BUSS 3103

International Business
Environments
Course Facilitator
Professor Susan Freeman
Lecturer
Mr Thomas Cadd

Virtual Lecture 3: Cultural

Differences
 Warming up question
Effects of cultural differences (barriers and
enablers) to trade and foreign direct
investment
• What are important dimensions of cultural differences?
– Give some examples from your economy?

• How might a govenment or firm shield their customers and

outmaneuver competitors in their domestic and international
environment from cultural differences?
– Offensive or defensive moves?

• What do you think are the different effects of cultural barriers

(specifically, exports or foreign imports) on:
– domestic manufacturers,
– foreign companies, and
– Governments?
• A good starting point for our class discussion!
Learning Objectives

1. Know what is meant by the culture of a society.

2. Identify forces that lead to differences in culture.

3. Identify business and economic implications of differences in culture.

4. Understand how differences in culture influence the conduct of business.

5. Develop an appreciation for the economic and business implications of

cultural change.

6. Understand the ethical dilemmas that cultural differences can pose in

trade, foreign direct investment and CSR in contemporary situations.
What is culture?

No consensus on a simple definition of culture

Geert Hofstede’s definition is influential

‘the collective programming of the mind which

distinguishes the members of one human group from
another … Culture, in this sense, includes systems of
values; and values are among the building blocks of
culture’
Cross-cultural literacy
Understanding and adapting to the local cultural is
important in international companies.

– Cross-cultural literacy refers to understanding

how cultural differences across and within
countries can affect the way business is
practiced.

• Cultural differences create a common bond

among people.

• Numerous values and norms exist in these

cultural systems that might affect
international business.

• Culture can and does evolve.

Values and norms
Values
Group’s ideas about what is good, right and desirable
Provides context within which norms established and
justified

Norms
Social rules and guidelines prescribe appropriate
behaviour in particular situations

(1) the routine conventions of everyday life, and

(2) other norms seen as central to the functioning of a
society and to its social life
Routine conventions
continued

• Social conventions concerning how to

behave in everyday life
e.g. dress, manners, greetings, time

• Time is ‘money’
vs.
• Time is ‘elastic’

Examples?
Rituals and symbols and national culture
continued

Rituals and symbols

– Visible manifestations of a culture
– Outward expression of deeper
values

Culture, society and the nation-state

– Society a group sharing common
set of values and norms
– A group bound together by a
common culture
Determinants of culture
Social Structure
Individuals and Groups
• The Individual:
• In many Western societies, the individual is the basic building
block of social organization.
• Emphasis on individual achievement.
• The Group:
• A group is an association of two or more individuals who have
a shared sense of identity and interact in structured ways
based on common expectations.
– The primary unit of social organization in many non-
Western societies.
• Importance of group membership/identification.
Social Structure
Social Stratification
– Social strata are hierarchical social categories
often based on family background, occupation,
and income.
• Individuals born into a particular stratum,
which affects life chances.
• Four basic principles:
• Trait of society.
• Carries over into next generation.
• Generally universal but variable.
• Involves not just inequality but also beliefs.
 Social Structure

Social Stratification continued

– Social Mobility:
• Extent to which individuals can move out of the strata into which
they are born.
– Varies among societies.
• Caste system is a closed system where social position is determined
by family and change is usually not possible.
• India has four main castes.
• But the young and educated are moving away from this
• E.g., Some young Sikhs are not wearing turbans anymore
• Class system is less rigid, and position can be changed through
achievement and luck.
• United Kingdom has a more rigid class structure than U.S.,
Australia and NZ
Social Structure

Social Stratification (continued)

• Significance:
• Can affect business operations.
– Class consciousness is a tendency for individuals
to perceive themselves in terms of their class
background.
• Makes it difficult to establish a competitive
advantage in a global economy
– Advantages of one ‘group’ over another.
Religious and ethical systems
Is religion important in International Business?

