analyzing risks for working internationally
DESCRIPTION
Completed Independent Study on analyzing cultural risks when working or investing internationally. Focused on Hofstede\'s cultural dimensions and gave real example and analysis of both perspectivesTRANSCRIPT
Analyzing Risks for International Companies and ManagersMeasuring cultural risk with Dimension Models
Julianne Salisbury – Independent Study – 4/7/2010
Business today
International Companies are faced with increasing risks as they expand to new markets
Globalization, faster technology markets are moving over borders and many companies have new opportunities for expansion
Many wish to expand but are unsure of the risks and how to calculate them
Categories of Risk
Political Economic
Cultural
Economic Risk
The likelihood that events, including
economic mismanagement, will
cause drastic changes in a country’s
business environment that adversely
affect the profit and other goals of a
particular business enterprise.
Hill, C. (2004). International Business: Competing in the Global Marketplace . Chicago: Irwin Professional Publishing.
Economic Risk: General examples
A countries central bank may
raise interest rates
A government or a state’s
legislature may raise taxes for
foreign investors or companies
Beginning to build and sell
luxury condo’s immediately
before or during a recession
Political Risk
Associated with major changes in political regimes and it reflects the threats and opportunities associated with potential or actual changes in the political system
Found at macro or micro levels
Higher concern in emerging markets and developing countries
Most risky for direct foreign investmentsShubik, M. (1983). Political risk: Analysis, process, and purpose. In R. J. Herring, Managing International Risk (pp. 109-38). New York: Cambridge University Press.
Political Risk General Examples
The government structure that was present upon
initial investment in the country is dramatically
changed after a new leader is elected that wants to
discourage FDI through higher taxes
A country has a complicated tax system, which
increases the costs of accounting practices and fees
required for basic business practices in the country
Cultural Risk
Least-structured and least-defined
element of risk
Lowering cultural risk requires an
understanding of the specific foreign
beliefs and systems that could affect
business and daily interaction
If none, a companies risk mitigation
approach won't develop strategies to
avoid potential pitfalls and harness
opportunities for synergy
Schomer, K. (n.d.). Change Management Consulting & Training. Retrieved Feb 1, 2010, from Cross-Cultural Risk Factors in Offshore Outsourcing: http://www.cmct.net/article_risk_factors.html
Measuring Cultural Risk
Use broad cultural dimensions to see compatibility and foster understanding
The process gives direction and finds outward compatibility
Implements two important studies that help measure the impacts of cultural differences on management and success
To understand different cultures, remember these four principles:
1. Individuals may not conform
2. Differences may not be culturally based
3. Understand your own culture first
4. Cultures are on Continuums– Few fall at the extremes, most
are somewhere in the middle
Image accessed at: http://noelbellen.blogspot.com/2009/06/understanding-cultural-differences.html
Ethnocentrism
Belief thatone's culturalvalues, beliefs
and norms are
better thanthose ofanotherculture
Geert Hofstede Cultural Dimensions
Study started in 1960 and continued for three decades
Great guidelines to understand and implement when analyzing
cultural risk and planning for management adjustments when
doing business with diverse cultures.
Based on an employee opinion survey involving 116,000 IBM
employees in 40 different countries. From the results of the
survey, which asked people for their preferences in management
style and work environment
Identified four “value” dimensionsHampden-Turney, C., & Trompenaars, F. (2000). Building Cross-Cultural Competence: How to Create Wealth from Conflicting Values. New Haven & London: Yale University Press.
Hofstede’s Cultural Dimensions
power distance – indicates the extent to which a society accepts the unequal
distribution of power in institutions and organizations.
uncertainty avoidance – refers to a society’s discomfort with uncertainty,
preferring predictability and stability.
individualism versus collectivism – reflects the extent to which people
prefer to take care of themselves and their immediate family, remaining
emotionally dependent from groups, organizations, and other collectivities.
quantity of life versus quality of life – the focus in culture of
accumulation of wealth or the focus on relationships and quality of life
Hampden-Turney, C., & Trompenaars, F. (2000). Building Cross-Cultural Competence: How to Create Wealth from Conflicting Values. New Haven & London: Yale University Press.
Fons Trompenaar’s cultural model
A Dutch author in the field of cross-cultural communication.
Ph.D at Wharton with a dissertation on differences in
conceptions of organizational structure in various cultures.
Professionally worked with Shell in nine countries
Model of culture with seven dimensions and orientations
covering the ways in which human beings deal with each other
Trompenaar’s cultural model Universalism vs. particularism - What is more important, rules or relationships?
