Peng & Meyer (2019)

INTERNATIONAL BUSINESS KLAUS MEYER, MIKE PENG (2019)

CHAPTER 03: INFORMAL INSTITUTIONS: CULTURE, RELIGION AND LANGUAGES

CULTURES
Informal Institutions and Culture:

 Informal institutions, including culture, are socially transmitted within societies and dictate what
behaviors are considered acceptable or unacceptable.
 Culture is a vital aspect of informal institutions and influences people's way of life, shared
values, norms, and assumptions.
 Culture includes visible aspects (artifacts of culture) like arts, architecture, food, and sports, as
well as less visible shared values and norms that impact daily routines and language.
 Different cultures create challenges for international business as understanding and navigating
cultural differences is crucial.

Defining Culture:

 Culture is complex and has various definitions.

 Victor Barnouw defines culture as a group's way of life, encompassing learned behavioral
patterns passed down through language and imitation.
 social environment, collectively programming the mind and distinguishing one group from
another.
 Culture is typically shared within a group, connecting its members with each other and their
history.
 While we often refer to national cultures (e.g., US culture or Brazilian culture), cultures do not
strictly correspond to nation-states, as many subcultures exist within countries.
 This chapter focuses on nation-states as the primary relevant cultural group.

Systematic Understanding of Cultural Differences:

 Understanding cultural differences systematically involves two approaches:

1. Cultural Clusters: Identifying groups of cultures that share similarities in terms of values, norms, and
practices. This helps in recognizing patterns of cultural behavior.

2. Dimensions of Culture: Defining specific cultural dimensions that allow for comparisons across
cultures, highlighting areas of difference or similarity.

Recognizing these systematic approaches is crucial for comprehending and managing cultural
differences in an international business context.
 CULTURAL
CLUSTERS

 Cultural Clusters:An approach to understanding culture is to group countries with similar

cultures into clusters.
 Three prominent sets of cultural clusters are provided by Simcha Ronen and Oded Shenkar, the
GLOBE project, and Samuel Huntington.

Ronen and Shenkar Clusters:

 Empirical techniques led to the identification of 11 clusters:

1. Anglo

2. Nordic

3. Germanic

4. Latin Europe
 5. East Europe

6. Latin America

7. Near East

8. Arab

9. Far East

10. Confucian

11. Africa

GLOBE Clusters:

 The Global Leadership and Organizational Behavior Effectiveness project, led by Robert House,
identified ten clusters:
 The GLOBE clusters closely resemble the Ronen and Shenkar clusters.

Huntington Civilizations:

- Samuel Huntington's classification divides the world into eight civilizations:

1. African

2. Confucian (Sinic)

3. Hindu

4. Islamic

5. Japanese

6. Latin American

7. Slavic-Orthodox

8. Western

Comparison of Clusters:

 The Huntington Western civilization combines several clusters, including Anglo, Germanic, Latin
Europe, and Nordic, reflecting a common American perspective.
 This broad categorization doesn't align with the nuanced differences found in European and
other Western countries.

Understanding these cultural clusters is essential for appreciating the diversity and differences across
various cultures, especially when conducting international business or cross-cultural interactions.
CULTURAL DIMENSIONS
Cultural Dimensions:

 Cultural clusters can be helpful but provide a crude understanding of cultural differences.
 Geert Hofstede's framework, which focuses on dimensions, offers a more nuanced view of
cultural variations.

Hofstede's Five Cultural Dimensions:

1. Power Distance:
 The extent to which less powerful members in a society accept unequal power
distribution.
 It influences the acceptance of hierarchy and centralized authority.
2. Individualism vs. Collectivism:
 The perspective on individual identity versus group identity.
  Individualist societies value individual achievement and freedom, while collectivist
societies prioritize collective accomplishments.
3. Masculinity vs. Femininity:
 The importance of traditionally male and female values.
 Masculine societies emphasize assertiveness, decisiveness, and material rewards, while
feminine societies focus on compassion, relationships, and quality of life.
4. Uncertainty Avoidance:
 The willingness to tolerate ambiguity and uncertainty.
 High uncertainty avoidance cultures prioritize job security and resist change, while low
uncertainty avoidance cultures are more willing to take risks and embrace change.
5. long-Term Orientation:
 The emphasis on perseverance and long-term goals.
 Cultures with a long-term orientation nurture long-term ambition, while short-term-oriented
cultures prefer quick results and instant gratification.

