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INSTRUCTOR MANUAL for International Business The Challenges of Globalization 8e John Wild Kenneth Wild.

CHAPTER 1 GLOBALIZATION LEARNING OBJECTIVES: 1. Identify the types of companies active in international business. 2. Explain globalization and how it affects markets and production. 3. Detail the forces that are driving globalization. 4. Outline the debate over globalization’s impact on jobs and wages. 5. Summarize the debate over income inequality. 6. Outline the debate over culture, sovereignty, and the environment. 7. Describe the global business environment and its main elements. CHAPTER OUTLINE: Introduction International Business Involves Us All Technology Makes It Possible Global Talent Makes It Happen Key Players in International Business Multinational Corporations Entrepreneurs and Small Businesses What Is Globalization? Globalization of Markets Reduces Marketing Costs Creates New Market Opportunities Levels Uneven Income Streams Local Buyers’ Needs Global Sustainability Three Markets, Three Strategies Globalization of Production Access Lower-Cost Workers Access Technical Expertise Access Production Inputs Forces Driving Globalization Falling Barriers to Trade and Investment World Trade Organization Other International Organizations Regional Trade Agreements Trade and National Output Technological Innovation E-Mail and Videoconferencing The Internet Company Intranets and Extranets Advancements in Transportation Technologies Measuring Globalization Debate Over Jobs and Wages Against Globalization Eliminates Jobs in Developed Nations

Ch 1: Globalization Lowers Wages in Developed Nations Exploits Workers in Developing Nations For Globalization Increases Wealth and Efficiency in All Nations Generates Labor Market Flexibility in Developed Nations Advances the Economies of Developing Nations Summary of the Jobs and Wages Debate Debate Over Income Inequality Inequality within Nations Inequality between Nations Global Inequality Summary of the Income Inequality Debate Debate Over Culture, Sovereignty and the Environment Globalization and Culture Globalization and National Sovereignty Globalization: Menace to Democracy? Globalization: Guardian of Democracy? Globalization and the Environment The Keys to Global Success The Global Business Environment The Road Ahead for International Business Bottom Line for Business

A comprehensive set of specially designed PowerPoint slides is available for use with Chapter 1. These slides and the lecture outline below form a completely integrated package that simplifies the teaching of this chapter’s material. Lecture Outline I.

INTRODUCTION Globalization is reshaping our cultures, our political, legal, and economic systems, and affecting our standards of living. It alters the global pattern of trade and investment by expanding markets and multiplying production possibilities. A. International Business Involves Us All 1. Each of us encounters the result of international business transactions every day whether we realize it or not. 2. International business is any commercial transaction that crosses the borders of two or more nations. 3. Imports are goods and services purchased abroad and brought into a country. Exports are goods and services sold abroad and sent out of a country. B. Technology Makes It Possible 1. Technology is a remarkable facilitator of international business and change. 2. E-business (e-commerce) is the use of computer networks to purchase, sell, or exchange products; service customers; and collaborate with partners.

Ch 1: Globalization C.

Global Talent Makes It Happen 1. Development and production now regularly occur on a global basis for many goods and services. 2. Performing these globally increases firm efficiency and competitiveness.

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KEY PLAYERS IN INTERNATIONAL BUSINESS Large firms from developed nations once dominated, but firms from Brazil, China, and India now play a bigger role. Technological advancements allow small and midsize companies to better compete. A. Multinational Corporations A multinational corporation (MNC) has direct investments abroad in multiple countries. They generate significant jobs, investment, and tax revenue for the regions and nations they enter. 1. Profiling the largest multinationals a. Some MNCs have more employees than small nations have citizens (e.g., Walmart has 2.2 million employees globally). b. If Walmart were a country, it would rank third behind Norway in terms of economic power (Figure 1.1). B. Entrepreneurs and Small Businesses 1. They are increasingly active in international business by exporting earlier and growing faster with help from technology. 2. A born global firm is a company that adopts a global perspective and engages in international business from or near its inception. 3. Some small Internet companies reach customers solely through the Web (e.g., Vellus Products, Weekend in Italy).

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WHAT IS GLOBALIZATION? Globalization is the trend toward greater economic, cultural, political, and technological interdependence among national institutions and economies. It is marked by “denationalization,” which is not “internationalization.” A. Globalization of Markets 1. Convergence in buyer preferences in markets around the world a. Reduces marketing costs by standardizing activities b. Creates market opportunities abroad if home is small or saturated c. Levels uneven income streams for global seasonal products d. Yet companies must not overlook local buyers’ needs e. Need for global sustainability—development that meets the needs of the present without compromising the ability of future generations to meet their own needs. 2. Global Sustainability, Three Markets, Three Strategies. The world’s 7 billion people live in three types of markets, yet all require companies to act in a sustainable manner: a. Developed markets are solidly middle class and people can consume almost any product desired. A firm may use the latest technologies to develop sustainable products in a sustainable manner. b. Emerging markets are racing to catch up to rich nations and are overloading infrastructures. Resource constraints can force companies to develop sustainable production methods. c. Traditional markets have mostly rural populations for whom poverty and corruption prevail. Here, sustainability means Copyright © 2016 Pearson Education, Inc.

Ch 1: Globalization

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teaching safe farming practices, environmental stewardship, and disease awareness. Globalization of Production 1. Dispersal of production activities to locations that help a company to minimize costs or maximize quality a. Access lower-cost workers to cut overall production costs b. Access technical expertise c. Access production inputs unavailable or more costly at home

