International Business

Oded Shenkar and Yadong Luo

Chapter 6

The Cultural Environment

Chapter 6: The Cultural Environment

 Do You Know?
• In what ways do cultural differences,
language and religion influence international
investment and trade?
• How does corporate culture interact with local
and national culture?
• Is corporate culture primarily homogeneous
throughout an MNE?
• What are the major models for comparison of
different cultures?
• Is it possible to fully define and measure
culture?

Chapter 6: The Cultural Environment

 What is Culture

• “The knowledge, beliefs, art law,

morals, customs and other capabilities
of one group distinguishing it from other
groups.”
• Main features of culture:
– Culture is shared
– Culture is intangible
– Culture is confirmed by others

Chapter 6: The Cultural Environment

 Culture and International Business

• Culture is very important to the practice of

international business.
– Impacts the way strategic moves are presented.
– Influences decisions.
– The lens through which motivation occurs.
• Management, decision making, and
negotiations are all influenced through
culture.
• Culture influences nearly all business
functions from accounting to finance to
production to service.
Chapter 6: The Cultural Environment
 Culture and International Business

• Culture is a key ingredient in the

“liability of foreign-ness” described
earlier in the Multinational Enterprise
chapter.
• Culture is what makes international
business practice difficult or easy,
depending on how similar or different
cultures are.
• Culture is both divisive and unifying.

Chapter 6: The Cultural Environment

 Culture Does Not Explain Everything

• While culture is very important to our

understanding of international business,
it does not explain everything that is
different from one place to another.
– Corporate strategy, structure, rivalry,
governmental policy, and economics
• Culture is not a residual variable; it is
useful to know that it is not a primary
variable either. It is one of many.

Chapter 6: The Cultural Environment

 Culture Does Not Explain Everything
Exhibit 6-1: Research design for the isolation of
culture

Chapter 6: The Cultural Environment

 Correlates of Culture

• Culture is correlated with other variables that

vary cross-nationally, like language and
religion.
• It is useful to remember that culture often cuts
across religious, linguistic, and national
borders.
• Religious, linguistic and national boundaries
also often cut across cultures.

Chapter 6: The Cultural Environment

 Language
• Language is the means by which we
communicate verbally.
• We use it for socialization and for
communicating how values and norms are
expressed and understood.
• There are approximately 20 different
language families that cut across national
borders.
• Not only are words different, but also syntax
and usages are also quite different between
language families.

Chapter 6: The Cultural Environment

 Language

• The artifacts that surround language:

– Linguistics – or the meanings of words
– Proxemics – or the distance that speakers stand
from one another
– Pragmatics – the cultural interpretations of words,
gestures, and nonverbals
– Nonverbals – The gestures and body language
that accompanies spoken words
• English has become the business world’s
lingua franca, and the number one foreign
language taught in other countries

Chapter 6: The Cultural Environment

 Language

Chapter 6: The Cultural Environment

 Language

Chapter 6: The Cultural Environment

 Language

Exhibit 6-3:
Numbers of
speakers of
major
languages of
the world
(estimated)

Chapter 6: The Cultural Environment

 Religion

• Religion contains key values and norms

that are reflected in adherents’ way of
life.
• People try to adopt business practices
that will satisfy religious tenets without
sacrificing modern practices in
business.

Chapter 6: The Cultural Environment

 Religion

Chapter 6: The Cultural Environment

 Religion

Chapter 6: The Cultural Environment

 Religion
Exhibit 6-5: Adherents to major world religions, by
geographic region, 1996 (in millions)

Chapter 6: The Cultural Environment

 National Culture Classifications

• Culture and Nation are not synonymous.

• National and cultural boundaries overlap
partially, and there will be cultural differences
in almost all nations.
• To make things simpler, however, scholars
have created cultural typologies that try to
describe cultural differences and ascribe
them to national boundaries.

