INSTRUCTOR MANUAL for International Business The Challenges of Globalization 7e John Wild Kenneth Wi by digitaldownload87

INSTRUCTOR MANUAL for International Business The Challenges of Globalization 7e John Wild Kenneth Wild

Contents INSTRUCTOR’S MANUAL Market Entry Strategy Project Guide ........................................................... 1 Chapter 1

Globalization .............................................................................................. 23

Chapter 2

Cross-Cultural Business ............................................................................. 40

Chapter 3

Politics, Law, and Business Ethics............................................................. 58

Chapter 4

Economics and Emerging Markets ............................................................ 75

Chapter 5

International Trade ..................................................................................... 89

Chapter 6

Business-Government Trade Relations .................................................... 103

Chapter 7

Foreign Direct Investment........................................................................ 117

Chapter 8

Regional Economic Integration................................................................ 132

Chapter 9

International Financial Markets ............................................................... 150

Chapter 10

International Monetary System ................................................................ 167

Chapter 11

International Strategy and Organization................................................... 185

Chapter 12

Analyzing International Opportunities ..................................................... 200

Chapter 13

Selecting and Managing Entry Modes ..................................................... 216

Chapter 14

Developing and Marketing Products ........................................................ 234

Chapter 15

Managing International Operations .......................................................... 249

Chapter 16

Hiring and Managing Employees............................................................. 264

CHAPTER 1 GLOBALIZATION LEARNING OBJECTIVES: 1. Identify the types of companies that participate in international business. 2. Describe the process of globalization and how it affects markets and production. 3. Describe the two forces causing globalization to increase. 4. Summarize the evidence for each main argument in the globalization debate. 5. Describe the global business environment and identify its four main elements.

CHAPTER OUTLINE: Introduction International Business Involves Us All Technology Makes It Possible Global Talent Makes It Happen Key Players in International Business Multinational Corporations Entrepreneurs and Small Businesses Globalization Globalization of Markets Reduces Marketing Costs Creates New Market Opportunities Levels Uneven Income Streams Local Buyers’ Needs Global Sustainability Globalization of Production Access Lower-Cost Workers Access Technical Expertise Access Production Inputs Forces Driving Globalization Falling Barriers to Trade and Investment The World Trade Organization Regional Trade Agreements Trade and National Output Technological Innovation E-mail and Videoconferencing The Internet Company Intranets and Extranets Advancements in Transportation Technologies Measuring Globalization Untangling the Globalization Debate Today’s Globalization in Context Introduction to the Debate Globalization’s Impact on Jobs and Wages Against Globalization Eliminates Jobs in Developed Nations Lowers Wages in Developed Nations

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Exploits Workers in Developing Nations For Globalization Increases Wealth and Efficiency in All Nations Generates Labor Market Flexibility in Developed Nations Advances the Economies of Developing Nations Summary of the Jobs and Wages Debate Globalization’s Impact on Labor, the Environment, and Markets Labor Standards Environmental Protection Future Markets Globalization and Income Inequality Inequality within Nations Inequality between Nations Global Inequality Summary of the Income Inequality Debate Globalization’s Influence on Cultures Globalization and National Sovereignty Globalization: Menace to Democracy? Globalization: Guardian of Democracy? Why International Business Is Special The Global Business Environment The Road Ahead for International Business Bottom Line for Business

A comprehensive set of specially designed PowerPoint slides is available for use with Chapter 1. These slides and the lecture outline below form a completely integrated package that simplifies the teaching of this chapter’s material. Lecture Outline 1.

INTRODUCTION Globalization is reshaping our cultures, our political, legal, and economic systems, and affecting our standards of living. It alters the global pattern of trade and investment by expanding markets and multiplying production possibilities. A. International Business Involves Us All 1. Each of us encounters the result of international business transactions every day whether we realize it or not. 2. International business is any commercial transaction that crosses the borders of two or more nations. 3. Imports are goods and services purchased abroad and brought into a country. Exports are goods and services sold abroad and sent out of a country. B. Technology Makes It Possible 1. Technology is a remarkable facilitator of international business and change.

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E-business (e-commerce) is the use of computer networks to purchase, sell, or exchange products; service customers; and collaborate with partners. Global Talent Makes It Happen 1. Development and production now regularly occur on a global basis for many goods and services. 2. Performing these globally increases firm efficiency and competitiveness.

KEY PLAYERS IN INTERNATIONAL BUSINESS ** This section now appears earlier than in previous editions. ** Large firms from developed nations once dominated, but firms from Brazil, China, and India now play a bigger role. Technological advancements allow small and midsize companies to better compete. A.

Multinational Corporations A multinational corporation (MNC) has direct investments abroad in multiple countries. They generate significant jobs, investment, and tax revenue for the regions and nations they enter. 1. Profiling the Largest Multinationals a. Some MNCs have more employees than small nations have citizens (e.g., Walmart has 2.2 million employees globally). b. If Walmart were a country, it would rank third behind Norway in terms of economic power (Figure 1.1).

Entrepreneurs and Small Businesses 1. They are increasingly active in international business by exporting earlier and growing faster with help from technology. 2. A born global firm is a company that adopts a global perspective and engages in international business from or near its inception. 3. Some small Internet companies reach customers solely through the Web (e.g., Vellus Products, Weekend in Italy).

GLOBALIZATION Globalization is the trend toward greater economic, cultural, political, and technological interdependence among national institutions and economies. It is marked by “denationalization,” which is not “internationalization.” A.

Globalization of Markets 1. Convergence in buyer preferences in markets around the world a. Reduces marketing costs by standardizing activities b. Creates market opportunities abroad if home is small or saturated c. Levels uneven income streams for global seasonal products d. Yet companies must not overlook buyers’ needs e. Need for global sustainability—development that meets the needs of the present without compromising the ability of future generations to meet their own needs. 2. The world’s 7 billion people live in three types of markets, yet all require companies to act in a sustainable manner: a. Developed markets are solidly middle class and people can consume almost any product desired. A firm may use the latest

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technologies to develop sustainable products in a sustainable manner. b. Emerging markets are racing to catch up to rich nations and are overloading infrastructures. Resource constraints can force companies to develop sustainable production methods. c. Traditional markets have mostly rural populations for whom poverty and corruption prevail. Here, sustainability means teaching safe farming practices, environmental stewardship, and disease awareness. Globalization of Production 1. Dispersal of production activities to locations that help a company to minimize costs or maximize quality a. Access lower-cost workers to cut overall production costs b. Access technical expertise c. Access production inputs unavailable or more costly at home

FORCES DRIVING GLOBALIZATION Forces increase competition among nations by leveling the global business playing field. A.

