International Business

Course co-ordinator: Prof. S Yadav

TERM PAPER
Course No. : SML 822

Cultural Aspects of International Business & Learnings

Submitted By:

2009SMN 6720 2009SMN 6722 2009SMN 6723 2009SMN 6734

Mathew P Varghese Balvinder Singh Chabra Ranu Srivastava Kaushal Kishore Verma

Indian Institute of Technology, Delhi

Contents
Contents............................................................................................................................... 3 .............................................................................................................................................. 5 Three key phases of an international expansion project:......................................................6 Planning for expansion..........................................................................................................6 Cross-cultural competence in international business............................................................9 The Iceberg Model........................................................................................................ 11 Low vs. High Context....................................................................................................11 Tips for communicating with people from low-context cultures......................................12 Global advice on International Cultural Aspects & Training................................................15 Managers and National Culture...........................................................................................19 Cultural Values,Managerial Implications & Organization structure.....................................22 Employee Categorization & Prototype in Chinese Culture..................................................24 The Indian Context..............................................................................................................25 Management Styles in Various Cultures.............................................................................28 Learnings & implications.....................................................................................................30 References..........................................................................................................................31

Introduction
In August 2010, China overtook Japan as the second largest economy in the world, and it is closing the gap on the United States. The world is changing at a fast pace, driven by globalisation. Throughout the global financial crisis, agile organisations continued their quest to participate in and prosper from the tremendous growth in the emerging markets. The Globalization Index1 supports many market indicators that the trend towards ambitious international expansion will continue. This research depicts a global landscape where organisations execute their international expansion strategies at a rapid pace. This speed of expansion may indicate the strong desire by companies to be the first-to-market and/or the imperative to capitalise on new market developments. The survey was conducted in August 2009, with 520 senior executives worldwide. 38% of respondents indicated that they currently derive over half of their revenue from overseas operations. As indicated in the chart below, by 2012 more than half of the respondents expect this to be the case, with one in four respondents expecting to derive more than three quarters of their revenue from overseas.Only one in 50 executives surveyed believes containing their operations within their home country or earning less than 10% of their revenue from overseas markets by 2012, to be a viable option.

Three key phases of an international expansion project:

1. Planning for expansion 2. Choosing your location 3. Conducting business overseas.

Planning for expansion

1. Strategy Clearly define and stress test your strategy What are the implications of international expansion for your existing business operations? 2. Global trends Is your organisation exposed to new and emerging markets? Has the composition of your major competitors changed? Is foreign direct investment in your industry sector clustered in locations where you do not have a presence? 3 Market research What research is available to provide you with information on market and industry conditions? Is this information up-to-date and what is the future outlook? Create a short list of new and emerging markets,tap into existing networks, talk to your advisors and visit your short listed locations. Choosing the location 4. Political and social climate Is the political system stable? How do you assess sovereign risk? Does the country suffer under high levels of sovereign debt? Is there likely to be social unrest or are workers organised in powerful unions? 5. Local tax and regulatory environment Is the tax regime business friendly and/or competitive? Does the country have free trade agreements or double tax treaties? Does the regulatory regime set the scene for a sound corporate governance framework? 6. Legal system Is it a common law system? If not, are you sure you understand the outcomes? Do the laws and the legal and judicial system provide support for and protection of commercial activities? 7. Innovation and incentives Should you develop your products in emerging or fast growth markets? Should you have a presence at global innovation clusters? Are generous grants and incentives available for innovative organisations? 8. Location and infrastructure Is economic infrastructure secure and reliable? How would you deal with power outages,telecommunication down time or traffic congestion?

