INB10002
International Business
Operations
LECT 2- Culture, politics and legal
environment of IB
Week 2 – Culture, politics and
legal environment of IB
Culture, politics and legal
environment of IB
Lecture Objectives
By the end of this lesson, students will be able to
• Discover the ‘rules of the game’ of business are diverse,
changeable and often unclear.
• Outline the different cultural norms, legal and ethical standards
in different host countries.
• Identify the parameters of cultural, political and legal
environment of international business
• Relate how political, legal, and cultural incidents become the
roadblocks to the smooth operations of business venture in
foreign countries.
Why did Starbucks Fail in Australia?
https://www.youtube.com/watch?v=_FGUkxn5kZQ
Introduction
❑ International business is not just an economic activity involving the
exchange of goods and services.
❑ To succeed in international business, one must break through cultural
barriers by acquiring a knowledge of the diverse cultural, legal and
political constraints together with the economic aspects of the
business environments.
❑ Task of Global Managers:
❑ Understand the language, religion, demography, climate, values
and beliefs, education, labor, roles of women, family, ethnic
groups and other elements in the international environment.
❑ To better participate in the international economy with a better
perception of the situation,
❑ To cater for the needs of international buyers.
Differences in the Domestic & International
Environments
DOMESTIC ENVIRONMENT INTERNATIONAL ENVIRONMENT
1 Common language 1 Multilingual
2 One nationality 2 Multinational
3 Common customs 3 Customs of a multicultural society
4 Single major religion 4 Diverse religious beliefs and practices
5. Uniform - political, legal 5 Diverse political, legal & cultural
and cultural environment environment
6 Nationalism an advantage 6 Nationalism a disadvantage
7 Stable business 7 Changeable and unclear business
environment environment
8 Culturally acceptable 8 Unfamiliar ethical & moral standards
ethical & moral standards
Why do you think Coles, Australia’s supermarket chain, have kept to
the Australian market solely? Are any of the factors above determined
their business strategy?
The Nature and Concept of Culture
URE
❑ Culture being abstract and an intangible element
❑ In different parts of the world societies still differ in terms of the ways
political and economic activities are structured, coordinated and
managed, and the behaviors of people and organizations are
influenced by what is commonly called ‘culture’.
❑ Culture manifests itself as social behavior of communities, and unless
we understand it, managers may failed to identify the type of products
and the forms of promotion that are acceptable to people of diverse
cultures.
THE DIFFERENT FACETS OF
CULTURE
• Broad definitions of culture
• a shared pattern of behavior (Mead, 1953),
• a system of shared meaning or understanding (Levi-
Strauss, 1971; Geertz, 1973),
• a set of basic assumptions, shared solutions to universal
problems, handed down from one generation to another
(Schein, 1985).
• "the collective programming of the mind which
distinguishes the members of one group or category of
people from another.” (Hofstede,1991)
What do you URE
understand by culture?
Do Malaysians have a
unique culture?
What is it?
How many of you have been to Indonesia?
How many of you have been to Australia?
Systems Perspective of Culture
ONTOLOGY (origin) SYSTE M BO ND MECHANISM
Semiotic (value) Symbolic s y s t e m Cultural C o m m u n ica tio n
Values&
Attitudes
Language Relationship
"We should learn all
languages, but by learning
English our mindset is also
CULTURE
changing, this is wrong , this is
against the interest of the
Religion Education
nation.”
Venkaiah Naidu (Indian Union Minister)
Material
culture
Figure 2.1 The cultural environment of international business
Forging a National Culture –
Pancasila- Dasar Nagara Indonesia
1. Belief in God This is the keystone to the
Pancasila. It decreed total religious freedom
should exist and so attempted to remove the
possibility of religious persecution in the new
nation.
2. Humanitarianism The philosophy of
humanitarianism existed within the adat. This
preserved the local customs and traditions as
unwritten laws. The Pancasila was to be
supreme in the event of conflicts between
local customs and national interest.
Does this mean that
there no place for
independence of
thought & behaviour?
