Exam 1 – Content for part 2 (Written part)
Arguments for Globalization (know 2)
1) It creates more jobs in all economies
2) It creates more jobs in less developed countries
3) There is more foreign direct investment (FDI) and economic growth
4) It provides greater consumer choice
Arguments against Globalization (know 2)
1) It creates both winners and losers, growing income inequalities (some countries are going to be privileged while other ones not)
2) It threatens national sovereignty (authority of the country) 3) It can dilute the local culture
4) It is harder to monitor and hold companies that are accountable (companies that are responsible)
5) It can create environmental stress
Why do companies engage in international business? 3 main points
1) To expand sales = pursuing international sales increases the potential market and potential profit
2) To diversify or reduce risks = international operations may reduce risks by smoothing sales and profits, preventing competitors from gaining advantage
3) To acquire resources = this may give companies lower costs, new and better products, and additional knowledge. The company can find things like that in countries abroad.
Political risks that Multi National companies (MNCs) may be exposed to:
1) Systemic = a risk that affects all firms in the country. Example: a change in public policy
2) Procedural = procedural risk reflects the costs of getting things done because of problems like government corruption, labor disputes, and a partisan judicial systemDon't forget about the age old question of How do you assign s and r to a chiral center?
3) Distributive = as the business grow more successful, officials may question whether they are receiving their “fair” share of the growing profits. Distributive risks are the revisions in items like tax codes, regulatory structure, and monetary policy imposed by the government who wants to have benefits.
4) Catastrophic = includes random political problems that adversely affect the operations of all firms in the country. It disrupts the business environment in a way that affects all firms. Examples: ethnic disorder, illegal regime change, civil disorder, or rebellion. If you want to learn more check out What can pass through a selectively permeable membrane?
4 ways to manage political risks:
1) Avoidance = avoid investing or withdrawing from a risky location
2) Adaptation =
- accommodate the risk
- use adaptation when the risk is low or when a high-risk is worth the potential returns
- forms of adaptation: localization, equity sharing, participative management, and development assistance
3) Dependency = keep the subsidiary and the host nation dependent on the parent firm. Examples: input control, market control, position control, and staged distribution.
4) Hedging = minimize losses through political risk insurance or local debt finance (borrowing money from the host nation) We also discuss several other topics like What did ernest rutherford discover in 1899?
Hofstede’s cultural value of dimensions framework:
There are 5 dimensions that describe cultures:
1) Power distance: High versus Low
- How society handle inequality among people
- The less powerful members of a society accept and expect that power is distributed unequally.
High Power Distance
- Inequality in fundamentally good
- Everyone has a place. Some are high, some are low - Most people should depend on a leader
- The powerful are entitled to privilege Don't forget about the age old question of What is the means by which a sender transmits a message?
- The powerful should not hide their power
- Definition: A preference for a loosely-knit social framework in which individuals are expected to take care of themselves and their immediate families only.
- Individual achievement is ideal.
- People need to not be emotionally dependent on organizations or groups.
- Definition: A preference for a tightly-knit framework in society in which individuals can expect their relatives or members of a particular in-group to look after them in exchange for
- A society's position on this dimension is reflected in whether people’s self-image is defined in terms of “I” or “we.”
- One’s identity is based on group’s membership.
- Group decision-making is best.
3) Uncertainty Avoidance
- Definition: The extent to which the members of a society feel uncomfortable with uncertainty and ambiguity.
- The fundamental issue here is how a society deals with the fact that the future can never be known. “Should we try to
control the future or just let it happen?”
High uncertainty avoidance
- Conflict should be avoided.
- Deviant people and ideas should not be tolerated.
- Laws are very important and should be followed.
- Experts and authorities are usually correct.
- Consensus is important.
- The masculinity side of this dimension represents a preference in society for achievement, heroism, assertiveness and
material reward for success. Society at large is more
- Femininity stands for a preference for cooperation, modesty, caring for the weak and quality of life. Society at large is more consensus-oriented.
- Gender roles should be clearly distinguished.
- Men are assertive and dominant.
