Exam 2 Flashcards
The business environment in a foreign country is very different from domestic environment, a major factor is
political system
Types of political systems
democracy, totalitarianism (communism)
Political Risk Analysis are used to
predict future business environments in the monitored counties where the MNC is currently doing business, screening device to avoid an investment or divestment and to improve the accuracy of Net Present value calculations for foreign projects.
Political Risk is defined as
the risk of drastic changes in a country’s business environment which is caused by the political instability.
Political Risk Factors:
Confiscation, expropriation, blockage on the fund flow, breach of contract, freezing of assets, operational restrictions and heavy taxes.
Political Risk Macro will
influence all foreign operations in the host countries such as nationalization of all foreign operation in the country.
Political Risk Micro will
influence only some specific firms or specific industry.
Techniques to assess political risk are
checklist approach, Delphi Tech, Quantitative analysis, inspection visits - this method may the best to make a final confirmation made by one of the other methods.
The most severe form of political risk is
host government takeover
There are several strategies to reduce political risk exposure to a host government takeover
Short-Term Horizon: shorten payback period, gradually divest to local government or investors.
Differentiate Technology: Unique technology that can’t be duplicated locally or internationally.
Hire Local Labor and manager:
Maximize local financing:
Purchase Insurance: OPIC
Inverted U-Curve Theory is defined
on a continuum from very low levels of economic development to very high levels of economic development, the pattern of political instability resembles an inverted U with instability peaking in the middle stages of development.
Any political system needs an economic system to solve two major economic problems
how to produce and how to distribute
Two broad economic systems are
Market Economy - Supply & Demand and Command Economy - Government decided
The problems that developed with Socialism and Communism were
insufficient and efficient production, lack of incentives to work hard and low level of output.
The problems that developed with Capitalism were
inequitable distribution. The richer get richer and the poorer get poorer.
Cultural Intelligence is defined as
an ability to deal with the people from different cultures.
Surf Culture is
the visible part such as clothes and food.
Sub Culture is
the invisible part such as attitudes, perceptions and assumptions.
Definition of Culture
Culture is the various aspects of society (such as rituals, symbols, rules, beliefs & artifacts) that distinguish the members of the society from the members of another society.
Hofstede provided the Onion Diagram which categorizes cultural differences in 4 terms
Values, Rituals, Heroes, and Symbols
Symbols…
words, jargon, flags, status symbols, brand names, clothes, hair, colors
Heros…
sports, music, historical people, cartoon heroes, mother, father
Rituals…
small-talks, greetings, agreeing or disagreeing
Values are
the CORE of culture. They are taught in early childhood and most important for one’s decision what is right or wrong.
______ and culture are inseparable. It is the primary means by which a culture transmits its beliefs, values and norms.
Language
The Sapir-Whorf hypothesis proposes that
language not only serves as a mechanism to transmit the perception that people but also influences people’s perceptual process.
Number of sources of inefficient and clear communication
Incompatible language, encoding and decoding, past experiences, communication patterns tone or voice, silence, source of metaphors, preferred topics.
Attitude is a significant element in culture. Some noticeable differences associated with attitude are
Time, Wealth Accumulation, Gender, Giving of Gifts, Age and Group Membership: Ascribed membership is given at birth by religion, region or hereditary social class. Acquired: after birth education and political party.
Some countries may consider gift giving as a way to invest in a relationship for the future, whereas in the US, it is perceived to be an
illegal bribe.
High Context vs. Low Context: Context is
the information that surrounds a communication and helps convey the message.
Define High Context
Messages are highly coded, implicit and indirect. Preferred in collective cultures such as Japan and Arabic countries
Define Low Context
explicit, clear and literal to avoid confusion. Ex: US and Canada
Doing (Dynamic) vs. Being (Static)
Preference to Action vs. Thinking
Ex: Doing - North America take action, react quickly; emphasis is on quantity.
Being - Asia balance, higher understanding, emphasis is on training and personal change.
High Contact vs. Low Contact refers to
the distance in bodies, body orientation, touching, eye contact.
Examples of Low Contact cultures
North Americans, China, India, Japan, Pakistan Northern Europe
Examples of High Contact cultures
Mediterranean, Arabs, and South Americans
Apollonian vs. Dionysian
Expression of Emotions
Apollonian cultures
are trained to control their emotions.
Dionysian cultures
believe that expressing one’s emotions is appropriate and hiding them is inappropriate.
Masculinity vs. Femininity (Hofstede) Define both:
Masculinity - dominant values in society are success, money and things. Ex: Japan
Femininity - dominant values in society are to care for others and quality of life. Ex: Scandinavian
Individualism vs. Collectivism
Collectivism - Keep me in the loop attitude
Individualistic - Leave me alone attitude
The industrialized wealthy countries have higher ____ scores and poorer countries have higher ____ scores.
Individualism, Collectivism
High Uncertainty Avoidance vs. Low Uncertainty Avoidance
Level of Anxiety
Uncertainty avoidance is
the extent to which people feel threatened by ambiguous situations, and have created beliefs and institutions that try to avoid these.
What level of uncertainty avoidance place work and career as important things in their life and general attitude. Live to Work
High Certainty Avoidance Ex: Germany, Japan
What societies have less organizational structure settings, fewer written rules, and general attitude is Work to Live
Denmark and Great Britain have Low Certainty Avoidance
High Power Distance vs. Lower Power Distance:
Attitude towards Power
Power Distance is defined by Hostede as
the extent to which less powerful members of institutions and organizations accept that power is distributed unequally.
Organizations in high power-distance countries will tend to be
centralized and have a tall and hierarchical organizational structures.
Inequality is inevitable to maintain the society. The distance between power and non-power holders is high and powerful people are thought to have the right to use their power the way they like.
High Power Distance
There is equality between power and non-power holders and they are considered to be close in terms of status. Those with power must use it legally or they would be challenged.
Low Power Distance
Universalism vs. Particularism:
Obligations
