MBA 531 Week 1 Overview (Chapters 1 - 4)

MBA 531
Business in Today’s Global
Environment
Overview of Week 1 Textbook Readings:
Chapters 1 – 4

1-3
What Is Globalization?
Globalization - the shift toward a more
integrated and interdependent world
economy
The world is moving away from self-
contained national economies toward an
interdependent, integrated global
economic system

1-4
What Is The
Globalization of Markets?
 Historically distinct and separate national
markets are merging
 It no longer makes sense to talk about the
“German market” or the “American market”
 Instead, there is the “global market”
 falling trade barriers make it easier to sell globally
 consumers’ tastes and preferences are converging on
some global norm
 firms promote the trend by offering the same basic
products worldwide

1-5
What Is The
Globalization of Markets?
Firms of all sizes benefit and contribute to
the globalization of markets
 97% of all U.S. exporters have less than 500
employees
 98% of all small and mid-sized German
companies participate in international markets

1-6
What Is The
Globalization of Production?
Firms source goods and services from
locations around the globe to capitalize on
national differences in the cost and quality
of factors of production like land, labor,
energy, and capital
Companies can
 lower their overall cost structure
 improve the quality or functionality of their
product offering

1-7
Why Do We Need
Global Institutions?
Global institutions
 help manage, regulate, and police the global
marketplace
 promote the establishment of multinational
treaties to govern the global business system

1-8
Why Do We Need
Global Institutions?
 Examples include
 the General Agreement on Tariffs and Trade
(GATT)
 the World Trade Organization (WTO)
 the International Monetary Fund (IMF)
 the World Bank
 the United Nations (UN)
 the G20

1-9
What Do Global
Institutions Do?
The World Trade Organization (like its
predecessor GATT)
 polices the world trading system
 makes sure that nation-states adhere to the
rules laid down in trade treaties
 promotes lower barriers to trade and
investment
 159 members in 2013

1-10
What Do Global
Institutions Do?
The International Monetary Fund (1944)
 maintains order in the international monetary
system
 lender of last resort for countries in crisis
 Argentina, Indonesia, Mexico, Russia, South
Korea, Thailand, Turkey, Ireland, and Greece
The World Bank (1944)
 promotes economic development via low
interest loans for infrastructure projects

1-11
What Do Global
Institutions Do?
The United Nations (1945)
 maintains international peace and security
 develops friendly relations among nations
 cooperates in solving international problems
and in promoting respect for human rights
 is a center for harmonizing the actions of
nations
The G20
 forum through which major nations tried to
launch a coordinated policy response to the
2008-2009 global financial crisis

1-12
What Is Driving
Globalization?
 Declining barriers to the free flow of goods,
services, and capital
 average tariffs are now at just 4%
 more favorable environment for FDI
 global stock of FDI was $20.4 trillion in 2011
 facilitates global production
 Technological change
 microprocessors and telecommunications
 Internet: information backbone of the global economy
 transportation technology

1-13
What Does Globalization
Mean For Firms?
Lower barriers to trade and investment
mean firms can
 view the world, rather than a single country,
as their market
 base production in the optimal location for that
activity
But, firms may also find their home
markets under attack by foreign firms

1-14
Declining Trade And
Investment Barriers
Average Tariff Rates on Manufactured Products as Percent of Value

1-15
What Does Globalization
Mean For Firms?
 Technological change means
 lower transportation costs
 help create global markets and allow firms to
disperse production to economical, geographically
separate locations
 low cost information processing and communication
 firms can create and manage globally dispersed
production
 low cost global communications networks
 help create an electronic global marketplace
 global communication networks and global media
 create a worldwide culture and a global consumer
product market

1-16
The Changing Demographics
Of The Global Economy
 Four trends are important:
1. The changing world output and world
trade picture
2. The changing foreign direct investment
picture
3. The changing nature of the multinational
enterprise
4. The changing world order