Is the location central to your regional markets, suppliers of goods and services? 9. Cultural compatibility Are there significant cultural differences that may impact the way you conduct your business? Are there likely to be language barriers? Entrepreneurial organisations through their very nature can achieve growth and develop a global footprint relatively quickly. However, it can take a long time to create a diverse workforce that reflects the variety of markets in which the organisation operates, and cultural customs can impact significantly on business practices in the chosen location. Without early attention to these issues, your management team may be left behind in terms of cultural awareness and diversity. This can generate a competitive disadvantage as the management team will be required to make rapid decisions, while at the same time ensuring that they have a clear understanding of the local customs and operating conditions. In this respect, the importance of language cannot be overstated, as it will underpin everything the business does in the target location. Effective communication (or the lack thereof) has the ability to make or break the business. It is a key foundation upon which the success of the business may be built. Your management team will need the language skills to communicate effectively with those who will interact with your business including government, regulators, financiers, suppliers, staff and customers. Even in countries where English is commonly spoken or is the language of business, regional nuances can be a source of misunderstanding and can lead to more serious problems. 10. Local workforce What is the availability, skill-set and cost structure of the local work force? When expanding into a global market, your human resources can mean the difference between success and failure. As your organisation grows off-shore, getting the right people in the right location can provide a vital competitive advantage. The quality of the local workforce may often be the deciding factor in determining whether to expand your business to that location and also in determining how successful such an expansion will be. When setting up a local workforce in your target location, there are numerous practical issues to consider. You will need to think about the education level and experience of your prospective workers and how much you will need to invest in training. You will need to determine the terms and conditions of employment and you may need to negotiate with individuals, labour unions or other bargaining agents. There may be local legislation or regulations concerning working hours, weekends and public holidays and there may also

be local customs or practices that will impact on the operation and activities of your workforce. In addition you will need to consider your global remuneration approach and whether short term and long term incentive programs will be offered to your overseas employees, as well as the tax and regulatory implications associated with this. 11. Global management team Who will negotiate with government, customers,suppliers and business partners? How should you manage risks such as bribery and corruption? Who will be responsible for the recruitment of staff? Do you have an international management team or do you need to build one? Commencing business operations in a new market can involve significant risks, and therefore it is important to have a strong management team that understands the challenges ahead. Having established the business in a new country, a variety of issues may present themselves such as: How to ensure that your business operations run smoothly? How much hands on involvement is required by your management team? How much time and resources will it consume setting up your operations? Will some members of your management team be required to spend a lot of personal time in the new location? 12. Global human resources considerations What benefits will you provide to expatriates and what are the tax consequences? Do your employees require security protection? Do you have a team that can deal with assignent management, immigration and tax compliance? Should these functions be outsourced? 13. Financing What are the cash flow needs of your business? What is your projected revenue growth? Are your financial models sound or overly optimistic? Do you need strong partners to finance your expansion? Have you considered Islamic finance as a source of funds? What is the debt equity mix of funding? What are the tax consequences? 14. Choosing the operating structure Are you looking for slow organic growth? Will you start out with a sales office or are you looking for a green field development? Are you looking to establish an immediate local presence? If so, will you set up a joint venture or will you acquire an existing local business? 15. Supply chain, transfer pricing and intellectual property Have you identified all possible supply chain efficiencies? Have you considered potential Australian tax issues as you move functions, intellectual property and risk offshore? Is your intellectual property and data protected?

16. Foreign exchange management and currency risk/controls Is the local currency stable or volatile? Is currency hedging available at a reasonable cost? Could currency restrictions inhibit or even prohibit the flow of international funds?

Cross-cultural competence in international business

http://www.worldbiz.com/ice.html

https://www.aperianglobal.com

When George Bush gave Chinese Premier Li Peng a gift of cowboy boots embroidered with the American and Chinese flags, was it an appropriate gift? 1 Yes, a thoughtful sentiment and a keepsake appropriate to the occasion 2 No, a significant miss on the part of administration protocol experts 3 Yes, a good choice, if only he had known the Premiers correct shoe size Answer: 2. Unfortunately, in China, the soles of the feet are considered to be the lowliest part of the body and gifts of footwear, no less embossed with the nations respective flag, was a significant miss on the part of administration protocol experts In sending an email to a Japanese colleague with whom may wish to collaborate on a potential business deal, you would be most successful if you 1 Begin the email by addressing the individual warmly and openly, by his first name, immediately closing the cultural gap 2 Always use Mr. , Miss or Mrs. followed by the last name of the individual, followed by an embracing and forthright interaction 3 Use the last name, followed by the term sama to address your email, followed by clear text set forth with the utmost formality. Answer: 3. The risk of email is that it lacks certain social contextual cues such as body language, eye contact and intonation and can therefore create misunderstandings. There is also no way to see the demeanor or reaction of your counterpart and adjust your communication strategy to compensate for a misunderstanding once it is created. When in doubt, it is always safer to err on the side of greater formality and deference. The Japanese have become accustomed to making allowances for informal communication from other countries, but you will proceed with more credibility if you make a sincere effort to adapt to their customs. The use of the term san and, for those in a position of high authority, sama is honorific. Use the last name, followed by the honorific term, followed by extreme clarity and formality in the text, with as few assumptions for context as possible.