High-Context vs. Low-Context Cultures:

 Edward Hall introduced the high-context vs. low-context dimension.

 In low-context cultures (e.g., North America, Western Europe), communication is
straightforward.
 In high-context cultures (e.g., Arab, Asian countries), communication relies heavily on
underlying, unspoken context.

Understanding these cultural dimensions is crucial for effective cross-cultural communication and
international business interactions. These dimensions shed light on variations in values, attitudes, and
behaviors across different cultures.

Importance of Communication Differences:-

 Understanding communication differences is crucial to avoid misunderstandings in
cross-cultural interactions.
 Failure to comprehend interaction styles can lead to misinterpretations, especially in
high-context cultures.
Example of Communication in High-Context Culture (Japan):
 Negotiators avoid directly saying 'no' to a request.
 They may respond with phrases like 'We will study it' or 'We will get back to you later.'
  These responses imply 'no,' but the word itself is not used.
 High-context cultures prioritize building trust and friendship in initial negotiation
rounds.
Contrast between High-Context and Low-Context Cultures:
 High-context cultures value creating a context for trust and social relationships.
 Business activities involve frequent social interactions (e.g., Saudi Arabia and China).
 Decoding context and acting accordingly is natural for individuals from high-context
cultures.
 Low-context cultures prefer straightforward communication, factual discussions, and
explicit agreements in written documents.
 Quick 'getting down to business' may miss or miscommunicate the subtler
communication style of high-context cultures.
WORKING WITH CLUSTERS AND DIMENSIONS
Interpreting Cultural Differences:

 Clusters and dimensions offer a starting point to understand and interpret cultural variations.
 These insights aid in comprehending how interactions differ between individuals from various
cultures.

Useful for business negotiations and fostering a shared working culture in multicultural teams.

Important Considerations:

 Clusters and dimensions, particularly Hofstede's, have received criticisms.

 They are simplified tools for complex and evolving real-world phenomena.
 Cultural variations in norms and values can be challenging to observe and require sensitivity
when dealing with individuals from other cultures.

LIMITATIONS OF HOFSTEDES FRAMEWORK

Critiques of Hofstede's Cultural Dimensions:
1. Cultural vs. National Boundaries:
- Criticism: Cultural boundaries don't always align with national borders.
2. Cultural Biases:
- Criticism: Hofstede, despite efforts to reduce his biases, may have European cultural biases that
influence his framework, potentially neglecting dimensions crucial for Asian or African cultures.
3. Data Source:
 Criticism: Hofstede's research was based on surveys of IBM employees from 1967-1973,
potentially reflecting IBM's organizational culture more than the national cultures.
4. Outdated Data:
 Criticism: The original data is over 40 years old, failing to account for substantial cultural
changes in countries that experienced social or political upheaval.
 Hofstede's Responses:

 Hofstede recognized the limitations of focusing on national culture but saw it as a practical
approach.
 He introduced a fifth dimension, long-term orientation, to address cultural relevance.
 Hofstede pointed to various studies by other scholars, some confirming his findings and
others highlighting cultural changes over time.
 While imperfect, Hofstede's work still holds value and its benefits outweigh the drawbacks.

Understanding Culture and Stereotypes:

1. Culture's Role in Interaction:

 Culture pertains to shared values within a society and helps explain how individuals from that
culture interact with each other.
 Tools like Hofstede's dimensions are useful when traveling abroad or observing group
interactions within a foreign society.
 Less helpful when dealing with individual visitors from another culture.

