Evolution of International Business Ch 3 Environmental challenges for International Business
A McDonald s story in Beijing In 1992, McDonald s Corporation opened its first restaurant in Beijing after a decade of market research. The restaurant,then the largest McDonald s in the world, was located on the corner of Wangfujing Street and the Chang an Street. Within two years, sales at the restaurant were surpassing all expectations. Then the Beijing city government suddenly informed it to vacate the location to make way for a commercial, residential and office complex planned by Hong Kong developer Li Ka-shing. At the time, McDonald s still had 18 years to run on its 20-year lease. --------Question: How do you think should McDonald s respond to it?
The real story continues 1. McDonald s reaction 2. The result 3. Difference between doing business in the West and in China 1. -----environmental challenges of International Business
Agenda: Cultural environment National differences in political economy Political system Economic system Legal system Case analysis: White Nights and Polar Nights
Cultural environment What is culture? Culture and international business communications
What is culture? A collection of beliefs, values, behaviors, customs, and attitudes that distinguish one society from another. Culture is: Learned. Related to other aspects of a society. Shared by all. Adaptive over time.
Questionable assumptions about people: A fundamental problem in cross-cultural interactions is that people often make incorrect assumptions about people from other cultures. These assumptions then guide their behavior, leading to unfortunate outcomes. Question: How many of these assumptions apply to you? To people or companies you know?
Story: Disneyland Paris Your impression about it? The performance of it? Why? Implications for management?
Two approaches for comparing cultures Edward T. Hall s three dimensions: Focus on interpersonal communication. Language Space Time Geert Hofstede s five dimensions: Focus on individual and group behavior. Social orientation Power orientation Uncertainty orientation Goal orientation Time orientation Both approaches recognize individual differences.
Edward T. Hall Three dimensions of culture: 1. Language High context cultures (Japan) Low context cultures (U.S.A.) 2. Personal Space Centers of power (U.S.A., U.K.) Centers of community (Netherlands, Mexico) 3. Time Monochronic time (U.S.A., Netherlands, Germany) Polychronic time (France, Mexico, Saudi Arabia)
Language: High context vs. Low context
Communication in high- and low-context cultures High Context e.g. Japanese, Arabic, and Latin American cultures Indirectness, politeness, ambiguity Low Preferred communication strategy Reliance on words to communicate Reliance on nonverbal High Low signs to communicate Importance of written Low High word Agreements made in Not binding Binding writing Agreements made orally Binding Not binding Attention to detail Low High Low Context e.g. German, Scandinavian, and North American cultures Directness, confrontation, clarity High
High-context cultures Low-context cultures Most of the information is inferred from the context of a message; little is explicitly conveyed. High-context cultures favor indirectness as to maintain harmony and save face, rather than say it as it is (to achieve clarity). (E.g. They very seldom say no directly.) In-group relationship Context is less important; most information is explicitly spelled out. They favor direct approaches and may see indirectness as dishonest or manipulative. Written word is seen as more important than oral statements.contracts are binding but promises may be broken. Details matter.
Personal space Centers of Power Value personal space. Keep distance. Avoid touching others. Form lines. Centers of Community Ignore personal space. Stand close to others. Prefer touching others. Ignore lines. Example: Distance when talking in U.S., Japan Example: Distance when talking in Mexico, Saudi Arabia
Monochronic vs. polychronic time Monochronic Time Does one thing at a time. Task oriented. Comfortable with shortterm relations. Sticks to plans. Internally focused. Example: U.S.A., Germany Polychronic Time Does many things at once. People oriented. Seeks long-term relations. Changes plans often. Externally focused. Example: Mexico, France
Cultural Dimensions Geert Hofstede Power Distance Acceptance of differences in power and status Individualism Individual needs and autonomy more important than collective needs Uncertainty Avoidance Comfortable with ambiguous situations and predictability of future Gender Egalitarianism (Femininity masculinity) Men and Woman receive equal treatment. Both masculine and feminine attributes are important Low Masculinity = High Gender Egalitarianism Future orientation
Geert Hofstede Five dimensions of culture:
Source: Hofstede (1980)
Hofstede s measurements (1980) China Power Distance 75 Individualism 10 Uncertainty Avoidance 35 Masculinity 50 Long Term Orientation 114 Norway 31 69 50 8 50 France 68 71 86 43
China and Italy
Cross Cultural Differences Values and norms National culture Do s and don ts Political system Religious/ethical basis Organisational aspects Size Culture Climate Individual aspects Personal values Personality Position/Background
How we think The ladder Values Knowledge Personality Expectation s Conclude Evaluate Choose some information Source: Argyris Situation
Learning points We think quickly fast inferences and conclusions We believe in our own impressions see them as obvious and as the truth Little distance between ourselves and our thinking we are all typically poor at studying ourselves while we think
Learning points These characteristics are helpful in known situations where most people hold the same frame of reference, but can cause problems when we communicate with others that have different perspectives or try to solve novel problems that require new perspectives and new thinking
How we talk Typically most communication at the top of the ladder Conclusions Most! Evaluations Interpretations Least! Situation
A typical meeting What we register Many issues, short time often many people Fast inferences based on different parts of what is said People feel they have the whole picture Variable or limited interest in others perspectives few questions If others think differently, we often automatically think they are wrong
How to improve Communication Tell the other about my own thinking Move down your own ladder Clarify own thinking and reasoning. Communicate your thinking clearly Assume that others can see things differently and invite them to challenge your thinking Ask about the other s thinking Move down the other s ladder Ask about the background for the others statements and views Ask for illustrations and examples Wait with drawing your conclusions until you have heard more about the others thinking and reasoning
How to improve Communication Your own ladder: The Other s ladder: This is my opinion. This is what I am building my views on. Do you see any data or judgements that I haven't taken into consideration?" Does anyone see this differently? There is something about your statement that I don't understand. I want to understand what you are basing your views on can you explain? What have you seen what information are you basing that view on?
National differences in political economy Political system Economic system Political Risk in Global Ventures Legal system
Political and legal issues in international business: Home country issues Sanctions: Specific restraints or penalties on trade with another country to force a change in behavior. Embargoes: Comprehensive ban on trade with another country.
Home country issues, cont d: Export controls: Restrictions on exports of sensitive goods or services to another (usually hostile) country. Dual use products: Products that have both military and civilian applications.
Political and legal issues in international business: Host country issues Political risk: Threats in the political environment of a host country that may adversely affect the value of a firm s international operations. Ownership risks: Expropriation (compensation) Confiscation (no compensation) Operating risks: Local content requirements Corruption Transfer risks: Exchange controls
Factors affecting political risk:
Case Study White Nights and Polar Lights: Investing in the Russian Oil Industry (please hand in hard copies of case reports at the beginning of next class)