The Iceberg Model

It can be helpful to use an iceberg as an analogy to understand the impact of cultural differences on behavior and interaction. Culture is like an iceberg in that only a small part is visible, while the majority of the mass lies, invisible (and often unconscious), below the surface. The visible and audible aspects of culture are things like dress, rituals and communication behavior what people wear, do and say. These aspects of culture derive from hidden values, expectations, assumptions, and beliefs the "unwritten rules" that dictate what is considered "appropriate" or "inappropriate" in that culture. Buried deep within each culture's "iceberg," for example, is its orientation toward time, its attitude toward hierarchy, its fundamental beliefs and sense of values. Intercultural misunderstandings occur when we observe the behavior of people from other cultures and misinterpret them based on our own set of assumptions and values, and vice versa. Learning to interpret our own and others' behavior from the other culture's perspective is therefore an important skill in being an effective intercultural communicator.

Low vs. High Context

Low-context communication One of the ways in which cultural anthropologist Edward T. Hall analyzed cultures is by the extent to which they utilize contextual information to send and decode messages. In low-context cultures such as Germany, the United States, and much of Scandinavia, there is a great reliance on explicit verbal or written messages to transmit meaning, with less attention paid to contextual cues such as physical setting, relative status of the parties involved, nonverbal signals, and length or strength of the relationship. Communication tends to be direct and content-focused. High-context communication In high-context cultures such as most Asian, Latin American and Arab countries on the other hand, meaning is derived not only from explicit verbal or written messages, but also from contextual factors such as the setting in which the communication is taking place, the relative status of the individuals involved, nonverbal signals, and the strength of the relationship. Communication may therefore seem much more implicit, indirect, and attuned to feelings than in lowcontext cultures, and business decisions may be based on information gathered through extensive networks and close personal relationships.

Tips for communicating with people from low-context cultures

Get to the point fairly quickly, and limit the amount of background information presented. If others need more information, they will ask. If you imply your conclusions without stating them explicitly, low-context listeners may miss or misunderstand what you are getting at it is better to state your points very concretely. Use data and facts to support your points. Do not take a refusal or a criticism of your idea personally. Low-context communicators tend to separate criticism of issues from criticism of the people presenting the issues. Do not become frustrated if you have to ask many questions to get the information you want. Low-context communicators tend to assume that you will ask a question if you want to know something, and they may hesitate to offer information that is not directly solicited for fear of appearing condescending. Conversely, don't assume that someone who asks you a lot of questions is challenging or attacking you; they may simply be trying to get the specific information they need at the moment to make a decision. Be careful not to "read between the lines" too much. Don't assume that what someone says today is related to what he or she said yesterday. Always clarify when in doubt. Try to be more direct in your communication style, but be careful that you dont overdo it and express yourself too bluntly or aggressively. Tips for communicating with people from high-context cultures Pay more attention to the context in which a communication is taking place: who is speaking, who is not speaking, what is not being said, where you are, who else is present and what their relative status is, etc. An awareness of contextual factors can help you to more accurately interpret verbal messages. Pay close attention to nonverbal cues such as eye contact, pauses, posture, and facial expression. However, it's important not to assume that these cues mean the same thing they might in your own culture. People in high-context cultures often value relationships and may express themselves indirectly in order to preserve harmony. It is therefore important, for example, not to assume that people agree with you simply because they don't come right out and say "No." Learn how disagreement is expressed in that culture, and develop alternative strategies for uncovering negative feelings that may not be directly communicated. Because high-context communicators are less apt to separate feelings from fact, be extremely careful about how you give feedback or disagree with someone's idea. Try to do so in private so that the other person does not lose face, and choose an appropriate setting for the interaction as well. Sometimes it can be more effective to utilize a third party to convey your message. A high-context communicator may ask a question as a starting point for an in-depth exchange of information. His or her expectation may be that the person who responds will go into a great deal of detail, beyond what was explicitly asked. If someone from a low-context culture gives a concise answer that only addresses the specific question asked, the high-context communicator may feel he or she is being unhelpful.

