International Business Analysis Lecture 9 Slides PDF

Official (Closed) and Non- Sensitive International Business Analysis Lecture – Country Attractiveness Analysis (Socio-cultural &...

Official (Closed) and Non- Sensitive International Business Analysis Lecture – Country Attractiveness Analysis (Socio-cultural & Environmental Factors) Official (Closed) and Non- Sensitive At the end of this lecture, learners will be able to: 01 Explain the reasons for assessing the socio-cultural factor of a country in terms of its impact on the operations and viability of international firms 02 Identify and explain the cultural differences between home and host countries by using the Hofstede’s cultural dimensions 03 Explain the reasons for assessing environmental factors in the foreign market 2 Official (Closed) and Non- Sensitive 01. Explain the reasons for assessing the socio-cultural factor of a country in terms of its impact on the operations and viability of international firms Official (Closed) and Non- Sensitive Why Assess Socio-cultural Factors? a) Businesses deal with people  Employees, customers, suppliers, competitors, authorities etc b) Need to understand cultures  International companies face a greater challenge when working with people from different cultures  Many failures overseas are attributed to poor HR and ignorance of local attitudes and cultural values  Technical competence alone is NOT enough 4 Official (Closed) and Non- Sensitive What is Culture?  Culture can be defined as an integrated system of learned patterns of behaviours that are characteristic of the members of a given society.  A set of values and norms shared by a group of persons which collectively distinguishes them from other groups. It gives the group their “identity”.  Society is composed of people living within their cultural frameworks. Understanding the society requires learning about its culture.  Culture cannot be observed directly but we learn about it by observing the social world in which it exists  Socio + cultural 5 Official (Closed) and Non- Sensitive Importance of Culture in International Business From a marketing point of view:  Product (e.g. Halal or non-Halal)  Packaging design (e.g. symbolism of colours – red is auspicious for Chinese)  Service (the need for personal space e.g. Walmart’s failure in S Korea) From negotiations & interactions point of view:  With business partners (e.g. Guanxi or “relationship” in China)  With customers and suppliers (e.g. after work entertainment for bonding)  With media and government officials 6 Official (Closed) and Non- Sensitive Importance of Culture in International Business From a human resource & motivation point of view:  Leadership style is influenced by culture (e.g. open door policy in Western culture)  Employees behaviours are influenced by culture (e.g. prefer team effort in traditional Asian context) From a production and procurement point of view:  Willingness to accept new production methods (e.g. innovation vs traditional)  Procurement process (e.g. relationship based or open-tender transparency) 7 Official (Closed) and Non- Sensitive Product (Halal or non-Halal) Tesco store in London (2015) where one of their aisles displayed Smokey Bacon Flavour chips with the message Ramadan Mubarak (means “blessed” in Arabic). Bacon? Muslim? Big mistake! The store is not far from Whitechapel's East London Mosque, one of the largest Muslim places of worship in Europe. Amused Muslim shoppers saw the display and immediately sent out messages across the Twitter universe. 8 Official (Closed) and Non- Sensitive Packaging Design The brand’s cartons were adorned with a photo of a stern-looking Adolf Hitler dressed in a brown blazer. It demonstrated not only a lack of education in terms of European history but also a lack of sensitivity with its “Made in India Hitler Ice- cream” (2015) 9 Official (Closed) and Non- Sensitive Product and Concept Wal-Mart had relied on its proven business model in USA and its strategy in offering low prices for products. However, low prices alone was insufficient to make a successful business case in South Korea. South Koreans have different consumer preferences than Americans do. For instance, South Koreans like fresh vegetables and fresh food rather than dry products and the type of clothing that Wal-Mart sells. The South Korean culture is also very tied into its markets; they are one of the largest countries that are deeply involved in local markets. South Koreans do not distinguish between discounts and normal prices. Thus, they may not see a compelling reason to shop at Wal-Mart. 10 Official (Closed) and Non- Sensitive Service South Koreans are also visually-oriented customers. They tend to purchase products not just because of the product itself, but also because of its appearance or the service the customer receives in the store. In fact, some South Korean ladies do not like the warehouse-like atmosphere of Wal-Mart, which the American consumers seem not to mind since the products are still cheap. They prefer the department store-like, neat, clean, and sophisticated atmosphere. 11 Official (Closed) and Non- Sensitive 02. Identify and explain the cultural differences between home and host countries by using the Hofstede’s cultural dimensions Official (Closed) and Non- Sensitive Various Elements of Culture a) Language b) Religion & Beliefs c) Manners & Customs d) Aesthetics 13 Official (Closed) and Non- Sensitive (a) Language Language is an important key to unlocking culture. Without understanding it, you find yourself locked out of communication. Both spoken (verbal) and unspoken (non-verbal) language is crucial in international business interaction. 