Forging a National Culture -
Pancasila
3. National identity National identity was to be established
through the commonality of the Pancasila. This would be
reinforced through a common language (Bahasa Indonesia),
a common flag and a common national anthem. These
common elements were to assist the development of a
national spirit which would be reinforced through common
tasks (for example, education, sports, etc). Does this mean
4. Democracy This principle looked to the future and strove that there no place
to recognise the need for all to have a say in the running of for independence
the new republic. of thought &
behaviour?
5. Social justice This stated that all persons must enjoy
equal opportunity, in the eyes of the law, and also that no
one should be deprived of their basic rights. That the Rule of
Law will prevail.
Rukun Negara
❑ The Malaysian declaration of national philosophy instituted
by royal proclamation on Merdeka Day, 1970, in reaction to
a serious race riot known as the 13 May Incident, which
occurred in 1969.
❑ Malaysian government sought ways to foster unity among
the various races in Malaysia via Rukun Negara.
WE, residents of Malaysia, pledge our united efforts to attain
these ends guided by these principles:
▪ KEPERCAYAAN KEPADA TUHAN
▪ KESETIAAN KEPADA RAJA DAN NEGARA
▪ KELUHURAN PERLEMBAGAAN
▪ KEDAULATAN UNDANG-UNDANG
▪ KESOPANAN DAN KESUSILAAN
Forging a National Culture -
Multiculturalism
What do you know of
In Australia too, there is a multiculturalism?
belief that there has to be
an official government How does it bind
Australians as a nation?
directive for creating a
‘united’Australia.
In Australia, the population has become more
and more multi-racial. In 1973 Australia’s Ministry
for Ethnic Affairs was established, and the
concept of ‘multiculturalism’ has been a policy in
the country since.
Multicultural
Australia
Immigration Restriction Act 1901. This Act, known as
the ‘White Australia policy’
Dictation test
White Australia' ideology was commercialised and used
to sell things from soaps to pineapple slices
‘Populate or perish’ – Post world WW2
The ‘Beautiful Balts’ - Post Second World War period,
between 1947 and 1952, when 170,000 displaced
persons arrived in Australia from Eastern Europe.
The legal end of the White Australia policy in 1973.
Migrants came from many parts of the world.
Multicultural
Australia
Cross-cultural frameworks
Low Context Cultures
In low-context cultures e.g.: Germany, personal
relationships do not play such a vital role.
In business, contracts carry more weight than a
gentleman’s agreement based on implied terms. Can you think of
Low-context cultures tend to exhibit the followingreasons why Western
characteristics: nations, such as the
US & Australia prefer
• communication is written down as in contracts written contracts?
or is explicitly verbalised;
• there is less reliance on non-verbal cues for
understanding factual meanings, except by way
of support or reinforcement.
• speed is the essence of business negotiation;
• the relationship is basically on a contractual
basis;
• change in work practices, and speed and
adaptation to changes in work practices are
viewed as desirable.
High Context Cultures
In high-context countries, like Japan and the middle-east countries,
personal relationships are paramount in business dealings. To honour
business dealings, loyalty and trust have first to be established. Written
contracts are often ‘statements of future undertakings’ and will be realised
depending on circumstances at that particular time.
The following characteristics are generally exhibited by high-context
cultures:
• communication is implied in a physical context or internalised in the
person;
• there is reliance on non-verbal cues for understanding factual
meaning;
• deliberation and not speed is the essence of business negotiation;
• relationships are personal and based on trust;
• change is slow and seen as necessary only if essential;
• seniority is respected and the position of people in companies are
major determinants of relationships.
Edward Hall’s High & Low Context
Cultures
HIGHCONTEXT
Japanese
Arabian
LatinAmerican
IMPLICIT
Spanish
Italian
English(UK)
French
US
Scandinavian
EXPLICIT
Swiss
German
LOWCONTEXT
Halls’ cultural dimensions
❑ High vs. Low Context Communication
❑ Spatial Orientation
❑ Monochrome vs. Polychrome Time
❑ Information Speed
Halls’ cultural dimensions
❑ High or Low context- refers to how a message is
communicated.
