Chapter 11 Cross-Cultural Management

1. Chapter 11 Cross-Cultural Management

2. The various dimensions of culture Behaviour Observable, Manifest E.g. Looking at your watch, banging on the table Values, Beliefs Preferences Explicit, Declared, Example: “Time is Money”, Authority has to prevail Basic Assumptions Meaning Invisible, unconscious, taken for granted Example: “Time is limited", "All men are equal" Source: André Laurent

3. The different sources of culture in business CORPORATECOMPANYCULTURE PROFESSIONALINDUSTRYCULTURE NATIONALETHNICCULTURE • History of the company • (accumulated experiences: • good and bad) • Leadership and dominant • coalition • Ownership • Stage of development • Business diversity • Functional orientation: • Marketing • Finance • Engineering • R and D • Industry norms: • Technology • Change • Key success factors • Types of customers • Country history • Education • Social organisation • Religion, philosophy

4. Anthropological and sociological cultural research relevant for business HALL and HALL’s STUDY: Silent Language TROMPENAARS’ STUDIES: Value Orientation HOFSTEDE’s STUDY: Four dimensions: Power distance/Individualism Uncertainty avoidance /Masculinity-feminity RONEN and SHENKAR’s STUDIES: Country Clusters REDDING and WITT Business system ANDRÉ LAURENT’s STUDIES: Management and organisational principles

5. Silent Language Delays Postponment E.g.: Arabic Circular Fluid Abundant Punctuality Deadline E.g.: German Perception of Time Sequential Scarce Physical contact showing emotion E.g.: Latin Avoid physical emotional proximity E.g.: British High Distance Low Distance Perception of Space Education family seniority gives status E.g.: Malaysia Language of Material Goods Financial wealth gives status E.g.: USA Materialistic Non-materialistic Operational factual relationship E.g: USA Long and deep Friendship Quick and superficial E.g.: Japan Agreement /Disagreement Asian countries Implicit Verbal Explicit Documented Western legailistic countries The content matters more than the person African,Asian Latin American countries The person matters more than the content Context Anglo-Saxon Germanic Nordic Source: Adapted from Hall(1960)

6. Hofstede: Mapping of cultures on power distance and individualism 100 Asian/Latin American Hierarchical/Collectivists 80 Latin European Hierarchical/Individualists 60 POWER DISTANCE 40 Anglo-Saxon/Scandinavian Eqalitarian/Individualists 20 0 0 20 40 60 80 100 INDIVIDUALISM Source adapted from :Hofstede, 1980

7. “It is important for a manager to have at hand precise answers to most of the questions that subordinates may raise about their work” Laurent’s studies on management values Percent agreement rate across countries André Laurent/INSEAD

8. The main reason for having a hierarchical structure is so that everybody knows who has authority over whom Laurent’s studies on management values Percent agreement rate across countries André Laurent/INSEAD

9. In order to have efficient work relationships, it is often necessary to bypass the hierarchical line.(Q. 2) Laurent’s studies on management values Percent disagreementrate across countries Source: Andre Laurent

10. Ronen and Shenkar Country Clusters Source: Ronen and Shenkar, 1985

11. Trompenaar’s Five Value Orientations VALUE ORIENTATION EXAMPLES 1 UNIVERSALISM : Rules - based behaviour Germanic countries vs. PARTICULARISM : Relationship - based behaviour Asian countries 2. INDIVIDUALISM : Individual's rights are supreme Western countries vs. COLLECTIVISM : Group's rights are supreme Asian countries 3. NEUTRAL : Emotions are subdued and expressed indirectly Asian countries vs. AFFECTIVE : Emotions are expressed freely and directly Western countries 4. DIFFUSE : Focus is on context of situation Asian countries vs. SPECIFIC : Focus is on specific issues Germanic countries 5. ACHIEVEMENT : Status and respect are achieved by 'doing' Western countries vs. ASCRIPTION : Status and respect are ascribed by 'being' Asia n countries

12. What is a business system? Modes of coordination and control of economic action, firms and management • Ownership: • Predominant form of ownership • Governance mechanisms • Span of sectors and integration of production chains • Networks: • How do firms connect to each others? • How do firms collaborate? • Management: • How are decisions made? • How much is delegated to employees? Sources: *Gordon, Redding, The Thick Description and Comparison of Societal Systems of Capitalism, Journal of International Business Studies, (2005) * Michael Witt and Gordon Redding, China's Business System and its Future Trajectory, Asia Pacific Journal of Management, January 2009 12

13. The architecture of a business system? BUSINESS SYTEM Ownership Networks Management BUSINESS ENVIRONMENT Capital Human Capital Social Capital Role of the State CULTURE Rationale Identity Authority Source: Redding and Witt 13

14. Businessenvironment The institutions and constraints that shape the conditions under which business operates: • Capital: • Financing of firms (Market, Banks, Informal) • Rules of capital allocation • Patience of capital • Human Capital: • Structure and Quality of Education • Employment policies • Presence and role of trade unions • Social capital: • Degree of trust in institutions and individual relationships • Role of the State • Interventionism and mechanisms of intervention Source: Redding and Witt 14

15. Culture Values and norms that form the base of society • Rationale: • Goal of business • Appropriate means to achieve goals • Identity : • Individualism vs Group • If group what is the reference group? (family, clans, company…) • Authority: • What determines hierarchy in society ? ( wealth, religion, cast…) Source: Redding and Witt 15

16. Differences in economic cultures Sources: Albert (1991); Berger and Dore (1996); Whitley (1999); Trompenaars (2000); Hampden-Turner and Redding (2001).

