Chapter 3: Differences in Culture PDF

Chapter 3: Differences in Culture --- Key Concepts: What is Culture? Culture is the shared values and norms that guide the behavior of a group of people. Values are core beliefs that shape a culture’s norms. Norms are social rules for behavior, which include: Folkways: Everyday customs....

Chapter 3: Differences in Culture --- Key Concepts: What is Culture? Culture is the shared values and norms that guide the behavior of a group of people. Values are core beliefs that shape a culture’s norms. Norms are social rules for behavior, which include: Folkways: Everyday customs. Mores: Essential rules that are crucial for a society’s well-being. Culture and Society Society is a group of people who share common values and norms. A nation-state is a political entity that may contain one or more cultures. Determinants of Culture Culture is shaped by political and economic systems, social structures, religion, language, and education. --- Social Structure and Stratification - Social Structure : The way a society is organized. - Individualism vs. Group Orientation: Western cultures often focus on individual achievement, while non-Western cultures like Japan emphasize teamwork and loyalty. - Social Stratification : Societies are divided into classes based on family, occupation, and income, which can affect business practices. --- Religion and Ethical Systems - Religion : Shapes culture and business through beliefs and practices. - Christianity : Emphasizes hard work and capitalism. - Islam : Supports business but has rules against charging interest. - Hinduism : Focuses on spiritual achievements; caste system may limit job mobility. - Buddhism : Encourages spiritual growth and entrepreneurship. - Confucianism : Stresses loyalty, honesty, and respect, which can help in business relationships. --- Language - Spoken Language : A major cultural factor that affects communication and business. - English is the leading business language, followed by Mandarin, French, and Arabic. - Unspoken Language : Non-verbal communication like gestures and facial expressions, which vary across cultures. --- Education - A country’s education system shapes its labor force and business environment, impacting national competitiveness. --- Hofstede’s Cultural Dimensions Geert Hofstede identified five cultural dimensions that help explain cultural differences: 1. Power Distance : How much inequality is accepted. 2. Individualism vs. Collectivism : Focus on individual or group goals. 3. Uncertainty Avoidance : Comfort with uncertainty. 4. **Masculinity vs. Femininity : Emphasis on competition vs. nurturing. 5. **Long-term vs. Short-term Orientation : Focus on long-term vs. immediate goals. - A sixth dimension, Indulgence vs. Restraint , was later added. --- Cultural Change - Culture evolves slowly, often as countries grow wealthier. This change can lead to social unrest, especially in rapidly developing countries. --- Managerial Implications - Cross-Cultural Literacy : Understanding cultural differences is key to business success. - Ethnocentrism (believing one’s culture is superior) can hurt international business. - Cultural Understanding : Managers need to understand the culture of the countries they do business in to avoid mistakes and gain a competitive advantage. --- Summary - Culture affects business practices, values, and how people work together. - Cultural differences can influence how businesses operate in different countries. - Understanding social structure, religion, language , and education is important for success in international business. - Managers need to be aware of these cultural factors to make informed decisions and maintain a competitive edge in the global marketplace. --- Chapter 4: Ethics, Corporate Social Responsibility, and Sustainability Introduction - Ethics, CSR, and sustainability are key concerns in international business. - Business ethics are principles of right or wrong that guide business conduct. - Ethical strategy refers to business strategies that align with ethical standards. --- Ethical Issues in International Business 1. Employment Practices - Issues arise when working conditions differ between home and host countries. - Example: Nike faced ethical questions over using sweatshop labor, even though it didn’t break laws. 2. Human Rights - Basic human rights like freedom of speech and assembly may not be universally accepted. - Example: During apartheid, companies like GM supported efforts to end segregation. - Ethical dilemma: Should companies do business with repressive regimes? 3. Environmental Pollution - Companies may exploit weaker environmental laws in other countries, which leads to pollution.  - The "tragedy of the commons" happens when shared resources like oceans or air are overused and harmed. 