Cross cultural management 5e by cullen CH03

• Define social institutions and understand the basic forms of social institutions • Understand how social institutions influence both people and organization • Understand the national c

• Define social institutions and understand the basic

forms of social institutions

• Understand how social institutions influence both

people and organization

• Understand the national context and how it affects the business environment

• Understand the influence of the institutional context of countries

• Define social institutions and understand the basic

forms of social institutions

• Understand how social institutions influence both

people and organization

Learning Objectives

• Understand the basic economic systems and influence

on multinational operations

• Understand basic stages of industrialization and

implications for multinationals

• Understand the world’s basic religions

• Develop an understanding of education

• Understand the basic economic systems and influence

on multinational operations

• Understand basic stages of industrialization and

implications for multinationals

• Understand the world’s basic religions

• Develop an understanding of education

Institutional Context

• Includes other elements besides national culture that

can produce important country differences

• Dominant institutional context of any society has an

effect on individuals and organizations

• Understanding the institutional context is therefore

extremely important for better multinational

management

• Includes other elements besides national culture that

can produce important country differences

• Dominant institutional context of any society has an

effect on individuals and organizations

• Understanding the institutional context is therefore

extremely important for better multinational

management

• Made up of the respective national cultures and social institutions of any society

• National cultures as well as institutions of any society shape the important norms, values, and beliefs in any society

Exhibit 3.1: A Model of the

National Context

Social Institutions

• Complex of positions, roles, norms, and values

organizing stable patterns of human resources to

sustain important societal structures

• Social institutions affect organizations as well as

individuals

• Help define what are legitimate and correct

management practices in a society

• Organizations are induced to follow similar paths

• Complex of positions, roles, norms, and values

organizing stable patterns of human resources to

sustain important societal structures

• Social institutions affect organizations as well as

individuals

• Help define what are legitimate and correct

management practices in a society

• Organizations are induced to follow similar paths

Key Social Institutions that Influence Organizations

• Three key social institutions that influence business

environment

• The economic systems

• The level of industrialization

• The religions

Additionally,

• Education

• Level of social inequality

• Three key social institutions that influence business

environment

• The economic systems

• The level of industrialization

Economic Systems

• Economic systems: system of beliefs, activities,

organizations and relationships that provide the goods and services of a society

• Typified by extremes of capitalism, socialism and a

mix of both

• Important implications based on

• Dominant market type

• Market transitions

• Economic systems: system of beliefs, activities,

organizations and relationships that provide the goods and services of a society

• Typified by extremes of capitalism, socialism and a

mix of both

• Important implications based on

• Dominant market type

• Market transitions

Economic Systems

• Capitalist/market economy: production is decentralized

to private owners

• Owners perform these activities to make profits

• Socialist/command economy: production resources are owned by the state

• Production decisions are centrally coordinated

• Mixed economy: combines aspects of capitalist and

socialist economies

• E.g., Sweden, France, Denmark, Italy and India

• Capitalist/market economy: production is decentralized

to private owners

• Owners perform these activities to make profits

• Socialist/command economy: production resources are owned by the state

• Production decisions are centrally coordinated

• Mixed economy: combines aspects of capitalist and

socialist economies

• E.g., Sweden, France, Denmark, Italy and India

Economic Systems

• Important implications based on

• Dominant market type

• Market transitions

• Important implications based on

• Dominant market type

• Market transitions

Dominant Market Type: Index

of Economy Freedom

• The absence of government coercion or constraint on the production, distribution, or consumption of goods

and services beyond the extent necessary for citizens

to protect and maintain liberty itself

• The index includes 10 indicators ranging from trade

policy, taxation policies, and the level of governmental intervention in the economy, to property rights and

regulation

• The absence of government coercion or constraint on the production, distribution, or consumption of goods

and services beyond the extent necessary for citizens

to protect and maintain liberty itself

• The index includes 10 indicators ranging from trade

policy, taxation policies, and the level of governmental intervention in the economy, to property rights and

