How do Cultural Differences affect

International Business?

THAPAR UNIVERSITY,
17 July 2019
How Do Cultural Differences Affect
International Business?

• Cross-cultural literacy - an understanding of how cultural differences

across and within nations can affect the way in which business is practiced
• cross-cultural literacy is important for business success

• A relationship may exist between culture and the costs of doing business in a
country or region
 What is Culture?
• Culture - a system of values and norms that are shared among a group of people and that
when taken together constitute a design for living
• values are abstract ideas about what a group believes to be good, right, and
desirable
• norms are the social rules and guidelines that prescribe appropriate behavior in
particular situations. Norms include
folkways - the routine conventions of everyday life
mores - norms that are seen as central to the functioning of a society and to its
social life
• Society - a group of people who share a common set of values and norms

• The relationship between a society and a nation state is not strictly one-to-one
• Nation-states are political creations . They can contain one or more cultures
• A culture can embrace several nations
What Determines Culture?

• The values and norms of a culture evolve over time

• Determinants include
• social structure
• Religion
• education
• Language
• political and economic philosophies
What is a Social Structure?
• Social structure - a society’s basic social organization

• Consider two constructs to explain differences between cultures:

• the degree to which the basic unit of social organization is the
individual, as opposed to the group
• the degree to which a society is stratified into classes or caste
stratification can be high with low mobility across strata
stratification could be low with high mobility across strata
 Social Structure : Individuals and Groups
• In Western societies, there is a focus on the individual
• individual achievement is common
• dynamism of the U.S. economy
• high level of innovation & entrepreneurship
But, creates a lack of company loyalty and failure to gain company-specific knowledge
• competition between individuals in a company instead of team building
• less ability to develop a strong network of contacts within a firm

• In many Asian societies, the group is the primary unit of social organization
• discourages job switching between firms
• encourages lifetime employment systems
• leads to cooperation in solving business problems
• But, might also suppress individual creativity and initiative
 Social Structure :Social Stratification
• All societies are stratified on a hierarchical basis into social categories, or social
strata.
• Must consider
1. mobility between strata
2. the significance placed on social strata in business contexts

1. Social mobility - the extent to which individuals can move out of the strata into which
they are born
• caste system and class system; Case of India, Great Britain, USA & China

2. The significance attached to social strata in business contacts

• class consciousness - a condition where people tend to perceive themselves in
terms of their class background, and this shapes their relationships with others
• an antagonistic relationship between management and labor raises the cost of
production in countries with significant class differences
 How Do Religious And
Ethical Systems Differ?
• Religion - a system of shared beliefs and rituals that are concerned with
the realm of the sacred

• Ethical systems - a set of moral principles, or values, that are used to

guide and shape behaviour

• Four religions dominate world society

1. Christianity
2. Islam
3. Hinduism
4. Buddhism
How Do Religious And Source: Student Atlas of world
geography by Allen, J.L. (2015)
Ethical Systems Differ?
World Religions

World Religions
Christianity
• Christianity
• the world’s largest religion
• found throughout Europe, the Americas, and other countries
settled by Europeans
• Three major Christian organizations-
• Roman Catholic Church
• Eastern Orthodox Church
• Protestant
• the Protestant work ethic (Max Weber, 1804)
• hard work, wealth creation, and frugality is the driving force
of capitalism
Islam
• Islam
• the world’s second largest religion dating to 610 AD
• there is only one true omnipotent God
• an all-embracing way of life that governs one's being
• teaches peace, justice, and tolerance
• worldly gains are an illusion
• people do not own property, but only act as stewards for God
• pro-free enterprises, supportive of business, but the way business is
practiced is prescribed
Hinduism
• Hinduism
• practiced primarily on the Indian subcontinent
• focuses on the importance of achieving spiritual growth and
development, which may require material and physical self-denial
• Hindus are valued by their spiritual rather than material
achievements
• promotion and adding new responsibilities may not be important, or
may be infeasible due to the employee's caste
Buddhism
• Buddhism
• has about 350 millions followers
• stresses spiritual growth and the afterlife, rather than achievement
while in this world
• does not emphasize wealth creation
• entrepreneurial behavior is not stressed
• does not support the caste system, individuals do have some mobility
and can work with individuals from different classes
Language & Culture
• Language - the spoken and unspoken (nonverbal communication such as
facial expressions, personal space, and hand gestures) means of
communication

• countries with more than one language often have more than one culture
Education & Culture
• Formal education is the medium through which individuals learn many of
the language, conceptual, and mathematical skills that are indispensable
in a modern society

• important in determining a nation’s competitive advantage

• Japan’s postwar success can be linked to its excellent education
system

• general education levels can be a good index for the kinds of

products that might sell in a country
Culture & Workplace
• Management processes and practices must be adapted to
culturally determined work-related values