Falling Barriers to Trade and Investment 1947 General Agreement on Tariffs and Trade (GATT) was designed to promote free trade by reducing tariffs and nontariff barriers. 1994 GATT revision (1) reduced tariffs and lowered subsidies for agricultural products; (2) defined and protected intellectual property rights; and (3) created the WTO. 1. World Trade Organization a. World Trade Organization (WTO) is the international organization that enforces the rules of international trade. b. WTO goals: (1) to help the free flow of trade, (2) help negotiate the further opening of markets, and (3) settle trade disputes. c. WTO agreements are contracts committing members to fair and open trade policies. WTO dispute settlement system is the spine of the global trading system. 2. Regional Trade Agreements a. Smaller groups of nations also are integrating their economies (e.g., NAFTA, European Union). 3. Trade and National Output a. Effect of the WTO and regional trade pacts is greater global trade and cross-border investing (Map 1.1). b. Trade growth has been faster than world output. c. Gross Domestic Product (GDP) is the value of all goods and services produced by a domestic economy over a one-year period. Gross national product (GNP) adds income from international activities.

Technological Innovation Technology accelerates globalization by making it easier, faster, and less costly to move data, goods, and equipment around the world. 1. E-mail and Videoconferencing a. Speed information flows and ease the tasks of coordination and control, which are complicated by operating across borders.

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b. 2.

Driving growth in videoconferencing are lower-cost bandwidth and equipment, and decreased travel for cost or safety reasons. The Internet a. Helps firms sharpen forecasting, lower inventories, improve communication with suppliers, and communicate quickly and cheaply with distant managers b. Reduces the cost of reaching an international customer base, which is essential for the competitiveness of small firms Company Intranets and Extranets a. Intranets are private networks of company Web sites and other information sources that allow employee access to information from distant locations. b. Extranets are computer networks that give distributors and suppliers access to a company’s database so they can place orders or restock inventories electronically and automatically. Advancements in Transportation Technologies a. Make global shipping more efficient and dependable (e.g., GPS)

Measuring Globalization ** This edition introduces a new Globalization Index not in prior editions. ** 1. The KOF Swiss Economic Institute’s Globalization Index ranks nations on their economic, social, and political engagement. 2. Richest nations are the most global, with many in Europe. The United States ranked 35th (see Table 1.1). 3. The least global nations are found in Africa, East Asia, South Asia, Latin America, and the Middle East. Low technological connectivity slows global integration.

UNTANGLING THE GLOBALIZATION DEBATE People can view globalization from vastly different perspectives. A.

Today’s Globalization in Context 1. First age of globalization extended from the mid-1800s to the 1920s. Migration levels reached record highs, domestic workers faced competition from cheaper labor abroad, and trade and capital flowed more freely than ever before. 2. Drivers of that first age of globalization were the steamship, telegraph, railroad, telephone, and airplane. 3. World War I, the Russian Revolution, and the Great Depression abruptly ended that first age of globalization. A globalization backlash led to high tariffs and other barriers. 4. Geographic divide between East and West became an ideological divide between communism and capitalism. International capital flows regained their prior pace but not until the 1990s. 5. Drivers of this second age of globalization are communication satellites, fiber optics, microchips, and the Internet.

Introduction to the Debate 1. The World Bank is an agency created to provide financing for national economic development efforts.

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The International Monetary Fund (IMF) is an agency created to regulate fixed exchange rates and enforce the rules of the international monetary system.

Globalization’s Impact on Jobs and Wages 1. Against Globalization a. Eliminates jobs in developed nations as good-paying manufacturing jobs go abroad to developing countries. Lowpriced goods are not worth lost jobs. b. Lowers wages in developed nations by causing worker dislocation that gradually lowers wages. New jobs that replace lost manufacturing jobs often pay less. c. Exploits workers in developing nations who work cheaply servicing western consumers. d. Summary: Although globalization eliminates jobs in some economic sectors, it creates jobs in other sectors. 2. For Globalization a. Increases wealth and efficiency in all nations because trade openness raises output. Firms grow more efficient and pass savings on to consumers. b. Generates labor market flexibility in developed nations that allows an economy to rapidly deploy labor where demand is relatively great. c. Advances the economies of developing nations by injecting capital that creates higher-paying jobs, which expands the middle class and raises standards of living. d. Summary: Gains to national economies are worth lost livelihoods that individuals may suffer.

Globalization’s Impact on Labor, the Environment, and Markets 1. Labor Standards a. Trade unions claim that firms continually move to nations with low labor standards, which reduces labor’s bargaining power and forces overall labor standards lower. b. But studies of developing nations’ export processing zones instead find evidence that contradicts such claims. 2. Environmental Protection a. Globalization opponents say it creates a “race to the bottom” in environmental conditions and regulations: countries compete in reducing environmental protection laws. b. But evidence shows pollution-intensive U.S. firms tend to invest in countries with stricter environmental standards. Also, closed economies historically are the worst polluters. 3. Future Markets a. Protesters claim international firms pay locals the lowest possible wage and export their goods back to the home country. b. Today, firms want to build local markets in developing nations, not simply exploit workers and foment local animosity.

Globalization and Income Inequality 1. Inequality within Nations

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Globalization critics claim that income disparity in rich nations is increasing as firms move factory jobs to poor nations. b. Evidence is mixed, but poor people in developing nations seem to benefit from an open economy. Inequality between Nations a. Globalization opponents say it is widening the gap in average incomes between rich and poor nations. b. Looking closely at the evidence, we see that open nations are benefiting from trade whereas closed ones are not. Global Inequality a. Opponents of globalization say it is widening income inequality among all people of the world. b. Studies tend to agree that global inequality has fallen in recent decades, though they disagree on the extent of the decline.

Globalization’s Influence on Cultures ** This section now appears earlier than in previous editions. ** 1. Critics say globalization homogenizes our world and lets MNCs destroy cultural diversity and wipe out small local businesses. 2. Yet globalization allows nations to: (1) specialize and trade for goods they do not produce, (2) import other peoples’ cultural goods, and (3) still protect deeper moral and cultural norms.

Globalization and National Sovereignty 1. Globalization: Menace to Democracy? a. Supranational institutions with international goals and appointed officials undermine national sovereignty and democracy. b. Elected officials undercut democracy and local and regional authority with “international” agreements on citizens’ behalf. 2. Globalization: Guardian of Democracy? a. Globalization has helped spread democracy worldwide (e.g., more democratic nations than ever). b. Some losses of sovereignty have had positive social impacts, as in human rights, workers’ rights, and discrimination.

WHY INTERNATIONAL BUSINESS IS SPECIAL What makes international business special is that it occurs within a dynamic, integrated system that weaves together four distinct elements. A.

The Global Business Environment 1. Globalization is transforming our societies and commercial activities. It also increases competition everywhere, forcing companies to be vigilant. 2. Each national business environment consists of unique cultural, political, legal, and economic characteristics. Companies must be attentive to nuances and adapt products and practices as needed. 3. The international business environment influences how business is conducted so firms must closely monitor events. 4. Context of international business management is defined by the characteristics of the national and international business environments. Managers must abide by the prevailing rules in each market in which it operates.

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The Road Ahead for International Business Part 1 (Chapter 1): Globalization Part 2 (Chapters 2–4): National Business Environments Parts 3 and 4 (Chapters 5–8 and 9–10): International Business Environment Part 5 (Chapters 11–16): International Business Management

BOTTOM LINE FOR BUSINESS A.

