IMR 300 – Lecture 4

The Cultural environment of global markets

The Political environment

The International legal environment

The Cultural Dynamics

Culture

Affects every part of our lives, every day from birth to death

How we spend money How we consume in general How we sleep Laws and age limits Production

How we sleep

USA – alone Asia – with parents

How we consume in general

France – moderate – wine Japan – sea – seafood Mongolia – nomads – meat

Laws and age limits

Laws against alcohol Liver cancer

Spain – tobacco – lung cancer

Origins elements and consequences of culture

Origins

Consequences

Geography

History

Technology and political economy

Social institutions

Peers Elements of culture

Consumption decisions and behaviors

Management style

A Cultural Framework (Elements)

Religion

In China in 2007 (which was the year of the pig) all advertising which included pictures of pigs was banned. This was to maintain harmony with the country's Muslim population of around 2%.

Religion

In 2005 France's Catholic Church won a court injunction to ban a clothing advertisement (by clothing designers Marithe and Francois Girbaud) based upon Leonardo da Vinci's Christ's Last Supper.

Values and Attitudes In 2004, China banned a Nike television commercial

showing U.S. basketball star LeBron James in a battle with animated cartoon kung fu masters and two dragons, because it was argued that the ad insults Chinese national dignity.

Values and Attitudes In 2006, Tourism Australian launched its ad campaign

entitled "So where the bloody hell are you?" in Britain. The $130 million (US) campaign was banned by the British Advertising Standards Authority from the United Kingdom.

Education

In the People's Republic of China a nationwide system of public education is in place, which includes primary schools, middle schools (lower and upper), and universities. Nine years of education is compulsory for all Chinese students.

Technology and Material Culture

Trevor Baylis launched the clockwork radio upon the African market. Since batteries were expensive in Africa and power supplies in rural areas are non-existent. The clockwork radio innovation was a huge success.

Trompenaars' cultural factors

Fons Trompenaars is another Dutch culturalist who is into international culture.

Teamed with Charles Hampden-Turner (a dilemma enthusiast), they talk these days not so much of country stereotypes as the need to understand individuals

Trompenaars' cultural factors

1. Universalism vs. Particularism

2. Analyzing vs. Integrating

3. Individualism vs. Communitarianism

4. Inner-directed vs. Outer-directed

5. Time as sequence vs. Time as synchronization

6. Achieved status vs. Ascribed status

7. Equality vs. Hierarchy

Hofstede's cultural factors

   Geert Hofstede, a Dutch cultural anthropologist, analyzed cultures along five dimensions.

He rated 58 countries on each dimension on a scale from 1 to 100.

Hofstede's cultural factors

1. Power: Power Distance (PD or PDI). Malaysia, Panama, and Guatemala rated the highest in this category. The US was 38th.

2. Self: Individualism versus Collectivism (ID or IDV). The US was number 1 here, closely followed by Australia and Great Britain.

3. Gender: Masculinity versus Femininity (MAS). Japan led the list, followed by Austria and Venezuela. The US was 15th.

Hofstede's cultural factors

4. Predictability: Uncertainty Avoidance (UA or UAI). Greece was number 1, followed by Portugal and Guatemala. The US was 43rd.

5. Time: Long- versus Short-term Orientation (LTO). China led this dimension, followed by its oriental colleagues, Hong Kong and Taiwan. The US was 17th.

Hall's cultural factors

 Edward T. Hall was an anthropologist who made early discoveries of key cultural factors.

In particular he is known for his high and low context cultural factors.

Hall's model: Context

High context: 'unwritten rules' of the culture. Low context

Contrasting the two France: short (high-context) America: longer contracts content (low-context)

Hall's model: Context

Highly mobile environments where people come and go need lower-context culture.

With a stable population, however, a higher context culture may develop.

Hall's model: Time

Monochronic time: One thing at a time. Time management Low context

Polychronic time: Several things at a time. getting things done more in their own time. high context.

Hall's model: Space

Personal space is an example of a mobile form of territory

A Japanese person who needs less space thus will stand closer to an American, inadvertently making the American uncomfortable

Some people need bigger homes, bigger cars, bigger offices - driven by cultural factors, for example the space in America needs to greater use of space, whilst Japanese need less space (partly as a result of limited useful space in Japan).

Hall's model: Space

High territoriality Some people are more territorial where co-workers, or many wars Territoriality also extends to anything that is

'mine' and ownership concerns extend to material things.

Security thus becomes a subject of great concern for people with a high need for ownership.

People high territoriality tend also to be low context.

Hall's model: Space

Low territoriality

Less ownership of space and boundaries are less important.

