QUESTION 1
To help illustrate the importance of globalization to our everyday lives, this activity asks you to select one particular room in your home, perhaps the living room. Examine each item present in this room to determine its country of manufacture. Make a list of all of the items in this room along with its country of origin. Alternatively, examine all of your articles of clothing in your closet and shoe rack, noting the country of manufacture.
How many of these items are made in the U.S.? How many are made in other countries? Which ones? Finally, did any countries of origin surprise you and if so why? Write your thoughts and impressions about this exercise in your Journal in an entry exceeding 100 words.
QUESTION 2 (USE ZIP6 SCENARIO THAT I POSTED IN PREVIOUS HOMEWORK) ( YOU CAN CHECK OUT PDF ATTACHMENTS FOR HELP-CHAPTER 3&4)
Many sports beverage companies use cola products that are sourced from local small farmers in lesser developed countries. These companies purchase their raw materials from local “buyers” who purchase the crops of cola nuts grown by small farmers. In an attempt to eliminate unfair buying practices, some smaller beverage companies have announced that they will only purchase “Fair Trade” certified ingredients for use in their products. Ravi recently received a letter from a Fair Trade group outlining abuses suffered by these small farmers and asking Zip-6 to join in the Fair Trade initiative. Fair Trade ingredients are slightly more expensive than traditionally sourced ingredients. Ravi is weighing how to respond. Read the following Philosophical Approaches to Ethics:
Cultural Relativism- (p.144-145)
Justice Theories (P.149-150
Rights Theories (p.148-149)
You are asked to select one particular approach to apply to the above scenario and respond to the checklist items below:
- Which ethical approach do you feel would best address this issue and why?
- Based on your chosen ethical approach, what should Ravi’s response be to the request, and why?
Write your thoughts and impressions about this exercise in your Journal in an entry exceeding 100 words
QUESTION 3
To help illustrate your understanding of government’s role in influencing trade, this activity asks you to reflect on your own feelings about China enjoying “Most Favored Nation” status in its trading with the United States while China often does not reciprocate in its trade policies when it comes to trading with the U.S. Given what you know about the U.S. – Chinese trade relationship from television, newspapers and magazines, do you feel your own government has adequately represented its workers in its enforcement of trade policy with China, why or why not?
Write your thoughts and impressions about this exercise in your Journal in an entry exceeding 100 words
QUESTION 4 (YOU CAN CHECK OUT THE LAST HOMEWORK I SENT YOU TO USE IT AS A RESOURCE)
To help increase your understanding of the importance of Foreign Direct Investment (FDI) into your country (Inward or Inflows) this Assignment asks you to read a short report. To located the report, go to the website for the U.S. Economics & Statistics Administration. Then go to the “Reports” at the top of the site and then June 2011 Foreign Direct Investments in the U.S. Next, click on the PDF on the right hand side.
Please respond to the following:
Did this report give you additional insight into the role of foreign ownership of businesses in the U.S. ? Why?
Does this information agree with or conflict with popular opinion about foreign-owned firms and why?
Write your thoughts and impressions about this exercise in your Journal in an entry exceeding 100 word
THANKS,
L E
A R
N IN
G O
B J E
C T
IV E
S
After you have read this chapter you should be able to:
1 Explain what is meant by the culture of a society.
2 Identify the forces that lead to differences in social culture.
3 Identify the business and economic implications of differences
in culture.
4 Recognize how differences in social culture influence values in the
workplace.
5 Demonstrate an appreciation for the economic and business implications
of cultural change.
part 2 Country Differences
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Business Culture in China opening case
T he first McDonald’s restaurant to open in China was located on the corner of Wangfujing Street and the Avenue of Eternal Peace, just two blocks from Tiananmen Square, the very heart of China’s capital, Beijing. The choice of location seemed auspicious, and within two
years, sales at the restaurant were surpassing all expectations. Then the Beijing city government dropped a bombshell; officials abruptly informed McDonald’s that it would have to vacate the location to make way for a commercial, residential, and office complex planned by Hong Kong developer Li Ka-shing. At the time, McDonald’s still had 18 years to run on its 20-year lease. A stunned McDonald’s did what any good Western company would do—it took the Beijing city government to court to try to enforce the lease. The court refused and McDonald’s had to move. Chinese observers had a simple explanation for the outcome. McDonald’s, they said, lacked the guanxi of Li Ka-shing. Given this, the company could not expect to prevail. Company executives should have accepted the decision in good grace and moved on, but instead, McDonald’s filed a lawsuit—a move that would only serve to reduce what guanxi McDonald’s might have had with the city government! This example illustrates a basic difference between doing business in the West and doing business in China. In the advanced economies of the West, business transactions are conducted and regulated by the centuries-old framework of contract law, which specifies the rights and obligations of parties to a business contract and provides mechanisms for seeking to redress grievances should one party in the exchange fail to live up to the legal agreement. In the West, McDonald’s could have relied on the courts to enforce its legal contract with the city government. In China, this approach didn’t work. China does not have the same legal infrastructure. Personal power and relationships or connections, rather than the rule of law, have always been the key to getting things done in China. The key to understanding this process is the concept of guanxi. Guanxi literally means relationships, although in business settings it can be better understood as “connections.” McDonald’s lost its lease in central Beijing because it lacked the guanxi enjoyed by the powerful Li Ka-shing. The concept of guanxi is deeply rooted in Chinese culture, particularly the Confucian philosophy of valuing social hierarchy and reciprocal obligations. Confucian ideology has a 2,000-year-old history in China, and 60 years of Communist rule has done little to dent its influence on everyday life in China. Confucianism stresses the importance
Differences in Culture
3 c h a p t e r
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of relationships, both within the family and between master and servant. Confucian ideology teaches that people are not created equal. In Confucian thought, loyalty and obligations to one’s superiors (or to family) is regarded as a sacred duty, but at the same time, this loyalty has its price. Social superiors are obligated to reward the loyalty of their social inferiors by bestowing “blessings” upon them; thus, the obligations are reciprocal. Today, Chinese will often cultivate a guanxiwang, or “relationship network,” for help. Reciprocal obligations are the glue that holds such networks together. If those obligations are not met—if favors done are not paid back or reciprocated—the reputation of the transgressor is tarnished and he or she will be less able to draw on the guanxiwang for help in the future. Thus, the implicit threat of social sanctions is often sufficient to ensure that favors are repaid, that obligations are met, and that relationships are honored. In a society that lacks a rule-based legal tradition, and thus legal ways of redressing wrongs such as violations of business agreements, guanxi is an important mechanism for building long-term business relationships and getting business done in China. There is a tacit acknowledgment that if you have the right guanxi, legal rules can be bent. Li Ka-shing had the right guanxi; McDonald’s apparently did not. As they have come to understand this, many Western businesses have tried to build guanxi to grease the wheels required to do business in China. Indeed, guanxi has become a commodity that is for sale to foreigners. Many of the sons and daughters of high-ranking government officials have set up “consulting” firms and offered to mobilize their guanxiwang or those of their parents to help Western companies navigate their way through Chinese bureaucracy. Taking advantage of such services, however, requires good ethical judgment. There is a fine line between relationship building, which may require doing favors to meet obligations, and bribery. Consider the case of a lucrative business contract that was under consideration for more than a year between a large Chinese state-owned enterprise and two competing multinational firms. After months of negotiations, the Chinese elected to continue discussions with just one of the competitors—the one that had recently hired the son of the principal Chinese negotiator at a significant salary. This occurred even though the favored firm’s equipment was less compatible with Chinese equipment already in place than that offered by the multinational that was rejected. The clear implication is that the son of the negotiator had mobilized his guanxiwang to help his new employer gain an advantage in the contract negotiations. While hiring the son of the principal negotiator may be viewed as good business practice by some in the context of Chinese culture, others might argue that this action was ethically suspect and could be viewed as little more than a thinly concealed bribe. • Sources: S. D. Seligman, “Guanxi: Grease for the Wheels of China,” China Business Review, September – October 1999, pp. 34–38; L. Dana, “Culture Is the Essence of Asia,” Financial Times, November 27, 2000, p. 12; L. Minder, “McDonald’s to Close Original Beijing Store,” USA Today, December 2, 1996, p. 1A; M. W. Peng, Business Strategies in Transition Economies (Thousand Oaks, CA: Sage Publications, 2000); and Hannah Seligson, “For American Workers in China: a Cultural Clash,” The New York Times, December 24, 2009, p. B1.
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Chapter Three Differences in Culture 93
Introduction In Chapter 2, we saw how national differences in political, economic, and legal sys- tems influence the benefits, costs, and risks associated with doing business in differ- ent countries. In this chapter, we will explore how differences in culture across and within countries can affect international business. Several themes run through this chapter. The first is that business success in a variety of countries requires cross- cultural literacy. By cross-cultural literacy, we mean an understanding of how cul- tural differences across and within nations can affect the way business is practiced. In these days of global communications, rapid transportation, and worldwide mar- kets, when the era of the global village seems just around the corner, it is easy to forget just how different various cultures really are. Underneath the veneer of mod- ernism, deep cultural differences often remain. Take the Chinese. Increasingly, they are embracing the material products of modern society. Anyone who has visited Shanghai cannot fail to be struck by how modern the city seems, with its skyscrap- ers, department stores, and freeways. Yet beneath the veneer of Western modern- ism, long-standing cultural traditions rooted in a 2,000-year-old ideology continue to have an important influence on the way business is transacted in China. As the opening case illustrates, in China, guanxi, or a network of social relationships with others backed by reciprocal obligations, is central to getting business done. Firms that lack sufficient guanxi may find themselves at a disadvantage when doing busi- ness in China. The lesson: To succeed in China you have to play by Chinese rules. More generally, in this chapter, we shall argue that it is important for foreign busi- nesses to understand the culture that prevails in those countries where they do business, and that success requires a foreign enterprise to adapt to the culture of its host country. 1 Another theme developed in this chapter is that a relationship may exist between the culture and the cost of doing business in a country or region. Different cultures are more or less supportive of the capitalist mode of production and may increase or lower the costs of doing business. For example, some observers have argued that cul- tural factors lowered the costs of doing business in Japan and helped to explain Ja- pan’s rapid economic ascent during the 1960s, 70s, and 80s. 2 Similarly, cultural factors can sometimes raise the costs of doing business. Historically, class divisions were an important aspect of British culture, and for a long time, firms operating in Great Britain found it difficult to achieve cooperation between management and labor. Class divisions led to a high level of industrial disputes in that country during the 1960s and 1970s and raised the costs of doing business relative to the costs in coun- tries such as Switzerland, Norway, Germany, or Japan, where class conflict was his- torically less prevalent. The British example, however, brings us to another theme we will explore in this chapter. Culture is not static. It can and does evolve, although the rate at which culture can change is the subject of some dispute. Important aspects of British cul- ture have changed significantly over the past 30 years, and this is reflected in weaker class distinctions and a lower level of industrial disputes. Indeed, in recent years the number of days lost due to strikes in the United Kingdom has been sig- nificantly less than in Australia, the United States, Ireland, and Canada. 3 Finally, multinational enterprises can themselves be engines of cultural change, particu- larly with regard to material culture. For example, Western fast-food companies such as McDonald’s may help to change the dining culture in developing nations such as India, drawing people away from traditional restaurants and toward fast- food outlets.
Cross-Cultural Literacy An understanding of how cultural differences across and within nations can affect the way business is practiced.
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94 Part Two Country Differences
What Is Culture? Scholars have never been able to agree on a simple definition of culture . In the 1870s, the anthropologist Edward Tylor defined culture as “that complex whole which includes knowledge, belief, art, morals, law, custom, and other capabilities acquired by man as a member of society.” 4 Since then hundreds of other definitions have been offered. Geert Hofstede, an expert on cross-cultural differences and management, defined culture as “the collective programming of the mind which distinguishes the members of one hu- man group from another. . . . Culture, in this sense, includes systems of values; and values are among the building blocks of culture.” 5 Another definition of culture comes from sociologists Zvi Namenwirth and Robert Weber, who see culture as a system of ideas and argue that these ideas constitute a design for living. 6 Here we follow both Hofstede and Namenwirth and Weber by viewing culture as a system of values and norms that are shared among a group of people and that when taken together constitute a design for living. By values we mean abstract ideas about what a group believes to be good, right, and desirable. Put differently, values are shared assumptions about how things ought to be. 7 By norms we mean the social rules and guidelines that prescribe appropriate behavior in particular situations. We shall use the term society to refer to a group of people who share a common set of values and norms. While a society may be equivalent to a country, some countries harbor several societies (i.e., they support multiple cultures), and some societies embrace more than one country.
VALUES AND NORMS Values form the bedrock of a culture. They provide the context within which a society’s norms are established and justified. They may include a society’s attitudes toward such concepts as individual freedom, democracy, truth, jus- tice, honesty, loyalty, social obligations, collective responsibility, the role of women, love, sex, marriage, and so on. Values are not just abstract concepts; they are invested with considerable emotional significance. People argue, fight, and even die over values such as freedom. Values also often are reflected in the political and economic systems of a society. As we saw in Chapter 2, democratic free market capitalism is a reflection of a philosophical value system that emphasizes individual freedom.
Norms are the social rules that govern people’s actions toward one another. Norms can be subdivided further into two major categories: folkways and mores. Folkways are the routine conventions of everyday life. Generally, folkways are actions of little moral sig- nificance. Rather, they are social conventions concerning things such as the appropriate dress code in a particular situation, good social manners, eating with the correct utensils, neighborly behavior, and the like. Although folkways define the way people are expected to behave, violation of them is not normally a serious matter. People who violate folkways may be thought of as eccentric or ill-mannered, but they are not usually considered to be evil or bad. In many countries, foreigners may initially be excused for violating folkways.