▪ In high-context
✓ People tend to be more indirect. Lack the verbal
directness, the person receiving the message is
expected to read it within context.
o Body language is as important and sometimes more
important than the actual words spoken.
▪ In low-context
✓ People tend to be explicit and direct in their
communications. Satisfying individual needs is
important. Example: Well-known low-context mottos
“Don’t beat around the bush.” such as United States and
most Northern European countries
High and Low Context Communication
Halls’ cultural dimensions
❑Spatial Orientation (Space)
✓ The distance between people of various cultures
when communicating. Distance that is adequate for
members of one culture may be intrusive for members
of another culture.
❑ Monochrome vs. Polychrome Time
✓ In polychrome concept- people can do several things
at the same time and are easily distracted, putting
relationships first (parallel actions/multitasking)
✓ In monochrome concept, people tend to do one task
at a time. Concentrate on the job at hand and put the
job first. (sequential processes)
Halls’ cultural dimensions
❑Information Speed
✓ Information flow in groups is high or low during
communication.
✓ For example: In the USA, people tend to exchange
personal information relatively quickly, while in Europe
the rate of information exchange would require a
more extended acquaintance.
Trompenaars’ 7 Cultural Dimensions
❑ Trompenaars’ and Hampden-Turner identified 7 cultural
dimensions
1. Universalism vs. Particularism
2. Individualism vs. Communitarianism
3. Emotional vs. Neutral
4. Specific vs. Diffuse
5. Ascription vs. Achievement
6. Sequential vs. Synchronic
concept of time
7. Internal vs External Control
https://www.mindtools.com/pages/article/seven-dimensions.htm
Trompenaar’s model of national cultural
differences
Where would
you place
Malaysia?
Example: Nordic
countries Denmark,
Finland, Iceland,
Norway and Sweden
Example: South
East Asia, China,
African countries
Trompenaar’s model of national cultural
differences Where would
you place
Malaysia?
Example: Western
countries
Example: Asian
countries
Trompenaar’s model of national cultural
differences Where would
you place
Malaysia?
Example: Germany,
France
Example: Middle
East, Asia
Trompenaar’s model of national cultural
differences Where would
you place
Malaysia?
Example: U.K.,
Sweden, the
Netherlands, Finland,
and Germany.
Example: Italy,
France, Spain, and
countries in Latin-
America.
Trompenaar’s model of national cultural
differences Where would
you place
Malaysia?
Example: United
States
Example: Malaysia
and China
Trompenaar’s model of national cultural
differences Where would
you place
Malaysia?
Example: Western
Example: Arabic,
African, Asian
countries
Trompenaar’s model of national cultural
differences Where would
you place
Malaysia?
Example: U.S., Australia,
New Zealand, and the
U.K
Example: China,
Russia, and Saudi
Arabia
Hofstede’s cultural dimensions
❑ Hofstede’s original (1980) survey was made with
116,000 employees at IBM worldwide.
❑ Hofstede’s identified 5 cultural dimensions
▪ Power distance
▪ Collectivism vs. individualism
▪ Femininity vs. masculinity
▪ Uncertainty avoidance.
▪ Long-term (Confuciansim) vs. short-term
orientation.
https://geerthofstede.com/culture-geert-hofstede-gert-jan-hofstede/6d-model-of-
national-culture/
https://www.hofstede-insights.com/country/australia/
Hofstede’s cultural dimensions
➢ Power distance
– The extent to which people in certain societies accept
inequality in power distribution or,
– Have a more egalitarian (equality/fairer) view of power
distribution.
– High-power distance societies will accept hierarchical
control and respect authority
– For instance, in Malaysia – while egalitarian societies will
have a more democratic view of social control, with no
particular reverence for high-ranking functions – as, for
instance, in Denmark.
Hofstede’s cultural dimensions
➢ Uncertainty avoidance
▪ The degree to which people feel threatened by uncertainty
and ambiguity and try to avoid it
▪ Ambiguity and unpredictability are not accepted
▪ For instance, there is a continual search to organize, plan
and regulate the environment (Japan, Spain).
