ebook International Business

DPP20013 –INTRODUCTION OF INTERNATIONAL BUSINESS

Each country has their own strategic management in marketing their products or services.
The business and marketing strategy of the company in each country different because each
country has their unique characteristics. The company should follow the regulations, rules or
law of the country where the company exists in how to do business in the country.

A multi-domestic strategy is a strategy by which companies try to achieve maximum local
responsiveness by customizing both their product offering and marketing strategy to attach
different national conditions. One of the nation's most popular hamburger chains is an exampleof
a multi-domestic strategy. The company researches each country’s local customs and foods
before creating its menu items and opening up a store.
For example:
i) The restaurant's stores in India do not sell any sandwiches made with beef, since the Indian
culture sees cows as sacred.
ii)United States has its own ethnics, its society habits, regulations, rules and much more. In which

those are different to the other country such as United Kingdom. So to reach the market
with the purpose to sell the products or services, in each country the company makes its
own strategy to make rapprochement.
For example, a popular food product like Fried Chicken is sold with different staple food in
different country. Such as, in China Fried Chicken is sold with adding Chinese‘s staple food like
mie or noodles, and in Indonesia, the Fried Chicken is sold with additional Indonesian staple
food like rice.

b. Multinational Firm

A multinational firm has facilities and other assets in at least one country other than its home
country. A multinational company generally has offices and/or factories in different countries anda
centralized head office where they coordinate global management.

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These companies, also known as international, stateless, or transnational organizations tend to
have budgets that exceed those of many small countries. Business enterprise with manufacturing,
sales, or service subsidiaries in one or more foreign countries, also known as a transnational or
international corporation. These corporations originated early in the 20th cent. and proliferated
after World War II. Typically, a multinational corporation develops new products in its native
country and manufactures them abroad, often in Third World nations, thus gaining trade
advantages and economies of labor and materials.

Almost all the largest multinational firms are American, Japanese, or West European. Such
corporations have had worldwide influence—over other business entities and even over
governments, many of which have imposed controls on them. During the last two decades of the
20th century many smaller corporations also became multinational, some of them in developing
nations. Proponents of such enterprises maintain that they create employment, create wealth, and
improve technology in countries that are in dire need of such development.

Critics, however, point to their inordinate political influence, their exploitation of developing
nations, and the loss of jobs that results in the corporations' home countries

c. Global firm

A Global Firm is a company which has multinational branches and headquarters in many of the
countries. It is also called as International Firm. It should be duly noted that it is different from a
locally based company selling its products globally or to other countries. Some of the known
examples are Coke, Sony and Microsoft etc. Global companies plan activities on a global basis.
By operating in more than one country benefits from savings or economies on activities such as
R&D, marketing, operations and finance are achieved which may not be available to domestic
companies. A global company is a company that does business in many different countries and
attempts to standardize and integrate operations worldwide in all functional areas. A global
company is a company that has operations in different countries around the world. Global
companies are also known as transnational or multinational corporations. Global

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Industries such as aerospace, automobiles, telecommunications, metals, computers, chemicals,
and industrial equipment are examples of global industries, in which competition is on a regional
or worldwidescale. Most global industries are characterized by the existence of a handful of major
players that compete head on in multiple markets. Becoming a global company is an effective
strategy for businesses experiencing planning sales or encountering a domestic market that is
saturated with competition. Businesses of all sizes can take advantage of increasing their market
share and bottom line by moving into the global arena. Global companies have invested and are
present in many countries. They market their products through the use of the same coordinated
image/brand in all markets.Generally one corporate office that is responsible for global strategy.
Emphasis on volume, cost management and efficiency.

d. Transnational firm

Transnational Corporation as define by globally integrated organization with entities in two or
more countries, decision making system permitting coherent policies and common strategy
through decision making center and entities are so linked by ownership so as to exercise influence
over others and share knowledge. Transnational companies are much more complex
organizations. They have invested in foreign operations, have a central corporate facility but give
decision-making, R&D and marketing powers to each individual foreign market. Transnational
company is a company who possesses a larger part of share or a major shareholder itself rather
than the people of country where they are operating in.

A transnational firm is a huge company that does business in several countries. Many
Transnational are much richer than entire countries in the less developed world. Such companies
can provide work and enrich a country's economy - or some say they can exploit the workers with
low payand destroy the environment. A firm which owns or controls production facilities in more
than one country through direct foreign investment. Transnational are made possible by improved
international communications which provide rapid containerized transshipment and foreign
travel, easy communication of information, and international mobility of capital. Transnational
can compare

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costs at different locations, and can switch activities to different areas as appropriate. Although a
developing nation may benefit from the construction of a plant for a jobs and markets, it has been
argued that the price is a loss of local control. The term is generally synonymous with
multinational corporation, although a transnational corporation may operate in only two national
economies
Extending or operating across national boundaries. Transnational firms generally are
decentralized, with many bases in various countries where the corporation operates (Nestle,
Deutsche Post,Toyota).
A very well-known cola soft drink is one example of a transnational product. This company's
beverage recipe is kept secret and has not changed in many years. The product is sold in over 200
countries worldwide, and the company retains exactly the same beverage formulation in each
country. The bottle’s label may reflect the local language, but the logo and contents remain the
same.

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Difference between a global, transnational and multinational company International
companies are importers and exporters, they have no investment outside of theirhome country.

Global company Multidomestic company

Definition Producing a product the same It sees customers as beingunique. A
way forevery market that it multidomestic
is sold in.
company modifies a product to
accommodate the wants/needsof the

market

Characteristics Standardized products Non-standardized products

Rationale Companies make the choice to Companies make the choice to
become multi-domestic or global become multi-domestic or global
based on a fewfactors. One such
factor involves the concept called based on a few factors.
One such factor involves the
"economies of scale” concept called "economies ofscale”

Investment have invested and are present in have investment in other countries, but
manycountries do not have coordinated product
offerings ineach country

Competition Global company Company faces competitionfrom
Strategic planning competes on an competitors in the countries in
international level which it sells itsgood

Need to plan on an Manage their subsidiaries asdistinct
international scale and separate entities.

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Multidomestic company Transnational company

Definition It sees customers as being unique. A Transnational companies also
Characteristics multidomestic company modifies a sell their products in multiple
countries across the globe.
product to accommodate the
wants/needs of the market

Non-standardized products Same product

Strategic planning Need to (RD) Not need (RD)
Investment .
have invested in foreign
Competition have investment in other countries, operations, have a central
but do not have coordinated corporate facility but give
decision-making, R&D
product offerings in each country andmarketing powers to

Company faces competition from eachindividual foreign
competitors in the countries in market.
which it sells its good
No need because they are
market at all countries.

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Global company Transnational company

Definition Producing a product the same Transnational companies also
way for every market that it is sell their products in multiple
Characteristics countries across the globe.
Strategic planning sold in.

Competition Standardized products Same product

Need to plan on an Not need (RD)
international scale

Global company competes on No need because they are
an international level market at all countries

The Growth of Service MNEs
There has been significant growth of MNEs in service areas, due to:

• Economic transformation – developed nations shifting into service economies
• Globalization and liberalization of regulatory systems – “open skies” agreements,

accounting standards, flexible store hours, etc.
• Communication advances – allow MNEs to coordinate knowledge-intensive operations

across borders.
• MNEs provide knowledge, capital, technology, expertise, global affiliations,

contributions to national productivity and exports, innovation, employment, and societal
change.

