Chapter 5: Differences in Culture

Cross-cultural literacy an understanding of how cultural differences

across and within nations can affect the way business is practised.
Relationship between culture and the cost of doing business in a
country/region.
Culture is dynamic.

LO5.1. Know what is meant by the culture of a society.
Culture a system of values and norms that are shared among a
group of people and that when taken together constitute a design for
living.
Society group of people who share a common set of values & norms

Values and Norms
Values abstract ideas about what a group believes to be good, right
and desirable.
o Form basis of a culture provide context within which a
societys norms are established and justified.
o E.g. attitudes to democracy, truth, justice, role of women etc.
Norms social rules and guidelines that prescribe appropriate
behaviour in particular situations
o Subdivided into 2 major categories:
Routine conventions of everyday life
Other norms seen as central to functioning of a society
and to its social life.

Routine conventions of everyday life
Social conventions concerning things like appropriate dress codes in a
situation, good social manners, eating with correct utensils, neighbourly
behaviour etc.

Attitude to time
Time as money (US, AU, Northern Europe, UK),
Time is elastic (Mediterranean, Asia) schedules less important than
interaction.

Rituals and symbols
Most visible manifestations of a culture and constitute the outward
expression of deeper values.
E.g. business cards & bowing in Japan dont pocket, examine.

Culture, Society and the Nation-State
Society can be defined as a group of people that share a common set
of values and norms; a group bound by a common culture.
Not limited to nation-states, which are political creations, containing
several cultures. E.g. Australia Indigenous, Greek, Italian, etc.

LO5.2. Identify the forces that lead to differences in culture.

Values and norms of a culture are the evolutionary product of a number
of factors at work in a society
o Prevailing political and economic philosophies
o Social structure
o Dominant religion
o Language
o Education
Political and economic philosophies influence value systems. E.g.
Communist North Korea re freedom, justice and individual freedom
different to AU.

Social Structure
A societys social structure is its basic social organisation
Two dimensions to consider
o The degree to which the basic unit of social organisation is
individual, as opposed to the group (individualist vs. collectivist)
o The degree to which a society is stratified into classes or castes
High social stratification, low mobility India
Low social stratification, high mobility between strata
AU, NZ, America

The Individual
Focus on the individual, and individual achievement common in
Western societies
Contributes to dynamic of US economy, but can lead to a lack of
company loyalty and failure to gain company-specific knowledge,
competition between individuals in a company rather than team
buildings, and a limit on peoples ability to develop a strong network of
contacts within a firm.
Two groups of individualistic societies
o Horizontal AU, Scandinavia emphasis on independence of
action and equality with others.
o Vertical US, UK independence of action and standing out
from others emphasized.

The Group
In many Asian societies, the group is the primary unit of social
organisation
Cooperation driven by need to improve the performance of the group
May discourage job switching between firms, encourages lifetime
employment systems, leads to cooperation in solving business
problems, increased cooperation and mutual self-help and collective
action, can supress individual creativity and initiative.




Social Stratification
All societies stratified on a hierarchical basis into social categories, or
social strata (hierarchical categories in a society, defined on basis of
family background, income, occupation etc.)
Social Mobility extent to which individuals can move out of strata in
which they were born.
o Varies between societies.
o Most rigid system caste system (closed system of
stratification, in which social position is determined by the family
into which a person is born, and change out of that strata isnt
possible during a persons lifetime. Usually carries specific
occupation. E.g. India has 4 main castes.
o Class system less rigid social stratification system, in which
mobility is possible depending on a persons achievements or
luck. E.g. Britain, US, UK, AU.
Argued Britain is more rigid based on background and
schooling. AU determined by individual economic
achievement.

Religious and Ethical Systems
Religion
A system of shared beliefs and rituals that are concerned with the
realm of the sacred
Religions with greatest following Christianity, Islam, Hinduism,
Buddhism.
Confucianism (philosophy) influences behaviour and shapes culture in
many parts of Asia.

