Cross Cultural Management

Cross Cultural Management

Chapter 1

What is Globalization - Global Competition characterized by networks of international linkages that bind countries, institutions, and people in an interdependent global economy.

Five Key Global Trends -

1. Changing balance of growth towards emerging markets
2. Need for increased productivity and consumption in developed countries
3. Increasing global Interconnectivity
4. Increasing gap between supply and demand of natural resources
5. Challenge for governments to develop policies for economic growth and financial stability

Globalization 3 pillars -

1. Political
2. Social
3. Economic
   1. Investment
      1. FDI (Control)
      2. Portfolio
   2. Trade
      1. Exports
      2. Imports

The main types of FDI -

1. Acquisition of a subsidiary
2. Joint Ventures
3. Licensing
4. Investing in New Facilities or Expansion

Challenges to Globalism -

• Backlash against capitalism and rekindling of nationalism
• Increased protectionism of high-demand resources
• Need to develop top managers with international understanding and experience
• Increasing pressure and publicity for companies to consider the social responsibility of their actions

Effects of Globalization on Corporations -

• Global companies are becoming less tied to specific locations
• Companies that desire to remain competitive will have to develop a cadre of experienced international managers
• Small companies are also affected by and in turn affect globalism

The globalization of Human Capital -

• While firms still offshore manufacturing jobs, some are reshoring jobs to lower shipping costs
• Firms are outsourcing white-collar jobs to india
• For global firms, winning the war for talent is a pressing issue

Regional Trading Blocs -

• Much of today’s world trade is grouped around three dominant currencies:
  • Euro, Yen, and the dollar
• These trade blocs are continually expanding their borders to include neighboring countries
• Much of today’s world trade takes place within these three regional free- trade blocs:
  • Western Europe, Asia, and the Americas

The Political and Economic Environment -

• Sustainability- Economic, Political, Social, and environmental has become a significant worldwide issue
• Ethnicity- a driving force behind political instability around the world
• Religion- religious disputes lie at the heart of regional instabilities, for example, former Yugoslavia, Northern Island, The middle east

Political risk -

• Any governmental action or politically motivated event that could adversely affect the long-term profitability or value of a firm
  • Examples:
    • Argentina announced plans to nationalize repsol YPF, the spanish oil co.. taking 51%
    • In Russia, the Kremlin exploited the financial crisis to take control of energy companies

Typical Political Risks -

• Expropriation and confiscation
• Nationalization
• Terrorism
• Discriminatory treatment
• Barriers to repatriation of funds
• Interference in managerial decision making
• Dishonesty by government officials

Political risk Assessment -

• Helps companies manage exposure to risk and minimize financial loss
• Two forms
  • Consultation with experts
  • Development of internal staff capabilities- increasingly common

Managing Political Risk -

• Avoidance and Adaptation
  • Equity sharing
  • Participating management
  • Localization of the operation
  • Development assistance
• Dependency and Hedging
  • Input control
  • Technology control
  • Expatriate position control
  • Distribution Control
  • Political risk insurance (OPIC and FCIA)
  • Local debt financing

Managing Terrorism Risk -

• Develop a benevolent image (IBM and Exxon)
• Maintain a low profile and minimize publicity
• Using teams to monitor terrorist activities
• Hiring counterterrorism consultants

Economic Risk -

• Closely related to political risk
• Determined by a country’s ability or intention to meet its financial obligations
• Historically, most industrialized nations have posed little risk of economic instability
• However the level of economic risk in Europe is of concern in the eurozone due to debt problems in greece

The Legal Environment -

• Types of Legal systems
  • Common Law
  • Civil Law
  • Islamic Law
• Approaches to contract Law
  • Common Law: Details must be written in the contract to be enforced
  • Civil Law: Assumes promises will be enforced without specifying the details
  • In Asia the contract may be in the relationship, not on the paper

Chapter 2

• Stakeholder- anyone who is impacted by the company
• Stockholder- People who invest into the company (Owners)

MNC Stakeholders

• Home country
  • Owners
  • Customers
  • Employees
  • Unions
  • Suppliers
  • Distributors
  • Strategic Allies
  • Community
  • Economy
  • Government
• Society In General
  • Global Interdependence/ standard of living MNC Stakeholders
  • Global Environment and ecology
  • Sustainable resources
• Host
  • Economy
  • Employees
  • Community
  • Host
  • Government
  • Consumers
  • Strategic Allies
  • Suppliers
  • Distributors

