IM535 International Operations Management · Case: Adjusting to Saudi Arabian Culture •Stores...

IM535 – International Operations Management

Module Two The Cultural Environments Facing Business

Chapter 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


Prof. Khaled S. El-Kilany Department of Industrial and Management Engineering

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Case: Adjusting to Saudi Arabian Culture

• Saudi Arabia

– Super modern cities.

– Strict Islamic regulations.

– Ancient social customs.

• Foreign companies have had mixed success in Saudi Arabia according to how well they understand and adapt to Saudi customs.

• Sales halted by an importer of Pokémon may encourage gambling.



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Age and Gender Distribution

Source: CIA The World Factbook



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• Franchisor forced to remove the face under the crown in Starbucks’ logo.

• McDonald’s dim their lights and close their doors during prayer times.

• Companies convert their revenue-generating space to prayer areas like Saudi Arabian Airlines and U.K.’s Harvey Nichols.



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• Stores shift operating hours to the evenings during Ramadan.

• Female restrictions have implications for business operations

– Saudi American Bank established branches for and staffed by women only.

– Pizza Hut installed two dinning rooms, one for single men and one for families.

– Harvey Nichols and Saks Fifth Avenue created women-only floors in their stores, and drivers’ lounges for their chauffeurs.

• 80% of Saudi private workforce is foreign – Unemployment rate is about 11%.



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• Charging of interest and purchase of accident insurance are not allowed.

• Legal barriers to some products have created boons for other products.

• Specific practices and technologies were developed by companies in response to Saudi conditions and brought benefits later in their home countries.

– “while-you-wait” technology by Kodak and Fuji.



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Introduction

• Our opening case shows how important it is for companies to understand and be sensitive to ever-changing operating environments.

• Culture is sometimes an elusive topic to study as people belong to different groups, and each group comprises a culture.

• These groups are based on nationality, ethnicity, religion, gender, work organization, profession, age, political party membership, and income level.



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People Groups

Nationality Nationality

Ethnicity Ethnicity

Religion Religion Gender Gender

Work Organization

Work Organization

Profession Profession

Age Age Political

Party Membership

Political Party

Membership

Income Level

Income Level



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The People Factor

• Business involves people!

• Every business employs, sells to, buys from, and is owned and regulated by people.

• Business functions such as managing a workforce, marketing, production, transportation, purchasing, orders processing… involve people.

• It is the human factor that is always difficult to manage.

• To complicate matters further, international operations involves people from different cultures.



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Cultural Diversity

• We mentioned in the previous module that one of the reasons to get involved in international operations is resource acquisition.

• Now consider fostering cultural diversity within an MNE.

• This MNE would gain global competitive advantage simply by bringing together people of diverse backgrounds and experience.

• Such an MNE would gain deeper knowledge about products and services and ways in which to produce and deliver them.

• Still, getting people with different backgrounds and perspectives working together seamlessly is not that simple.



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Cultural Collision

• Cultural collision: different cultures come in contact.

• In international operations, cultural collision can lead to:

– Ineffective operations of a company… companies implement practices that do not lead to intended results.

– Distress of a company’s employees because they cannot accept, adjust, or adapt themselves to foreign behaviors.

• Thus, an international firm must decide on the adjustments needed in its business practices (if any) to operate efficiently.



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Major Cultural Issues

• Problems arise in international business when:

– Employees have subconscious reactions

– Employees assume all societal groups are similar

– Companies/employees are insensitive to foreign consumer preferences



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Cultural Influences on International Operations Culture is an integral part of a nation’s operating environment



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Cultural Awareness

• A company’s need for cultural knowledge increases as

– Its number of functions increases.

– The number of countries of operations increases.

– It moves from external to internal handling of operations.

• Culture is a system of values and norms that are shared among a group of people

– Values: abstract ideas about what a group believes to be good, right, and desirable.

– Norms: social rules and guidelines that prescribe appropriate behavior in particular situations.

• Group of people sharing the same values are norms are referred to as a Society.



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Cultural Awareness

• Business people agree that cultural differences exist and that they affect operations.

• Issues related to cultural differences

– Widespread or exceptional.

– Deep-seated or superficial.

– Economic and political conditions effects.

• Knowing more about a specific culture can be through

– Carefully researching descriptions of that culture.