regulation

Exhibit 3.2: Selected Top and

Bottom 10 Countries on Index

of Economic Freedom

Economic Systems: Implications

• Decisions to operate in a country can be made based on the

dominant economic type

• In mixed economies, multinationals should expect to

subordinate its economic goals and respect social objectives

• Multinationals should also expect to develop more formal

relations with the government in mixed economies

• Index of economic freedom can be used to determine the

extent of governmental intervention

• Decisions to operate in a country can be made based on the

dominant economic type

• In mixed economies, multinationals should expect to

subordinate its economic goals and respect social objectives

• Multinationals should also expect to develop more formal

relations with the government in mixed economies

• Index of economic freedom can be used to determine the

extent of governmental intervention

Market Transitions

• Changes societies experience as they move from

socialism to a market based economy

• Multinational implications

• Need to turn around inefficient formerly state-owned companies to become cost effective

• Motivational issues with workers

• Interpersonal trust, teams, meritocracy

• Changes societies experience as they move from

socialism to a market based economy

• Multinational implications

• Need to turn around inefficient formerly state-owned companies to become cost effective

• Motivational issues with workers

• Interpersonal trust, teams, meritocracy

• Postindustrial society: emphasis on the service sectors

• Pre-industrial society: agriculture dominates the

Exhibit 3.3: Selected countries and the

distribution of employment by primary,

secondary and tertiary sectors

Implications of industrialization

• Direct correspondence between industrialization and

economic development

Industrial societies favor growth and innovation

• Governments provide favorable environment

• Opportunities for significant market size and growthPre-industrial countries provide cheap labor and

untapped markets

• Poor infrastructure for business

• Direct correspondence between industrialization and

economic development

Industrial societies favor growth and innovation

• Governments provide favorable environment

• Opportunities for significant market size and growthPre-industrial countries provide cheap labor and

untapped markets

• Poor infrastructure for business

• Postindustrial societies

• Domination of service sector, knowledge based

• Emphasis on quality-of-life as opposed to economic achievement

• Non economic incentives favored

• Post-materialist values, individual expression, and

movement toward more humane societies

• Postindustrial societies

• Domination of service sector, knowledge based

• Emphasis on quality-of-life as opposed to economic achievement

• Non economic incentives favored

• Post-materialist values, individual expression, and

movement toward more humane societies

Exhibit 3.4: Materialist scores

of selected countries

Exhibit 3.5: Postmaterialist

scores of selected countries

• Shared set of beliefs, activities, and institutions that

have basis upon faith in supernatural forces

• Forms the very foundation of human society

• Provides individuals with guidelines to deal with issues

• Christianity, Islam, Hinduism and Buddhism are

followed by almost 71% of the world’s population

• 20% of world’s population are non religious

• Shared set of beliefs, activities, and institutions that

have basis upon faith in supernatural forces

• Forms the very foundation of human society

• Provides individuals with guidelines to deal with issues

• Christianity, Islam, Hinduism and Buddhism are

followed by almost 71% of the world’s population

• 20% of world’s population are non religious

Exhibit 3.6: Distribution of

Religions Around the World

• Religion based on the life and teachings of Jesus

• The most practiced religion around the world

• Protestantism emphasizes wealth and hard work

• Ten commandments – basis for ethical behaviors

• Dignity of human life, labor and happiness

Implications for multinationals:

Business environment conducive to these values

• Religion based on the life and teachings of Jesus

• The most practiced religion around the world

• Protestantism emphasizes wealth and hard work

• Ten commandments – basis for ethical behaviors

• Dignity of human life, labor and happiness

Implications for multinationals:

Business environment conducive to these values

Sunday holiday for prayer

• Based on the submission to the will of Allah (God)

• The second largest of the world’s religion

• Islamic laws or Shari’ah, based on five pillars

Implications for multinationals

• Giving alms

• Prohibits the payment or receipt of interest

• Society divided by gender - women’s role at home

• Based on the submission to the will of Allah (God)