The negative attributes are:
• the MNE is perceived as a threat to national sovereignty

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• have unfair advantages over local competition
• exploit government incentives at the expense of taxpayers
• limit knowledge transfer to developing nations
• exploit critical national and natural resources
• move on when their exploitation is finished

MNEs face the following constraints and advantages:
• Resource constraints.
• Knowledge, sophistication constraints.
• Sheltered environment constraints.
• Home government support.
• Flexibility

3.3 Compare Small and Medium-Sized International Enterprises (SMIEs) in
internationalbusiness

3.3.1 Define Small and Medium-Sized International Enterprises (SMIEs)

Small and medium-sized enterprises (SMEs) are non-subsidiary, independent firms which
employ fewer than a given number of employees. This number varies across countries. The
most frequent upper limit designating an SMIE is 250 employees, as in the European Union.
However, some countries set the limit at 200 employees, while the United States considers
SMIEs to include firms with fewer than 500 employees.

Small firms are generally those with fewer than 50 employees, while micro-enterprises have at
most 10, or in some cases 5, workers. The SMIE is a “small to medium sized organization”,
SMIEs account for approximately 94% of all international firms. They often face serious
obstacles to internationalization.

SMIE Foreign Investment Profile and Internationalization Features

At present relatively small, but growing chance of expansion
SMIEs respond to incidental opportunity
Nature of FDI by SMIEs

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Emphasis on developed markets

More likely to invest in developed markets

Selective Globalization

Tend to focus on one link in the supply chain and on a selected market strategy

Often adopt niche strategies

Rely more on cooperative strategies

3.3.2 Highlight constraints on Small and Medium-Sized International Enterprises (SMIEs)

The biggest constraints across countries are :
• The scale and transaction constraints in access to capital and finance
• Access to electricity
• Competition from informal enterprises.
• Lack of Knowledge
• Lack of Market Power
• Vulnerability to Intellectual Property Violations

However, constraints vary according to countries’ level of development as well as by region.

QUESTIONS
1. Write any TWO types of Multinational Enterprises ( MNEs)
2. Explain the best organizational design for Toyota Company. Based on your answer give
the advantages and disadvantages to the company.

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CHAPTER 4

ENTRY AND EXPANSION

LEARNING OUTCOMES

CLO2: Explore mode of entry, strategies and cultural differences in international
businessenvironment.

At the end of this chapter, you will be able to:

• Examine the international market-entry methods in international business
• Compare the non-equity modes of entry

Exporting
Turnkey Projects
Licensing
Franchising
Management Contract
Contract Manufacturing
Engineering, procurement, construction and
Commissioning (EPCC)

• Identify the equity-based modes of entry

Wholly Owned Subsidiary
Joint Venture
Strategic Alliances

• Indicate the non-equity and equity-based modes of entry

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4.0 INTRODUCTION
Three basic decisions before entering foreign market
A firm expanding internationally must decide:
a) Which / where markets to enter
b) When to enter them and on what scale
c) How to enter them (the choice of entry mode)
While it may make sense for some firms to serve a market by exporting, other firms might set upa
wholly owned subsidiary, or utilize some other entry mode.
a) Which / Where to Enter Foreign Markets?
The advantages and disadvantages associated with each entry mode is determined by transport
costs and trade barriers, political, economic risks and firm strategy. The choice between different
foreign markets is based on an assessment of their long run profit potential. Typically, the most
favorable markets are those that are politically stable developed developing nations that have
free market systems, inflation rates, or private sector debt.

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How ever for the less desirable market are, Politically unstable developing nations that operate
with a mixed or command economy, Developing nations where speculative financial bubbles
have led to excess borrowing. Firms are more likely to be successful if they offer a product that
has not been widely available in a market and that satisfies an unmet need

b) Timing of Entry / When

With regard to the timing of entry, we say that entry is early when an international business
enters a foreign market before other foreign firms, and late when it enters after other
international businesses have already established themselves in the market. The advantages
associated with entering a market early are called first mover advantages, and include:
The ability to pre-empt rivals and capture demand by establishing a strong brand name the
ability to build up sales volume in that country and ride down the experience curve ahead ofrivals
and gain a cost advantage over later entrants the ability to create switching costs that tie
customers into their products or services making it difficult for later entrants to win business
disadvantages associated with entering a foreign market before other international businesses
are referred to as first mover disadvantages and include:

Pioneering costs (costs that an early entrant has to bear that a later entrant can avoid example:
educate customer). Pioneering costs arise when a business system in a foreign country is so
different from that in a firm’s home market that the enterprise has to devote considerable time,
effort and expense to learning the rules of the game, and include:
the costs of business failure if the firm, due to its ignorance of the foreign environment, makes
some major mistakes the costs of promoting and establishing a product offering, including the
cost of educating the customers

c) (HOW) Entry Modes Of International Business
Entry modes are defined as the forms of capital participation in international enterprises.
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They are modes in which company enter the intended host country through investment. In
terms of property rights, entry mode is the ownership structure of a foreign subsidiary.
Mode of entry an alternative routes or means available to a firm for transferring resources from
the home country to the host country.

4.2 Entry Modes Of International Business
a) None Equity
b) Equity

4.2.1 There are several option in none equity including:
a. Exporting
Most firms begin their involvement in overseas business by that is, selling some of their regular
production overseas. Multinational export and import activities are examined details as part of
international logistics. Exporting is the selling of products made in one’s own country for use or
resale in other countries. Exporting is the selling of products in overseas domestic markets.
Usually the business first experience with global business, a low cost, low risk way of
penetrating into global markets. Today exporting recognize as traditional and simple way of
entry mood.

Types of Exporting
i) Indirect exporting

Occurs when a third party handles the exporting before one or more manufactures. These third
party intermediaries take many forms. There are small independent operations such as export
management and export trading company, industry-wide exporters and specialized trading
units that represent large corporations or even entire countries and used third party to handlethe
exporting)

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ii) Direct exporting

The company opt to do their own exporting. Where the seller of the goods contacts and
negotiates with a buyer in a foreign country undertakes the risk of delivery and receipt of
payment direct exporting requires time, patience, attention to detail and an organizational
commitment. Company where is confident and resources-full will use this type strategy. Direct
exporting using intermediaries located in foreign market. In doing so the exporter is becoming
more involved and committed to the new marketplace, adding investment, time and
management expertise. Handle with their own exporting.

Exporting Advantages:
• Easy implementation of strategy
• Less investment abroad which helps small firms also to enter international business.
• national markets to realize scale economies from global sales volume (Sony/TV,
Matsushita/VCR, Samsung/Chips)
• Little investment and is relatively free of risk.
• without committing a great amount of human or financial resources.
• If management does decide to export, it can choose between direct and indirect exporting.

Exporting Disadvantages: especially
• Susceptibility to trade barriers.
• Logistical difficulties.
• Less suitable for service products.
• Susceptibility to exchange-rate fluctuation.
• Not appropriate if other lower cost manufacturing locations exist.
• High transport costs can make exporting uneconomical

bulk products.

b. Turnkey Project
A turnkey or a turnkey project (also spelled turn-key) is a type of project that is constructed so
that it could be sold to any buyer as a completed product.