– Guidebooks for particular geographical areas.

– Consulting knowledgeable people at home and abroad.



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A Little Learning Goes a Long Way

• Businesspeople should learn to improve awareness and sensitivity to enhance the likelihood of succeeding abroad.

• Basic research of another culture can be instructive.

– Assessing gathered information is a must to make sure it doesn’t reflect useless categories, covers limited aspects of a country, or relies on outdated data.

• Cultural variations are numerous. Managers cannot memorize everything they will need in any one country.

– Different ways there are to address people. Should you use a given name or a surname? Does a wife take her husband’s name?

– In addition, many languages have pronouns and verb forms (familiar and polite) that reflect status and how well people know each other.



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Common Shortcomings of Cultures’ Studies

• Comparing countries by what people say can be risky.

– This will depend mainly on the person you’re talking to!

– Response will be mainly based on that person’s experience.

• When researchers are focused on national differences in terms of averages, they may overlook specific variations within countries and believe in unrealistic stereotypes.

• Cultures evolve!

– Thus behaviour reflecting “current” attitudes may well change in the future.

– Our opening case, for instance, details several ways in which Saudi attitudes toward women are changing.



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Identification of Cultures

• Cultures are derived with people with shared attitudes, values, and beliefs

• People also belong to national, ethnic, professional, and organizational cultures



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Identification of Cultures

• Points of reference: • National

• Geographic

• Language

• Religion



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Nation as a Point of Reference

• A nation provides a definition of a culture because of the basic similarity among people within national boundaries.

– Within its borders, a nation’s people largely share such essential attributes as values, language, and race.

– For a nation’s people there is a feeling of “we” compared to foreigners as “they.”

– National identity is preserved through habits and symbols; flags, national holidays, national events, interests, concerns…

– Preservation of national sites, documents, monuments, and museums promotes a common perception of history.



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• Still, this doesn’t mean that all people in a country are alike and certainly there is no country that is unique in all aspects.

• Nations usually include various subcultures, ethnic groups, races, and classes.

• A national culture must be flexible enough to accommodate the diversity.

• The important thing is that every nation boasts certain human, demographic, and behavioral characteristics that constitute its national identity.

• This national identity is what affects the way international companies operate in the country.



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• Cultural attributes can link groups from different nations more closely than groups within a given nation.

– For example, managers have different work attitudes than do production workers.

– Thus managers in Country A may hold work values more similar to those of managers in Country B than to those of production workers in Country A.

• As a consequence, when international businesspeople compare nations, they must be careful to examine relevant groups.

• They should differentiate, for example, between the typical attitudes of young people versus old people.



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Language as a Cultural Stabilizer

• 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.

• Such languages as English, French, and Spanish have such widespread acceptance (they’re prevalent in 44, 27, and 20 countries, respectively).

• Native speakers don’t feel the same need to learn other languages as do speakers of languages that, like Finnish or Greek, are found in only limited geographic areas.



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Other Chinese Hindi English Spanish

Bengali Portuguese Russian Japanese German

English Japanese French German

Spanish Chinese Italian Others

Why English Travels So Well? Take a look at the pie chart on the right shows portions of worldwide output by language. English-speaking peoples account for 42% percent of the world’s production; explaining why English is the world’s most important second language.

Why English Travels So Well? Take a look at the pie chart on the right shows portions of worldwide output by language. English-speaking peoples account for 42% percent of the world’s production; explaining why English is the world’s most important second language.

Data is calculated from Gross Domestic Product figures supplied by the World Development Indicators

database, World Bank (September 2004)



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Why English Travels So Well

• MNEs are largely headquartered in English-speaking countries and these decide on the language to use for communicating among employees in the different countries where they operate.

• Not surprisingly, it’s usually English, both because they transfer many English-only speakers as managers abroad and because they need a common means for managers from different countries to communicate with each other.

• On the other hand, MNEs from non-English-speaking countries have adopted English as their operating language.



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Major Languages of the World



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Religion as a Cultural Stabilizer

• Religion can be a strong shaper of values and beliefs.

• Within the different religions are many factions whose specific beliefs may affect business

– Prohibiting sale of certain products

– Prohibiting work at certain times.

• Nations that practice the same basic religion place different constraints on business.

• Historically, violence among religious groups has disrupted local and international business activities in both home and host country firms.



