International

Business
Environments & Operations
15e

Daniels ● Radebaugh ● Sullivan

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 Chapter 2
The Cultural
Environments Facing
Business

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Introduction

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Introduction

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 Learning Objectives
 To understand methods for learning about
cultural environments

 To analyze the major causes of cultural difference

and change

 To discuss behavioral factors influencing

countries’ business practices

 To understand cultural guidelines for companies

that operate internationally
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 Introduction
Culture

Culture refers to learned

norms based on the
values, attitudes, and
beliefs of a group of
people
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 Introduction
 peoplebelong to different groups
based on nationality,
ethnicity, religion, gender,
work organization,
profession, age, political
party membership, and
income level, and each group
comprises a culture
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 Introduction
 The People Factor
Business involves people. Every
business employs, sells to, buys
from, and is owned and regulated by
people. International business, of
course, involves people from
different national cultures, which
affects every business function

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 Introduction
 The People Factor
Cultural Diversity

Cultural Collision

Sensitivity and Adjustment

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 Introduction
 The People Factor
Cultural Diversity

As different nationalities come together

through projects and teams, their diverse
backgrounds, perspectives, and
experiences often enable businesses to
gain a deeper knowledge of products and
services and how to create and deliver
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 Introduction
 The People Factor
Cultural Collision
 When a company implements practices
that are less effective than intended
 When a company’s employees encounter
distress because of difficulty in accepting
or adjusting to foreign behaviors

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 Introduction
 The People Factor
Sensitivity and Adjustment

A firm doing business in another country

must determine which of that nation’s
business practices differ from its own and
then decide what adjustments, if any, are
needed to operate efficiently.

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 Introduction
 It is important to study international
business because
 Most companies are either international or
compete with international companies
 Global events and competition affect almost all
companies, regardless of industry
 International companies have more complex
environments than domestic firms.
 An understanding of IB helps you make better
career decisions
 An understanding helps you decide what
government policies to support 1-13
 Introduction
Cultural Awareness
 There is no foolproof way to build your
awareness of culture

 Hard to isolate culture from economic and

political conditions

 Education about a culture helps in

awareness of cultures
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 Introduction
Cultural Awareness
 British sales reps expected their potential
Saudi customers to be punctual and give
them their undivided attention; in fact, the
reps’ compensation system discouraged
them from spending much time on each
business transaction. Their response was
typical of countries with a deal-focus
(DF) culture,

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 Introduction
Cultural Awareness
 the Saudis, meanwhile, had less
compulsion to wrap things up; they
regarded time spent in small talk at a café
as a means to identify good business
partners. They also put dealings with
friends ahead of business dealings, a
situation typical in a relationship-focus
(RF) culture.

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 The Nation as a Point of Reference
 National boundaries act as proxy for
culture

 Not everyone in a country shares the

same culture

 Dual or Multi Nationality_bicultural or

multicultural,

 Certain cultural attributes may link groups

from different nations more closely than
certain groups within nations
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 How Cultures Form and Change

 Cultural values set early in life but

 Changes may occur from:
 Choice
 Imposition

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 How Cultures Form and Change
 Change by Choice
may occur as a reaction to social and
economic situations that present people
with new alternatives.

When rural people choose to accept factory jobs,

for example, they change some basic customs—
notably, working regular hours doesn’t allow
them the sort of work-time social interactions
that farm work allowed.
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 How Cultures Form and Change

 Change by Imposition
sometimes called cultural imperialism—
involves imposing certain elements from
an alien culture,
such as a forced change in laws by an
occupying country that, over time,
becomes part of the subject culture.

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How Cultures Form and Change

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Language as a Cultural Stabilizer
 Like national boundaries and geographic
obstacles, language limits people’s contact
with other cultures.

 The people of the world speak thousands

of different languages, but only a few of
them remain important in the
dissemination of culture.