4. Corruption - Corruption, including bribery and unethical payments, is widespread. - The U.S. Foreign Corrupt Practices Act (FCPA) prohibits bribery but allows "facilitating payments." - Ethical dilemma: Is paying bribes justified to do business in corrupt countries? --- Roots of Unethical Behavior Managers may act unethically due to: 1. Personal Ethics: Individual values influenced by family, religion, and culture. 2. Decision-Making Processes: Unethical decisions may arise if ethics aren’t considered. 3. Organizational Culture: Some companies don’t prioritize ethical behavior. 4. Unrealistic Goals: Pressure to meet targets may encourage unethical actions. 5. Leadership: Leaders set the ethical tone of the organization. 6. Societal Culture: Different cultures have different views on ethics. --- Philosophical Approaches to Ethics 1. Straw Men (flawed ethical approaches): - Friedman Doctrine: Business should focus on profits within the law. - Cultural Relativism: Do as the locals do. - Righteous Moralist: Follow home-country ethical standards abroad. - Naïve Immoralist: If others act unethically, it's acceptable for your company to do the same. 2. Utilitarian Ethics: - Decisions should benefit the greatest number of people. - Issues: Hard to measure benefits and may ignore justice. 3. Kantian Ethics: - Treat people as ends, not means. - Focuses on respect and dignity but can overlook moral sentiments like care. 4. Rights Theories: - Emphasize basic human rights that should be respected globally. - Example: Universal Declaration of Human Rights. 5. Justice Theories: - Focus on fair distribution of resources. - John Rawls’ "veil of ignorance" suggests making decisions as if you don’t know your social status. --- Managerial Implications 1. Hiring and Promotion: - Hire ethical individuals and promote based on ethics. 2. Organizational Culture and Leadership: - Build a culture that values ethical behavior. - Set clear ethical values and reward ethical actions. 3. Decision-Making Processes: - Consider the ethical consequences of decisions. - Ask: Would family members approve of this decision? 4. Ethics Officers: - Appoint officers to monitor and enforce ethics, conduct training, and ensure compliance. 5. Moral Courage: - Managers should be willing to reject unethical decisions, even if they are profitable. 6. Corporate Social Responsibility (CSR): - Businesses should give back to society and focus on improving social welfare. 7. Sustainability: - Businesses should pursue strategies that help them profit without harming the environment or future generations. --- Ethics and Corruption - Corruption involves using public office for private gain. - Factors contributing to corruption: Low salaries, weak legal systems, and poverty. - Common corrupt practices: Bribery, smuggling, money laundering, and piracy. Drawbacks of Corruption: 1. Economic distortion: Corruption wastes resources and reduces efficiency. 2. Slow economic growth: It discourages foreign investment. 3. Increased business costs: Companies must pay bribes or manage extra costs to get business done. 4. Inefficiency: Corruption sustains inefficient firms by favoring those with connections. 5. Environmental harm: Corruption leads to the exploitation of resources without regard for environmental impact. 6. Reduced tax revenue: Corruption leads to tax evasion and mismanagement of public funds. Types of Corrupt Practices: 1. Bribery: Offering money or gifts to influence decisions. 2. Smuggling: Moving goods or people illegally across borders. 3. Money Laundering: Concealing illegal origins of money through financial transactions. 4. Piracy and Counterfeiting: Infringing on intellectual property rights or selling fake goods. --- Chapter 8: Regional Economic Integration Opening Case: The Push Toward Free Trade in Africa - In 2015, 26 African countries signed the Tripartite Free Trade Area (TFTA) agreement. - The goal was to create a free trade zone, but 17 different trade blocs made it hard to implement. - African countries often trade more with the U.S. and Europe than with each other. - The TFTA has had difficulties in becoming fully effective. Introduction - Many new regional trade blocs have formed in recent decades. - There is concern about regional blocs competing with each other, which could reduce the benefits of free trade between them. Levels of Economic Integration 1. Free trade area - Countries remove trade barriers between themselves but set their own policies toward non-members. Example: NAFTA. 2. Customs union - Countries remove trade barriers and adopt a common trade policy toward non-members. Example: Andean Community. 3. Common market - No trade barriers, common trade policy, and free movement of labor and capital. Example: Mercosur. 