1-17
How Has World Output And
World Trade Changed?
In 1960, the U.S. accounted for almost
40% of world economic activity, but by
2012, the U.S. accounted for just 23%
 a similar trend occurred in other developed
countries
In contrast, the share of world output
accounted for by developing nations is
rising
 expected to account for more than 60% of
world economic activity by 2020

1-18
How Has World Output And
World Trade Changed?
The Changing Demographics of World Output and Trade

1-19
How Has Foreign Direct
Investment Changed Over Time?
In the 1960s, U.S. firms accounted for
about two-thirds of worldwide FDI flows
 Today, the United States accounts for less
than one-fifth of worldwide FDI flows
 Other developed countries have followed a
similar pattern
In contrast, the share of FDI accounted for
by developing countries has risen
 Developing countries, especially China, have
also become popular destinations for FDI

1-20
Percentage Share of Total FDI Stock 1980-2011

1-21
FDI Inflows 1988-2011

1-22
What Is A
Multinational Enterprise?
Multinational enterprise (MNE) - any
business that has productive activities in
two or more countries
Since the 1960s
 the number of non-U.S. multinationals has
risen
 the number of mini-multinationals has risen

1-23
The Changing World Order
 Many former Communist nations in Europe and
Asia are now committed to democratic politics
and free market economies
 creates new opportunities for international businesses
 but, there are signs of growing unrest and totalitarian
tendencies in some countries
 China and Latin America are also moving toward
greater free market reforms
 between 1983 and 2010, FDI in China increased from
less than $2 billion to $100 billion annually
 but, China also has many new strong companies that
could threaten Western firms

1-24
How Will The Global Economy
Of The 21st Century Look?
 The world is moving toward a more global
economic system…
 But globalization is not inevitable
 there are signs of a retreat from liberal economic
ideology in Russia
 Globalization brings risks
 the financial crisis that swept through South East Asia
in the late 1990s
 the recent financial crisis that started in the U.S. in
2008-2009, and moved around the world

1-25
Is An Interdependent Global
Economy A Good Thing?
 Supporters believe that increased trade and
cross-border investment mean
 lower prices for goods and services
 greater economic growth
 higher consumer income, and more jobs
 Critics worry that globalization will cause
 job losses
 environmental degradation
 the cultural imperialism of global media and MNEs
 Anti-globalization protesters now regularly show
up at most major meetings of global institutions

1-26
How Does Globalization
Affect Jobs And Income?
Critics argue that falling barriers to trade
are destroying manufacturing jobs in
advanced countries
Supporters contend that the benefits of
this trend outweigh the costs
 countries will specialize in what they do most
efficiently and trade for other goods—and all
countries will benefit

1-27
How Does Globalization Affect Labor
Policies And The Environment?
 Critics argue that firms avoid the cost of
adhering to labor and environmental regulations
by moving production to countries where such
regulations do not exist, or are not enforced
 Supporters claim that tougher environmental
and labor standards are associated with
economic progress
 as countries get richer from free trade, they
implement tougher environmental and labor
regulations

1-28
How Does Globalization
Affect National Sovereignty?
 Is today’s global economy shifting economic power away
from national governments toward supranational
organizations like the WTO, the EU, and the UN?
 Critics argue that unelected bureaucrats have the power
to impose policies on the democratically elected
governments of nation-states
 Supporters claim that the power of these organizations is
limited to what nation-states agree to grant
 the power of the organizations lies in their ability to
get countries to agree to follow certain actions

1-29
How Is Globalization
Affecting The World’s Poor?
 Is the gap between rich nations and poor nations
getting wider?
 Critics believe that if globalization was beneficial
there should not be a divergence between rich
and poor nations
 Supporters claim that the best way for the poor
nations to improve their situation is to
 reduce barriers to trade and investment
 implement economic policies based on free market
economies
 receive debt forgiveness for debts incurred under
totalitarian regimes