FORCES DRIVING GLOBALIZATION Forces increase competition among nations by leveling the global business playing field. A. Falling Barriers to Trade and Investment 1947 General Agreement on Tariffs and Trade (GATT) was designed to promote free trade by reducing tariffs and nontariff barriers. 1994 GATT revision (1) reduced tariffs and lowered subsidies for agricultural products; (2) defined and protected intellectual property rights; and (3) created the WTO. 1. World Trade Organization a. World Trade Organization (WTO) is the international organization that enforces the rules of international trade. b. WTO goals: (1) to help the free flow of trade, (2) help negotiate the further opening of markets, and (3) settle trade disputes. c. WTO agreements are contracts committing members to fair and open trade policies. WTO dispute settlement system is the spine of the global trading system. 2. Regional Trade Agreements a. Smaller groups of nations also are integrating their economies (e.g., NAFTA, European Union). 3. Trade and National Output a. Effect of the WTO and regional trade pacts is greater global trade and cross-border investing (Map 1.1). b. Trade growth has been faster than world output. c. Gross Domestic Product (GDP) is the value of all goods and services produced by a domestic economy over a one-year period. Gross national product (GNP) adds income from international activities. B. Technological Innovation Technology accelerates globalization by making it easier, faster, and less costly to move data, goods, and equipment around the world. 1. E-mail and videoconferencing a. Speed information flows and ease the tasks of coordination and control, which are complicated by operating across borders. b. Driving growth in videoconferencing are lower-cost bandwidth and equipment, and decreased travel for cost or safety reasons. 2. The Internet a. Helps firms sharpen forecasting, lower inventories, improve communication with suppliers, and communicate quickly and cheaply with distant managers b. Reduces the cost of reaching an international customer base, which is essential for the competitiveness of small firms 3. Company intranets and extranets

Ch 1: Globalization

Intranets are private networks of company Web sites and other information sources that allow employee access to information from distant locations. b. Extranets are computer networks that give distributors and suppliers access to a company’s database so they can place orders or restock inventories electronically and automatically. 4. Advancements in transportation technologies a. Make global shipping more efficient and dependable (e.g., GPS) Measuring Globalization 1. The KOF Swiss Economic Institute’s Globalization Index ranks nations on their economic, social, and political engagement. 2. Richest nations are the most global, with many in Europe. The United States ranked 32nd (see Table 1.1). 3. The least global nations are found in Africa, East Asia, South Asia, Latin America, and the Middle East. Low technological connectivity slows global integration.

DEBATE OVER JOBS AND WAGES A. Against Globalization 1. Eliminates jobs in developed nations as good-paying manufacturing jobs go abroad to developing countries. Low-priced goods are not worth lost jobs. 2. Lowers wages in developed nations by causing worker dislocation that gradually lowers wages. New jobs that replace lost manufacturing jobs often pay less. 3. Exploits workers in developing nations who work cheaply servicing western consumers. B. For Globalization 1. Increases wealth and efficiency in all nations because trade openness raises output. Firms grow more efficient and pass savings on to consumers. 2. Generates labor market flexibility in developed nations that allows an economy to rapidly deploy labor where demand is relatively great. 3. Advances the economies of developing nations by injecting capital that creates higher-paying jobs, which expands the middle class and raises standards of living. C. Summary: Although globalization eliminates jobs in some economic sectors, it creates jobs in other sectors. Gains in national economies are worth lost livelihoods that individuals may suffer. D. Globalization’s Impact on Labor, the Environment, and Markets 1. Labor standards a. Trade unions claim that firms continually move to nations with low labor standards, which reduces labor’s bargaining power and forces overall labor standards lower. b. But studies of developing nations’ export processing zones instead find evidence that contradicts such claims. 2. Environmental protection a. Globalization opponents say it creates a “race to the bottom” in environmental conditions and regulations: countries compete in reducing environmental protection laws.

Ch 1: Globalization b.

But evidence shows pollution-intensive U.S. firms tend to invest in countries with stricter environmental standards. Also, closed economies historically are the worst polluters. Future markets a. Protesters claim international firms pay locals the lowest possible wage and export their goods back to the home country. b. Today, firms want to build local markets in developing nations, not simply exploit workers and foment local animosity.

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DEBATE OVER INCOME INEQUALITY A. Inequality within Nations 1. Globalization critics claim that income disparity in rich nations is increasing as firms move factory jobs to poor nations. 2. Evidence is mixed, but poor people in developing nations seem to benefit from an open economy. B. Inequality between Nations 1. Globalization opponents say it is widening the gap in average incomes between rich and poor nations. 2. Looking closely at the evidence, we see that open nations are benefiting from trade whereas closed ones are not. C. Global Inequality 1. Opponents of globalization say it is widening income inequality among all people of the world. 2. Studies tend to agree that global inequality has fallen in recent decades, though they disagree on the extent of the decline. D. Summary of the Income Inequality Debate

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DEBATE OVER CULTURE, SOVEREIGNTY AND THE ENVIRONMENT A. Globalization and Culture 1. Critics say globalization homogenizes our world and lets MNCs destroy cultural diversity and wipe out small local businesses. 2. Yet globalization allows nations to: (1) specialize and trade for goods they do not produce, (2) import other peoples’ cultural goods, and (3) still protect deeper moral and cultural norms. B. Globalization and National Sovereignty 1. Globalization: menace to democracy? a. Supranational institutions with international goals and appointed officials undermine national sovereignty and democracy. b. Elected officials undercut democracy and local and regional authority with “international” agreements on citizens’ behalf. 2. Globalization: guardian of democracy? a. Globalization has helped spread democracy worldwide (e.g., more democratic nations than ever). b. Some losses of sovereignty have had positive social impacts, as in human rights, workers’ rights, and discrimination.

VIII.

THE KEYS TO GLOBAL SUCCESS A. Communicate effectively B. Know the customer C. Emphasize global awareness D. Market effectively

Ch 1: Globalization E.

