5-6d Communication

Exhibit 5.4 ExampLEs of u.s.-BasEd BusInEss JarGon THaT WouLd noT BE undErsTood By forEIGn BusInEss rEprEsEnTaTIvEs

1. “Flying by the seat of my pants.” 2. “On the same wave length.” 3. “Shotgun approach.” 4. “Run it up the flag pole.” 5. “100 k.” 6. “Belly up.” 7. “Overview.” 8. “If it ain’t broke, don’t fix it.” 9. “Let’s throw it on the wall and see if it sticks.” 10. “Let’s see how it plays out.” 11. “It ain’t over until the fat lady sings.” 12. “Reinvent the wheel.”

© Cengage Learning 2014

power in China, bowing down to Toyota’s Prado GX. Chinese consumers were insulted by the negative portrayal of their military, as well as bowing down to anything Japanese. Nike’s “Just Do It” campaign did not work in China because it emphasized individual, youthful irreverence. Because Muslims view dogs as unclean, Taco Bell did not use Gidget, a talking Chihuahua mascot, in its ads in Singapore.24

Communication is a key function in business, and culture has an impact on communication styles whether a firm is small or large, multinational or domestic. Companies with foreign personnel running their overseas operations must be especially careful to clearly communicate.

The use of jargon is usually inappropriate, as it greatly increases the risk of misunderstanding. Exhibit 5.4 gives some examples. Abbreviations like CAD, CAM, COO, CEO, and CFO may not be understood by personnel in foreign countries, nor will Latin and French phrases.

Managers attending business functions in person may not have the opportunity to find words in a dictionary. In such cases, the old saying that “a little knowledge is a dangerous thing” can be true. One of the authors of this text was in Mexico having lunch with a group of faculty from another university. Although he is somewhat knowledgeable about the Spanish language, he was having difficulty reading the menu, which was completely in Spanish. Finally, he recognized the word “cordero” (lamb), so he ordered “sesos de cordero.”

After the waiter had taken their orders, one of the other diners who was fluent in Spanish asked, “Do you know what you ordered?”

“Sure; I ordered chunks of lamb.”

“No, you ordered brains of lamb.”

Reality Che C k lO-6

Choose three or four ads from a U.S. magazine or website and describe the cultural factors to which each ad appeals. Do you think the ads are successful from a cultural standpoint? Why or why not?

Summary

Companies conducting business overseas need to be in harmony with the prevailing cultures in those countries. Culture is learned, and it is almost impossible for a foreign company to change.

The major elements of culture include language, religion, values and attitudes, manners and customs, material elements, aesthetics, education, and social institutions.

Hofstede (individualism vs. collectivism, power distance, masculine vs. feminine, uncertainty avoidance, and time orientation), Trompenaars (universalism vs. particularism, neutral vs. emotional, specific vs. diffuse, and achievement vs. ascription) and Gannon (country metaphors) have used various constructs to capture the cultures of world nations. The GLOBE project was perhaps the most aggressive effort to examine the cultures of countries and regions of the world on nine different dimensions; it involved surveying thousands of business executives in 61 countries.

Along with various consulting firms, there are a number of secondary sources available for learning about cultures of other countries. Some examples include the U.S. Department of Commerce Country Commercial Guide, Country Reports from The Economist’s Intelligence Unit, and Price Waterhouse Coopers’ Doing Business in 118 Countries.

When doing business in foreign countries, there are certain specifics to keep in mind. Japanese firms tend to make group decisions; they want to deal with people of high rank who have decision-making authority and have been referred by third parties. Korean culture stresses a reverence for older people, a group orientation rather than an individualistic one, inwha (harmony among equals), superiors’ responsibility for the well-being of subordinates, and the development of personal relationships before business relationships can occur. Guanxi is the most important cultural aspect of doing business in China; it denotes friendships among unequals. Because low-ranking people in Chinese firms may have a guanxi relationship with superiors who have decision-making authority, foreign businessmen may need to cultivate the favor of lower-echelon personnel in Chinese companies.

