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OMGF > 2 - Country Factors: National Differences in Culture > Flashcards

2 - Country Factors: National Differences in Culture Flashcards

1
Q

ch. 2.1 Elements of “Country Attractiveness” (hard facts)
Overview.
What we analyze?
How we analyze?

A
  • Analysis of Foreign Markets: Model (PESTEL)
  • Analyzing country attractiveness: Country analysis (hard facts)
    • Benefits, costs and risks
    • Evaluating Country Differences
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2
Q

ch. 2.1 Elements of “Country Attractiveness”

Analysis of Foreign Markets: Model (PESTEL)

A 
P – Political
E – Economic
S – Social
T – Technological
E – Environmental
L – Legal

More in depth:

Political and regulatory:

  • Government Stability
  • Taxation Policy
  • Foreign Trade Regulations

Economical and Legal:

  • Disposable Income
  • Inflation and Interest Rates
  • Unemployment Rate
  • Laws and regulations

Socio-cultural

  • Population Demographics
  • Lifestyle changes
  • Education Levels

Technological

  • Government Spending on basic research
  • Speed of technology transfer
  • Technology spillovers from other industries

Environmental
Industry and competitive Environment

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3
Q

ch. 2.1 Elements of “Country Attractiveness”

Conceptualization of Country analysis

A
  • Analyzing relevant country factors using professional tools
  • Identifying those countries that offer the highest probability of success with regard to potential foreign activities of the corporation.

Two perspectives:

  • Economic perspective
    • identifying those countries that offer highest marginal benefit at a given level of resource deployment
  • Contingency-theoretical perspective
    • Identifying those countries where the strategic goals of the corporation’s internationalization can be realized best
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4
Q

ch. 2.1 Elements of “Country Attractiveness”

Steps of Country analysis

A
  1. Dimensions and elements of country attractiveness
  2. Collecting relevant information
  3. Tools for assessing country factors
  4. Decision making
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5
Q

ch. 2.1.1
What are the dimensions and elements of country attractiveness?
What dimensions should we minimize/maxime?
Enumerate some elements of each dimension.

A

3 dimensions:

  • Benefits (Maximize)
  • Costs (Minimize)
  • Risks (Minimize)

Elements of the dimensions:

Benefits:

  • Market growth
  • Market size
  • Profitability
  • Price level

Costs

  • Corruption
  • Lack of infrastructure
  • Legal costs

Risks

  • Commercial Risk
  • Currency Risk
  • Country Risk
  • Cross-Cultural Risk
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6
Q

ch. 2.1.1

What are the sources of Country Risk?

A

Political and Legal System.

Political System:
A set of formal institutions that constitute a government
- Government
- Political parties
- Legislative bodies
- Lobbying groups
- Trade unions
- Other political institutions
Legal System: 
A system for interpreting and enforcing laws, regulations, and rules that aim to:
- Ensure order in commercial activities
- Resolve disputes
- Protect intellectual property
- Tax economic output
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7
Q

ch. 2.1.2 Evaluating Country Differences

Overview

A
  • Collecting relevant information
  • Tools for assessing country factors
  • Example Checklist: The use of checklists to assess country factors
  • Example Scoring Model: Business Environment Risk Index (BERI)
  • Example Scoring Model: International Country Risk Guide (ICRG)
    Criticism of Scoring Models
  • Example Sequential Appraisal: Assessment of Country Factors
  • Decision making
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8
Q

ch. 2.1.2 Evaluating Country Differences

Types of information

A
  • Qualitative
  • Quantitative
    • Objective
    • Subjective
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9
Q

ch. 2.1.2 Evaluating Country Differences

Sources for country qualitative information

A

Official/state institutions

  • Chamber of Foreign Trade
  • Department of Foreign Affairs
  • OECD, etc.