Individualism vs. communitarianism
Neutral vs. emotional - Do we display our emotions?
Specific vs. diffuse - Is responsibility specifically assigned or diffusely accepted?
Achievement vs. ascription - Do we earn our status or is it given to us?
Sequential vs. synchronic - Do we do things one at a time or several things at once?
Internal vs. external control - Do we control our environment or are we controlled?
Hampden-Turney, C., & Trompenaars, F. (2000). Building Cross-Cultural Competence: How to Create Wealth from Conflicting Values. New Haven & London: Yale University Press.
Road Map for using the studies here
1. Selected dimensions will be
explained and illustrated
with real-world examples.
2. A situation will be presented
3. Both viewpoints will be
explained
4. Management techniques for
each situation
Universalism vs. Particularism
The DilemmaUniversalism
(rules, codes, law, and generalizations)Searches for sameness and similarity
and tries to impose on all members of their commonality.
Particularism
(exceptions, circumstances, relations)Searches for differences, for unique and exceptional forms of distinction
that render phenomena incomparable of matchless quality.
Management Implications
Use procedures applied to allFormalizes business practicesAnnounce changes publicly
Treat all cases similarly
Management Implications
Make changes subtly and privatelyTreat each case based on its unique
circumstances
Hampden-Turney, C., & Trompenaars, F. (2000). Building Cross-Cultural Competence: How to Create Wealth from Conflicting Values. New Haven & London: Yale University Press.
Percent who prefer Universalist system
USA
UKNeth
erla
ndsJa
panM
exicoSou
th K
orea
93
90
88
68
64
37
Graph made from data offered at : http://www.kwintessential.co.uk/map/hofstede-uncertainty-avoidance.html.
The Dilemma in Practice
A real-estate investment company in the U.S. is entering into a joint
venture to build a sports center in Shanghai.
They meet halfway, in Hawaii, to sign the contracts. The U.S. businessmen
bring along two lawyers with them, and because of this the Chinese seem a
bit taken aback. During the negotiations the Chinese try to keep the
contracts vague and not too tied. They tell the Americans that the
contracts can be figured out as things go along, and they want to continue
after dinner.
The Chinese are obviously positive and excited about the venture, but the
Americans feel that the negotiations are not complete until everything is
set in stone.
Photo accessed from: http://www.fotosearch.com/bthumb/CSP/CSP036/k0360680.jpg
Universalist views of the situation
The Universalist culture (The U.S.) relies on the courts
to help settle disputes and for lawyers to help with
negotiations and writing contracts.
It is nothing against the other party, but just part of
the process to make sure both parties are in
agreement and protected.
Americans often try to close deals as fast as possible.
Particularistic views of the situation
A Particularistic culture (Chinese) trust very much on relationships between the
partners.
The U.S. focus on strict regulations/formulations in this situation or similar, could have
offended the Chinese businesses because they felt they weren’t being trusted.
It might happen that Chinese business people will still try to negotiate afterwards
even the contract was already signed/closed and agreed from all sites. In negotiations
Chinese will spend a lot of time in building up a relationship with their business
partners so the actual negotiation will be at the end of the meeting time. A
particularistic culture considers the human relationships more important than rules.
Guidelines for doing business: Universalism and Particularism
The importance of relationships in a Particularistic culture should be
carefully considered and taken into account during business dealings.
For an American doing business with a Particularist culture, they need
to be aware of the way business is normally done.
As a result of the Particularist way to make deals, the Americans might
commit more advantages than first thought just to rush forward and
close a deal. This can be a disadvantage for universalistic cultures
Power DistanceThe Dilemma
High Power Distance Low Power Distance
Those in authority openly demonstrate their rank.
Subordinates are not given important work and expect clear guidance from above.
Subordinates are expected to take the blame for things going wrong.
The relationship between boss and subordinate is rarely close/personal.
Politics is prone to totalitarianism.
Class divisions within society are accepted.
Superiors treat subordinates with respect and do not pull rank.
Subordinates are entrusted with important assignments.
Blame is either shared or very often accepted by the superior due to it being their responsibility to manage.
Managers may often socialize with subordinates.
Liberal democracies are the norm.
Societies lean more towards egalitarianism.
Hampden-Turney, C., & Trompenaars, F. (2000). Building Cross-Cultural Competence: How to Create Wealth from Conflicting Values. New Haven & London: Yale University Press.
The Dilemma in Practice
An American manager was placed in a new plant in Malaysia.
Malaysia has a large power distance. The manager appreciated a
level playing field and wanted to motivate the employees to
speak up if they had new ideas or recommendations for
improvement.