 Be prepared to use a variety of approaches to establish credibility and persuade not just verbal persuasion, facts, and data. Other factors may carry even more weight in high-context cultures, for example, who you know, how well you listen, how willing you are to invest in a relationship and spend time socializing, even how you dress. Some General tips on how to be effective in intercultural interactions

Check your assumptions about the intentions behind other people's words or actions. Avoid making quick judgments. Consider alternative interpretations that are based on the other culture's attitudes, perceptions and values. Check your conclusions, either with the other person, or with a third party who is familiar with both cultures. Examine your own cultural assumptions and values and be aware that you may be making judgments that may fit situations in your own culture, but not in others. Be willing to carefully explain your intentions when it seems that others are misunderstanding them. Identify ways that you can adapt your behavior, communication style, etc., to make others more comfortable.

Case study Angola: Making Decisions

THE SITUATION: Elliot Melos has just been promoted to manager of the Angolan office of his Australian firm. This is his first time working outside Australia, and he has recently become aware of a serious conflict between two of his most valuable employees, Eduardo Spinola from the northeast, and Jonas Ndongo, from Huambo, in the central part of Angola: the tensions between the two are almost palpable, they avoid speaking directly to each other even in meetings, etc. Elliot even hears reports of a shouting match between them, though he did not witness this himself. Elliot suspects that one of the factors in the conflict, is the tribal differences between the two, but he is unclear about what these might be, and is afraid to make any assumptions for fear of making a bad situation worse by possible tactlessness. He has learned to avoid using his own brand of self-deprecating Australian humor to defuse situations: in the past, they have either drawn blank stares or made his Angolan counterparts react in ways that suggested he had lost some ground in their eyes, especially after he (a lifetime member of Australias Labour Party) suggested, with tongue very much in cheek, putting the socialists on the barbie at the next Angolan election. This did not go over favorably.

He needs, however, to resolve this issue as speedily as possible. What is the first thing Elliot should do at this point?
POTENTIAL ANSWERS: RESULT It may be advisable for Elliot to bring the two parties together and discuss the issue in a private conference with both of them present. This will allow them to speak freely in the presence of an authority figure. This is not the best first step for Elliot to take, though it might be helpful later on, after other action has been taken. Try another answer. RESULT It may be a good idea for Elliot to call in a neutral intermediary to discuss the issue with the two disputants. This intermediary should be someone without commitments to either sides tribe or social group. This is a possible answer and might help resolve the conflict. But it is not necessarily Elliots best first option. Try a better answer. RESULT At this point it would be best for Elliot to call aside each of the parties in turn and discuss the issue with them, letting each one give his story of the dispute. This is the best answer. Elliot can learn great deal by being a sympathetic listener to each side; he is also likely to learn something about the less apparent tensions in Angolan life between subgroups.

Global advice on International Cultural Aspects & Training

For each statement below, click the button that best expresses the extent to which you agree or disagree with the statement. Your responses should reflect YOUR OWN VIEWS when you are IN YOUR OWN CULTURE.

1.

2.

3.

4. 5. 6. 7. 8. 10. 11. 12. 13. 14.

15.

16.

When other team members express a set of priorities that are different from mine, I should compromise my own wishes and act in unison with them. I believe that seniority should be taken into account along with achievement when distributing awards, benefits, or recognition. I believe that the entire team should share the blame even if one individual is responsible for the team not meeting its goals. As a manager, I should be able to give advice to subordinates about their personal lives even if they do not ask for it. It would be appropriate for me to raise my voice if angered by the actions of a junior employee. When I am speaking with a junior employee, it is natural that I should control the conversation. If I am frustrated with a subordinate, I should not reveal my feelings to him/her. It often seems to me that the colleagues I work with understand things in general better than I do. I am very concerned about how my performance is evaluated compared with others in my group. When my work does not compare favorably to others I am reluctant to share this information with anyone else. If I have made a mistake or done something wrong, I let my subordinates know about it. I am uncomfortable when my manager follows the progress of my work very closely. I usually try to avoid disagreeing openly with other people. When communicating a message to a colleague that he/she may not want to hear, what I say may have one meaning on the surface and another meaning below the surface. When someone says something I try and figure out what they really mean.

