubble is the population, and on this axis here, I put fertility rate. Because my students, what
they said when they looked upon the world, and I asked them, "What do you really think about the world?" Well, I
first discovered that the textbook was Tintin, mainly. And they said, "The world is still 'we' and 'them.' And 'we' is
Western world and 'them' is Third World." "And what do you mean with Western world?" I said. "Well, that's long
life and small family, and Third World is short life and large family."
So this is what I could display here. I put fertility rate here: number of children per woman: one, two, three, four, up
to about eight children per woman. We have very good data since 1962 -- 1960 about -- on the size of families in all
countries. The error margin is narrow. Here, I put life expectancy at birth, from 30 years in some countries up to
about 70 years. And 1962, there was really a group of countries here that was industrialized countries, and they had
small families and long lives. And these were the developing countries: they had large families and they had
relatively short lives. Now, what has happened since 1962? We want to see the change. Are the students right? Is it
still two types of countries? Or have these developing countries got smaller families and they live here? Or have
they got longer lives and live up there?
Let's see. We stopped the world then. This is all U.N. statistics that have been available. Here we go. Can you see
there? It's China there, moving against better health there, improving there. All the green Latin American countries
are moving towards smaller families. Your yellow ones here are the Arabic countries, and they get longer life, but
not larger families. The Africans are the green here. They still remain here. This is India; Indonesia is moving on
pretty fast. In the '80s here, you have Bangladesh still among the African countries. But now, Bangladesh -- it's a
miracle that happens in the '80s: the imams start to promote family planning. They move up into that corner. And in
the '90s, we have the terrible HIV epidemic that takes down the life expectancy of the African countries and all the
rest of them move up into the corner, where we have long lives and small family, and we have a completely new
world.
Let me make a comparison directly between the United States of America and Vietnam. 1964. America had small
families and long life; Vietnam had large families and short lives. And this is what happens: the data during the war
indicate that even with all the death, there was an improvement of life expectancy. By the end of the year, the family
planning started in Vietnam; they went for smaller families. And the United States up there is getting for longer life,
keeping family size. And in the '80s now, they give up Communist planning and they go for market economy, and it
moves faster even than social life. And today, we have in Vietnam the same life expectancy and the same family size
here in Vietnam, 2003, as in United States, 1974, by the end of the war. If we don't look in the data, I think we all
underestimate the tremendous change in Asia, which was in social change before we saw the economical change.
Let's move over to another way here in which we could display the distribution in the world of the income. This is
the world distribution of income of people. One dollar, 10 dollars or 100 dollars per day. There's no gap between rich
and poor any longer. This is a myth. There's a little hump here. But there are people all the way. And if we look
where the income ends up, this is 100 percent the world's annual income. And the richest 20 percent, they take out of
that about 74 percent. And the poorest 20 percent, they take about two percent. And this shows that the concept of
developing countries is extremely doubtful. We think about aid, like these people here giving aid to these people
here. But in the middle, we have most of the world population, and they have now 24 percent of the income.
We heard it in other forms. And who are these? Where are the different countries? I can show you Africa. This is
Africa. 10% the world population, most in poverty. This is OECD. The rich country. The country club of the U.N.
And they are over here on this side. Quite an overlap between Africa and OECD. And this is Latin America. It has
everything on this Earth, from the poorest to the richest in Latin America. And on top of that, we can put East
Europe, we can put East Asia, and we put South Asia.
And how did it look like if we go back in time, to about 1970? Then there was more of a hump. And we have most
who lived in absolute poverty were Asians. The problem in the world was the poverty in Asia. And if I now let the
world move forward, you will see that while population increases, there are hundreds of millions in Asia getting out
of poverty and some others getting into poverty, and this is the pattern we have today. And the best projection from
the World Bank is that this will happen, and we will not have a divided world. We'll have most people in the middle.
Of course it's a logarithmic scale here, but our concept of economy is growth with percent. We look upon it as a
possibility of percentile increase. If I change this, and take GDP per capita instead of family income, and I turn these
individual data into regional data of gross domestic product, and I take the regions down here, the size of the bubble
is still the population. And you have the OECD there, and you have sub-Saharan Africa there, and we take off the
Arab states there, coming both from Africa and from Asia, and we put them separately, and we can expand this axis,
and I can give it a new dimension here, by adding the social values there, child survival. Now I have money on that
axis, and I have the possibility of children to survive there. In some countries, 99.7% of children survive to five
years of age; others, only 70. And here, it seems, there is a gap between OECD, Latin America, East Europe, East
Asia, Arab states, South Asia and sub-Saharan Africa. The linearity is very strong between child survival and money.
But let me split sub-Saharan Africa. Health is there and better health is up there. I can go here and I can split sub-
Saharan Africa into its countries. And when it burst, the size of its country bubble is the size of the population. Sierra
Leone down there. Mauritius is up there. Mauritius was the first country to get away with trade barriers, and they
could sell their sugar -- they could sell their textiles -- on equal terms as the people in Europe and North America.
There's a huge difference between Africa. And Ghana is here in the middle. In Sierra Leone, humanitarian aid. Here
in Uganda, development aid. Here, time to invest; there, you can go for a holiday. It's a tremendous variation within
Africa which we rarely often make -- that it's equal everything. I can split South Asia here. India's the big bubble in
the middle. But a huge difference between Afghanistan and Sri Lanka. I can split Arab states. How are they? Same
climate, same culture, same religion -- huge difference. Even between neighbors. Yemen, civil war. United Arab
Emirates, money, which was quite equally and well used. Not as the myth is. And that includes all the children of the
foreign workers who are in the country.