A good example of folkways concerns attitudes toward time in different countries. People are keenly aware of the passage of time in the United States and Northern Euro- pean cultures such as Germany and Britain. Businesspeople are very conscious about scheduling their time and are quickly irritated when their time is wasted because a busi- ness associate is late for a meeting or if they are kept waiting. They talk about time as though it were money, as something that can be spent, saved, wasted, and lost. 8 Alterna- tively, in Arab, Latin, and Mediterranean cultures, time has a more elastic character. Keeping to a schedule is viewed as less important than finishing an interaction with people. For example, an American businesswoman might feel slighted if she is kept wait- ing for 30 minutes outside the office of a Latin American executive before a meeting, but the Latin American may simply be completing an interaction with an associate and view the information gathered from this as more important than sticking to a rigid schedule.
LEARNING OBJECTIVE 1 Explain what is meant by the culture of a society.
Culture A system of values and norms that are shared
among a group of people and that when taken together constitute a
design for living.
Norms Social rules and
guidelines that prescribe appropriate behavior in
particular situations.
Values Abstract ideas about
what a group believes to be good, right, and
desirable.
Society A group of people who share a common set of
values and norms.
Folkways Routine conventions of
everyday life.
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Chapter Three Differences in Culture 95
The Latin American executive intends no disre- spect, but due to a mutual misunderstanding about the importance of time, the American may see things differently. Similarly, Saudi attitudes to time have been shaped by their nomadic Bedouin heri- tage, in which precise time played no real role and arriving somewhere tomorrow might mean next week. Like Latin Americans, many Saudis are un- likely to understand the American obsession with precise time and schedules, and Americans need to adjust their expectations accordingly. Folkways include rituals and symbolic behav- ior. Rituals and symbols are the most visible mani- festations of a culture and constitute the outward expression of deeper values. For example, upon meeting a foreign business executive, a Japanese executive will hold his business card in both hands and bow while presenting the card to the for- eigner. 9 This ritual behavior is loaded with deep cultural symbolism. The card specifies the rank of the Japanese executive, which is a very important piece of information in a hierarchical society such as Japan (Japanese often have business cards with Japanese printed on one side, and English printed on the other). The bow is a sign of respect, and the deeper the angle of the bow, the greater the reverence one person shows for the other. The person re- ceiving the card is expected to examine it carefully, which is a way of returning respect and acknowledging the card giver’s position in the hierarchy. The foreigner is also expected to bow when taking the card and to return the greeting by presenting the Japanese executive with his own card, similarly bowing in the process. To not do so, and to fail to read the card that he has been given, instead casually placing it in his jacket, violates this important folkway and is considered rude. Mores are norms that are seen as central to the functioning of a society and to its social life. They have much greater significance than folkways. Accordingly, violating mores can bring serious retribution. Mores include such factors as indictments against theft, adultery, incest, and cannibalism. In many societies, certain mores have been en- acted into law. Thus, all advanced societies have laws against theft, incest, and cannibal- ism. However, there are also many differences between cultures. In America, for example, drinking alcohol is widely accepted, whereas in Saudi Arabia the consumption of alcohol is viewed as violating important social mores and is punishable by imprison- ment (as some Western citizens working in Saudi Arabia have discovered).
CULTURE, SOCIETY, AND THE NATION-STATE We have defined a soci- ety as a group of people that share a common set of values and norms; that is, people who are bound together by a common culture. There is not a strict one-to-one correspon- dence between a society and a nation-state. Nation-states are political creations. They may contain a single culture or several cultures. While the French nation can be thought of as the political embodiment of French culture, the nation of Canada has at least three cultures—an Anglo culture, a French-speaking “Quebecois” culture, and a Native Ameri- can culture. Similarly, many African nations have important cultural differences between tribal groups, as exhibited in the early 1990s when Rwanda dissolved into a bloody civil war between two tribes, the Tutsis and Hutus. Africa is not alone in this regard. India is composed of many distinct cultural groups. During the first Gulf War, the prevailing view
A n o t h e r P e r s p e c t i v e
Doing Business Overseas Going overseas for business? Be aware of cultural differ- ences. For example, not all cultures regard time as Americans do. In Germany or Switzerland, meetings start promptly, but not in Saudi Arabia or Mexico, where meetings often begin with lengthy socializing to establish rapport. Be careful how you say things: Americans and Europeans tend to speak plainly and in a straightforward manner, but the Chinese, Japanese, Koreans, and some Latin Americans are indirect and rely on body language and context to make their point. And be careful what you say. Americans describe business in financial terms; Swedes are more likely to speak in terms of number of employees. A good rule of thumb: Pay attention to cues and don’t assume that your customs are observed everywhere. (“Cultural Differences,” Iowa State University Web site, http://www.celt.iastate.edu, accessed March 25, 2010; and Bill Decker, “Important Questions to Ask While Conducting Business,” Portfolio. com, March 11, 2010, http://www.portfolio.com)
Mores Norms that are seen as central to the functioning of a society and to its social life.
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96 Part Two Country Differences
presented to Western audiences was that Iraq was a homogenous Arab nation. However, since then we have learned that several different societies exist within Iraq, each with its own culture. The Kurds in the north do not view themselves as Arabs and have their own distinct history and traditions. There are two Arab societies: the Shiites in the South and the Sunnis who populate the middle of the country and who ruled Iraq under the regime of Saddam Hussein (the terms Shiites and Sunnis refer to different sects within the religion of Islam). Among the southern
Sunnis is another distinct society of 500,000 Marsh Arabs who live at the confluence of the Tigris and Euphrates rivers, pursuing a way of life that dates back 5,000 years. 10 At the other end of the scale are cultures that embrace several nations. Several scholars argue that we can speak of an Islamic society or culture that is shared by the citizens of many different nations in the Middle East, Asia, and Africa. As you will re- call from the last chapter, this view of expansive cultures that embrace several nations underpins Samuel Huntington’s view of a world that is fragmented into different civi- lizations, including Western, Islamic, and Sinic (Chinese). 11 To complicate things further, it is also possible to talk about culture at different lev- els. It is reasonable to talk about “American society” and “American culture,” but there are several societies within America, each with its own culture. One can talk about African-American culture, Cajun culture, Chinese-American culture, Hispanic culture, Indian culture, Irish-American culture, and Southern culture. The relationship between culture and country is often ambiguous. Even if a country can be characterized as hav- ing a single homogenous culture, often that national culture is a mosaic of subcultures.
THE DETERMINANTS OF CULTURE The values and norms of a culture do not emerge fully formed. They are the evolutionary product of a number of factors, including the prevailing political and economic philosophies, the social structure of a society, and the dominant religion, language, and education (see Figure 3.1). We
A n o t h e r P e r s p e c t i v e
Online View of Other Cultures Visit the online versions of some English-language foreign newspapers in major international cities to get a sense of their cultural values, social structure, and markets. Look at the ads and business names. Check out the classifieds. A good list link is at www.newhopepa.com/News/Intl_News/ default.htm.
LEARNING OBJECTIVE 2 Identify the forces that lead to differences in social culture.
Culture Norms and
Value Systems
Language
Political Philosophy
Economic Philosophy
Education
Religion
Social Structure
figure 3.1
The Determination of Culture
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Chapter Three Differences in Culture 97
discussed political and economic philosophies at length in Chapter 2. Such philoso- phies clearly influence the value systems of a society. For example, the values found in Communist North Korea toward freedom, justice, and individual achievement are clearly different from the values found in the United States, precisely because each society operates according to different political and economic philosophies. Below we will discuss the influence of social structure, religion, language, and education. The chain of causation runs both ways. While factors such as social structure and religion clearly influence the values and norms of a society, the values and norms of a society can influence social structure and religion.
Social Structure A society’s social structure refers to its basic social organization. Although social structure consists of many different aspects, two dimensions are particularly important when explaining differences between cultures. The first is the degree to which the basic unit of social organization is the individual, as opposed to the group. In general, Western societies tend to emphasize the primacy of the individual, whereas groups tend to figure much larger in many other societies. The second dimension is the de- gree to which a society is stratified into classes or castes. Some societies are character- ized by a relatively high degree of social stratification and relatively low mobility between strata (e.g., Indian); other societies are characterized by a low degree of social stratification and high mobility between strata (e.g., American).
INDIVIDUALS AND GROUPS A group is an association of two or more individuals who have a shared sense of identity and who interact with each other in structured ways on the basis of a common set of expectations about each other’s be- havior. 12 Human social life is group life. Individuals are involved in families, work groups, social groups, recreational groups, and so on. However, while groups are found in all societies, societies differ according to the degree to which the group is viewed as the primary means of social organization. 13 In some societies, individual attributes and achievements are viewed as being more important than group mem- bership; in others the reverse is true.
The Individual In Chapter 2, we discussed individualism as a political philosophy. However, individualism is more than just an abstract political philosophy. In many Western societies, the individual is the basic building block of social organization. This is reflected not just in the political and economic organization of society but also in the way people perceive themselves and relate to each other in social and busi- ness settings. The value systems of many Western societies, for example, emphasize individual achievement. The social standing of individuals is not so much a function of whom they work for as of their individual performance in whatever work setting they choose. The emphasis on individual performance in many Western societies has both ben- eficial and harmful aspects. In the United States, the emphasis on individual perfor- mance finds expression in an admiration of rugged individualism and entrepreneurship. One benefit of this is the high level of entrepreneurial activity in the United States and other Western societies. New products and new ways of doing business (e.g., personal computers, photocopiers, computer software, biotechnology, supermarkets, and dis- count retail stores) have repeatedly been created in the United States by entrepreneur- ial individuals. One can argue that the dynamism of the U.S. economy owes much to the philosophy of individualism.
Group An association of two or more individuals who have a shared sense of identity and who interact with each other in structured ways on the basis of a common set of expectations about each other’s behavior.
Social Structure The basic social organization of a society.
LEARNING OBJECTIVE 3 Identify the business and economic implications of
differences in culture.
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98 Part Two Country Differences
Individualism also finds expression in a high degree of managerial mobility between companies, and this is not always a good thing. Although moving from company to company may be good for individual managers who are trying to build impressive ré- sumés, it is not necessarily a good thing for American companies. The lack of loyalty and commitment to an individual company, and the tendency to move on for a better offer, can result in managers who have good general skills but lack the knowledge, experience, and network of interpersonal contacts that come from years of working within the same company. An effective manager draws on company-specific experi- ence, knowledge, and a network of contacts to find solutions to current problems, and American companies may suffer if their managers lack these attributes. One positive aspect of high managerial mobility is that executives are exposed to different ways of doing business. The ability to compare business practices helps U.S. executives iden- tify how good practices and techniques developed in one firm might be profitably ap- plied to other firms. The emphasis on individualism may also make it difficult to build teams within an organization to perform collective tasks. If individuals are always competing with each other on the basis of individual performance, it may be difficult for them to cooperate. A study of U.S. competitiveness by the Massachusetts Institute of Technology sug- gested that U.S. firms are being hurt in the global economy by a failure to achieve cooperation both within a company (e.g., between functions; between management and labor) and between companies (e.g., between a firm and its suppliers). Given the emphasis on individualism in the American value system, this failure is not surpris- ing. 14 The emphasis on individualism in the United States, while helping to create a dynamic entrepreneurial economy, may raise the costs of doing business due to its adverse impact on managerial stability and cooperation.
The Group In contrast to the Western emphasis on the individual, the group is the primary unit of social organization in many other societies. For example, in Japan, the social status of an individual is determined as much by the standing of the group to which he or she belongs as by his or her individual performance. 15 In traditional Japa- nese society, the group was the family or village to which an individual belonged. To- day, the group has frequently come to be associated with the work team or business organization to which an individual belongs. In a now-classic study of Japanese society, Nakane noted how this expresses itself in everyday life:
When a Japanese faces the outside (confronts another person) and affixes some position to himself socially he is inclined to give precedence to institution over kind of occupation. Rather than saying, “I am a typesetter” or “I am a filing clerk,” he is likely to say, “I am from B Publishing Group” or “I belong to S company .” 16
Nakane goes on to observe that the primacy of the group to which an individual belongs often evolves into a deeply emotional attachment in which identification with the group becomes all-important in one’s life. One central value of Japanese culture is the importance attached to group membership. This may have beneficial implications for business firms. Strong identification with the group is argued to create pressures for mutual self-help and collective action. If the worth of an individual is closely linked to the achievements of the group (e.g., firm), as Nakane maintains is the case in Japan, this creates a strong incentive for individual members of the group to work together for the common good. Some argue that the success of Japanese enterprises in the global econ- omy has been based partly on their ability to achieve close cooperation between indi- viduals within a company and between companies. This has found expression in the widespread diffusion of self-managing work teams within Japanese organizations, the
LEARNING OBJECTIVE 3 Identify the business and economic implications of differences in culture.
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Chapter Three Differences in Culture 99
close cooperation among different functions within Japanese companies (e.g., among manufacturing, marketing, and R&D), and the cooperation between a company and its suppliers on issues such as design, quality control, and inventory reduction. 17 In all of these cases, cooperation is driven by the need to improve the performance of the group (i.e., the business firm). The primacy of the value of group identification also discourages managers and workers from moving from company to company. Lifetime employment in a particu- lar company was long the norm in certain sectors of the Japanese economy (estimates suggest that between 20 and 40 percent of all Japanese employees have formal or in- formal lifetime employment guarantees). Over the years, managers and workers build up knowledge, experience, and a network of interpersonal business contacts. All these things can help managers perform their jobs more effectively and achieve cooperation with others. However, the primacy of the group is not always beneficial. Just as U.S. society is characterized by a great deal of dynamism and entrepreneurship, reflecting the pri- macy of values associated with individualism, some argue that Japanese society is char- acterized by a corresponding lack of dynamism and entrepreneurship. Although the long-run consequences are unclear, the United States could continue to create more new industries than Japan and continue to be more successful at pioneering radically new products and new ways of doing business.
