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Chapter 03 - Differences in Culture

Differences in Culture
Chapter Outline
OPENING CASE: McDonalds in India INTRODUCTION WHAT IS CULTURE? Values and Norms Culture, Society, and the Nation-State The Determinants of Culture SOCIAL STRUCTURE Individuals and Groups Social Stratification Country Focus: Breaking Indias Caste System RELIGIOUS AND ETHICAL SYSTEMS Christianity Islam Country Focus: Islamic Capitalism in Turkey Hinduism Buddhism Confucianism Management Focus: DMG-Shanghai LANGUAGE Spoken Language Unspoken Language EDUCATION CULTURE AND THE WORKPLACE CULTURAL CHANGE FOCUS ON MANAGERIAL IMPLICATIONS

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Cross-Cultural Literacy Culture and Competitive Advantage SUMMARY CRITICAL THINKING AND DISCUSSION QUESTIONS CLOSING CASE: Wal-Marts Foreign Expansion

Learning Objectives
1. Know what is meant by the culture of a society. 2. Identify the forces that lead to differences in social culture. 4. Identify the business and economic implications of differences in culture. 5. Understand how differences in social culture influence values in the workplace. 6. Develop an appreciation for the economic and business implications of cultural change.

Chapter Summary
This chapter begins by introducing the concept of culture. The determinants of culture are identified, which include religion, political philosophy, economic philosophy, education, language, and social structure. The first half of the chapter focuses on the influence of social structure, religion, language, and education on culture. The section on religion explains the economic implications of Christianity, Islam, Hinduism, Buddhism, and Confucianism. In addition, Geert Hofstedes model of how a societys culture impacts the values found in the workplace is presented. According to Hofstede, cultures vary along the lines of power distance, individualism versus collectivism, uncertainty avoidance, and masculinity versus femininity. The concept of ethnocentric behavior is introduced. Finally, the author reiterates the point that the value systems and norms of a country influence the costs of doing business in that country.

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Opening Case: McDonalds In India


Summary The opening case explores the unique challenges faced by McDonalds in India. The cow is considered sacred in Indias Hindu culture prompting McDonalds to alter its menu to offer mutton and chicken alternatives to its traditional beef burgers. McDonalds now has over 130 restaurants in India and many more are planned. However, the company was recently the target of negative reports when it was discovered that its French fries were cooked in oil that contained beef extract. Discussion of the case can revolve around the following questions: Suggested Discussion Questions QUESTION 1: How did McDonalds change its product line to meet the needs of the Indian market? Does the Indian version of McDonalds still maintain the companys identity? ANSWER 1: In response to the needs of the Indian market, McDonalds changed its menu to include mutton and chicken products rather than the beef based products that are featured in its regular menu. Most students will probably suggest that even with the changes, the company remained true to its identity because it used names similar to traditional names to describe the new products, and built its restaurants following the traditional American style. QUESTION 2: Did McDonalds handle the revelation that its French fries contained beef extract well? What would you have done differently? ANSWER 2: The lawsuit against McDonalds over the presence of beef extract in its French fries caught the company off-guard. McDonalds quickly acknowledged its mistake, and settled the lawsuit. The company also made a public apology and vowed to be more accurate in its food labeling in the future. However, many students will probably argue that the company failed to adequately reassure consumers in India, where angry Hindus protested in the streets. Students might suggest that the company should have responded not only to the Indians located in the United States who prompted the lawsuit, but also to the citizens of India, and other Hindu customers. Teaching Tip: Students can learn more about McDonalds India by going to the companys website {http://www.mcdonalds.com/} and clicking on India.

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Chapter Outline with Lecture Notes and Teaching Tips