• The second largest of the world’s religion

• Islamic laws or Shari’ah, based on five pillars

Implications for multinationals

• Giving alms

• Prohibits the payment or receipt of interest

• Society divided by gender - women’s role at home

• Timeless and eternal religion – no single founder

• Based on the Vedic scriptures

• Oldest, embodied in the ancient traditions of India

• Currently 760 million Hindus worldwide

• Quest for ultimate reality and truth

• Hindus live life according to the principles of

Dharma (righteousness)

• Belief in Karma and reincarnation

• Timeless and eternal religion – no single founder

• Based on the Vedic scriptures

• Oldest, embodied in the ancient traditions of India

• Currently 760 million Hindus worldwide

• Quest for ultimate reality and truth

• Hindus live life according to the principles of

Dharma (righteousness)

• Belief in Karma and reincarnation

Implications for multinationals

• Spiritual achievement is an important value for

Hindus

• Respect for elders, age and wisdom

• Clear guidelines for ethical behavior

• Inequality in social structure of India

Implications for multinationals

• Spiritual achievement is an important value for

Hindus

• Respect for elders, age and wisdom

• Clear guidelines for ethical behavior

• Inequality in social structure of India

• Religious tradition that focuses on the reality of world

suffering and the ways one can be freed from suffering

• Craving and desires produce suffering

• Dominant religion in Asia

Implications for multinationals

• Encourage hard working – laziness seen as negative

• Emphasizes teamwork – all beings are interconnected

• Religious tradition that focuses on the reality of world

suffering and the ways one can be freed from suffering

• Craving and desires produce suffering

• Dominant religion in Asia

Implications for multinationals

• Encourage hard working – laziness seen as negative

• Emphasizes teamwork – all beings are interconnected

• Education: organized networks of socialization

experiences which prepare individuals to act in society

• Central element in organization of society

• Helps construct competencies, professions, and

professionals

• Education: organized networks of socialization

experiences which prepare individuals to act in society

• Central element in organization of society

• Helps construct competencies, professions, and

professionals

Education: Implications

• Gives an idea of the skill level of workers in any society

• The more educated, the more skills workers have

• Multinationals can look at educational attainment

scores to determine the nature of the workforce

• Also look at other scores

• Math and Science

• R & D expenditure

• Gives an idea of the skill level of workers in any society

• The more educated, the more skills workers have

• Multinationals can look at educational attainment

scores to determine the nature of the workforce

• Also look at other scores

• Math and Science

• R & D expenditure

Exhibit 3.7: Percentage

Enrollment in Tertiary Education for Relevant Age Groups

Exhibit 3.8: Percentage of GDP

spent on R & D

Social Inequality

• Refers to the degree to which people have privileged

access to resources and positions within societies

• In societies that have high social inequality, a few

individuals have the ability to control and use important resources

• These select few use access to resources to acquire

more power, thereby perpetuating inequality further

• Refers to the degree to which people have privileged

access to resources and positions within societies

• In societies that have high social inequality, a few

individuals have the ability to control and use important resources

• These select few use access to resources to acquire

more power, thereby perpetuating inequality further

Social Inequality: Implications

• Many MNCs are facing significant criticisms for their operations in countries with high social inequalities

• Criticized for using low wages, child labor, workplaces

• Realize social responsibility is in their interest too

• Many actively avoid countries with high inequalities to prevent potential negative publicity

• Many MNCs are facing significant criticisms for their

operations in countries with high social inequalities

• Criticized for using low wages, child labor, workplaces

• Realize social responsibility is in their interest too

• Many actively avoid countries with high inequalities to prevent potential negative publicity

Social Inequality: Implications

• Multinational companies can consider the GINI index

as an indicator of the degree of social inequality

• Multinational companies can consider the GINI index

as an indicator of the degree of social inequality

Exhibit 3.9: The GINI Index for

Selected Countries

The National Context and International Management

• Social institutions are key aspects of understanding the business environment in any country

• Social institutions shape norms, values, and beliefs

that determine acceptable and unacceptable business practices

• Along with culture, form national context of a country

• Social institutions are key aspects of understanding the business environment in any country

• Social institutions shape norms, values, and beliefs

that determine acceptable and unacceptable business practices

• Along with culture, form national context of a country