2. Caution with Stereotypes:

 Stereotypes are simplistic generalizations about groups, often leading to inaccurate

categorizations.
 Hofstede's dimensions can be considered scientifically refined stereotypes, offering initial
insights into group expectations.
 Overreliance on stereotypes in management can lead to misunderstandings and conflicts,
whereas successful businesspeople strive for deeper individual understanding.

3. Averages vs. Individuals:

 Cultural indices are derived from averages in large survey studies.

 Individual respondents within a culture may have different values, and the index reflects an
average score.
 Meeting individuals from a culture does not guarantee they represent the average values of that
culture.

LANGUAGES
Language and Its Importance:

1. Language as a Communication System:

 Language serves as a system of shared meanings enabling effective communication.

 The complexity and contextual nature of meanings make language translation challenging.
 Lack of a common language between individuals can create substantial language barriers.
  These barriers hinder information exchange, knowledge sharing, social interactions, team
cohesion, and trust development.

2. Challenges in Translation:

 Translators can assist but often face difficulties due to the lack of exact expressions in other
languages.
 Some terms, particularly abstract ones, have no direct translations, leading to potential
misunderstandings.
 Effective translation requires interpretation of meaning rather than word-for-word transfer.

3. Handling Language Differences:

 Suggestions for individuals and organizations dealing with language barriers include:
 Informally seeking help from colleagues or friends for translations or summaries but without
disrupting meetings.
 Organizational commitments to equal opportunities might involve document translation and
hiring interpreters.
 Individuals may adapt communication habits to facilitate understanding across language
barriers, e.g., using email instead of the phone.
 Adapting language use to accommodate non-native speakers, avoiding colloquialisms and
complex sentence structures.

Importance of a Corporate Language:

1. Multinational Enterprises (MNEs) and Language Challenges:

 MNEs engage with diverse communities speaking different languages.
 Informal language means may be insufficient for efficient knowledge transfer.
2. Adoption of Corporate Languages:

 Many MNEs have adopted official or unofficial corporate languages to address language
barriers.
 In European businesses, English is typically the corporate language
 English often emerges as a default language for international communication, becoming a global
business language or lingua franca.
 Corporate languages facilitate formal communication, but not all employees are fluent in the
chosen language.

3. Challenges for Non-Native English Speakers:

 Some employees may have modest knowledge of English, which can lead to stress when
required to use English formally.
 Frequent English use can impact their identity and interactions within their community.

4. Addressing Language Barriers:

 Team leaders can create awareness of language barriers and encourage less confident
individuals to speak.
 Summarizing key discussion points can help non-native speakers understand important
information.
 Companies like ABB promote the idea that communication in 'poor English' should not hinder
idea sharing.
 Proficiency in the corporate language, such as English, can improve job prospects and career
advancement.

5. Recruitment and Promotion Based on Language Skills:

 MNEs often emphasize language skills in recruitment, promotion, and international postings.
 Some foreign investors prioritize hiring graduates with strong communication skills over subject-
specific knowledge.
 They may prefer sending employees fluent in the local language to head operations in that
region.

6. Multilinguals and Informal Networks:

 Multilingual employees can play a vital role in informal networks that facilitate internal
communication.
 Language capabilities significantly enhance career prospects for individuals.
 MULTI LINGUISTIC IN MNE’S
Multilingual in Multinational Enterprises (MNEs):

