1- Various Economic risk (chapter 6)

International firms face a variety of economic risks Governments can impose restraints
on business activity to:

 National security,
 To protect an infant industry,
 To conserve scarce foreign exchange,
 To raise revenue,
 To retaliate against unfair trade practices.

 Exchange Controls

 Local Content Laws

 Import Restrictions

 Tax Controls

 Price Controls

 Labor Problems

 Exchange Controls This happens when there is a shortage of foreign exchange in the
country and the government restricts the spending in foreign currency. This may
result in the imposition of differential exchange rates for different products entering
the country

 Local Content Laws All countries and regions may have local content laws, for
example NAFTA has a 62.5% local content requirement for cars originating from the
NAFTA region, the EU has a 45% local content requirement so that it forces
companies to use local components.

 Import Restrictions selective restrictions on the import of raw materials& spare

parts are common strategies to force foreign industry to purchase more supplies
within the host country and thereby creates markets for local industries.

 Tax Controls Taxes that are imposed on foreign companies but not on domestic
companies and caused their products to be more expensive in the country because
it is passed on to the consumer. (India’s $40 Million tax on Sabre’s)

 Price Controls Countries can impose price controls on foreign companies selling
essential products such as food or gasoline, especially during inflationary periods.

 Labor Problems Unionism and labor laws are different in different countries and
there are especially strict rules for laying off employees by foreign companies.
China’s new labor laws have been refurbished and require foreign companies to
provide a lot more benefits as well as lifelong employment after a certain number of
years of service.
 2-Cultural Imperatives, Electives and Exclusives ( chapter 5)

a-Cultural imperatives:

Business customs and expectations that must be met, conformed, recognized and
accommodated if relationships are to be successful

 -Cultural imperatives are “must do” things in another culture, such as meeting and
greeting, exchange of business cards in Asian cultures (e.g.: China, Japan, and

 Korea).

Cultural imperatives Examples Include In Asia it is imperative to avoid causing your

counterpart to lose face

 Raising your voice or shouting at Chinese in public or to correct one in front of his
peers will cause that person to lose face.

 In china, the outsider is, at best, in fifth place in order of importance when
deciding with whom to conduct business.

 Prolonged eye contact is considered offensive in Japan however it is important to

make strong eye contact with Arabs and Latin America or you run the risk of being
seen as vague and untrustworthy.

b-Cultural electives:

Areas of behavior or customs that cultural aliens may wish to conform to or

participate in but that are not required

Are optional activities that a foreigner may or may not want to engage in, such as
drinking aperitifs (strong alcoholic drinks) before lunch in the Czech Republic or coffee
in Saudi Arabia, no offense is taken if one refuses to participate in these cultural
customs.

 Examples

 Eat food that disagree with digestive system

 Drink alcoholic beverages (personal or religious reasons)

 Greet another man with kiss (a custom in some countries)

 Symbolic attempt to participate in such options is not only acceptable but also
help establish rapport.

 Japanese don not expect you to bow but a symbolic bow indicates interest to
Japanese culture.
  Drinking half a bottle is a cultural elective, but taking a sip is more of an imperative
in this case.

 C -Cultural exclusives:

 customs or behavior patterns reserved exclusively for the locals and from
which the foreigner is barred and must not participate.

 Ex: foreigners criticizing or joking about a country’s politics even though

locals may, among themselves criticize such issue.

3-Individualism/Collective Index ( chapter 2)

(IDV), which focuses on self-orientation

1. The Individualism/Collective Index refers to the preference for behavior that

promotes one’s self-interest

2. High IDV cultures reflect an “I” mentality and tend to reward and accept individual
initiative

3. Low IDV cultures reflect a “we” mentality and generally subjugate the individual to
the group

4. Collectivism pertains to societies in which people from birth onward are integrated
into strong, cohesive groups

4- Confiscation- Expropriation- Domestication

Political Risks of Global Business ( chapter 6

• Confiscation

• The most severe political risk, is the seizing of a company’s assets without payment

• Expropriation

• Is where the government seizes an investment, but some reimbursement for

the assets is made; often the expropriated investment is nationalized to
become a government run entity

• Domestication

• Occurs when the government mandates local ownership and greater

national involvement in a foreign company’s management
 4- origin-elements- consequence of culture ( chapter 4)

Origins of Culture: A-Geography

 Geography, which includes climate, topography, flora, fauna, and microbiology,

influences our social institutions

 Philip Parker reports strong correlations between the latitude (climate) and the per
capita GDP of countries

 Geography includes more than just the weather and temperature, it is also what
kind of plants and animals can be raised in the region and that influences society and
consumption.