Managers and National Culture

Cultural Links to American Managerial Behavior Cultural Characteistics Individualism Self-reliance (responsibility) Efficiency Favorable view of future (optimism) Pragmatic Rationality Contractual relationships Puritanism Humanitarianism Materialism Time consciousness Equality Competitive Openness and direct behavior Moralism Loyalty Manageial Behavior Focus on individual contribution and benefit to self or dept. Willingness to take on personal responsibility Stress on bottom-line cost consideration. Favorable outlook toward success of future projects and greater likelihood of reaching them Tendency to make fairly simple judgments of whether a particular project worked. Emphasis on logic and raionality in reaching decisions Emphasis on impersonality in work behavior In some cases, overemphasis on work, but also strong moral commitment Sympathy for subordinates and peers, but usually directed toward non-work situation Heavy reliance on economic moivation to spur work forceequaing value of project with profitability Short-term perspective on output Rewards based more on what one does rather than who one is. Worth in organization predicated on ability to deliver Pressure to strive to do better

Telegraphing clearly where one stands Commitment bordering on ideology More often directed toward self, section, department than entire enterprise If we see how a typical American manager saw his/her life/job in general we would use following values : Legitimacy of achievement and success ;belief in hard work; optimism; Puritanism; commitment to a scientific & rational orientation; impersonality in work settings; belief in equality of opportunity; acceptance of competition as fact of life, individualism. Perhaps no other country holds all these values as strongly as do American workers.

Two major factors affect managerial behavior in Britain: tradition as a dominant and positive social value, and an unchallenged class system. British society lalues tradition: the sense that behavioral codes that have worked well in the past should be preserved and that change should only be introduced when un avoidable. Although such attitudes seem to restrain development and innovation, ome advantages are apparent. First, to minimize experimentation is to limit the possibility of losses from inappropriate projects. The typical British manager waits for others to demonstrate the merits of a new venture. If a new system, such as a local area network, is introduced, such a step will be taken only in order to minimize potential losses from competitors, who might succeed in generating beneits from the use of such systems. Second, when implementing a new project, managers minimize risk by col laborating

with others, so that any associated losses are widely distributed. Third, unsuccessful managers admit their mistakes and pay the consequences, thereby allowing their successors to reap the benefits of successful policy changes. As a corollary, unionization among managers has not been a significant factor in compensation arrangements, although some 40 percent of managers are formally afiliated with such unions, paticularly in the public sector. These attitudes contrast with those prevailing in the United States, where managers face strong pressures from shareholders to take risks in their decision making, so as to maximize the possibility of short-term gains. Consequently, mistakes are not freely admitted. When the admission of failure is inevitable, U.S. managers evade sole responsibility, as far as is possible. Such behavior makes it dificult for the Board of Directors, or for shareholders, to identify errors at an early stage. In addition, it may be dificult to alter erroneous decisions when managers make obscure mistakes or relate their actions to external factors. To be sure, the conservative cast of typical British managers is one reason for the country's sluggish economic growth .Yet resistance to change .buttresses the class system, so that management becomes a status rather than a profession. Managers who were not born into the appropriate class face major obstacles when seeking promotion. At the same time, since management is a social class, there is limited emphasis on management education and training. Intuitive judgments based on experience and wisdom are preferred to scientiic assessment. Whereas management is considered a profession in the United States and university degrees are usually required for advancement, social class is the most common "pass" required of new entrants in Britain. Although this orientation is most evident within the public sector, it signiicantly inluences managerial career development within the private sector as well.