Monitor the global environment

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THE GLOBAL BUSINESS ENVIRONMENT What makes international business special is that it occurs within a dynamic, integrated system that weaves together four distinct elements. A. The Global Business Environment 1. Globalization is transforming our societies and commercial activities. It also increases competition everywhere, forcing companies to be vigilant. 2. Each national business environment consists of unique cultural, political, legal, and economic characteristics. Companies must be attentive to nuances and adapt products and practices as needed. 3. The international business environment influences how business is conducted so firms must closely monitor events. 4. Context of international business management is defined by the characteristics of the national and international business environments. Managers must abide by the prevailing rules in each market in which it operates. B. The Road Ahead for International Business Part 1 (Chapter 1): Globalization Part 2 (Chapters 2–4): National Business Environments Parts 3 and 4 (Chapters 5–8 and 9–10): International Business Environment Part 5 (Chapters 11–16): International Business Management

BOTTOM LINE FOR BUSINESS A. Harnessing Globalization’s Benefits 1. The most global nations tend to have the greatest equality, robust environmental protection, inclusive political systems, lowest levels of corruption, healthiest lifestyles, and be where women have achieved the most social, educational, and economic progress. 2. The debate has opened a dialogue on how globalization can be harnessed to make its benefits exceed its costs. B. Intensified Competition 1. Continued globalization is taking companies into previously isolated markets and increasing competitive pressures worldwide. 2. As it gets easier and less costly to manage widely dispersed marketing and production activities, new opportunities and threats emerge. C. Wages and Jobs 1. Low wages are not all that draws investment by multinationals. A location must offer low-cost, adequately skilled workers in an environment with acceptable levels of social, political, and economic stability. 2. Labor mobility is increasing with globalization—depressing wages in some job categories but developing new job opportunities in others. D. The Policy Agenda 1. Rich nations could open their markets, slash agricultural subsidies, and increase development aid. Poor nations could improve their investment climates and improve social protection for the poor. 2. Rich nations could offer workers their wage insurance, subsidized health insurance if out of work, and improve education. Rich nations could help enforce labor standards, help clarify environmental agreements, and research the environmental implications of trade agreements. Copyright © 2016 Pearson Education, Inc.

Ch 1: Globalization

Quick Study Questions Quick Study 1 1.

Q: What is the value of goods and services that all nations of the world export every year? A: Goods worth $18.4 trillion and services worth 4.3 trillion.

Q: A business that has direct investments in the form of marketing or manufacturing subsidiaries abroad in multiple countries is called a what? A: A business that has direct investments abroad in multiple countries is a multinational corporation (MNC).

Q: A born global firm engages in international business from or near its inception and does what else? A: A born global firm also adopts a global perspective.

Quick Study 2 1.

Q: Globalization causes the institutions and economies of nations to become what? A: Globalization causes institutions and economies of nations to become more interdependent.

Q: What benefits might a company obtain from the globalization of markets? A: Globalization of markets refers to convergence in buyer preferences in markets around the world. Potential benefits for companies include: (1) reduced marketing costs by standardizing activities, (2) market opportunities abroad if home market is small or saturated, and (3) levels an income stream by letting international sales offset domestic sales for a company selling a global seasonal product.

Q: Sustainability is development that meets present needs without compromising what? A: Sustainability is development that meets present needs without compromising the ability of future generations to meet their own needs.

Quick Study 3 1.

Q: What global organizations have helped expand globalization? A: The 1947 GATT lowered trade barriers and made it cheaper and easier to ship goods across borders. In 1988 world merchandise trade was 20 times larger than in 1947; average tariffs dropped from 40 percent to 5 percent. A 1994 GATT revision created the WTO, which has the power to enforce international trade rules. Goals of the WTO are: (1) to help the free flow of trade, (2) help negotiate further opening of markets, and (3) settle trade disputes. WTO agreements are contracts committing members to fair and open trade policies. The WTO dispute settlement system is the spine of the global trading system. The World Bank and the International Monetary Fund have also helped expand globalization.

Q: What technological innovations are helping to propel globalization?

Ch 1: Globalization

A: E-mail and videoconferencing speed information flows and ease the tasks of coordination and control. Firms use the Web to sharpen forecasting, lower inventories, and improve communication with suppliers, and to communicate with distant managers quickly, cheaply, and efficiently. The Web also reduces the cost of reaching international customers—important for the competitiveness of small firms. Company intranets allow employees to access information from distant locations to share best practices. Extranets give distributors and suppliers access to a company’s database so they can place orders or restock inventories electronically and automatically. Transportation advancements are facilitating globalization by making shipping more efficient and dependable. 3.

Q: What nations rank high in terms of globalization? A: Belgium is an example of a nation that ranks high in terms of globalization.

Quick Study 4 1.

Q: In the debate over jobs and wages, opponents of globalization say that it does what? A: Opponents state that globalization eliminates jobs in developed nations, exploits workers in developing countries, and lowers wages in developed nations.

Q: In the debate over jobs and wages, supporters of globalization say that it does what? A: Supporters state that globalization generates labor market flexibility in developed nations and advances the economies of developing nations.

Quick Study 5 1.

Q: Evidence suggests that globalization can help developing nations boost incomes for their poorest citizens in what part of the debate over inequality? A: Inequality within nations

Q: In the debate over inequality between nations, evidence suggests that developing nations that are open to trade and investment do what? A: Evidences suggests that developing nations that are open to trade and investment grow faster than rich nations.

Q: Regarding the debate over global inequality, experts tend to agree on what? A: Experts tend to agree that inequality has fallen in recent decades.

Quick Study 6 1.

Q: People opposed to globalization say that it does what to national cultures? A: People opposed to globalization say that it homogenizes national cultures.

Q: Regarding national sovereignty, opponents of globalization say that it does what? A: Opponents say that globalization helps supranational organizations gain power, may force nations to violate the rights of local and state governments, and undercuts the democratic process and individual liberty.

Q: With regard to the physical environment, what do globalization supporters argue? A: Supporters argue that companies have invested in nations that were enacting stricter environmental rules; that few U.S. firms invest to obtain low-cost resources and then

Ch 1: Globalization export finished goods to the United States; that firms care for the environment abroad to nurture future local markets for their goods and services.

Quick Study 7 1.

Q: It helps to think about international business as four elements that occur within a what? A: It is helpful to view international business as occurring within an integrated global system consisting of four main elements: (1) Globalization is a potent force transforming our societies and commercial activities. (2) Separate national business environments, including culture and systems of politics, law, and economics. (3) The international business environment, which is where the actions of consumers, workers, companies, financial institutions, and governments from different nations converge. (4) International business management which involves all the duties of management in a domestic setting, but which are complicated by a multitude of differences.

Q: How does managing an international firm differ from managing a purely domestic business? A: International firms encounter unfamiliar societies. International managers must scan the globe for opportunities and threats. International firms may need to adapt practices or products to local conditions.