4. Economic union - Involves free trade, common policies, a common currency, and unified fiscal and monetary policies. Example: European Union (EU). 5. Political union - Countries merge into a single political unit with coordinated policies. Example: The U.S. is an example of a political union. The Case for Regional Integration 1. Economic Benefits - Regional integration helps countries achieve more trade and investment benefits than global agreements alone. 2. Political Benefits - Countries in a union are less likely to go to war and have more political power on the global stage. 3. Challenges - It can be costly for certain groups, and national sovereignty may be lost. The Case Against Regional Integration - Integration works if it creates more trade than it diverts. - Trade Creation: Cheaper goods replace expensive domestic products. - Trade Diversion: Expensive goods from within the trade area replace cheaper goods from outside. Regional Economic Integration in Europe 1. European Union (EU) - The EU grew out of the desire for lasting peace and economic strength after World War II. - The EU now has 28 members but faces challenges like Brexit (Britain leaving the EU). 2. The Single European Act - Aimed to create a single market by 1992, removing border controls and harmonizing standards. 3. The Euro - Introduced as a single currency for 19 EU countries. - Has helped reduce transaction costs but has faced volatility against the U.S. dollar. 4. EU Enlargement - Many Eastern European countries joined the EU, making it a powerful economic bloc. 5. Brexit - The UK voted to leave the EU in 2016, mainly due to concerns over sovereignty and immigration. Regional Economic Integration in the Americas 1. NAFTA - A trade agreement between the U.S., Canada, and Mexico, removing tariffs and promoting cross-border investment. - Mexico benefited, but some jobs were lost in the U.S. and Canada. 2. Mercosur - A trade agreement between Brazil, Argentina, Uruguay, and Paraguay. It has reduced trade barriers but faces criticism for inefficiency. 3. Other Agreements - Agreements like CAFTA and CARICOM aim to promote trade in Central America and the Caribbean. Regional Economic Integration Elsewhere 1. ASEAN - The Association of Southeast Asian Nations promotes trade and cooperation among 10 countries. - It has created a free trade area and signed agreements with China to reduce tariffs. 2. African Trade Blocs - Africa has 17 trade blocs, but progress has been slow due to protectionism and differing national interests. - The Tripartite Free Trade Area was created to promote trade within Africa. 3. Other Agreements - The U.S. is involved in the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP) with other countries. Managerial Implications 1. Opportunities - Open markets and lower trade barriers allow businesses to centralize production, reducing costs. 2. Threats - Increased competition within regional blocs can make businesses more efficient, but non-members may be shut out of the market. Summary This chapter covered: - The different levels of regional economic integration. - The benefits and challenges of integration. - Key regional agreements, such as the EU and NAFTA. - The impact of these agreements on businesses. Chapter 7: Foreign Direct Investment (FDI) Got it! Here's your content with no bold text at all, including the headings and subheadings: --- Chapter 7: Foreign Direct Investment (FDI) Opening Case: Burberry Shifts Its Strategy in Japan - Burberry previously sold products in Japan under a licensing agreement with Sanyo Shokai. - In 2007, Burberry's CEO decided to regain control of the brand and ended the agreement. - Sanyo Shokai was required to close 400 stores. - Burberry now operates wholly-owned stores in Japan, expecting short-term sales declines to rebuild its brand. Introduction - Foreign direct investment (FDI) occurs when a firm invests directly in new operations in a foreign country. - A firm engaged in FDI is considered a multinational enterprise (MNE). Foreign Direct Investment in the World Economy - FDI flow refers to the amount of investment over a specific period. - FDI stock refers to the total value of foreign-owned assets at a given time. - Over the past 35 years, both FDI flow and stock have increased faster than global trade and output. - Protectionism remains a concern, but the shift toward democracy and free markets encourages FDI. FDI Trends - FDI has historically been directed at developed countries like the U.S. and the EU. - Recently, developing nations such as China and Latin America have attracted more FDI. The Source of FDI - The U.S. has been the largest source of FDI since World War II. - Other major sources include the U.K., Netherlands, France, Germany, and Japan. - China has recently become a significant investor in foreign markets. FDI Forms: Acquisitions vs. Greenfield Investments - Greenfield investments involve setting up new operations. - Acquisitions are faster, less risky, and easier to execute, allowing firms to improve acquired units' efficiency. Theories of Foreign Direct Investment 1. Why do firms favor FDI over exporting and licensing? 