1-30
How Does The Global
Marketplace Affect Managers?
 Managing an international business differs from
managing a domestic business because
 countries are different
 the range of problems confronted in an international
business is wider and the problems more complex
than those in a domestic business
 firms have to find ways to work within the limits
imposed by government intervention in the
international trade and investment system
 international transactions involve converting money
into different currencies

Chapter 2
National Differences
in Political Economy

1-32
What Is A Political Economy?
Political economy of a nation - how the
political, economic, and legal systems of a
country are interdependent
 they interact and influence each other
 they affect the level of economic well-being in
the nation

1-33
What Is A Political System?
Political system - the system of
government in a nation
Assessed according to
 the degree to which the country emphasizes
collectivism as opposed to individualism
 the degree to which the country is democratic
or totalitarian

1-34
What Is Collectivism?
Collectivism stresses the primacy of
collective goals over individual goals
 can be traced to the Greek philosopher, Plato
(427-347 BC)
Today, collectivism is equated with
socialists (Karl Marx 1818-1883)
 advocate state ownership of the basic means
of production, distribution, and exchange
 manage to benefit society as a whole, rather
than individual capitalists

1-35
How Does Modern-Day
Socialism Look?
 In the early 20th
century, socialism split into
1. Communism – socialism can only be achieved
through violent revolution and totalitarian
dictatorship
 in retreat worldwide by mid-1990s
1. Social democrats – socialism is achieved
through democratic means
 retreating as many countries move toward free
market economies
 state-owned enterprises have been privatized

1-36
What Is Individualism?
 Individualism refers to philosophy that an
individual should have freedom in his own
economic and political pursuits
 can be traced to Greek philosopher, Aristotle (384-
322 BC)
 individual diversity and private ownership are
desirable
 individual economic and political freedoms are the
ground rules on which a society should be based
 implies democratic political systems and free market
economies

1-37
What Is Democracy?
 Democracy - a political system in which
government is by the people, exercised either
directly or through elected representatives
 usually associated with individualism
 pure democracy is based on the belief that citizens
should be directly involved in decision making
 most modern democratic states practice
representative democracy where citizens periodically
elect individuals to represent them

1-38
What Is Totalitarianism?
 Totalitarianism - form of government in
which one person or political party
exercises absolute control over all
spheres of human life and prohibits
opposing political parties

1-39
What Is Totalitarianism?
 Four major forms of totalitarianism exist today
1. Communist totalitarianism – found in states where
the communist party monopolizes power
2. Theocratic totalitarianism - found in states where
political power is monopolized by a party, group, or
individual that governs according to religious
principles
3. Tribal totalitarianism - found in states where a
political party that represents the interests of a
particular tribe monopolizes power
4. Right-wing totalitarianism - permits some individual
economic freedom, but restricts individual political
freedom

1-40
What Is The Link Between Political
Ideology and Economic Systems?
 Political ideology and economic systems
are connected
 countries that stress individual goals are
likely to have market based economies
 in countries where state-ownership is
common, collective goals are dominant

1-41
What Is An Economic System?
 There are three types of economic
systems
1. Market economies - all productive
activities are privately owned and
production is determined by the
interaction of supply and demand
 government encourages free and fair
competition between private producers

1-42
2. Command economies - government plans the
goods and services that a country produces,
the quantity that is produced, and the prices as
which they are sold
 all businesses are state-owned, and
governments allocate resources for “the
good of society”
 because there is little incentive to control
costs and be efficient, command economies
tend to stagnate

1-43
3. Mixed economies - certain sectors of the
economy are left to private ownership
and free market mechanisms while other
sectors have significant state ownership
and government planning
 governments tend to own firms that are
considered important to national security

1-44
What Is A Legal System?
 Legal system - the rules that regulate behavior
along with the processes by which the laws are
enforced and through which redress for
grievances is obtained
 the system in a country is influenced by the
prevailing political system
 Legal systems are important for business
because they
 define how business transactions are executed
 identify the rights and obligations of parties involved
in business transactions