17. Differences in economic cultures Sources: Albert (1991); Berger and Dore (1996); Whitley (1999); Trompenaars (2000); Hampden-Turner and Redding (2001).

18. The impact of international cultural differences for management • INTERPERSONAL RELATIONSHIPS • - Communication • - Etiquette • - Decoding attitudes and behaviour • - Understanding “silent” language • HIERARCHICAL /MANAGERIAL INTERACTIONS • (Boss/Colleagues/Subordinates) • - Feedback • - Control • - Reward/Punishments • - Personal space • -Motivations • MULTICULTURAL TEAMS • - “Expatriates” vs. “Locals” • - Group building/working/relationships/ • - Conflict resolutions • PARNERSHIPS/TRANSACTIONS • - Contracts negotiations • -Joint ventures/Partnerships • - Official meetings • -Community events/Social events

19. Source: André Laurent/INSEAD

20. Major obstacles to performance in multi-cultural situations (1) • Discussion of differences perceived as uncomfortable, inappropriate, threatening or illegitimate. • Assumption of similarity/homogeneity. • Cultural diversity is denied, lost as a potential resource and transformed into a significant handicap. • Richness of diversity lost on the way. Source: André Laurent/INSEAD

21. Major obstacles to performance in multi-cultural situations (2) • The gap between pretended similarity and inner conviction of actual difference widens and creates uncomfortable situations. • Cautious behavior and unproductive costly politeness emerge as coping mechanisms to handle the situation. • This leads to low risk taking, avoidance of confrontation and achievement of the smallest common denominator. Source: André Laurent/INSEAD

22. Major obstacles to performance in multi-cultural situations (3) • Western individualism. • Fear of stereotyping • Parochial mindset (only one way of thinking/acting). • Ethnocentric mindset (the best way of thinking/acting). • Blindness to one’s own cultural conditioning. Source: André Laurent/INSEAD

23. Major obstacles to performance in multi-cultural situations(4) • Perception of the other culture as unfortunate deviation from the norm. • If diversity is neither recognized, understood, acknowledged nor discussable, how could it possibly be appreciated, valued and utilized? • Cultural diversity then re-enters as a handicap likely to lead to failure. Any synergy between cultures becomes inaccessible. Source: André Laurent/INSEAD

24. Negotiation Framework Opening offer SELLER • Given • Calculated Value • Constraints Uncertainty range Buyer’s Walk Away Price BUYER Bargaining Range • Given • Calculated Value • Constraints Sellers’s Walk Away price Uncertainty range Opening offer

25. Negotiation Process Preparation Negotiation Rounds Closing

26. Preparation • Constitution of negotiation team • Role assignment • Set your objectives: What exactly do you want to buy? • Set your constraints • Calculate: Buyer Seller • Valuation of: • Stand alone • Synergies • Walk Away price • List Seller’s Objectives/constraints • Internal/external • Hypothesis onSeller’s Walk Away price • Valuation of: • Stand alone • Hypothesis on synergies • Walk Away price • List Buyer‘s Objectives/constraints • Internal/external • Hypothesis onBuyer’s Walk Away price Determine bargaining range

27. Negotiation Team Business Development Executives Finances Legal Operational input Advisors

28. Negotiation Process First Offers Explain the logic of the offer First Round Recalculation and revision: Unofficial discussions In between: Counter offers Explain the logic of the offers Arguments Second Round In between Recalculation and revision: Unofficial discussions Third Round++ Reaching agreement Technicalities of the deal Legal procedure Signing agreement Closing

29. Negotiation Styles NegotiationAttributes Examples of cultures Examples of cultures Following this style Following this style Followingthis style US, UK, French US, UK, French Asian, Arabic Asian, Arabic Contract Contract Relationship Relationship GOAL GOAL US, German US, German Japanese Japanese Win Win - - Lose Lose Win Win - - Win Win ATTITUDE ATTITUDE Asian Asian US US Formal Formal Informal Informal STYLE STYLE Western Europe, Western Europe, Direct Direct Indirect Indirect COMMUNICATION COMMUNICATION Asian, Arabic Asian, Arabic North America North America Strict Strict Flexible Flexible US, Germany US, Germany Arabic, Chinese, Latin Arabic, Chinese, Latin TIME TIME Hidden Hidden Expressed Expressed Japan Japan Latin Latin EMOTIONS EMOTIONS Specific Specific General General FORM OF FORM OF US US Japanese Japanese AGREEMENT AGREEMENT FLOW PROCESS FLOW PROCESS Inductive Inductive Deductive Deductive French French Asian Asian One Leader One Leader Consensus Consensus TEAM TEAM Chinese Chinese Japanese Japanese ORGANISATION ORGANISATION Risk Taking Risk Taking Risk adverse Risk adverse US, French US, French Japanese Japanese RISK TAKING RISK TAKING Direct Direct Indirect Indirect US, German US, German Asian, Arabic Asian, Arabic INFLUENCING INFLUENCING Salacuse (2005) and Brett (2001)

30. Negotiation Styles: American vs Japanese Negotiation Parameters Typical American Typical Japanese Source : Sunshine, 1990

31. Negotiation Styles: American vs Japanese Negotiation Parameters Typical American Typical Japanese Source : Sunshine, 1990 Source : Sunshine, 1990

32. Chinese business negotiating style Source: Tony Fang, 1997

33. Differences in business practices: Examples

34. Differences in business practices: Examples