Chapter 3 Outline

Introduction

International business is different because countries are different. In Chapter 2 we saw how national differences in political, economic, and legal systems influence the benefits, costs, and risks associated with doing business in different countries. In this chapter, we will explore how differences in culture across and within countries can affect international business. Two themes run through this chapter.

The first theme is that business success in a variety of countries requires cross-cultural literacy. By cross-cultural literacy, we mean an understanding of how cultural differences across and within nations can affect the way in which business is practiced. In these days of global communications, rapid transportation, and global markets, when the era of the global village seems just around the corner, it is easy to forget just how different various cultures really are. Underneath the veneer of modernism, deep cultural differences often remain. Westerners in general, and Americans in particular, are quick to conclude that because people from other parts of the world also wear blue jeans, listen to Western popular music, eat at McDonald's, and drink Coca-Cola, they also accept the basic tenets of Western (or American) culture. But this is not true. Many of the "Islamic militants" that invaded the American Embassy in Iran after the Iranian revolution that ousted the pro-Western Shah of Iran wore blue jeans, but they certainly showed no love of American values.

Japan is a case in point. The Japanese have embraced the products of modern society, but as the opening case demonstrates, the country's long-standing cultural traditions continue to have an important impact on many aspects of Japanese life, including the organization and management principles of enterprises such as Mazda. However, the opening case also illustrates that a sophisticated manager who is willing to work within the constraints of traditional values can change some of those management principles. Despite his lack of Japanese-language skills, Henry Wallace has displayed a sensitivity for important, culturally grounded institutions in Japan, such as lifetime employment and reciprocal relationships with suppliers. A less sophisticated Western manager might have pushed for large-scale "American-style" layoffs or cut local suppliers to source components from lower-cost Asian countries. Such actions might have provoked a counterproductive backlash. Wallace seems to have understood the importance of honoring traditional commitments. At the same time, he has used his position as a foreigner to push for some important changes. He appears to be changing the consensus-based decision making within Mazda, and he has been able to cross some barriers that a native-born Japanese might find difficult, such as the barrier between management and labor. Wallace illustrates how cross-cultural literacy can be a valuable asset in a foreign country.

A second theme of this chapter is that a relationship may exist between culture and the costs of doing business in a country or region. The culture of some countries (or regions) is supportive of the capitalist mode of production and lowers the costs of doing business there. Cultural factors can help firms based in such countries achieve a competitive advantage in the world economy. For example, some observers have argued that cultural factors have lowered the costs of doing business in Japan,¹ giving some Japanese businesses a competitive advantage in the world economy. By the same token, cultural factors can sometimes raise the costs of doing business. Historically a culture that emphasized class conflict, British firms found it difficult to achieve cooperation between management and labor. Such conflict has been reflected in a high level of industrial disputes, and this raised the costs of doing business in Britain relative to the costs in countries such as Switzerland, Norway, Germany, or Japan, where class conflict was historically less prevalent.