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This is contrasted with build to order, where the constructor builds an item to the buyer's exact
specifications, or when an incomplete product is sold with the assumption that the buyer would
complete it.

A turnkey project or contract as described by Duncan Wallace (1984), a contract where the
essential design emanates from, or is supplied by, the Contractor and not the owner, so that the
legal responsibility for the design, suitability and performance of the work after completion will
be made to rest with the contractor 'Turnkey' is treated as merely signifying the design
responsibility as the contractor's.

Management from one organization that generally design, construct and commission large
industrial and infrastructure related projects for their client.A turnkey agreement normally
includes the training of staff for the project.A link with management contract extends turnkey
arrangement for the establishment of plan facilities to include responsibilities for production,
training and operating during the post-construction stage of the project.Management from one
organization that generally design, construct and commission large industrial and infrastructure
related projects for their client.A turnkey agreement normally includes the training of staff for
the project

A link with management contract extends turnkey arrangement for the establishment of plan
facilities to include responsibilities for production, training and operating during the post-
construction stage of the project

Conclusion

Turnkey project is one of the complex based mode of entry that is project design and construct
by one organization or a company for their client.
It requires a specific management and agreement that involve the organization and their client.

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The company is responsible for the project until it handed over to the client.
Example : New Air Port Berlin ( Grmany), Gas Pipeline Russia- Turkey (
Italy)

Hong Kong Airport China ( USA)

c. Licensing

A licensing agreement is an arrangement whereby a licensor grants the rights to intangible
property to another entity (the licensee) for a specified time period, and in return, the licensor
receives a royalty fee from the licensee.Intangible property includes patents, inventions,
formulas, processes, designs, copyrights, and trademarks

Advantages
• The firm does not have to bear the development costs and risks associated with opening a
foreign market
• The firm avoids barriers to investment
• It allows a firm with intangible property that might have business applications, but which
doesn’t want to develop those applications itself, to capitalize on market opportunities

Disadvantages
• The firm doesn’t have the tight control over manufacturing, marketing, and strategy that is
required for realizing experience curve and location economies
• Licensing limits a firm’s ability to coordinate strategic moves across countries by using
profits earned in one country to support competitive attacks in another
• There is the potential for loss of property (or intangible) technology or property

One way of reducing this risk is through the use of cross-licensing agreements where a firm might
license intangible property to a foreign partner, but requests that the foreign partner license some of
its valuable know-how to the firm in addition to a royalty payment

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d. Franchising

Franchising is basically a specialized form of licensing in which the franchisor not only sells
intangible property to the franchisee, but also insists that the franchisee agree to abide by strict
rules as to how it does business

Advantages
The firm avoids many costs and risks of opening up a foreign market

Disadvantages

• Franchising may inhibit the firm's ability to take profits out of one country to support
competitive attacks in another

• The geographic distance of the firm from its foreign franchisees can make poor quality
difficult for the franchisor to detect

e. Management contracting

A management contract is an arrangement under which operational control of an enterprise is
vested by contract in a separate enterprise which performs the necessary managerial functionsin
return for a fee. Management contracts involve not just selling a method of doing things (as
with franchising or licensing) but involves actually doing them. A management contract can
involve a wide range of functions, such as technical operation of a production facility,
management of personnel, accounting, marketing services and training.
Advantages:

• Management contracts are often formed where there is a lack of local skills to run a
project.

• It is an alternative to foreign direct investment as it does not involve as high risk and can
yield higher returns for the company when foreign government actions restrict other entry
methods.

Disadvantages:
• Loss of control
• Time delays

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• Loss of flexibility
• Loss of quality
• Compliance

f) Contract manufacturing.

Contract manufacturing is a process that establish a working agreement between two
companies. As part of the agreement, one company will custom produce parts or other
materials on behalf of their client.

Advantages:
• The client does not have to maintain manufacturing facilities, purchase raw materials, or
hire labour in order to produce the finished goods so less capital investment is required.
• Helps to achieve benefits of economies of scale.
• Helps to achieve location economies.

Disadvantages:
• Less management control.
• Potential security or confidentiality issues.
• Complexity.
• Potential quality issues

g. Engineering, procurement, construction and commissioning (EPCC)

Engineering, Procurement, Construction and commissioning
EPCC Contracts are the most common form of contract used to undertake

construction works by the private sector on large-scale and complex
infrastructure projects. Under an EPCC contract a contractor is obliged to
deliver a complete acility to a developer who need only turn a key to start
operating the facility, hence EPCC contracts are sometimes called turnkey
construction contracts. In addition to delivering a complete facility, the contractor
must deliver that facility for a guaranteed price by a guaranteed date and it must perform to
the specified level.Failure to comply with any requirements will usually result in the contractor
incurring monetaryliabilities. The EPCC group has a very wide range of portfolio covering the

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entire of the Life cycle of Industrial Plants as a Turnkey Project executing agency in
following fields:

The EPCC group has a very wide range of portfolio covering the entire gamut of the Life cycle
of Industrial Plants as a Turnkey Project executing agency in following fields:

i) Engineering Functions
Basic
Engineering
Planning
Detail Engineering
Estimating request for Quote
Construction Engineering

ii) Procurement
Functions Customised
manufacturingProcurement
Purchasing
Expediting
Receiving

Invoicing
Logistics & Transport

iii) Construction Function
Civil & structural
constructionMechanical
erection
Electrical installation

iv) Commissioning
FunctionsTesting &
Commissioning After-
sales-service
Modernisation of Plants

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Advantage of EPCC
Scope and the specifications of the plant

• Quality
• Project duration
• Cost is known at the start of the project
• Reduced stress for owner
• Easy work and growth of the company.
• Single point of contact for owner simplifies communications.
• Ready availability of post-commissioning services
• Ensures quality and reduces practical issues faced in other ways
• Owner protected against changing prices for materials, labor, etc.

4.2.2 Identify the equity based modes of entry
a. Wholly owned subsidiary
Definition:

A company that usually 100% of the shares are owned by another company known as the
“parent company”. A company may be wholly owned subsidiary through the acquisition or spin
off by parent company. Regular subsidiary holding company is 51 to 99% owned by the parent
company. Is a condition in which the parent company will use the subsidiary to operate in
foreign markets.

Example of Wholly Owned Subsidiary
In a wholly owned subsidiary, the parents company owns all the shares of the company.
No minority shareholders. Subsidiaries continue operating with the permission of the parent
company. A company can continue to operate a wholly owned subsidiary of the merge and
combine their operations for various reasons.

Advantages
 Financial

Include simpler reporting and more financial resources.Parent company can consolidate the
results of its wholly owned subsidiaries into one financial statement.Use the subsidiary’s

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earning to grow the business or invest in other assets and businesses to generate a higher rateof
return.Two companies can integrate their financial and other information technology systems to
streamline business processes and reduce costs.

 Operational

The parent company usually maintains direct or indirect operational control over its wholly
owned subsidiaries.The parent and the subsidiary can also use their combined size to negotiate
better terms with suppliers

 Strategic
The speedy execution of strategic priorities

E.g : A parent company could ask one of its foreign wholly owned subsidiaries to dedicate all of
its resources toward a new product launch .Synergies in marketing, research and development
and information technology mean cost efficiencies and long-term strategic positioning

Disadvantages

• Financial

The financial disadvantage is that an execution error or malfeasance at a subsidiary can
seriously affect the financial performance of the parent company.