▪ At the opposite end of the scale are social groups in which
tolerance and risk taking is accepted and rewarded (USA,
Sweden).
Hofstede’s cultural dimensions
➢ Masculinity
o Refers to the high value given to assertive (confident),
competitive behavior, pursuit of financial success. Strong
performance approach. A preference for achievement,
heroism, assertiveness, and material success.
➢ Femininity
o Refers to societies where quality of life, non-aggressive
behavior, interpersonal relations and concern for the weak
are dominant values. A preference for relationships, modesty,
caring for the weak and the quality of life.
Hofstede’s cultural dimensions
• Individualism
– Characterize a culture in which individuals look after
themselves or their immediate relatives’ interests.
– In individualistic society, the “I” is important. People look
after themselves and their direct family and neglect the
needs of society.
• Collectivism
– will put group interests above individuals: consensus and
harmony will be preferred.
– In collectivist society, the “we” is important. People
belongs to in-groups (families, clans or organizations) who
look after each other in exchange for loyalty
Hofstede’s cultural dimensions
• Long-term orientation (High Confucian values)
o Great endurance, persistence in pursuing goals
o Position of ranking based on status
o Adaptation of traditions to modern conditions
o Respect of social and status obligations within limits
o High savings rates and high investment activity
o Readiness to subordinate oneself to a purpose
• Short-term orientation (Low Confucian values)
– Personal candor (honesty) and stability
– Avoiding loss of face and respect of social and status obligations without
consideration of costs
– Low saving rates and low investment activity
– Expectations of quick profit
– Respect for traditions
– Greetings, presents and courtesies based on reciprocity (e.g.: mutual
exchange of privileges)
The Lewis Model
❑ According to Richard Lewis (1996), cultures can be classified into three
groups: 1) linear active, 2) multi-active and 3) reactive.
♠ Linear active cultures
• people are task-oriented, highly organized planners. They prefer
direct discussion and use facts and figures. They are prone to
accepting compromise to achieve results. Example: German,
Swiss, North American and Scandinavian cultures.
♠ Multi-active cultures group
• people who are talkative, emotional and relationship-oriented.
They tend to do several things and talk at the same time. Example:
Latin American, Southern European, Western and Northern African
and Middle Eastern cultures.
♠ Reactive cultures
• people are introvert, show respect to an interlocutor (one who
takes part in dialogue or conversation) and listen without
interrupting. Example: Most of the Asian cultures.
Lewis Model
Chart that explains the behavior of people of different cultures
Lewis Model
Eg. the Westerners
Eg. the Hispanics
Eg. the East Asians
Lewis Model
Eg. the Westerners Eg. the Hispanics Eg. the East Asians
Details of behavioural categories
Take home lesson:
The cultural environment is the most
complex for a global manager. Use the
system perspective lens to examine the
environment. Undertake cross-cultural
training exercises before venturing into
new markets. This is not a total solution
but helps to start the journey
The Political Culture & Ideologies
❑ The term political culture implied that politics and culture are either
related or that politics is a part of culture.
❑ It is valuable to understand the relationship between politics and
culture how they can influence decisions of international business.
❑ Culture takes time to evolve. Revolutions have a tendency to create
fast changes in cultural & social values. For example, Russia, China
and Iran are definitely different now compared to those prevailing
prior to the revolutions.
How did culture
play a part in the
Brexit decision?
The Political Culture & Ideologies
❑ Understanding political culture would help global managers
in making better decisions.
❑ In operating in countries where ideologies
conflict with those of management, two
considerations are important:
• If host country ideologies are in direct conflict with
company philosophies, there is room for altering the
company mode of operation
• However, ethical considerations are the hardest to
handle and many multinational firms are unable to
effectively solve problems that involve ethics in political
decisions. For example Iran – before & after the Shah.
