1

Chapter 11

Cross-CulturalManagement

2

Basic AssumptionsMeaning

Behaviour

Values, BeliefsPreferences

Invisible, unconscious, taken for grantedExample: “Time is limited", "All men are equal"

Explicit, Declared, Example: “Time is Money”,

Authority has to prevail

Observable, ManifestE.g. Looking at your watch,

banging on the table

Source: André Laurent

The various dimensions of culture

3

The different sources of culture in business

CORPORATECOMPANYCULTURE

PROFESSIONALINDUSTRYCULTURE

NATIONALETHNIC

CULTURE

• History of the company (accumulated experiences: good and bad)• Leadership and dominant coalition• Ownership• Stage of development• Business diversity

• Functional orientation:MarketingFinanceEngineeringR and D

• Industry norms:TechnologyChangeKey success factorsTypes of customers

• Country history• Education• Social organisation• Religion, philosophy

4

Anthropological and sociological cultural research relevant for business

HOFSTEDE’s STUDY:Four dimensions:

Power distance/IndividualismUncertainty avoidance /Masculinity-feminity

ANDRÉ LAURENT’s STUDIES:Management and organisational principles

TROMPENAARS’ STUDIES:Value Orientation

RONEN and SHENKAR’s STUDIES:Country Clusters

HALL and HALL’s STUDY: Silent Language

REDDING and WITTBusiness system

5

Silent LanguagePerception of Time

Perception of Space

Language of Material Goods

Friendship

Agreement/Disagreement

Context

SequentialScarce

PunctualityDeadline

E.g.: German

DelaysPostponmentE.g.: Arabic

CircularFluid

Abundant

HighDistance

Avoid physicalemotionalproximity

E.g.: British

LowDistance

Physical contactshowing emotionE.g.: Latin

Financialwealth

gives statusE.g.: USA

Materialistic Non-materialistic

Educationfamily

senioritygives status

E.g.: Malaysia

Quickand superficial

Operationalfactual

relationshipE.g: USA

Longand deep E.g.: Japan

ExplicitDocumented

Westernlegailisticcountries

ImplicitVerbal

Asiancountries

The personmatters more

than the content

The contentmatters more

than the personAnglo-Saxon

GermanicNordic

African,AsianLatin American

countries

Source: Adapted from Hall(1960)

6

INDIVIDUALISM

100806040200

POW

ER D

ISTA

NC

E

100

80

60

40

20

0

Anglo-Saxon/ScandinavianEqalitarian/Individualists

Latin EuropeanHierarchical/Individualists

Asian/Latin AmericanHierarchical/Collectivists

Hofstede: Mapping of cultures on power distance and individualism

Source adapted from :Hofstede, 1980

7

10 17 1823

27

3844 46

53

6673

7778

0

10

20

30

40

50

60

70

80

90

100

S NL USA DK UK CH B D F I INDO SPAIN JAPAN

“It is important for a manager to have at hand precise answers to most of the questions that subordinates may raise about their work”

André Laurent/INSEAD

Percent agreement rate across countries

Laurent’s studies on management values

8

The main reason for having a hierarchical structure is so that everybody knows who has authority over whom

83

7050

43

42

34

34

3130

2617

0 20 40 60 80 100

INDONESIA

CHINA

JAPAN

FRANCE

ITALY

SPAIN

UK

NL

SWEDEN

GERMANY

USA

André Laurent/INSEAD

Laurent’s studies on management values

Percent agreement rate across countries

9

74

5956

5145

4443

3635

3226

0 20 40 60 80

SPAIN

CHINA

ITALY

INDONESIA

GERMANY

NL

FRANCE

JAPAN

UK

USA

SWEDEN

In order to have efficient work relationships, it is often necessary to bypass the hierarchical line.(Q. 2)

Source: Andre Laurent

Percent disagreement rate across countries

Laurent’s studies on management values

10

Ronen and Shenkar Country Clusters

Source: Ronen and Shenkar, 1985

11

Trompenaar’s Five Value Orientations

VALUE ORIENTATION

EXAMPLES

1 UNIVERSALISM : vs.

PARTICULARISM :

Rules -based behaviour Relationship -based behaviour

Germanic countries Asian countries

2. INDIVIDUALISM : vs.

COLLECTIVISM :

Individual's rights are supreme Group's rights are supreme

Western countries Asian countries

3. NEUTRAL : vs.

AFFECTIVE :

Emotions are subdued and expressed indirectly Emotions are expressed freely and directly

Asian countries Western countries

4. DIFFUSE : vs.

SPECIFIC :

Focus is on context of situation Focus is on specific issues

Asian countries Germanic countries

5. ACHIEVEMENT : vs.

ASCRIPTION :

Status and respect are achieved by 'doing' Status and respect are ascribed by 'being'

Western countries Asian countries

12

What is a business system?