 Before the advent of transoceanic shipping, ideas flowed over the Silk Road but not
across the Sahara.

 There is strong correlation between latitude and GDP, for example the GDP of
Scandinavian countries are much higher than South American countries.

B- History

 The impact of specific events in history can be seen reflected in technology, social
institutions, cultural values, and even consumer behavior

 The military conflicts in the Middle East in 2003 bred new cola brands, Mecca Cola,
Muslim Up, and Arab Cola
 See the cola pictures, Turkey has their own cola called “Cola Turkey,” a coca cola
taste alike, but a local brand. Military conflicts in the Middle East bred these
brands, because of an anti U.S. attitude

C- The political Economic

 For most of the 20th Century three approaches to governance competed for world
dominance:

• Fascism (a government ruled by a dictator controls the lives of the people

and in which people are not allowed to disagree with the government)
Fascism fell in 1945

• Communism: the government owns the things that are used to make and
transport products (such as land, oil, factories, ships, etc.) and there is no
privately owned property, Communism crumbled in the 1990s

• Democracy/free enterprise

D- Technology

 Technological innovations influence cultural values

 Jet aircraft, air conditioning, televisions, computers, and the internet have all
influenced culture

 Every technological innovation has a profound impact on culture. For example, as

we have moved from VHS tapes to DVDs to BlueRay it has impacted our lifestyle,
taking up less space and providing more convenience.

 The internet has changed the way we communicate & has made the world a smaller
place.

 What technological innovation has had the greatest impact on cultural values in the
past 50 years in the USA?

The answer is: ??????????

 Freed women to have careers and freed men to spend more time with kids

 Men and women were described as reproductive responsibilities What

technological innovation has had the greatest impact on cultural values in the past
50 years in the USA?

The answer is: ??????????

 Freed women to have careers and freed men to spend more time with kids

Men and women were described as reproductive responsibilities

E- Social Institustion

1. Family behavior varies across the world, e.g., extended families living together to
Dad washing dishes
2. Religious value systems differ across the world, e.g., Muslims not allowed to eat
pork to Hindus not allowed to consume beef, CHANEL desecrated Quran &
AMAZON disgusting costumes

3. School and education, and literacy rates affect culture and economic
growth…marketer must depend on symbols and pictures

4. Media (magazines, TV, the Internet) influences culture and behavior

5. Government policies influence the thinking and behaviors citizens of adult citizens,
e.g., the French government offers new “birth bonuses” of $800 given to women as
an incentive to increase family size, $250 million spent to expand day care
facilities??

6. Corporations influence culture via the products they market, e.g., Burger king in
Japan

Elements of culture

1-Thought process

2- Beliefs
3- Ritual
4- Symbol
5- Cultural value
Cultural value

Hofstede, who studied over 90,000 people in 66 countries,

found that the cultures differed along four primary dimensions

Individualism/Collective Index

(IDV), which focuses on self-orientation

Power Distance Index

(PDI), which focuses on authority orientation

Uncertainty Avoidance Index

(UAI), which focuses on risk orientation

Masculinity/Femininity Index

(MAS),which focuses on assertiveness and achievement

Power distance index

1. Power Distance Index measures power inequality between superiors and

subordinates within a social system

2. Cultures with high PDI scores tend to be hierarchical and value power and social
status

3. High PDI cultures that those who hold power are entitled to privileges

4. Cultures with low PDI scores value equality and reflect egalitarian views
 The Uncertainty Avoidance

The Uncertainty Avoidance Index measures the tolerance of uncertainty and

vagueness among members of a society

High UAI cultures are highly intolerant of ambiguity, experience anxiety and stress,
accord a high level of authority to rules as a means of avoiding risk

Low UAI cultures are associated with a low level of anxiety and stress, a tolerance of
deviance and disagree, and a willingness to take risks

 Countries with high UAI distrust others and rely upon people with power for
information and rules and regulations to reduce risk.

 For example high UAI countries tend to have many forms to complete and additional
steps to conduct business.