SOCIAL STRATIFICATION All societies are stratified on a hierarchical basis into social categories—that is, into social strata. These strata are typically defined on the basis of characteristics such as family background, occupation, and income. Indi- viduals are born into a particular stratum. They become a member of the social cate- gory to which their parents belong. Individuals born into a stratum toward the top of the social hierarchy tend to have better life chances than those born into a stratum toward the bottom of the hierarchy. They are likely to have better education, health, standard of living, and work opportunities. Although all societies are stratified to some degree, they differ in two related ways. First, they differ from each other with regard to the degree of mobility between social strata; second, they differ with regard to the significance attached to social strata in business contexts.
Social Mobility The term social mobility refers to the extent to which individu- als can move out of the strata into which they are born. Social mobility varies signifi- cantly from society to society. The most rigid system of stratification is a caste system. A caste system is a closed system of stratification in which social position is deter- mined by the family into which a person is born, and change in that position is usually not possible during an individual’s lifetime. Often a caste position carries with it a spe- cific occupation. Members of one caste might be shoemakers, members of another might be butchers, and so on. These occupations are embedded in the caste and passed down through the family to succeeding generations. Although the number of societies with caste systems diminished rapidly during the twentieth century, one partial exam- ple still remains. India has four main castes and several thousand subcastes. Even though the caste system was officially abolished in 1949, two years after India became independent, it is still a force in rural Indian society where occupation and marital op- portunities are still partly related to caste (for more details, see the Country Focus feature on the caste system in India today). 18 A class system is a less rigid form of social stratification in which social mobility is possible. It is a form of open stratification in which the position a person has by birth can be changed through his or her own achievements or luck. Individuals born into a
Social Strata Hierarchical social categories often based on family background, occupation, and income.
Social Mobility The extent to which individuals can move out of the strata into which they are born.
Class System A system of social stratification in which the position a person has by birth can be changed through his or her own achievements or luck.
Caste System A closed system of stratification in which social position is determined by the family into which a person is born, and change in that position is usually not possible during an individual’s lifetime.
LEARNING OBJECTIVE 2 Identify the forces that
lead to differences in social culture.
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100 Part Two Country Differences
class at the bottom of the hierarchy can work their way up; conversely, individuals born into a class at the top of the hierarchy can slip down. While many societies have class systems, social mobility within a class system varies from society to society. For example, some sociologists have argued that Britain has a more rigid class structure than certain other Western societies, such as the United States. 19 Historically, British society was divided into three main classes: the upper class, which was made up of individuals whose families for generations had wealth, prestige, and occasionally power; the middle class, whose members were involved in professional, managerial, and clerical occupations; and the working class, whose members earned their living from manual occupations. The middle class was further subdivided into the upper-middle class, whose members were in- volved in important managerial occupations and the prestigious professions (e.g., lawyers, accountants, doctors), and the lower-middle class, whose members were involved in clerical work (e.g., bank tellers) and the less prestigious professions (e.g., schoolteachers). The British class system exhibited significant divergence between the life chances of members of different classes. The upper and upper-middle classes typically sent
Breaking India’s Caste System
Modern India is a country of dramatic contrasts. Its infor- mation technology sector is among the most vibrant in the world, with companies such as Infosys and Wipro Tech- nologies emerging as powerful global players. India’s caste system, long an impediment to social mobility, is a fading memory among the educated urban middle-class Indians who make up the majority of employees in the high-tech economy. However, the same is not true in rural India where 70 percent of the population still resides. There, caste remains a pervasive influence. In 1950, the national constitution reserved 22.5 percent of jobs for people from the lower castes, or Dalits (also known as “untouchables”), and for tribal people. In 1990, an additional 27 percent of jobs were set aside for what were called “other backward castes.” Some Indian states set higher quotas, including Tamil Nadu, which reserves 69 percent of government jobs for lower castes and other needy groups. Despite these long-standing policies, anecdotal and hard evidence sug- gests that the caste system still plays an important role in daily life. For example, a young female engineer at Infosys who grew up in a small rural village and is a Dalit recounts how she never entered the house of a Brahmin , India’s elite priestly cast, even though half of her village was Brahmins . When a Dalit was hired to cook at the school in her native village, Brahmins withdrew their children from the school. The engineer herself is the beneficiary of a charitable training system that Infosys launched in 2006. Her caste is
among the poorest in India, with some 91 percent making less than $100 a month, compared to 65 percent of Brahmins . To try to correct this historic inequality, politicians have talked for years about extending the employment quota system to private enterprises. The government has told private companies to hire more Dalits and members of tribal communities and has warned that strong measures will be taken if companies do not comply. Private employ- ers are resisting government attempts to impose quotas, arguing with some justification that people who are guar- anteed a job by a quota system are unlikely to work very hard. At the same time, progressive employers realize that they need to do something to correct the inequalities and that, unless India taps into the lower castes, it may not be able to find the employees required to staff rapidly growing high-technology enterprises. Thus, the Confed- eration of Indian Industry recently introduced a package of Dalit -friendly measures, including scholarships for bright lower-caste children. Building on this, Infosys is leading the way among high-tech enterprises. The com- pany provides special training to low-caste engineering graduates who have failed to get a job in industry after graduation. While the training does not promise employ- ment, so far almost all graduates who completed the seven-month training program have been hired by Infosys and other enterprises.
Sources: “With Reservations: Business and Caste in India,” The Economist , October 6, 2007, pp. 81–83; and Eric Bellman, “Reversal of Fortune Isolates India’s Brahmins,” The Wall Street Journal , December 24, 2007, p. 4.
3 C o u n t r y F O C U S
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Chapter Three Differences in Culture 101
their children to a select group of private schools, where they wouldn’t mix with lower- class children, and where they picked up many of the speech accents and social norms that marked them as being from the higher strata of society. These same private schools also had close ties with the most prestigious universities, such as Oxford and Cambridge. Until fairly recently, Oxford and Cambridge guaranteed a certain number of places for the graduates of these private schools. Having been to a prestigious uni- versity, the offspring of the upper and upper-middle classes then had an excellent chance of being offered a prestigious job in companies, banks, brokerage firms, and law firms run by members of the upper and upper-middle classes. In contrast, the members of the British working and lower-middle classes typically went to state schools. The majority left at 16, and those who went on to higher educa- tion found it more difficult to get accepted at the best universities. When they did, they found that their lower-class accent and lack of social skills marked them as being from a lower social stratum, which made it more difficult for them to get access to the most prestigious jobs. Because of this, the class system in Britain perpetuated itself from generation to generation, and mobility was limited. Although upward mobility was possible, it could not normally be achieved in one generation. While an individual from a working-class background may have established an income level that was consistent with member- ship in the upper-middle class, he or she may not have been accepted as such by others of that class due to accent and background. However, by sending his or her offspring to the “right kind of school,” the individual could ensure that his or her children were accepted. According to many commentators, modern British society is now rapidly leaving this class structure behind and moving toward a classless society. However, sociologists continue to dispute this finding and present evidence that this is not the case. For ex- ample, one study reported that state schools in the London suburb of Islington, which has a population of 175,000, had only 79 candidates for university, while one presti- gious private school alone, Eton, sent more than that number to Oxford and Cam- bridge. 20 This, according to the study’s authors, implies that “money still begets money.” They argue that a good school means a good university, a good university means a good job, and merit has only a limited chance of elbowing its way into this tight little circle. The class system in the United States is less pronounced than in Britain and mobil- ity is greater. Like Britain, the United States has its own upper, middle, and working classes. However, class membership is determined to a much greater degree by indi- vidual economic achievements, as opposed to background and schooling. Thus, an individual can, by his or her own economic achievement, move smoothly from the working class to the upper class in a lifetime. Successful individuals from humble ori- gins are highly respected in American society. Another society where class divisions have historically been of some importance has been China, where there has been a long-standing difference between the life chances of the rural peasantry and urban dwellers. Ironically, this historic division was strength- ened during the high point of Communist rule because of a rigid system of household registration that restricted most Chinese to the place of their birth for their lifetime. Bound to collective farming, peasants were cut off from many urban privileges—com- pulsory education, quality schools, health care, public housing, varieties of foodstuffs, to name only a few—and they largely lived in poverty. Social mobility was thus very lim- ited. This system crumbled following reforms of the late 1970s and early 1980s, and as a consequence, migrant peasant laborers have flooded into China’s cities looking for work. Sociologists now hypothesize that a new class system is emerging in China based less on the rural-urban divide and more on urban occupation. 21
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102 Part Two Country Differences
Significance From a business perspective, the stratification of a society is sig- nificant if it affects the operation of business organizations. In American society, the high degree of social mobility and the extreme emphasis on individualism limit the impact of class background on business operations. The same is true in Japan, where most of the population perceives itself to be middle class. In a country such as Great Britain, however, the relative lack of class mobility and the differences between classes have resulted in the emergence of class consciousness. Class con- sciousness refers to a condition where people tend to perceive themselves in terms of their class background, and this shapes their relationships with members of other classes. This has been played out in British society in the traditional hostility between upper-middle-class managers and their working-class employees. Mutual antagonism and lack of respect historically made it difficult to achieve cooperation between man- agement and labor in many British companies and resulted in a relatively high level of industrial disputes. However, as noted earlier, the last two decades have seen a dra- matic reduction in industrial disputes, which bolsters the arguments of those who claim that the country is moving toward a classless society (the level of industrial dis- putes in the United Kingdom is now lower than in the United States). Alternatively, as noted above, class consciousness may be reemerging in urban China, and it may ulti- mately prove to be significant there. An antagonistic relationship between management and labor classes, and the result- ing lack of cooperation and high level of industrial disruption, tends to raise the costs of production in countries characterized by significant class divisions. In turn, this can make it more difficult for companies based in such countries to establish a competitive advantage in the global economy.
Until the late 1970s, social mobility in China was very limited, but now sociologists believe a new class system is emerging in China based less on the rural-urban divide and more on urban occupation.
Class Consciousness
A tendency for people to perceive themselves
in terms of their class background.
LEARNING OBJECTIVE 3 Identify the business and economic implications of differences in culture.
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Chapter Three Differences in Culture 103
Religious and Ethical Systems Religion may be defined as a system of shared beliefs and rituals that are concerned with the realm of the sacred. 22 Ethical systems refer to a set of moral principles, or values, that are used to guide and shape behavior. Most of the world’s ethical systems are the product of religions. Thus, we can talk about Christian ethics and Islamic ethics. However, there is a major exception to the principle that ethical systems are grounded in religion. Confucianism and Confucian ethics influence behavior and shape culture in parts of Asia, yet it is incorrect to characterize Confucianism as a religion. The relationship among religion, ethics, and society is subtle and complex. Among the thousands of religions in the world today, four dominate in terms of numbers of adherents: Christianity with 1.7 billion adherents, Islam with around 1 billion adher- ents, Hinduism with 750 million adherents (primarily in India), and Buddhism with 350 million adherents (see Map 3.1). Although many other religions have an impor- tant influence in certain parts of the modern world (for example, Judaism, which has 18 million adherents), their numbers pale in comparison with these dominant reli- gions (however, as the precursor of both Christianity and Islam, Judaism has an indi- rect influence that goes beyond its numbers). We will review these four religions, along with Confucianism, focusing on their business implications. Some scholars have argued that the most important business implications of religion center on the extent to which different religions shape attitudes toward work and entrepreneurship and the degree to which the religious ethics affect the costs of doing business in a country. It is hazardous to make sweeping generalizations about the nature of the relation- ship between religion and ethical systems and business practice. While some scholars argue that there is a relationship between religious and ethical systems and business practice in a society, in a world where nations with Catholic, Protestant, Muslim, Hindu, and Buddhist majorities all show evidence of entrepreneurial activity and sus- tainable economic growth, it is important to view such proposed relationships with a degree of skepticism. The proposed relationships may exist, but their impact is proba- bly small compared to the impact of economic policy. Alternatively, research by econo- mists Robert Barro and Rachel McCleary suggests that strong religious beliefs, and particularly beliefs in heaven, hell, and an afterlife, have a positive impact on economic growth rates, irrespective of the particular religion in question. 23 Barro and McCleary looked at religious beliefs and economic growth rates in 59 countries during the 1980s and 1990s. Their conjecture was that higher religious beliefs stimulate economic growth because they help to sustain aspects of individual behavior that lead to higher productivity.
CHRISTIANITY Christianity is the most widely practiced religion in the world. Approximately 20 percent of the world’s people identify themselves as Christians. The vast majority of Christians live in Europe and the Americas, although their num- bers are growing rapidly in Africa. Christianity grew out of Judaism. Like Judaism, it is a monotheistic religion (monotheism is the belief in one god). A religious division in the eleventh century led to the establishment of two major Christian organiza- tions—the Roman Catholic Church and the Orthodox Church. Today, the Roman Catholic Church accounts for more than half of all Christians, most of whom are found in Southern Europe and Latin America. The Orthodox Church, while less in- fluential, is still of major importance in several countries (e.g., Greece and Russia). In the sixteenth century, the Reformation led to a further split with Rome; the result was Protestantism. The nonconformist nature of Protestantism has facilitated the emer- gence of numerous denominations under the Protestant umbrella (e.g., Baptist, Methodist, Calvinist).
Religion A system of shared beliefs and rituals that are concerned with the realm of the sacred.
Ethical Systems A set of moral principles, or values, that are used to guide and shape behavior.
LEARNING OBJECTIVE 2 Identify the forces that
lead to differences in social culture.