1. Regular Interaction Across Language Barriers:

 In MNEs, not only top management but also technical experts and middle managers frequently interact across
language barriers.
 This interaction occurs when dealing with individuals in other units abroad or engaging with foreign customers and
suppliers.
2. Diverse Language Usage in MNEs:
 MNEs may have an official corporate language, but subsidiaries' staff may predominantly speak a local language.
 Staff at the headquarters may also be more comfortable with another language, especially in the case of MNEs from
small countries.
 Proficiency in the corporate language is often a prerequisite for career advancement.
3. Knowledge of Multiple Languages in Critical Bridging Positions:
 Knowledge of multiple languages can position individuals as critical communication intermediaries.
 Multilingual employees facilitate communication between different units and locations, enhancing their personal
networks and access to knowledge.
4. Example: Kone Elevators Case Study:
 At Kone Elevators, multilinguals played key roles as communication intermediaries.
 Proficient English speakers in subsidiaries were often sent to corporate training courses.
 Headquarters staff with Spanish language competence were sought out by subsidiaries in Spanish-speaking
countries for communication.
 Shared language acted as a powerful connector in informal networks that facilitated knowledge exchange within
the MNE.
5. Career Advancement and Influence:
 Multilingual individuals connecting different people across locations acquire knowledge, reputation, and influence
beyond their formal roles, contributing to career progression.
 Language skills not only improve handling of specific situations but also provide new insights and a broader
understanding of the company and its business partners.

1. Language in Meetings:
 People typically use a language in meetings that they expect most group members to
understand at least minimally, often resulting in English being the common choice.
 The prevalence of English might give native English speakers an initial advantage in
international business.

2. Advantages of Learning Additional Languages:

 Learning a new language helps individuals develop sensitivity to cultural subtleties.

 It also enhances understanding of common mistakes made by non-native English speakers, such
as gender pronoun confusion, article omissions, or sentence structure differences.
 Some non-native English speakers may find it easier to relate to and understand other non-
native speakers.
 Linguistic fluency can be a competitive advantage, but it should be handled carefully to avoid
speaking too fast or using obscure idioms.
 Basic skills in a foreign language can demonstrate respect to hosts and build trust.

3. International Career Ambitions and Language:

 For international career ambitions, it's advisable not to remain monolingual. Learning additional
languages, especially alongside English, can provide a critical edge.
 Picking up at least one language during university studies is advantageous, as English is often the
norm in many places.
 Proficiency in multiple languages can enrich one's social life by facilitating participation in local
events.

Note: The key message is the importance of language skills, especially in international business. Learning
additional languages not only enhances communication but also promotes cultural sensitivity and trust-
building.

RELIGIONS
Religion and Its Impact on Business:

1. Major Religions and Adherents:

 Prominent religions include Christianity (1.7 billion adherents), Islam (1 billion), Hinduism (750
million), and Buddhism (350 million).
 Not all adherents actively practice their religion.
2. Business Impact of Religious Beliefs and Activities:

 Religious beliefs and activities influence business through:

 Religious festivals.
 Daily and weekly routines.
 Perceptions about the environment.

3. Religious Festivals:

 Religious festivals are significant social events with direct and indirect business opportunities.
 They can also lead to business disruptions as businesses and government offices may close
during these periods.
 For instance, Christmas is a peak shopping season in Christian countries, creating substantial
challenges for toy makers and retailers.
 Different religions have their own festivals, such as Diwali in India, Chinese New Year in East
Asia, and Ramadan in Muslim countries.

4. Daily and Weekly Routines:

 The day of worship varies among monotheistic religions, affecting routines.

 Christians worship on Sundays, while Muslims and Jews worship on Fridays and Saturdays.
 Daily routines may also be interrupted by religious practices, such as Muslims stopping for
prayer several times a day.
 Understanding and accommodating these practices can minimize disruptions.

5. Impact on Values and Behaviors:

 Religious beliefs influence how individuals perceive themselves and their actions.
 Belief in divine judgment may encourage honesty and discourage cheating.
 Certain objects or activities may hold symbolic or religious significance, resulting in rules on
what is permissible or forbidden.
 Ignorance of religious taboos can lead to unintended embarrassments for businesses.

6. Religion in Secular vs. Faithful Societies:

 In secular societies, religious concerns are less prominent, but they still shape culture (e.g.,
businesses closing on Sundays).
 Some individuals or groups maintain strong religious faith.
 Conflicts may arise between secular values and religious beliefs, particularly concerning issues
like gender equality.

7. Handling Religious Differences in Business:

 Religious differences are emotionally charged and can be challenging to manage.