• Operational
A concentration of risk and a loss of operational flexibility. e.g : if a company enters a foreign market
through a wholly owned subsidiary, it has to relyon the subsidiary to develop a distribution channel, recruit a
sales force and establish a customer base.

• Strategic
The strategic disadvantage is that cultural differences often lead to problems integrating a
subsidiary's people and processes into the parent company's system

Conclusion
A wholly owned subsidiary is a company completely owned by another company.
Advantages of using wholly owned subsidiaries include vertical integration of supplychain, diversification,
risk management and favorable tax treatment abroad

Disadvantages include the possibility of multiple taxation,lack of business focus,and conflictinginterest

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between subsidiaries and the parent company.

b. Joint Venture
Introduction

Business agreement in which the parties agree to develop, for a finite time, a new entity and
new assets by contributing equity. They exercise control over the enterprise and consequently
share revenues, expenses and assets. There are five common objectives in a joint venture:
market entry, risk/reward sharing, technology sharing and joint product development, and
conforming to government regulations. The partners' strategic goals converge while their
competitive goals diverge. The partners' size, market power, and resources are small comparedto
the Industry leaders. Partners are able to learn from one another while limiting access to their
own proprietary skills.

The key issues to consider in a joint venture are
 Ownership
 Control
 Agreement
 Pricing
 Technology
 Local firm capabilities and resources
 Government intentions

Potential problems include:
 Conflict over asymmetric new investments
 Mistrust over proprietary knowledge
 Performance ambiguity - how to split the pie
 Lack of parent firm support
 Cultural clashes
 If, how, and when to terminate the relationship
• Joint ventures have conflicting pressures to cooperate and complete.

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The joint venture attempts to develop shared resources, but each firm wants to develop and
protect its own proprietary resources.
The joint venture is controlled through negotiations and coordination processes, while each
firm would like to have hierarchical control.
Nokia + Windows = Nokia Lumia
Phone Sony + Ericssion = Sony
Ericssion Phone HP + Compact = HP
Compact Laptop

Conclusion
As a Conclusion, a business agreement between two or more companies to work together to
achieve specific goals and to promote common interests. Unlike a merger or acquisition, a
strategic partnership is no need to be fixed and it allows companies to preserve the benefits of
belonging. Partnership allows consolidation of resources. This is a huge advantage when the
two parties offer a product / service. This would give the maximum profit. Before starting a joint
venture, make sure your are clear about what you want from the relationship. Make you are
clear about your joint venture partners. Unless you are all in agreement regarding the
anticipated outcome, you will be pulling in different directions and the joint venture will suffer.

c. Strategic
Alliances
Introduction

A strategic alliance is an agreement between two or more parties to pursue a set of agreed upon
objectives needed while remaining independent organizations. This form of cooperation lies
between mergers and acquisitions and organic growth. Partners may provide the strategic
alliance with resources such as products, distribution channels, manufacturing capability,
project funding, capital equipment, knowledge, expertise, or intellectual property. The allianceis
a cooperation or collaboration which aims for a synergy where each partner hopes that the
benefits from the alliance will be greater than those from individual efforts. The alliance often

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involves technology transfer (access to knowledge and expertise), economic
specialization, shared expenses and shared risk.

Advantages :

• Technological Advancements
Changes in traditional competitive advantage, the rising costs and risks of research and
development, shorter product lifecycles.
• Convergence Of Technology
Based on the creation of new industries based on the growth of technology and
mergersbetween companies to develop new sectors.
• Market Globaization
Growth of global marketplace and competitors thereof. The global market also covers
thedirection of foreign investment patterns.
• Sharing of costs and risks, particularly preferred by Western companies.
• Learning knowledge and skills which is preferred by Asian firms as it allows access to

technology.
• Transform existing operations of the business, with the aim being to improve weak

sectors of the business.
• It allows for an attacking and defensive strategy, as a business could use the alliances to

attack new market sectors whilst developing a protective cover in other markets.

Disadvantages

• Certain internal functions suffer as a result of not being unable to contribute to the
development of their functions as the business decides to use the approach adopted by
alliance companies.

• The risk of opening up the entire business 'core competencies' to alliance partners who
are essentially still competitors. Cultural differences which could affect the aim of the
alliance.

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Managing Strategic Alliances

We can say that strategic alliances with competitors may generate a cosy relationship, it is still
based on two competitors in the same market place sharing information.

The first thing which needs to be identified is the core competencies does your business have
that is attracting your competitors into forming a strategic alliance, be aware of them and
ensure that you are protecting them.

Try to go for strategic alliance partnerships with companies from complimentary markets. This
will lead to a greater mutual trust and sharing of resources and information.

Conclusion
Strategic alliances can work for the benefit of a business to reduce development costs and
speed up development timescales. They do however, require careful planning and monitoring,to
ensure the business does not give too much away.

In industry today it is not the case of several companies competing against one another,
moreover we can state that it is becoming the case of one set of networked companies
(companies with strategic alliances with one another) versus another set of networked
companies.

QUESTION

1. Nur Cemerlang Sdn Bhd plans to expand its textile products to Chinese market. As
the manager of the company, Identify three basic decisions before entering into
foreign markets.

2. Discuss THREE (3) modes of entry in International Business. (15 marks)
3. Discuss THREE (5) advantages of Franchising
4. Discuss THREE (5) disadvantages of wholly own susidiaries

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CHAPTER 5

THE CULTURE ENVIRONMENT

LEARNING OUTCOMES
 At the end of this chapter, you will be able to:
Discuss the foundation concepts of culture in international business
 Interpret the concept of culture
 Clarify the elements of cultural
 Clarify the overcoming cultural challenges
 Clarify the culture affects all business functions
 Interpret the culture differences for International Business in 5 continent countries:
 Clarify Hofstede Cultural Dimensions in international business
 Describe the Hofstede’s five dimensions

5.0 Discuss the foundation Concept of Culture in International Business
5.1 Culture : The learned share and enduring orientation pattern in a society. People
demonstrate their culture through value, customs, behaviour and other elements in human life
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between races andnations. People from various parts of the world differ physically ( skins,
appearance, language) the way one think, beliefs and how do things Anthropologist view culture : as
elements in human life such as spiritual, material, intellectual & emotional features of society/social group.
The greater the differences in culture, the wider the cultural gap. Example: Business negotiation
between Malaysians are easier than negotiation between Malaysian and French.

5.1.1 Definition of culture
Culture: most anthropologist view culture as the sum total of the beliefs, rules, techniques,
institutions and artifacts that characterize human populations. Society is composed of people and
their culture. Anthropologists often use the terms interchangeably or combine them into one
word sociocultural. Business people are interested with both social and cultural. The culture
features includes:

• Culture is learned not innate
• The various aspects of culture are interrelated
• Culture is shared
• Culture defines the boundaries of different groups

How do international business people learn to live with other cultures?
To realize that there are cultures different from their own. They must go on to learn the
characteristics of those cultures so that they may adapt to them.