14 Official (Closed) and Non- Sensitive (a) Language Unspoken Language Even if business people learn the spoken language, they may not be able to communicate effectively. In high context culture, (such as the Middle Eastern, Asian culture, South American culture), the meaning of communication is conveyed through the unspoken language and often not by the words they say. 15 Official (Closed) and Non- Sensitive (a) Language Chinese High Context Korean Establish social trust first Japanese Personal relations & goodwill are valued Open disagreement is frowned upon Vietnamese Agreements emphasize trust (less legalistic) Arab Negotiations are slow & ritualistic Spanish Face is important, protocol conscious Italian English Low Context N American Get down to business first Expertise & performance valued Scandinavian Task oriented – disagreement usu. not personal Swiss Agreements emphasize specific, legalistic contract German Negotiations are as efficient as possible 16 Official (Closed) and Non- Sensitive (b) Religion & Beliefs For international business, the most followed religion are Christianity, Islam, Hinduism, Buddhism. 17 Official (Closed) and Non- Sensitive (b) Religion & Beliefs Awareness and respect for religions belief can help companies tap on world wide opportunities In the past, Germany-based Haribo (www.haribo.com) missed out on potentially US$2 billion annually in the Jewish & Muslim market. Today, Halal gummy bears are made in Turkey to reach the Jewish & Muslim around the world. Heineken produces non-alcoholic malt drink – Fayrouz for Islamic mkt 18 Official (Closed) and Non- Sensitive (c) Manners & Customs Manners: Appropriate ways of behaving, speaking, and dressing in a culture are called manners (For example: Punctuality, Mannerism at work, Greetings) Customs: Habits or ways of behaving in specific circumstances that are passed down through generations in a culture (For example: eating habits, nap habits) Gift giving & entertainment in business context is often confusing aspect in many international managers life. What is acceptable to one culture may be totally unacceptable to another. (For example: In Japan, people never visit a home/customer empty handed and without wrapping their gifts) 19 Official (Closed) and Non- Sensitive (d) Aesthetics Refers to what a culture considers “good taste” in the arts, the images, symbols, colors, and so on (For example: In Middle East, big is considered beautiful) Important when a company does business in another culture. The selection of colors for advertising, product packaging and even work uniform can increase the odds of success. 20 Official (Closed) and Non- Sensitive How to assess Host Country’s Cultural Environment? Hofstede’s 5 Cultural Dimensions for study of workplace culture 21 Official (Closed) and Non- Sensitive Compare cultures using Hofstede Dimension Score 22 Official (Closed) and Non- Sensitive Power Distance This dimension conveys the degree to which a society accepts inequality among its people. In high power distance culture, people understand and accept “their place” in the organization. Workplace: Hierarchical, respect and compliance expected by bosses, relationship between bosses and workers is formal. Top-down decision making is likely. Customer Service: Customer is always right” policy, customers expect to be treated as “kings” and “queens”. 23 Official (Closed) and Non- Sensitive Individualism This dimension identifies the extent to which a culture emphasizes the individual versus a group. Individualism: Societies in which ties between individuals are loose; person identifies himself or herself as an individual loosely related to others. Individual achievement and freedom is important Collectivism: Societies in which people from birth onwards are integrated into strong, cohesive in-groups; person identifies himself/ herself fundamentally with a group (family, company, village, etc). Recognition and approval by the group is important 24 Official (Closed) and Non- Sensitive Individualism In low Individualism (Collectivism) workplace: loyalty, teamwork is easier, team goals and team reward might be more effective than individual goals and reward system. Marketplace: Collectivism marketing strategies to focus on appealing to potential customers sense of belonging/ loyalty to the in-groups they are in. E.g. family themed restaurants / holidays, exclusive privileges for members of certain clubs (e.g. SAFRA club). 25 Official (Closed) and Non- Sensitive Uncertainty Avoidance This dimension identifies the extent to which a culture avoids uncertainty and ambiguity. High uncertainty avoidance = has high tendency to avoid uncertainty and ambiguity. Workplace: need for clearly defined rules, goals and instructions otherwise workers feel “lost” or insecure. May be less open to risk taking and differences in opinions. Marketplace: Customers require proof / evidence, information before making purchase decision. 26 Official (Closed) and Non- Sensitive Masculinity This dimension captures the extent to which a culture emphasizes masculinity versus felinity. It refers to a society’s orientation based on traditional male and female values. Traditional Masculine values: assertive & decisive, competitive, achievement oriented, work more important than leisure. Traditional Feminine values: tender & caring, consultative, quality of life is important. Societies that are high in masculinity = people (males and females) are generally more competitive, achievement oriented, more focused on career advancement and earning money Societies that are low in masculinity (Feminine) = people (males and females) generally emphasize nurturing roles, importance of relationships, caring for the less fortunate and quality of life. 27 Official (Closed) and Non- Sensitive Masculinity In high masculinity society Workplace: Type of jobs: certain jobs traditionally held by males: politicians, leaders in a company, engineers, military etc; certain jobs traditionally held by females: teachers, nurses, homemakers etc. Type of Leadership style: Management style: Leaders / managers expected to be strong, decisive, to give direction. Promotion and appointment: female in supervisory position with all male subordinates in traditionally male-dominated occupation Marketplace: Advertising of major big ticket purchases (e.g. house, cars) target at men (head of the household) as they are most likely to be the decision maker. 