Selected Cultural Values and Related Managerial Behavior Saudia Arabia

Cultural Values Managerial Behaviors Tibal and family loyalty Work group loyalty Paternal sociability Stable employment and a sense of A pleasant workplace Caeful selection of employees Nepotism Arabic language Business as an intellectual acivity Access to employees and peers Management by walking around Conversaion as receation Close and warm fiendships A person rather than task and money orientaion Theory Y management Avoidance of judgment Islam Sensitivity to Islamic virtues Observance of the Qur'an and Shaia Work as personal/spiritual growth Majlis Consultative management A full and fair heaing Adherence to norms Honor and shame Clear guidelines and conflict avoidance Positive reinforcement Training and defined job duties Private correction of mistakes Avoidance of competition An idealized self Centralized decision making Empathy and respect for the self-image of others Polychrome use of ime Right and left brain facility A bias for acion Patience and flexibility Independence Sensitivity to control,Interest in the individual Male domination Separation of sexes

Cultural Values,Managerial Implications & Organization structure

Employee Categorization & Prototype in Chinese Culture

The Indian Context

Management Styles in Various Cultures

Pareek (1988; 1997: 188-90) describes these twelve styles as follows: 1. Supportive (+NP): In this style, support is provided when needed. Managers with this style are supportive coaches. They encourage their subordinates, cheer them up, and provide the necessary conditions for their continuous improvement. They help them to help themselves. 2. Rescuing (NP): In this style, support is provided by almost imposing oneself on others. The belief is that the subordinate is not Capable of taking care of himself. This style inculcates dependencyproneness. 3. Normative (+CP): Managers with this style are interested in developing proper norms of behaviour for their subordinates and helping them to understand how some norms are more important than others. The manager is concerned with setting appropriate norms by involving his subordinates in evolving these norms, and also in deciding how such norms will be followed. 4. Prescriptive (CP): People with this style are critical of others' behaviour. They impose themselves and want others to do what they think is right or wrong. Managers with this style prescribe solutions rather than helping subordinates to work out alternative solutions to the problem. 5. Problem-solving (+A): In this style the concern of the person is to solve the problem by himself working and involving others in it. He does not see the problem as being merely conined to the tasks. For him the problems have various dimensions. 6. Task obsessive (A): The manager with this style is primarily concerned with tasks, and is so obsessed with the work to be done that he overlooks various other things. They are not concerned with feelings and, in fact, fail to recognize them, since they see them as not related to the task. They function like computers.

7. Innovative (+FC): People with this style are enthusiastic about new approaches, and take others along with them. They pay enough attention to mustering an idea so that it results in concrete action, and is internalized in a system. 8. Bohemian (+FC): Such a manager does not stay with one idea and is obsessed with new ideas all the time. He overwhelms his sub ordinates with new ideas. He is less concerned about the working of these new ideas, and is mainly concerned with the ideas them selves. He hardly allows an idea or a practice to stabilize. He goes from one idea to another. 9. Confronting/Assertive (+RC): In this style the person is concerned with the exploration of a problem. Perseverence is the main characteristic. Such managers confront the organization in order to get things done for their subordinates. Even when something is.to be explored with the person, the focus is always a particular issue or a problem and the person is not the target. 10. Aggressive (RC): A person with this style is likely to show his aggressiveness by in-ighting, making heavy demands, ighting or going back to issues and never allowing these to be settled. Managers with this style will help achieve results. Their aggressiveness, however, makes people ignore them and not take them seriously. 11. Resilient (+CC): This style is characterized by functional compliance. The person respectfully accepts others' ideas which appeal to him, and changes his approach when needed. 12. Sulking (CC): A manager with this style keeps negative feelings to himself, Finds it difficult to share them and avoids meeting people if he has not been able to fulil his part of the contract. Instead of confronting problems, a person with this style avoids them, feels bad about situations but does not express himself.

Learnings & implications

References
1 Management and Cultural Values , Indigenization of Organizations in asia Sage Publications ISBN 0-7619-9318-5 Henery S R Kao , Durganand Sinha , Bernhard Wilpert 2 Managers and National Culture , A Global Perspective Quorum Books Wesport Connecticut Edited by Rochard B Peterson 3 Indian Business Culture Viva Books Private Limited ISBN 81-7649-081-4 Rajiv Desai