Ethical Systems
A set of moral principles or values that are used to guide and shape
behaviour
The ethical practises of people in a culture often intertwine with religion

Christianity
Most widely practised religion 30%. Europe, Americas, European
settled countries.
Monotheistic one god

Islam
Extends underlying roots of Christianity to an all-embracing way of life
that governs ones being.
Second largest of worlds major religions.
Monotheistic. Objective to fulfil the dictates of his will in hope of
admission to paradise.
Worldly gain and temporal power are an illusion those who forego
worldly ambitions to seek the favour of Allah may gain the greater
treasure than material wealth.
Islamic fundamentalism
o In the West, fundamentalism is associated in media with
militants, terrorist, violent upheavals. But, vast majority of
Muslims highlight Islam teaches peace, justice and tolerance.
o Fundamentalists have gained political power in many Muslim
countries, and tried to make Islamic law the law of the land.

Hinduism
Practised primarily on Indian subcontinent
Focus on importance of achieving spiritual growth and development,
which may require material and physical self-denial
Karma affected by way you live.

Buddhism
Stresses spiritual growth and the afterlife rather than achievement in
this world
Practised mainly in SE Asia, doesnt support caste system so
individuals do have some mobility and can work with individuals from
different classes.

Confucianism
Religion or philosophy?
Main ethical system of China
Practised mainly China, teaches importance of attaining personal
salvation through right action
Need for moral and ethical conduct and loyalty to others is central.

Superstitions
Like religion, play important role in daily life of people and impact
business.
5000yr old Chinese culture rich in traditions and superstitions.
Numbers play important role and their faith in lucky numbers influences
daily life e.g. picking a car number plate, phone number, house
number.
Good numbers 6 (smooth, happiness), 8 (luck, wealth) 9 (long life)
Bad number 4 (similar to word death)

Language
Spoken and unspoken is defining characteristic of culture.










LO5.3. Identify the business and economic implications of differences in
culture.

Significance of Social Structure
Stratification of a society is significant as it affects the operation of
business organisations.
In US, higher degree of social mobility and extreme emphasis on
individualism limits impact of class background on business operations.
In Great Britain, relative lack of class mobility and differences between
classes emergence of class consciousness
o Condition where people tend to perceive themselves in terms of
their class background, shaping how they relate with members
of other classes.
In cultures where theres much class consciousness, the way people
from different classes work together (i.e. management & labour) may
be prescribed and strained high level of industrial disruption
raised costs of production hard to establish competitive advantage.

Economic Implications of Religion
Christianity: Protestant Work Ethic
o Focus on hard work, wealth creation and frugality identified as a
driving force of capitalism. Capitalism emerged in Western
Europe, where business leaders and owners of capital, and
higher grades of skilled labour etc. were Protestant.
Islam
o Koran establishes explicit economic principles pro-free
enterprise.
o People dont own property, but only act as stewards for God and
thus must take care of that with which theyve been entrusted.
o Must use profits in a righteous, socially beneficial and prudent
way
o Islam is supportive of business, but the Koran prescribes the
way it is practised.
o Favours market-based systems receptive to IB if they behave
consistently with Islamic ethics. If making unjust profit through
exploitation, deception or breaking contractual obligations,
unlikely to be welcomed.
o Prohibits payment or receipt of Interest
Mudarabah instead of charging interest, they take a
share in the profits derived from the investment. When
depositing, it is treated as an equity investment for the
bank to use, and depositor receives share of profit from
banks investment.
Murabaha bank purchases something, borrower buys it
back for slightly more (markup for the bank).
Hinduism
o Pursuit of material wellbeing makes attainment of nirvana more
difficult - spiritual perfection
o Hindus valued by spiritual achievements, not material not
same work ethic or focus on entrepreneurship.
o Promotion and adding new responsibilities may not be the goal
of an employee, or may not be feasible due to their caste.
Buddhism
o No emphasis on wealth
o Doesnt discourage ethical business practises, only 5 forms of
trade to be avoided: trade in arms; living beings; flesh (breeding
animals for slaughter); intoxicating drinks and poisons.
Confucianism
o 3 key teachings loyalty, reciprocal obligations and honesty
may all lead to lowering cost of doing business in Confucian
societies.
o In Confucian thought, loyalty to ones superior is regarded as a
sacred duty/absolute obligation reduces conflict between
management and labour.
o Superiors expected to reward loyalty of subordinates by
bestowing blessings. Therefore, reciprocal relationships.
o High honesty lowers costs no need for lawyers to resolve
contract disputes.

Language
Spoken - English is language of IB, but knowledge of local language is
beneficial, and in some cases, critical for business success. E.g. 24
words for snow in Inuit language.
Unspoken e.g. facial expressions and hand gestures can be
important in communication. But have different interpretations in
different cultures misunderstandings and cultural faux pas.