Religions with the greatest numbers of followers–Christianity,

Islam, Hinduism and Buddhism

Ethical systems
• Sets of moral principles used to guide and shape behaviour
• Ethical practices often based on religion

e.g. Confucianism not a religion, but influences behaviour and

shapes culture in many parts of Asia
Religious and Ethical Systems
Religion
– A system of shared beliefs and rituals concerned with the realm of the sacred.
Ethical System
– A set of moral principles, or values, that are used to guide and shape behavior.
• Most ethical systems are the product of religions.
• Four dominant religions today:
1. Christianity.
2. Islam.
3. Hinduism.
4. Buddhism.

Influences behaviour and shapes culture in many parts of Asia

1. Confucianism
World Religions
Christianity and Islam
Christianity world’s largest religion
• Evolved from Judaism
• Monotheistic
• Jesus Christ & the Bible
• Protestant work ethic

Islam world’s second largest religion

• Roots in Judaism and Christianity
• Monotheistic
• Muhammed and the Koran
• Business practices guided by Koran

Let’s look at this in more detail:

 Religious and Ethical Systems
Christianity
• Most widely-practiced religion;
monotheistic.
• Found throughout Europe, the Americas,
and other countries settled by
Europeans.
• Economic implications of Christianity:
• Sociologists argue that Protestant
branch has most important economic
implications.
• Max Weber, Protestant ethics, and the
spirit of capitalism.
Religious and Ethical Systems

Islam
• The world’s second largest religion,
• Monotheistic, one true omnipotent God (Allah).
• Islamic fundamentalism:
– Associated in the West with militants, terrorists.
– A response to social pressures to move toward modernization and the
influence of Western societies.
• Economic implications of Islam:
– Many pro-free enterprise principles, protection of private property, concern
with social justice.
– Prohibits the payment or receipt of interest.
Hinduism and Buddhism
Hinduism practised mainly in India
• Polytheistic
• No single sacred text
• Focus on spiritual growth and development
• Supports Indian caste system problematic
for human resources

Buddhism practised mostly in Asia

• Evolved from Hinduism, e.g. belief in Karma
• Follows teachings of Buddha and seeks
enlightenment
• No particular effects on business practice

Let’s look at them in more detail:

Religious and Ethical Systems
Hinduism
• Beliefs:
• A moral force in society requires the acceptance of certain
responsibilities, called dharma.
• Rebirth into a different body, called reincarnation.
• The spiritual progression of each person’s soul, called karma.
• Achieving a complete spiritual perfection, called nirvana.
• Economic implications of Hinduism:
• Max Weber: Hindus are valued by their spiritual rather than material
achievements.
• Caste system abolished in India, but still has an effect – how? Why?
Religious and Ethical Systems
Buddhism
• Has about 535 million followers.
• Stresses spiritual growth and the afterlife, rather than
achievement while in this world.
• Economic implications of Buddhism:
• Does not emphasize wealth creation.
• Does not support the caste system, individuals do
have some mobility and can work with individuals
from different classes.
• Recently, the “Zen” orientation from Buddhism has
been introduced into business in the Western world.
 Religious and Ethical Systems
Confucianism
Confucianism is not a religion, but influences behaviour and shapes
culture in many parts of Asia
• Practiced mainly in China, Korea, Japan.
• Teaches the importance of attaining personal salvation
through right action.
• High morals, ethical conduct, and loyalty to others.
• Economic implications of Confucianism:
• Three values of Confucianism—loyalty, reciprocal
obligations, and honesty—may all lead to lowering the
cost of doing business in Confucian societies.
– E.g., Guanxi are relationship networks supported by
reciprocal obligations.
Superstitions

• All cultures have superstitions

– Might affect business practices

• For example:
– In China number 8 lucky
– In West number 13 unlucky

Others?
Language
Spoken Language
• Language structures the way we see the world.
• Countries with more than one language often have
more than one culture.
• What examples do we have?
• How does this influence how business is done?
• Do we need to learn many languages to do business in
other economies?

• English is becoming the language of international

business
– Any challenges to that presumption?
– Digital communication? Technology?
Language
continued

Spoken language
Chinese the most spoken language in the world.
English lingua franca (bridging language) of the world
A language that is adopted as a common language between speakers whose native
languages are different.
HISTORICAL
a mixture of Italian with French, Greek, Arabic, and Spanish, formerly used in the eastern
Mediterranean.