E.T. Hall, a famous anthropologist, claims this can be accomplished by:
• Spend a lifetime in a country
• Undergo an extensive, highly sophisticated training program that covers the main
characteristics of a culture, including the language. Idiom: An expression whose symbolic
meaning differs from its literal meaning; you can’t understand it simply by knowing what
the individual words mean. Examples:
Australia: “The tall poppy gets cut down” (importance of not being showy or pretentious
World Culture(Religion)

5.1.2 Clarify the elements of culture: (Cultural differences across countries)

a. Aesthetics
Aesthetics is culture’s sense of beauty and good taste and is expressed in its art, drama, music,
forklore and dance

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Refers to imagery that represents certain expression & symbolism of certain colors. Some
cultures have strong historical background in the arts like music, painting, dance, drama &
architecture.
It is important when business consider to do business in other culture. The selection of
appropriate colors, music, painting can increase firm’s success. (eg. Green is a favourable color
to Islam, black color of mourning in US, Europe, Mexico. White for Japan, & Asia)
The number ‘7’ signifies good luck in US, but opposite in Singapore, Ghana and Kenya
In Japan, the number 4 is unlucky, we have to make sure that there are more or less than 4 in a
package of goods.

b. Religion

Refer to specific set of beliefs & practices regarding the spiritual. Includes beliefs in the existence
of the creation and govern the world. Ritual, prayer other spiritual exercises are part of religious
practice. Understanding religions help to understand how it affects business practice. Muslims
make up majority of the population in nearly 40 countries all over the world (North West Africa,
Middle East, China, Malaysia, Indonesia) Islam views human as a collective entity & the
wealthy & successful people obliged to help the disadvantage. Business that involved exploit
attention of others are not welcomed in Islamic countries. Hinduism practices in India. They
believe that a moral force in a society requires the acceptance of certain responsibilities known
as Dharma. Historically Hinduism supported India’s caste system. Modern days has generated
hard working entrepreneurs that contribute to the economic growth

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c. Language

All languages are complex and reflective of international environment. Translating one language
into another. Silent Languages likes color associations, sense of appropriate distance, time, and
body language. Personal communication is refer to how people in other cultures communicate
(their thoughts, feelings, knowledge & information through speech, actions,
writing).Understanding spoken language helps to know how people think & act the way they do.
Body language is important in order to avoid sending unintended / embarrassing messages.
(Gestures, facial expression, physical greetings, eye contact, personal space)
An attempt to communicate with people in different culture is known as inter-cultural
communication. It may have an effect on discussion. (Example. A Malaysian and an Italian had to
communicate an important matter, but neither person speak English, and no one understand each
other). Example Mañana is visitors to Latin American are puzzled by the term Mañana. The
literal translation is “tomorrow” but it really means “in the near future”.

d. Manners & customs

Refer to appropriate methods of behaving, speaking & dressing in culture.
Korea : poor manners to lift a rice bowl close to one’s mouth when eating rice, but common
practice in China & Japan.
Customs: habits / ways of behaving in specific circumstances, passed down from generations.
Differ from manners in that they define appropriate habits/ behavior in specific situation (sharing
food during Islamic holy month of Ramadan is a customs among Muslims)

Attitudes toward time:

The attitudes toward time cultural characteristics may present more adaptation problems for
Americans overseas than does any other. Time is important in the US.
Americans be prompt: if an appointment is made to see a group Germans at 12 noon, we can be
sure they will be there. To get the same response from Brazilians, we must say ‘noon English hour’.
If not, the Brazilian may show up anytime between noon and 2 o’clock.
Directness: American directness and drive are interpreted by many foreigners as rude. Americans
want to get to the point in a discussion and the attitude irritates others
Deadlines: western emphasis on speed and deadlines. In Far Eastern countries such as Japan,
American may be asked how long he or she plans to stay at the first meeting. negotiations are

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purposely not finalized until a few hours before the Americans departure. The Japanese know
they can wring extra concessions from the foreigner because of their haste to finish and return
home on schedule.

Values
Refers to ideas, beliefs, & customs which people are emotionally attached to such as honesty,
freedom and responsibility. Affect people’s work ethics & desire for material possessions. Values
in one culture distinct from another. Example: Low-context cultures: meetings follow a precise,
well-planned agenda, High context culture: time spend deciding whether there is thrust bet.
Participants before focusing on the business at hand Singapore: people value hard work &
material success, Greece, values leisure & modest lifestyle

Attitudes toward achievement and work
In developing countries, a change has occurred as more consumer goods have become available,
the demonstration effect (seeing others with these goods)cause workers to realize that they can
have greater prestige and pleasure by owning more goods. Their attitude towards work changes
because they now want what money can buy. In Industrialized nations, after peaking at 43.3 hours
per week in 1994, US weekly average for production workers had dropped to 42.6 hours by 1996.

e. Social Organizations

Positive or negative evaluations, feelings, tendency individuals hold in mind towards
objects/ concepts learns from role models like parents, teachers, peers, & religious leaders and
group. These differences can cause problems interpreting what the other person is doing. Some
simple examples:
In the US, a firm, short handshake indicates self-confidence and (heterosexual) masculinity. A limp
handshake by a man can be interpreted (usually wrongly) as a sign of homosexuality or wispiness.
But in most parts of Africa, a limp handshake is the correct way to do it. Furthermore, it is common
in Africa for the handshake to last several minutes, while in the US a handshake that is even a few
seconds too long is interpreted as familiarity, warmth and possibly sexual attraction.

Family Relationships

Refer to the extent of relationships in a family. A family is the primary unit of society.
Children are socialized into human society & into a culture’s beliefs, attitudes, values & behavior
through the family. Issues related to cultural groups are family structure (nuclear family or

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extended family) rights and responsibilities of the family members, authority in the home, values
placed on having children.

Cultural change
Culture evolves over time. Globalization & economic development, has some impact on cultural
elements in a society. (Example: economic progress accompanied by a shift in values away from
collectivism toward individualism) Malaysia has shifted to career-oriented. As a result society has
become more individualistic & limited time to socialize.

Differences in Cultures
Increasingly, managers must deal with multiple ethnic groups with very different cultures.
Globalization people likely to work with Japanese, French, Chinese, German and all sorts of other
nationalities. It is important to recognize that people from different cultures have are different in

a variety of ways, including different ways of looking at things, different ways of dressing and ways
of expressing personality/goodness.

Cultural Differences in Entrepreneurship in each countries, It is said that when someone
startsa new business…
in Hong Kong, the whole family works ceaselessly to make it a success.
in the United States, friends put up their money for the entrepreneur.
in Turkey, friends will ask the entrepreneur to hire their sons and nephews.
in India, the administrative system will impose a staggering amount of red tape.

5.1.3 Clarify the overcoming Culture Challenges

a. Cross Culture Risk
A situation or event where a cultural miscommunication puts some human value at stake. Culture
risk may effect business failure because of misunderstanding about decision between other
countries (culture). The critical part of culture may effect to high risk if both party not really
understand other language, believe, attitude. It arises in environment characterized by unfamiliar
languages and unique, value systems, beliefs, and behavior.