Benefits of CSR

• Improved access to capitol
• Secured license to operate
• Revenue increase and cost and risk reduction
• Improved brand value and reputation with customer attraction and retention
• Improved employee recruitment, motivation, and retention

Global Consensus of Regional Variation

• Global Corporate Culture: An integration of the business environments in which firms currently operate
• The United States and Europe adopt strikingly different positions that can be traced largely to history and culture

Dealing with Confusion About Cross-Cultural Dilemmas

• Engaging stakeholders (and Sometimes NGOs) in a dialog
• Establishing principles and procedures for addressing difficult issues such as labor standards for suppliers, environmental reporting, and human rights
• Adjusting reward systems to reflect the company’s commitment to CSR

General Guidelines for Code of Morality and Ethics in Individual Countries ✩✩✩✩✩✩✩✩

• Moral Universalism- Addressing the need for a moral standard that is accepted by all cultures
• Ethnocentric Approach- Applying the morality used in home country- regardless of the host country’s system of ethics
• Ethical Relativism- Adopting the local moral code of whatever country in which a firm is operating

International Codes of Conduct

• The Sweatshop Code of Conduct
• The Electronic Industry Code of Conduct (EICC)
• Social Accountability 8000 (SA 8000)
• Guidelines for MNCs developed by:
  • International Chamber of Commerce
  • Organization for economic Cooperation and Development
  • International Labor Organization
  • United Nations Commission on Transnational Corporations

Ethics in Global management

• International Business Ethics
  • The business conduct or morals on MNCs in their relationship with individuals and entities
  • Ethics vary based on the cultural value system in each country or society

Ethical use of Technology

• Varied expectations about the use of technological devices/ programs as they intersect with people’s lives
• EU Directive on Data Protection ←→ Google mapping service
• Sony PlayStation Network

Managing the Corruption

• Foreign Corrupt Practices Act (FCPA)
• Organization for Economic Cooperation and development convention on bribery

Three Tests of Ethical Corporate Actions

1. Is it Legal?
2. Does it work in the long run?
3. Can it be talked about?

Policies to Help MNCs to Confront Concerns About Ethical Behavior and Social Responsibility

• Develop worldwide code of ethics
• Build ethical policies into strategy
• Plan regular assessment of the company’s ethical posture
• If ethical problems cannot be resolved , withdraw from that market

The Process for companies to combat Corruption and to Minimize the Risk of Prosecution

• Having a Global compliance system which shows that employees have understood, and signed off on, the legal obligations regarding bribery and corruption in the countries where they do business
• Making employees aware of the penalties and ramification for lone actions, such as criminal sanctions
• Having a system in place to investigate any foreign agents and overseas partners who will be negotiating contracts
• Keeping an effective whistle-blowing system in place

Managing Subsidiary- Host country interdependence

Common criticism of MNC Subsidiary activities

• MNCs locally raise their needed capital, contributing to a rise in interest rates in host countries
• The majority of the stock of subsidiaries is owned by the parent company. Host-Country people have little control over the operations within their borders

Common Criticism of MNC Subsidiary Activities Continued

• MNCs reserve the key managerial and technical positions for expatriates, instead of developing host-country personnel
• MNCs do not adapt technology to the conditions in host countries
• MNCs concentrate research and development activities at home, restricting technology transfer and know-how to host countries
• MNCs create a demand for luxury goods in host countries at the expense of consumer goods
• MNCs start foreign operations by purchasing existing firms, not by developing new facilities in host countries
• MNCs dominate major industrial sectors, contributing to inflation, by stimulating demand for scarce resources and earning excessively high profits and fees
• MNCs are not accountable to host nations but only respond to home-country governments; they are not concerned with host-country plans for development

Managing Subsidiary- Host Country Interdependence

• Require managers to go beyond issues of CSR to deal with specific concerns of MNC and host-country relationship
• MNCs must learn to accommodate the needs of other organizations and countries

MNCs Benefits and Costs to Host Countries

Managing the Interdependence

Recommendations for MNCs Operating in and Doing Business with Developing Countries

• Do no international harm. This includes respect for the integrity of the ecosystem and consumer safety
• Produce more good than harm for the host country
• Contribute by their activity to the host country’s development
• Respect the human rights of their employees
• To the extent that local culture does not violate ethical norms, respect the local culture and work with and not against it
• Pay their fare share of taxes
• Cooperate with the local government in developing and enforcing just background institutions