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Major Religions of the World

Christian Muslim Jewish Hindu Buddhist

Atheists Sikh Other Non-Religious

Estimate Statistics in 2010; Source: CIA, “The World Factbook”; 2013.

https://www.cia.gov/library/publications/the-world-factbook/



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Major Religions of the World



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Cultural Formation and Dynamics

• Culture is transmitted in several ways.

– from parent to child, teacher to pupil, social leader to follower…

• Cultural basic value systems are firmly in place by age 10, after which they do not make changes easily.

• Values and customs do change or evolve over time

– Change by choice: reaction to social and economic changes that present new alternatives.

– Change by imposition (imperialism): Countries introduce their legal systems into their colonies by prohibiting established practices.

– Change by contact with other cultures: introduction of some elements of an outside culture cultural diffusion.



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Cultural Formation and Dynamics

• International business increases cultural changes.

• Government limits such businesses to protect their national culture.

• Protection not effective as before because of better international communication.



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Behavioural Practices Affecting Business

• Cultural attitudes and values affect business practices.

• Everything from decisions about what products to sell to decisions about organizing, financing, managing, and controlling operations.

• Examples of cultural aspects are:

a. Social Stratification

b. Work Motivation

c. Relationship Preferences

d. Risk-Taking Behavior

e. Communications



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Social Stratification

• Social stratification refers to a system by which categories of people in society are ranked in a hierarchy.

• All societies are stratified on a hierarchical basis into social categories; known as social strata.

• Strata are defined based on family, occupation, and income.

• Individuals are born into a particular stratum.



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Issues in Social Stratification Ascribed and Acquired Membership

• Ascribed group memberships are defined at birth; they may include – Gender, family, age, class, and ethnic, racial or national origin.

• Acquired group memberships are based on one’s choice of affiliation, such as – Religion, political affiliations, and professional and other

associations.

• Social stratification affects both business strategy and operational practices; for example

– Social stratification affects marketing as most advertisers prefer people who appeal to their target audience.

– Social stratification also affects employment practices; such as hiring, promotion, compensation, and staff-reduction practices.



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Issues in Social Stratification Performance Orientation

• Some nations base a person’s eligibility for jobs and promotions primarily on competence (such as the U.S.), but in others, competence is of secondary importance.

• Nations valuing competence take regulatory steps to prevent discrimination of competent people on the basis of gender, race, age, and religion.

• In other countries, however, individual competence may be of secondary importance.

– In Japan, for instance, seniority or “humaneness” (tolerance of mistakes) often carries significant weight.



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Issues in Social Stratification Open and Closed Societies

• The more egalitarian, or “open,” a society, the less the importance of ascribed membership in determining rewards.

• In closed societies, however, laws may be designed to reinforce or weaken stratification based on ascribed group membership.

– Laws requiring racial or ethnic quotas usually aim to weaken stratification by countering discrimination.

• Ascribed group membership may deny certain groups opportunities, while promoting the interests of other groups.

• Opposition to certain groups may come from other workers, customers, or government officials.



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Racial or Ethnic Quotas

• Malaysia, has long maintained employment quotas for three ethnic groups; Malays, Chinese, and Indians.

• At the time of Malaysia’s independence, the Chinese and Indian minorities dominated business ownership and the professions, respectively.



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Issues in Social Stratification Gender-Based Groups

• Strong country-specific differences exist in attitudes toward the roles of males and females in society and the workplace, as well as the types of jobs regarded as “male” or “female.”

– Saudi Arabia more than 13 men are employed for every woman.

– United States 1.2 men are employed for every woman.

• However, in some parts of the world, barriers gender-based employment practices are coming down, due to changes in both attitudes and work requirements.

– Such as the increase in male nurses in the US.

• As the jobs becomes less physical and more creative and/or technical, relative demand for female employees increases.



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Issues in Social Stratification Age-Based Groups

• Many cultures assume that age and wisdom are related; thus, they often have a seniority-based system of advancement; however, in others, there is an emphasis on youth.

• Still, there is a mandatory retirement age in business.

• Clearly, firms must consider reference groups when deciding whom to hire and how best to promote their products.

• Public opposition to the use of child labour in the employer’s home country, targeting children in TV ads, and prohibiting sales of goods or services based on age.