Ethical Challenge You are the CEO of a major U.S. apparel company that contracts work to garment manufacturers abroad. Employees of the contractors report 20-hour workdays, pay lower than the minimum wage, overcrowded living conditions, physically abusive supervisors, and confiscation of their passports. Contractors and government officials say local labor laws are adhered to and enforced, though abuses appear widespread. You send inspectors to the factories abroad but they uncover no labor violations. A labor-advocacy group claims that supervisors coached workers to lie to your inspectors about conditions and threatened workers with time in makeshift jails without food if they talked. 1-5 Should you implement a monitoring system to learn the truth about what is happening? 1-6 Do you help the factory improve conditions, withdraw your business, or simply do nothing? 1-7 How might your actions affect your relations with the factory owner and your ability to do business in the country? A: It’s extremely important that your company be thorough and transparent throughout the monitoring process. The monitoring process could seem more impartial by contracting an independent organization to conduct the investigation, rather than employ someone with whom the company might be suspected as having social or political connections. You could also have the report made public to all parties simultaneously to eliminate the perception of the report being adjusted. To implement and maintain rapid, sustainable improvements: monitor and verify codes of conduct regarding labor practices, disseminate information to workers explaining their rights, appeal to government agencies on effective ways to raise labor standards, explain how their reputation as being “good guys” in the labor standards arena can create a useful marketing tool and opportunities for firms and countries by differentiating themselves when competing in the apparel export market.

Ch 1: Globalization

Teaming Up Research Project. Imagine that you and several of your classmates own a company that manufactures cheap sunglasses. To lower production costs, you choose to move your factory from your developed country to a more cost-effective nation. 1-8 What elements of the national business environment might influence your decision where to move production? Are there obstacles to overcome in the international business environment? 1-9 What aspects of the globalization of production and marketing will you expect will benefit your company after the move? A: This project gets students to begin pondering the types of elements that must be considered when selecting a country for investment. At a minimum, students’ responses should consider: (1) the presence of investment barriers in the country; (2) resources needed to carry out production, as well as their availability and cost; (3) availability of modern telecommunications to facilitate communication with the home office; and (4) how the expansion might be financed. Practicing International Management Case MTV Goes Global with a Local Beat 1-16.

Q: Some people outside the United States say teens exposed to large doses of U.S. youth culture on MTV will identify less with their own societies and teens in developing countries will want Western goods they cannot afford. MTV’s response: “It’s just fun, it’s only TV,” says one executive. What do you think? Are there dangers in broadcasting U.S.-style programs and ads to developing countries? A: The debate over the impact of U.S. programming beamed to other developed and developing cultures will likely never cease. The U.S. television program The Simpsons, which depicts a rather unflattering U.S. family, is seen in more than 90 countries. Such a program is unlikely to encourage young people outside the United States to grow up to be like Homer Simpson. Generally, this program and others, such as Married with Children, the Jerry Springer Show, and Baywatch, are watched around the world for a glimpse into the humorous or darker aspects of U.S. culture. On the other hand, local programming can lose out to the U.S. programming if it is not as entertaining. In regard to desires among young people for more “Western” goods, this is a sensitive issue involving elements of economic development and materialism. It could be argued that it is not ethical to show U.S. programs that depict wealthy lifestyles in developing countries because they promote discontent in those markets and promote materialism. However, there are wealthy and poor people in every nation and, following this line of reasoning, one could argue that such programs should not be aired in the U.S. market either—incidentally, some groups do make this argument.

1-17.

Q: Digital compression technology made it possible for MTV to program over a global network. Can you think of other technological innovations that have helped companies to think globally and act locally?

Ch 1: Globalization A: Internet retailers such as Amazon make online books in English available globally. However, Amazon also has online service to accommodate those in French- and Spanishspeaking countries. This is a localized approach. The French version of Amazon can further localize its selections by offering books tailored to specific Francophone regions such as Africa and Canada, not just France. Clearly, Amazon can continue to localize by selecting other languages where significant numbers of readers are.

CHAPTER 2 CROSS-CULTURAL BUSINESS LEARNING OBJECTIVES: 1. Explain culture and the need for cultural knowledge. 2. Summarize the cultural importance of values and behavior. 3. Describe the roles of social structure and education in culture. 4. Outline how the major world religions can influence business. 5. Explain the importance of personal communication to international business. 6. Describe how firms and culture interact in the global workplace.

CHAPTER OUTLINE: Introduction What Is Culture? National Culture Subcultures Physical Environment Need for Cultural Knowledge Avoiding Ethnocentricity Developing Cultural Literacy Values and Behavior Values Attitudes Aesthetics Appropriate Behavior Manners Customs Folk or Popular Customs The Business Customs of Gift Giving Social Structure and Education Social Group Associations Family Gender Social Status Social Mobility Caste System Class System Education The “Brain Drain” Phenomenon Religion Christianity Islam Hinduism Buddhism Confucianism Judaism Shinto

Ch 2: Cross-Cultural Business

Personal Communication Spoken and Written Language Implications for Managers Language Blunders Lingua Franca Body Language Culture in the Global Workplace Perception of Time View of Work Material Culture Cultural Change Cultural Trait Cultural Diffusion When Companies Change Cultures Cultural Imperialism When Culture Changes Companies Studying Culture in the Workplace Kluckhohn-Strodtbeck Framework Case: Dimensions of Japanese Culture Hofstede Framework Bottom Line for Business

A comprehensive set of specially designed PowerPoint slides is available for use with Chapter 2. These slides and the lecture outline below form a completely integrated package that simplifies the teaching of this chapter’s material. Lecture Outline I.

INTRODUCTION This chapter describes culture in the context of international business, explains how culture affects international business practices and competitiveness, and presents two methods of classifying cultures.

II.