In Arab countries, business visitors need to be aware that the left hand is unclean, that asking about Arab business representative’s wives is inappropriate, that Arab businessmen are generally reluctant to deal with women, and that they have a tendency to divert from primary items under discussion.

Latin American executives want to develop a personal relationship before doing business with foreign executives. They are not as time oriented or as immersed in their work as are North Americans.

Management of overseas personnel and resources, product development, and advertising are significantly affected by foreign countries’ cultures. Clear communication can improve the outcomes of management decisions in these three areas.

Key TermS

culture, p. 118 acculturation, p. 118 verbal communication, p. 118 nonverbal communication, p. 118 backward translation, p. 119 values, p. 120 attitudes, p. 120 manners and customs, p. 120 material culture, p. 123 aesthetics, p. 123 social institutions, p. 124 reference groups, p. 124 social stratification, p. 124 individualism vs. collectivism, p. 124

power distance, p. 124 masculine vs. feminine, p. 124 uncertainty avoidance, p. 124 time orientation, p. 124 universalism vs. particularism, p. 125 neutral vs. emotional, p. 125 specific vs. diffuse, p. 125 achievement vs. ascription, p. 125 inwa, p. 130 guanxi, p. 130

ChapTer QueSTionS

1. What are the four characteristics of culture that global marketers must recognize? 2. Name four elements of culture and briefly indicate why they are important when marketing products and services internationally. 3. How do Gannon’s cultural metaphors differ from how Hofstede uses culture to classify countries?

4. What are some important secondary sources that companies can consult to learn about the cultures of other countries?

5. What are some cultural factors that U.S. companies must recognize when doing business in Latin America?

6. What types of managerial decisions in foreign countries are driven by cultural factors?

Mini Case: A DVISI nG C LIE n TS ABOu T Cu LT u RAL ASPECTS Of Ex PORTI nG TO E C uADOR

After graduation, you have been employed by a large consulting firm that specializes in advising U.S. clients on exporting to various overseas markets. Your firm has specialized in European and Asian markets, but now sees opportunities for advising clients about the Latin American market. You and seven of your colleagues have each been assigned a specific country in Latin America. Yours is Ecuador.

You start your research by obtaining some basic facts about the country. Its name is Spanish for “Equator,” obviously derived from the fact that it is located on the equator. Its capital, Quito, is 9,300 feet above sea level; it has fairly constant year-around temperatures of 75° (high) and 55° (low).

Ecuador’s population is 16 million, or 138.4 people per square mile. Sixty-six percent live in urban areas. Spanish is the official language and 95 percent of its people are Catholics. Its land mass is about 109,000 square miles.

Major industries in Ecuador include oil, food processing, textiles, wood products, and chemicals. Its chief crops are bananas, coffee, cocoa, rice, potatoes, manioc, plantains, and sugar cane. Its GDP was $158 billion in 2013, with a per capita GDP of $11,000. Its currency is the U.S. dollar. Twenty-eight percent of its imports come from the United States; 37 percent of its exports go to that nation.

Your boss wants you to develop a cultural map of Ecuador so that your firm can include this in its prospectus to potential clients. You begin by noting that its official language is Spanish and 95 percent of its people are practicing Catholics.

Questi O ns:

1. What sources about Ecuador should you consult to obtain cultural information about this country that will need to be included in your cultural map? 2. What other aspects of Ecuadorian culture, other than its predominant religion and language, might affect that country’s culture?

Should You Defend Your Country from Criticism of Its Culture Even Though It May Cost Your Company a Major Sale?

POInt COUntERPOInt

You are about to close a major sale in a foreign market when, suddenly, the individual who will make the final decision lashes out with a diatribe against the culture of the United States. Music, art, abortions, and pornography are specifically named.