1-45
What Are The
Different Legal Systems?
 There are three types of legal systems
1. Common law - based on tradition, precedent,
and custom
2. Civic law - based on detailed set of laws
organized into codes
3. Theocratic law - law is based on religious
teachings

1-46
How Are Contracts Enforced
In Different Legal Systems?
 Contract - document that specifies the
conditions under which an exchange is to occur
and details the rights and obligations of the
parties involved
 Contract law is the body of law that governs
contract enforcement
 under a common law system, contracts tend to be
very detailed with all contingencies spelled out
 under a civil law system, contracts tend to be much
shorter and less specific because many issues are
already covered in the civil code

1-47
Which Country’s Laws Should
Apply In A Contract Dispute?
 The United Nations Convention on Contracts for
the International Sale of Goods (CIGS)
 establishes a uniform set of rules governing certain
aspects of the making and performance of everyday
commercial contracts between buyers and sellers
who have their places of business in different nations
 Ratified by the U.S. and about 70 countries
 but, many larger trading nations including Japan and
the U.K. have not agreed to the provisions of CIGS
and opt for arbitration instead

1-48
How Are Property Rights
And Corruption Related?
 Property rights - the legal rights over the
use to which a resource is put and over
the use made of any income that may be
derived from that resource

1-49
 Property rights can be violated through
1. Private action – theft, piracy, blackmail
2. Public action - legally - ex. excessive
taxation or illegally - ex. bribes or
blackmailing
 high levels of corruption reduce foreign direct
investment, the level of international trade, and
the economic growth rate in a country

1-50
 The Foreign Corrupt Practices Act makes it
illegal for U.S. companies to bribe foreign
government officials to obtain or maintain
business over which that foreign official has
authority
 facilitating or expediting payments to secure or
expedite routine government action are permitted

1-51
Which Countries Are
Most Corrupt?
Rankings of Corruption by Country 2010

1-52
How Can Intellectual
Property Be Protected?
 Intellectual property - property that is the product of
intellectual activity
 Can be protected using
1. Patents – exclusive rights for a defined period to the
manufacture, use, or sale of that invention
2. Copyrights – the exclusive legal rights of authors,
composers, playwrights, artists, and publishers to
publish and disperse their work as they see fit
3. Trademarks – design and names by which merchants
or manufacturers designate and differentiate their
products

1-53
How Can Intellectual
Property Be Protected?
 Protection of intellectual property rights differs
from country to country
 World Intellectual Property Organization
 Paris Convention for the Protection of Industrial
Property
 To avoid piracy, firms can
 stay away from countries where intellectual property
laws are lax
 file lawsuits
 lobby governments for international property rights
agreements and enforcement

1-54
What Is Product Safety
And Liability?
 Product safety laws set certain standards to
which a product must adhere
 Product liability involves holding a firm and its
officers responsible when a product causes
injury, death, or damage
 liability laws tend to be less extensive in less
developed nations

1-55
Why Is Product Safety And
Product Liability Important?
 Question:
 Does the high cost of liability insurance in the
U.S. make American companies less
competitive?
 Question:
 Is it ethical to follow host country standards
when product safety laws are stricter in a
firm’s home country than in a foreign country?
 Question:
 Is it ethical to follow host country standards
when liability laws are more lax in the host
country?

1-56
How Can Managers Determine A
Market’s Overall Attractiveness?
 The overall attractiveness of a country as a
potential market and/or investment site for an
international business depends on balancing the
benefits, costs, and risks associated with doing
business in that country
 Other things being equal, more attractive countries
have democratic political institutions, market based
economies, and strong legal systems that protect
property rights and limit corruption

Chapter 3
Political Economy and
Economic Development

1-58
What Determines A Country’s Level
Of Economic Development?
 Gross national income (GNI) per person
measures the total annual income
received by residents of a nation
 Japan, Sweden, Switzerland, and the U.S.
have high GNI
 China and India have low GNI
 GNI can be misleading because it does
not consider differences in the cost of
living
 need to adjust GNI figures using
purchasing power parity (PPP)

1-59
How Do Countries
Compare On GNI?
Economic Data for Select Countries

1-60
 Official figures can also be misleading
because they do not account for black
economy transactions
 In addition, GNI and PPP data are static
and do not consider economic growth
rates
 So, while China and India are currently
categorized as being poor they are growing
more rapidly than many developed nations
and are expected to become among the
largest economies in the world

1-61
How Do Countries
Compare On Growth Rates?