Cross – Cultural Risk: Managerial Guidelines
Guideline 1:

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Acquire factual and interpretive knowledge about the other culture, try to speak the language
Guideline 2: Avoid Culture Bias
Guideline 3: Tolerance for ambiguity, Perceptiveness, Valuing personal relationships
Flexibility and adaptability

b. Cultural Awareness

Cultural Awareness is the foundation of communication and it involves the ability of standing back
from ourselves and becoming aware of our cultural values, beliefs and perceptions. Why do we
do things in that way? How do we see the world? Why do we react in that particular way?

Cultural awareness becomes central when we have to interact with people from other cultures.
People see, interpret and evaluate things in a different ways. What is considered an appropriate
behaviour in one culture is frequently inappropriate in another one. Misunderstandings arise
when I use my meanings to make sense of your reality.

As an Italian it is almost automatic to perceive US Americans as people who always work, talk
about business over lunch and drink their coffee running in the street instead of enjoying it in a
bar. What does it mean? Italians are lazy and American hyperactive? No, it means that the
meaning that people give to certain activities, like having lunch or dinner could be different
according to certain cultures. In Italy, where relationships are highly valued, lunch, dinner or the
simple pauses for coffee have a social connotation: people get together to talk and relax, and to
get to know each other better. In the USA, where time is money, lunches can be part of closing a
deal where people discuss the outcomes and sign a contract over coffee.

Misinterpretations occur primarily when we lack awareness of our own behavioral rules and
project them on others. In absence of better knowledge we tend to assume, instead of finding out
what a behaviour means to the person involved, e.g. a straight look into your face is regarded as
disrespectful in Japan.

Becoming aware of our cultural dynamics is a difficult task because culture is not conscious to us.
Since we are born we have learned to see and do things at an unconscious level. Our experiences,
our values and our cultural background lead us to see and do things in a certain way. Sometimes
we have to step outside of our cultural boundaries in order to realize the impact that our culture
has on our behavior. It is very helpful to gather feedback from foreign colleagues on our behavior

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to get more clarity on our cultural traits.

Projected similarities could lead to misinterpretation as well. When we assume that people are
similar to us, we might incur the risk that they are not. If we project similarities where there are
not, we might act inappropriately. It is safer to assume differences until similarity is proven

c. Cultural Compatible
This involves having a local person manage the client relationship from onshore boundaries.

Here are some tips to overcome the problems of cultural differences and make your offshore
outsourcing project a success.

To completely understand the culture of a foreign country, you need to first keep aside your
judgments and prejudices. Only then can you attempt to accept the offerings of the other.

Remember that the responsibility of transcending the cultural differences lies with both the
service provider and the outsourcing client. Apart from expecting your provider to understand
and work according to your work culture, also make an attempt to respect their cultures.

d. Resources Deployment
Apart from making an effort to understand one another's cultures, the outsourcing partners
should also show the understanding in their behavior. It is important to put knowledge into
practice and further employ it in work proceedings.

Maneet Puri is the managing director of LeXolution IT Services, a professional IT outsourcing
company based in India that offers seamless and cost competitive KPO services to its clients. His
company has significant expertise in offering internet market research, virtual assistance and web
mining and processing services.

5.1.4 Clarify the Culture affects all business function

a. Marketing
b. Human Resources
c. Production
d. Accounting And Finance
e. Preferred Leadership styles

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Cultural risks occur as the result of different expectations, misunderstandings and
miscommunications between a buyer and the seller. Example: A seller wants to make a large sale
to meet a quarterly quota. The buyer wants to be polite and may be saying “yes,” acknowledging
the seller’s explanation of the features and benefits of the product. The seller asks for the
potential buyer’s standard shipping instructions, which are then promptly provided. The seller
enters the “order,” and the shipment is made. But the buyer has never placed a proper order and
therefore rejects the shipment.

A request for a quotation arrives that is misinterpreted to be a purchase order. A lack of
communication resulting from language problems results in a shipment being made that has not
been ordered.
A buyer promises to pay promptly when the goods are delivered. What the seller fails to realize
is promptly will be after the month-long holiday in the buyer’s country during which the goods
may be shipped but will not be picked up by the company until after the holiday. Thus payment
is delayed, and demurrage costs may accumulate.
A seller, by not doing extensive marketing research, exports a product for distribution only to find
out that for religious and cultural reasons it will not be purchased and therefore is rendered
worthless.
Risk is an inherent part of all business transactions. There is risk of slow or non-payment in

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domestic transactions that arise primarily from the unwillingness or inability of a buyer to pay a
seller when payment is due.
When international transactions take place, more risks are added because of the laws, regulations
and politics of the buyers’ and sellers’ countries as well as possible third countries. The financial
condition of a buyer’s country may cause delayed or blocked payments. Changes in the relative
value of buyers’ and sellers’ currencies pose risks. The number of documents required in many
cross- border transactions opens the possibility of missing documents or discrepancies in the
forms to be filed, leading to slow or blocked payment.
There are many misunderstandings that can occur in business transactions negotiated among
countries in distant time zones, with different languages, varying cultural practices and dissimilar
ethical values. Any or all of these can contribute to payments not being received when due.

5.1.5 Interpret the culture differences for international business in others countries

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a. CHINA

Greetings: People shake hands when meeting, often with slight bows. Age and rank are clearly
noted and respected in China. People introduce themselves in line with this, that is, the most
senior individuals are greeted first. Because the Chinese value the group over the individual, full
names are written with family name first. The Chinese also might initially introduce themselves
this way. People also tend to introduce themselves with their full titles and company name and
you should follow suit.

Schedules: Punctuality is appreciated and respected in business. Arriving early for a dinner,
however, is considered a sign of hunger and is therefore rude. Show up about five minutes
before a meeting or meal is scheduled to begin.

Meetings: Chinese culture is reserved compared with other cultures around the world. As such,
the Chinese may come off as standoffish in professional gatherings. Meetings are kept civil and
respectful in a formal way — and they stick to business. Chinese meetings are highly structured,
so interrupting is considered rude. Because Chinese are hyper aware of seniority and rank,
seating should be arranged with this in mind.

Meals: The Chinese are very hospitable and lavish when hosting guests, including in business. It

is not uncommon to throw banquets for guests (a gesture that should be returned at some point)

and for business associates to argue over who will pick up a check. There will likely be

frequent toasts during meals. The protocol: clink your glass below the rim of someone of a

higher rank. Do not serve your own drink, but make sure to keep the glasses of those next to you

full. Because dishes are usually served on a lazy Susan, you should serve yourself from the dish
directly in front of you. Slurping soup and burping at the table are acceptable, so don’t beput off.

People leave food on their plate to show they are satisfied. It is also common practicefor Chinese

hosts to stay until the guest of honor leaves.

Guanxi: Important in Business in China

Refers to social connections and relationships based on mutual benefits
•Emphasizes reciprocal exchange of favors as well as mutual obligations

•Rooted in ancient Confucian philosophy, which values social hierarchy and reciprocity

•Engenders trust, thereby serving as a form of insurance in a potentially risky business

environment

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b. UNITED STATES

Greetings: People introduce themselves by name and with a firm handshake to everyone
present. Business culture in the US is generally mindful of the separation between professional
and private life. While pleasantries and a brief exchange asking how someone is doing are
common, conversation quickly moves to business. Similarly, Americans are very conscious about
personal space and tend to give more than in European or Latin countries. Close-talking is
generally uncomfortable in American professional settings.