INTRODUCTION A) The focus of this chapter is on culture, and how the underlying characteristics of a country help define the values and norms of a society. This affects not only how an individual from one country must adapt to work in another country, but also how organizations, as described in the opening case, must adapt to cultural differences across and within the countries in which they operate. B) Two themes run through this chapter. The first theme is that operating a successful international business requires cross-cultural literacy. By cross cultural literacy, we mean an understanding of how cultural differences across and within nations can affect the way in which business is practiced. The second theme is that a relationship may exist between culture and the costs of doing business in a country or region. WHAT IS CULTURE? A) Culture is a system of values and norms that are shared among a group of people and that when taken together constitute a design for living. The fundamental building blocks of culture are values (abstract ideas about what a group believes to be good, right, and desirable) and norms (the social rules and guidelines that prescribe appropriate behavior in particular situations). The term society refers to a group of people who share a common set of values and norms. Value and Norms B) Values provide the context within which a societys norms are established and justified and form the bedrock of a culture. Norms are the social rules that govern the actions of people toward one another. Norms can be further subdivided into folkways (the routine conventions of everyday life) and mores (norms that are seen as central to the functioning of a society and to its social life). Culture, Society, and the Nation-State C) A society can be defined as a group of people that share a common set of values and norms; that is, a group bound together by a common culture. But there is not a strict one-to-one correspondence between a society and a nation-state. Nation-states are political creations. They may contain a single culture or several distinct cultures. The Determinants of Culture D) The values and norms of a culture do not emerge fully formed. They are the evolutionary product of a number of factors including prevailing political and economic philosophies, the social structure of a society, and the dominant religion, language, and education.

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SOCIAL STRUCTURE A) A society's social structure refers to its basic social organization. Two dimensions stand out 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. The second dimension is the degree to which a society is stratified into classes or castes. Individuals and Groups The Individual B) A focus on the individual and individual achievement is common in many Western societies. In Chapter 2 the implications of this for political and economic systems were discussed. An emphasis on individual achievement has positive and negative implications. On the positive side, the dynamism of the U.S. economy owes much to the philosophy of individualism. On the other hand, individualism can lead to a lack of company loyalty and failure to gain company specific knowledge, competition between individuals in a company rather than team building, and can limit people's ability to develop a strong network of contacts within a firm. The Group C) In sharp contrast to the Western emphasis on the individual, in many Asian societies the 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 others behavior) is the primary unit of social organization. While in earlier times the group was usually the family or the village, today the group may be a work team or business organization. When meeting someone she may say she works for Sony rather than say she is an engineer that designs disk drives. The worth of an individual is more linked to the success of the group than individual achievement. This emphasis on the group may discourage job switching between firms, encourage lifetime employment systems, and lead to cooperation in solving business problems. On the other hand, individual creativity and initiative is suppressed. Social Stratification D) All societies are stratified on a hierarchical basis into social categories, or social strata. Social Mobility E) Social mobility refers to the extent to which individuals can move out of the strata into which they are born. A caste system is a form 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 whereas a class system is a form of open social stratification in which the position a person has by birth can be changed through his or her achievement or luck.

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Significance F) A countrys social strata can have important implications for the management and organization of businesses. In cultures where there is a great deal of consciousness over the class of others, the way individuals from different classes work together (i.e. management and labor) may be very prescribed and strained in some cultures (i.e. Britain), or have almost no significance in others (i.e. Japan). Class consciousness refers to a condition where people tend to perceive themselves in terms of their class background, and this shapes their relationships with others. Country Focus: Breaking Indias Caste System Summary This feature explores Indias caste system and the implications of the system. While many urban middle class citizens are not affected in a significant way by the caste system, for Indias rural population, the influence of the system is readily apparent. The government is strongly encouraging private companies to hire more lower caste individuals. Suggested Discussion Questions 1. Indias castes system has been around for many years. Explain why its influence has diminished among educated urban middle class Indians. Discussion Points: The caste system in India was officially abolished in 1949. However, it seems that urban citizens have benefited the most from its abolishment. For many rural Indians, the system is still very much in effect. Educated, urban middle class Indians make up the majority of employees in Indias high tech economy. They may work for large multinationals like Infosys and Wipro. Many students will probably attribute the relative freedom of these individuals to the presence of these large companies, and their need to hire the best people regardless of caste. In rural areas though, the caste system still has significant influence in daily life. One female engineer working for Infosys notes for example that as a member of a lower caste, she was not able to enter the homes of higher caste individuals. Yet the same engineer, a beneficiary of an Infosys training programs, now works for Infosys in a higher caste position. 2. Why are many private companies in India resisting the hiring quotas suggested by the government? Why might it be necessary to hire lower caste individuals? Discussion Points: The Indian government has suggested that private companies make an effort to employ lower caste individuals. However, many companies are resisting the request using the argument that they want to hire qualified people who want to work hard, and not people who are available simply because of a quota system. Some companies however, recognize that there may be a place for lower caste individuals, especially has business grows. Infosys for example, offers special training to low caste members.