Sense of 'stealing' is less developed (this is more important for highly territorial people).

People with low territoriality tend also to be high context.

Cultural knowledge

Factual – a straightforward fact about culture Interpretive – requires a degree of insight

Cultural sensitivity and Cultural empathy Cultures are not right or wrong, better or

worse – They are simply different

Cultural change

Cultural borrowing

Cultural change

Resistance to change The degree of resistance to new

Cultural change

Planned and unplanned cultural change Relative Advantage: Significant improvement Simplicity: easy to understand Easy to Try: easy to introduce as well as easy to

abandon Easy to Measure: easy to measure the benefits,

in money, time, efficiency or some other evaluation measure

Inexpensive

Cultural Adaptation

Cultural imperatives Electives Exclusive

Management objectives and aspirations

Security and mobility Personal life Affiliation and acceptance Power and achievement

Bribery: variations on a theme

Bribery: voluntary offered payment by someone seeking unlawful advantage

Extortion: someone in authority

Lubrication: small sum of cash, a gift Subornation: request for officials to turn their

heads, to not to do their jobs /frequently/

Dimensions of culture, synthesis

Information Oriented Low context Individualism Low power distance Bribery less common Low distance from English Linguistic directness Monochronic time Internet Foreground Competition

Relationship Oriented High context Collectivism High power distance Bribery more common High distance from English Linguistic indirectness Polychronic time Face-to-face Background Reduce transaction costs

The Political Environment

The Political Environment

The sovereignty of nations Stability of government policies (In Italy:

more than 50 different governments since World War II – business goes as usual; In India: hostile to foreign investments)

Forms of government

Ancient Greeks Rule by one Rule by few Rule my many

Today Monarchy (Dictatorship) Aristocracy (Oligarchy) Democracy

The Political Environment

Political parties Nationalism Targeted fear/ animosity Trade disputes

Political risk of global business

Confiscation: the seizing of a company’s payment without payment /1950s and 1960s/

Expropriation: the government seizes the investment but some reimbursement for the asset

Domestication: the transfer of foreign investments to national control

Economic risks

Exchange controls Local content laws /Thailand: 50% milk from

local farmers/ Import restrictions Tax controls Price controls Labor problems /layoff is forbidden, profits

may have to shared/

Assessing political vulnerability

Politically sensitive products and issues

Effect on environment Exchange rates National and economic security Welfare of people

Failed States Index 2010

Least risky countries, Score out of 100

Source: Euro-money Country risk March 2008

Rank Previous Country Overall score

1 1 Luxembourg 99.88

2 2 Norway 97.47

3 3 Switzerland 96.21

4 4 Denmark 93.39

5 5 Sweden 92.96

6 6 Ireland 92.36

7 10 Austria 92.25

8 9 Finland 91.95

9 8 Netherlands 91.95

10 7 United States 91.27

MNC are generally positive when

Improves the balance of payment Uses locally produced resources Transfers capital, technology and skills Creates jobs Makes tax contributions

Strategies to minimize political risks

Joint ventures Expanding the investment base Licensing Planned domestications Political bargaining Political payoffs

The international legal environment

Bases for legal systems

Common law Code law Islamic law Socialist law

Common law

the system in effect in the U.S., is based on a legal tradition of precedent. 

Each case that raises new issues is considered on its own merits, and then becomes a precedent for future decisions on that same issue. 

Code law

which is common in Europe, cannot come up with innovative solutions

when new issues such as patentability of biotechnology come up. 

Islamic law

based on the teachings of the Koran, which puts forward mandates such as a

prohibition of usury, or excessive interest rates. 

Attorneys may be consulted about what might please God rather than what is an explicit requirements of the government.

Socialist law

based on the premise that “the government is always right”

and typically has not developed a sophisticated framework of contracts (you do what the governments tells you to do) or intellectual property protection (royalties are unwarranted since the government ultimately owns everything). 

International dispute resolution

Conciliation Arbitration Litigation

Protection of intellectual property

A special problem Counterfeiting and piracy

Bayer AG - Aspirin

German chemical company In Russia:

Russia’s Patent office registered its trademark to the word aspirin

Popular use First manufacturer

In USA Generic name: acetylsalicylic acid Sterling Winthrop owned Bayer trademark US confiscated domestic assets of Bayer AG after WWI Bought from Kodak in 1994

International conventions

The Paris Convention for the Protection of Industrial Property

The Inter- American Convention The Madrid Arrangement

Commercial law

Marketing laws: marketing activities in production, promotion, labeling, pricing, channels of distribution

Green marketing legislation Antitrust