1-62
 Nobel-prize winner Amartya Sen argues
economic development should be seen as a
process of expanding the real freedoms that
people experience
 the removal of major impediments to freedom like
poverty, tyranny, and neglect of public facilities
 the presence of basic health care and basic
education
 Amartya Sen also claims that economic
progress requires the democratization of
political communities to give citizens a voice

1-63
 The United Nations used Sen’s ideas to
develop the Human Development Index
(HDI) which is based on
 life expectancy at birth
 educational attainment
 whether average incomes are sufficient to
meet the basic needs of life in a country

1-64
How Do Countries Compare on
Economic Development?

1-65
How Does Political Economy
Influence Economic Progress?
 Innovation and entrepreneurship are the engines
of long-run economic growth
 innovation includes new products, new processes,
new organizations, new management practices, and
new strategies
 entrepreneurs commercialize innovative new products
and processes
 Innovation and entrepreneurship help increase
economic activity by creating new markets and
products that did not previously exist
 innovation in production and business processes
result in more productive labor and capital further
boosting economic growth rates

1-66
 Innovation and entrepreneurship require a
market economy
 there is little incentive to develop new innovations in
planned economies because the state owns all
means production and therefore, the gains
 There is a strong relationship between economic
freedom and economic growth
 the six countries with the highest ratings of economic
freedom from 1975 to 1995 were also among the
highest for economic growth
 Hong Kong, Switzerland, Singapore, the United States,
Canada, and Germany

1-67
Innovation and entrepreneurship require
strong property rights
 without strong property rights, individuals and
businesses risk having their innovations and
potential profits stolen
Economist Hernando de Soto claims that
inadequate property protection in many
developing nations limits economic growth

1-68
 Democratic regimes are probably more
conducive to long-term economic growth than
dictatorships, even the benevolent kind
 property rights are only secure in well-functioning,
mature democracies
 Subsequent economic growth leads to the
establishment of democratic regimes
 South Korea
 Taiwan

1-69
How Does Geography Influence
 Countries with favorable geography are more
likely to engage in trade, and so, be more open
to market-based economic systems, and the
economic growth they promote
 Jeffrey Sachs studied economic growth rates
between 1965 and 1990 and found that
 landlocked countries grew more slowly than coastal
economies
 being totally landlocked reduced a country’s growth
rate by 0.7% per year
 tropical countries grew more slowly than countries in
temperate zones

1-70
How Does Education Influence
Countries that invest in education have
higher growth rates because the workforce
is more productive
 countries in Southeast Asia have offset their
geographical disadvantages by investing in
education
 Indonesia, Malaysia, and Singapore

1-71
How Is The Political
Economy Changing?
 Since the late 1980s, two trends have emerged
1. Democratic revolution (late 1980s and early
1990s)
 democratically elected governments replaced
totalitarian regimes
 more committed to free market capitalism
2. A move away from centrally planned and mixed
economies
 more countries have shifted toward the market-
based model

1-72
Economy Changing?
 Trend 1: Democracy has spread over the last
two decades
 many totalitarian regimes failed to deliver economic
progress to the vast bulk of their populations
 new information and communication technologies
have broken down the ability of the state to control
access to uncensored information
 economic advances of the last 25 years have led to
increasingly prosperous middle and working classes
who have pushed for democratic reforms