Harnessing Globalization’s Benefits 1. The most global nations tend to have the greatest equality, robust environmental protection, inclusive political systems, lowest levels of corruption, healthiest lifestyles, and be where women have achieved the most social, educational, and economic progress. 2. The debate has opened a dialogue on how globalization can be harnessed to make its benefits exceed its costs.

Intensified Competition 1. Continued globalization is taking companies into previously isolated markets and increasing competitive pressures worldwide. 2. As it gets easier and less costly to manage widely dispersed marketing and production activities, new opportunities and threats emerge.

Wages and Jobs 1. Low wages are not all that draws investment by multinationals. A location must offer low-cost, adequately skilled workers in an environment with acceptable levels of social, political, and economic stability. 2. Labor mobility is increasing with globalization—depressing wages in some job categories but developing new job opportunities in others.

The Policy Agenda 1. Rich nations could open their markets, slash agricultural subsidies, and increase development aid. Poor nations could improve their investment climates and improve social protection for the poor. 2. Rich nations could offer workers their wage insurance, subsidized health insurance if out of work, and improve education. Rich nations could help enforce labor standards, help clarify environmental agreements, and research the environmental implications of trade agreements.

Quick Study Questions Quick Study 1 1.

Q: Define the term international business, and explain how it involves us all. A: International business is any commercial transaction that crosses the borders of two or more nations. International business involves each of us every day. We consume goods that originate outside our borders or that contain components made abroad. We also

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consume services, such as a news broadcast or music entertainment, that are sent to us from abroad. 2.

Q: Explain how e-business (e-commerce) affects international business. A: E-business (e-commerce) is the use of computer networks to purchase, sell, or exchange products; service customers; and collaborate with partners. E-business is making it easier for companies to make their products abroad, not just import and export finished goods. It also helps companies improve efficiency in international operations and boost competitiveness.

Q: What types of companies are involved in international business? A: Large, global firms and multinational corporations (MNCs) dominate international business activity. These companies generate significant jobs, investment, and tax revenue for the regions and nations they enter. It is common for the incomes and deals of these large businesses to be valued in the billions. Also, small firms are increasingly active internationally because traditional distribution channels are more accessible and technology makes it easier to communicate and transport products. Born global firms tend to be innovative and have knowledge-based organizational capabilities. They often rise to the level of international competition in a very short period of time.

Quick Study 2 1.

Q: Define globalization. How does denationalization differ from internationalization? A: Globalization is the trend toward greater economic, cultural, political, and technological interdependence among national institutions and economies. It is a trend characterized by denationalization (in which national boundaries are becoming less relevant), and is different from internationalization (which refers to cooperation among national actors).

Q: List each benefit a company might obtain from the globalization of markets. A: Globalization of markets refers to convergence in buyer preferences in markets around the world. Potential benefits for companies include: (1) reduced marketing costs by standardizing activities, (2) market opportunities abroad if home market is small or saturated, and (3) levels an income stream by letting international sales offset domestic sales for a company selling a global seasonal product.

Q: How might a company benefit from the globalization of production? A: Globalization of production refers to the dispersal of production activities to locations that help a company minimize costs or maximize quality of a good or service. Potential benefits for companies include: (1) access lower-cost labor to cut production costs, (2) access technical expertise, and (3) access production inputs unavailable or costly at home.

Quick Study 3 1.

Q: How have global and regional efforts to promote trade and investment advanced globalization? A: Global Efforts: The 1947 GATT lowered trade barriers and made it cheaper and easier to ship goods across borders. In 1988 world merchandise trade was 20 times larger than in 1947; average tariffs dropped from 40 percent to 5 percent. A 1994 GATT revision created the WTO, which has the power to enforce international trade rules. Goals of the

Ch 1: Globalization WTO are: (1) to help the free flow of trade, (2) help negotiate further opening of markets, and (3) settle trade disputes. WTO agreements are contracts committing members to fair and open trade policies. The WTO dispute settlement system is the spine of the global trading system. Regional Efforts: Smaller groups of nations are banding together in regional trade agreements with similar objectives. Examples are NAFTA and the EU. The combined effect of global and regional efforts: international trade and investment is growing faster than world output.

Q: How does technological innovation propel globalization? A: E-mail and videoconferencing speed information flows and ease the tasks of coordination and control. Firms use the Web to sharpen forecasting, lower inventories, and improve communication with suppliers, and to communicate with distant managers quickly, cheaply, and efficiently. The Web also reduces the cost of reaching international customers—important for the competitiveness of small firms. Company intranets allow employees to access information from distant locations to share best practices. Extranets give distributors and suppliers access to a company’s database so they can place orders or restock inventories electronically and automatically. Transportation advancements are facilitating globalization by making shipping more efficient and dependable.

Q: What factors make some countries more globalized than others? A: Factors that make a country more global are high levels of economic globalization (high trade and investment volumes, low trade and capital restrictions), social globalization (dissemination of information and ideas), and political globalization (political cooperation with other countries).

Quick Study 4 1.

Q: How does this current period of globalization compare with the first age of globalization? A: Whereas the first age of globalization (mid-1800s to 1920s) encompassed mostly rich nations, this second age reaches into developing and emerging economies. Like today, migration levels were very high, domestic workers faced competition from cheaper labor abroad, and trade and capital flowed freely. Drivers of that first age of globalization were the steamship, telegraph, railroad, telephone, and airplane. Drivers of this second age include communication satellites, fiber optics, microchips, and the Internet.

Q: Explain the original purpose of the World Bank and its mandate today. A: The World Bank is an agency created to provide financing for national economic development efforts. Its initial purpose was to finance European reconstruction following the Second World War. It later shifted its focus to the general financial needs of developing countries. Today it finances many economic development projects in Africa, South America, and Southeast Asia.

Q: What are the main purposes of the International Monetary Fund? A: The International Monetary Fund is an agency created to regulate fixed exchange rates and enforce the rules of the international monetary system. Some of the purposes of the IMF include: promoting international monetary cooperation; facilitating expansion and balanced growth of international trade; avoiding competitive exchange devaluation; and making financial resources temporarily available to members.

Quick Study 5

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Q: What are the claims of those who say globalization eliminates jobs, lowers wages, and exploits workers? A: (1) Globalization eliminates manufacturing jobs in developed nations as jobs are sent to nations with lower wages. Also, the new jobs that globalization creates pay less than manufacturing jobs lost. And reduced prices for imported goods are little consolation for workers who have lost their jobs. (2) Globalization lowers wages in developed nations as jobs move abroad and competition increases for the remaining jobs, gradually depressing wages. (3) Globalization exploits workers in developing nations because multinationals operate where labor standards are low by comparison. People in developing nations have few employment options and no power to counter manipulative employment practices.