28 Official (Closed) and Non- Sensitive Long Term Orientation This dimension indicates a society perception of time and its attitudes about overcoming obstacles with time, if not with will and strength. It attempts to capture the differences between the Eastern and Western cultures (based on Confucian Dynamism) Long-term orientation societies – people value actions and attitudes that affect the future: persistence / perseverance, thrift and saving for the future, saving face, relationship building. East Asian countries such as Japan, Hong Kong and Thailand scored high on long-term orientation, while nations such as Australia, USA and UK scored low Short-term orientation societies – values connected to the present are stronger; high consumption patterns, demand instant results, task oriented 29 Official (Closed) and Non- Sensitive Long Term Orientation In short term orientation societies (low in long term orientation), Workplace: employees may sacrifice long term gains for immediate benefit. Marketplace: customers in short term orientated societies have propensity to spend and demand instant results. For more information, go to: https://www.hofstede-insights.com/product/compare-countries/ 30 Official (Closed) and Non- Sensitive 03. Explain the reasons for assessing environmental factors in the foreign market Official (Closed) and Non- Sensitive Why Assess Environmental Factors? a) Environmental Regulations  Countries have varying environmental laws that can impact how businesses operate. Companies must ensure that their practices comply with local regulations regarding waste disposal, carbon emissions, and sustainable practices. b) Resource Availability  Access to natural resources, energy, and raw materials is a critical factor, especially for manufacturing businesses. Assessing resource availability helps businesses plan their supply chains and production processes effectively. c) Natural Disasters & Climate Changes  Markets in certain regions are more susceptible to natural disasters, like hurricanes or earthquakes. Understanding the geographical environment helps businesses assess risk and prepare for emergencies. 32 Official (Closed) and Non- Sensitive What is Environmental (the other “E” in PESTEL)? In this context, we are looking more at impact of weather changes on the country. These include:  Natural Disasters: Earthquakes, Hurricane, Flood, Heat waves etc. Natural disasters often called ‘Acts of God’ – Is it really? Or result of climate change?  Climate Change: Global warming, Where are we now and where are we heading?  Pollution: Haze, Smog, etc 33 Official (Closed) and Non- Sensitive Impact on Business Operations Japan Earthquake, Tsunami & Nuclear Crisis 2011 (World Costliest) Economic costs @ $360 billion with post disaster reconstruction costs totalling 4% of Japan’s GDP Reconstruction activity is an important economic stimulus in the aftermath of disasters. However, it can exert pressure on the country’s current account. It reduce resources available for productive investment, further tighten limited government budgets, and create higher debt risk. 34 Official (Closed) and Non- Sensitive Impact on Business Operations Haze crisis 2015 Singapore must prepare for risk of increased haze: O Economic and human costs? nion | NTU Singapore The haze blanketed the region, resulting in widespread loss of lives, health problems and economic woes across South-east Asia. The dust, smoke and moisture from these fires caused difficulties in seeing and breathing. Over 100,000 deaths could have been prevented. The episode was said to have cost Singapore $1.83 billion due to adverse health impact, losses in business, tourism and productivity, and the costs of mitigation and adaptation, according to research by NTU. 35 Official (Closed) and Non- Sensitive Impact on Business Operations  Tourism (e.g. ski resorts in Europe, beach resorts on Maldives, etc).  Change in sources of food (some African countries’ agricultural yield to reduce by 50% in 2020).  Increase in social unrest, civil war and wars due to poverty, famine caused by extreme weather changes.  Extreme weather patterns might change sea or air routes  increasing cost of transportation of goods. Increase in diseases, illness and deaths.  Businesses may be required to comply with tougher environmental safeguards imposed by governments resulting in increase in business costs..  Companies deemed not environmental friendly might risk being boycotted by green groups (e.g Greenpeace against Lego & Shell). 36 Official (Closed) and Non- Sensitive Impact on Business Operations  Opportunities?  Shortage of water  water desalination companies  Greater emphasis of green/clean energy  businesses (Toyota’s hydrogen cars) in green/clean technology or bio fuels (ethanol, hydrogen, etc).  Places previously unattractive might become attractive for tourism or for agricultural production as a result of climate change.  Emissions’ Trading 37 Official (Closed) and Non- Sensitive Indicators to assess “E” Indicator Organization Websites to find recent years data Global Climate Risk germanwatch.org Indices | Germanwatch e.V. Index (GCRI) Climate Change germanwatch.org Indices | Germanwatch e.V. Performance Index Environmental South Pacific Applied Geoscience Commission (SOPAC), the United Nations Vulnerability Index Environment Programme (UNEP) and their http://gsd.spc.int/sopac/evi/EVI_Results.htm (EVI) partners 38 Official (Closed) and Non- Sensitive The End Lecture – Country Attractiveness Analysis (Socio-cultural & Environmental Factors)