 Respect for other religions and their associated values is essential to avoid conflicts and
establish a basis for conducting business.

Note: Understanding the impact of religious beliefs and practices on business is crucial for managing
cultural differences and avoiding conflicts in an increasingly diverse global business environment.*
ETHICS
Ethics and Business Conduct:

1. Definition of Ethics:
 Ethics pertains to the principles, standards, and norms of conduct that govern individual
and corporate behavior.

2. Overlap Between Ethics and Law:

 Laws and regulations often reflect a society's minimum standards of conduct.

 There is a substantial overlap between what is ethical and legal and between what is
unethical and illegal.
 However, there is a gray area, as what is legal may be considered unethical by different
groups.

3. Ethical Challenges in Business:

 Media exposure has led many firms to introduce codes of conduct, providing guidelines for
ethical decisions.
 These guidelines typically apply not only to employees but also to suppliers, franchisees, and
others representing the company.

4. Ethical Variations Across Countries:

 Managing ethics overseas is complex, as what is ethical in one country may be considered
unethical elsewhere.
 Some practices, such as firing staff on short notice for profitability, may be normal in one
country but unethical or illegal in another.
 Subsidiaries may receive guidance from corporate headquarters or face regulatory restrictions
from their home countries.

5. Approaches to Navigating Ethical Challenges:

 Ethical Relativism: Adapting practices according to the local norms and values.
 Ethical Imperialism: Belief that a single set of ethics should apply universally.
 A blended approach is common, considering:
 Respect for human dignity and basic rights as the minimal ethical threshold.
 Cultural sensitivity to local traditions.
 Adherence to principles such as anti-corruption efforts, irrespective of local practices.

6. Corruption in Business:

 Corruption is the abuse of public power for private benefits, often involving bribery.
 It varies significantly across countries and can deeply affect business environments.
 Corruption distorts competition, misallocates resources, and deters economic development.
 There is a consensus that MNEs should not engage in corrupt practices, despite local norms.
 Home countries aim to prevent MNEs from participating in corruption.
 Note: Understanding and navigating ethical challenges in a global business context is essential for
maintaining a good reputation, respecting local cultures, and adhering to principles like anti-corruption
measures.

THE OECD ANTI-CORRUPTION CONVENTION

OECD Anti-Corruption Convention:

1. Corruption's Impact on Foreign Investors:

 Bribery is a criminal offense in most countries, but prosecution is inconsistent due to various challenges.
 Foreign investors must be vigilant as catching a foreign briber can be a significant achievement for local
authorities.
 Experienced foreign investors may try to mitigate risks by letting local partners handle corrupt activities and
swiftly moving staff out of the country when necessary.

2. OECD Anti-Corruption Convention:

 In 1997, the Organization for Economic Cooperation and Development (OECD) established the Convention
on Combating Bribery of Foreign Public Officials.
 This convention has been adopted as law in all 30 OECD countries, essentially covering all developed
economies.
 Under the convention, states not only criminalize bribery but also prosecute multinational enterprises
(MNEs) and their employees at home for bribery committed abroad.
 It departs from the traditional principle of prosecution in the country where the crime occurred and
supports the nationality principle, allowing countries jurisdiction over their own citizens wherever they are.
 This allows OECD countries to establish laws with extra-territorial effect to prevent their firms from
engaging in corruption abroad.

3. Impact of the Convention:

 The OECD Anti-Corruption Convention has led to increased enforcement and penalties.
 Notable cases include the UK's first penalty under the Bribery Act, where construction firm Mabey &
Johnson was fined £6.6 million for bribery in Jamaica and Ghana and violating UN sanctions on Iraq.
 The convention has led to intensified scrutiny of companies and politicians. For instance, telecom operator
Telia agreed to pay nearly $1 billion to settle allegations of bribing politicians in Uzbekistan.

Note: The OECD Anti-Corruption Convention has strengthened the legal framework against corruption, leading to
more vigorous enforcement and penalties for those engaged in corrupt practices, especially among multinational
enterprises.