WHAT IS CULTURE? Culture is the set of values, beliefs, rules, and institutions held by a specific group of people. Main components include: aesthetics, values and attitudes, manners and customs, social structure, religion, personal communication, education, and physical and material environments. A. National culture 1. Nation-states support and promote the concept of a national culture by building museums and monuments to preserve the legacies of important events and people. 2. Nation-states intervene to help preserve their national cultures. 3. Companies get involved in supporting culture, in part, for the public relations benefit. B. Subcultures

Ch 2: Cross-Cultural Business

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A subculture is a group of people who share a unique way of life within a larger, dominant culture. It can differ from the dominant culture in language, race, lifestyle, values, attitudes, and so on. 2. Companies must be mindful of subcultures when formulating business strategies (e.g., China has 50 ethnic groups). 3. Decisions regarding product design, packaging, and advertising must consider distinct cultures. 4. Subcultures also can extend beyond national borders. Physical environment—These heavily influence a culture’s development and pace of change. 1. Topography: all physical features that characterize the surface of a geographic region. Cultures isolated by impassable mountains or large bodies of water are less exposed to the cultural traits of others and change slowly. Topography impacts product needs. 2. Topography impacts personal communication (e.g., mountains and the Gobi Desert consume two-thirds of China). 3. Climate affects where people settle and directs systems of distribution (e.g., Australian desert, jungles, and coastal areas). 4. Climate plays a large role in lifestyle, clothing, and work habits, such as organizing production schedules for idled machines. Need for Cultural Knowledge 1. Avoiding ethnocentricity a. Ethnocentricity is the belief that one’s own ethnic group or culture is superior to that of others. It causes people to view other culture in terms of their own and overlook beneficial aspects of other cultures. b. Ethnocentricity can undermine business can undermine business projects when employees are insensitive to cultural nuances. 2. Developing cultural literacy a. Managers working directly in international business should develop cultural literacy—detailed knowledge about a culture that enables a person to function effectively within it. b. Cultural literacy brings a company closer to customer needs and improves competitiveness.

VALUES AND BEHAVIOR A. Values are ideas, beliefs and customs to which people are emotionally attached. They affect work ethic and desire for material possession. Some culture value leisure others hard work. B. Attitudes 1. Attitudes are positive or negative evaluations, feelings, and tendencies that individuals harbor toward objects or concepts. Learned from role models and formed within a cultural context. More flexible than values. C. Aesthetics 1. Aesthetics is what a culture considers to be in “good taste” in the arts, the imagery evoked by certain expressions, and the symbolism of colors. 2. Appropriate colors for advertising, product packaging, and even work uniforms can enhance success (e.g., Green in Islam). 3. Blunders can result from selecting inappropriate colors and symbols for advertising, product packaging, and architecture.

Ch 2: Cross-Cultural Business

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4. Music is deeply cultural and must be considered in promotions. 5. It is also an important consideration in marketing over the Internet. Appropriate Behavior—it is important to understand manners and customs to avoid mistakes abroad. In depth knowledge improves the abilities of managers. 1. Manners are appropriate ways of behaving, speaking, and dressing in a culture (e.g., conducting business during meals in the United States). 2. Customs are habits or ways of behaving in specific circumstances that are passed down through generations in a culture. Customs define appropriate habits or behaviors in specific situations. a. Folk customs are behaviors, dating back generations, practiced within a homogeneous group of people (e.g., dragon boat festival in China). b. A popular custom is behavior practiced by a heterogeneous group or by several groups (e.g., blue jeans, “burgers ’n fries”). 3. The business custom of gift giving a. Although giving token gifts to business and government associates is customary, the proper type of gift varies. b. Cultures differ in their legal and ethical rules regarding bribery. The U.S. Foreign Corrupt Practices Act prohibits companies from giving large gifts to win business favors, applies to U.S. firms operating at home and abroad.

SOCIAL STRUCTURE Social structure embodies a culture’s fundamental organization, including groups and institutions, social positions and relationships, and resource distribution. A. Social Group Associations A social group is a collection of two or more people who identify and interact with one another. Contribute to identity and self-image. 1. Family a. Nuclear family consists of immediate relatives, including parents, brothers, and sisters. Prevails in Australia, Canada, United States, and in Europe. b. Extended family includes grandparents, aunts and uncles, cousins, and relatives through marriage. More important in Asia, Middle East, North Africa, and Latin America. 2. Gender a. Gender refers to socially learned traits associated with, and expected of, men or women. Sociologists regard gender as a category—people who share some status. b. Countries vary regarding gender equality at work. B. Social Status 1. Social stratification is the process of ranking people into social layers according to family heritage, income, and occupation. 2. Top layer: royalty, government officials, and business leaders. Middle layer: scientists, medical doctors, and others with a university education. Bottom layer: manual and clerical workers with vocational training or secondary-school educations. 3. Rankings can and do change over time.

Ch 2: Cross-Cultural Business C.

Social Mobility 1. Social mobility is the ease with which individuals can move up or down a culture’s “social ladder.” 2. Caste system: people are born into a social ranking, with no opportunity for social mobility. 3. Class system: personal ability and actions decide status and mobility. Highly class-conscious cultures can offer less mobility but experience more class conflict.

EDUCATION Education passes on traditions, customs, and values. Cultures educate young people through schooling, parenting, religious teachings, and group memberships. Families and other groups provide informal instruction about customs and how to socialize with others. A. Education Level 1. Excellent basic education attracts high-wage industries that invest in training and increase productivity. Skilled, well-educated workforce attracts high-paying jobs; a poorly educated one attracts low-paying jobs. 2. Newly industrialized economies in Asia owe much of their economic development to solid education systems. B. The “Brain Drain” Phenomenon 1. Brain drain: departure of highly educated people from one profession, geographic region, or nation to another. 2. Reverse brain drain: professionals return to their homelands.

VI.