Private institutions:

  • market research agencies (e.g. Germany Trade and Invest, Cologne),
  • Industry survey institutes (e.g. FAZ-Institute)
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10
Q

ch. 2.1.2 Evaluating Country Differences

Sources for country quantitative information

A

Key indicators about GDP-development, inflation rates, trade balances, etc, compiled by:

  • Census Bureau
  • UNPD
  • UNCTAD

Objective data compiled by e.g.

  • Census Bureau,
  • UNPD
  • UNCTAD

Subjective data compiled by e.g.

  • country rankings by Moody’s
  • Standard&Poor
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11
Q

ch. 2.1.2 Evaluating Country Differences

Tools for assessing country factors

A
  • Checklists
  • Scoring models
  • Sequential appraisal
  • Portfolio analysis
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12
Q

ch. 2.1.2 Evaluating Country Differences

Tools for assessing country factors: Checklists

A

Catalog of decision-relevant criteria which have to be fulfilled in a specific country for launching corporate activities

Differentiate between

  • environmental-geographic,
  • social-cultural,
  • political-legal,
  • economic
  • indicators with major effect on the firms internationalization process
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13
Q

ch. 2.1.2 Evaluating Country Differences

Tools for assessing country factors: Example for Checklists

A

Natural-geographic conditions

  • Size of country
  • Geographic location of the country
  • Climate
  • Natural resources
  • …

Socio-cultural conditions

  • Language(s) and symbols
  • Education level
  • Attitude towards foreigners
  • Lifestyle(s)
  • …

Political-legal conditions

  • Political system
  • Legal system and legal practice
  • Level of corruption
  • Political stability
  • …

Economic conditions

  • Economic system
  • Infrastructure
  • Per-capita-income
  • Market volume
  • …
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14
Q

ch. 2.1.2 Evaluating Country Differences

Tools for assessing country factors: Scoring models

A

Weighted assessment, scoring, ordering, evaluation:

  • Assess country factors by using a composition of weighted evaluation criteria
  • Allocate scores according to a country’s individual characteristics
  • Rank the countries according to their scores to get them in a factually correct order
  • Use evaluation criteria which are both critical for firms foreign performance and easy to detect

Criticism of Scoring Models
 Selection of criteria is subjective
 Weighting of coefficients is subjective
 Evaluation of factors is subjective
 Determination of boundary values is subjective
 Not all variables are independent of each other
 Examines only global factors and no industry-specific factors
 Not available for every country
 Expensive

 Additional analysis is IMPORTANT
 Nevertheless scoring models will assist the firm in identifying risks to businesses in unknown and increasingly complex environment

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15
Q

ch. 2.1.2 Evaluating Country Differences

Example for scoring models

A
  • Business Environment Risk Index (BERI)
    • Operations Risk Index (ORI)
    • Political Risk Index (PRI)
    • Remittance and Repatriation Factor (R-Factor)
  • International Country Risk Guide (ICRG)
    • Political Risk Index
    • Financial Risk Index
    • Economic Risk Index
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16
Q

ch. 2.1.2 Evaluating Country Differences

Tools for assessing country factors: Sequential appraisal

A

Country elimination through thresholding:

Filter countries in some selection state. Start with lots of them, and gradually eliminate them.
For further stages, the more information is needed to apply elimination

  • Build a ranking of criteria that evaluate the advantageousness of corporate activities in a foreign country
  • Define a critical min/max-threshold for each criterion
  • Rank the criteria according to their relevance and evaluate each country according to its individual
    characteristics
  • Dismiss countries piecewise who exceed a threshold
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17
Q

ch. 2.1.2 Evaluating Country Differences

Sequential appraisal example

A

A sequential three-stage evaluation model:

  1. Selection Stage:
    Markets that are filtered out by restrictions (must-have)
  2. Selection Stage
    Markets that are filtered out by several pre-defined selection criteria
  3. Selection Stage
    Markets that remain for further market cultivation
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18
Q

ch. 2.1.2 Evaluating Country Differences

Tools for assessing country factors: Portfolio analysis

A

General assumption of a connection between the
opportunities and risks of corporate activities in a foreign country

Select two key criteria;