POINT Upholding one’s country and its culture should take precedence over the possibility of making a sale— even a large and important one. You should vigorously defend the United States, indicating that while there may be some aspects of the U.S. culture that deserve censure, on the whole, it has a rich culture, one that has developed because the freedom to make choices exists. You should also counterattack by pointing out that the host country’s culture has its faults. COUntERPOInt Everyone is entitled to his or her own opinion, so you should not object to the potential customer’s criticism of U.S. culture. In fact, you should agree with what is being said and give some additional examples to support the criticisms. Why jeopardize a major sale over something as trivial as what a foreigner thinks about the United States?

What Do You Think?

Which argument do you believe is the most valid? Why? Is there a diplomatic middle ground?

inTerpreTing global buSineSS newS

Financial news is everywhere in the popular press and media. How do you interpret the following examples of financial news related to the concepts in this chapter? 1) France has a central office for the fight against traffic in cultural goods. Why is this office needed?25

2) Critics have charged that the economic and financial problems experienced by the

United States in 2008–2010 were largely caused by a government belief that every

American should be able to own a home. Is this belief culturally compatible with what exists in other countries?

3) Swiss banks, like UBS and Credit Suisse, have a culture of secrecy for their depositors, and this culture has been supported by Swiss government policy. What problems has this policy caused for the banks and their depositors, especially

American ones?

porTfolio projeCTS

Explore your own Case in point: How your Company manages foreign Cultures

After reading this chapter, you should be prepared to answer some basic questions about your favorite company. 1) Examine the countries where your company does business according to where they rank on the Hofstede cultural dimensions. Think of some examples of how a U.S. manager would need to modify his or her behavior when communicating with associates from one or more of these foreign countries. 2) If you were visiting a foreign country to negotiate a transaction on behalf of this company, what cultural knowledge would you need to gain before the visit? How and from where would you get the information? 3) If a representative from a foreign country, where your company does not currently conduct business, contacted you with a proposal, how would you evaluate the proposal in light of cultural characteristics of that country?

develop an International strategy for your own small Business: Exporting Cookies to Europe You have worked hard to achieve success in your baked goods company. So far, you have marketed your products only to U.S. and Canadian markets. Your marketing specialist has decided that the company needs to explore the possibility of exporting to Europe. You need to prepare a preliminary assessment of the cultural aspects of the European market that must be considered if the company moves forward with this exporting strategy. 1) What major aspects of culture should you consider in your assessment? 2) Do these aspects need to be identified with specific countries or regions in Europe? 3) Do you expect that the cultural landscape affecting the consumption and sale of cookies will be the same or different than what prevails in the United States?

ChapTer noTeS

1 V. Terpstra, R. Sarathy, and L. Russow, International Marketing (Cleveland, Ohio: North Coast Publishers, 2006). 2 R. Hise, R. Solano-Mendez, and L. Gresham, “Doing Business in Mexico,” Thunderbird International Review, March–April 2003, pp. 211–224. 3 M. R. Czinkota and I. A. Ronkainen, International Marketing (Mason, Ohio: South-Western, Cengage Learning, 2013). 4 Kristen Schewizer and Selean Hacaoglu, “A Sobering Future For Liquor Makers in Turkey,” Business Week, June 24–30, 2013, p. 26. 5 V. Terpstra, R. Sarathy, and L. Russow, International Marketing (Cleveland, Ohio: North Coast Publishers, 2006). 6 Ibid. 7 Barbara Wilson, presentation to Texas A&M University Study Abroad Class, Nice, France, May 2006. 8 J. K. Johansson, Global Marketing (New York: McGraw-Hill, 2003). 9 Special Issue on GLOBE, Journal of World Business, 37 (2002), pp. 1–89. 10 J. K. Johansson, Global Marketing (New York: McGraw-Hill, 2003). 11 The authors thank Jong-Kuk Shin, Pusan National University, and Young-Tae Choi, University of North Florida, U.S.A. for the material in this section. 12 J. K. Johansson, Global Marketing (New York: McGraw-Hill, 2003). 13 World Almanac, 2015 (New York: World Almanac Books, 2015). 14 F. Balfour and D. Kiley, “Ad Agencies Unchained,” Business Week, April 25, 2005, pp. 50–51.