RELIGION Human values often derive from religious beliefs. Different religions take different views of work, savings, and material goods. Beliefs influence competitiveness, economic development, and business strategies. A. Christianity 1. Founded in Palestine 2,000 years ago among Jews who believed that Jesus of Nazareth was the messiah. With 2 billion followers, it is the world’s single largest religion. 2. More than 300 denominations but most are Roman Catholic, Protestant, or Eastern Orthodox. 3. Roman Catholics are to refrain from placing materialism above God and people. Protestants believe that salvation comes from faith in God and that hard work gives glory to God. 4. Christian organizations sometimes get involved in social causes that affect business policy (e.g., Ryanair, Hyundai). B. Islam 1. Founded by Muhammad in 600 A.D. in Mecca, Saudi Arabia—the holy city of Islam. World’s second largest religion with 1.3 billion adherents. Word Islam means “submission to Allah” and Muslim means “one who submits to Allah.” 2. Religion strongly affects the goods and services acceptable to Muslim consumers (e.g., alcohol, pork, interest on loans). C. Hinduism 1. Founded 4,000 years ago in present-day India, where more than 90 percent of its nearly 900 million adherents live. 2. Some say it is a way of life rather than a religion. Caste system is integral to the Hindu faith. Believe in reincarnation—rebirth of the human soul at

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VII.

the time of death. Do not eat or willfully harm living creatures as they may be reincarnated human souls. 3. Cows considered sacred animals so eating beef is not allowed (e.g., McDonald’s replaces beef with lamb). Buddhism 1. Founded 2,600 years ago in India by a Hindu prince named Siddhartha Gautama. About 380 million followers, mostly in Asia: China, Tibet, Korea, Japan, Vietnam, and Thailand. 2. Promotes a life centered on spiritual rather than worldly matters. Buddhists seek nirvana (escape from reincarnation) through charity, modesty, compassion for others, restraint from violence, and general self-control. Confucianism 1. Founded 2,500 years ago by exiled politician and philosopher Confucius. China is home to most of the 225 million followers. 2. Confucian thought ingrained in the cultures of Japan, South Korea, and nations with large numbers of ethnic Chinese, including Singapore. 3. South Korean business practice reflects Confucian thought in its rigid organizational structure and reverence for authority (e.g., Korean-style management in overseas subsidiaries). 4. For centuries, people despised merchants because earning money violated Confucian beliefs. Many Chinese moved to Indonesia, Malaysia, Singapore, and Thailand to do business. Judaism 1. Founded more than 3,000 years ago and 18 million followers. Was the first religion to teach belief in one God. Orthodox (“fully observant”) Jews make up 12 percent of Israel and constitute an increasingly important economic segment. 2. Important observances are Rosh Hashanah (the Jewish New Year), Yom Kippur (the Day of Atonement), Passover (the Exodus from Egypt), and Hanukkah (a victory over the Syrians). 3. Employers must be aware of Jewish holidays. Because Sabbath lasts from sundown on Friday to sundown on Saturday, work schedules might need adjustment. 4. Marketers must take into account foods banned among observant Jews (e.g., pork and shellfish prohibited, meat stored and served separately from milk) and “kosher” foods. Shinto 1. Means “way of the gods” and arose as the native religion of the Japanese. Teaches sincere and ethical behavior, loyalty and respect toward others, and enjoyment of life. Shinto claims about 4 million strict adherents in Japan. 2. Shinto beliefs are reflected in the workplace through lifetime employment (although this is waning today) and the traditional trust extended between firms and customers. 3. Japanese competitiveness in world markets has benefited from loyal workforces, low employee turnover, and good labor–management cooperation.

PERSONAL COMMUNICATION

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Every culture has a communication system to convey thoughts, feelings, knowledge, and information through speech, writing, and actions. A culture’s spoken and body language can help explain people’s thoughts and behaviors. A. Spoken and Written Language 1. Linguistically different segments of a population are often culturally, socially, and politically distinct. 2. Companies have made language blunders in their international business dealings. 3. A lingua franca is a third or “link” language that is understood by two parties who speak different languages. 4. Some languages are dying out, whereas some languages are growing, including Mandarin, Spanish, and English. B. Body Language 1. Communicated through unspoken cues, including hand gestures, facial expressions, physical greetings, eye contact, and the manipulation of personal space. 2. Communicates information and feelings and differs among cultures. Most is subtle and takes time to interpret. 3. Proximity is an element of body language; standing too close may invade personal space and appear aggressive. VIII.

CULTURE IN THE GLOBAL WORKPLACE A. Perceptions of Time 1. Latin American and Mediterranean cultures are casual about time; people in Japan and the United States arrive promptly for meeting and keep tight schedules. 2. Americans strive toward workplace efficiency and may leave work early if their work is done because they value individual results. Japanese look busy even when business is slow to demonstrate dedication—an attitude grounded in cohesion, loyalty and harmony B. View of Work 1. Some cultures have a strong work ethic, others stress a balanced pace in work and leisure (e.g., “Work to live, or live to work”) 2. Many European nations are trying to foster an entrepreneurial spirit to achieve the job growth realized in the United States. C. Material Culture—Includes all technology a culture uses to manufacture goods and provide services, and can measure a culture’s technological advancement. 1. A firm enters a market under one of two conditions: (1) demand for its products has developed, or (2) the market is capable of supporting its production operations. 2. Changes in material culture can change other aspects of culture. 3. Many nations display uneven levels of material culture across geography, markets, and industries. D. Cultural Change 1. Cultural trait is anything that represents a culture’s way of life including gestures, material objects, traditions, and concepts. 2. Cultural diffusion is the process whereby cultural traits spread from one culture to another. Globalization and technology are increasing the pace of cultural diffusion and change. 3. Culture can force companies to adjust business policies and practices, such as using situational management. Copyright © 2016 Pearson Education, Inc.

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Rapid cultural diffusion and increased human interaction across borders cause cultures to converge. Convergence is taking place in some market segments for some products. When Companies Change Culture 1. Cultural Imperialism is the replacement of one culture’s traditions, folk heroes, and artifacts with substitutes from another.