  • one that stands for a critical source of risk and
  • one that indicates a mayor source of opportunity for the corporation s foreign activities

Form a 2x2-matrix and allocate the countries into the fields according to their individual risk/opportunity-profile

19
Q

ch. 2.1.2 Evaluating Country Differences

Portfolio analysis example

A

Growth-potential versus risks of Asian markets

That Graph of:
Yearly growth rate x Investment risk x GDP

20
Q

ch. 2.1.2 Evaluating Country Differences

Decision making

A

The adoption of tools for assessing country factors offers an important point of reference for the corporation’s internationalization decision

In order to come to a final conclusion and decision which country qualifies best for going international, further determinants are to consider

Beside country culture issues (soft facts), for the final decision making a systematic consideration of the firm s external environment as well as its internal resources is particularly required:

  • External strategic analysis
  • Internal strategic analysis
21
Q

ch. 2.1.2 Evaluating Country Differences

External strategic analysis

A

Analysis of the firm s external environment that can be structured into:

  • Macro-environment (all factors in a market that directly or indirectly restrict the scope of actions and cannot be influenced or controlled by the firm) via the PESTEL-Analysis
  • Industry structure (via the Porter s 5-Forces)
  • Competitors and industry dynamics (via strategic groups)
22
Q

ch. 2.1.2 Evaluating Country Differences

Internal strategic analysis

A

Analysis of the firm s value creation and firm specific-resources using:

  • Value Chain Model to identify potential competencies within the firm s value chain architecture
  • Network Analysis Techniques to identify potential competencies at value chain interfaces
  • VRIO-Concept to evaluate core competencies and to identify firm-specific strength and weaknesses
23
Q

ch. 2.2 Country Factors: National Differences in Culture (soft facts)
Overview

A

Culture analysis (soft facts)

  • Relevance of Culture and its Terminology
  • Components and Dimensions of Culture
  • Cross-Cultural Study of Hofstede

can be organized in four steps:

  1. Defining culture & relevance of culture
  2. Assessing relevant determinants of culture
  3. Assessing pos./neg. cultural effects
  4. Decision making
24
Q

ch. 2.2.1 Relevance of Culture and its Terminology Overview

A
  • Culture as an Important Contextual Factor for International Management
  • What is Culture
  • Culture is consist of several Layers: “The Culture-Onion”
  • Determinants of Culture
25
Q

ch. 2.2.1 Relevance of Culture and its Terminology Why is culture an important contextual factor for the international corporation?

A
  • Corporate operations in the home country are not aware of cultural influences in their own society (due to commonly held values)
  • Only when there are cultural overlaps due to international operations, cultural influences become visible. Approved patterns of behavior fail to work, corporate performance is at risk.

Problem: missing fit between situation and corporate activity

26
Q

ch. 2.2.1 Relevance of Culture and its Terminology

What is Culture?

A

A system of values and norms that are shared among a group of people and that when taken together constitute a design for living

Consequences:

  • Measuring culture is difficult
  • “Managing” culture is a challenge
  • Only some elements of culture are observable
27
Q

ch. 2.2.1 Relevance of Culture and its Terminology

What’s “The Culture-Onion”?

A

Culture is consist of several Layers:

from outside to inside:

Visible:
5 - symbols (e.g. red cross)
4 - heros (i.e. M. Schuhmacher)
3 - rituals (i.e. bargaining, business meetings)

Invisible
2 - values and norms freedom, truth)
1 - basic assumptions (i.e. mutual dependency)

28
Q

ch. 2.2.1 Relevance of Culture and its Terminology

What are the determinants of Culture?

A

Culture Norms and Values System

  • Economic Philosophy
  • Political Philosophy
  • Social Structure
  • Religion
  • Language
  • Education
29
Q

ch. 2.2.2 Components and Dimensions of Culture

Overview

A

Culture Norms and Values System

  • Economic Philosophy
  • Political Philosophy
  • Social Structure
  • Religion
  • Language
  • Education
30
Q

ch. 2.2.2 Components and Dimensions of Culture

Norms dimensions

A

Folkways (costumes)

  • Routine conventions of everyday life
  • Little moral significance
  • Generally, social conventions such as dress codes, social manners, and neighborly behavior

Mores (Morals?)