15 P. Gumbel, “Big Mac’s Local Flavor,” Fortune, May 5, 2008, pp. 115–121. 16 M. Bahree, “Microsoft in India,” Forbes, September 29, 2008, pp. 74–77. 17 “A Special Report on Globalization,” The Economist, September 20, 2008, pp. 8–10. 18 Ibid. 19 D. Welch, D. Kiley, and M. Ihlwan, “My Way or the Highway at Hyundai,” Business Week, March 17, 2008, pp. 48–51. 20 J. K. Johansson, Global Marketing (New York: McGraw-Hill, 2003). 21 F. Balfour and D. Kiley, “Ad Agencies Unchained,” pp. 50–51. 22 P. Gumbel, “Big Mac’s Local Flavor, pp. 115–121. 23 J. Hookway, “IKEA’s Products Make Shopper’s Blush in Thailand,” Wall Street Journal, June 5, 2012, pp , A1, A16. 24 F. Balfour and D. Kiley, “Ad Agencies Unchained,” pp. 50–51. 25 Financial Times, May 21, 2010.

Ch 6

The Legal and Political Environment of Global Business

Hannibal Hanschke/Reuters © C Miller Design/Getty Images

After studying this chapter, you should be able to:

LO-1 Provide an overview of the different global political systems and their potential impact on international business.

LO-2 Explain the differences between communism, capitalism, and socialism and how these different economic ideologies affect the conduct of international business.

LO-3 Discuss the key political and economic risks and the role of corruption in conducting global business.

LO-4 Analyze the different types of legal systems and some key principles involving criminal, contract, tax, product safety, and dispute settlement law.

LO-5 Discuss the importance of intellectual property protections in today’s global business environment and the major types of intellectual property protections including patents, trademarks, and copyrights.

Cultural Perspective

Penalties That Fit the Crime

Oh, no—you’ve been caught speeding! You were driving about 80 miles per hour in a 60-mile-per-hour speed zone, and a police officer pulls you over and writes up a ticket. The ticket is for $103,000—yes, that’s one hundred and three thousand dollars!

Welcome to Finland! In Finland, traffic fines are generally based on two factors: the driver’s income and the severity of the offense. If a college student with a very low income is caught speeding, he or she will pay a minimal fine (maybe around $100), but if the speeding driver is the CEO of Nokia Corporation earning over, say, $30 million per year, the fine for the same offense may well be over $100,000.

Until 1999, offenders were on the “honor system” to accurately report their income, but since then all tax records have gone online as public records. The police can instantly punch in a speeder’s identification on their patrol car computer, get the driver’s reported income, and compute the accurate speeding fine.

Finland and some other Scandinavian countries have progressive (income linked) systems of fines for a wide range of civil and criminal offenses, including securities laws violations and shoplifting. The idea is that fixed money fines have a disproportionate impact on the less wealthy and fail to be an adequate deterrent on those with very high incomes. For example, is an $80 speeding ticket truly going to deter a CEO making $30 million a year from speeding? But once a wealthy executive has gotten a $100,000 speeding ticket, might he or she drive a little more carefully in the future?1

LO-1

Provide an overview of the different global political systems and their potential impact on international business.

democracy

Greek for “rule by the people”; form of government in which all citizens have a right to vote

Athenian democracy

the purest form of democracy, in which all adult citizens vote directly on matters affecting the community

representative democracy

form of government in which citizens vote to elect given individuals to serve as their representatives for a certain period of time

totalitarian government

system of government in which individuals govern without the support or consent of the citizenry; for example, a military dictatorship

Introduction

As the example of traffic fines in Finland demonstrates, different countries throughout the world have different legal and political systems. The Scandinavian progressive penalty system metes out punishment according to the offender’s financial resources. More typically, various kinds of laws are stricter in some countries and more lax in others. What might be a heavily punished crime in one country may be a very lightly punished crime in another one or perhaps not even a crime at all. Some countries, for example, like Switzerland, have traditionally put considerable legal weight on corporate and individual privacy rights, while other countries (like Finland) have regulations requiring personal information to be publicly available.