STUDYING CULTURE IN THE WORKPLACE People in different cultures respond differently in similar business situations. Two ways to classify cultures based on characteristics such as values, attitudes, and social structure. A. Kluckhohn–Strodtbeck Framework The Kluckhohn–Strodtbeck Framework compares cultures along six dimensions, asking the following questions: 1. Do people believe that their environment controls them, that they control the environment, or that they are part of nature? 2. Do people focus on past events, on the present, or on the future implications of their actions? 3. Are people easily controlled and not to be trusted, or can they be trusted to act freely and responsibly? 4. Do people desire accomplishments in life, carefree lives, or spiritual and contemplative lives? 5. Do people believe that individuals or groups are responsible for each person’s welfare? 6. Do people prefer to conduct most activities in private or in public? a. Dimensions of Japanese Culture: i. Japanese believe in a delicate balance between people and environment that must be maintained. ii. Japanese culture emphasizes the future. iii. Japanese culture treats people as quite trustworthy. iv. Japanese are accomplishment oriented for employers and work units. v. Japanese culture emphasizes individual responsibility to the group and group responsibility to the individual. vi. The culture of Japan tends to be public. B. Hofstede Framework The Hofstede Framework grew from a study of more than 110,000 people working in IBM subsidiaries by Dutch psychologist Geert Hofstede. He developed five dimensions for examining cultures. 1. Individualism versus Collectivism: Identifies the extent to which a culture emphasizes the individual versus the group. a. Individualist cultures value hard work, entrepreneurial risk taking, and freedom to focus on personal goals. b. Collectivist cultures feel a strong association to groups, including family and work units. The goal is to maintain group harmony and work toward collective rather than personal goals. 2. Power Distance: Identifies the degree to which a culture accepts social inequality among its people. a. Large power distance is characterized by inequality between superiors and subordinates. Organizations are hierarchical, with power derived from prestige, force, and inheritance.

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Small power distance means equality, with prestige and rewards equally shared between superiors and subordinates. Power derives from hard work and is considered more legitimate. c. Refer to Figure 2.2. Tight grouping of nations within the five clusters (plus Costa Rica): African, Asian, Central and South American, and Middle Eastern nations in Quadrant 1 (cultures with large power distance and lower individualism). Quadrants 2 and 3 include Australia and the nations of North America and Western Europe (cultures high in individualism and smaller power distance scores). Uncertainty Avoidance: Identifies the extent to which a culture avoids uncertainty and ambiguity. a. Cultures with large uncertainty avoidance value security, place faith in strong systems of rules and procedures, have lower employee turnover, formal rules for employee behavior, and more difficulty implementing change. b. Low uncertainty avoidance cultures are more open to change and new ideas. c. Refer to Figure 2.3. Quadrant 4 contains nations characterized by small uncertainty avoidance and small power distance, including Australia, Canada, Jamaica, the United States, and many Western European nations. Quadrant 2 contains many Asian, Central American, South American, and Middle Eastern nations—nations having large power distance and large uncertainty avoidance indexes. Masculinity versus Femininity: Identifies the extent to which a culture emphasizes masculinity versus femininity. a. Cultures scoring high are characterized by personal assertiveness, accumulation of wealth, and entrepreneurial drive. b. Cultures scoring low have relaxed lifestyles, with more of a concern for others than material gain. Long-Term Orientation: Indicates a society’s time perspective and an attitude of overcoming obstacles with time. It attempts to capture the differences between Eastern and Western cultures. a. Cultures scoring high (strong long-term orientation) value respect for tradition, thrift, perseverance, and a sense of personal shame. b. Cultures scoring low are characterized by individual stability and reputation, fulfilling social obligations, and reciprocation of greetings and gifts.

BOTTOM LINE FOR BUSINESS In this chapter we discussed many of the cultural differences among nations that affect international business. We saw how problems can erupt from cultural misunderstandings and learned how companies can improve their performance with cultural literacy. Localizing business policies and practices can promote success. Understanding a people’s values, beliefs, rules, and institutions makes managers more effective at their jobs.

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Quick Study Questions Quick Study 1 1.

Q: How might a subculture differ from the dominant culture? A: A subculture can differ from the dominant culture in language, race, lifestyle, values, attitudes or other characteristics.

Q: What do we call the belief that one man’s culture is superior to that of others? A: Ethnocentricity is the belief that one’s own ethnic group or culture is superior to that of others.

Q: What do we call detailed knowledge about a culture that enables a person to work happily within it? A: Cultural literacy is the detailed knowledge about a culture that enables a person to work happily within it.

Quick Study 2 1.

Q: What are examples of values? A: Ideas, beliefs, and customs to which people are emotionally attached to are called values.

Q: What type of custom might a conservative group oppose in a culture? A: Authorities in a strict religious district of Indonesia’s ACEH province banned Muslim women from wearing tight clothing, short skirts and blue jeans.

Q: The law that restricts the gift giving by U.S. firms at home and abroad is called? A: The U.S. Foreign Corrupt Practices Act prohibits companies from giving large gifts to government officials, in order to win business favors.

Quick Study 3 1.

Q: Social structure embodies a culture’s fundamental organization, including what? A: Social structure embodies a culture’s fundamental organizations; including its groups and institutions, its system of social positions and their relationships, and the process by which its resources are distributed.

Q: A person and his or her immediate relatives including parents and siblings, is called what? A: A nuclear family consists of a person’s immediate relatives, including parents, brothers and sisters.

Q: The departure of highly educated people from one profession, region, or nation to another is called what? A: The “brain drain” phenomenon refers to the departure of highly educated people from one profession, geographic region, or nation to another.

Quick Study 4

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Q: Which denomination of Christianity has a “work ethic” named after it? A: Protestants believe that salvation comes from faith in God and that hard work gives glory to God—a tenet which is widely known as the “Protestant Work Ethic.”

Q: India is home to more than 90 percent of the adherents of which religion? A: Hinduism formed around 4,000 years ago in present day India, where more than 90 percent of Hinduism’s 900 million adherents live.

Q: The Dalai Lama is the spiritual and political head of what religion? A: The Dalai Lama is the spiritual and political head of the Buddhist culture.

Quick Study 5 1.

Q: Every culture has a communication system that it uses to convey what? A: People in every culture have a communication system to convey thoughts, feelings, knowledge, and information through speech, writing, and actions.

Q: A special language understood by two parties who speak different native languages is called what? A: A lingua franca is a link language that is understood by two parties who speak different native languages. English is the lingua franca of global business, higher education, diplomacy, science, popular music, entertainment, and international travel. More than 70 nations give a special status to English (including India, Nigeria, and Singapore) and roughly one-quarter of the world’s population is fluent or competent in it.

Q: An interesting fact about body language is what? A: Body language is important because it reflects cultural communication styles through unspoken movements. It communicates through hand gestures, facial expressions, physical greetings, eye contact, and the manipulation of personal space. Like spoken language, it communicates both information and feelings and differs greatly from one culture to another. Italians, for example, animate conversations with lively hand gestures and other body motions. Japanese and Koreans, although more reserved, communicate just as much information through their own body languages; a look of the eye can carry as much or more meaning as two flailing arms.