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Issues in Social Stratification Family-Based Groups

• In some societies, family membership is more important than individual achievement.

• Where there is low trust outside the family, such as in China and southern Italy, small family-run companies are generally quite successful, but they often have difficulty expanding beyond the family.

• When countries rely on these privately owned family businesses; they would finally end up with few large-scale businesses that are necessary for economic growth.

• Family memberships may even affect the quality of education as in the case of the UK (refer to your text page 106-107).



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Characteristic-Based Groups • Gender-based groups

• Male and female roles in society. • Barriers to employment based on

gender.

• Age-based groups • Respect for age. • Seniority-based advancement

systems.

• Family-based groups • Family social status versus an

individual’s achievement.



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Work Motivation

• Employees who are motivated to work long and hard are generally more productive than those who are not.

• On an aggregate basis, this will have a positive effect on economic development and national competitiveness.

• Studies show substantial differences in how and why people in different nations are motivated to work.

– Materialism

– Expectation of success and reward

– Need Hierarchy



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Work Motivation Materialism and Motivation

• The desire for material wealth is – Prime motive for work.

– Positive for economic development.

• The Productivity/Leisure Trade-Off – Some cultures place less value on leisure time than others.

– People work longer hours, take fewer holidays and vacations, and, in general, spend less time and money on leisure activities.

• In a study of the 30 OECD countries, France and the United States offer an example of contrast.

– France has the longest mandated vacation (30 days), and the French spend the longest average time per day eating and drinking (135 minutes) and sleeping (530 minutes).

– In the United States, there is no mandated vacation, and Americans spend only an average of 74 minutes per day eating and drinking, and 518 minutes sleeping.



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Work Motivation Expectation of Success and Reward

• Two factors that motivate attitudes toward work are:

– The perceived likelihood of success

– The reward from success versus failure.

• The greatest enthusiasm for work exists when high uncertainty of success is combined with the likelihood of a very positive reward for success and little or none for failure.



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Work Motivation Hierarchies of Needs

• Maslow’s hierarchy of needs states that people will try to fulfill lower-order physiological needs before satisfying (in order) their security, affiliation, esteem, and self-actualization needs.

• This theory can be especially helpful for differentiating the reward preferences of employees in different countries, who may likely rank some of their higher-order needs differently.



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The Hierarchy of Needs and Need- Hierarchy Comparisons

The pyramid on the left represents the five-level hierarchy of needs formulated by Maslow.

The two block pyramids on the right (a, b) represent two different groups of people—say, the populations of two different countries.

Note that the block representing affiliation needs (level 3) is wider in (b) than in (a); conversely, the block representing self-actualization needs (level 5) is wider in (a) than in (b).

In other words, even if we rank various needs in the same order (or hierarchy), the people in one country may regard a given higher-order need as more important (wider) than do people in another country.



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Satisfying Needs!



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Relationship Preferences Power Distance

• Power distance describes the relationship between superiors and subordinates.

• When power distance is high, the management style is generally distant, i.e., autocratic (domineering).

• When power distance is low, managers tend to interact with and consult subordinates as part of the decision-making process.

• Examples of countries ranking relatively high on power distance are Brazil, France, and Malaysia; those ranking relatively low are Austria, Japan, and the Netherlands.



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Relationship Preferences Individualism

• Individualism is the trait that indicates a person’s desire for personal freedom, time and challenge and one’s low dependence on the organization; self-actualization is a prime motivator.

• On the other hand, collectivism indicates a person’s desire for training, collaboration and shared rewards, i.e., one’s high dependence on and allegiance to the organization.

– For example, Americans tend to be individualistic, while the Japanese tend to be collectivist.



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Risk-taking Behaviour

• Uncertainty Avoidance describes one’s acceptance of risk.

– When the score is high, people need long-term assurances.

– When the score is low, people are willing to accept the risk of trying new products or moving to new jobs.

• Trust represents one’s belief in the reliability and honesty of another.

– Where trust is high, there tends to be a lower cost of doing business.

• Fatalism represents the belief that events are predestined.

– Such a belief may discourage people from working hard to achieve an outcome or accepting responsibility.



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Communications Spoken and Written Language

• Translating one language into another can be very difficult

– Some words do not have a precise translation

– Meaning of words is constantly evolving

– Words may mean different things in different contexts

– A slight misuse of vocabulary or word placement may change meanings substantially.