Q: Identify the arguments of those who say globalization creates jobs and boosts wages. A: (1) Globalization raises overall wealth in developed and developing nations because trade openness raises the output of a nation. It also allows firms to become more efficient and pass savings on to consumers. (2) Globalization generates labor market flexibility that allows an economy to rapidly deploy labor where demand is relatively great, which lets workers leave jobs and find new work fairly quickly. (3) Globalization advances developing nations’ economies by injecting capital that creates higher-paying jobs than would otherwise be available, which expands the middle class and raises standards of living.

Q: Why do critics say globalization adversely affects labor standards, environmental regulations, and future markets? A: The major complaint of those opposed to globalization is that multinational firms contribute to slack labor and environmental protection laws. They say that because multinationals are in constant pursuit of lower costs, they seek out locales with less strict labor and environmental regulation to reduce the cost of operating in those environments. They argue that multinationals thus put downward pressure on labor and environmental standards worldwide.

Q: How do supporters of globalization argue that it does not harm labor standards, environmental regulations, and future markets? A: First, research shows that pollution-intensive U.S. firms tend to invest in countries having stricter environmental standards. In fact, many developing nations liberalized their foreign investment environment while enacting stricter environmental legislation. If multinationals were eager to seek out nations with the worst environmental protection laws, they would have avoided that group of nations instead of pouring enormous sums of investment into them over decades. Second, when analyzing a country prior to investing, multinationals today often search for a future market for its goods as well as a production base. In such a scenario, any rational management team would not enter a market with draconian labor and environmental regulations, depressed local wages, and an awful environment, where the locals cannot hope to one day afford to purchase the very items they produce.

Quick Study 6 1.

Q: What does the evidence suggest for each aspect of the debate over globalization and income inequality? A: First, regarding the debate over inequality within nations, studies suggest that developing nations can boost incomes of their poorest members of society by integrating

Ch 1: Globalization them into the global economy. Second, in the debate over inequality among nations, it appears that more nations open to trade and investment grow faster than wealthy nations, whereas sheltered economies are worse off. Thus, countries advance their economies by being open, not closed, to global business. Third, the global inequality debate has generally concluded that global poverty has fallen in recent decades, though there is disagreement on the extent of the drop. Standardized sources and methods are needed.

Q: Summarize the claims of each side in the debate over globalization’s influence on cultures. A: (1) Globalization critics fear it is homogenizing the world and destroying its rich diversity of cultures. In some drab, new world we all will wear the same clothes bought at the same brand-name shops, eat the same foods at the same brand-name restaurants, and watch the same movies made by the same production companies. (2) It is also feared that cultural diversity will be reduced through universal products, as local businesses cannot compete with large MNCs. (1) Globalization supporters counter that it allows each nation to profit from differing circumstances and skills. Trade allows a country to specialize in producing those goods and services in which it is most efficient. It can then trade those products to other nations in exchange for goods and services it desires but does not produce. (2) Focusing only on consumer goods examines only the most superficial aspects of culture. (3) Throughout the past century, the music, art, and literature of developing countries has thrived and gained international attention through globalization.

Q: What are the arguments of each side in the debate over globalization’s impact on national sovereignty? A: Those opposed to globalization claim that supranational institutions, including the WTO, IMF, and UN, consist of appointed, not democratically elected, representatives who impose their will upon citizens of nations. They argue that ceding political authority to such organizations undercuts the legal authority of national, regional, and even local governments, and undercuts democracy itself. Those favoring globalization argue that an amazing consequence of globalization has been the spread of democracy worldwide. People in democracies are better educated, better informed, more assertive, and are challenging elites and the old ways of doing things. Supporters of globalization also argue that national sovereignty must be viewed in the long run, and that consideration must be made of the positive outcomes of international cooperation. UN accords made significant progress in important areas such as women’s rights and racial discrimination.

Quick Study 7 1.

Q: Identify the four main components of the global business environment. A: It is helpful to view international business as occurring within an integrated global business environment consisting of four main elements: (1) Globalization is a potent force transforming our societies and commercial activities. (2) Separate national business environments, including culture and systems of politics, law, and economics. (3) The international business environment, which is where the actions of consumers, workers, companies, financial institutions, and governments from different nations converge. (4) International business management which involves all the duties of management in a domestic setting, but which are complicated by a multitude of differences.

Q: How does globalization influence other elements in the global business environment?

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A: Globalization is a potent force transforming our societies and commercial activities. Globalization increases competition and produces significant changes in how societies operate. The effects of globalization are felt in the cultures and systems of politics, law, and economics of nations. Companies riding on the back of globalization must acknowledge differences in business environments and adapt products and processes as needed. As globalization continues, flows of trade, investment, and capital are becoming more entwined. This often causes firms to look simultaneously for production bases and markets. Globalization causes the management of an international firm different from the management of a domestic firm in nearly all respects. Talk It Over 1.

Q: Today, international businesspeople must think globally about production and sales opportunities. Many global managers will eventually find themselves living and working in cultures altogether different from their own. Many entrepreneurs will find themselves booking flights to places they had never heard of. What do you think companies can do now to prepare their managers for these new markets? What can entrepreneurs and small businesses with limited resources do? A: Large companies can keep a watchful eye on such markets by conducting preliminary studies periodically on each potential market it is considering. Companies can conduct such studies in-house or commission them from independent organizations. They can also send key managers that would oversee such new investments to the market to familiarize themselves with the local culture and begin making contacts. However, entrepreneurs and small companies often do not have the money for expensive studies. But they can afford to follow events in potential markets through the international media—especially the international business press. They can also purchase existing surveys of potential markets from international research agencies—usually available for a reasonable fee. They can also seek out the advice and counsel of local retired businesspeople with international experience and contact their local Small Business Administration office (or similar agency outside the United States). The Web is a valuable tool for obtaining a great deal of free information.

Q: In the past, national governments greatly affected the pace of globalization through agreements to lower barriers to international trade and investment. Is the pace of change now outpacing the capability of governments to manage the global economy? Will national governments become more or less important to international business in the future? Explain your answer. A: The first part of the question addresses the fact that the GATT was initially very successful but lost much of its relevance in the mid-1980s with regard to services and erupting trade disputes. Governments then tried to update institutions to suit the changed business environment. In answering, students should identify the Internet as an evolving international business tool which governments are finding difficult to regulate and establish jurisdiction over. Students may also mention the inability of supranational agencies to forecast and contain recent economic crises worldwide. The second part of this question gets students to consider the power of large multinational and global companies relative to national governments. Students might identify political lobbying that companies undertake to get favorable legislation passed. On the other hand, students might identify the power of governments to control their own national business environment—albeit perhaps with an attached cost.