2. Why do firms in the same industry undertake FDI at the same time and choose specific locations? 3. The Eclectic Paradigm: combines these two perspectives to explain FDI. Why Foreign Direct Investment? - Exporting: Producing goods at home and selling them abroad. - Licensing: Granting a foreign entity the right to produce and sell a product for a royalty fee. - Exporting can be limited by transportation costs and trade barriers. - Licensing can be risky if it involves sharing proprietary knowledge with foreign competitors. - FDI may be preferred when control over operations, technology, and strategy is important. Strategic Behavior and FDI - FDI often reflects strategic rivalry in industries with a few dominant players. - This theory suggests that firms invest abroad to compete with each other in multiple markets. The Eclectic Paradigm - Dunning’s paradigm adds two factors: 1. Location-specific advantages: Unique resources tied to specific locations. 2. Externalities: Knowledge spillovers that occur when firms from the same industry cluster in one area. Political Ideology and FDI - Radical view: MNEs are seen as tools of imperialist domination. - Free market view: FDI is beneficial and should follow the principle of comparative advantage. - Pragmatic nationalism: A balance between the benefits and costs of FDI, allowing it only if the benefits outweigh the costs. - In recent years, there has been a shift toward free market policies, but some countries (e.g., Venezuela, Bolivia) remain hostile to FDI. Benefits and Costs of FDI Host-Country Benefits - Resource transfer effects: FDI brings capital, technology, and management resources. - Employment effects: FDI can create jobs, although not all jobs are net additions. - Balance of payments: FDI can improve the host country’s current account by substituting imports and exporting goods. - Competition and growth: FDI can increase competition, lower prices, and promote economic growth. Host-Country Costs - Adverse effects on competition: Foreign MNEs may have more economic power than local competitors, potentially driving them out of the market. - Balance of payments: FDI can result in capital outflows and higher imports by foreign subsidiaries. - Loss of sovereignty: FDI may lead to decisions being made outside the host country’s control. Home-Country Benefits - Capital account: FDI results in an inflow of foreign earnings. - Employment effects: Outward FDI can create jobs in the home country. - Learning from foreign markets: Firms gain valuable skills abroad that can benefit the home country. Home-Country Costs - Balance of payments: The home country may suffer from capital outflows and reduced exports if FDI is intended to serve the foreign market. - Employment effects: Outward FDI may raise concerns about job losses in the home country. Government Policy Instruments and FDI Home-Country Policies - Encouraging outward FDI: Governments can support FDI by providing insurance programs, loans, and eliminating double taxation. - Restricting outward FDI: Some countries restrict FDI for political reasons or to encourage domestic investment. Host-Country Policies - Encouraging inward FDI: Governments offer incentives like tax breaks and subsidies to attract FDI. - Restricting inward FDI: Some countries limit foreign ownership in certain sectors or require performance standards. International Institutions and FDI - The World Trade Organization (WTO) has worked to liberalize FDI and create a universal set of rules for foreign investment. Managerial Implications - FDI and government policy: Managers must understand location-specific advantages and choose FDI over licensing or exporting when control is necessary. - Government policy: A firm’s bargaining power with the host government depends on its value to the country and the availability of alternatives. Summary This chapter covered: - Trends and theories of FDI. - The impact of political ideology on FDI policies. - The benefits and costs of FDI to both home and host countries. - Government policies that influence FDI. - Managerial implications of FDI theories and policies. --- Chapter 10: Entering Developed and Emerging Markets Opening Case: Cutco Corporation - Cutco is a leading manufacturer of high-quality kitchen cutlery in the U.S. and Canada. - It began as a product for Wear-Ever Aluminum, a division of Alcoa. - The company was privatized through a management buyout and now uses a direct