Schedules: Whether on phone calls, to meals or dinner, promptness is expected. Many people in
the US consider being on time as actually being late in business settings, so be sure to arrive
early. That said, expect a straggler or two. Business dinners generally follow the conclusion of
the workday and tend to start as late as 19:00.

Meetings: In most business settings, Americans schedule meeting times and stick to them.
Conversation is usually kept on-topic and sticks to business, with light conversation before orafter
a meeting wraps. While it varies by industry, Americans tend to dress conservatively, although
many workplaces in the US have adopted business casual dress policies.

Meals: Americans are open to scheduling and doing business at any meal, including breakfast.
But people watch the clock, including during business lunches, which are typically kept to one-
hour’ time. Don’t be put off by your host checking his or her watch at regular intervals, but
answering calls or checking phones during a meal is impolite. Wait until everyone is served
before eating. Americans are known to be big eaters, so feel free to take seconds if offered. Keep
in mind that smoking is unpopular indoors the US, not to mention illegal in most settingswhere a
business meal would take place. To be safe (and avoid potential judgment) wait untilthe meal has
concluded to smoke outside. Follow the host’s lead when it comes to ordering alcohol. (Getty)

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c. EUROPE ( France)

Europe's by population in 2020

The ten largest cities are Istanbul (pop. 15 million; Turkey/Türkiye), Moscow (pop. 12.6 million;
Russia), London (pop. 9.1 million; United Kingdom), Saint Petersburg (pop. 5.4 million;
Russia), Berlin (pop. 3.75 million; Germany), Madrid (pop. 3.2 million; Spain), Kiev (pop. 2.9 million;
Ukraine), Rome (pop. 2.85 million; Italy), Paris (pop. 2.14 million; France), and Bucharest (pop. 2.1
million; Romania).
Official and Spoken Languages of European Countries.
Europe is a continent with many countries (about 50) and almost each country has its own language, known
as the national language. Some countries have even more than one national language. At the fringes of the
countries languages may overlap and used interchangeable, this means, people in the border regions of
countries might understand and speak the language of the neighboring country.

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Language in Europe

There are Europeans who have learned Spanish, French, German, English, or even Latin as a second
language, so they might be able to use it in the country where those languages are spoken. English is on the
rise used not only in Europe as a lingua franca, escpecially by the younger generation of Europeans, even so
France tried hard to protect its citizens from the unwanted influence of English on French (language)
culture. However, the EU, the European union of 28 member states has 24 official languages, but in practice
only two are used most often: English and French.

Political system
France is a semi-presidential republic with a head of government. The prime minister appointed by the
president who is the directly elected head of state. France’s territory consists of 18 administrative regions(
13 metropolitan i.e. European France) and 5 overseas regions. All 5 of the overseas regions, as well as Saint-
Martin (a French territory in the Caribbean) are considered part of the EU (with the status of outermost
region). Strasbourg, a city in France, is one of the three official seats of the European institutions. The others
are Brussels and Luxembourg City.

Trade and economy

The most important sectors of France’s economy in 2020 were public administration, defence, education,
human health and social work activities (23.4%), wholesale and retail trade, transport, accommodation and
food services (16.4%) and Professional, scientific and technical activities; administrative and support service
activities (14.2%).Intra-EU trade accounts for 54% of France’s exports (Germany 15%, Italy 8% and
Belgium and Spain 7%), while outside the EU 8% go to the United States and 6% to the United Kingdom. In
terms of imports, 66% come from EU Member States (Germany 17%, Belgium 10% and the Netherlands
9%), while outside the EU 7% come from China and 5% from the United States

d. AFRICA
The culture of Africa is incredibly interesting due to the fact it is varied, depending on which country you
visit. The continent is home to diverse populations, many of which have been influenced by external factors.
Each country has its own tribes, languages and cultural differences. Uganda have more than thirty
established tribes. We will now take a look at some of the most well-established products of African culture
including tribes, food, arts and language.

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Famous Africa Tribes

The Zulu people are South Africa’s largest ethnic group. It is estimated that between ten and eleven million
people live in the province of KwaZulu-Natal. During 19th and 20th much of South Africa was under
apartheid and the Zulu people were classed as third-class citizens often suffering from discrimination. Today
they have equal rights along with all other citizens.

The Maasai people live in the Rift Valley region of Kenya and Tanzania. They own large herds of cattle,
sheep and goats, which they regularly move around to new grazing grounds and water sources. They are a
proud and independent tribe who base their wealth and power on cattle. The more cattle a Maasai member
has, the more rich and powerful they are seen as by their tribe.

There are more than fifty unique tribes living in the Omo River Region of South western Ethiopia, making it
a great place to visit if you are interesting in African culture. Many of the traditional customs and beliefs
have remained intact due to lack of access to area.

African Food

Many people living in Eastern, Western and Southern African villages are farmers. They live almost entirely
off the food they grow themselves. Traditional African food is also sold at outdoor markets. In countries like
Morocco and Algeria couscous is a popular dish served with meat and vegetables. In Western Africa it is
common for people to grow and eat cassava, maize, mille and plantains. When visiting African countries
you will find that they are very traditional, with most woman and girls carrying out the task of cooking
meals. Colonisation has also affected the food and drink served in some parts of Africa such as Kenya where
it is common for people to drink tea.

African Art

Africans are one of the biggest contributors to sculptural art. The art form of African sculpture dates back
thousands of years with some of the earliest sculptures being found in Egypt.

African Languages

There are thousands of indigenous languages and dialects spoken in Africa. Every African country has its
own languages, even the smaller countries. However due to the fact that many African countries were once
part of European colonies, many people are able to speak Creole or Pidgin versions of English, Portuguese
of French. In Northern Africa Arabic is spoken, whereas in East Africa Swahili is the dominant language.

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e. AUSTRALIA

Australia Language, Culture, Customs and Etiquette Australian
Society & Culture Aussie Modesty Australians are very down to earth and always mindful of not giving the
impression that they think they are better than anyone else. They value authenticity and sincerity.Australians
prefer people who are modest, humble, self- deprecating and with a sense of humor. They do not draw
attention to their academic or other achievements and tend to distrust people who do. Australians place a
high value on relationships. Most retail outlets accept cards and phone apps for payment. The capital city is
Canberra and the main cities is Sydney, Melbourne, Brisbane, Perth Population: 23.13 million and major
religion is Christianity
Australia main Language is English and Australia’s seasons are at opposite times to those in the northern
hemisphere. The culture of Australia is a Western culture derived primarily from Britain but also influenced
by the unique geography of the Australian continent, the diverse input of Aboriginal, Torres Strait Islander
and other Oceania people. The oldest surviving cultural traditions in Australia (which are actually some of
the oldest surviving traditions on earth) – are those of Australia’s Aboriginal and Torres Strait Islander
people. Their ancestors inhabited Australia for between 40,000 and 60,000 years and they lived a hunter
gatherer lifestyle. The boomerang and didgeridoo, which were invented by Aborigines, are to this day iconic
symbols of the country. Australians are generally laid back, open and direct. They say what they mean and
are generally more individual and outgoing than other cultures. More than three quarters of Australians live
in cities and urban centres, mainly along the coast.