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Q: Information technologies are developing at a faster rate than ever before. How have these technologies influenced globalization? Give specific examples. Do you think globalization will continue until we all live in one “global village”? Why or why not? A: Information and communication technologies are facilitating the process of globalization in many ways. Through e-mail and videoconferencing, companies are better able than ever before to keep in touch with far-flung subsidiaries, suppliers, and customers. Intranets and extranets are facilitating the timely restocking of inventories by suppliers and the ordering of merchandise by buyers. The effect of these technologies has been to remove some of the pain associated with conducting day-to-day operations for international companies—causing them to look more favorably on new international ventures. Students should first question what a “global village” is, and give answers depending upon their definition. Are we talking about an “economic village” or a “true village” that entails cultural homogenization? We are witnessing an era of increasing interaction among nations (despite the recent global recession), but it is not certain this will continue. Such times have occurred at other points in history only to result in war and division. Students’ experiences of contact with the people and cultural products (such as movies and music) of other nations (and perhaps living abroad) will affect their answers.

This item can be assigned as a Discussion Question in MyManagementLab. Student responses will vary. Q: Consider the following statement: “Globalization and the

resulting increase in competition harm people, as international companies play one government against another to get the best deal possible. Meanwhile, governments continually ask for greater concessions from their citizens, demanding that they work harder and longer for less pay.” Do you agree? Why or why not? A: This question gets students thinking about the interrelationships among consumers, workers, international companies, and governments. Consumers tend to win from a purchasing standpoint as companies’ cost structures tend to be lower and retail prices should fall along with increasing competition. However, these consumers are also employees in the economy. The power of corporations to get concessions from governments and workers affects wages. On the other hand, if citizens are not satisfied with their government’s stance on trade and investment issues, they can change the government at the ballot box. However, not every nation gives its citizens such powers. This question may cause debate as students take the side of international companies or workers, and delve into the validity of such statements. This question might even be assigned as a debate. Students could be divided into groups, assigned a position, and given until the next class period to develop their arguments. Teaming Up 1.

Q: Research Project. Imagine that you and a group of your fellow classmates own a company that manufactures cheap sunglasses. To lower production costs, you want to move your factory from your developed country to a more cost-effective nation. Choose a prospective country to which you will move production. What elements of the national business environment might affect your move? Are there obstacles to overcome in the international business environment? How will managing your company be different when

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you undertake international activities? What challenges will you face in managing your new employees? A: This project gets students to begin pondering the types of elements that must be considered when selecting a country for investment. At a minimum, students’ responses should consider: (1) the presence of investment barriers in the country; (2) resources needed to carry out production, as well as their availability and cost; (3) availability of modern telecommunications to facilitate communication with the home office; and (4) how the expansion might be financed. 2.

Q: Market Entry Strategy Project. This exercise corresponds to the MESP online simulation. With a group of classmates, select a country that interests you. Describe its national flag: what do its colors and any symbols represent? Identify neighbors with which it shares borders. Give some important facts about the country, including its population, population density, land area, topography, climate, natural resources, and the locations of main industries. What does the nation produce? Do any aspects of the natural environment help explain why it produces what it does? Integrate your findings into your completed MESP report. A: This may be a good time to get students working on their Market Entry Strategy Project. This exercise gets students to learn more about a country, and to generate interest in countries other than their own. The project focuses on important aspects of each country and the process can begin to develop teamwork in the course.

Take It to the Web We invite you to visit MyManagementLab.com, an innovative set of course-management tools for delivering all or part of your course online. MyManagementLab makes it easier for you to add meaningful assessment to your course. Whether you’re interested in testing your students’ recall of concepts and theories or in asking them to apply their new knowledge to real-world scenarios, MyManagementLab offers a variety of assessment questions to fit your needs. Ethical Challenges 1.

Q: You are a U.S. citizen recently assigned as the manager of distribution in a European country where bribery is relatively acceptable. Your job description includes responsibility for accepting shipments as they enter the local port authority. On your first trip down to the docks to sign for a shipment, the customs agent in charge asks for a “tip” to clear the goods for pickup. The value of the incoming shipment is around $150,000. Knowing that the government has recently launched an initiative to reduce corruption, how do you react? If additional information would be helpful to you, what would it be? A: This question forces an examination of both personal ethical principles as well as company ethical guidelines. The situation also has a legal issue that must be addressed. U.S. citizens are covered by the Foreign Corrupt Practices Act, which prohibits paying bribes to foreign officials. The “tip” may be legal under the FCPA if it is a small amount and paid to the official to do what he or she would already be doing. The fact that the local government began a campaign to reduce corruption must also be considered. Additional information that would be helpful includes the amount of the “tip,” company

Ch 1: Globalization policy on such matters, and the potential of the local government in helping to reduce corruption.

Q: You are the CEO of a major U.S. apparel company that contracts work to garment manufacturers abroad. Employees of the contractors report 20-hour workdays, pay lower than the minimum wage, overcrowded living conditions, physically abusive supervisors, and confiscation of their passports. Contractors and government officials say local labor laws are adhered to and enforced, though abuses appear widespread. You send inspectors to the factories abroad but they uncover no labor violations. A labor-advocacy group claims that supervisors coached workers to lie to your inspectors about conditions and threatened workers with time in makeshift jails without food if they talked. How do you handle this situation? Do you help the factories improve conditions, withdraw your business, or do nothing? How might your actions affect your relations with the factory owners and your ability to do business in the country? A: It’s extremely important that your company be thorough and transparent throughout the monitoring process. The monitoring process could seem more impartial by contracting an independent organization to conduct the investigation, rather than employ someone with whom the company might be suspected as having social or political connections. You could also have the report made public to all parties simultaneously to eliminate the perception of the report being adjusted. To implement and maintain rapid, sustainable improvements: monitor and verify codes of conduct regarding labor practices, disseminate information to workers explaining their rights, appeal to government agencies on effective ways to raise labor standards, explain how their reputation as being “good guys” in the labor standards arena can create a useful marketing tool and opportunities for firms and countries by differentiating themselves when competing in the apparel export market.

Q: You are the mayor of a midsize U.S. town on the Colorado River between Mexico and Arizona. Pollution from factories on both sides of the U.S.–Mexico border has contaminated your community and the Colorado River. The North American Free Trade Agreement (NAFTA) requires the U.S. government to pay for environmental cleanup in the United States. Yet critics accuse both the U.S. and Mexican governments of not doing enough to safeguard the environment along the border. As mayor, what can you do to persuade business leaders and governmental officials to adhere to environmental standards? Which body do you think presents your biggest challenge: the Arizona state legislature, the U.S. government, or the Mexican government? What can business leaders do if governments ignore their environmental responsibilities? A: As mayor, you must fight for your local community. Dealing with the Arizona and U.S. governments should be easier than negotiating with Mexican officials. Another strategy would be to get the media involved in order to put pressure on business. Because this dilemma involves ethical and social responsibilities regarding the environment, this question might quickly polarize the discussion. Students should delineate between legal and ethical responsibilities in their answers, and consider the environment’s impact on the living standards of a company’s workforce. They should also explore briefly the impact of regulation on business performance and the issue of having the right amount of regulation versus over-regulation.

Ch 1: Globalization

Practicing International Management Case MTV Goes Global with a Local Beat 1.