1-73
How Free Are
Countries Politically?
Political Freedom in 2012

1-74
Economy Changing?
 Author Francis Fukuyama argues that the new
world order will be characterized by democratic
regimes and free market capitalism
 But, political scientist Samuel Huntington
argues that while many societies are
modernizing they are not becoming more
Western
 predicts a world split into different civilizations
 these civilizations will be in conflict with each
other

1-75
Economy Changing?
 Trend 2: The spread of market-based
systems
 more countries have moved away from
centrally planned and mixed economies
toward the market-based model
 Command and mixed economies failed
to deliver the sustained economic growth
achieved in market-based countries

1-76
How Free Are
Countries Economically?
Economic Freedom in 2013

1-77
What Is The Nature Of
Economic Transformation?
The shift toward a market-based system
involves
 deregulation – removing legal restrictions to
the free play of markets, the establishment of
private enterprises, and the manner in which
private enterprises operate
 privatization - transfers the ownership of state
property into the hands of private investors
 the creation of a legal system to safeguard
property rights

1-78
What Does The Changing
Economy Mean For Managers?
 Markets that were formerly off-limits to Western
business are now open
 firms need to explore opportunities in these markets
 Despite being underdeveloped and poor, some
markets have huge potential
 China -1.3 billion people
 India – 1.2 billion people
 Latin America – 600 million potential consumers

1-79
What Does The Changing
Economy Mean For Managers?
However, the potential risks are large
 will democracy thrive especially in difficult
economic times?
 will totalitarian regimes return?
 will a multi-polar world of different civilizations
emerge?
 will China’s financial system be stable?

1-80
What Are The Implications Of Political
Economy Differences For Managers?
 Countries with democratic regimes, market
based economic policies, and strong property
rights protection are more likely to have higher
sustained rates of economic growth
 these markets are more attractive to international
businesses
 the benefits, costs, and risks of doing business in a
country are a function of the country’s political,
economic, and legal systems

1-81
 The benefits of doing business in a country are a
function of
 the market’s size
 the purchasing power of its consumers
 their likely future wealth
 By identifying and investing early in potential
future economic stars, firms may be able to gain
first mover advantages (advantages that accrue
to early entrants into a market) and establish
loyalty and experience in a country
 China

1-82
The costs of doing business in a country
are a function of its
 political system
 is it necessary to pay bribes to get market access?
 economic level
 are the necessary supporting business and
infrastructure in place?
 legal system
 it can be more costly to do business in countries
with dramatically different product, workplace, and
pollution standards, or where there is poor legal
protection for property rights

1-83
 The risks of doing business in a country are a
function of
 Political risk - the likelihood that political forces will
cause drastic changes in a country's business
environment that adversely affects the profit and
other goals of a business enterprise
 Economic risk - the likelihood that economic
mismanagement will cause drastic changes in a
country's business environment that adversely
affects the profit and other goals of a business
enterprise
 Legal risk - the likelihood that a trading partner will
opportunistically break a contract or expropriate
property rights

1-84
 The overall attractiveness of a country as a
potential market and/or investment site for an
international business depends on balancing the
benefits, costs, and risks associated with doing
business in that country
 Other things being equal, the benefit-cost-risk
trade-off is likely to be most favorable in
politically stable developed and developing
nations that have free market systems and no
dramatic upsurge in either inflation rates or
private sector debt

1-85
Country Attractiveness

Chapter 4
Differences
in Culture

1-87
How Do Cultural Differences
Affect International Business?
 Understanding and adapting to the local cultural
is important international companies
 cross-cultural literacy - an understanding of how
cultural differences across and within nations can
affect the way in which business is practiced
 cross-cultural literacy is important for business
success
 A relationship may exist between culture and the
costs of doing business in a country or region
 MNEs can be agents of cultural change
 McDonald’s

1-88
What Is Culture?
 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
where
 values are abstract ideas about what a group believes
to be good, right, and desirable
 norms are the social rules and guidelines that
prescribe appropriate behavior in particular situations
 Society - a group of people who share a
common set of values and norms