Ritual & symbols

 Rituals are patterns of behavior and interaction that are learned and repeated vary
from country to country

• e.g., extended lunch hours in Spain and Greece

 Language as Symbols: the “languages” of time, space, things, friendships, and

agreements

Rituals are important in every culture, they coordinate everyday interactions and
special occasions, they let people know what to expect.

 In a nice restaurant in Madrid

 In a department store in US/Japan

Visiting a doctor in the US/Spain

 Wedding gowns are typically white in the West, but very colorful and bright in the
country of India where the groom arrives on a horse with an entourage

Symbols in a culture include language, both verbal and non-verbal and includes the
perception of time, space and relationships

 In Canada, language has been the focus of political disputes

 Differences in language vocabulary varies widely, even English in different countries

 Aesthetics as Symbols

• the arts, folklore, music, drama, and dance of a culture influences marketing

 In Canada, French versus English has been a point of contention between regions.
Aesthetics includes a country’s music, art, folklore and drama.

Beleifs

 Beliefs, which mainly stem from religious training, vary from culture to culture

• The western aversion to the number 13 or refusing to walk under a ladder

 In Asian countries such as Japan and China the number 4 represents death and it is
avoided at all costs, some building even skip the fourth floor and go from 3 to 5.

 Similar to the superstition about the number 13 in the West.

 Other examples of beliefs/superstitions are: not opening an umbrella in the house

(Western) or not passing salt directly to a person (Eastern).

Resistance of change

 Although some cultures embrace change others are resistant to it

• Working women in masculine societies like Saudi Arabia

• Lack of acceptance of GM foods (or “Franken food”) in Europe

 Typically everyone is resistant to change, some are more resistant than others. For
example, western companies have tried to change the habit of Indians of eating
warm breakfasts.

 However, in India, people still continue to do things like using warm milk in their
cereal to have a “warm” breakfast instead of having cold cereal.

6- The Impact of American Culture ( chapter5 )

Ways in which U.S. culture has influenced management style

include, but are not limited to, the following:

1- “ Master of destiny”

Simply stated, people can substantially influence the future;

they are in control of their own destinies.

Hard work, commitment to fulfill expectations, and effective

use of time give people control of their destinies.

2- Personnel selection and reward based on merit

Reward is based on merit and not group performance. (if one knows that promotions
are made on the basis of personal ties and friendship rather than on merit, a
fundamental motivating control is lost). In JAPAN person’s blood type can influence
hiring decision

3- Decisions based on objective analysis

(managers believe decisions must

be supported and based on accurate and relevant information).

Thus in US business, great

emphasis is based on the collection and free flow of info to all levels.

4- Wide sharing in decision making

In the states decisions are

decentralized, and the ability as well as the responsibility for making decisions is pushed
down to lower ranks of management, in many other cultures decisions are centralized,
in the Middle East…

5-Never-ending quest for improvement

Can it be done better?

Change is not only normal but also necessary

6-Competition yielding efficiency

Competition is a good thing because it promotes better individuals performance and,

consequently, better corporate performance

7- Differences in Management Styles Around the World (

chapter 5)

Authority and Decision Making

In high-PDI countries subordinates are not likely to contradict bosses, but in low-
PDI countries they often do

Three typical patterns exist:

top-level management decisions, (family ownership or government

owned)…smaller businesses, France as well

decentralized decisions, (when businesses grow)

committee or group decisions (mostly in Asia)

 Management Objectives and aspiration

• Security and Mobility

To some security means a big paycheck and the ability required for
moving from one company to another, for others it means security of
lifetime position with their companies, to others it means adequate
retirement plans and other welfare benefits.

• Personal Life

For many individuals, a good personal or family life takes priority over
profit, or any other goal.

Ancient Greece explicitly included

work as an undesirable factor that got in the way of the search for
pleasure or a good personal life.

Japanese American
 • Personal life is company life. • Flextime management.

• Work is the most important part of their lives. • Profit, achievement.

• European • American

• 4-6 weeks vacation. • 2 weeks paid vacation.

• Affiliation and Social Acceptance

Group identification is so strong in Asian , particularly in Japan. I

WORK FOR MITISUBISHI rather than I am an engineer.