Respect for Institutional Context in Ethical Decision-Making:

1. Understanding Local Institutions:

 When implementing codes of conduct and ethical guidelines, it's crucial to have a deep
understanding of local institutions and customs.
 Simply banning bribery is insufficient; guidelines for appropriate gift giving and receiving must
be established.

2. Examples of Guidelines:

The Economist's Policy:

 Journalists at The Economist can accept gifts that can be consumed in a single day.
 For example, a bottle of wine is acceptable, but a case of wine is not.

Texas Instruments' Guidelines in China:

 Texas Instruments provides employees in China with two quick tests for ethical gift-giving
 Reciprocity Test: Determine if offering or receiving a gift aligns with TI's policy and culture. If
TI wouldn't allow a similar gift under the circumstances, politely refuse the offer.
 Raise Eyebrow Test: Consider if giving or receiving the gift would raise eyebrows or make you
uncomfortable in the presence of others at work. Assess if you'd feel embarrassed if other TI
business partners or colleagues/supervisors saw the gift.

Note: Understanding local institutions is essential for ethical decision-making, and providing clear
guidelines for gift-giving and receiving is an important aspect of ethical corporate conduct in various
cultures

DEBATES AND EXTENSIONS

Debates on Informal Institutions - Cultural, Ethical, and Normative Aspects:

1. Social Groups Sharing a Culture:

 Informal institutions, including culture, ethics, and norms, often lead to spirited debates.
 Discussions revolve around the concept of social groups that share a common culture.
 The question of how shared culture influences individuals' behaviors and interactions is a central
topic of debate.

2. Limits to Generalizations on Human Behaviors:

 Another debate centers on the limitations of making broad generalizations about human
behaviors based on cultural or informal norms.
 Critics argue that these generalizations may oversimplify and inaccurately represent the
complexities of individual behaviors within a cultural context.
3. In-Groups vs. Out-Groups in Collectivist Societies:

 A significant debate arises in collectivist societies concerning the dynamics between in-groups
and out-groups.
 This debate explores how collectivist cultures emphasize the cohesion of in-groups and how
they perceive and interact with out-groups.

Note: These debates highlight the nuanced and emotionally charged discussions related to informal
institutions, their influence, and the complexities of cultural and ethical norms.

UNITS OF CULTURE: SOCIAL GROUPS

National Culture and Its Complexities:

In this chapter, the focus has been on national culture as a major variation affecting businesses in the
global economy. However, this simplification is nuanced for several reasons:

1. Coexistence of Subcultures:

 Many countries have various subcultures that coexist within the nation.
 Subcultures may identify more strongly with their regional culture than with the broader
national culture.
 Subgroups like ethnic minorities, religious communities, or social strata may develop their own
distinct cultures.
 Urban and rural areas often exhibit varying cultural values.

2. Cultural Evolution and Change:

 Cultures are not static but evolve over time, even if the change is gradual.
 Different generations may hold varying cultural values, and cultural evolution can be observed
from one generation to the next.
 Some predict a shift towards more "modern" Western values like individualism and
consumerism, influenced by factors such as globalization, Western brands, and the spread of
English.
 Younger managers in countries like China, Georgia, Japan, and Russia exhibit more individualistic
tendencies compared to their older counterparts.
 However, this does not necessarily indicate a complete Westernization of values. Evidence
suggests more divergence than convergence in cultures, and people often identify more closely
with their regional or national identities.
3. Organizational Culture within Firms:

 Beyond national and regional cultures, organizations may have their unique organizational
culture.
 Organizational cultures are often shaped by the founders and play a critical role in uniting
employees, customers, and suppliers.
 These cultures guide interactions and foster a sense of common purpose within the
organization.
 Organizational cultures can transcend national boundaries in multinational enterprises (MNEs)
and significantly influence how individuals from diverse national backgrounds collaborate.
 Research suggests that, particularly in large MNEs, organizational culture may have more impact
on business unit performance than national culture.