Q: Some people outside the United States say teens exposed to large doses of U.S. youth culture on MTV will identify less with their own societies and teens in developing countries will want Western goods they cannot afford. MTV’s response: “It’s just fun, it’s only TV,” says one executive. What do you think? Are there dangers in broadcasting U.S.-style programs and ads to developing countries? A: The debate over the impact of U.S. programming beamed to other developed and developing cultures will likely never cease. The U.S. television program The Simpsons, which depicts a rather unflattering U.S. family, is seen in more than 90 countries. Such a program is unlikely to want young people outside the United States to grow up to be like Homer Simpson. Generally, this program and others, such as Married with Children, the Jerry Springer Show, and Baywatch, are watched around the world for a glimpse into the humorous or darker aspects of U.S. culture. On the other hand, local programming can lose out to the U.S. programming if it is not as entertaining. As regards desires among young people for more “Western” goods, this is a sensitive issue involving elements of economic development and materialism. It could be argued that it is not ethical to show U.S. programs that depict wealthy lifestyles in developing countries because they promote discontent in those markets and promote materialism. However, there are wealthy and poor people in every nation and, following this line of reasoning, one could argue that such programs should not be aired in the U.S. market either—incidentally, some groups do make this argument.

Q: Digital compression technology made it possible for MTV to program over a global network. Can you think of other technological innovations that have helped companies to think globally and act locally? A: Internet retailers such as Amazon make online books in English available globally. However, Amazon also has online service to accommodate those in French- and Spanishspeaking countries. This is a localized approach. The French version of Amazon can further localize its selections by offering books tailored to specific Francophone regions such as Africa and Canada, not just France. Clearly, Amazon can continue to localize by selecting other languages where significant numbers of readers are.

CHAPTER 2 CROSS-CULTURAL BUSINESS LEARNING OBJECTIVES: 1. Describe culture and explain the significance of both national culture and subcultures. 2. Identify the components of culture and describe their impact on international business. 3. Describe cultural change and explain how companies and culture affect each other. 4. Explain how the physical environment and technology influence culture. 5. Describe the two main frameworks used to classify cultures and explain their practical use.

CHAPTER OUTLINE: What Is Culture? Avoiding Ethnocentricity Developing Cultural Literacy National Culture and Subcultures National Culture Subcultures Components of Culture Aesthetics Values and Attitudes Attitudes toward Time Attitudes toward Work Attitudes toward Cultural Change Cultural Diffusion When Companies Change Cultures When Cultures Change Companies Is a Global Culture Emerging? Manners and Customs Manners Customs Folk and Popular Customs The Business Custom of Gift Giving Social Structure Social Group Associations Family Gender Social Status Social Mobility Caste System Class System Religion Christianity Islam Hinduism Buddhism Confucianism Judaism

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Shinto Personal Communication Spoken and Written Language Implications for Managers Language Blunders Lingua Franca Body Language Education Education Level The “Brain Drain” Phenomenon Physical and Material Environments Physical Environment Topography Climate Material Culture Uneven Material Culture Classifying Cultures Kluckhohn–Strodtbeck Framework Case: Dimensions of Japanese Culture Hofstede Framework Bottom Line for Business

A comprehensive set of specially designed PowerPoint slides is available for use with Chapter 2. These slides and the lecture outline below form a completely integrated package that simplifies the teaching of this chapter’s material. Lecture Outline 1.

INTRODUCTION This chapter describes culture in the context of international business, explains how culture affects international business practices and competitiveness, and presents two methods of classifying cultures.

WHAT IS CULTURE? Culture is the set of values, beliefs, rules, and institutions held by a specific group of people. Main components include: aesthetics, values and attitudes, manners and customs, social structure, religion, personal communication, education, and physical and material environments. A.

Avoiding Ethnocentricity 1. Ethnocentricity is the belief that one’s own ethnic group or culture is superior to that of others. It causes people to view other cultures in terms of their own and overlook beneficial aspects of other cultures. 2. Ethnocentricity can undermine business projects when employees are insensitive to cultural nuances.

Developing Cultural Literacy

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Managers working directly in international business should develop cultural literacy—detailed knowledge about a culture that enables a person to function effectively within it. Cultural literacy brings a company closer to customer needs and improves competitiveness.

National Culture and Subcultures National culture generalizes (e.g., British culture: English, Scottish, and Welsh). 1. National Culture a. Nation-states support and promote the concept of a national culture by building museums and monuments to preserve the legacies of important events and people. b. Nation-states intervene to help preserve their national cultures. c. Companies get involved in supporting culture, in part, for the public relations benefit. 2. Subcultures a. A subculture is a group of people who share a unique way of life within a larger, dominant culture. It can differ from the dominant culture in language, race, lifestyle, values, attitudes, and so on. b. Companies must be mindful of subcultures when formulating business strategies (e.g., China has 50 ethnic groups). c. Decisions regarding product design, packaging, and advertising must consider distinct cultures. d. Subcultures also can extend beyond national borders.

COMPONENTS OF CULTURE Culture includes what people consider beautiful and tasteful, their underlying beliefs, their traditional habits, and how they relate to one another and their surroundings. A.

Aesthetics 1. Aesthetics is what a culture considers to be in “good taste” in the arts, the imagery evoked by certain expressions, and the symbolism of colors. 2. Appropriate colors for advertising, product packaging, and even work uniforms can enhance success (e.g., Green in Islam). 3. Blunders can result from selecting inappropriate colors and symbols for advertising, product packaging, and architecture. 4. Music is deeply cultural and must be considered in promotions. 5. It is also an important consideration in marketing over the Internet.

Values and Attitudes 1. Values are ideas, beliefs, and customs to which people are emotionally attached. Affect work ethic and desire for material possessions. Some cultures value leisure; others hard work. 2. Attitudes are positive or negative evaluations, feelings, and tendencies that individuals harbor toward objects or concepts. Learned from role models and formed within a cultural context. More flexible than values. 3. Attitudes toward Time a. Latin American and Mediterranean cultures are casual about time; people in Japan and the United States arrive promptly for meetings and keep tight schedules.

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Americans strive toward workplace efficiency and may leave work early if their work is done because they value individual results. Japanese look busy even when business is slow to demonstrate dedication—an attitude grounded in cohesion, loyalty, and harmony. Attitudes toward Work a. Some cultures have a strong work ethic, others stress a balanced pace in work and leisure (e.g., “Work to live, or live to work”). b. Many European nations are trying to foster an entrepreneurial spirit to achieve the job growth realized in the United States. Attitudes toward Cultural Change A cultural trait is anything that represents a culture’s way of life including gestures, material objects, traditions, and concepts. a. Cultural diffusion is the process whereby cultural traits spread from one culture to another. Globalization and technology are increasing the pace of cultural diffusion and change. b. Cultural imperialism is the replacement of one culture’s traditions, folk heroes, and artifacts with substitutes from another. c. Culture can force companies to adjust business policies and practices, such as using situational management. d. Rapid cultural diffusion and increased human interaction across borders cause cultures to converge. Convergence is taking place in some market segments for some products.