1-89
What Are Values And Norms?
Values provide the context within which a
society’s norms are established and
justified and form the bedrock of a culture
Norms include
 folkways - the routine conventions of everyday
life
 mores - norms that are seen as central to the
functioning of a society and to its social life

1-90
How Are Culture, Society,
And The Nation-State Related?
The relationship between a society and a
nation state is not strictly one-to-one
Nation-states are political creations
 can contain one or more cultures
A culture can embrace several nations

1-91
What Determines Culture?
The values and norms of a culture evolve
over time
Determinants include
 religion
 political and economic philosophies
 education
 language
 social structure

1-92
What Determines Culture?
Determinants of Culture

1-93
What Is A Social Structure?
Social structure - a society’s basic social
organization
Consider
 the degree to which the basic unit of social
organization is the individual, as opposed to
the group
 the degree to which a society is stratified into
classes or castes

1-94
How Are Individuals
And Groups Different?
A group is an association of two or more
people 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
 individuals are involved in families, work
groups, social groups, recreational groups,
etc.
Societies place different values on groups

1-95
How Are Individuals
 In Western societies, there is a focus on the
individual
 individual achievement is common
 dynamism of the U.S. economy
 high level of entrepreneurship
 But, creates a lack of company loyalty and
failure to gain company specific knowledge
 competition between individuals in a company instead
of than team building
 less ability to develop a strong network of contacts
within a firm

1-96
How Are Individuals
In many Asian societies, the group is the
primary unit of social organization
 discourages job switching between firms
 encourages lifetime employment systems
 leads to cooperation in solving business
problems
But, might also suppress individual
creativity and initiative

1-97
What Is Social Stratification?
 All societies are stratified on a
hierarchical basis into social categories,
or social strata
 individuals are born into a particular stratum
 Must consider
1. mobility between strata
2. the significance placed on social strata in
business contexts

1-98
1. Social mobility - the extent to which individuals
can move out of the strata into which they are
born
 caste system - closed system of stratification in
which social position is determined by the family into
which a person is born
 change is usually not possible during an
individual's lifetime
 class system - form of open social stratification
 position a person has by birth can be changed
through achievement or luck

1-99
2. The significance attached to social strata
in business contacts
 class consciousness - a condition where people
tend to perceive themselves in terms of their class
background, and this shapes their relationships with
others
 an antagonistic relationship between management
and labor raises the cost of production in countries
with significant class differences

1-100
How Do Religious And
Ethical Systems Differ?
 Religion - a system of shared beliefs and
rituals that are concerned with the realm of the
sacred
 Four religions dominate society
1. Christianity
2. Islam
3. Hinduism
4. Buddhism
5. Confucianism is also important in influencing
behavior and culture in many parts of Asia

1-101
World Religions

1-102
 Ethical systems - a set of moral
principles, or values, that are used to
guide and shape behavior
 Religion and ethics are often closely
intertwined
 Example: Christian or Islamic ethics

1-103
What Is Christianity?
Christianity
 the world’s largest religion
 found throughout Europe, the Americas, and
other countries settled by Europeans
 the Protestant work ethic (Max Weber, 1804)
 hard work, wealth creation, and frugality is the
driving force of capitalism

1-104
What Is Islam?
 Islam
 the world’s second largest religion dating to AD 610
 there is only one true omnipotent God
 an all-embracing way of life that governs one's being
 associated in the Western media with militants,
terrorists, and violent upheavals
 but, in fact teaches peace, justice, and tolerance
 fundamentalists have gained political power and
blame the West for many social problems
 people do not own property, but only act as stewards
for God
 supportive of business, but the way business is
practiced is prescribed

1-105
What Is Hinduism?
Hinduism
 practiced primarily on the Indian subcontinent
 focuses on the importance of achieving
spiritual growth and development, which may
require material and physical self-denial
 Hindus are valued by their spiritual rather than
material achievements
 promotion and adding new responsibilities
may not be important, or may be infeasible
due to the employee's caste