Note: Understanding the complexities of national culture is vital for businesses, considering the
coexistence of subcultures, ongoing cultural evolution, and the significance of organizational culture in
multinational firms.

LIMITS TO GENERALIZATION
Challenges in Social Sciences and Management Practices:

 Cultural differences, as discussed in this chapter, pose significant challenges to the social
sciences and the transferability of management practices.
 A debate has emerged regarding the general validity of key insights and theories in psychology
and other social sciences due to the lack of diversity in the subjects studied.
 Many empirical studies in psychology and economics have been conducted primarily with
Western, educated, industrialized, rich, and democratic (WEIRD) populations, particularly
American undergraduate students.
 This raises questions about the applicability of findings to a more diverse global population and
whether they genuinely represent human behaviors.

Cultural Influence on Human Behaviors:

 Research suggests that Westerners, particularly Americans, exhibit distinctive characteristics

and behaviors that set them apart from the rest of the world.
 These differences include aspects like patriotism, litigiousness, philanthropy, religiosity,
optimism, and class consciousness.
 Cultural idiosyncrasies, such as these, help explain various societal indicators in the USA,
including crime rates, working hours, divorce rates, poverty, inequality, and attitudes toward
government interventions.
 While there are some aspects of human behavior that hold true across cultures (e.g.,
perceptions of color and emotional expressions), the extent to which knowledge applies
universally to all human beings remains a question.

Implications for Management Practice:

  Geert Hofstede argued that there are no universal management theories or practices,
suggesting that even the fundamental concept of "management" can have different meanings in
various languages.
 Cultural contexts have unique characteristics that necessitate locally adapted management
practices.
 Successful international managers are those who can appreciate both global best practices and
local idiosyncrasies, integrating this knowledge to develop context-specific practices that
outperform competitors.

Note: The limited diversity in the subjects of social science research has led to debates about the
universality of psychological and management theories, highlighting the need for nuanced, culture-
sensitive approaches in management practices.

LIMITS OF COLLECTIVISM
Collectivism vs. Individualism Stereotype:

 A common stereotype suggests that individuals from collectivist societies, such as China, are
more collaborative and trustworthy, while those from individualist societies, like the USA, are
more competitive and opportunistic.
 However, this stereotype does not always hold true in practice.

Collectivism and In-Group vs. Out-Group Behavior:

 Collectivists tend to be more collaborative when interacting with their in-group members,
individuals and firms considered part of their collective.
 In contrast, they may be more discriminatory and opportunistic when dealing with out-group
members, those not seen as part of their "us."
 The behavior of collectivists can be highly dependent on whether the person or entity is viewed
as part of their in-group or out-group.

Individualism and Distrust:

 Individualists, who believe that every person (or firm) is on their own, tend to make fewer
distinctions between in-group and out-group members.
 While individualists may exhibit more opportunistic behavior when dealing with in-group
members, they tend to show less opportunism when dealing with out-group members.

Cultural Impacts on Trust:

 These cultural traits explain differences in trust levels between societies, such as higher
spontaneous trust in the USA (a leading individualist country) and greater interpersonal and
inter-firm distrust in China.
 In China, establishing guanxi (relationships) is crucial because trust among strangers can be
challenging.

E-commerce and Cultural Trust:

  Cultural traits also influence e-commerce adoption. For instance, there is less trust among
internet users in Hong Kong, leading to lower online shopping rates compared to the UK.
 Building trust among collectivist societies requires repeated social interactions.

Interactions with Collectivists:

 In collectivist societies, individuals assess newcomers as potential in-group members through

repeated social interactions.
 For example, Russians are known to do business primarily with those they have shared a drink
with.
 When interacting with collectivist societies, it's important for outsiders to show interest in
joining the in-group.
 Misunderstandings can arise due to differing cultural norms, like declining offers of food or
drink, which may be perceived differently in individualist and collectivist contexts.