  • Norms central to the functioning of society and its social life
  • Greater significance than folkways
  • Violation can bring serious retribution (i.e. theft, adultery, incest and cannibalism)
31
Q

ch. 2.2.2 Components and Dimensions of Culture

Social structure dimensions

A

The social structure of a society refers to its basic social organization
Two dimensions are particularly important:

1) The extent to which society is group or individually oriented
2) Degree of stratification into castes or classes

32
Q

ch. 2.2.2 Components and Dimensions of Culture

Social structure: Individual vs. group orientation

A
  • Group societies see groups as the primary unit of social organization
  • Group membership bases on deep emotional attachments and becomes very important
  • Emphasis on the group can be both beneficial and harmful
    • Strong group identification creates pressure for mutual self-help and collective action
    • Reduces work mobility
    • Discourages entrepreneurship
33
Q

ch. 2.2.2 Components and Dimensions of Culture

Social structure: Social stratifaction

A
  • Social stratification refers to the fact that all societies are stratified on a hierarchical basis of social categories
  • Strata are typically defined on the basis of characteristics such as family background, education, and income
  • Societies are all stratified to some degree but they differ in two related ways:
    • Social mobility: refers to the extent to which individuals can move out of the strata into which they are born
    • Significance: the extent to which the stratification of a society affects the operation of business organizations
34
Q

ch. 2.2.2 Components and Dimensions of Culture

Religion

A
  • Shared beliefs and rituals concerned with the realm of the sacred
  • Ethical Systems: Moral principles or values used to guide and shape behavior
  • Shapes attitudes toward work and entrepreneurship and can affect the cost of doing business
35
Q

ch. 2.2.2 Components and Dimensions of Culture

Education

A

Formal education plays a key role in a society

  • Formal education: the medium through which individuals learn many of the languages, conceptual, and mathematical skills that are indispensable in a modern society
  • Supplements the family’s role in socializing the young into the values and norms of a society and the obligations of citizenship
  • Cultural norms are also taught indirectly at school
    • Examples include: respect for others, obedience to authority, honesty, neatness, being on time
    • Part of the “hidden curriculum”
  • The use of a grading system also teaches children the value of personal achievement and competition
36
Q

ch. 2.2.3 Cross-Cultural Study of Hofstede

Overview

A 
Culture and the Workplace: Hofstede’s Findings
Hofstede’s 6 Cultural Dimensions
- Power Distance (PDI)
- Individualism versus Collectivism (IDV)
- Masculinity versus Femininity (MAS)
- Avoidance of Uncertainty (UAI)
- Long-term Orientation (LTO*)
- Indulgence versus restraint (IVR**)

The first 4 are the most important

  • ) was added later on
  • *) was most recently (2010) added
37
Q

ch. 2.2.3 Cross-Cultural Study of Hofstede

Hofstede’s First Cultural Dimension: Power Distance (PDI)

A

PDI

The extent to which the less powerful members of organizations and institutions within a country accept that power is distributed unequally

Culture with high power distance:

  • Privileges for powerful people
  • Demonstration of own power
  • Acceptance of privileges and status symbols (esp. from the less privileged members of the society)

Culture with lowe power distance (DE,GBR):

  • equal rights for everybody
  • trivialisation of own power
  • dislike of status symbols
38
Q

ch. 2.2.3 Cross-Cultural Study of Hofstede

Hofstede’s Second Cultural Dimension: Individualism vs. Collectivism (IDV)

A

IDV

the degree to which the people of a certain society define themselves as independent individuals rather than as members of a group

Individualistic cultures (GBR,FR,IT,USA,CA,AU)

  • individual identity
  • children learn to think of themselves as “I”
  • own interests above collective interests

Collectivist cultures (CL,KO)