Modes of coordination and control of economic action, firms and management

12

• Ownership:• Predominant form of ownership• Governance mechanisms• Span of sectors and integration of production chains

• Networks: • How do firms connect to each others?• How do firms collaborate?

• Management:• How are decisions made?• How much is delegated to employees?

Sources: *Gordon, Redding, The Thick Description and Comparison of Societal Systems of Capitalism, Journal of International Business Studies, (2005)

* Michael Witt and Gordon Redding, China's Business System and its Future Trajectory,

Asia Pacific Journal of Management, January 2009

1313

The architecture of a business system?

BUSINESS SYTEMOwnership Networks Management

BUSINESS ENVIRONMENTCapital Human Capital Social Capital

Role of the State

CULTURERationale Identity Authority

Source: Redding and Witt

1414

The institutions and constraints that shape the conditions under which business operates:

Business environment

• Capital:• Financing of firms (Market, Banks, Informal)• Rules of capital allocation• Patience of capital

• Human Capital: • Structure and Quality of Education • Employment policies• Presence and role of trade unions

• Social capital:• Degree of trust in institutions and individual relationships

• Role of the State• Interventionism and mechanisms of intervention

Source: Redding and Witt

1515

Values and norms that form the base of society

Culture

• Rationale:• Goal of business• Appropriate means to achieve goals

• Identity : • Individualism vs Group• If group what is the reference group? (family, clans,

company…)

• Authority:• What determines hierarchy in society ? ( wealth, religion,

cast…)Source: Redding and Witt

16

Anglo/American German and Nordic

European

French and Latin

European

Japan Korea Overseas Chinese

Rationale The societal ends are agreed as well as the means of pursuing them

Material success

Democratic process

Rational system

Rules-led competition

Community

Democratic

Consensus-led co-operation

Democratic

Negotiation-led conflict resolution

Employ people

Democratic

Consensus-led national

Growth

Autocratic

National

Militaristic

Wealth for Family

Autocratic

Familistic

Authority The ground rules for vertical order

Origin of power

Constitution

Law decentralisation

Law decentralisation

State

Law centralisation

State

Corporations

Decentralisation

State

Corporations

Centralisation

Family centralisation

Identity The ground rules for horizontal order

(What makes society stick together)

Individual rights contracts

Heterogeneity (microcultures)

Social welfare

Homogeneity

Social welfare

Cultural identity

Heterogeneity (microcultures)

National belonging

Cultural identity

Homogeneity

Nationalism

Cultural identity

Homogeneity

Clans

Ethnic bonding

Differences in economic cultures

Sources: Albert (1991); Berger and Dore (1996); Whitley (1999); Trompenaars (2000); Hampden-Turner and Redding (2001).

17

Sources: Albert (1991); Berger and Dore (1996); Whitley (1999); Trompenaars (2000); Hampden-Turner and Redding (2001).

Capital How financial capital is found and channelled

Financial markets

Low gearing

Banks

Medium gearing

State and market

Medium gearing

Banks

High gearing

State

High gearing

Family

High gearing

Human capital How human skills are developed Academic

performance-ledAcademic and apprenticeship

Academic elitist Academic plus on-the-job elitist

Academic elitist Academic plus on-the-job elitist

Social capital How trust is created High-trust contracts

Legal institutions

High-trust contracts Low-trust

Negotiation

High trust within groups

High trust within groups, low outside

High trust within family, low outside

Ownership Who owns enterprises Shareholders Banks, employees

Shareholders

State, shareholders Banks

Cross-shareholding

Business groups

Cross-shareholdings

Family groups

Networking How economic agents relate to each other

(The rules of business transactions)

Contracts Contracts

Some elitist relationships

Elitist relationships

State interventionism

Elitist relationships Personal relationships

State intervention

Personal Relationships

Managing How employees are induced to co-operate in the firm

System-led

Motivation

Performance measures

Hierarchical

Technical competence

Hierarchical bureaucracy

Negotiation

Corporate identity

Corporate loyalty

Hierarchical

Corporate loyalty

Hierarchical

Family Loyalty

Anglo/ American

German and Nordic

European

French and Latin

European

Japan Korea Overseas Chinese

Differences in economic cultures

18

The impact of international cultural differences for management

• MULTICULTURAL TEAMS- “Expatriates” vs. “Locals”- Group building/working/relationships/- Conflict resolutions

• PARNERSHIPS/TRANSACTIONS- Contracts negotiations- Joint ventures/Partnerships- Official meetings- Community events/Social events