Unspoken language
Non-verbal communication important
Facial expressions and hand gestures different interpretations in different cultures
Misunderstandings common

Kinesic gestures often have different meanings

Language
Unspoken Language
• Nonverbal communication refers to the use
of nonverbal cues to communicate meaning.
• Often culturally bound.
• Personal space is the comfortable
distance between a speaker and the
listener.
– Varies among cultures which makes
it important to know in business.
– Examples?
» Any challenges to that
presumption?
» Digital communication?
Technology?
 Education
Formal Education
• Medium through which individuals learn
languages and other skills.
• Socializes the young into the values and norms
of a society.
• The “hidden curriculum” in schools teaches
respect for others, obedience to authority,
honesty, neatness, timeliness.
• Provides a national competitive advantage –
over time.
• Creates a pool of skilled and knowledgeable
workers.
• Represents a good index of what products
might sell in a country.
Culture and the workplace
At a glance:

National culture effects on the

workplace–values & behaviour

Theory & framework of Edward & Mildred

Hall and Geert Hofstede

Hall & Hall distinguish cultures on

concept of context–cues

Low-context culture
Speaker’s message conveyed explicitly by
spoken words
Most individualistic Western countries
low-context

High-context culture
Discussion as important as actual words
spoken
Most of Asia, the Middle East, Latin
America and Africa
Culture and the workplace
Table 5.2 Work-related values for selected countries

Sources: G. Hofstede, ‘The business of international business is culture’, International Business Review, 3(1) (1994); data for Singapore
and New Zealand derived from T.C. Garrett, D.H. Buisson and C.M. Yap, ‘National culture and R&D and marketing integration mechanisms
in new product development: a cross-cultural study between Singapore and New Zealand’, Industrial Marketing Management, 35 (2006),
pp. 293–307; G. Hofstede, G.J. Hofstede and M. Minkov, Cultures and Organizations: Software for the Mind, 3rd ed, New York, NY:
McGraw-Hill Professional Publishing (2010).
 Culture and the workplace
Hofstede’s dimensions

Power distance
People unequal in physical & intellectual capabilities

Individualism versus collectivism

Relationship between groups of people

Uncertainty avoidance
Accepting ambiguous situations & tolerating ambiguity

Masculinity versus femininity

Relationship between gender and work roles

Long-term orientation
Attitude to the past & future

Indulgence versus restraint added in 2010.

– Indulgence refers to a society that allows relatively free gratification

Let’s look at each one more closely:

 Culture and Business

Culture and values in the workplace studied by Geert Hofstede.

• Hofstede’s dimensions of culture:

• Power distance refers to how a society deals with the fact

that people are unequal in physical and intellectual
capabilities.

• Individualism versus collectivism focuses on the

relationship between the individual and his or her fellows.

• Uncertainty avoidance measures the extent to which

different cultures socialized their members into accepting
ambiguous situations and tolerating uncertainty.
Culture and Business
• Hofstede’s dimensions of culture (continued)

• Masculinity versus femininity looks at the relationship

between gender and work roles.

• Long-term versus short-term orientation refers to the extent to

which a culture programs its citizens to accept delayed
gratification of their material, social, and emotional needs.

• Indulgence versus restraint added in 2010.

– Indulgence refers to a society that allows relatively free
gratification of basic and natural human drives related to
enjoying life and having fun.
– Restraint refers to a society that suppresses gratification of
needs and regulates it by means of strict social norms.

• E.g.s, for any of the dimensions?

Culture and Business
• Hofstede’s dimensions of culture: (continued)

• Western nations tend to score high on individualism

and low on power distance.

• Latin American and Asian countries emphasize

collectivism and score high on power distance.

• Japan demonstrates strong uncertainty avoidance

and high masculinity.

• Other examples?
Culture and Business

– Hofstede’s work is the leading research on culture

but has received criticism.

• Assumes a one-to-one correspondence

between culture and the nation-state when
many countries have more than one culture.