Doing business in some countries is fraught with legal and political risks. The recent fall of governing regimes that had been in power for decades in countries like Egypt and Libya illustrates this point. Widespread corruption and even governmental expropriation of assets frequently occur in some countries, notably in the developing world; while the legal and political situation in other nations is very stable. The goal of this chapter is to provide an overview of political and legal environments throughout the world and how such environments affect the conduct of global business.

6-1 Political Systems

Different countries throughout the world have different political systems. The country of Finland, which we discussed earlier, is a democracy. Democracy is Greek for “rule by the people”; it refers to a form of government in which all citizens have a right to vote. In the United States, for example, all citizens over the age of eighteen are eligible to vote for the election of the president of the United States, and the president is elected for a four-year term in office, with a limit of two consecutive terms. The purest form of democracy existed in the city-states of ancient Greece, such as Athens, and is known as Athenian democracy. Developed around 500 BCE, the Athenian system provided for all adult male non-slave citizens of Athens to assemble periodically and vote on matters affecting the community.

Over time, as cities (and certainly nations) throughout the world have grown much larger, virtually all democracies today are what are known as representative democracies. Given the virtual impossibility of gathering all citizens together to vote on matters, democratic nations developed a system of electing representatives, such as members of the U.S. Congress, members of given state legislatures, state governors, and, of course, the president of the United States to serve as their representatives in conducting the affairs of state. Elections in representative democracies are always secret ballot in nature, with legal protection afforded to citizens’ rights to freedom of speech and expression. By definition, democracies are to some extent unstable, since elections are held at periodic intervals at which time new representatives of the people are elected and come into political power.

Some countries with strong representative democracies, such as Great Britain, Japan, Spain, South Korea, and Norway, also have ceremonial monarchs (kings and queens) that serve as permanent heads of state but have no real political power. Monarchs of this kind help provide a degree of stability to the overall political system. Countries following this kind of model are, of course, not pure representative democracies; they are referred to as constitutional monarchies.

At the opposite end of the spectrum from democracies are totalitarian countries. Totalitarian government is a system in which individuals govern without the support or consent of the citizenry. A country run by a military dictatorship, for example, would

represent a totalitarian regime. Another example are the dictatorships that prevailed in Eastern Europe during the Cold War. Other countries are essentially theocratically totalitarian in nature, meaning that nonelected religious leaders have political control of the country. Can you think of any such countries? Another totalitarian variant is the absolute monarchy, where the king or queen holds political power; these are rare but still exist today.

In between the extremes of democracy and totalitarianism are governments in countries like today’s China where, as discussed below, party rulers share some rights with citizens. It should be noted, though, that the openness of democratic countries, like Finland, and the protections such countries tend to generally provide for property rights and freedom of expression usually make them more hospitable places to conduct global business than countries with totalitarian or semi-totalitarian political regimes. That said, this is not always the case, particularly where such regimes take a strong probusiness approach. For example, while property and other rights in totalitarian countries are completely under the control of the ruling regime, the political systems in such countries may actually be more “stable” than in democratic countries because a dictator in such a country may be in power for many decades. For example, the House of Saud family has had a king with strong political power firmly ruling Saudi Arabia’s probusiness economy since 1931. As another example, Singapore has historically had a highly pro-business political system in a parliamentary model context, with one ruling party, in power since 1959. The stability of that system has enabled international business to flourish in Singapore. It is important to remember that power and regulations inherently change periodically even in democratic regimes, and they sometimes change in ways that are not favorable to business.

Reality Che C k lO-1

Have you ever lived in a country that is not a representative democracy? If not, find someone who has and talk to them about their experiences.

Asia File/Alamy

Singapore has had a highly pro-business political system. Tharman Shanmugaratnam is Singapore’s deputy prime minister as well as the chairman of the International Monetary and Financial Committee, the policy advisory committee of the IMF.