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Chapter Three Differences in Culture 105
Economic Implications of Christianity: The Protestant Work Ethic Several sociologists have argued that of the main branches of Christianity—Catholic, Orthodox, and Protestant—the latter has the most important economic implications. In 1904, a German sociologist, Max Weber, made a connection between Protestant ethics and “the spirit of capitalism” that has since become famous. 24 Weber noted that capitalism emerged in Western Europe, where
business leaders and owners of capital, as well as the higher grades of skilled la- bor, and even more the higher technically and commercially trained personnel of modern enterprises, are overwhelmingly Protestant . 25
Weber theorized that there was a relationship between Protestantism and the emergence of modern capitalism. He argued that Protestant ethics emphasize the im- portance of hard work and wealth creation (for the glory of God) and frugality (absti- nence from worldly pleasures). According to Weber, this kind of value system was needed to facilitate the development of capitalism. Protestants worked hard and sys- tematically to accumulate wealth. However, their ascetic beliefs suggested that rather than consuming this wealth by indulging in worldly pleasures, they should invest it in the expansion of capitalist enterprises. Thus, the combination of hard work and the accumulation of capital, which could be used to finance investment and expansion, paved the way for the development of capitalism in Western Europe and subsequently in the United States. In contrast, Weber argued that the Catholic promise of salvation in the next world, rather than this world, did not foster the same kind of work ethic. Protestantism also may have encouraged capitalism’s development in another way. By breaking away from the hierarchical domination of religious and social life that characterized the Catholic Church for much of its history, Protestantism gave indi- viduals significantly more freedom to develop their own relationship with God. The right to freedom of form of worship was central to the nonconformist nature of early Protestantism. This emphasis on individual religious freedom may have paved the way for the subsequent emphasis on individual economic and political freedoms and the development of individualism as an economic and political philosophy. As we saw in Chapter 2, such a philosophy forms the bedrock on which entrepreneurial free market capitalism is based. Building on this, some scholars claim there is a connection be- tween individualism, as inspired by Protestantism, and the extent of entrepreneurial activity in a nation. 26 Again, one must be careful not to generalize too much from this historical sociological view. While nations with a strong Protestant tradition such as Britain, Germany, and the United States were early leaders in the industrial revolu- tion, nations with Catholic or Orthodox majorities show significant and sustained en- trepreneurial activity and economic growth in the modern world.
ISLAM With about 1 billion adherents, Islam is the second largest of the world’s major religions. Islam dates back to AD 610 when the prophet Muhammad began spread- ing the word, although the Muslim calendar begins in AD 622 when, to escape growing opposition, Muhammad left Mecca for the oasis settlement of Yathrib, later known as Madina. Adherents of Islam are referred to as Muslims. Muslims constitute a majority in more than 35 countries and inhabit a nearly contiguous stretch of land from the north- west coast of Africa, through the Middle East, to China and Malaysia in the Far East. Islam has roots in both Judaism and Christianity (Islam views Jesus Christ as one of God’s prophets). Like Christianity and Judaism, Islam is a monotheistic religion. The central principle of Islam is that there is but the one true omnipotent God. Islam re- quires unconditional acceptance of the uniqueness, power, and authority of God and the understanding that the objective of life is to fulfill the dictates of his will in the hope of admission to paradise. According to Islam, worldly gain and temporal power
LEARNING OBJECTIVE 2 Identify the forces that
lead to differences in social culture.
LEARNING OBJECTIVE 3 Identify the business and economic implications of
differences in culture.
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106 Part Two Country Differences
are an illusion. Those who pursue riches on earth may gain them, but those who forgo worldly ambitions to seek the favor of Allah may gain the greater treasure—entry into paradise. Other major principles of Islam include (1) honoring and respecting parents, (2) respecting the rights of others, (3) being generous but not a squanderer, (4) avoid- ing killing except for justifiable causes, (5) not committing adultery, (6) dealing justly and equitably with others, (7) being of pure heart and mind, (8) safeguarding the pos- sessions of orphans, and (9) being humble and unpretentious. 27 Obvious parallels exist with many of the central principles of both Judaism and Christianity. Islam is an all-embracing way of life governing the totality of a Muslim’s being. 28 As God’s surrogate in this world, a Muslim is not a totally free agent but is circumscribed by religious principles—by a code of conduct for interpersonal relations—in social and economic activities. Religion is paramount in all areas of life. The Muslim lives in a social structure that is shaped by Islamic values and norms of moral conduct. The ritual nature of everyday life in a Muslim country is striking to a Western visitor. Among other things, orthodox Muslim ritual requires prayer five times a day (business meetings may be put on hold while the Muslim participants engage in their daily prayer ritual), requires that women should be dressed in a certain manner, and forbids the consumption of pork and alcohol.
Islamic Fundamentalism The past three decades have witnessed the growth of a social movement often referred to as Islamic fundamentalism. 29 In the West, Islamic fundamentalism is associated in the media with militants, terrorists, and violent up- heavals, such as the bloody conflict occurring in Algeria, the killing of foreign tourists in Egypt, and the September 11, 2001, attacks on the World Trade Center and Pen- tagon in the United States. This characterization is misleading. Just as Christian fun- damentalists are motivated by sincere and deeply held religious values firmly rooted in their faith, so are Islamic fundamentalists. The violence that the Western media
The rise of Islamic fundamentalism as a reaction against globalization and the prevalence of Western cultural ideas has sent many scrambling to try to understand Muslim culture and promote greater dialogue.
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associates with Islamic fundamentalism is perpetrated by a small minority of radical “fundamentalists” who have hijacked the religion to further their own political and violent ends. (Some Christian “fundamentalists” have done exactly the same, includ- ing Jim Jones and David Koresh.) The vast majority of Muslims point out that Islam teaches peace, justice, and tolerance, not violence and intolerance, and that Islam ex- plicitly repudiates the violence that a radical minority practices. The rise of fundamentalism has no one cause. In part, it is a response to the social pressures created in traditional Islamic societies by the move toward modernization and by the influence of Western ideas, such as liberal democracy, materialism, equal rights for women, and attitudes toward sex, marriage, and alcohol. In many Muslim countries, modernization has been accompanied by a growing gap between a rich urban minority and an impoverished urban and rural majority. For the impoverished majority, modernization has offered little in the way of tangible economic progress, while threat- ening the traditional value system. Thus, for a Muslim who cherishes his or her tradi- tions and believes that his or her identity is jeopardized by the encroachment of alien Western values, Islamic fundamentalism has become a cultural anchor. Fundamentalists demand commitment to traditional religious beliefs and rituals. The result has been a marked increase in the use of symbolic gestures that confirm Islamic values. In areas where fundamentalism is strong, women have resumed wear- ing floor-length, long-sleeved dresses and covering their hair; religious studies have increased in universities; the publication of religious tracts has increased; and public religious orations have risen. 30 Also, the sentiments of some fundamentalist groups are often anti-Western. Rightly or wrongly, Western influence is blamed for a range of social ills, and many fundamentalists’ actions are directed against Western govern- ments, cultural symbols, businesses, and even individuals. In several Muslim countries, fundamentalists have gained political power and have used this to try to make Islamic law (as set down in the Koran, the bible of Islam) the law of the land. There are good grounds for this in Islam. Islam makes no distinction between church and state. It is not just a religion; Islam is also the source of law, a guide to statecraft, and an arbiter of social behavior. Muslims believe that every human endeavor is within the purview of the faith—and this includes political activity— because the only purpose of any activity is to do God’s will. 31 (Some Christian funda- mentalists also share this view.) Muslim fundamentalists have been most successful in Iran, where a fundamentalist party has held power since 1979, but they also have had an influence in many other countries, such as Algeria, Afghanistan (where the Taliban established an extreme fundamentalist state until removed by the U.S.-led coalition in 2002), Egypt, Pakistan, the Sudan, and Saudi Arabia.
Economic Implications of Islam The Koran establishes some explicit eco- nomic principles, many of which are pro-free enterprise. 32 The Koran speaks approv- ingly of free enterprise and of earning legitimate profit through trade and commerce (the prophet Mohammed was once a trader). The protection of the right to private property is also embedded within Islam, although Islam asserts that all property is a favor from Allah (God), who created and so owns everything. Those who hold prop- erty are regarded as trustees rather than owners in the Western sense of the word. As trustees they are entitled to receive profits from the property but are admonished to use it in a righteous, socially beneficial, and prudent manner. This reflects Islam’s concern with social justice. Islam is critical of those who earn profit through the ex- ploitation of others. In the Islamic view of the world, humans are part of a collective in which the wealthy and successful have obligations to help the disadvantaged. Put simply, in Muslim countries, it is fine to earn a profit, so long as that profit is justly earned and not based on the exploitation of others for one’s own advantage. It also
LEARNING OBJECTIVE 3 Identify the business and economic implications of
differences in culture.
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helps if those making profits undertake charitable acts to help the poor. Furthermore, Islam stresses the importance of living up to contractual obligations, of keeping one’s word, and of abstaining from deception. For a closer look at how Islam, capitalism, and globalization can coexist, see the accompanying Country Focus on the region around Kayseri in central Turkey. Given the Islamic proclivity to favor market-based systems, Muslim countries are likely to be receptive to international businesses as long as those businesses behave in a manner that is consistent with Islamic ethics. Businesses that are perceived as making an unjust profit through the exploitation of others, by deception, or by breaking contractual
Islamic Capitalism in Turkey
For years now Turkey has been lobbying the European Union to allow it to join the free trade block as a member state. If the EU says yes, Turkey will be the first Muslim state in the union. Many critics worry that Islam and Western-style capitalism do not mix well and, as a result, allowing Turkey into the EU would be a mistake. However, a close look at what is going on in Turkey suggests this view may be misplaced. Consider the area around the city of Kayseri in central Turkey. Many dismiss this poor, largely agricultural region of Turkey as a non-European backwa- ter, far removed from the secular bustle of Istanbul. It is a region where traditional Islamic values hold sway. And yet, it is also a region that has produced so many thriving Mus- lim enterprises that it is sometimes called the Anatolian Tiger. Businesses based here include large food manufac- turers, textile companies, furniture manufacturers, and en- gineering enterprises, many of which export a substantial percentage of their production. Local business leaders attribute the success of compa- nies in the region to an entrepreneurial spirit that they say is part of Islam. They point out that the Prophet Muham- mad, who was himself a trader, preached merchant honor and commanded that 90 percent of a Muslim’s life be de- voted to work in order to put food on the table. Outsider observers have argued that what is occurring around Kay- seri is an example of Islamic Calvinism, a fusion of tradi- tional Islamic values and the work ethic often associated with Protestantism in general and Calvinism in particular. Within Kayseri, the influence of Islam is plain to see. Many companies set aside rooms and time for 15-minute prayer breaks. Most of the older businessmen have been to Mecca on the Hajj, the pilgrimage that all Muslims are meant to make at least once in a lifetime. Few of the café’s and restaurants in Kayseri serve alcohol, and most women wear a head scarf. At the Kayseri sugar factory, one of the most profitable in the region, a senior manager claims that Islam has played a large part in improving the profitability of the enterprise.
For a long time the factory bought most of its sugar beet from a single monopoly supplier, who charged a high price. But because Islam preaches equal opportunity in business, managers at the sugar factory decided that the Islamic thing to do was to diversify the supply base and encourage small producers to sell beets to the factory. Today the fac- tory buys sugar beets from 20,000 small growers. Competi- tion between growers has lowered prices and boosted the factory’s profitability. The same manager also noted, “If you are not a good Muslim, don’t pray five times a day, and don’t have a wife who wears a head scarf, it can be diffi- cult to do business here.” However, not everyone agrees that Islam is the driving force behind the region’s success. Saffet Arslan, the man- aging director of Ipek, the largest furniture producer in the region (which exports to more than 30 countries), claims another force is at work—globalization! According to Arslan, over the past three decades, local Muslims who once eschewed making money in favor of focusing on religion now make business a priority. They see the Western world, and Western capitalism, as a model, and are striving to be successful through the opportunities associated with glo- balization. At the same time, Arslan is a practicing Muslim who has built a mosque in the basement of Ipec’s head- quarters building so that people can pray while at work. If there is a weakness in the Islamic model of business that is emerging in places such as Kayseri, some say it can be found in traditional attitudes toward the role of women in the workplace and in the low level of female employment in the region. According to a report by the European Stability Initiative, the same group that holds up the Kayseri region as an example of Islamic Calvinism, the low participation of women in the local workforce is the Achilles’ heel of the economy and may stymie the region’s attempts to catch up with the countries of the European Union.
Sources: D. Bilefsky, “Turks Knock on Europe’s Door with Evidence that Islam and Capitalism Can Coexist,” The New York Times , August 27, 2006, p. 4; and European Stability Imitative, Islamic Calvinists , September 19, 2005, archived at www.esiweb.org.
3 C o u n t r y F O C U S
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obligations are unlikely to be welcomed in an Islamic country. In addition, in Islamic countries where fundamentalism is on the rise, hostility toward Western-owned busi- nesses is likely to increase. In the previous chapter, we noted that one economic principle of Islam prohibits the payment or receipt of interest, which is considered usury. This is not just a matter of theology; in several Islamic states, it is also a matter of law. The Koran clearly con- demns interest, which is called riba in Arabic, as exploitative and unjust. For many years, banks operating in Islamic countries conveniently ignored this condemnation, but about 30 years ago, starting with the establishment of an Islamic bank in Egypt, Islamic banks began to appear in predominantly Muslim countries. By 2008, more than 200 Islamic financial institutions worldwide managed more than $700 billion in assets. 33 Even conventional banks are entering the market—both Citigroup and HSBC, two of the world’s largest financial institutions, now offer Islamic financial services. While only Iran and the Sudan enforce Islamic banking conventions, in an increasing number of countries, customers can choose between conventional banks and Islamic banks. Conventional banks make a profit on the spread between the interest rate they have to pay to depositors and the higher interest rate they charge borrowers. Because Islamic banks cannot pay or charge interest, they must find a different way of making money. Islamic banks have experimented with two different banking methods—the mudarabah and the murabaha. 34 A mudarabah contract is similar to a profit-sharing scheme. Under mudarabah, when an Islamic bank lends money to a business, rather than charging that business interest on the loan, it takes a share in the profits that are derived from the investment. Simi- larly, when a business (or individual) deposits money at an Islamic bank in a savings account, the deposit is treated as an equity investment in whatever activity the bank uses the capital for. Thus, the depositor receives a share in the profit from the bank’s investment (as opposed to interest payments) according to an agreed-on ratio. Some Muslims claim this is a more efficient system than the Western banking system, since it encourages both long-term savings and long-term investment. However, there is no hard evidence of this, and many believe that a mudarabah system is less efficient than a conventional Western banking system. The second Islamic banking method, the murabaha contract, is the most widely used among the world’s Islamic banks, primarily because it is the easiest to implement. In a murabaha contract, when a firm wishes to purchase something using a loan—let’s say a piece of equipment that costs $1,000—the firm tells the bank after having nego- tiated the price with the equipment manufacturer. The bank then buys the equipment for $1,000, and the borrower buys it back from the bank at some later date for, say, $1,100, a price that includes a $100 markup for the bank. A cynic might point out that such a markup is functionally equivalent to an interest payment, and it is the similarity between this method and conventional banking that makes it so much easier to adopt.