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Language as a Cultural Stabilizer
 A significant portion of countries, for
example, speaks English, French, or
Spanish.
 China is the only place where people speak
Mandarin,
The classification “Regional” actually takes
in two categories:
 (1) countries in which the dominant language is
not dominant anywhere else (e.g., Japan)
 (2) countries in which several different languages
are spoken (e.g., India).
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Language as a Cultural Stabilizer
 When people from different areas speak
the same language, culture spreads more
easily
 Among nations that share a same
language, commerce is easier
 Isolation from other groups, especially
because of language, tends to stabilize
cultures.
 Some countries see language as being so
important that they regulate the inclusion
of foreign words and/or mandate the use
of the country’s official language for
business purposes.
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 Religion as a Cultural Stabilizer
 Centuries of profound religious influence
continue to play a major role in shaping
cultural values
 Many religions influence specific beliefs
that may affect business

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 Costs of Globalization
Offshoring,
a type of outsourcing, involves the transferring
of production abroad
 it can be beneficial because it reduces costs
 but, it also means that jobs move abroad

Yet, offshoring may also create new, better jobs at

home
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Why Companies Engage in IB
 To expand sales
 pursuing international sales increases the potential
market and potential profits
increased sales are a major motive for reducing unit cost
 Volkswagen (Germany),
 Ericsson (Sweden), IBM
 (United States),
 Michelin (France),
 Nestlé (Switzerland), and
 Sony (Japan)

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Why Companies Engage in IB
 To acquire resources
 may give companies lower costs, new and better
products, and additional operating knowledge

Most automobile manufacturers, for example, hire design companies

in northern Italy to help with styling. Many companies establish
foreign R&D facilities to tap additional scientific resources. The
diversity of employees and operations bring companies new
perspectives.

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Why Companies Engage in IB
 To diversify or reduce risks
 international operations may reduce operating risk by
smoothing sales and profits, preventing competitors
from gaining advantage

 British-based Natures Way Foods followed a customer, the grocery

chain Tesco, into the U.S. market. This move expanded its sales and
its relationship with Tesco. Moreover, it reduced the risk that Tesco
would find an alternative supplier who might then threaten Natures
Way’s relationship with Tesco in the U.K. market.

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 Modes of Operations in IB
 Merchandise exports
 goods that are sent out of a country

 Merchandise imports
 goods that are brought into a country
(visible exports and imports)
 Example
The athletic shoes that an Indonesian plant sends to the United
States are exports for Indonesia and imports for the United States.

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 Modes of Operations in IB
 Service exports
 provider and receiver of payment

 Service imports
 recipient and payer of payment

 Examples
 Tourism and transportation
 Service performance
 turnkey operations and management
contracts
 Asset use
 licensing and franchising
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 Modes of Operations in IB
 Service exports
 provider and receiver of payment

 Service imports
 recipient and payer of payment

 Examples
Let’s say that the Williams sisters, Venus and Serena, and some U.S.
tennis fans take Air France from the United States to Paris for the
French Open tennis tournament. Their tickets on Air France and
travel expenses in France are service exports for France and service
imports for the United States.
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 Modes of Operations in IB
 Service exports
 provider and receiver of payment

 Service imports
 recipient and payer of payment

 Examples
Turn key Operations:
Companies also pay fees for management contracts—arrangements in which one
company provides personnel to perform general or specialized management
functions for another, such as Disney’s management of theme parks in France and
Japan.
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 Modes of Operations in IB
 Service exports
 provider and receiver of payment

 Service imports
 recipient and payer of payment

 Examples
Asset use
For example, Adidas pays a royalty for the use of the Real
Madrid football team’s logo on jackets it sells. Royalties also
come from franchise contracts.

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 Modes of Operations in IB
 Investments
 Foreign Direct Investment (FDI)
 investor takes a controlling interest in a foreign
company
 joint venture
When,
for example, U.S. investors bought the Liverpool Football Club, it
became a U.S. FDI in the United Kingdom.