Manners and Customs It is important to understand manners and customs to avoid mistakes abroad. Indepth knowledge improves the abilities of managers. 1. Manners are appropriate ways of behaving, speaking, and dressing in a culture (e.g., conducting business during meals in the United States). 2. Customs are habits or ways of behaving in specific circumstances that are passed down through generations in a culture. Customs define appropriate habits or behaviors in specific situations. a. Folk customs are behaviors, dating back generations, practiced within a homogeneous group of people (e.g., dragon boat festival in China). b. A popular custom is behavior practiced by a heterogeneous group or by several groups (e.g., blue jeans, “burgers ’n fries”). c. Although giving token gifts to business and government associates is customary, the proper type of gift varies. d. Cultures differ in their legal and ethical rules regarding bribery. The U.S. Foreign Corrupt Practices Act prohibits companies from giving large gifts to win business favors, applies to U.S. firms operating at home and abroad.

Social Structure Social structure embodies a culture’s fundamental organization, including groups and institutions, social positions and relationships, and resource distribution. 1. Social Group Associations

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A social group is a collection of two or more people who identify and interact with one another. Contribute to identity and self-image. a. Family i. Nuclear family consists of immediate relatives, including parents, brothers, and sisters. Prevails in Australia, Canada, United States, and in Europe. ii. Extended family includes grandparents, aunts and uncles, cousins, and relatives through marriage. More important in Asia, Middle East, North Africa, and Latin America. b. Gender i. Gender refers to socially learned traits associated with, and expected of, men or women. Sociologists regard gender as a category—people who share some status. ii. Countries vary regarding gender equality at work. Social Status a. Social stratification is the process of ranking people into social layers according to family heritage, income, and occupation. b. Top layer: royalty, government officials, and business leaders. Middle layer: scientists, medical doctors, and others with a university education. Bottom layer: manual and clerical workers with vocational training or secondary-school educations. c. Rankings can and do change over time. Social Mobility a. Social mobility is the ease with which individuals can move up or down a culture’s “social ladder.” b. Caste system: people are born into a social ranking, with no opportunity for social mobility. c. Class system: personal ability and actions decide status and mobility. Highly class-conscious cultures can offer less mobility but experience more class conflict.

Religion Human values often derive from religious beliefs. Different religions take different views of work, savings, and material goods. Beliefs influence competitiveness, economic development, and business strategies. 1. Christianity a. Founded in Palestine 2,000 years ago among Jews who believed that Jesus of Nazareth was the messiah. With 2 billion followers, it is the world’s single largest religion. b. More than 300 denominations but most are Roman Catholic, Protestant, or Eastern Orthodox. c. Roman Catholics are to refrain from placing materialism above God and people. Protestants believe that salvation comes from faith in God and that hard work gives glory to God. d. Christian organizations sometimes get involved in social causes that affect business policy (e.g., Ryanair, Hyundai). 2. Islam a. Founded by Muhammad in 600 A.D. in Mecca, Saudi Arabia— the holy city of Islam. World’s second largest religion with 1.3 billion adherents. Word Islam means “submission to Allah” and Muslim means “one who submits to Allah.” Copyright © 2014 Pearson Education, Inc.

Ch 2: Cross-Cultural Business b. 3.

Religion strongly affects the goods and services acceptable to Muslim consumers (e.g., alcohol, pork, interest on loans). Hinduism a. Founded 4,000 years ago in present-day India, where more than 90 percent of its nearly 900 million adherents live. b. Some say it is a way of life rather than a religion. Caste system is integral to the Hindu faith. Believe in reincarnation—rebirth of the human soul at the time of death. Do not eat or willfully harm living creatures as they may be reincarnated human souls. c. Cows considered sacred animals so eating beef is not allowed (e.g., McDonald’s replaces beef with lamb). Buddhism a. Founded 2,600 years ago in India by a Hindu prince named Siddhartha Gautama. About 380 million followers, mostly in Asia: China, Tibet, Korea, Japan, Vietnam, and Thailand. b. Promotes a life centered on spiritual rather than worldly matters. Buddhists seek nirvana (escape from reincarnation) through charity, modesty, compassion for others, restraint from violence, and general self-control. Confucianism a. Founded 2,500 years ago by exiled politician and philosopher Confucius. China is home to most of the 225 million followers. b. Confucian thought ingrained in the cultures of Japan, South Korea, and nations with large numbers of ethnic Chinese, including Singapore. c. South Korean business practice reflects Confucian thought in its rigid organizational structure and reverence for authority (e.g., Korean-style management in overseas subsidiaries). d. For centuries, people despised merchants because earning money violated Confucian beliefs. Many Chinese moved to Indonesia, Malaysia, Singapore, and Thailand to do business. Judaism a. Founded more than 3,000 years ago and 18 million followers. Was the first religion to teach belief in one God. Orthodox (“fully observant”) Jews make up 12 percent of Israel and constitute an increasingly important economic segment. b. Important observances are Rosh Hashanah (the Jewish New Year), Yom Kippur (the Day of Atonement), Passover (the Exodus from Egypt), and Hanukkah (a victory over the Syrians). c. Employers must be aware of Jewish holidays. Because Sabbath lasts from sundown on Friday to sundown on Saturday, work schedules might need adjustment. d. Marketers must take into account foods banned among observant Jews (e.g., pork and shellfish prohibited, meat stored and served separately from milk) and “kosher” foods. Shinto a. Means “way of the gods” and arose as the native religion of the Japanese. Teaches sincere and ethical behavior, loyalty and respect toward others, and enjoyment of life. Shinto claims about 4 million strict adherents in Japan.

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Shinto beliefs are reflected in the workplace through lifetime employment (although this is waning today) and the traditional trust extended between firms and customers. Japanese competitiveness in world markets has benefited from loyal workforces, low employee turnover, and good labor– management cooperation.

Personal Communication Every culture has a communication system to convey thoughts, feelings, knowledge, and information through speech, writing, and actions. A culture’s spoken and body language can help explain people’s thoughts and behaviors. 1. Spoken and Written Language a. Linguistically different segments of a population are often culturally, socially, and politically distinct. b. Companies have made language blunders in their international business dealings. c. A lingua franca is a third or “link” language that is understood by two parties who speak different languages. d. Some languages are dying out, whereas some languages are growing, including Mandarin, Spanish, and English. 2. Body Language a. Communicated through unspoken cues, including hand gestures, facial expressions, physical greetings, eye contact, and the manipulation of personal space. b. Communicates information and feelings and differs among cultures. Most is subtle and takes time to interpret. c. Proximity is an element of body language; standing too close may invade personal space and appear aggressive.

Education Education passes on traditions, customs, and values. Cultures educate young people through schooling, parenting, religious teachings, and group memberships. Families and other groups provide informal instruction about customs and how to socialize with others. 1. Education Level a. Excellent basic education attracts high-wage industries that invest in training and increase productivity. Skilled, welleducated workforce attracts high-paying jobs; a poorly educated one attracts low-paying jobs. b. Newly industrialized economies in Asia owe much of their economic development to solid education systems. 2. The “Brain Drain” Phenomenon a. Brain drain: departure of highly educated people from one profession, geographic region, or nation to another. b. Reverse brain drain: professionals return to their homelands.