Political Risks
In many countries, ethical Take home lesson:
considerations surface as A global manager should understand the political
issues of nationalism. conditions of their trading nation & the effects of:
Political risk can be • Confiscation This involves the forfeiture of
categorised under four foreign firms’ assets to the government of the
main categories. host country. Usually no compensation is
made. Eg. Uganda under Idi Amin in 1970s
• Expropriation The host government
confiscates the assets of foreign firms but
makes some compensation. Eg Mexico in
1938 – expropriated US oil firms
• Nationalisation The ownership and control of
foreign firms is taken over by the government.
Generally without compensation. Eg. India/UK
• Domestication The foreign firm is required
by the host government to allow a greater
control and for ownership to be transferred to
the locals of the host country. Eg. Malaysia
Two Major Political systems
Political ideologies are many and varied. The two
major systems:
❖ Democratic (Capitalism):
• Allow greater participation of its people in the
political decision making process.
• Countries whose economies are based on free
trade or having elected governments, as
countries with similar democratic principles
which are observed to the same degree.
❖ Communist (Socialism):
• Communism is a political and economic ideology
that positions itself for classless system in which
the means of production are owned communally
and private property is nonexistent or severely
curtailed. Example: China
• Xi Jinping emphasised that China has entered Why is Huawei
into a new era and China to become a “strong, having a hard time
democratic, civilised, harmonious and modern in the West?
socialist country” by 2049
The Legal Environment
❑ The political environment generates the legal
environment for business, that is, the country’s laws
and regulations regarding business activities.
❑ A firm must know the legal environment in each of
its markets because these laws and regulations
govern the ‘rules of the game’.
❑ The legal environment of international business is
very complex.
❑ In the international environment firms have to What do we mean
consider the legal controls of not only their own by Rule of Law?
country, but also that of the host country as well as
other international laws applicable to its operation.
How independent
is the judiciary?
The Legal Environment
A global manager has to be knowledgeable
about:
❑ Home Country Laws the USA Sherman Act
and the Clayton Act empowers the government
to extend its controls on the competitive
behavior of its firms operating overseas. The
Australian Fair Work Act 2009, in some
circumstances, will also apply to Australian
employees overseas. What about trade
restrictions?
❑ Host Country Laws – important to understand
if a country has common law, code law, religious
laws or mixed.
Fair Administration of Justice – country comparison
Legal systems
Civil law – A detailed set of laws that constitute a code and focus
on how the law is applied to the facts. It’s the most widespread
legal system in the world. Does not rely on past judicial
interpretations, but on codes or statutes enacted by an authority,
such as the parliament.
Common law - Based on traditions and precedence (judge made
law). In common law systems, judges interpret the law and judicial
rulings set precedent.
Religious law (and other indigenous laws) is also known as
theocratic law. The most commonly known example of religious
law is Islamic law, also known as Sharia. Two additional religious
law systems - Jewish Halacha and the Christian Canon system,
neither of which is practiced at the national level in a country. The
Christian Canon system is observed in the Vatican City.
The Legal Environment
❑ Domestic Laws - We are all subject
to domestic laws, because we all live
in a sovereign state. Some legitimate
authority has the power to create,
apply, and enforce a rule of law
system. Take home lesson:
Rule of Law - the principle
❑ International Laws – There is no that all people and
institutions are subject to
international law-making body, and no and accountable to law that
international representatives to is fairly applied and
enforce international law, and no real enforced; the principle of
judiciary to hear cases of government by law
international law. When doing International
Business, firms may be
subject to domestic laws and
laws of foreign countries and
international treaties.
The Legal Environment
❑ As the pace of international trade, globalization and government deregulation
of national industries accelerates, companies increasingly extend their
supply chains abroad and are also seizing opportunities to merge across
borders.
❑ Following are some of the organizations enabling their fair and uniform
implementation:
• World Trade Organization (WTO)
• United Nations Conference on Trade and Development (UNCTAD)
• Organization for Economic Cooperation and Development (OECD)
• Asian-Pacific Economic Cooperation (APEC)
❑ Example: The World Trade Organization (WTO) is a global international
organization dealing with the rules of trade between nations. At its heart are
the WTO agreements, negotiated and signed by the bulk of the world’s
trading nations and ratified in their parliaments. The goal is to ensure that
trade flows as smoothly, predictably and freely as possible.
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