HINDUISM Hinduism has approximately 750 million adherents, most of them on the Indian subcontinent. Hinduism began in the Indus Valley in India more than 4,000 years ago, making it the world’s oldest major religion. Unlike Christianity and Islam, its founding is not linked to a particular person. Nor does it have an officially sanctioned sacred book such as the Bible or the Koran. Hindus believe that a moral force in society requires the acceptance of certain responsibilities, called dharma . Hin- dus believe in reincarnation, or rebirth into a different body, after death. Hindus also believe in karma , the spiritual progression of each person’s soul. A person’s karma is affected by the way he or she lives. The moral state of an individual’s karma deter- mines the challenges he or she will face in the next life. By perfecting the soul in each new life, Hindus believe that an individual can eventually achieve nirvana , a state of
LEARNING OBJECTIVE 2 Identify the forces that
lead to differences in social culture.
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complete spiritual perfection that renders reincarnation no longer necessary. Many Hindus believe that the way to achieve nirvana is to lead a severe ascetic lifestyle of material and physical self-denial, devoting life to a spiritual rather than material quest. One of the interesting aspects of Hindu culture is the reverence for the cow, which Hindus see as a gift of the gods to the human race. The sacred status of the cow cre- ated some unique problems for McDonald’s when it entered India in the 1990s, since devout Hindus do not eat beef (and many are also vegetarians.
Economic Implications of Hinduism Max Weber, famous for expounding on the Protestant work ethic, also argued that the ascetic principles embedded in Hindu- ism do not encourage the kind of entrepreneurial activity in pursuit of wealth creation that we find in Protestantism. 35 According to Weber, traditional Hindu values empha- size that individuals should be judged not by their material achievements but by their spiritual achievements. Hindus perceive the pursuit of material well-being as making the attainment of nirvana more difficult. Given the emphasis on an ascetic lifestyle, Weber thought that devout Hindus would be less likely to engage in entrepreneurial activity than devout Protestants. Mahatma Gandhi, the famous Indian nationalist and spiritual leader, was certainly the embodiment of Hindu asceticism. It has been argued that the values of Hindu as- ceticism and self-reliance that Gandhi advocated had a negative impact on the eco- nomic development of postindependence India. 36 But one must be careful not to read too much into Weber’s arguments. Modern India is a very dynamic entrepreneurial society, and millions of hardworking entrepreneurs form the economic backbone of the country’s rapidly growing economy. Historically, Hinduism also supported India’s caste system. The concept of mobility between castes within an individual’s lifetime makes no sense to traditional Hindus. Hindus see mobility between castes as something that is achieved through spiritual progression and reincarnation. An individual can be reborn into a higher caste in his or her next life if he or she achieves spiritual development in this life. Although the caste system has been abolished in India, it still casts a long shadow over Indian life, according to many observers. In so far as the caste system limits individuals’ opportu- nities to adopt positions of responsibility and influence in society, the economic con- sequences of this religious belief are somewhat negative. For example, within a business organization, the most able individuals may find their route to the higher levels of the organization blocked simply because they come from a lower caste. By the same token, individuals may get promoted to higher positions within a firm as much because of their caste background as because of their ability.
BUDDHISM Buddhism was founded in India in the sixth century BC by Siddhartha Gautama, a Nepalese prince who renounced his wealth to pursue an ascetic lifestyle and spiritual perfection. Siddhartha achieved nirvana but decided to remain on earth to teach his followers how they too could achieve this state of spiritual enlightenment. Siddhartha became known as the Buddha (which means “the awakened one”). Today, Buddhism has 350 million followers, most of whom are found in Central and South- east Asia, China, Korea, and Japan. According to Buddhism, suffering originates in people’s desires for pleasure. Cessation of suffering can be achieved by following a path for transformation. Siddhartha offered the Noble Eightfold Path as a route for transformation. This emphasizes right seeing, thinking, speech, action, living, effort, mindfulness, and meditation. Unlike Hinduism, Buddhism does not support the caste system. Nor does Buddhism advocate the kind of extreme ascetic behavior that is en- couraged by Hinduism. Nevertheless, like Hindus, Buddhists stress the afterlife and spiritual achievement rather than involvement in this world.
LEARNING OBJECTIVE 3 Identify the business and economic implications of differences in culture.
LEARNING OBJECTIVE 2 Identify the forces that lead to differences in social culture.
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Economic Implications of Buddhism The emphasis on wealth creation that is embedded in Protestantism is not found in Buddhism. Thus, in Buddhist societies, we do not see the same kind of historical cultural stress on entrepreneurial behavior that Weber claimed could be found in the Protestant West. But unlike Hinduism, the lack of support for the caste system and extreme ascetic behavior suggests that a Buddhist society may represent a more fertile ground for entrepreneurial activity than a Hindu culture.
CONFUCIANISM Confucianism was founded in the fifth century BC by K’ung- Fu-tzu, more generally known as Confucius. For more than 2,000 years until the 1949 Communist revolution, Confucianism was the official ethical system of China. While observance of Confucian ethics has been weakened in China since 1949, more than 200 million people still follow the teachings of Confucius, principally in China, Korea, and Japan. Confucianism teaches the importance of attaining personal salvation through right action. Although not a religion, Confucian ideology has become deeply embedded in the culture of these countries over the centuries and, through that, has an impact on the lives of many millions more. Confucianism is built around a compre- hensive ethical code that sets guidelines for relationships with others. High moral and ethical conduct and loyalty to others are central to Confucianism. Unlike religions, Confucianism is not concerned with the supernatural and has little to say about the concept of a supreme being or an afterlife.
Economic Implications of Confucianism Some scholars maintain that Con- fucianism may have economic implications as profound as those Weber argued were to be found in Protestantism, although they are of a different nature. 37 Their basic thesis is that the influence of Confucian ethics on the culture of China, Japan, South Korea, and Taiwan, by lowering the costs of doing business in those countries, may help explain their economic success. In this regard, three values central to the Confu- cian system of ethics are of particular interest: loyalty, reciprocal obligations, and hon- esty in dealings with others. In Confucian thought, loyalty to one’s superiors is regarded as a sacred duty—an absolute obliga- tion. In modern organizations based in Confucian cultures, the loyalty that binds employees to the heads of their organization can reduce the conflict between management and labor that we find in more class-conscious societies. Cooperation be- tween management and labor can be achieved at a lower cost in a culture where the virtue of loyalty is emphasized in the value systems. However, in a Confucian culture, loyalty to one’s superiors, such as a worker’s loyalty to man- agement, is not blind loyalty. The concept of recip- rocal obligations is important. Confucian ethics stress that superiors are obliged to reward the loy- alty of their subordinates by bestowing blessings on them. If these “blessings” are not forthcoming, then neither will be the loyalty. This Confucian ethic is central to the Chinese concept of guanxi, which refers to relationship networks supported by reciprocal obligations. 38 As discussed in the open- ing case, guanxi means relationships, although in business settings it can be better understood as
LEARNING OBJECTIVE 3 Identify the business and economic implications of
differences in culture.
LEARNING OBJECTIVE 2 Identify the forces that
lead to differences in social culture.
LEARNING OBJECTIVE 3 Identify the business and economic implications of
differences in culture.
A n o t h e r P e r s p e c t i v e
Shamans: Staying Abreast of the Times in South Korea Since the 1960s, South Korea has enjoyed tremendous economic growth. And as the nation becomes increasingly global, even its shamans—local religious practitioners who channel the spirits on behalf of believers—have had to adapt to changing times. For centuries, shamans played a significant role in traditional village life, helping house- holds deal with family problems, illnesses, and other wor- ries. But now, as the economy has grown and urban development crowded out the South Korean countryside, shamans have moved with the times. Today, they carry cell phones and perform modern-day rituals, or kut, in commer- cial shrines. A twenty-first-century kut is likely to focus more on the concerns of business ownership—worries about market downturns, cash flow, and the competition— than on personal matters. (“South Korean Shamans Fluidly Absorb Cultural Change,” Physord.com, February 23, 2010, http://www.physorg.com)
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connections. Today, Chinese will often cultivate a guanxiwang, or “relationship net- work,” for help. Reciprocal obligations are the glue that holds such networks together. If those obligations are not met—if favors done are not paid back or reciprocated—the reputation of the transgressor is tarnished and the person will be less able to draw on his or her guanxiwang for help in the future. Thus, the implicit threat of social sanctions is often sufficient to ensure that favors are repaid, obligations are met, and relationships are honored. In a society that lacks a rule-based legal tradition, and thus legal ways of redressing wrongs such as violations of business agreements, guanxi is an important mechanism for building long-term business relationships and getting business done in China. For an example of the importance of guanxi , read the Management Focus on DMG-Shanghai. A third concept found in Confucian ethics is the importance attached to honesty. Confucian thinkers emphasize that, although dishonest behavior may yield short-term benefits for the transgressor, dishonesty does not pay in the long run. The importance attached to honesty has major economic implications. When companies can trust each other not to break contractual obligations, the costs of doing business are lowered. Ex- pensive lawyers are not needed to resolve contract disputes. In a Confucian society, people may be less hesitant to commit substantial resources to cooperative ventures than in a society where honesty is less pervasive. When companies adhere to Confucian
M a n a g e m e n t F O C U S
DMG-Shanghai
In 1993, New Yorker Dan Mintz moved to China as a free- lance film director with no contacts, no advertising experi- ence, and no Mandarin. By 2006, the company he had founded in China, DMG, had emerged as one of China’s fastest-growing advertising agencies with a client list that included Budweiser, Unilever, Sony, Nabisco, Audi, Volk- swagen, China Mobile, and dozens of other Chinese brands. Mintz attributes his success in part to what the Chinese call guanxi . In a society that lacks a strong rule-based legal tradition, and thus legal ways of redressing wrongs such as viola- tions of business agreements, guanxi is an important mechanism for building long-term business relationships and getting business done in China. There is a tacit ac- knowledgment that if you have the right guanxi, legal rules can be broken, or at least bent. Mintz, who is now fluent in Mandarin, cultivated his guanxiwang by going into business with two young Chi- nese who had connections, Bing Wu and Peter Xiao. Bing Wu, who works on the production side of the business, was a former national gymnastics champion, which trans- lates into prestige and access to business and govern- ment officials. Peter Xiao comes from a military family with major political connections. Together, these three have been able to open doors that long-established West- ern advertising agencies have not. They have done it in
large part by leveraging the contacts of Wu and Xiao, and by backing up their connections with what the Chinese call Shi li , the ability to do good work. A case in point was DMG’s campaign for Volkswagen, which helped the German company to become ubiquitous in China. The ads used traditional Chinese characters, which had been banned by Chairman Mao during the cul- tural revolution in favor of simplified versions. To get per- mission to use the characters in film and print ads—a first in modern China—the trio had to draw on high-level gov- ernment contacts in Beijing. They won over officials by ar- guing that the old characters should be thought of not as “characters” but as art. Later, they shot TV spots for the ad on Shanghai’s famous Bund, a congested boulevard that runs along the waterfront of the old city. Drawing again on government contacts, they were able to shut down the Bund to make the shoot. Steven Spielberg had been able to close only a portion of the street when he filmed Empire of the Sun there in 1986. DMG has also filmed inside Beijing’s Forbidden City, even though it is against the law to do so. Using his contacts, Mintz persuaded the government to lift the law for 24 hours. As Mintz has noted, “We don’t stop when we come across regulations. There are restrictions everywhere you go. You have to know how get around them and get things done.”
Sources: J. Bryan, “The Mintz Dynasty,” Fast Company , April 2006, pp. 56–62; and M. Graser, “Featured Player,” Variety , October 18, 2004, p. 6.
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ethics, they can trust each other not to violate the terms of cooperative agreements. Thus, the costs of achieving cooperation between companies may be lower in societies such as Japan relative to societies where trust is less pervasive. For example, it has been argued that the close ties between the automobile compa- nies and their component parts suppliers in Japan are facilitated by a combination of trust and reciprocal obligations. These close ties allow the auto companies and their suppliers to work together on a range of issues, including inventory reduction, quality control, and design. The competitive advantage of Japanese auto companies such as Toyota may in part be explained by such factors. 39 Similarly, the combination of trust and reciprocal obligations is central to the workings and persistence of guanxi networks in China. Someone seeking and receiving help through a guanxi network is then obli- gated to return the favor and faces social sanctions if that obligation is not reciprocated when it is called upon. If the person does not return the favor, his or her reputation will be tarnished and he or she will be unable to draw on the resources of the network in the future. It is claimed that these relationship-based networks can be more important in helping to enforce agreements between businesses than the Chinese legal system. Some claim that guanxi networks are a substitute for the legal system. 40
Language One obvious way in which countries differ is language. By language, we mean both the spoken and the unspoken means of communication. Language is one of the defining characteristics of a culture.