Cultural anthropology-

Chapter 3

• Culture- A set of shared values, understandings, assumptions, and goals that are learned from earlier generations, imposed by present members of a society, and passed on to succeeding generations.
• LWIF: Culture definition: Culture is accepted and familiar
• Environmental variables affecting management functions
  • National Variables
    • Economic systems
    • Legal systems
    • Political systems
    • Physical situation
    • Technological know- how
  • Sociocultural Variables
    • Religion
    • Education
    • Language
  • Cultural Variables
    • Values
    • Norms
    • Beliefs
  • Attitudes
    • Work
    • Time
    • Materialism
    • Individualism
    • Change
  • Individual and Group Employee Job Behaviour
    • Motivation
    • Productivity
    • Commitment
    • Ethics
• Curiosity gets you across borders
  • Ask questions it will help you expand borders
• Culture and its Effects on Organizations
  • Cultural sensitivity or Cultural Empathy?
    • An Awareness of and an honest caring about another individual’s culture
• Organizational Culture
  • Exists within and interacts with societal culture
  • Varies a great deal from one organization, company, institution, or group to another
  • Represents those expectations, norms, and goals held in common by members of that group
• The Effect of Culture on Organizational Process

• Culture’s Effects on Management
  • Convergence- The phenomenon of the shifting of individual management styles to become similar to one another
  • Self Reference Criterion- The subconscious reference point of one's own cultural values. Many people in the world understand and relate to others only in terms of their own cultures
  • Parochialism- occurs, for example, when a frenchman expects those from or in another country to automatically fall into patterns of behavior common in France
  • Ethnocentrism- Describes the attitude of those who operate from the assumption that their ways of doing things are the best- no matter where or under what conditions they are applied
• Influences on National Culture

• Religion and the Workplace
  • Since the basis of a religion is shared beliefs, values, and institutions, it is closely aligned with societal culture
  • Religion and culture are inextricably linked
  • Religion underlines moral and economic norms and influences everyday business transactions and on-the-job behaviors
  • Foreign managers must be sensitive to the local religious context and the expectations and workplace norms
  • Failure to do so will minimize or negated the goals of the firm in that location
• Cultural Value Dimensions
  • Values
    • Are a society’s ideas about what is good or bad, right or wrong
    • Determine how individuals will probably respond in any given circumstances
    • Help managers anticipate likely cultural effects
    • Allow for contingency management
    • Can vary across subcultures
• Hofstede’s Value Dimensions
• Power Distance
  • The level of acceptance by a society of the unequal distribution of power in institutions
• Individualism
  • The tendency of people to look after themselves and their immediate families only and to neglect the needs of society
• Uncertainty Avoidance
  • The extent to which people in a society feel threatened by ambiguous situations
• Collectivism
  • The desire for tight social frameworks, emotional dependence on belonging to “the organization,” and a strong belief in group decisions
  • There are 6 of them- look in book for exam
  • Compare and contrast two countries

Indulgence

Masculinity

65%-93% of nonverbal communication

• Critical Operational Value Differences
  • Time- Differences in temporal Values
  • Change- Control and pace of change
  • Material Factors- Physical goods and status symbols verses aesthetics and the spiritual realism
  • Individualism- “me/ I” versus “we”
• Developing Cultural Profiles
  • Managers can gather considerable information on cultural variables from current research, personal observation, and discussion with people
  • Managers can develop cultural profiles of various countries
  • Managers can use these profiles to anticipate drastic differences that may be encountered in a given country
  • It is difficult to pull together descriptive cultural profiles in other countries unless one has lived there and been intricately involved with those people
• Summary of Key points
  • Each society has its own unique culture
  • Managers must develop cultural sensitivity
  • Researchers such as Hofstede and Trompenaar have created studies which help describe cultural profiles; GLOBE study created a body of data on cultural dimensions
  • Managers can use research results and personal observations to develop cultural profiles of countries