• Geert Hofstede studied culture using data collected from 1967

to 1973 for 100,000 employees of IBM
• Hofstede identified four dimensions that summarized
different cultures
• Further, 2 more dimensions were added in 1991 & 2010
 Hofstede’s dimensions of culture..
• Power distance index (PDI): The Power Distance Index is defined as “the extent to
which the less powerful members of organizations and institutions (like the family)
accept and expect that power is distributed unequally.” In this dimension, inequality and
power is perceived from the followers, or the lower level. A higher degree of the Index
indicates that hierarchy is clearly established and executed in society, without doubt or
reason. A lower degree of the Index signifies that people question authority and attempt
to distribute power.

• Individualism vs. collectivism (IDV): This index explores the “degree to which people
in a society are integrated into groups.” Individualistic societies have loose ties that
often only relates an individual to his/her immediate family. They emphasize the “I”
versus the “we.” Its counterpart, collectivism, describes a society in which tightly-
integrated relationships tie extended families and others into in-groups. These in-
groups are laced with undoubted loyalty and support each other when a conflict arises
with another in-group.

THAPAR UNIVERSITY,
17 July 2019
 Hofstede’s dimensions of culture..
• Uncertainty avoidance index (UAI): The Uncertainty Avoidance Index is defined as “ a
society's tolerance for ambiguity,” in which people embrace or avert an event of
something unexpected, unknown, or away from the status quo. Societies that score a
high degree in this index opt for stiff codes of behavior, guidelines, laws, and generally
rely on absolute Truth, or the belief that one lone Truth dictates everything and people
know what it is. A lower degree in this index shows more acceptance of differing
thoughts/ideas. Society tends to impose fewer regulations, ambiguity is more
accustomed to, and the environment is more free-flowing.

• Masculinity vs. femininity (MAS): In this dimension, masculinity is defined as “a

preference in society for achievement, heroism, assertiveness and material rewards for
success.” Femininity represents “a preference for cooperation, modesty, caring for the
weak and quality of life.

THAPAR UNIVERSITY,
17 July 2019
 Hofstede’s dimensions of culture..
• Long-term orientation vs. short-term orientation (LTO): This dimension associates
the connection of the past with the current and future actions/challenges. A lower degree
of this index (short-term) indicates that traditions are honoured and kept, while
steadfastness is valued. Societies with a high degree in this index (long-term) views
adaptation and circumstantial, pragmatic problem-solving as a necessity. A poor country
that is short-term oriented usually has little to no economic development, while long-term
oriented countries continue to develop to a point.

• Indulgence vs. restraint (IND): This dimension is essentially a measure of happiness;

whether or not simple joys are fulfilled. Indulgence is defined as “a society that allows
relatively free gratification of basic and natural human desires related to enjoying life and
having fun.” Restraint is defined as “a society that controls gratification of needs and
regulates it by means of strict social norms.” Indulgent societies believe themselves to be
in control of their own life and emotions; restrained societies believe other factors dictate
their life and emotions.

THAPAR UNIVERSITY,
17 July 2019
How Does Culture
Impact The Workplace?
Work-Related Values for 20 Countries
• Power distance scores are high for Latin, Asian and African countries and smaller for Anglo
and Germanic countries.
• Uncertainty avoidance scores are higher in Latin countries, in Japan, and in German
speaking countries, lower in Anglo, Nordic, and Chinese culture countries.
• Individualism prevails in developed and Western countries, while collectivism prevails in less
developed and Eastern countries; Japan takes a middle position on this dimension.
• Masculinity is high in Japan, in some European countries like Germany, Austria and
Switzerland, and moderately high in Anglo countries; it is low in Nordic countries and in the
Netherlands and moderately low in some Latin and Asian countries like France, Spain and
Thailand.
• Long-term orientation scores are highest in East Asia, moderate in Eastern and Western
Europe, and low in the Anglo world, the Muslim world, Latin America and Africa.
• Indulgence scores are highest in Latin America, parts of Africa, the Anglo world and Nordic
Europe; restraint is mostly found in East Asia, Eastern Europe and the Muslim world.

THAPAR UNIVERSITY,
17 July 2019
Was Hofstede Right?
• Hofstede’s work has been criticized for several reasons
• made the assumption there is a one-to-one relationship between
culture and the nation-state
• study may have been culturally bound
• used IBM as sole source of information
• culture is not static – it evolves

• But, it is a starting point for understanding how cultures differ, and the
implications of those differences for managers
What Do Cultural Differences
Mean For Managers?
1. Cross-cultural literacy
2. Ethnocentrism
3. National competitive advantage
4. Ethics & religious considerations