SPOKEN LANGUAGE Language does far more than just enable people to communicate with each other. The nature of a language also structures the way we perceive the world. The language of a society can direct the attention of its members to certain features of the world rather than others. The classic illustration of this phenomenon is that whereas the English language has but one word for snow, the language of the Inuit (Eskimos) lacks a general term for it. Instead, because distin- guishing different forms of snow is so important in the lives of the Inuit, they have 24 words that describe different types of snow (e.g., powder snow, falling snow, wet snow, drifting snow). 41 Because language shapes the way people perceive the world, it also helps define cul- ture. Countries with more than one language often have more than one culture. Canada has an English-speaking culture and a French-speaking culture. Tensions between the two can run quite high, with a substantial proportion of the French-speaking minority demanding independence from a Canada “dominated by English speakers.” The same phenomenon can be observed in many other countries. Belgium is divided into Flemish and French speakers, and tensions between the two groups exist; in Spain, a Basque- speaking minority with its own distinctive culture has been agitating for independence from the Spanish-speaking majority for decades; on the Mediterranean island of Cyprus, the culturally diverse Greek- and Turkish-speaking populations of the island engaged in open conflict in the 1970s, and the island is now partitioned into two parts. While it does not necessarily follow that language differences create differences in culture and, there- fore, separatist pressures (e.g., witness the harmony in Switzerland, where four languages are spoken), there certainly seems to be a tendency in this direction. 42 Chinese is the mother tongue of the largest number of people, followed by English and Hindi, which is spoken in India. However, the most widely spoken language in the world is English, followed by French, Spanish, and Chinese (i.e., many people speak English as a second language). English is increasingly becoming the language of international business. When a Japanese and a German businessperson get together
LEARNING OBJECTIVE 3 Identify the business and economic implications of
differences in culture.
LEARNING OBJECTIVE 2 Identify the forces that
lead to differences in social culture.
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to do business, it is almost certain that they will communicate in English. However, although English is widely used, learning the local language yields considerable advantages. Most people pre- fer to converse in their own language, and being able to speak the local language can build rapport, which may be very important for a business deal. International businesses that do not understand the local language can make major blunders through improper translation. For example, the Sunbeam Corporation used the English words for its “Mist-Stick” mist-producing hair curling iron when it entered the German market, only to dis- cover after an expensive advertising campaign that mist means excrement in German. General Motors was troubled by the lack of enthusiasm among Puerto Rican dealers for its new Chevrolet Nova. When literally translated into Spanish, nova means star. However, when spoken it sounds like “no va,” which in Spanish means “it doesn’t go.” General Motors changed the name of the car to Caribe. 43
UNSPOKEN LANGUAGE Unspoken language refers to nonverbal communi- cation. We all communicate with each other by a host of nonverbal cues. The raising of eyebrows, for example, is a sign of recognition in most cultures, while a smile is a sign of joy. Many nonverbal cues, however, are culturally bound. A failure to under- stand the nonverbal cues of another culture can lead to a communication failure. For example, making a circle with the thumb and the forefinger is a friendly gesture in the United States, but it is a vulgar sexual invitation in Greece and Turkey. Similarly, while most Americans and Europeans use the thumbs-up gesture to indicate that “it’s all right,” in Greece the gesture is obscene. Another aspect of nonverbal communication is personal space, which is the com- fortable amount of distance between you and someone you are talking with. In the United States, the customary distance apart adopted by parties in a business discussion is five to eight feet. In Latin America, it is three to five feet. Consequently, many North Americans unconsciously feel that Latin Americans are invading their personal space and can be seen backing away from them during a conversation. Indeed, the American may feel that the Latin is being aggressive and pushy. In turn, the Latin American may interpret such backing away as aloofness. The result can be a regretta- ble lack of rapport between two businesspeople from different cultures.
Education Formal education plays a key role in a society. Formal education is the medium through which individuals learn many of the language, conceptual, and mathematical skills that are indispensable in a modern society. Formal education also supplements the family’s role in socializing the young into the values and norms of a society. Values and norms are taught both directly and indirectly. Schools generally teach basic facts about the social and political nature of a society. They also focus on the fundamental obligations of citizenship. Cultural norms are also taught indirectly at school. Respect for others, obedience to authority, honesty, neatness, being on time, and so on, are all
LEARNING OBJECTIVE 2 Identify the forces that lead to differences in social culture.
LEARNING OBJECTIVE 2 Identify the forces that lead to differences in social culture.
A n o t h e r P e r s p e c t i v e
Helping Teens Speak Their Parents’ Language Minneapolis and St. Paul, Minnesota, are home to the larg- est concentration of Hmong refugees in the United States. Their children—some born in their native Laos but many others born in the United States or in refugee camps in Thailand—are increasingly embracing Western life. While Hmong is spoken at home, high-school-age children have discovered they lack the language skills to explain such Western concepts as “scholarship” or “honor roll” to their parents. Even the words Asian Club defy translation into Hmong. Schools often assume—incorrectly—that students of foreign descent are fluent in their parents’ language. To help preserve their culture and create better school–family relations, Minneapolis students recently petitioned the school board to provide literacy classes that include read- ing, writing, and lessons on Hmong history and culture. (Kristal Leebrick, “Hmong Teens Make It Happen: Minne- apolis School Offers Hmong Language Class,” Twin Cities Daily Planet, March 16, 2010, http://www.tcdailyplanet.com)
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part of the hidden curriculum of schools. The use of a grading system also teaches children the value of personal achievement and competition. 44 From an international business perspective, one important aspect of education is its role as a determinant of national competitive advantage. 45 The availability of a pool of skilled and educated workers seems to be a major determinant of the likely economic success of a country. In analyzing the competitive success of Japan since 1945, for ex- ample, Michael Porter notes that after the war, Japan had almost nothing except for a pool of skilled and educated human resources.
With a long tradition of respect for education that borders on reverence, Japan possessed a large pool of literate, educated, and increasingly skilled human resources. . . . Japan has benefited from a large pool of trained engineers. Japanese universities graduate many more engineers per capita than in the United States. . . . A first-rate primary and secondary education system in J apan operates based on high standards and emphasizes math and science. Primary and secondary education is highly competitive. . . . Japanese educa- tion provides most students all over Japan with a sound education for later education and training. A Japanese high school graduate knows as much about math as most American college graduates . 46
Porter’s point is that Japan’s excellent education system is an important factor ex- plaining the country’s postwar economic success. Not only is a good education system a determinant of national competitive advantage, but it is also an important factor guiding the location choices of international businesses. The recent trend to outsource information technology jobs to India, for example, is partly due to the presence of significant numbers of trained engineers in India, which in turn is a result of the In- dian education system. By the same token, it would make little sense to base produc- tion facilities that require highly skilled labor in a country where the education system was so poor that a skilled labor pool wasn’t available, no matter how attractive the country might seem on other dimensions. It might make sense to base production operations that require only unskilled labor in such a country. The general education level of a country is also a good index of the kind of prod- ucts that might sell in a country and of the type of promotional material that should be used. For example, a country where more than 70 percent of the population is illiterate is unlikely to be a good market for popular books. Promotional material containing written descriptions of mass-marketed products is unlikely to have an effect in a coun- try where almost three-quarters of the population cannot read. It is far better to use pictorial promotions in such circumstances.
Culture and the Workplace Of considerable importance for an international business with operations in different countries is how a society’s culture affects the values found in the workplace. Man- agement process and practices may need to vary according to culturally determined work-related values. For example, if the cultures of the United States and France re- sult in different work-related values, an international business with operations in both countries should vary its management process and practices to account for these differences. Probably the most famous study of how culture relates to values in the workplace was undertaken by Geert Hofstede. 47 As part of his job as a psychologist working for IBM, Hofstede collected data on employee attitudes and values for more than 100,000 individuals from 1967 to 1973. These data enabled him to compare dimen- sions of culture across 40 countries. Hofstede isolated four dimensions that he
LEARNING OBJECTIVE 3 Identify the business and economic implications of
differences in culture.
LEARNING OBJECTIVE 4 Recognize how differences
in social culture influence values in the workplace.
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116 Part Two Country Differences
claimed summarized different cultures—power distance, uncertainty avoidance, indi- vidualism versus collectivism, and masculinity versus femininity. Hofstede’s power distance dimension focused on how a society deals with the fact that people are unequal in physical and intellectual capabilities. According to Hofstede, high power distance cultures were found in countries that let inequalities grow over time into inequalities of power and wealth. Low power distance cultures were found in societies that tried to play down such inequalities as much as possible. The individualism versus collectivism dimension focused on the relationship between the individual and his or her fellows. In individualistic societies, the ties between individuals were loose and individual achievement and freedom were highly valued. In societies where collectivism was emphasized, the ties between in- dividuals were tight. In such societies, people were born into collectives, such as extended families, and everyone was supposed to look after the interests of his or her collective. Hofstede’s uncertainty avoidance dimension measured the extent to which differ- ent cultures socialized their members into accepting ambiguous situations and tolerat- ing uncertainty. Members of high uncertainty avoidance cultures placed a premium on job security, career patterns, retirement benefits, and so on. They also had a strong need for rules and regulations; the manager was expected to issue clear instructions, and subordinates’ initiatives were tightly controlled. Lower uncertainty avoidance cul- tures were characterized by a greater readiness to take risks and less emotional resis- tance to change. Hofstede’s masculinity versus femininity dimension looked at the relationship between gender and work roles. In masculine cultures, sex roles were sharply differen- tiated and traditional “masculine values,” such as achievement and the effective exer- cise of power, determined cultural ideals. In feminine cultures, sex roles were less sharply distinguished, and little differentiation was made between men and women in the same job. Hofstede created an index score for each of these four dimensions that ranged from 0 to 100 and scored high for high individualism, high power distance, high uncertainty avoidance, and high masculinity. He averaged the score for all employees from a given country. Table 3.1 summarizes these data for 20 selected countries. Western nations such as the United States, Canada, and Britain score high on the individualism scale and low on the power distance scale. At the other extreme are a group of Latin Amer- ican and Asian countries that emphasize collectivism over individualism and score high on the power distance scale. Table 3.1 also reveals that Japan’s culture has strong uncertainty avoidance and high masculinity. This characterization fits the standard stereotype of Japan as a country that is male dominant and where uncertainty avoid- ance exhibits itself in the institution of lifetime employment. Sweden and Denmark stand out as countries that have both low uncertainty avoidance and low masculinity (high emphasis on “feminine” values). Hofstede’s results are interesting for what they tell us in a very general way about differences between cultures. Many of Hofstede’s findings are consistent with standard Western stereotypes about cultural differences. For example, many people believe Americans are more individualistic and egalitarian than the Japanese (they have a lower power distance), who in turn are more individualistic and egalitarian than Mex- icans. Similarly, many might agree that Latin countries such as Mexico place a higher emphasis on masculine value—they are machismo cultures—than the Nordic coun- tries of Denmark and Sweden. However, one should be careful about reading too much into Hofstede’s research. It has been criticized on a number of points. 48 First, Hofstede assumes there is a one- to-one correspondence between culture and the nation-state, but as we saw earlier,
Power Distance Theory of how a society deals with the fact that
people are unequal in physical and intellectual capabilities. High power
distance cultures are found in countries that let
inequalities grow over time into inequalities of power and wealth. Low
power distance cultures are found in societies
that try to play down such inequalities as
much as possible.
Individualism versus Collectivism
Theory focusing on the relationship between the individual and his or her fellows; in individualistic
societies, the ties between individuals are loose and
individual achievement and freedom are highly
valued; in societies where collectivism is emphasized, the ties
between individuals are tight; people are born into
collectives, such as extended families, and
everyone is supposed to look after the interests of
the collective.
Masculinity versus Femininity
Theory of the relationship between gender and work
roles. In masculine cultures, sex roles are
sharply differentiated and traditional “masculine
values,” such as achievement and the effective exercise of
power, determine cultural ideals; in feminine
cultures, sex roles are less sharply distinguished, and little differentiation is made between men and women in the same job.
Uncertainty Avoidance
Extent to which different cultures socialize their
members into accepting ambiguous situations and
tolerating uncertainty.
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Chapter Three Differences in Culture 117
many countries have more than one culture. Hofstede’s results do not capture this distinction. Second, the research may have been culturally bound. The research team was composed of Europeans and Americans. The questions they asked of IBM em- ployees and their analysis of the answers may have been shaped by their own cultural biases and concerns. So it is not surprising that Hofstede’s results confirm Western stereotypes, because it was Westerners who undertook the research. Third, Hofstede’s informants worked not only within a single industry, the com- puter industry, but also within one company, IBM. At the time, IBM was renowned for its own strong corporate culture and employee selection procedures, making it possi- ble that the employees’ values were different in important respects from the values of the cultures from which those employees came. Also, certain social classes (such as unskilled manual workers) were excluded from Hofstede’s sample. A final caution is that Hofstede’s work is now beginning to look dated. Cultures do not stand still; they evolve, albeit slowly. What was a reasonable characterization in the 1960s and 1970s may not be so today. Still, just as it should not be accepted without question, Hofstede’s work should not be dismissed either. It represents a starting point for managers trying to figure out how cultures differ and what that might mean for management practices. Also, several other scholars have found strong evidence that differences in culture affect values and
3.1 table
Work-Related Values for 20 Selected Countries
Source: G. Hofstede, Culture’s
Consequences. © 1980, Sage
Publications. Cited in G. Hofstede,
“The Cultural Relativity of
Organizational Practices and
Theories,” Journal of International
Business Studies 14 (Fall 1983),
pp. 75–89. Reprinted by permission
of Geert Hofstede.