1-106
What Is Buddhism?
Buddhism
 has about 350 millions followers
 stresses spiritual growth and the afterlife,
rather than achievement while in this world
 does not emphasize wealth creation
 entrepreneurial behavior is not stressed
 does not support the caste system, individuals
do have some mobility and can work with
individuals from different classes

1-107
What Is Confucianism?
Confucianism
 ideology practiced mainly in China
 teaches the importance of attaining personal
salvation through right action
 high morals, ethical conduct, and loyalty to
others are stressed
 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

1-108
What Is The Role
Of Language In Culture?
Language - the spoken and unspoken
(nonverbal communication such as facial
expressions, personal space, and hand
gestures ) means of communication
 countries with more than one language often
have more than one culture
 Canada, Belgium, Spain

1-109
What Is The Role
Of Language In Culture?
 Language is one of the defining characteristics
of culture
 Chinese is the mother tongue of the largest number of
people
 English is the most widely spoken language in the
world
 English is also becoming the language of international
business
 but, knowledge of the local language is still beneficial,
and in some cases, critical for business success
 failing to understand the nonverbal cues of another
culture can lead to communication failure

1-110
What Is The Role
Of Education In Culture?
 Formal education is the medium through which
individuals learn many of the language,
conceptual, and mathematical skills that are
indispensable in a modern society
 important in determining a nation’s competitive
advantage
 Japan’s postwar success can be linked to its
excellent education system
 general education levels can be a good index for the
kinds of products that might sell in a country
 Example: impact of literacy rates

1-111
How Does Culture
Impact The Workplace?
 Management processes and practices
must be adapted to culturally determined
work-related values
 Geert Hofstede studied culture using
data collected from 1967 to 1973 for
100,000 employees of IBM
 Hofstede identified four dimensions that
summarized different cultures

1-112
How Does Culture
 Hofstede’s dimensions of culture:
1. Power distance - how a society deals with the
fact that people are unequal in physical and
intellectual capabilities
2. Uncertainty avoidance - the relationship
between the individual and his fellows
3. Individualism versus collectivism - the extent to
which different cultures socialize their
members into accepting ambiguous situations
and tolerating ambiguity
4. Masculinity versus femininity -the relationship
between gender and work roles

1-113
How Does Culture
Work-Related Values for 20 Countries

1-114
How Does Culture
Hofstede later expanded added a fifth
dimension called Confucian dynamism or
long-term orientation
 captures attitudes toward time, persistence,
ordering by status, protection of face, respect
for tradition, and reciprocation of gifts and
favors
 Japan, Hong Kong, and Thailand scored high on
this dimension
 the U.S. and Canada scored low

1-115
Was Hofstede Right?
 Hofstede’s work has been criticized for several
reasons
 made the assumption there is a one-to-one
relationship between culture and the nation-state
 study may have been culturally bound
 used IBM as sole source of information
 culture is not static – it evolves
 But, it is a starting point for understanding how
cultures differ, and the implications of those
differences for managers

1-116
Does Culture Change?
Culture evolves over time
 changes in value systems can be slow and
painful for a society
Social turmoil - an inevitable outcome of
cultural change
 as countries become economically stronger,
cultural change is particularly common
 economic progress encourages a shift from
collectivism to individualism
 globalization also brings cultural change

1-117
What Do Cultural Differences
Mean For Managers?
1. It is important to develop cross-cultural literacy
 companies that are ill informed about the
practices of another culture are unlikely to
succeed in that culture
 To avoid being ill-informed
 consider hiring local citizens
 transfer executives to foreign locations on a
regular basis
 Managers must also guard against
ethnocentrism
 a belief in the superiority of one's own culture

1-118
What Do Cultural Differences
Mean For Managers?
2. There is a connection between culture
and national competitive advantage
 suggests which countries are likely to
produce the most viable competitors
 has implications for the choice of countries
in which to locate production facilities and
do business

MBA 531 Week 1 Overview (Chapters 1 - 4)

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