Understanding Cultural Dimensions in Global Business Interactions

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

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

3. Symbols Art, musicPlaces, buildings Cross cultural considerations for business with the Arabs Moral codes Religion Values and assumptions Outwardexpressions Valuesand beliefs Culture Commu-nication Norms ofbehavior Why Culture Matters U.S. expert Gary Weaver discusses the reasons Americans do what they do. Language Nonverbal communication Social interactions Roles within families Dress codes India's Unique Multiculturalism – Shashi Tharoor • Each culture is uniquely defined • in terms of • values and beliefs, • communication, • behavior and • outward expression.

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

5. Other 3% Indigenous 6% Buddhism 6% Chinese traditional 6% Christianity 33% Hinduism 14% Nonreligious 16% Islam 21% • Religion can be a powerful cultural force in societies of all levels of economic development. • The major religions are: Christianity, Islam, Hinduism and Buddhism. • Many religions, including Christianity and Islam, have splitinto different sectsthat are tend to be divided along thetraditional vs. reformist lines. World religions, as percentages of 2005 world population. Source: World religions data, http://www.adherents.com

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

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

8. Value orientation theory – basic values of a group include normative, aesthetic and relational elements, reflecting the common problems which all human groups face. • Hofstede’s theory of cultural dimensions is based on research on national cultures. • Trompenaars’ theory of relational dimen-sions covers: • Relationships with people • Attitudes to time • Attitudes to the environment. • Understanding cultural patterns aids managers in diverse cultural environments. Collectivism versus Individualism; Femininityversus Masculinity; Uncertainty Avoidance;Low versus High Context Cultures; Polychronicversus Monochronic Time Orientation Large Malaysia, Mexico SmallNew Zealand, Denmark High Greece, Japan LowBritain, Sweden Culturaldimensions Uncer-taintyavoidance Powerdistance Masculine Japan, Germany FeminineNetherlands, Norway Mascu-linity Individualist USA, UK, Australia CollectivistVenezuela, Indoneia Indivi-dualism Timeorientation Long term: Eastern cultures Short term: Western cultures Hofstede’s cultural Dimensions

9. Hofstede’s* cross-national data show a marked correlation between small power distance and individualism. Collectivism Pakistan Columbia Venezuela Peru Taiwan Singapore Chile Thailand Yugoslavia Portugal Hongkong Greece Mexico Turkey Philippines Brazil Iran Argentina India Japan SmallPower-Distance LargePower-Distance Israel Austria Finland Spain Norway Germany South Africa Ireland Switzer- land France Den- mark Sweden Canada Belgium Italy New Zealand Nether- lands USA UK Australia Individualism Geert Hofs-tede™ Cultural Dimensions * Geert Hofstede, Culture’s Consequences: International Differences in Work Related Values(Sage, 1980)

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

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

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

13. The United Nations’ Trans-nationality index is computed as the average of foreign to total ratios of assets, sales and employment. Trans-nationality Ranking Trans-nationality Index (%) = { Foreign Assets Total Assets Foreign Sales Total Sales Foreign Employment Total Employment } + + Industry Home Economy 1 2 3 4 5 6 7 8 9 10 64 70 79 85 96 Thomson Corp. Liberty Global Roche Group WPP Group Phillips Electr. Nestlé Cadbury Schweppes Vodafone Lafarge SABMiller Toyota General Electric Ford General Motors Wal-Mart Company Canada USA Switz.UK Nether. Switz.UKUKFranceUKJapanUSA USAUSAUSA Media Telecomm. Pharma. Bus Ser Electricals/Electronics Food & Bev. Food & Bev. Telecomm. Mineral Prod. ConsumerGoods/Brew. Motor veh. Electricals/ElectronicsMotor veh.Motor veh.Retailing 97.2 96.5 90.5 87.8 87.4 86.8 86.7 82.4 81.9 81.1 51.6 50.1 47.6 42.9 25.0 Source: UN (2007) World Investment Report 2007 (Geneva: UN) Selected others:

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

15. Urban popu- lation is pro-jected to grow rapidly in the less deve-loped countries while ruralpopulation is projected to decline in the more developed countries. Urban population Less Developed Countries Rural population More Developed Countries

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

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

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

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

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

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

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

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

24. What difficulties has Citigroup faced in building market share in South Korea? • What issues within the two organizations have held up the integration process? • In your view, what mistakes has Citigroup made in integrating the two organizations? • What recommendations would you give to Citigroup for any future acquisition in Asia? Case study 4.1: Testing times for Citigroup in South Korea

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

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

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

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

29. Summarize the grievances of Mexico’s indigenous peoples against the Mexican authorities. • Why has Mexico made so little progress in creating jobs and prosperity, despite benefiting from globalization? • Is Mexico on the way to achieving social stability through recognition of cultural diversity, or creating potentially divisive forces, as in the past? • Assess the advantages and drawbacks of Mexico as a location for an FDI investor. Country Focus 4.2 Mexico struggles to heal divided society

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

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