• INTERPERSONAL RELATIONSHIPS- Communication- Etiquette- Decoding attitudes and

behaviour- Understanding “silent” language

• HIERARCHICAL /MANAGERIAL INTERACTIONS

(Boss/Colleagues/Subordinates)- Feedback- Control- Reward/Punishments- Personal space-Motivations

19

Multicultural vs. Mono-cultural teams

MULTICULTURAL TEAMS

PERFORMANCE

MONO-CULTURAL TEAMS

LOW HIGH

DISASTER SYNERGY

Source: André Laurent/INSEAD

20

Major obstacles to performance in multi-cultural situations (1)

• Discussion of differences perceived as uncomfortable,inappropriate, threatening or illegitimate.

• Assumption of similarity/homogeneity.

• Cultural diversity is denied, lost as a potential resourceand transformed into a significant handicap.

• Richness of diversity lost on the way.Source: André Laurent/INSEAD

21

• The gap between pretended similarity and inner convictionof actual difference widens and creates uncomfortablesituations.

• Cautious behavior and unproductive costly politeness emergeas coping mechanisms to handle the situation.

• This leads to low risk taking, avoidance of confrontation and achievement of the smallest common denominator.

Source: André Laurent/INSEAD

Major obstacles to performance in multi-cultural situations (2)

22

• Western individualism.

• Fear of stereotyping

• Parochial mindset (only one way of thinking/acting).

• Ethnocentric mindset (the best way of thinking/acting).

• Blindness to one’s own cultural conditioning.

Major obstacles to performance in multi-cultural situations (3)

Source: André Laurent/INSEAD

23

Major obstacles to performance in multi-cultural situations (4)

• Perception of the other culture as unfortunate deviationfrom the norm.

• If diversity is neither recognized, understood, acknowledgednor discussable, how could it possibly be appreciated, valued and utilized?

• Cultural diversity then re-enters as a handicap likely tolead to failure. Any synergy between cultures becomesinaccessible.

Source: André Laurent/INSEAD

24

Negotiation Framework

SELLER

BUYERBargainingRange Given

• Calculated Value

• ConstraintsSellers’s Walk Awayprice

Buyer’s Walk Away Price

Opening offer

Opening offer

Uncertainty range

Uncertainty range

Given• Calculated

Value• Constraints

25

Preparation

Negotiation Rounds

Closing

Negotiation Process

26

Preparation• Constitution of negotiation team• Role assignment• Set your objectives: What exactly do you want to buy?• Set your constraints• Calculate:

Valuation of:Stand aloneHypothesis on synergiesWalk Away price

List Buyer‘s Objectives/constraintsInternal/external

Hypothesis onBuyer’s Walk Away price

Valuation of:Stand aloneSynergiesWalk Away price

List Seller’s Objectives/constraintsInternal/external

Hypothesis onSeller’s Walk Away price

SellerBuyer

Determine bargaining range

27

Negotiation Team

Business Development ExecutivesFinancesLegalOperational input Advisors

28

First RoundFirst OffersExplain the logic of the offer

Second RoundCounter offers Explain the logic of the offersArguments

In between:

In between

Third Round++ Reaching agreement

Negotiation Process

ClosingTechnicalities of the dealLegal procedureSigning agreement

Recalculation and revision: Unofficial discussions

Recalculation and revision: Unofficial discussions

29

Salacuse (2005) and Brett (2001)

COMMUNICATION

Negotiation Attributes

One Leader

Risk Taking

INFLUENCING

RISK TAKING

TEAM ORGANISATION

FLOW PROCESS

FORM OF AGREEMENT

EMOTIONSTIME

STYLE

ATTITUDE

GOAL

INFLUENCING

RISK TAKING

TEAM ORGANISATION

FLOW PROCESS

FORM OF AGREEMENT

EMOTIONSTIME

COMMUNICATION

STYLE

ATTITUDE

GOAL

Examples of culturesFollowing this style

Examples of culturesFollowing this styleFollowing this style

ContractWin-Lose

FormalDirect

Strict

Specific

Hidden

Deductive

Direct

ContractWin-Lose

FormalDirect

Strict

Specific

Hidden

Deductive

One Leader

DirectRisk Taking

Informal

Indirect

Win-WinRelationship

Indirect

Flexible

Expressed

General

Inductive

Consensus

Risk adverse

Informal

Indirect

Win-WinRelationship

Indirect

Flexible

Expressed

General

Inductive

Consensus

Risk adverse

US, UK, French

US, German

Asian

US, Germany

Japan

US, German

US, French

Chinese

French

US

Western Europe,North America

US, UK, French

US, German

Asian

US, Germany

Japan

US, German

US, French

Chinese

French

US

Western Europe,North America

US

Japanese

Asian, Arabic

Asian, Arabic

Asian

Japanese

Japanese

Latin

Arabic, Chinese, Latin

Asian, Arabic

Japanese

US

Japanese

Asian, Arabic

Asian, Arabic

Asian

Japanese

Japanese

Latin

Arabic, Chinese, Latin

Asian, Arabic

Japanese

Negotiation Styles

30

Negotiation Styles: American vs JapaneseNegotiation Parameters

Typical American Typical Japanese

Attitude toward silence during negotiations

Strongly averse; uncomfortable; “fill the void”