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 Modes of Operations in IB
 Investments
 Portfolio Investment
 a non-controlling financial interest in another entity
 Mutual funds often include international companies

It usually takes one of two forms: stock in a company or loans to a

company (or country) in the form of bonds, bills, or notes purchased
by the investor.

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 Modes of Operation in IB
 Collaborative arrangements
 Joint ventures
 Licensing arrangements
 Management contracts
 Minority ownership
 Long-term contractual arrangements
 Strategic alliance
 companies that work together, but the
agreement is critical to at least one partner
 an agreement that does not involve joint
ownership
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 Types of International
Organizations
 Multinational enterprises (MNEs)
 take a global approach to markets and
production or have operations in more than
one country
 Sometimes they are referred to as
 multinational corporations (MNCs)
 multinational companies (MNCs)
 transnational companies (TNCs)

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 Types of International
Organizations
 In foreign markets, companies often have to
adapt their typical methods of doing business
 foreign conditions may dictate a particular method
 operating modes may be different from those used
domestically

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 Why IB is Different
 The external environment affects a company’s
international operations
 Managers must understand social science disciplines
and how they affect functional business fields
 Consider
 Physical factors (such as a country’s geography or demography)
 Social factors (such as its politics, law, culture, and economy)
 Competitive factors (such as the number and strength of a company’s
suppliers, customers, and rival firms)

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 Physical and Social Factors
 Geographic influences
 natural conditions influence business locations

 Norway fares better in the Winter Olympics than in the Summer

Olympics because of its climate

 East Africans’ domination in distance races is due in part to their

ability to train at higher altitudes than most other runners.

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 Physical and Social Factors
 Political policies
 countries determine where and how business occurs within their
borders
 For instance, Cuba
 once had a minor-league baseball franchise, which went the way of
diplomatic relations between Cuba and the United States back in the
1960s. Several Cuban baseball players are now members of
professional U.S. teams, although most of them had to defect from
Cuba to play abroad.

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 Physical and Social Factors
 Legal policies
 influence how a company operates

 British law, for example, determines how the U.S.-investor-owned

Liverpool Football Club is taxed and which nationalities of people it
employs in the U.K. Meanwhile, U.S. law determines how and when
the earnings from the operation are taxed in the United States.

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 Physical and Social Factors
 Behavioral factors
 may require adaptation in to local conditions

 Because of tradition, tennis’s grand slam tournaments are played on

hard courts in Australia and the United States, on clay in France, and
on grass in England.
 A baseball game in the United States continues until there is a
winner, while Japanese games end with a tie if neither team is ahead
after 12 innings.

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 Physical and Social Factors
 Economic Forces
 Economics explains why countries exchange goods and services,

 Although players from the Dominican Republic form the largest share
of non-U.S.-born players, the idea of putting a major-league baseball
team there isn’t feasible because too few Dominicans can afford the
ticket prices necessary to support a team. Obviously, higher incomes
in the United States and Canada enable major league teams to offer
higher salaries that attract Dominican players.

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 The Competitive Environment
 Competitive strategy for products
 Cost strategy
 Differentiation strategy
 Focus strategy
 Company resources and experience
 market leaders have more resources for
international operations
 Competitors faced in each market
 local or international

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 Future of Globalization
 Three major perspectives on the future of
international business and globalization
 Further globalization is inevitable
 International business will grow primarily along
regional rather than global lines
 Forces working against further globalization
and international business will slow down both
trends

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 Global Governance
 Politics/Peace- United Nations
 Trade- World Trade Organization (WTO)
 Money/Finance- International Monetary
Fund (IMF)
 Development- World Bank
 Overall- G8 Nations (USA, Canada, UK,
France, Germany, Italy, Japan, and
Russia)
 Other international organizations and
bodies

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 Chapter 1: Discussion Questions
1. Define globalization and explain the forces
driving globalization.
2. Define globalization and explain the cost and
future of globalization.
3. What is global governance? Explain the role of
each institution in Global Governance.
4. What is Globalization Index? Explain the
construct and methodology in evaluating the
countries.

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