Physical and Material Environments These heavily influence a culture’s development and pace of change. 1. Physical Environment a. Topography: all physical features that characterize the surface of a geographic region. Cultures isolated by impassable mountains

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or large bodies of water are less exposed to the cultural traits of others and change slowly. Topography impacts product needs. b. Topography impacts personal communication (e.g., mountains and the Gobi Desert consume two thirds of China). c. Climate affects where people settle and directs systems of distribution (e.g., Australian desert, jungles, coastal areas). d. Climate plays a large role in lifestyle, clothing, and work habits, such as organizing production schedules for idled machines. Material Culture Includes all technology a culture uses to manufacture goods and provide services, and can measure a culture’s technological advancement. a. A firm enters a market under one of two conditions: (1) demand for its products has developed, or (2) the market is capable of supporting its production operations. b. Changes in material culture can change other aspects of culture. c. Many nations display uneven levels of material culture across geography, markets, and industries.

CLASSIFYING CULTURES People in different cultures respond differently in similar business situations. Two ways to classify cultures based on characteristics such as values, attitudes, and social structure. A.

Kluckhohn–Strodtbeck Framework The Kluckhohn–Strodtbeck Framework compares cultures along six dimensions, asking the following questions: 1. Do people believe that their environment controls them, that they control the environment, or that they are part of nature? 2. Do people focus on past events, on the present, or on the future implications of their actions? 3. Are people easily controlled and not to be trusted, or can they be trusted to act freely and responsibly? 4. Do people desire accomplishments in life, carefree lives, or spiritual and contemplative lives? 5. Do people believe that individuals or groups are responsible for each person’s welfare? 6. Do people prefer to conduct most activities in private or in public? a. Dimensions of Japanese Culture: i. Japanese believe in a delicate balance between people and environment that must be maintained. ii. Japanese culture emphasizes the future. iii. Japanese culture treats people as quite trustworthy. iv. Japanese are accomplishment oriented for employers and work units. v. Japanese culture emphasizes individual responsibility to the group and group responsibility to the individual. vi. The culture of Japan tends to be public.

Hofstede Framework The Hofstede Framework grew from a study of more than 110,000 people working in IBM subsidiaries by Dutch psychologist Geert Hofstede. He developed five dimensions for examining cultures.

Ch 2: Cross-Cultural Business 1.

Individualism versus Collectivism: Identifies the extent to which a culture emphasizes the individual versus the group. a. Individualist cultures value hard work, entrepreneurial risktaking, and freedom to focus on personal goals. b. Collectivist cultures feel a strong association to groups, including family and work units. The goal is to maintain group harmony and work toward collective rather than personal goals. Power Distance: Identifies the degree to which a culture accepts social inequality among its people. a. Large power distance is characterized by inequality between superiors and subordinates. Organizations are hierarchical, with power derived from prestige, force, and inheritance. b. Small power distance means equality, with prestige and rewards equally shared between superiors and subordinates. Power derives from hard work and is considered more legitimate. c. Refer to Figure 2.2. Tight grouping of nations within the five clusters (plus Costa Rica): African, Asian, Central and South American, and Middle Eastern nations in Quadrant 1 (cultures with large power distance and lower individualism). Quadrants 2 and 3 include Australia and the nations of North America and Western Europe (cultures high in individualism and smaller power distance scores). Uncertainty Avoidance: Identifies the extent to which a culture avoids uncertainty and ambiguity. a. Cultures with large uncertainty avoidance value security, place faith in strong systems of rules and procedures, have lower employee turnover, formal rules for employee behavior, and more difficulty implementing change. b. Low uncertainty avoidance cultures are more open to change and new ideas. c. Refer to Figure 2.3. Quadrant 4 contains nations characterized by small uncertainty avoidance and small power distance, including Australia, Canada, Jamaica, the United States, and many Western European nations. Quadrant 2 contains many Asian, Central American, South American, and Middle Eastern nations—nations having large power distance and large uncertainty avoidance indexes. Masculinity versus Femininity: Identifies the extent to which a culture emphasizes masculinity versus femininity. a. Cultures scoring high are characterized by personal assertiveness, accumulation of wealth, and entrepreneurial drive. b. Cultures scoring low have relaxed lifestyles, with more of a concern for others than material gain. Long-Term Orientation: Indicates a society’s time perspective and an attitude of overcoming obstacles with time. It attempts to capture the differences between Eastern and Western cultures. a. Cultures scoring high (strong long-term orientation) value respect for tradition, thrift, perseverance, and a sense of personal shame.

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Cultures scoring low are characterized by individual stability and reputation, fulfilling social obligations, and reciprocation of greetings and gifts.

BOTTOM LINE FOR BUSINESS In this chapter we discussed many of the cultural differences among nations that affect international business. We saw how problems can erupt from cultural misunderstandings and learned how companies can improve their performance with cultural literacy. Localizing business policies and practices can promote success. Understanding a people’s values, beliefs, rules, and institutions makes managers more effective at their jobs.

Quick Study Questions Quick Study 1 1.

Q: Define culture. How does ethnocentricity distort one’s view of other cultures? A: Culture is the set of values, beliefs, rules, and institutions held by a specific group of people. Ethnocentricity is the belief that one’s own ethnic group or culture is superior to that of others. Ethnocentricity distorts people’s views of other cultures because it views other cultures in terms of their own culture. Thus, it causes one to overlook important human and environmental differences among cultures.

Q: What is cultural literacy? Why should businesspeople understand other cultures? A: Cultural literacy is detailed knowledge about a culture that enables people to live and work within it. Globalization is one force creating the need for cultural literacy because it is knitting business activities in various countries more closely together than ever before. Cultural literacy improves the ability of managers to manage employees, market products, and conduct negotiations in other countries. It also helps managers modify products and management techniques to better suit local markets.

Q: How do nation-states and subcultures influence a people’s overall cultural image? A: First, we are conditioned to think in terms of national culture. Nation-states promote the concept of national culture by building museums and monuments to preserve the legacies of important events and people in their histories. This reaffirms the importance of national culture to citizens and organizations. Nation-states also intervene in business to help preserve their national cultures. Second, a subculture is a group of people who share a unique way of life within a larger, dominant culture. Although we often overlook important subcultures in forming our impressions of other national cultures, they are extremely important to conducting business abroad.

Quick Study 2 1.

Q: What is meant by a culture’s aesthetics? Give several examples. A: Aesthetics are what a culture considers to be “good taste” in the arts, the imagery evoked by certain expressions, and the symbolism of certain colors. An example of aesthetics with respect to good taste in music is playing polka music in central European nations including the Czech Republic, Poland, and Slovakia. An example with respect to the arts in the Czech Republic is the production of fine glassware through the art of glass