Power Uncertainty Distance Avoidance Individualism Masculinity
Argentina 49 86 46 56
Australia 36 51 90 61
Brazil 69 76 38 49
Canada 39 48 80 52
Denmark 18 23 74 16
France 68 86 71 43
Germany (F.R.) 35 65 67 66
Great Britain 35 35 89 66
Indonesia 78 48 14 46
India 77 40 48 56
Israel 13 81 54 47
Japan 54 92 46 95
Mexico 81 82 30 69
Netherlands 38 53 80 14
Panama 95 86 11 44
Spain 57 86 51 42
Sweden 31 29 71 5
Thailand 64 64 20 34
Turkey 66 85 37 45
United Sates 40 46 91 62
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118 Part Two Country Differences
practices in the workplace, and Hofstede’s basic results have been replicated using more diverse samples of individuals in different settings. 49 Still, managers should use the results with caution, for they are not necessarily accurate. Hofstede subsequently expanded his original research to include a fifth dimen- sion that he argued captured additional cultural differences not brought out in his earlier work. 50 He referred to this dimension as “Confucian dynamism” (sometimes called long-term orientation ). According to Hofstede, Confucian dynamism cap- tures attitudes toward time, persistence, ordering by status, protection of face, re- spect for tradition, and reciprocation of gifts and favors. The label refers to these “values” being derived from Confucian teachings. As might be expected, East Asian countries such as Japan, Hong Kong, and Thailand scored high on Confucian dyna- mism, while nations such as the United States and Canada scored low. Hofstede and his associates went on to argue that their evidence suggested that nations with higher economic growth rates scored high on Confucian dynamism and low on individualism—the implication being Confucianism is good for growth. However, subsequent studies have shown that this finding does not hold up under more sophis- ticated statistical analysis. 51 During the past decade countries with high individualism and low Confucian dynamics such as the United States have attained high growth rates, while some Confucian cultures such as Japan have had stagnant economic growth. In reality, while culture might influence the economic success of a nation, it is just one of many factors, and while its importance should not be ignored, it should not be overstated either. The factors discussed in Chapter 2—economic, political, and legal systems—are probably more important than culture in explaining differential economic growth rates over time.
Cultural Change Culture is not a constant; it evolves over time. 52 Changes in value systems can be slow and painful for a society. In the 1960s, for example, American values toward the role of women, love, sex, and marriage underwent significant changes. Much of the social turmoil of that time reflected these changes. Change can often be quite profound. For example, at the beginning of the 1960s, the idea that women might hold senior man- agement positions in major corporations was not widely accepted. Many scoffed at the idea. Today, it is a reality, and few in the mainstream of American society question
the development or the capability of women in the business world. American culture has changed (al- though it is still more difficult for women to gain senior management positions than men). Similarly, the value systems of many ex-communist states, such as Russia, are undergoing significant changes as those countries move away from values that em- phasize collectivism and toward those that empha- size individualism. While social turmoil is an inevitable outcome of such a shift, the shift will still probably occur.
Similarly, some claim that a major cultural shift has been occurring in Japan, with a move toward greater individualism. 53 The model Japanese office worker, or “salaryman,” is characterized as being loyal to his boss and the organization to the point of giving up evenings, weekends, and vacations to serve the organization, which is the collective of
Confucian Dynamism
Theory that Confucian teachings affect attitudes toward time, persistence,
ordering by status, protection of face,
respect for tradition, and reciprocation of gifts
and favors.
LEARNING OBJECTIVE 5 Demonstrate the economic and business implications of cultural change.
A n o t h e r P e r s p e c t i v e
The Chinese as Conspicuous Consumers? By all accounts, the growth of consumerism in China would appear to be a gold mine for marketers in the West looking to promote “the next new thing.” In her book Brand New China, Massachusetts Institute of Technology Professor Jing Wang characterizes this cultural change as “a mockery of the Communist revolution.” And although she agrees that Chinese culture is changing, Wang says it’s not happening as fast as Western marketers might believe. Traditional Chinese values, she says, have not dis- appeared altogether, and Wang advises marketers to keep those values in mind when targeting the Chinese market. (“Party Times: Marketing through Events,” BusinessWeek, June 19, 2007, www.businessweek.com)
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Chapter Three Differences in Culture 119
which the employee is a member. However, a new generation of office workers does not seem to fit this model. An individual from the new generation is likely to be more direct than the traditional Japanese. He acts more like a Westerner, a gaijian. He does not live for the company and will move on if he gets the offer of a better job. He is not keen on overtime, especially if he has a date. He has his own plans for his free time, and they may not include drinking or playing golf with the boss. 54 Several studies have suggested that economic advancement and globalization may be important factors in societal change. 55 For example, there is evidence that eco- nomic progress is accompanied by a shift in values away from collectivism and toward individualism. 56 Thus, as Japan has become richer, the cultural emphasis on collectiv- ism has declined and greater individualism is being witnessed. One reason for this shift may be that richer societies exhibit less need for social and material support structures built on collectives, whether the collective is the extended family or the paternalistic company. People are better able to take care of their own needs. As a result, the impor- tance attached to collectivism declines, while greater economic freedoms lead to an increase in opportunities for expressing individualism. The culture of societies may also change as they become richer because economic progress affects a number of other factors, which in turn influence culture. For exam- ple, increased urbanization and improvements in the quality and availability of educa- tion are both a function of economic progress, and both can lead to declining emphasis on the traditional values associated with poor rural societies. A 25-year study of values in 78 countries, known as the World Values Survey, coordinated by the University of Michigan’s Institute for Social Research, has documented how values change. The study linked these changes in values to changes in a country’s level of economic devel- opment. 57 According to this research, as countries get richer, a shift occurs away from “traditional values” linked to religion, family, and country, and toward “secular ratio- nal” values. Traditionalists say religion is important in their lives. They have a strong sense of national pride; they also think that children should be taught to obey and that the first duty of a child is to make his or her parents proud. They say abortion, eutha- nasia, divorce, and suicide are never justified. At the other end of this spectrum are secular rational values.
The 2006 MTV awards show in India demonstrates the globalization of what was originally American pop culture. Do you think traditional Indian values are at risk from the importation of MTV?
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120 Part Two Country Differences
Another category in the World Values Survey is quality of life attributes. At one end of this spectrum are “survival values,” the values people hold when the struggle for survival is of paramount importance. These values tend to stress that economic and physical security are more important than self-expression. People who cannot take food or safety for granted tend to be xenophobic, are wary of political activity, have authoritarian tendencies, and believe that men make better political leaders than women. “Self-expression” or “well-being” values stress the importance of diversity, belonging, and participation in political processes. As countries get richer, there seems to be a shift from “traditional” to “secular ratio- nal” values, and from “survival values” to “well-being” values. The shift, however, takes time, primarily because individuals are socialized into a set of values when they are young and find it difficult to change as they grow older. Substantial changes in values are linked to generations, with younger people typically being in the vanguard of a significant change in values. With regard to globalization, some have argued that advances in transportation and communication technologies, the dramatic increase in trade since World War II, and the rise of global corporations such as Hitachi, Disney, Microsoft, and Levi Strauss, whose products and operations can be found around the globe, are creating conditions for the merging of cultures. 58 With McDonald’s hamburgers in China, The Gap in India, iPods in South Africa, and MTV everywhere helping to foster a ubiquitous youth culture, some argue that the conditions for less cultural variation have been cre- ated. At the same time, one must not ignore important countertrends, such as the shift toward Islamic fundamentalism in several countries; the separatist movement in Que- bec, Canada; or the continuing ethnic strains and separatist movements in Russia. Such countertrends in many ways are a reaction to the pressures for cultural conver- gence. In an increasingly modern and materialistic world, some societies are trying to reemphasize their cultural roots and uniqueness. Cultural change is not unidirectional, with national cultures converging toward some homogenous global entity. Also, while some elements of culture change quite rapidly—particularly the use of material symbols—other elements change slowly if at all. Thus, just because people the world over wear blue jeans and eat at McDonald’s, one should not assume that they have also adopted American values—for more often than not, they have not.
Focus on Managerial Implications
International business is different from national business because countries and societ- ies are different. In this chapter, we have seen just how different societies can be. Soci- eties differ because their cultures vary. Their cultures vary because of profound differences in social structure, religion, language, education, economic philosophy, and political philosophy. Three important implications for international business flow from these differences. The first is the need to develop cross-cultural literacy. There is a need not only to appreciate that cultural differences exist but also to appreciate what such differences mean for international business. A second implication centers on the connection between culture and national competitive advantage. A third implication looks at the connection between culture and ethics in decision making. In this section, we will explore the first two of these issues in depth. The connection between culture and ethics is explored in the next chapter.
LEARNING OBJECTIVE 3 Identify the business and economic implications of differences in culture.
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Chapter Three Differences in Culture 121
Cross-Cultural Literacy One of the biggest dangers confronting a company that goes abroad for the first time is the danger of being ill-informed. International businesses that are ill-informed about the practices of another culture are likely to fail. Doing business in different cultures requires adaptation to conform with the value systems and norms of that culture. Adaptation can embrace all aspects of an international firm’s operations in a foreign country. The way in which deals are negotiated, the appropriate incentive pay systems for salespeople, the structure of the organization, the name of a product, the tenor of relations between man- agement and labor, the manner in which the product is promoted, and so on, are all sensi- tive to cultural differences. What works in one culture might not work in another. To combat the danger of being ill-informed, international businesses should con- sider employing local citizens to help them do business in a particular culture. They must also ensure that home-country executives are cosmopolitan enough to under- stand how differences in culture affect the practice of international business. Transfer- ring executives overseas at regular intervals to expose them to different cultures will help build a cadre of cosmopolitan executives. An international business must also be constantly on guard against the dangers of ethnocentric behavior. Ethnocentrism is a belief in the superiority of one’s own ethnic group or culture. Hand in hand with eth- nocentrism goes a disregard or contempt for the culture of other countries. Unfortu- nately, ethnocentrism is all too prevalent; many Americans are guilty of it, as are many French people, Japanese people, British people, and so on. Ugly as it is, ethnocentrism is a fact of life, one that international businesses must be on guard against. Simple examples illustrate how important cross-cultural literacy can be. Anthro- pologist Edward T. Hall has described how Americans, who tend to be informal in nature, react strongly to being corrected or reprimanded in public. 59 This can cause problems in Germany, where a cultural tendency toward correcting strangers can shock and offend most Americans. For their part, Germans can be a bit taken aback by the tendency of Americans to call everyone by their first name. This is uncomfortable enough among executives of the same rank, but it can be seen as insulting when a young and junior American executive addresses an older and more senior German manager by his first name without having been invited to do so. Hall concludes it can take a long time to get on a first-name basis with a German; if you rush the process you will be perceived as overfriendly and rude, and that may not be good for business. Hall also notes that cultural differences in attitude to time can cause a myriad of problems. He notes that in the United States, giving a person a deadline is a way of increasing the urgency or relative impor- tance of a task. However, in the Middle East, giving a deadline can have exactly the opposite effect. The American who insists an Arab business associate make his mind up in a hurry is likely to be perceived as overly demanding and exerting undue pressure. The result may be exactly the opposite of what the American intended, with the Arab going slow as a re- action to the American’s arrogance and rudeness. For his part, the American may believe that an Arab as- sociate is being rude if he shows up late to a meeting because he met a friend in the street and stopped to talk. The American, of course, is very concerned about time and scheduling. But for the Arab, who lives in a society where social networks are a major source of information, and maintaining relationships
Social networking and the importance of communal eating are some of the collectivist values Arabs bring to business.
Ethnocentrism A belief in the superiority of one’s own ethnic group or culture; often results in disregard or contempt for the culture of other countries.
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122 Part Two Country Differences
is important, finishing the discussion with a friend is more important than adhering to a strict schedule. Indeed, the Arab may be puzzled as to why the American attaches so much importance to time and schedule.
Culture and Competitive Advantage One theme that continually surfaces in this chapter is the relationship between culture and national competitive advantage. Put simply, the value systems and norms of a coun- try influence the costs of doing business in that country. The costs of doing business in a country influence the ability of firms to establish a competitive advantage in the global marketplace. We have seen how attitudes toward cooperation between manage- ment and labor, toward work, and toward the payment of interest are influenced by social structure and religion. It can be argued that the class-based conflict between workers and management in class-conscious societies, when it leads to industrial dis- ruption, raises the costs of doing business in that society. Similarly, we have seen how some sociologists have argued that the ascetic “other-worldly” ethics of Hinduism may not be as supportive of capitalism as the ethics embedded in Protestantism and Confu- cianism. Also, Islamic laws banning interest payments may raise the costs of doing busi- ness by constraining a country’s banking system. Japan presents an interesting case study of how culture can influence competitive advantage. Some scholars have argued that the culture of modern Japan lowers the costs of doing business relative to the costs in most Western nations. Japan’s emphasis on group affiliation, loyalty, reciprocal obligations, honesty, and education all boost the competitiveness of Japanese companies. The emphasis on group affiliation and loyalty encourages individuals to identify strongly with the companies in which they work. This tends to foster an ethic of hard work and cooperation between manage- ment and labor “for the good of the company.” Similarly, reciprocal obligations and honesty help foster an atmosphere of trust between companies and their suppliers. This encourages them to enter into long-term relationships with each other to work on inventory reduction, quality control, and design—all of which have been shown to improve an organization’s competitiveness. This level of cooperation has often been lacking in the West, where the relationship between a company and its suppliers tends to be a short-term one structured around competitive bidding rather than one based on long-term mutual commitments. In addition, the availability of a pool of highly skilled labor, particularly engineers, has helped Japanese enterprises develop cost- reducing process innovations that have boosted their productivity. 60 Thus, cultural factors may help explain the competitive advantage enjoyed by many Japanese busi- nesses in the global marketplace. The rise of Japan as an economic power during the second half of the twentieth century may be in part attributed to the economic conse- quences of its culture. It also has been argued that the Japanese culture is less supportive of entrepreneur- ial activity than, say, American society. In many ways, entrepreneurial activity is a product of an individualistic mind-set, not a classic characteristic of the Japanese. This may explain why American enterprises, rather than Japanese corporations, dominate industries where entrepreneurship and innovation are highly valued, such as computer software and biotechnology. Of course, obvious and significant exceptions to this gen- eralization exist. Masayoshi Son recognized the potential of software far faster than any of Japan’s corporate giants; set up his company, Softbank, in 1981; and has since built it into Japan’s top software distributor. Similarly, dynamic entrepreneurial indi- viduals established major Japanese companies such as Sony and Matsushita (now know as Panasonic). But these examples may be the exceptions that prove the rule, for as yet there has been no surge in entrepreneurial high-technology enterprises in Japan equivalent to what has occurred in the United States.