  • identity through social networks
  • children learn to think in terms of “we”
  • dominance of collective interests over personal interests
39
Q

ch. 2.2.3 Cross-Cultural Study of Hofstede
Hofstede’s Third Cultural Dimension: Masculinity vs. Femininity
(MAS)

A

MAS

measures the division of roles between the sexes

Masculine Societies (JP)

  • competitive
  • achievement oriented
  • self-confident
  • dealing with conflicts
  • sanctions against non-conformant behavior

Feminine Societies (CL)

  • team-oriented
  • soft skills
  • seeking consensus
40
Q

ch. 2.2.3 Cross-Cultural Study of Hofstede
Hofstede’s Fourth Cultural Dimension: Avoidance of Uncertainty
(UAI)

A

UAI

the degree to which the members of a culture feel threatened by uncertain or unfamiliar situations

High Avoidance of Uncertainty (BR,FR,KO,…)

  • being different/ strangeness –> dangerous
  • weak ambiguity tolerance
  • attempt to control the future
  • many laws, rules, regulations of conduct, safety and protective measures
  • intolerance against abnormal behavior
  • risk averse
  • resistance to innovation

Low Avoidance of Uncertainty (GBR, IN)

  • high ambiguity tolerance
  • open-mindedness towards innovation being different/ strangeness –> interesting
41
Q

ch. 2.2.3 Cross-Cultural Study of Hofstede

Hofstede’s Fifth Cultural Dimension: Long-term / Short-term Orientation (LTO)

A

LTO

extent to which a society is “future-oriented”

Long-term orientation (ASIAN)

  • future is “more important” than the past
  • great persistence in pursuing goals
  • high tendency to save and to invest
  • respect towards status-oriented hierarchy
  • pronounced feeling of shame

Short-term orientation (USA)
- presence/past is “more important” than the future
- personal endurance and stability
expectance of immediate results
- low saving ratio and tendency to invest
- respect towards tradition
- keeping “face”
- greeting forms resting on reciprocity, gifts and favors

42
Q

ch. 2.2.3 Cross-Cultural Study of Hofstede

Hofstede’s Sixth Cultural Dimension: Indulgence versus restraint (IVR)

A

IVR

extent to which a society is “enjoying life and having fun” versus “regulated by strict social norms”

Indulgence

  • Higher percentages of very happy people
  • A perception of personal life control
  • Higher importance of leisure
  • Higher importance of having friends
  • Thrift is not very important
  • Less moral discipline
  • Positive attitude and higher optimism
  • Higher percentages of people who feel healthy

Restraint orientation (DE)

  • Lower percentages of very happy people
  • A perception of helplessness: what happens to me is not my own doing.
  • Lower importance of leisure
  • Lower importance of having friends
  • Thrift is important
  • Moral discipline
  • Cynicism and more pessimism
  • Lower percentages of people who feel healthy
43
Q

ch. 2.2.3 Cross-Cultural Study of Hofstede

Exemplary Illustration of Cultural Affected Forms of Organization

A

Uncertainty Avoidance vs Power Distance

High Uncertainty Avoidance:
low Power Distance: Well-oiled machine (Germanic)
High Power Distance: Traditional bureaucracy “pyramid of people” (Latin)

Low Uncertainty Avoidance:
low Power Distance: Village market (Anglo/Nordic)
High Power Distance: Family or tribe (Asian)

44
Q

ch. 2.2.3 Cross-Cultural Study of Hofstede

Evaluation of Hofstede’s Study

A

Strengths

  • Huge data base
  • Stability of cultural values
  • Values easy to operationalize
  • Follow-up studies resembled Hofstede’s findings
  • Most-cited cultural study

Weaknesses

  • Respondents worked within a single company (moreover IBM had a strong corporate culture)
  • Research may be culturally bound (survey questions resemble “Western perceptions”)
  • Work is beginning to look outdated (1967-1973; 1993)
  • Assumption of one-to-one relationship between culture and nation-state
  • Important extentsion: GLOBE study, Trompenaar‘s study.

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