Education
Formal education is the medium through which individuals learn many
of the language, conceptual and mathematical skills indispensible in
modern society.
Knowledge base and training and educational opportunities available to
a countrys citizens can give that country a competitive advantage in
the market and make it more or less attractive location for expanding
businesses.
Education level good indicator of kind of products that may sell well in a
country. E.g. low literacy bad for selling books, promotional material
with written descriptions etc.


LO5.4. Understand how differences in culture influence the conduct of
business.
Of considerable importance for IB with operations in different countries
is how a societys culture affects the values found in the workplace.

Cultural Context
Hall & Hall
Hall & Hall highlighted the cultural differences between countries using
concept of context, where context equates to cues and other
information present in a situation e.g. tone of voice, gestures.
Divided extremes of context into high and low context, with range in
between.
Low context culture
o Speakers message conveyed explicitly by spoken words
o Most individualistic Western countries e.g. AU, NZ, US, Canada,
Western Europe are low-context
o Explicit communication preferred here.
High context culture
o Culture in which context of a discussion is as important as the
words spoken
o Most countries in Asia, Middle East, Latin America and Africa
o People refrain form explicitly expressing feelings and thoughts
and important info is embedded in context.

Hofstede
Power distance extent to how much a society allows inequalities of
physical and intellectual capabilities between people to grow into
inequalities of power and wealth.
o High power distance let inequalities grow.
o Low power distance downplay inequalities.
Individualism vs. collectivism extent to which society teaches
individuals either to prize personal achievement or look after interest of
their collective.
Uncertainty avoidance extent to which cultures socialise members to
accept ambiguous situations and to tolerate uncertainty.
o High uncertainty avoidance emphasis on job security, career
patterns, retirement benefits etc. Need rules and regulations.
o Low uncertainty avoidance risk taking, less emotional
resistance to change
Masculinity vs. femininity extent to which a society differentiates and
emphasises traditional gender and work roles; masculine
characterisation means more differentiation, feminine means less.
Long-term orientation/Confucian dynamism measures extent to which
society adheres to values about time, persistence, ordering by status,
protection of face, respect for tradition and reciprocation of gifts.
o East Asia (Japan, Hong Kong, Thailand) scored high. AU, NZ
scored low.
Score from 1-100.
Western nations e.g. AU, US, NZ, UK high individualism, low power
distance.
Latin America, Asia high collectivism, high power distance.
Japan high uncertainty avoidance, high masculinity.

LO5.5. Develop an appreciation for the economic and business
implication of cultural change.
Culture isnt constant; it evolves.
Economic progress and globalisation seem to be 2 important engines
of cultural change
Culture changes over time, although changes in value systems can be
slow and painful
As countries become economically stronger, cultural change is
particularly common.
o Economic progress accompanied by shift in values away from
collectivism, towards individualism.
o Shift from traditional to secular rational values
o Shift form survival values to wellbeing values

Cross-Cultural Literacy
Individuals and firms must develop cross-cultural literacy
IBs that are ill-informed about practises of another culture are unlikely
to success
o How deals are negotiated
o Appropriate incentive pay systems
o Structure of organisation
o Naming products
o Relations between management and labour
Way to overcome employ local citizens, but ensure they are
cosmopolitan enough to understand how differences in culture affect
practise of IB.
Individuals must be aware of ethnocentric behaviour, or belief that their
culture is superior.

Culture and Competitive Advantage
Value systems and norms influence costs of doing business. Costs of
doing business influence ability of firms to establish competitive
advantage in global marketplace.
For international companies, the connection between culture and
competitive advantage is important because:
o This connection suggests which countries are likely to produce
the most viable competitors.
E.g. Australian enterprises are likely to see continued
growth in aggressive, cost-efficient competitors form
Pacific Rim nations where a combination of free market
economies, Confucian ideology, group-oriented social
structures and advanced education systems can be found
e.g. South Korea, Taiwan, Japan.
o This connection has important implications for the choice of
countries in which to locate production facilities and do
business.
In considering 2 countries, comparable in low labour
costs, access to world markets, size, economic
development; the country with a developed education
system, lower stratification and one linguistic group would
be chosen over the alternative. Because other country
has higher risk of disruption, raising cost of doing
business.