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Chapter Three Differences in Culture 123
For the international business, the connection between culture and competitive advantage is important for two reasons. First, the connection suggests which countries are likely to produce the most viable competitors. For example, one might argue that U.S. enterprises are likely to see continued growth in aggressive, cost-efficient com- petitors from those Pacific Rim nations where a combination of free market econom- ics, Confucian ideology, group-oriented social structures, and advanced education systems can all be found (e.g., South Korea, Taiwan, Japan, and, increasingly, China). Second, the connection between culture and competitive advantage has important implications for the choice of countries in which to locate production facilities and do business. Consider a hypothetical case when a company has to choose between two countries, A and B, for locating a production facility. Both countries are characterized by low labor costs and good access to world markets. Both countries are of roughly the same size (in terms of population) and both are at a similar stage of economic develop- ment. In country A, the education system is undeveloped, the society is characterized by a marked stratification between the upper and lower classes, and there are six major linguistic groups. In country B, the education system is well developed, social stratifi- cation is lacking, group identification is valued by the culture, and there is only one linguistic group. Which country makes the best investment site? Country B probably does. In country A, conflict between management and labor, and between different language groups, can be expected to lead to social and industrial disruption, thereby raising the costs of doing business. 61 The lack of a good education system also can be expected to work against the attainment of business goals. The same kind of comparison could be made for an international business trying to decide where to push its products, country A or B. Again, country B would be the logical choice because cultural factors suggest that in the long run, country B is the nation most likely to achieve the greatest level of economic growth. But as important as culture is, it is probably less important than economic, political, and legal systems in explaining differential economic growth between nations. Cul- tural differences are significant, but we should not overemphasize their importance in the economic sphere. For example, earlier we noted that Max Weber argued that the ascetic principles embedded in Hinduism do not encourage entrepreneurial activity. While this is an interesting academic thesis, recent years have seen an increase in en- trepreneurial activity in India, particularly in the information technology sector where India is rapidly becoming an important global player. The ascetic principles of Hindu- ism and caste-based social stratification have apparently not held back entrepreneurial activity in this sector.
cross-cultural literacy, p. 93 culture, p. 94 values, p. 94 norms, p. 94 society, p. 94 folkways, p. 94 mores, p. 95 social structure, p. 97
group, p. 97 social strata, p. 99 social mobility, p. 99 caste system, p. 99 class system, p. 99 class consciousness, p. 102 religion, p. 103 ethical systems, p. 103
power distance, p. 116 individualism versus collectivism, p. 116 uncertainty avoidance, p. 116 masculinity versus femininity, p. 116 Confucian dynamism, p. 118 ethnocentrism, p. 121
Key Terms
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124 Part Two Country Differences
Summary
We have looked at the nature of social culture and studied some implications for business practice. The chapter made the following points:
1. Culture is a complex whole that includes knowledge, beliefs, art, morals, law, customs, and other capabilities acquired by people as members of society.
2. Values and norms are the central components of a culture. Values are abstract ideals about what a society believes to be good, right, and desirable. Norms are social rules and guidelines that prescribe appropriate behavior in particular situations.
3. Values and norms are influenced by political and economic philosophy, social structure, religion, language, and education.
4. The social structure of a society refers to its basic social organization. Two main dimensions along which social structures differ are the individual–group dimension and the stratification dimension.
5. In some societies, the individual is the basic building block of social organization. These societies emphasize individual achievements above all else. In other societies, the group is the basic building block of social organization. These societies emphasize group membership and group achievements above all else.
6. All societies are stratified into different classes. Class-conscious societies are characterized by low social mobility and a high degree of stratification. Less class-conscious societies are characterized by high social mobility and a low degree of stratification.
7. Religion may be defined as a system of shared beliefs and rituals that is concerned with the realm of the sacred. Ethical systems refer to a set
of moral principles, or values, that are used to guide and shape behavior. The world’s major religions are Christianity, Islam, Hinduism, and Buddhism. Although not a religion, Confucianism has an impact on behavior that is as profound as that of many religions. The value systems of different religious and ethical systems have different implications for business practice.
8. Language is one defining characteristic of a culture. It has both spoken and unspoken dimensions. In countries with more than one spoken language, we tend to find more than one culture.
9. Formal education is the medium through which individuals learn skills and are socialized into the values and norms of a society. Education plays an important role in the determination of national competitive advantage.
10. Geert Hofstede studied how culture relates to values in the workplace. He isolated four dimensions that he claimed summarized different cultures: power distance, uncertainty avoidance, individualism versus collectivism, and masculinity versus femininity.
11. Culture is not a constant; it evolves. Economic progress and globalization seem to be two important engines of cultural change.
12. One danger confronting a company that goes abroad for the first time is being ill-informed. To develop cross-cultural literacy, international businesses need to employ host-country nationals, build a cadre of cosmopolitan executives, and guard against the dangers of ethnocentric behavior.
13. The value systems and norms of a country can affect the costs of doing business in that country.
Critical Thinking and Discussion Questions
1. Outline why the culture of a country might influence the costs of doing business in that country. Illustrate your answer with examples.
2. Do you think that business practices in an Islamic country are likely to differ from business practices in the United States? If so, how?
3. What are the implications for international business of differences in the dominant religion or ethical system of a country?
4. Choose two countries that appear to be culturally diverse. Compare the cultures of those countries and then indicate how cultural
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differences influence ( a ) the costs of doing business in each country, ( b ) the likely future economic development of that country, and ( c ) business practices.
5. Reread the Country Focus about Islamic capitalism in Turkey. Then answer the following questions:
a. Can you see anything in the value of Islam that is hostile to business?
b. What does the experience of the region around Kayseri teach us about the relationship between Islam and business?
c. What are the implications of Islamic values towards business for the participation of a country like Turkey in the global economy?
6. Reread the Management Focus on DMG- Shanghai and answer the follow questions:
a. Why do you think that it is so important to cultivate guanxi and guanxiwang in China?
b. What does the experience of DMG tells us about the way things work in China? What would likely happen to a business that obeyed all of the rules and regulations, rather than trying to find a way around them as Dan Mintz apparently did?
c. What are the ethical issues that might arise when drawing upon guanxiwang to get things done in China? What does this suggest about the limits of using guanxiwang for a Western business committed to high ethical standards?
Use the globalEDGE Resource Desk (http:// globalEDGE.msu.edu/resourcedesk/) to complete the following exercises:
1. You have been assigned to negotiate a business deal with the representatives of a potential distributor in South Africa. Since having intercultural skills is critical for a successful international experience, you consider collecting information regarding the local culture before your departure. Prepare a short description of the most striking cultural
characteristics involved in communicating with the local people that may affect business interactions in this country.
2. Asian cultures exhibit significant differences in business etiquette when compared to Western cultures. For example, in China, large hand movements are usually distracting, and it is considered offensive to point while speaking. Find five similar tips regarding the business etiquette of the United Arab Emirates.
Research Task http://globalEDGE.msu.edu
Panasonic and Japan’s Changing Culture
Established in 1920, the consumer electronics giant Pana- sonic was at the forefront of the rise of Japan to the status of major economic power during the 1970s and 1980s (be- fore 2009 Panasonic was known as Matsushita). Like many other long-standing Japanese businesses, Panasonic was regarded as a bastion of traditional Japanese values based on strong group identification, reciprocal obligations, and loyalty to the company. Several commentators attributed Panasonic’s success, and that of the Japanese economy,
to the existence of Confucian values in the workplace. At Panasonic, employees were taken care of by the company from “cradle to the grave.” Panasonic provided them with a wide range of benefits including cheap housing, guaran- teed lifetime employment, seniority-based pay systems, and generous retirement bonuses. In return, Panasonic ex- pected, and got, loyalty and hard work from its employees. To Japan’s postwar generation, struggling to recover from the humiliation of defeat, it seemed like a fair bargain. The
closing case
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employees worked hard for the greater good of Panasonic, and Panasonic reciprocated by bestowing “blessings” on employees. However, culture does not stay constant. According to some observers, the generation born after 1964 lacked the same commitment to traditional Japanese values as their parents. They grew up in a world that was richer, where Western ideas were beginning to make themselves felt, and where the possibilities seemed greater. They did not want to be tied to a company for life, to be a “salaryman.” These trends came to the fore in the 1990s when the Japanese economy entered a prolonged economic slump. As the de- cade progressed, one Japanese firm after another was forced to change its traditional ways of doing business. Slowly at first, troubled companies started to lay off older workers, effectively abandoning lifetime employment guaran- tees. As younger people saw this happening, they concluded that loyalty to a company might not be reciprocated, effec- tively undermining one of the central bargains made in post- war Japan. Panasonic was one of the last companies to turn its back on Japanese traditions, but in 1998, after years of poor perfor- mance, it began to modify traditional practices. The principle agents of change were a group of managers who had exten- sive experience in Panasonic’s overseas operations, and in- cluded Kunio Nakamura, who became the chief executive of Panasonic in 2000. First, Panasonic changed the pay scheme for its 11,000 man- agers. In the past, the traditional twice-a-year bonuses had been based almost entirely on seniority, but now Panasonic said they would be based on performance. In 1999, Panasonic announced this process would be made transparent; managers would be shown what their performance rankings were and how these fed into pay bonuses. As elementary as this might sound in the West, for Panasonic it represented the beginning of a revolution in human resource practices. About the same time, Panasonic took aim at the lifetime employment system and the associated perks. Under the new system, recruits were given the choice of three em- ployment options. First, they could sign on to the traditional option. Under this, they were eligible to live in subsidized company housing, go free to company-organized social events, and buy subsidized services such as banking from group companies. They also still would receive a retirement bonus equal to two years’ salary. Under a second scheme, employees could forgo the guaranteed retirement bonus in exchange for higher starting salaries and keep perks such as cheap company housing. Under a third scheme, they would lose both the retirement bonus and the subsidized services, but they would start at a still higher salary. In its first two years of operation, only 3 percent of recruits chose
the third option—suggesting there is still a hankering for the traditional paternalistic relationship—but 41 percent took the second option. In other ways Panasonic’s designs are grander still. As the company has moved into new industries such as software engineering and network communications technology, it has begun to sing the praises of democratization of employees, and it has sought to encourage individuality, initiative taking, and risk seeking among its younger employees. But while such changes may be easy to articulate, they are hard to im- plement. For all of its talk, Panasonic has been slow to dis- mantle its lifetime employment commitment to those hired under the traditional system. This was underlined in early 2001 when, in response to continued poor performance, Panasonic announced it would close 30 factories in Japan, cut 13,000 jobs including 1,000 management jobs, and sell a “huge amount of assets” over the next three years. While this seemed to indicate a final break with the lifetime employment system—it represented the first layoffs in the company’s history—the company also said unneeded management staff would not be fired but instead transferred to higher growth areas such as health care. With so many of its managers a product of the old way of doing things, a skeptic might question the ability of the com- pany to turn its intentions into a reality. As growth has slowed, Panasonic has had to cut back on its hiring, but its continued commitment to long-standing employees means that the aver- age age of its workforce is rising. In the 1960s it was around 25; by the early 2000s it was 35, a trend that might counteract Panasonic’s attempts to revolutionize the workplace, for surely those who benefited from the old system will not give way easily to the new. Still, by the mid-2000s it was clear that Panasonic was making progress. After significant losses in 2002, the company broke even in 2003 and started to make profits again in 2004. New growth drivers, such as sales of DVD equipment, helped, but so did the cultural and organiza- tional changes that enabled the company to better exploit these new opportunities. The company continued to make solid profits until 2009, when, like most enterprises, it was hit by the global recession. Panasonic’s response to this showed how much the company had changed. The company quickly announced that it would close 27 plants and lay off 15,000 em- ployees, half of them in Japan, signaling perhaps, the final end of it’s lifetime employment commitments.
Sources: “Putting the Bounce Back into Matsushita,” The Economist, May 22, 1999, pp. 67–68; “In Search of the New Japanese Dream,” The Economist, February 19, 2000, pp. 59–60; P. Landers, “Matsushita to Restructure in Bid to Boost Thin Profits,” The Wall Street Journal, December 1, 2000, p. A13; M. Tanikawa, “A Pillar of Japan Inc. Finally Turns Around; Work in Progress,” International Herald Tribune, August 28, 2004, pp. 17–18; and “Panasonic Will Slash Jobs, Shut 27 Plants,” Los Angeles Times, February 5, 2009, p. C3.
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Case Discussion Questions 1. What were the triggers of cultural change in Japan
during the 1990s? How is cultural change starting to affect traditional values in Japan?
2. How might Japan’s changing culture influence the way Japanese businesses operate in the future? What are the potential implications of such changes for the Japanese economy?
3. How did traditional Japanese culture benefit Panasonic during the 1950s–1980s? Did traditional values become more of a liability during the 1990s and early 2000s? How so?
4. What is Panasonic trying to achieve with human resource changes it has announced? What are the impediments to successfully implementing these changes? What are the implications for Panasonic if ( a ) the changes are made quickly or ( b ) it takes years or even decades to fully implement the changes?
5. What does the Panasonic case teach you about the relationship between societal culture and business success?
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