He held biweekly meetings with teams and could see that they
were uncomfortable being asked for input, and they would
always agree with him.
Photo accessed from: http://www.fotosearch.com/bthumb/CSP/CSP036/k0360680.jpg
High and Low Power Distance viewpoints
Adjusting for Power Distance would be
different for countries that were higher or
lower than the home country.
Measurements are readily available
online. For example, the US Power Index
is 40, and Malaysia is 104. Bartlett, C., & Ghoshal, S. (2008). Transnational Management: Text, Cases, and Readings in Cross-Border Management. New
York: McGraw-Hill Education.
Power Distance ComparisonsAverage = 51M
exic
o
Taiw
an
Japan
South
Af.
..
USA
Neth
er.
..
Gre
at
Br.
..
Irela
nd
0
10
20
30
40
50
60
70
80
9081
6154
49
40 38 3528
Graph made from data offered at : http://www.kwintessential.co.uk/map/hofstede-uncertainty-avoidance.html.
As an American working with or going to a country with a higher PDI than yours then:
give clear and explicit directions to those working with you. Deadlines should be
highlighted and stressed.
do not expect subordinates to take initiative.
be more authoritarian in your management style. Relationships with staff may be
more distant than you are used to.
show respect and deference to those higher up the ladder. This is usually reflected
through language, behavior and protocol.
expect to encounter more bureaucracy in organizations and government agencies.Bartlett, C., & Ghoshal, S. (2008). Transnational Management: Text, Cases, and Readings in Cross-Border Management. New
York: McGraw-Hill Education.
As an American working with or going to a country with a lower PDI than yours then:
don't expect to be treated with the usual respect or deference you may be used to.
people will want to get to know you in an informal manner with little protocol or
etiquette.
be more inclusive in your management or leadership style as being directive will be
poorly interpreted.
involve others in decision making.
do not base judgments of people on appearance, demeanor, privileges or status
symbols. Bartlett, C., & Ghoshal, S. (2008). Transnational Management: Text, Cases, and Readings in Cross-Border Management. New
York: McGraw-Hill Education.
Uncertainty Avoidance
the degree to which employees are threatened by
ambiguity, and the relative importance to employees
of rules, long-term employment and steady
progression through well defined career ladders.
measures the level to which individuals in a society
feel uncomfortable with situations that are abnormal
or difficult to understand.
Uncertainty AvoidanceThe Dilemma
High Uncertainty Avoidance Low Uncertainty Avoidance
Usually countries/cultures with a long history.
The population is not multicultural, i.e. homogenous.
Risks, even calculated, are avoided in business.
New ideas and concepts are more difficult to introduce.
Usually a country with a young history, i.e. USA.
The population is much more diverse due to waves of immigration.
Risk is embraced as part of business.
Innovation and pushing boundaries is encouraged.
Hampden-Turney, C., & Trompenaars, F. (2000). Building Cross-Cultural Competence: How to Create Wealth from Conflicting Values. New Haven & London: Yale University Press.
Uncertainty AvoidanceAverage = 64G
reece
Jap
an
Mexic
o
Taiw
an
Neth
erl
an
ds
Sou
th A
fric
a
US
A
Gre
at
Bri
tain
Hon
g K
on
g
0
20
40
60
80
100
120 112
9282
69
53 49 4635
29
High Avoidance of Risk Willing to take risks
Graph made from data offered at : http://www.kwintessential.co.uk/map/hofstede-uncertainty-avoidance.html.
The Dilemma in Practice
A Taiwanese company operates with a uncertainty avoidance level of 69. This shows with
the heavy formalization that is evident in great amount of written rules and procedures.
Also there is a greater (compared to a U.S. company) specialization evident in the
importance attached to technical competence in the role of staff and in defining jobs and
functions. Managers here avoid taking risks and are motivated by stability and security.
Leaders are chosen for their skills in planning, organizing, coordinating and controlling.
A U.S. company is discussing a joint venture with these managers for a real estate
investment in Taiwan. The landscape is a little risky for the project they have in mind, how
can they best succeed?
Photo accessed from: http://www.fotosearch.com/bthumb/CSP/CSP036/k0360680.jpg
As an American working or doing business in a country with a higher uncertainty avoidance score than at home then:
Don't expect new ideas, ways or methods to be readily embraced. You need to
allow time to help develop an understanding of an initiative to help foster
confidence in it.
Involve local counterparts in projects to allow them a sense of understanding. This
then decreases the element of the unknown.
Be prepared for a more fatalistic world view. People may not feel fully in control
and are therefore possibly less willing to make decisions with some element of the
unknown.