• But his:
• Research may be culturally bound.
• Research focused on a single industry.
Culture and Business

Global Leadership and Organizational Behavior Effectiveness

(GLOBE) instrument:
another alternative measure:
– A leader’s effectiveness is contextual.
• Embedded in the societal and organizational norms,
values, and beliefs of the people being led.
– Established nine cultural dimensions.
• Power distance, uncertainty avoidance, humane
orientation, institutional collectivism, in-group
collectivism, assertiveness, gender egalitarianism,
future orientation, and performance orientation.
Culture and Business
World Values Survey (WVS):
another alternative measure:

– Explores people’s values and norms, how they change over time, and what
impact they have in society and business.
– Dimensions:
• Support for democracy;
• tolerance of foreigners and ethnic minorities;
• support for gender equality;
• the role of religion and changing levels of religiosity;
• the impact of globalization;
• attitudes toward the environment, work, family, politics, national identity,
culture, diversity, and insecurity;
• and subjective well-being.

– Given the challenges to alternative frameworks, in today’s world,

what ‘measures’ would you include? Not include? Why?
Cultural Change
• Culture is not a constant; it evolves over time.
• Often with economic growth
– Economic progress and globalisation engines of cultural change
• Often slow and painful for a society
– Examples? – can you add to these?
– In the 1960s, women in management was never heard of
while today it is a welcomed reality.
– There appears to be a move toward greater individualism in
Japan.
– Culture may change as a society becomes wealthier.
• Any examples? Evidence?

– Also evidence of countertrends:

• Shift toward Islamic fundamentalism in some countries.
• Separatist movements in Canada, Russia, United
Kingdom.
Focus on Managerial
Implications
Cultural Literacy and Competitive Advantage
• Cross-Cultural Literacy:
• Companies must be informed about the culture of another nation
when conducting international business.
– Individuals’ understanding of cultures within which they operate
– Business success at stake
– Connection between competitive advantage & culture
– Affects choice of country in which to operate

• Ethnocentrism is the belief in the superiority of one’s own ethnic

group or culture.
» Avoid ethnocentric behaviour
» Belief in the superiority of one’s own culture

» Edward T. Hall notes Americans tend to be informal and have a

different attitude toward time—these can be misconstrued in an
international business situation.
» How? Why?
 Focus on Managerial Implications
Cultural Literacy and Competitive Advantage (continued)

• Culture and Competitive Advantage

• Values and norms influence costs of doing

business and the costs of doing business
influence ability to establish competitive
advantage.

• Some say culture of modern Japan lowers the

cost of doing business relative to Western
nations.

– Also, Japan less supportive of

entrepreneurial activity
» Signs this might be changing? Why?
Focus on Managerial Implications

Cultural Literacy and Competitive Advantage

(continued)
• Connection between culture and competitive
advantage important for two reasons.
• Suggests which countries are likely to
produce the most viable competitors.
• Has important business implications for the
choice of countries in which to locate
production facilities and do business.
Summary of main themes
Important points to remember:

1. Culture a complex whole that includes religion, values, customs and norms,
all interrelated

2. Social organisation and stratification characteristics of all societies and

cultures, with implications for business

3. Distinguished as either high- or low-context, and across Hofstede’s five

dimensions

4. Evolves over time

5. Cultural literacy important for international business success and

competitive advantage

6. Understand the ethical dilemmas that cultural differences can pose in trade,
foreign direct investment and CSR in contemporary situations.
Some closing ideas to consider
1. Log on to Hofstede Insights and then the Compare
Countries page. Compare Australia, NZ and Canada on
the one graph. What do you see? How would you explain
the similarities? Now add China and compare again. How
useful do you think Hofstede’s dimensions are for
making international investment decisions?

2. Human beings instinctively stereotype, looking for

patterns. Is stereotyping a positive trait or might it be
dangerous? Think of a situation where you made an
erroneous evaluation of a culture based on an encounter.
Instead you might consider prototyping where
subsequent encounters with another culture inform your
evaluation of that culture. For business, which is more
useful?
Some closing ideas to consider

3. Break into 2 groups: domestic students

whose task is to describe their own national
culture; and foreign students whose task is to
describe the same culture as a they see it.
– In tutorials!

4. Discuss the cultural differences between

Australia and New Zealand.