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Lecture Note: For more on Indias caste system, go to {http://www.npr.org/programs/specials/racism/010828.caste.html}. RELIGIOUS AND ETHICAL SYSTEMS A) Religion can be defined as a system of shared beliefs and rituals that are 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 ethical practices of individuals within a culture are often closely intertwined with their religion. While there are literally thousands of religions worldwide, four that have the largest following are Christianity, Islam, Hinduism, and Buddhism. Confucianism, while not a religion, influences behavior and shapes culture in many parts of Asia. Map 3.1 shows dominant religions across the world. Christianity B) Christianity is the largest religion and is common throughout Europe, the Americas, and other countries settled by Europeans. About 20 percent of the worlds population is Christian. Within Christianity there are three major branches: Protestant, Roman Catholic, and Eastern Orthodox. Economic Implications of Christianity: The Protestant Work Ethic C) At the turn of the century Weber suggested that is was the "Protestant work ethic" that was the driving force of capitalism. This focus on hard work, wealth creation, and frugality encouraged capitalism while the Catholic promise of salvation in the next world did not foster the same kind of work ethic. The Protestant emphasis on individual religious freedom, in contrast to the hierarchical Catholic Church, was also consistent with the individualist economic and political philosophy discussed in Chapter 2. Islam D) Islam has the same underlying roots of Christianity (Christ is viewed as a prophet), and suggests many of the same underlying societal mores. Islam, however, extends this to more of an all-embracing way of life that governs one's being. It also prescribes many more "laws" on how people should act and live that are entirely counter the US "separation of church and state." Islamic Fundamentalism E) The past three decades have witnessed the growth of a social movement often referred to as Islamic fundamentalism. In the West, Islamic fundamentalism is associated in the media with militants, terrorists, and violent upheavals. However, this characterization may be misleading as the vast majority of Muslims point out that Islam teaches peace, justice, and tolerance. Fundamentalists demand a rigid commitment to traditional religious beliefs and rituals. Fundamentalists have gained political power in many Muslim countries, and have tried to make Islamic law the law of the land.

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Economic Implications of Islam F) In Islam people do not own property, but only act as stewards for God and thus must take care of that which they have been entrusted with. They must use property in a righteous, socially beneficial, and prudent manner; not exploit others for their own benefit; and they have obligations to help the disadvantaged. Thus Islam is supportive of international business as long as it is carried out in a way that reflects basic Islamic values. Country Focus: Islamic Capitalism in Turkey Summary This feature examines the debate surrounding Turkeys membership in the European Community. Turkey has indicated that it would like to be a part of the regional bloc, but many are concerned that because the countrys dominant religion is Islam, it would not be a good fit. Others however, argue that these fears are unfounded. Supporters of Turkeys membership in the European Union note that the countrys central region is home to many thriving entrepreneurial ventures. Suggested Discussion Questions 1. Are the concerns of those opposing Turkeys admittance to the European Union well-founded? Can Islam, capitalism, and globalization co-exist? Discussion Points: Many students will probably suggest that if the countrys religious preferences are the only issue preventing Turkeys membership in the European Union, then indeed these fears are unfounded. Students taking this perspective are likely to point out that Central Turkey, a region where Islamic values are particularly strong, is also referred to as the Anatolian Tiger because it is home to so many thriving Muslim companies, many of which are large exporters. Other students however, may note that traditionally Islam is critical of those who earn a profit through the exploitation of others. Depending on just how this view is defined could influence how Turkey views the economic activities of other European Union countries. 2. Explain the concept of Islamic Calvinism? How has Islamic Calvinism helped the Kayseri region of Turkey? Discussion Points: Islamic Calvinism is a fusion of traditional Islamic values and the Protestant work ethic. In the Kayseri region of Turkey, Islamic Calvinism is evident. The region is home to many thriving businesses in a wide variety of industries that have successfully meshed traditional Islamic values with the entrepreneurial values associated with the Protestant work ethic. Many companies set aside time for daily prayers and trips to Mecca, most restaurants in the region do not serve alcohol and require women to cover their heads. At the same time, businesses in the region have made it priority to make money.