Chapter 6: The Cultural Environment

 Hofstede’s Dimensions of Culture
• Geert Hofstede’s cultural typology is the most
often used.
• It is based upon a study of 100,000 IBM
employees who work in IBM divisions
throughout the world.
• Hofstede’s survey revealed four underlying
dimensions of culture:
– Power Distance
– Uncertainty Avoidance
– Individualism/Collectivism
– Masculinity/Femininity
– Long-Term Orientation
Chapter 6: The Cultural Environment
 Power Distance (PD)

• Power Distance is the extent to which

hierarchical differences are accepted in
society and articulated in term of deference to
higher and lower social and decision levels in
organization.
• Artifacts of high PD:
– Centralization
– # Org. Levels- Height
– # Supervisors
– Wage Differentials
– Values, White & Blue Collar Work
Chapter 6: The Cultural Environment
 Power Distance (PD)
Exhibit 6-6: Power distance: country examples and
organizational implications

Chapter 6: The Cultural Environment

 Power Distance (PD)

Exhibit 6-7: Rank distinctions among the

Japanese

Chapter 6: The Cultural Environment

 Uncertainty Avoidance (UA)

• Uncertainty Avoidance is the extent to

which uncertainty and ambiguity are
tolerated.
• Artifacts of high UA:
– Standardization
– Structured activities
– Written rules
– Specialists
– No risk tolerance
– Ritualistic behavior

Chapter 6: The Cultural Environment

 Uncertainty Avoidance (UA)

Exhibit 6-8: Uncertainty avoidance: country

examples and organizational implications

Chapter 6: The Cultural Environment

 Individualism/Collectivism (I/C)

• I/C is the extent to which the self or the

group constitutes the center point of
identification for the individual.
• Individual self interest is pursued
individually, or as a part of a group.
• Artifacts of I/C
– Firm as “family”
– Utilitarian decision making
– Group performance

Chapter 6: The Cultural Environment

 Individualism/Collectivism (I/C)

Exhibit 6-9: Individualism/collectivism: country

examples and organizational implications

Chapter 6: The Cultural Environment

 Masculinity-Femininity (M/F)

• Refers to the extent to which traditional

masculine values, like aggressiveness
and assertiveness, are valued.
• Artifacts of M/F
– Sex Roles Minimized
– More Women In Jobs
– Interpersonal Skills Rewarded
– Intuitive Skills Rewarded
– Social Rewards Valued

Chapter 6: The Cultural Environment

 Masculinity-Femininity (M/F)

Exhibit 6-10: Masculinity/femininity: country

examples and organizational implications

Chapter 6: The Cultural Environment

 Long-Term Orientation (LTO)

• Originally called Confucian Dynamism

because of anchoring in the Confucian
value system.
• Represents such values as thrift,
persistence, and traditional respect of
social obligations.
• Organizations likely to adopt longer
planning horizon, with individuals ready
to delay gratification.

Chapter 6: The Cultural Environment

 Long-Term Orientation (LTO)
Exhibit 6-11:
Country scores
on Confucian
dynamism
(long-term
orientation)

Chapter 6: The Cultural Environment

 Criticism of Hofstede

Hofstede has been subject to broad criticism.

Among the criticisms:
• Single company’s data, with a large
Multinational Enterprise having a strong
corporate culture.
• Time dependent results, which are an artifact
of the time of data collection and analysis.
• Business culture, not values culture,
representing a reflection of business culture
at IBM and not national culture of the
countries IBM operates within.
Chapter 6: The Cultural Environment
 Criticism of Hofstede
• Non-exhaustive, doesn’t identify all the
cultural dimensions possible, but just a few.
• Partial geographic coverages, cover only a
portion of the world’s cultures and countries.
• Western bias, which values western business
ideals.
• Attitudinal rather than behavioral measures,
with no connection between employee
attitudes and employee behaviors.
• Ecological fallacy, national level data
generalized into individual behavior.