Chapter 4

• The Impact of social media on global business
  • Managers in international businesses are grappling with the question of how to benefit from social media networks
  • Social Media are potential sources of rich information outside the normal chain of communication
  • Measuring the effectiveness of each source of social media is a challenge
• The culture- communication Link: Trust in communication
  • The meaning of trust and how it is communicated vary across societies
  • When there is trust between parties, implicit understanding arises within communications
  • Guidelines
    • Create a clear and calculated basis for natural benefit
    • Improve Predictability
    • Develop mutual bonding
• The Culture- Communication LInk: the globe project
  • High Performance Orientation: United States
    • Present objective information directly and specifically
  • Low Assertiveness: Sweden
    • Two- way discourse and friendly relationship
  • High Human Orientation: Ireland
    • Avoid conflict, be supportive
• Cultural Variables in communication
  • Attitudes- stereotyping
  • Social Organization- United Auto Worker (UAW)
  • Thought Patterns- The meaning of double lines
  • Roles- Decision making and responsibility
  • Language- “come out of the grave with pepsi” when “yes” doesn’t mean “yes”
• Cultural Variables in Communication
  • Nonverbal Communication
    • “A picture is worth a thousand words”
    • Subtle messages account for between 65 to 93 percent of interpreted communication
    • MInor Variations in body language, speech rhythms, and punctuality often cause mistrust and misperception of the situation among cross- cultural parties
• The Media for Nonverbal Communication
  • Kinesic Behavior- Communication through body movements
  • Proxemics- The influence of proximity and space on communication- both personal space and office space or layout
    • High- contact cultures: Prefer to stand close and to experience a “close” sensory involvement
    • Low- contact cultures: have a “distant” style of body language
  • Paralanguage- how something is said rather than the content
• How Feng Shui Affects Business
  • Directing “Qi” for positive results experts read energy patterns and face buildings in a particular direction, design gardens in a positive way, and use Qi to influence an individual’s life
• The Media for Nonverbal Communication
  • Object language/ material culture- the way we communicate through material artifacts
  • Monochronic cultures (Switzerland, Germany, United States): time is experienced in a linear way
  • Polychronic cultures ( Latin Americans, Arabs): tolerate many things happening simultaneously and may focus on several things at once
• Forms of Nonverbal Communication
  • Facial expressions; eye contact
  • Body posture; interpersonal distance
  • Body contact
  • Clothing cosmetics; hairstyles
• Object Language/ Material Culture
  • Open displays of wealth
  • Japanese ‘meishi’ or business cards
  • Mexico: appreciating the architecture and family photos
• Context
  • High context cultures
    • Feelings and thoughts are not explicitly expressed; key information is embedded in the context
  • Low context cultures
    • Personal and business relationships are more compartmentalized, communication has to be more explicit. Feelings and thoughts are expressed in words
• Information Systems
  • In centralized organizational structures as in South America, most information originates from top managers
  • In the US information flows from the staff to managers
  • Japan: ringi system
  • High context cultures: information spreads rapidly and freely
• Informal sources of information
  • Employees drinking together
  • Communication based on long-term relationships
  • “Public self” vs. “private self”
• Speed of Information
  • Americans expect to give and receive information very quickly and clearly
  • French use slower message channels of deep relationships, culture, mediators
• Japanese “Ningensei” vs. US Adversarial Style

• Information Technology: Going Global and Acting Local
  • Global research does not necessarily mean global business
  • The web in interpersonal, but may require greater cultural sensitivity
  • Global online strategy must also be multi-local
• Developing Cultural Sensitivity
  • Read a map: Familiarize yourself with the local geography to avoid making insulting mistakes
  • Dress up: In some countries, casual dress is a sign of disrespect
  • Talk small: Talking about wealth, power, or status- corporate or personal- can create resentment
  • No slang: Even casual profanity is unacceptable
  • Slow down: Americans talk fast, eat fast, move fast, live fast. Many cultures do not
  • Listen as much as you talk: Ask people you’re about themselves and their way of life
  • Speak lower and slower: A loud voice is often perceived as bragging
  • Religious restraint: In many countries, religion is not a subject for public discussion
• Managing Cross- Cultural Communication
  • Develop cultural sensitivity
    • Anticipate the meaning the receiver will get
  • Careful encoding
    • Use words, pictures, and gestures
    • Avoid slang, idioms, regional sayings
  • Selective Transmissions
    • Build relationships, face-to-face if possible
  • Careful decoding of feedback
    • Get feedback from multiple parties
    • Improve listening and observation skills
  • Follow up actions
• Facilitating Intercultural Communication
  • Openness
    • Open mindedness, tolerance for ambiguity, and extrovertedness
  • Resilience
    • Having an internal locus of control, persistence, a tolerance for ambiguity, and resourcefulness
• Conclusion
  • Cultural sensitivity
  • Awareness of potential sources of cultural noise
  • Culture is the foundation of communication
    • High context vs. low context
    • Careful encoding and selective transmission
    • Cultural localization on the internet