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Lecture Note: To get an update of Turkeys current situation go to {http://www.mfa.gov.tr/default.en.mfa}. Hinduism G) Hinduism, practiced primarily on the Indian sub-continent, focuses on the importance of achieving spiritual growth and development, which may require material and physical self-denial. Economic Implications of Hinduism H) Since Hindus are valued by their spiritual rather than material achievements, there is not the same work ethic or focus on entrepreneurship found in some other religions. Likewise, promotion and adding new responsibilities may not be the goal of an employee, or may be infeasible due to the employee's caste. Buddhism I) Buddhists also stress spiritual growth and the afterlife, rather than achievement while in this world. Buddhism, practiced mainly in South East Asia, does not support the caste system, however, so individuals do have some mobility not found in Hinduism and can work with individuals from different classes. Economic Implications of Buddhism J) Because Buddhists do not support the caste system, and do not practice the extreme ascetic behavior of Hinduism, entrepreneurial activity is possible. Confucianism K) Confucianism, practiced mainly in China, teaches the importance of attaining personal salvation through right action. Unlike religions, Confucianism is not concerned with the supernatural and has little to say about the concept of a supreme being or an afterlife. The need for high moral and ethical conduct and loyalty to others is central in Confucianism. Economic Implications of Confucianism L) Three key teachings of Confucianism - loyalty, reciprocal obligations, and honesty - may all lead to a lowering of the cost of doing business in Confucian societies. The close ties between Japanese auto companies and their suppliers, which has been an important ingredient in the Japanese success in the auto industry, are facilitated by loyalty, reciprocal obligations, and honesty. In countries where these relationships are more adversarial and not bound by these same values, the costs of doing business are probably higher.

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Teaching Tip: Duke University's Department of Religion {http://www.duke.edu/religion/main/links.html} provides links to and brief descriptions of several comprehensive sites for religion. Management Focus: DMG-Shanghai Summary This feature explores guanxi, or the relationships and connections that are so important in the Chinese business world. The notion of guanxi comes from the Confucian philosophy of valuing social hierarchy and reciprocal obligations. Dan Mintz, founder of DMG, one of Chinas fastest growing advertising agencies, credits guanxi for his success. Mintz established connections with two Chinese individuals with access to high ranking government officials. Through these guanxiwang, or connections, Mintz has been able to get permission to shoot advertisements in locations that are usually closed to foreigners. Suggested Discussion Questions 1. Explain the concept of guanxi. How did Mintzs guanxiwang help his company becomes so successful? Discussion Points: Guanxi literally means relationships, although in business settings in can better be understood as connections. The concept of guanxi is deeply rooted in Chinese culture and Confucianism. The Chinese will often cultivate a guanxiwang, or relationship network, for help. In China, there is a tacit acknowledgement that if you have the right guanxi, legal rules can be broken or bent. Mintz made connections with two Chinese men who had access to high ranking government officials. Through these men, Mintz was able to secure permission to film commercials in locations that are normally closed to outsiders. 2. Compare the difference between doing business in the West and doing business in China. Discussion Points: A basic difference between doing business in the West and doing business in China involves how legal agreements are handled. 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. China does not have the same infrastructure. Personal power and relationships or connections (guanxi), rather than the rule of law, have always been the key to getting things done in China.

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LANGUAGE A) 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 culture. It not only allows a society to communicate, but also directs the attention of people towards certain features of the world and human interactions. Teaching Tip: For individuals with a particular interest in language, iLoveLanguages {http://www.june29.com/HLP/} is a comprehensive catalog of language-related Internet resources. There are more than 2,400 links available at this site include links to other Internet sites that focus on online language lessons, translating dictionaries, native literature, translation services, software, and language schools. Spoken Language B) While English is clearly the language of international business, knowing at least some of the local language can greatly help when working in another country. In some situations knowing the local language can be critical for business success. Unspoken Language C) Unspoken language can be just as important for communication. Using a few facial expressions and hand gestures to the class can illustrate the point. The fact that these can have different interpretations in different cultures, and that many of these actions may be automatic or reflexive, obviously complicates international communication. Not only may the person you are dealing with be unintentionally sending non-verbal signals that you do not comprehend, or are misunderstanding, you may be unconsciously sending your own signals. EDUCATION A) 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. B) The knowledge base, training, and educational opportunities available to a country's citizens can also give it a competitive advantage in the market and make it a more or less attractive place for expanding business. In nations that have a ready trained workforce for particular types of jobs, it is easier to start operations than in nations where an investor will also have to undertake timeconsuming and costly training.