selling model with a sales force mostly composed of college students. Introduction Firms can enter foreign markets through various strategies, including: - Exporting - Licensing or franchising to local firms - Joint ventures with local firms - Wholly owned subsidiaries in the host country The choice of entry mode depends on factors like transport costs, trade barriers, political and economic risks, costs, and the firm’s strategy. Basic Entry Decisions A firm must decide: - Which markets to enter - When to enter - The scale of entry Which Foreign Markets to Enter - Firms should evaluate the long-term profit potential of a market. - Ideal markets are politically stable with free-market systems, low inflation, and low private sector debt. - Less favorable markets are politically unstable with mixed economies or financial instability. - The suitability of the product and local competition also influence the decision. Timing of Entry - Firms can enter early (before competitors) or late (after competitors). - Early entry may offer first-mover advantages such as brand recognition, cost advantages, and the ability to create customer loyalty. - However, being first also comes with pioneering costs, like the risk of failure due to unfamiliarity with the market and the cost of educating customers. Scale of Entry and Strategic Commitments - A significant entry can create a competitive advantage but is difficult to reverse. - A smaller-scale entry can allow firms to learn about a market with less exposure, but it limits potential rewards. Entry Modes Common modes for entering foreign markets include: - Exporting - Turnkey projects - Licensing - Franchising - Joint ventures - Wholly owned subsidiaries Exporting - Exporting is a low-cost entry mode where a firm sells products made in one country to customers in another. - Pros: Low cost, potential economies of scale. - Cons: Transport costs, tariff barriers, and the risk that foreign agents may not act in the firm’s best interest. Turnkey Projects - A firm agrees to manage every aspect of a project and hand it over to a client once completed. - Pros: Can yield high returns from know-how and may be less risky in unstable countries. - Cons: The firm doesn’t have a long-term interest in the country and may create a future competitor. Licensing - A firm grants a foreign firm the rights to use its intellectual property in exchange for royalties. - Pros: Avoids development costs and investment barriers. - Cons: Loss of control over production and marketing, risk of losing proprietary technology. Franchising - A form of licensing where the franchisor sells its intellectual property and requires the franchisee to follow strict business rules. - Pros: Avoids costs and risks of opening foreign operations. - Cons: Can lead to difficulties in controlling quality and profitability. Joint Ventures - A joint venture is a partnership where two or more firms share ownership of a foreign operation. - Pros: Sharing risks and benefits, access to local partner's knowledge of the market. - Cons: Risk of losing control over technology, potential conflicts with the partner. Wholly Owned Subsidiaries - A firm owns 100% of its operations in the foreign market, either by setting up a new operation or acquiring an existing company. - Pros: Full control over operations, protection of intellectual property, and potential for economies of scale. - Cons: High cost and risk, especially when establishing new operations. Selecting an Entry Mode - A firm’s core competencies and the level of control it needs will influence the choice of entry mode. - If the firm’s competitive advantage is based on technology, it should avoid licensing and joint ventures to protect proprietary knowledge. - If the firm’s advantage lies in management expertise, franchising or joint ventures may be attractive. - Firms under pressure for cost reductions may prefer exporting or wholly owned subsidiaries to control operations and reduce costs. Greenfield vs. Acquisition - Acquisitions are quick to implement and allow firms to gain immediate market presence but may lead to culture clashes and integration challenges. - Greenfield ventures are slower to establish and riskier but allow full control over the subsidiary’s structure. - The choice depends on the firm’s circumstances—acquisitions may be better if competitors are already established, while greenfield ventures may be suitable if the firm wants complete control. Summary This chapter covered: - The key decisions firms must make when expanding internationally: which markets to enter, when to enter, and the scale of entry. - Various entry modes and their advantages and disadvantages. - Factors influencing the choice of entry mode and strategic decisions regarding acquisitions versus greenfield ventures.