Remember that due to a need to negate uncertainty proposals and presentations
will be examined in fine detail. Back up everything with facts and statistics.Bartlett, C., & Ghoshal, S. (2008). Transnational Management: Text, Cases, and Readings in Cross-Border Management. New
York: McGraw-Hill Education.
As an American working or doing business in a country with a lower uncertainty avoidance score than at home then:
Try to be more flexible or open in your approach to new ideas than you
may be used to.
Be prepared to push through agreed plans quickly as they would be
expected to be realized as soon as possible.
Allow employees the autonomy and space to execute their tasks on
their own; only guidelines and resources will be expected of you.
Recognize that nationals in the country may take a different approach
to life and see their destiny in their own hands.Bartlett, C., & Ghoshal, S. (2008). Transnational Management: Text, Cases, and Readings in Cross-Border Management. New
York: McGraw-Hill Education.
Individualism vs. Communitarianism
Points to how the individual, and therefore the community, is defined.
Nations that display highly individualistic attitudes are comprised of a
greater number of citizens who believe that their responsibility for
support extends only as far as their immediate family while the social
framework is tighter in collective societies.
People in the collective cultures discriminate in-groups (relatives,
institutions and organizations) and out-groups. Responsibility for care and
loyalty extend beyond the immediate family to include all members of
the in-group.
Hampden-Turney, C., & Trompenaars, F. (2000). Building Cross-Cultural Competence: How to Create Wealth from Conflicting Values. New Haven & London: Yale University Press.
Individualism vs. Communitarianism
The Dilemma
Individualism(competition, self-reliance, self-interest,
personal growth and fulfillment)Believe that motives such as charity, participation, compassion and social
improvement, originate with individuals and are the result of choice and voluntary
commitment.
Communitarianism(cooperation, social concern, altruism,
public service and societal legacy )Belief that gains in a society (engineering,
increasing population or gdp, high graduation rates), originate in shared
knowledge, communal values, and mutual supportiveness.
Individualism Management ImplicationsUse individual incentives, such as a pay
for performancePlan for turnover
Provide for individual initiative
Collectivism Management ImplicationsFocus on group morale and cohesiveness
Expect low turnoverSet group goals
Hampden-Turney, C., & Trompenaars, F. (2000). Building Cross-Cultural Competence: How to Create Wealth from Conflicting Values. New Haven & London: Yale University Press.
Individualism vs. Communitarianism Ratings Average=51
US
A
Gre
at
Bri
tain
Neth
erl
an
ds
Jap
an
Mexic
o
Hon
g K
on
g
Taiw
an
0
10
20
30
40
50
60
70
80
90
10091 89
80
46
3025
17
Graph made from data offered at : http://www.kwintessential.co.uk/map/hofstede-uncertainty-avoidance.html.
The Dilemma in PracticeA manufacturing plant in Singapore is owned by anAmerican multi-national company.
There has been some issues with a lack of productivity andmanagement has been having a closer look at employeesand processes to see where the problem lies.
The problems are found with a team that overseestransitions between the day and night shifts, specificallywith one employee that has worked in that position for lessthan six months.
The American managers starting asking some questions tothe teammates and team managers but it was difficult topinpoint a problem, as the team seemed unable to offerblame to a specific person.
What would be the best way for the American managers tofind the results they need? Who is responsible for an errormade at work by a new member of a work team?
Photo accessed from: http://www.fotosearch.com/bthumb/CSP/CSP036/k0360680.jpg
Individualistic Views
The American managers would reasonably take the view
that this person alone must carry the responsibility alone,
and that if he or she were dismissed, the other members of
the team would work with greater diligence.
Their cultural views would lean toward the thought that
achievement involved individual goal-setting and action,
and that each team member would have the understanding
that they are ultimately accountable for themselves.
Hampden-Turney, C., & Trompenaars, F. (2000). Building Cross-Cultural Competence: How to Create Wealth from Conflicting Values. New Haven & London: Yale University Press.
Communitarian Views
The Singaporean managers and employees would reasonably
argue that the team and immediate colleagues should have
looked out for a new member and checked that everything was
going smoothly, and that the instructions had been properly
understood.
Instead of placing them they would look at the system and the
team to find possible weaknesses: Had the new member been
adequately trained? Were the instructions clear? Unless such
questions are answered satisfactorily the problem may persist.
Hampden-Turney, C., & Trompenaars, F. (2000). Building Cross-Cultural Competence: How to Create Wealth from Conflicting Values. New Haven & London: Yale University Press.
Advice to managers facing the individualistic/communitarian dilemma
With these differences in mind, it is important for
individualists to recognize the web of relations
encompassing the communitarian party to a conflict,
and to act in recognition of those.