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CULTURE AND THE WORKPLACE A) For an international business with operations in different countries, a important question is how a society's culture impacts values found in the workplace. The question points to the need to vary management process and practices, and to take different culturally determined work-related values into account. B) The most famous study of how culture relates to values in the workplace was undertaken by Geert Hofstede. Hofstede isolated four dimensions that he claimed summarized different cultures. These were: power distance, individualism versus collectivism, uncertainty avoidance, and masculinity versus femininity where Power Distance is focused on how a society deals with the fact that people are unequal in physical and intellectual capabilities, Individualism Versus Collectivism is focused on the relationship between the individual and his or her fellows, Uncertainty Avoidance measures the extent to which different cultures socialize their members into accepting ambiguous situations and tolerating ambiguity, and Masculinity Versus Femininity looks at the relationship between gender and work roles. C) Hofstede's results are interesting for what they tell us in a general way about differences between cultures. However, because of methodological issues, one should be careful about reading too much into Hofstede's research. D) Hofstede expanded his original research to include a fifth dimension, Confucian dynamism, which captures attitudes toward time, persistence, ordering by status, protection of face, respect for tradition, and reciprocation of gifts and favors. Lecture Note: For more discussion of Hofstede and his research go to {http://www.geerthofstede.com/index.shtml}. CULTURAL CHANGE A) Culture evolves over time, although changes in value systems can be slow and painful for a society. Social turmoil is an inevitable outcome of culture change. The text provides several examples of cultural change and its impact on the society. B) As countries become economically stronger and increase in the globalization of products bought and sold, cultural change is particularly common. FOCUS ON MANAGERIAL IMPLICATIONS A) The material discussed in this chapter has three important implications for international business. First, there is a need to develop cross-cultural literacy. Second, there is a connection between culture and national competitive advantage. Third, there is a connection between culture and ethics in decision making.

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Cross-Cultural Literacy B) Individuals and firms must develop cross-cultural literacy. International businesses that are ill informed about the practices of another culture are unlikely to succeed in that culture. One way to develop cross-cultural literacy is to regularly rotate and transfer people internationally. C) One must also beware of ethnocentrism, or a belief in the superiority of one's own culture. Individuals who are ethnocentric frequently demonstrate disregard for other cultures. Lecture Note: It can often be difficult to recognize cultural behaviors in ones own culture. To get an inside look at the American culture go to {http://www.edupass.org/culture/. Culture and Competitive Advantage D) 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. 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. Teaching Tip: Executive Planet {http://www.executiveplanet.com/index.php?title=Main_Page} provides guidelines for doing business in different countries.

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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. Answer: Since in a sense the entire chapter is about this question, there can be numerous reasons and examples of how culture influences the costs of doing business. Several are highlighted in the following sentences, but there could be numerous others. When there are simply different norms between how individuals from different countries interact, the costs of doing business rise as people grapple with unfamiliar ways of doing business. For example, while in the US we may get down to business first, and then get to know each other socially later, in many South American countries it is important develop a good social relationship before trying to discuss business issues. Different class structures and social mobility also raise the costs of doing business, If there are inhibitions against working with people from different classes, then the efficiency with which information can flow may be limited and the cost of running a business increased. A country's religion can also affect the costs of business, as religious values can affect attitudes towards work, entrepreneurship, honesty, fairness, and social responsibility. In Hindu societies where the pursuit of material well-being can be viewed as making spiritual well being less likely, worker productivity may be lower than in nations with other religious beliefs. Finally, a country's education system can have important implications for the costs of business. In countries where workers receive excellent training and are highly literate, the need for specific worker training programs are decreased and the hiring of additional employees is facilitated. 2. Do you think business practices in an Islamic country are likely to differ from business practices in the United States? If so, how? Answer: There are various cultural differences between an Islamic country and the United States that could impact business practices. The role of women, for example, or appropriate etiquette (including simple things like not passing papers with the left hand), holidays, and wining and dining can all differ. But beyond these types of example is the fact that the underlying philosophy and role of business can be very different. Since Muslims are stewards of property for God, rather than owners, they are more likely to use their resources carefully and may be less likely to give up or sell something to a person who may not practice the same stewardship. The importance of fairness to all parties in relations means that over-aggressiveness in self-interest may not be well received, and breaking an agreement, even if technically/legally permissible may be viewed as very inappropriate. Finally, the prohibitions on interest payments in some Islamic countries means that the wording of the terms of an agreement must be done carefully so that "fair profits" are not construed as being "interest payments."