Chapter 6: The Cultural Environment

 Schwartz’s Classification
• Three polar dimensions of culture:
– Embeddedness versus Autonomy
• Embeddedness – emphasis on social relationships and
tradition
• Autonomy – finding meaning in one’s own uniqueness
– Hierarchy versus Egalitarianism
• Hierarchy – legitimacy of hierarchical role and resource
allocation
• Egalitarianism – transcendence of self-interests and
promoting others’ welfare
– Mastery versus Harmony
• Mastery – mastering the social environment via self-
assertion
• Harmony – being “at peace” with nature and society

Chapter 6: The Cultural Environment

 Schwartz’s Classification

Exhibit 6-13: Sample country rankings on

Schwartz’s dimensions

Chapter 6: The Cultural Environment

 Trompenaars and Hampden-Turner’s
Classification
• Consists of seven dimensions:
1. Universalism versus particularism – rules
versus relationships
2. Communitarianism versus individualism –
the group versus the individual
3. Neutral versus emotional
4. Diffuse versus specific
5. Achievement versus ascription
6. Attitudes to time
7. Attitudes toward the environment
Chapter 6: The Cultural Environment
 National Cultural Clustering

• The grouping of cultures based on their

relative similarity.
– Ronen and Shenkar
• A synthesis of eight earlier studies
• Eight clusters: Near Eastern, Nordic, Germanic, Anglo,
Latin European, Latin American, Far Eastern, and Arab,
as well as Independent
– Huntington
• Based on historical and political observations
• Distinguishes seven civilizations: Sinic, Japanese,
Hindu, Islamic, Western, Latin American, and African

Chapter 6: The Cultural Environment

 National Cultural Clustering

Exhibit 6-14:
Ronen and
Shenkar’s
culture
clustering

Chapter 6: The Cultural Environment

 National Cultural Clustering
Exhibit 6-15:
Huntington’s
civilization
clustering

Chapter 6: The Cultural Environment

 Corporate Culture

• Corporate Culture is the culture adopted,

developed and disseminated in an
organization.
• Corporate culture can deviate from national
norms, but that depends upon the strength of
culture and the values and practices tied to it.

Chapter 6: The Cultural Environment

 Classifications of Corporate Culture

• Hofstede et al:
– Value dimensions (factors)
• Need for security
• Work centrality
• Need for authority
– Practices
• Process-oriented vs. results-oriented
• Employee-oriented vs. job-oriented
• Parochial vs. professional
• Open system vs. closed system
• Loose control vs. tight control
• Normative vs. pragmatic

Chapter 6: The Cultural Environment

 Classifications of Corporate Culture

• Trompenaars and Hampden-Turner

– The Family – personal, hierarchical,
power-oriented
– The Eiffel Tower – specific relations,
ascribed status, rational authority
– The Guided Missile – egalitarian,
impersonal, and task oriented
– The Incubator – individual self-fulfillment,
personal and egalitarian relations

Chapter 6: The Cultural Environment

 Other Layers of Culture

• Ethnicity – significant ethnic

communities exist in many countries;
likely to affect a myriad of issues
• Industry – important layer of culture
• Demographics – education, age,
seniority and hierarchical level affect
difference in values
• Ideology – not always consistent with
cultures and can vary along time and
across regions
Chapter 6: The Cultural Environment
 Key Cultural Issues

• Cultural Etiquette – the manners and

behavior that are expected in a given
situation
• Cultural Stereotypes – our beliefs about
others, their attitudes and behavior
– Ethnocentric – looking at the world from a
perspective shaped by our own culture
– Auto-stereotypes – how we see ourselves as a
group distinguished from others
– Hetero-stereotypes – how we are seen by others.

Chapter 6: The Cultural Environment

 Key Cultural Issues

Exhibit 6-
19:
Americans
from A to Z

Chapter 6: The Cultural Environment

 Key Cultural Issues

• Cultural Distance
– The extent to which cultures differ from each other
– Hofstede stated that uncertainty avoidance was
the most important dimension of FDI
• Convergence and Divergence
– Convergence hypothesis – assumes that the
combination of technology and economics is
making countries more alike
– Divergence hypothesis – assumes that counties
will continue to maintain their distinctive
characteristics

Chapter 6: The Cultural Environment