Essential: for decorum; and for non-verbal communication and empathy (haragei)

Reaction to cross-cultural signals

Unaware; or consider it unimportant

Aware indifference

Attitude toward sequential bargaining and negotiating progress

Strongly attracted to both Unimportant

Attitude toward sharing information

Open; willing Collect it avidly, but do not give it out

Attitude toward closure Essential for a successful negotiation; results-oriented, not process-oriented

Not necessary or even important; take the long view

Form of the contract Long; detailed; covering all foreseeable contingencies

Prefer very short; and limited to general principles and affirmations

Commitment to the contract

Total binding Weak; the relationship is what counts, not the document; and inevitable changing conditions will necessitate later amendments

Source : Sunshine, 1990

31

Basic approach to business in general

Transactional; profit-oriented; detail-conscious; legalistic

Structured; strategic; starting from trust

Central purpose of the negotiation

Reaching agreement on a contract Launching a long-term relationship

Selection criteria for negotiator(s) Verbally articulate generalists; technical competence; “rational abilities”

Rank; position; “social competence”

Appropriate number of negotiators

Few Many: in order to demonstrate seriousness and for functional coverage, including learning.

Appropriate role(s) of lawyers(s) Key participant: leader, contract advisor, and/or draftsperson

None: seen as adversarial troublemakers.

Attitude toward decision-making process, and appropriate degree of delegation of authority to negotiators

Top-down decision-making; very high degree of delegation of authority

Consensual, middle-up decision-making (ringi seido); little or no authority delegated to negotiators

Appropriate tone for negotiation and communication

Direct; informal; familiar; egalitarian; candid

Highly indirect; highly formal; hierarchical; reserved

Negotiators’ interest in personal feelings and values of counterparts

Little or none; irrelevant or improper; logic more important than emotions; issues more important than personalities

Acute; personal rapport essential to establish trust (ningen kankei)

Appropriateness of socializing with counterparts

Inappropriate; unacceptable; risks conflict of interest and loss of personal control

Highly appropriate; and traditional release; also, ritualised gift-giving

Attitude toward time during negotiations

Acutely time-conscious; “time is money”; impatient

Patience is the key

Source : Sunshine, 1990

Negotiation Styles: American vs JapaneseNegotiation Parameters Typical American Typical Japanese

Source : Sunshine, 1990

32

Chinese business negotiating style

Source: Tony Fang, 1997

33

ETIQUETTE

Addressing

How to name the other person

In Malaysia nobility titles are the proper way to address (Encik, Tan, etc..)

In France people are addressed by their title (Monsieur le Directeur)

In the USA first name is normal In Japan, the exchange of business cards is critical

Gesturing

How to position oneself and how to

use body language

Showing the soles of one’s feet is offensive to Arabs Shaking the left hand is not proper in Muslim countries Finger pointing is considered as highly threatening and

impolite in Asia Dressing Dress code Malaysian businessmen use jacket and ties while in

Singapore long sleeves shirts is normal business attire

Eating Importance of meals in business

dealing. Behaviour at the table

French business transactions usually take place at a lunch or dinner table

Chinese banquets and sometimes drinking punctuate deals

Timing How to control time Signs of impatience are considered as improper in many cultures

Lengthy preliminaries are usual in the Middle East Talking Importance of verbal communication Silent pauses are the norms in Chinese or Japanese

Differences in business practices: Examples

34

RELATIONS

Engaging

Importance given to establishing personal relationships in business transactions

Most Asian countries privilege the personalisation of contacts before engaging in business transactions

Contracting

Importance given to overall agreements on principles versus details

Legal contracting is the norm in the USA while broad agreements are considered satisfactory in Japan

COMPETING

Advantages

Product’s technology versus connections as a source of competitive advantage

In China, connections (Guanxi) are still a very important factor of competitive advantage

Supplying

Preferences given to friends and families in supplies contracts

In Asia the notion of “extended families” implies that preferential treatment be given to families and friends for supplier contracts.

Differences in business practices: Examples