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3. What are the implications for international business of differences in the dominant religion or ethical system of a country? Answer: Differences in the dominant religion of a country and/or its ethics can affect relationships, attitudes toward business, and overall economic development. Differences in religion require inter-cultural sensitivity. This sensitivity requires things like simply knowing the religious holidays, accepting that some unexpected things may happen "because of Allah's will," or understanding how interpersonal relationships may be different between "believers" and "nonbelievers." (Hence non-believers may be treated differently.) Religious beliefs can significantly affect a countrys attitude toward business, work, and entrepreneurship. In one country successfully beating a competitor may be considered a great achievement while in another it may be thought of as showing a lack of compassion and could be disruptive to the society and persons involved. Likewise, hard work may be either rewarded positively or viewed as something of secondary importance to spiritual peace and harmony. Different dominant religions and ethical values can also affect the overall competitiveness and potential for economic growth of a nation, and hence attractiveness of a country for international business. Students might suggest for example, that Venezuelas high level of corruption make it a less attractive destination for foreign companies. 4. Choose two countries that appear to be culturally diverse. Compare the culture of those countries and then indicate how cultural differences influence (a) the costs of doing business in each country, (b) the likely future economic development of that country, (c) business practices, and (d) business ethics. Answer: Responses to this question will obviously vary based on the countries chosen by the students and their knowledge of the countries. Hopefully students can present some information on the dimensions of culture including values, norms, social structure, religion, language, and education of the countries and also describe the key differences and similarities of the countries along these dimensions. Relating the differences between the countries along these dimensions to differences in the costs of doing business, the potential for economic development, and business practices would fully answer the question. (While it may be more difficult for students to come up with really good examples relative to business practices, the costs and prospects for economic development should be quite feasible.)

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5. Reread the Country Focus on 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? Answer: When responding to this question, many students will probably focus on three key areas. First, they may note that Islam is firmly against making a profit by exploiting others. Depending on just how one defines exploitation, this could be a problem. For example, do commercials for sugary cereal that are traditionally shown during childrens television programs count as exploitation? A second area that students may explore is the role of women in business. In Islamic countries, women make up only a very small part of the workforce. This traditional Islamic value could also present a problem. Third, students may note that the Koran condemns interest as exploitative and unjust. This could present a problem for the financial industry, and also for companies needing loans. Despite these concerns, however, many students will probably suggest that Turkeys central region clearly demonstrates that the country can indeed function successfully in the global economy. 6. Reread the Management Focus on DMG-Shanghai and answer the following questions: a) Why do you think it is so important to cultivate guanxi and guanxiwang in China? b) What does the experience of DMG tell us about the way thinks 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 round them as Dan Mintz apparently does? 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? Answer: Guanxi and guanxiwang are essential to business in China. Guanxi refers to the business connections that are so important to companies doing business in China. Guanxiwang refers to the relationship network that companies cultivate. Both of these are important to the Confucian ethics loyalty, reciprocal obligations, and honesty in dealing with others - that drives business in China. Dan Mintz believes that guanxi and guanxiwang are important because they help companies get around restrictions that limit the ability of companies to function. Many students will probably agree with Mintz that these relationships and connection are essential to success. Students taking this perspective are likely to argue that guanxi is part of the Chinese culture, and Western companies simply need to adapt. Companies that fail to adapt will probably find it more difficult to be successful, and companies that do follow all of the rules are likely to be at a competitive disadvantage. At the same time, students will probably note the need to carefully consider the ethical implications of certain relationships. Some students may suggest that managers use their gut instinct if something seems like it could be unethical, it probably is.