Quick Study 6 1.

Q: People living in different cultures often have different views regarding their what? A: They have differing beliefs and behaviors that can affect activities in the workplace. Such as, different perceptions of time, view of work and change.

Q: What is an example of cultural imperialism? A: Fears of cultural imperialism still drive some French to oppose the products of the Walt Disney company and its Disneyland Paris theme park.

Q: The Kluckhohn-Strodtbeck framework does investigate whether people do what? A: The Kluckhohn-Strodtbeck Framework compares cultures along six dimensions, asking the following questions: 1. Do people believe that their environment controls them, that they control the environment, or that they are part of nature? 2. Do people focus on past events, on the present, or on the future implications of

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3. 4. 5.

their actions? Are people easily controlled and not to be trusted, or can they be trusted to act freely and responsibly? Do people desire accomplishments in life, carefree lives, or spiritual and contemplative lives? Do people believe that individuals or groups are responsible for each person’s welfare?

Q: In the Hofstede framework, the term “power distance” refers to what? A: It describes the degree of inequality between a culture’s people in different occupations.

Ethical Challenge You are the vice president of operations for a U.S.-based software firm that is exploring building a software design operation in India. Typically when international firms enter the Indian market, they quickly learn how a caste system can affect business activities. Although officially banned, the caste system still dictates everyday life for many people in India. You are confident regarding the likelihood of business success there, but you have strong misgivings about the caste system. 2-4 Do you think it will be possible to import and uphold a U.S. management style in India despite lingering effects of the caste system? 2-5 How do you think your company’s stakeholders would feel about your company simply adjusting to local management practices? A: Students must understand that understanding cultural differences is crucial to developing strong relationships. The question in this vignette poses a real dilemma for international companies operating in India. Local management practices can be very different from the company’s practices in its home country. The response by most companies is to implement the home country policies but to adapt them to the local market. This is probably best accomplished by placing as head of the Indian operation an Indian-born employee that has worked for the company in the home country who understands the corporate culture. This manager would know what policies can or cannot be implemented in the Indian subsidiary. Teaming Up Two groups of four students will debate the benefits and drawbacks of individualist versus collectivist cultures. After the first student from each side has spoken, the second will question the opponent’s arguments, looking for holes and inconsistencies. The third student will attempt to answer these arguments. The fourth student will present a summary of each side’s arguments. Finally, the class will vote on which tem has offered the more compelling argument. A: Students may want to use the content of this chapter as a guide to create the questions they will ask the interviewee. Students should include in their report a full account of the cultural elements their interview uncovers. Student teams may also enjoy comparing their findings to look for similarities and differences among companies.

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Practicing International Management Case A Tale of Two Cultures 2-14.

Q: If you worked for an international firm doing business in Asia, is there anything you would suggest to ease the tensions these cultures are experiencing? Be specific. A: This question presents students with an ethical dilemma. Some students will say that their company is in business to earn a profit and that Asian consumers are not being forced to buy Western goods—they make a conscious decision when they make a purchase. Other students will feel a sense of responsibility to those societies in which they market their products. These students will want to suggest ways to lessen tensions in those societies. Some possibilities for this include doing charity work to help people suffering economic difficulties, financially supporting and giving employees time off to do volunteer work for cultural fairs and festivals, and making counselors available in the company to help employees with their troubles.

Q: Social ills in any country are normally born from a multitude of factors. What role if any, do you think globalization is having in higher reported rates of divorce, crime, and drug abuse in Asia? A: Many students will agree that the forces of globalization are exposing people in all countries to new ways of thinking and behaving. However, many social ills are not a direct result of globalization, but of other forces causing social change. Drug use is certainly not a new problem in most countries—opium has been used across Asia for centuries. Also, many women in Asian cultures are no longer financially dependent on their spouses because of the growing employment of women in the workforce. Thus when marital problems arise, divorce can be a viable option unlike in the past. This is not a Western phenomenon being spread by globalization, but one tied to economic development and industrialization more generally.

Q: Broadly defined, Asia comprises more than 60 percent of the world’s population—a population that practices Buddhism, Confucianism, Hinduism, Islam, and numerous other religions. Do you think it is possible to carry on a valid discussion of “Asian” values? Explain? A: Clearly, there are important and significant differences between Asian societies. But some values tend to be Pan-Asian, including the extended family concept—in contrast to the nuclear family concept in Western cultures. Also, respect for community elders is deeply ingrained throughout Asia—unlike the Western emphasis on youth and vitality (most pronounced in the United States). Thus, certain cultural elements can be discussed as “Asian” just as we identify certain concepts and behaviors as “Western.” But the validity of generalizing about “Asian values” depends on the depth of the discussion. The deeper we explore Asian cultures, the more differences we uncover.

CHAPTER 3 POLITICAL ECONOMY AND ETHICS LEARNING OBJECTIVES: 1. Describe the key features of each form of political system. 2. Explain how the three types of economic systems differ. 3. Summarize the main elements of each type of legal system. 4. Outline the global legal issues facing international firms. 5. Explain the main issues of global ethics and social responsibility. CHAPTER OUTLINE: Introduction Political Systems Politics and Culture Political Participation Political Ideologies Totalitarianism Theocratic Totalitarianism Secular Totalitarianism Doing Business in Totalitarian Countries Democracy Representative Democracy Doing Business in Democracies Political Systems in Times of Change Economic Systems Centrally Planned Economy Origins of the Centrally Planned Economy Decline of Central Planning Failure to Create Economic Value Failure to Provide Incentives Failure to Achieve Rapid Growth Failure to Satisfy Consumer Needs Mixed Economy Origins of the Mixed Economy Decline of Mixed Economies Move toward Privatization Market Economy Origins of the Market Economy Laissez-Faire Economics Features of a Market Economy Government’s Role in a Market Economy Enforcing Antitrust Laws Preserving Property Rights Providing a Stable Fiscal and Monetary Environment Preserving Political Stability Economic Freedom Legal Systems Common Law