Handling Cross-Cultural Interactions:

 Misunderstandings between Western managers and firms in collectivist societies may arise due
to differing cultural expectations.
 Outsiders may be treated as "deserving" out-group members rather than being taken advantage
of, depending on their willingness to participate in in-group dynamics.

Note: The chapter discusses how cultural differences influence trust, behavior, and business interactions
in collectivist and individualist societies.

IMPLICATIONS FOR THE PRACTICE

Institution-Based View and Firm Performance:

 The institution-based view highlights that informal rules play a significant role in
determining firm performance globally.

Implications for Managers (Cultural Intelligence):

 This perspective has several implications for managers worldwide:

1. Cultural Intelligence Development:

 Managers need to develop cultural intelligence, which is an individual's capacity to

comprehend and adapt to new cultures.

2. Phases of Cultural Intelligence:

 Cultural intelligence acquisition typically involves three phases:

Awareness: Recognizing the strengths and weaknesses of one's "mental software" and developing an
appreciation for people from diverse cultures.

Knowledge: Gaining the ability to identify the symbols, rituals, and taboos within other cultures,
essentially achieving cross-cultural literacy.

Skills: Building skills based on awareness and knowledge, accompanied by best practices.
Cultural Intelligence Importance:

 Cultivating cultural intelligence is crucial for understanding and navigating the informal
institutions governing behavior in various cultures.

Note: This section emphasizes the significance of the institution-based view and the development of
cultural intelligence for managers in a global context.

Institution-Based View and Firm Performance:

 The institution-based view highlights that informal rules play a significant role in
determining firm performance globally.

Implications for Managers (Cultural Intelligence):

  This perspective has several implications for managers worldwide:

1. Cultural Intelligence Development:

 Managers need to develop cultural intelligence, which is an individual's capacity to

comprehend and adapt to new cultures.

2. Phases of Cultural Intelligence:

 Cultural intelligence acquisition typically involves three phases:

Awareness: Recognizing the strengths and weaknesses of one's "mental software" and developing an
appreciation for people from diverse cultures.

Knowledge: Gaining the ability to identify the symbols, rituals, and taboos within other cultures,
essentially achieving cross-cultural literacy.

Skills: Building skills based on awareness and knowledge, accompanied by best practices.

Cultural Intelligence Importance:

 Cultivating cultural intelligence is crucial for understanding and navigating the informal
institutions governing behavior in various cultures.

Note: This section emphasizes the significance of the institution-based view and the development of
cultural intelligence for managers in a global context.

Developing Cultural Intelligence:

 Cultural intelligence can be most effectively developed through total immersion within a
foreign culture.
  Learning a new language and culture to function effectively at a managerial level typically
requires several months of study.
 Many expat managers lack sufficient preparation, leading to high costs for firms,
individuals, and families.

Investment in Career Development:

 Students are encouraged to invest in their careers by:

 Learning at least one foreign language (in addition to English).
 Joining international student groups like AIESEC.
 Spending a semester or year abroad.
 Establishing international friendships.
 Such investments during university studies can set individuals apart and accelerate their careers.

Awareness of Prevailing Norms and Changes:

 Managers should stay aware of prevailing norms and their evolution, especially in international
business.
 Norms in international business are now more culturally and ethnically sensitive compared to
earlier decades.
 Failing to understand and adapt to local norms can lead to unsatisfactory or disastrous
outcomes.
 Local norms can shift over time as societies evolve, and managers need to adapt accordingly.

The Importance of Respect:

 When dealing with unfamiliar values, norms, and practices, showing respect is crucial.
 People are often deeply attached to their native culture and may resent being told they are
wrong.
 Demonstrating respect for the host's culture, particularly in areas like cuisine, and displaying a
willingness to learn can help establish trust and positive relationships with individuals from
other cultures and countries.

Note: This section highlights the importance of cultural immersion, investments in personal and career
development, awareness of evolving norms, and the value of showing respect when dealing with
unfamiliar cultural values.