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Closing Case: Wal-Marts Foreign Expansion


Summary The closing case explores the international expansion of Wal-Mart, the worlds largest retailer. Wal-Mart began its international expansion in the early 1990s in an effort to continue its growth. The company began with a joint venture in Mexico with local retailer, Cifra. Initially, the company tried to implement strategies similar to those that had proved so successful in the United States, however Wal-Mart quickly realized that to succeed, it would have to adapt to local demands. The company hired local managers who understood the Mexican culture and buying preferences, and changed its strategies accordingly. Wal-Mart continued its international expansion by establishing operations in Europe and South Korea, but in these markets, the company had less success. Not only did Wal-Mart compete head-to-head with established retailers, but its product offerings did not match the needs of consumers. Wal-Mart has had much greater success in China where it has found some parallels between the shopping habits of Chinese and Americans. Wal-Mart has also adapted its strategy to fit the local market and now not only allows unions, but is also selling a product mix designed to meet the demands of China. Discussion of the case can revolve around the following questions: QUESTION 1: Do you think Wal-Mart could translate its merchandising strategy wholesale to another country and succeed? If not, why not? ANSWER 1: To date, Wal-Mart has found that in order to appeal to local markets, it must be willing to make some changes in its merchandising strategy. In Mexico for example, Wal-Mart hired local managers to handle its merchandising, and it an effort to better meet the needs of local customers Wal-Mart built smaller stores that people could walk to, and stocked more fresh produce. In China, Wal-Mart changed its packaging of meat and offered live fish because the Chinese prefer fresh meat and fish. In the countries where Wal-Mart stumbled, Germany and South Korea, Wal-Marts discount strategy failed. Consumers in both countries preferred to shop at rival stores that stocked higher quality merchandise. Some students may wonder whether WalMart might have succeeded in these countries had it been willing to stock some higher quality merchandise as well. However, other students may note that doing so would go against the strategy that has proved to be so successful for the company. QUESTION 2: Why do you think Wal-Mart was successful in Mexico? ANSWER 2: Most students will probably suggest that Wal-Marts success in Mexico is linked to the companys willingness to move in to the market slowly, adapt to local market preferences, and join forces with local retailer, Cifra. After entering the market, Wal-Mart quickly discovered that having a single large store selling large packages would not be successful in Mexico where many people walked to stores and lacked storage space. The company changed hired local managers who understood the market, and allowed the local managers to control the merchandising strategy. Wal-Mart then worked to change the shopping habits of Mexican consumers to come closer a typical Wal-Mart shopper. By teaming up with the countrys largest retailer, the company was able to benefit from Cifras knowledge of the local marketplace.

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QUESTION 3: Why do you think Wal-Mart failed in South Korea and Germany? What are the differences between these countries, and Mexico? ANSWER 3: Wal-Mart stumbled badly in South Korea and Germany. In both countries, consumers resisted the companys discount strategy, and chose instead to shop at rival stores that better met their shopping preferences. Some students may suggest that Wal-Marts discount strategy worked better in Mexico because it fit better with consumer preferences. Other students may note that in both South Korea and Germany, Wal-Mart had to convince consumers to leave the competition and shop in its stores, whereas in Mexico, Wal-Mart teamed up with Cifra, a large retailer with a similar product line to the line carried by Wal-Mart. Some students may wonder whether the company might have had more success in Germany and South Korea had it also teamed with local retailers. QUESTION 4: What must Wal-Mart do to succeed in China? Is it on track? ANSWER 4: In China, Wal-Mart seems to be following a strategy similar to its strategy in Mexico. The company is slowly expanding and is adapting its strategy to meet the needs of Chinese consumers. Wal-Mart has found that the Chinese share many buying behaviors with American consumers they like the deep discounts offered by Wal-Mart. To ensure its success in the country, Wal-Mart has strayed from its traditional strategy to embrace the notion of unions. This decision has led the company to purchase a stake in Chinas Trust-Mart chain, which should allow Wal-Mart to expand even further. Wal-Mart now considers China its most important growth market. Most students will probably agree that Wal-Mart appears to be on track in the country. QUESTION 5: To what extent can a company like Wal-Mart change the culture of the nation where it is doing business? ANSWER 5: This question will probably generate some debate among students. Some students will probably suggest that Wal-Mart can indeed change the shopping habits, and therefore culture, of a country in which it does business. Students taking this perspective may point to Wal-Marts experiences in Mexico as evidence of this phenomenon. Other students however, may argue that the shopping habits of Mexican consumers were not changed by Wal-Mart per se, but rather by the effects of globalization which allowed companies like Cifra and Wal-Mart to thrive. Students taking this perspective will probably note that China for example, already had successful discount chains like Trust-Mart when Wal-Mart entered the market. Students may further note that in countries like Germany and South Korea where consumers preferred other types of retailers, WalMart was unsuccessful. Teaching Note: To explore Wal-Marts international operations in greater detail, go to {http://www.walmart.com/}, click on international customers and then on the individual country sites.