Data is often better than you think. Many people say data is bad. There is an uncertainty margin, but we can see the
difference here: Cambodia, Singapore. The differences are much bigger than the weakness of the data. East Europe:
Soviet economy for a long time, but they come out after 10 years very, very differently. And there is Latin America.
Today, we don't have to go to Cuba to find a healthy country in Latin America. Chile will have a lower child
mortality than Cuba within some few years from now. Here, we have high-income countries in the OECD.
And we get the whole pattern here of the world, which is more or less like this. And if we look at it, how the world
looks, in 1960, it starts to move. This is Mao Tse-tung. He brought health to China. And then he died. And then
Deng Xiaoping came and brought money to China, and brought them into the mainstream again. And we have seen
how countries move in different directions like this, so it's sort of difficult to get an example country which shows
the pattern of the world.
But I would like to bring you back to about here, at 1960. I would like to compare South Korea, which is this one,
with Brazil, which is this one. The label went away for me here. And I would like to compare Uganda, which is
there. And I can run it forward, like this. And you can see how South Korea is making a very, very fast advancement,
whereas Brazil is much slower.
And if we move back again, here, and we put on trails on them, like this, you can see again that the speed of
development is very, very different, and the countries are moving more or less in the same rate as money and health,
but it seems you can move much faster if you are healthy first than if you are wealthy first. And to show that, you
can put on the way of United Arab Emirates. They came from here, a mineral country. They cached all the oil; they
got all the money; but health cannot be bought at the supermarket. You have to invest in health. You have to get kids
into schooling. You have to train health staff. You have to educate the population. And Sheikh Zayed did that in a
fairly good way. In spite of falling oil prices, he brought this country up here. So we've got a much more mainstream
appearance of the world, where all countries tend to use their money better than they used in the past.
Now, this is, more or less, if you look at the average data of the countries -- they are like this. Now that's dangerous,
to use average data, because there is such a lot of difference within countries. So if I go and look here, we can see
that Uganda today is where South Korea was in 1960. If I split Uganda, there's quite a difference within Uganda.
These are the quintiles of Uganda. The richest 20 percent of Ugandans are there. The poorest are down there. If I
split South Africa, it's like this. And if I go down and look at Niger, where there was such a terrible famine, lastly,
it's like this. The 20 percent poorest of Niger is out here, and the 20 percent richest of South Africa is there, and yet
we tend to discuss on what solutions there should be in Africa. Everything in this world exists in Africa. And you
can't discuss universal access to HIV [medicine] for that quintile up here with the same strategy as down here. The
improvement of the world must be highly contextualized, and it's not relevant to have it on regional level. We must
be much more detailed. We find that students get very excited when they can use this.
And even more, policy makers and the corporate sectors would like to see how the world is changing. Now, why
doesn't this take place? Why are we not using the data we have? We have data in the United Nations, in the national
statistical agencies and in universities and other non-governmental organizations. Because the data is hidden down
in the databases. And the public is there, and the Internet is there, but we have still not used it effectively.
All that information we saw changing in the world does not include publicly-funded statistics. There are some web
pages like this, you know, but they take some nourishment down from the databases, but people put prices on them,
stupid passwords and boring statistics. And this won't work.
So what is needed? We have the databases. It's not the new database you need. We have wonderful design tools, and
more and more are added up here. So we started a nonprofit venture which, linking data to design, we called
Gapminder, from the London Underground, where they warn you, "mind the gap." So we thought Gapminder was
appropriate. And we started to write software which could link the data like this. And it wasn't that difficult. It took
some person years, and we have produced animations. You can take a data set and put it there. We are liberating
U.N. data, some few U.N. organization.
Some countries accept that their databases can go out on the world, but what we really need is, of course, a search
function. A search function where we can copy the data up to a searchable format and get it out in the world. And
what do we hear when we go around? I've done anthropology on the main statistical units. Everyone says, "It's
impossible. This can't be done. Our information is so peculiar in detail, so that cannot be searched as others can be
searched. We cannot give the data free to the students, free to the entrepreneurs of the world."
But this is what we would like to see, isn't it? The publicly-funded data is down here. And we would like flowers to
grow out on the Net. And one of the crucial points is to make them searchable, and then people can use the different
design tool to animate it there. And I have pretty good news for you. I have good news that the present, new Head of
U.N. Statistics, he doesn't say it's impossible. He only says, "We can't do it."
And that's a quite clever guy, huh?
So we can see a lot happening in data in the coming years. We will be able to look at income distributions in
completely new ways. This is the income distribution of China, 1970. This is the income distribution of the United
States, 1970. Almost no overlap. And what has happened? What has happened is this: that China is growing, it's not
so equal any longer, and it's appearing here, overlooking the United States. Almost like a ghost, isn't it? It's pretty
scary.
But I think it's very important to have all this information. We need really to see it. And instead of looking at this, I
would like to end up by showing the Internet users per 1,000. In this software, we access about 500 variables from
all the countries quite easily. It takes some time to change for this, but on the axises, you can quite easily get any
variable you would like to have. And the thing would be to get up the databases free, to get them searchable, and
with a second click, to get them into the graphic formats, where you can instantly understand them. Now,
statisticians don't like it, because they say that this will not show the reality; we have to have statistical, analytical
methods. But this is hypothesis-generating.
I end now with the world. There, the Internet is coming. The number of Internet users are going up like this. This is
the GDP per capita. And it's a new technology coming in, but then amazingly, how well it fits to the economy of the
countries. That's why the $100 computer will be so important. But it's a nice tendency. It's as if the world is
flattening off, isn't it? These countries are lifting more than the economy and will be very interesting to follow this
over the year, as I would like you to be able to do with all the publicly funded data.