• Power and Achievement

In south American countries, business leaders not only profit oriented

but also use their business positions to become social and political
leaders

Annual hour worked

In Exhibit 5.1: Americans appear to be in the middle of

hours worked, far above the northern Europeans and way
below the South Koreans.
 Differences in Communication Styles
• Face to Face Communication
 • Internet Communication
 The symbolic meanings of time, space, things, friendships, and agreements, vary
across cultures
 Differences in Communication Styles
 Hall places eleven cultures along a high-context/low-context continuum
 Communication in a high-context culture depends heavily on the contextual (who
says it, when it is said, how it is said) or nonverbal aspects of communication
 Communication in a low-context culture depends more on explicit, verbally
expressed communications
(German client in LA)
American, German, and Japanese
Formality and Tempo 
Level of formality in addressing business clients by first name Level of •
formality in addressing your boss by first name (after 10 Y in Germany, never
if at lower rank)
Tempo or speed in getting “down to business” •
(haste and impatience most
common mistakes of North American attempting to trade in
Middle east)
Perception of time varies in many cultures •
P-Time versus M-Time •
M-time, or monochronic time, typifies most North Americans, Swiss, •
Germans, and Scandinavians
Most low-context cultures operate on M-time concentrating on one thing at •
a time
P-Time versus M-Time •
P-time, or polychronic time, is more dominant in high-context cultures •
P-time is characterized by multi-tasking and by “a great involvement with •
people”
USA (Mono-chronic) Brazil (Poly-chronic)

Straight to the point Late arrivals

Public clocks available Public clocks less available

Always prompt Late arrivals

More likely to blame external

factors

Interruptions are routine

 Negotiations Emphasis

• The basic elements of business negotiations are the same in any country.
Differences with respect to the product, its price and terms, services
associated with the product, and finally, friendship between vendors and
customers

 Market Orientation

• American companies are embracing the market orientation philosophy

• Other countries are still in the traditional production, product and selling
orientations

8- Bribery ( chapter 5
Bribery is a problem when conducting business cross-
culturally. It is an illegal concept in the U.S &U.S.
subsidiaries aren't allowed to take bribes. The Foreign
Corrupt Practices of 1977 applies to all U.S. companies.
 In India…Rampant consumerism
 The government and the media control consumer behavior more than ever. Credit
cards have been readily available for years, and loans allow people to buy what they
cannot afford. Many people take on more debt than they can repay, causing
recession and depression.
 In some cultures…Rated R movies
 During 1997-1998 Currency speculation in southeast Asia
 Bribery
 Voluntarily offered payment by someone seeking unlawful advantage
 Extortion
Payments are extracted under force by someone in
authority from a person seeking only what they are lawfully
entitled
 Lubrication
• Involves a relatively small sum of cash, a gift, or a service given to a low-
ranking official in a country where such offerings are not prohibited by law
 Subornation
• Involves giving large sums of money designed to persuade an official to
commit an illegal act on behalf of the one offering the bribe; involves
breaking the law

9- Nationalisim( chapter 6)
 Nationalism refers to feelings of national pride& unity

Feelings of nationalism are manifested by:

Disaster (e.g. 9/11)

War

Recession

Call to “buy our country’s products only,” e.g., “Buy American”

Restrictions on imports, restrictive tariffs, and other barriers

to trade

The more country feels threatened by outside force or

domestic economy declines, the more nationalistic it becomes
in protecting itself against intrusions

 Nationalism is an awakening of a nation’s people to pride in their country. This

pride can take lead to anti foreign business attitude in the nation.

 Feelings of nationalism can be manifested in a variety of ways such as the reaction

of the American people and businesses towards Muslim nations following 9/11.

 War or recession can create feelings of nationalism as well. Other ways that
nationalism can manifest itself is in trade policies such as restrictions on imports
from certain countries.

 (imposition of tariffs on shrimp imports from Vietnam, Thailand and India in 2005
to protect the U.S. shrimp farmers in the Gulf region).

 Restrictive tariffs (such as the once France imposed on South American Bananas),
and other barriers such as specific product standards or health standards that only
the country’s industries are able to comply with.

10 –controllable (chapter 1)

 The various uncontrollable factors that companies have to encounter in

international markets in addition to all the uncontrollable factors they would
normally face in domestic markets.

 The uncontrollables in a foreign country could range from political or legal

regulations that are unique to a country, competition, structure of distribution, to
consumer tastes and socio-cultural differences that are new to the company.

Exhibit 1.3: The International Marketing Task illustrates the

environment in which a firm operates in global markets.