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Chapter 03 - Differences in Culture

Continuous Case Concept


How does culture affect companies? When the German automakers began their expansion into the U.S. market, cup holders were not a part of their products. In contrast, because many Americans spent significant time in their cars, ate in their cars, and so on, advertisements for American cars often boasted of the number of cup holders that were part of their design. The German companies had to shift their thinking from strictly performance-based cars, to ones that better fit the needs of Americans. Today, many automakers have shifted their focus to the emerging markets, and how they can best serve the customers in those markets. Ask students to consider how different cultural dimensions might be reflected in the design of automobiles. Students might observe that in emerging markets, stripped down models could make cars more affordable for many, or that in Japan, smaller cars might be more appropriate. For example, GM is tinkering with its Buick hybrid to meet the demands of newly wealthy Chinese. The target market for this vehicle is the individual who is status conscious, and who wants more features. In contrast, Indias Tata Motors, in an effort to serve its domestic market, is beginning production of a car that is expected to retail for just $2,300. Next, ask students to consider how culture might affect the manufacturing side of the business. How does culture affect relationships with suppliers? With employees? For example, the team approach that influences the culture in many Japanese companies was evident at Hondas 2008 meeting with its suppliers. At the meeting Honda reassured suppliers of its commitment to them.

This exercise works at the beginning of the discussion on culture, but can be even more valuable after the presentation of the chapter material. The exercise is also useful as a linking mechanism between the various chapter topics if it is used at the start, and then referenced throughout the chapter. So for example, you could talk about how religious practices might affect how a factory can be operated in certain countries, and then later, discuss how factory management could inadvertently miscommunicate with employees, or how the color of the paint on a car could send the wrong message.

globalEDGE Exercises
Use the globalEDGE Resource Desk {http://globalEDGE.msu.edu/ResourceDesk/} to complete the following exercises.

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Chapter 03 - Differences in Culture

Exercise 1
You have been assigned to negotiate a business deal with the representatives of a potential distributor in Mexico. 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. Answer: globalEDGE features numerous websites that provide detailed cultural background information for a variety of countries. All of these resources are located under the Reference: Culture category of the Resource Desk. One of such sources is the Centre for Intercultural Learning. This resource can be also be accessed by using the search phrase intercultural skills at http://globaledge.msu.edu/ResourceDesk/. Once on the Centre for Intercultural Learning website, click on Country Insights and select Mexico from the country list. Cultural information can be obtained by selecting a cultural topic from the drop down menu. Search Phrase: Intercultural Skills Resource Name: Mexico: Centre for Intercultural Learning Website: http://www.dfait-maeci.gc.ca/cfsi-icse/cil-cai/ globalEDGE Category: Reference: Culture

Exercise 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 in fact it is considered offensive to point while speaking. Find five similar tips regarding the business etiquette of India. Answer: Similar to the first exercise of this chapter, we need to find sites that feature cultural profiles of a variety of Asian countries. A number of resources under the Reference: Culture will provide such information. One of such sources is provided below: Search Phrase: Business Etiquette Resource Name: Business Etiquette Around the World Website: http://www.cyborlink.com/ globalEDGE Category: Reference: Culture

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Additional Readings and Sources of Information


Cracks in a Particularly Thick Glass Ceiling http://www.businessweek.com/magazine/content/08_16/b4080058309099.htm?chan=search Toyotas All-Out Drive to Stay Toyota http://www.businessweek.com/magazine/content/07_49/b4061054421041.htm?chan=search Cultural Differences? Or Are We Really That Different? http://www.cnr.berkeley.edu/ucce50/ag-labor/7article/article01.htm Selling Your Products in Europe http://www.businessweek.com/smallbiz/content/apr2008/sb2008042_490718.htm?chan=search Indias Got a Job for You http://www.businessweek.com/globalbiz/content/jun2007/gb20070619_062414.htm?chan=search

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