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A Multi-Cultural Society

The initial population of Australia was made up of Aborigines and people of British and Irish descent. After
World War II there was heavy migration from Europe, especially from Greece, Italy, Germany, the
Netherlands, Yugoslavia, Lebanon, and Turkey. This was in response to the Australian policy of proactively
trying to attract immigrants to boost the population and work force. In the last thirty years, Australia has
liberalised its immigration policy and opened its borders to South East Asia.

Australian Culture

This has caused a real shift in self-perception as Australians begin to re-define themselves as a multi-
cultural and multi-faith society. Clothing Australian local dress styles are different from Australia’s
fashions. Dress has been influenced by the experience of living in rugged countryside as well as
participating in modern leisure activities such as swimming, surfing and beach culture. This is reflected in
different fabrics, such as moleskin and drill cotton, developed for more practical wear. Today, lifesavers
wear long-sleeved tops or wetsuits and sun hats, as do children, as protection from the sun. In response to
the beach experience, board shorts, singlets, colourful shirts and thongs have been adopted as part of a
national dress code by both males and females. The Australian Language Australian English is the country’s
official language and is the first language of the majority of the population. Australian English differs from
other varieties of English in vocabulary, accent, pronunciation, grammar and spelling.

Etiquette & customs Australians are generally not formal, so greetings, even initial greetings, are casual
and laid back. It’s common to shake hands and Australians would normally just use first names to introduce
people. Gifts are exchanged at birthdays and Christmas. Gifts are usually opened when they are received, in
front of the gift giver. It’s hard to picture the Australian life without thinking about the good old Aussie
BBQ and holding a nice cold drink in your hand! When invited to someone’s house, it’s polite to phone
head to see if the host or hostess would like you to bring anything else. Always arrive on time if invited to
dinner.

Table manners are western - hold the fork in the left hand and the knife in the right while eating. Indicate
you have finished eating by laying your knife and fork parallel on your plate with the handles facing to the
right. Keep your elbows off the table and your hands above the table when eating.

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Australian Culture Religion

While Australia has a strong tradition of secular government, religious organisations have played a
significant role in public life. Christain churches, in particular, have played an integral role in the
development of education, health and welfare services. While less than a quarter of Christians attend church
weekly, around a quarter of all school students attend church-affiliated schools and the Christian festivals of
Easter and Christmas are public holidays. The Roman Catholic Church is by far the largest non-government
provider of health and education services in Australia. First Meetings It is polite in Australia to shake
someone’s right hand when you meet him or her for the first time. Australians tend to be fairly informal in
their everyday interactions and it is common practice to call someone by their first name only. You can
address someone by their title and their family name, but this is considered unnecessary and overly formal
for most situations. People do, however, tend to be more formal in business and professional situations.
Names Naming in Australia follows this format; first name, optional middle name(s) and last name.
Traditionally, Australian children have taken their father’s last name and most married parents still opt for
this convention; but it’s not imperative to do this. Under the various State name registration guidelines, a
child born to unmarried parents will be registered with the mother’s surname, unless both parents agree to
the child being registered with the father’s surname.

5.2 Clarify Hofstede Cultural Dimensions in International Business

Hofstede identified: Four independent dimensions of national culture. Hofstede’s Typology of
National Culture Individualism versus collectivism. Refers to whether a person’s primary function
is as an individual or as a member of a group.

a. Individualism vs Collectivism
An Individualism is societies, each person emphasizes his or her own self-interest; competition
for resources is the norm; and individuals who compete best are rewarded. Examples: Australia,
Britain, Canada, and the U.S.

In collectivist societies, ties among individuals are important; business is conducted in a group
context; life is a fundamentally cooperative experience; and conformity and compromise help
maintain harmony. Examples: China, Panama, Japan, and South Korea.

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Individualist Vs Collectivist

b. Power distance describes how a society deals with inequalities in power that exist among
people.
High power distance societies exhibit big gaps between the weak and powerful. In firms, top
management tends to be autocratic, giving little autonomy to lower-level employees. Examples:
Guatemala, Malaysia, Philippines, and several Middle Eastern countries.
Low-power distance societies have small gaps between the weak and the powerful. Firms tend
toward flat organizational structures, with relatively equal relations between managers and
workers. For example, Scandinavian countries have instituted various systems to ensure
socioeconomic equality.

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c. Uncertainty Avoidance
Uncertainty avoidance refers to the extent to which people can tolerate risk and uncertainty in
their lives.
High uncertainty avoidance societies create institutions to minimize risk and ensure security.
Firms emphasize stable careers and regulate worker actions. Decisions are made slowly. Examples
are Belgium, France, and Japan. In low uncertainty avoidance societies, managers are relatively
entrepreneurial and comfortable with risk. Firms make decisions quickly. People are comfortable
changing jobs. Examples are Ireland, Jamaica, and the U.S.

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Avoidance

d. Masculinity versus femininity refers to a society’s orientation based on traditional male and
female values.
Masculine cultures value competitiveness, ambition, assertiveness, and the accumulation of
wealth. Both men and women are assertive, focused on career and earning money. Examples are
Australia and Japan.
Feminine cultures emphasize nurturing roles, interdependence among people, and caring for less
fortunate people—for both men and women. Examples are Scandinavian countries, where
welfare systems are highly developed and education is subsidized.

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Masculinity Vs Femininity

e. Long-term versus short-term orientation describes the degree to which people and
organizations defer gratification to achieve long-term success.
Long-term orientation emphasizes the long view in planning and living, focusing on years and
decades. Examples are traditional Asian cultures, such as China, Japan, and Singapore, which base
these values on the teachings of the Chinese philosopher Confucius (500 BCE), who espoused
long-term orientation, discipline, hard work, education, and emotional maturity.
Short-term orientation is typical in the United States and most other Western countries.

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QUESTION
MULTIPLE CHOICE( Please Circle The Correct Answer)

1. Which of the following are cultural aspects that affect global marketing? Choose all that apply.
A. Language
B. Product specialization
C. Time & Punctuality
D. Business Norms

2. Collectivism is characterized by
A. self-reliance
B. consensus or group agreement
C. selfishness
D. none of the above

3. People expressing themselves in a meaningful way.
A. Fine Arts
B. Government
C. Customs and Traditions
D. Language

4. A culture which stresses interdependence and gives priority to GROUP welfare
A. Individualist Culture
B. Collectivist Culture
C. Shura
D. Nonverbal Signal

5. Basic human needs such as food, clothing, sports, education, festivals etc. passed down from one generation to
the next.

A. Customs and traditions
B. Government
C. Language
D. Social Organizations

6. Which of the following is not an element of culture?

A. Clothing
B. Traditions
C. Food
D. Weather

7. What is a culture region?
A. A shared background
B. A tradition
C. The description of a place
D. A geographic region where people have a common way of life

8. Culture is how people...

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A. live, behave, and think in a region
B. describe a place
C. are grouped togehter
D. practice their beliefs

9. In a high-context culture, language is very direct and words are taken literally.
True
False

10. Business subcultures around the world have similar values, beliefs, and assumptions.
True
False

11. Germany and the United States could be considered a high-text culture.
True
False

ESSAY
1. Apply Japanese’s culture based on Hofstede’s FOUR (4) dimensions framework (16 Marks)

2. Describe any FIVE elements of culture influence decision in International business ( 10 Marks)
3. What is a custom? ( 5 Marks)

THE END

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