• France: “Please leave your values at the desk”

• Mexico: “The manager has personally passed all the water served here”

• Norway: “Ladies are requested not to have children in the bar”

• Greece: “We will execute customers in strict rotation”

– Further, while jokes and laughter have universal appeal, much humor does not.



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Dangers of Misspeaking the Language(s) of Business



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Communications Silent Language

• Silent language incorporates the wide variety of nonverbal cues through which messages are sent—intentionally or unintentionally.

– Color associations

– Distance between people during conversations

– Perception of time and punctuality

– A person’s perceived prestige

– Body language



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Strategies For Dealing With Cultural Differences Making Little or No Adjustment

• Host Society Acceptance

• If products and operations do not run counter to deep-seated attitudes, or if the host country is willing to accept foreign customs as a trade-off for other advantages, significant adjustments may not be required.

• Degree of Cultural Differences

• Cultural distance represents the degree of similarity between two societies.

• Some countries are relatively similar to one another.



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Strategies For Dealing With Cultural Differences Culture Shock

• Culture shock represents the trauma one experiences in a new and different culture.

• Reverse culture shock occurs when people return home, having accepted the culture encountered abroad and discovering that things at home have changed during their absence.



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Dealing With Cultural Differences

• Be tolerant of differing perceptions of time

• Be sensitive to accurate translations

– Spoken

– Silent

– Written

• Culture shock and reverse-culture shock.



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Language Strategies

• Get references for translators

• Ensure the translator is familiar with technical vocabulary for the business

• Do a back translation

• Use simple words

• Avoid slang

• Repeat words and ask questions

• Expect the extra time communication will take



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Further Case Studies

Prepared by: Dr. Mootaz Mamdouh

Extracted from: Charles W. L. Hill, “International Business: Competing in the Global Marketplace”, 9th Edition, McGraw-Hill, 2013.



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Case: DMG-Shanghai (Connections in China)

• China has gone from economic backwater to economic super power.

• Multinational companies are keen to do business in china.

• Guanxi concept means relationships or connections and Guanxiwang means relationship network.

• The stronger the connections the easier you can do business in China.

• In 1993, Newyorker Dan Mintz moved to china as freelance film director with no contacts, no advertising experience, and no chinese skills.



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• By 2006 DMG had emerged as one of china’s fast growing advertising agencies.

• Mintz attributes his success to Guanxiwang.

• Mintz who is now fluent in chinese cultivated his Guanxiwang by doing business with 2 young people.

– The first one was a former gymnastics championship.

– The second one comes from a military family that has major political connections.

• The three of them was able to open doors that many western companies failed to do so.



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• They Shoot TV spots for a VW cars on Shanghai’s famous Bund (A congested boulevard that runs along the water front of the old city)

• They were able to shut down the bund to make the shoot.



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Case : Matsushita (Panasonic) and Japan’s Changing Culture

• Established in 1918 the consumer electronics Matshushita was one of the giant companies that contributed to Japan economic growth during 1970s and 1980s.

• The company applied basic Japanese values based on group identification, reciprocal obligations and loyalty to the company.

• At Matshushita employees were taken care by the company from “cradle to the grave”.

• Company gives employees wide range of benefits like lifetime employment, cheap housing and seniority based pay systems.

• In return, company get hard work and loyalty from employees.



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• Observers says that the generation born in 1964 lacked the same commitment to traditional Japanese values as their parents.

• They grew up in a richer environment were western ideas were beginning to spread and possibilities seemed greater.

• In 1990’s the Japanese entered a prolonged economic decline, companies started to lay off old workers.

• The new generation have seen that loyalty to the company has not been reciprocated.

• In 1998, Matsushita have began to modify its policy after years of poor performance and it laid off old workers.




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• Kunio Nakamura has became the C.E.O in 2000. He worked before as a manger for Matsushita in USA.

• He changed the bonus system from seniority based system to performance based system.

• He aimed the lifetime employment and developed new systems giving the new employees 3 recruitment options.

• In response to poor performance, Nakamura announced he would close 30 factories in Japan cut 13,000 jobs including 1,000 managers and sell a huge amount of assets over 3 years time. (No life time employment any more)

• After significant losses in 2002, the company broke even in 2003 and started to make profit in 2004.




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