Similarly, it is helpful for those from communitarian
settings to remember that individualists value
autonomy and initiative, and to act in ways that
respect these preferences.
Hampden-Turney, C., & Trompenaars, F. (2000). Building Cross-Cultural Competence: How to Create Wealth from Conflicting Values. New Haven & London: Yale University Press.
Specific vs. Diffuse
Measures the differences in how people engage colleagues
in specific or multiple areas of their lives.
Two groups:
people from more specific-oriented cultures tend to keep private
and business agendas separate, having a completely different
relation of authority in each social group.
In diffuse-oriented countries, the authority level at work can reflect
into social areas, and employees can adopt a subordinated attitude
when meeting their managers outside office hours
Hampden-Turney, C., & Trompenaars, F. (2000). Building Cross-Cultural Competence: How to Create Wealth from Conflicting Values. New Haven & London: Yale University Press.
Specific vs. DiffuseThe Dilemma
SpecificDirect in relationships
Blunt and precise in communicationPrincipled moral reasoningClear distinction between
work and personal life
DiffuseIndirect and subtle in relationships
Ambiguous or evasive in communicationSituation-based moral decision making
small public space that is difficult to enter (e.g. an outsider needs a formal introduction from a
mutual friend in order to do business with aparticular manager)
Specific Managerial ImplicationsUse of objectives and standards
Separate private and business livesGive clear and precise directions
Give constant feedback for best resultsWhen you give your word, you must keep itBe careful of “paralysis through analysis”
Diffuse managerial implicationsAttempt continuous improvement
Mix private and business livesUse ambiguous directions to give
employees latitudeEach decision takes into account the entire
process by which a product is conceived, each decision effects everything.
Hampden-Turney, C., & Trompenaars, F. (2000). Building Cross-Cultural Competence: How to Create Wealth from Conflicting Values. New Haven & London: Yale University Press.
The Dilemma in Practice
A manufacturing company in the U.S. has a plant on one site, and the
research and development branch is located hundreds of miles away.
The products move from stage to specific stage, first developed, then
manufactured, then marketed.
The company is interested in opening another operation in East Asia,
and hired a consultant from the area to review their processes and give
recommendations to how they could adjust these for the type of workers
and management that they’d be hiring.
The consultant’s recommendation was to find developments for easier
manufacturing and locate all functions at a single site, where the
researchers make the product easier to distribute and to service.
Photo accessed from: http://www.fotosearch.com/bthumb/CSP/CSP036/k0360680.jpg
Diffuse Viewpoint
Diffuse styles of thinking create ways of assuring quality that are strange to
most Western cultures. For example, Taichi Ohno’s Toyota production system
asks “five times why” something has gone wrong. If a drillbit broke in
production there may be five or more places to intervene in a diffuse system.
These might include: a stronger drill bit, slower drill speed, softer metal being
drilled, better lubrication, improved training for the drill operator.
Diffuse thinking is much more alert to remote consequences and the need for
balance. The reason for all operations of manufacturing to be together is that
Diffuse thinking considers the entire process from conception to completion,
and often all offices need to get involved to solve a problem or think of a new
idea. Hampden-Turney, C., & Trompenaars, F. (2000). Building Cross-Cultural Competence: How to Create Wealth from Conflicting Values. New Haven & London: Yale University Press.
Specific Viewpoint
Specific cultures usually try and pinpoint a single case,
for example “the drill bit was defective and broke.”
A specific viewpoint would see occurrences to be
separate from each other and a manager would focus
on each individual problem as a separate case.
These cultures are more definite and unambiguous and
may force employees and managers to face the facts.
Hampden-Turney, C., & Trompenaars, F. (2000). Building Cross-Cultural Competence: How to Create Wealth from Conflicting Values. New Haven & London: Yale University Press.
Advice for U.S. managers working within a diffuse culture
“Don’t do business with strangers, you can just trust friends”
It is sometimes as important if not more important to built up
a close relationship than the deal itself.
People from diffusive cultures circle around the strange
business partner to get to know him more deeply and they
will discuss the specific facts only after a relationship of trust
has been created
Hampden-Turney, C., & Trompenaars, F. (2000). Building Cross-Cultural Competence: How to Create Wealth from Conflicting Values. New Haven & London: Yale University Press.
Conclusion
A part of business strategy and risk assessment
should take into account cultural differences,
and be able to adapt when large gaps are seen.
The world is chaotic. We need structure in order
to make sense of it. Culture is what helps us to
organize our world and to know how to respond
to it