- Machismo or exaggerated maleness in men is good.
- People-especially men- should be decisive.
- Work takes priority over other duties, such as family.
- Advancement, success, and money are important.
5) Long-term orientation versus Short-term Orientation Long-term orientation
- Patience – e.g. People are more willing to delay gratification by investing
- Long-term relationships
- Strong social norms
- Making a “quick buck”
Example of countries that are high and low on each of the 5
See paper under courses week 5
1) Kinesics: Body Motions
- The way people communicate via body movement - e.g., posture, gestures, and facial expressions.
- The meaning of such behavior varies across countries. For example, when Americans are engaged in prolonged negotiations, it is not uncommon to relax and put their feet on a chair or desk, but this is an insulting behavior in other places, like in the Middle-East.
- Example: Italia popular gestures
2) Proxemics: The use of Space
- The way people use physical space to convey meaning.
∙ It can affect:
- Office layout (e.g. US vs. Japan)
- The way people use personal space (e.g. US vs. Latin America or Middle-East)
- Researchers have identified four “distances” people use in communicating face to face in the US:
(1) Intimate distance is used for very confidential communications (2) Personal distance is used for talking with family and close friends (3) Social distance is used to handle most business transactions (4) Public distance is used when calling across the room or giving a talk to a group
Example: Office layout - Space communicates power in the US and Germany. Executives in the US may have large, private corner offices.
French executives, however, communicate their central position by working in the middle of subordinates. The Japanese bosses desk is at the head of the row of desks where the subordinates sit.
3) Haptics: Touching
- Hugging & kissing on the cheeks/air-kissing near the cheeks as greetings?
- Touching while conversing with each other?
- E.g. Asian cultures usually emphasize non-touching behavior, while Latin American cultures tend to emphasize the importance of touching.
4) Chronemics: Time
The way time is used in a culture. At the extremes, cultures can be:
Things are done in a linear fashion
Time is something that can be controlled and
should be used wisely.
E.g. USA, UK, Northern Europe, Canada, Australia Polychronic:
People tend to do several things at the same
Personal involvement more important than
getting things done on time.
Keeping to schedule is less important than
E.g. Latin America, Middle-East
- In monochronic cultures, time is experienced linearly and as something to be spent, saved, made up, or wasted. Time orders life, and people tend to concentrate on one thing at a time. - In polychronic cultures, people tolerate many things happening simultaneously and emphasize involvement with people. In these cultures, people may be highly distractible, focus on several things at once, and change plans often.
Managing Cross-cultural Communication: (just need to know 2 out of the 5)
1) Develop cultural sensitivity
Anticipate the meaning the receiver will get
One can attempt to anticipate the likely meaning a receiver will attach to a message by internalizing honest cultural empathy with that person. The latter includes thinking about the context of the communication—e.g., societal, economic, and organizational.
2) Careful encoding
- Use words, pictures, and gestures
- Avoid slang, idioms, regional sayings
- Keep in mind that communication is both verbal and nonverbal. Encoding a message in multiple ways can help ensure the receiver gets the right meaning—especially when language differences are an issue. For instance, it may be helpful to provide a written summary as a supplement to a verbal presentation.
3) Selective transmission
- Build relationships face-to-face if possible
- The medium chosen for the message depends on a variety of factors. The key is to find out how communication is transmitted in the local organization—e.g., how much is downward or upward, how much is vertical, how the grapevine works. Of course, cultural variables need to be considered as well. Face-to-face relationships often are best for relationship building. Personal interaction also allows for immediate verbal and visual feedback. When face-to-face communication is not possible, teleconferencing and telephone calls may be more desirable than email.
4) Careful decoding of feedback
- Get feedback from multiple parties
- Improve listening and observation skills
- Just as multiple media and sources are important for encoding, they can help ensure a message is accurately decoded. It can be useful to ask colleagues to help interpret what is going on.
5) Follow-up actions
- To keep lines of communication open, managers must follow through with what has been discussed and agreed upon. Contract follow through can be particularly difficult given that cultures have different ideas about what constitutes a contract.